LOS ANGELES-Treasuries and spreads gapped out, adding almost 1.5% to headline interest rates since the trough. Now spreads are tightening, but the new equilibrium is at a higher all-in rate. Are there consequences?

Interest Rates

Summer has so far proven to be a mercurial season for the real estate capital markets as capital costs fluctuate in response to macro-market indicators and the Fed Chairman's comments. The market initially overreacts to news and the pendulum swings too far; 10 year CMBS spreads for example spiked almost 50 basis points in a very short time period from a low in early May. But as the dust settles and lenders become comfortable with the “new normal” they slowly venture back into the market, where competition and pressure to transact is leading to a gradual return to tighter spreads as lenders fight to win business. All-in coupons will likely not return to the lows of early 2013 due to the increased Treasury Index that appears to be on a steady upward trajectory due to long-term macro-market conditions, however the premium CMBS lenders charge over this Index could return to early 2013 levels barring further market shocks.

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