{"id":1004586342,"date":"2022-06-17T02:48:25","date_gmt":"2022-06-17T10:48:25","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004586342"},"modified":"2022-12-08T04:47:31","modified_gmt":"2022-12-08T12:47:31","slug":"market-turmoil-dampens-mood-at-crefc","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/market-turmoil-dampens-mood-at-crefc\/","title":{"rendered":"Market Turmoil Dampens Mood at CREFC"},"content":{"rendered":"
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Image by Gerd Altmann via Pixabay<\/p><\/div>\n

Commercial property transaction activity is set to tumble due to economic uncertainty and rising interest rates that have produced a sharp rise in mortgage rates, according to panelists at the CRE Finance Council<\/strong>\u2019s annual conference this week.<\/p>\n

The conference took place as turmoil roiled the financial markets. The Federal Reserve raised policy rates by 75 basis points, the biggest one-day jump in 28 years, in a bid to cool surging inflation. The consumer price index rose to 8.6 percent year-over-year in May, led by spiraling housing and energy costs.<\/p>\n

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READ ALSO:<\/strong> What Rising Interest Rates Mean for Net Lease Investors<\/a><\/p>\n

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After peaking at 36,585 in early January, the Dow Jones Industrial Index<\/strong> has dipped more than 20 percent and was under 30,000 this week. And more critically to commercial real estate, the 10-year Treasury yield has increased nearly 200 basis points and topped 3.40 percent this week, its highest level since January 2011.<\/p>\n

Although commercial property fundamentals remain healthy in most sectors, the worrisome economic news increases the likelihood of a recession in coming quarters and is likely to put the industry in a holding pattern. \u201cIt\u2019s been a while since we last discussed stagflation,\u201d said CREFC executive director Lisa Pendergast. \u201cNo doubt, rising rates will impact mortgage and cap rates negatively, and recession can have a deleterious effect on property-level cash flows.\u201d<\/p>\n

Weakening capital markets<\/h2>\n

The commercial real estate market started the year on a high note, as transaction volume and property values hit all-time highs in 2021, a trend that continued into the first quarter of 2022. But the persistent nature of inflation prompted a re-evaluation of the Fed\u2019s policy. Not only are rates rising but risk spreads are widening, as well.<\/p>\n

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For example, the spread of senior 10-year triple-A CMBS<\/strong> has increased by more than 80 basis points over the past year, with that class priced to yield 145 basis points over Treasuries in a deal issued this week. The combination of rising rates and higher-risk spreads has increased the cost of mortgage debt by 200 to 250 basis points since the beginning of the year. That creates ripple effects throughout the industry, including:<\/p>\n