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Saturday, January 26, 2008

Commercial Mortgage Rates Surging Despite Fed's Efforts To Prevent Deteriorating Real Estate Market

January 26 2008
The cost of borrowing for apartment buildings, offices, retail properties and hotels climbed as much as 1.25 percentage points, while the yield on 10-year Treasury notes fell 1.43 percentage points in the past three months to the lowest since 2003 following four interest rate cuts. Bernanke's easing hasn't stopped the $3.2 trillion commercial market from starting a slide that mirrors the housing decline, where prices have dropped for the first time since the Great Depression. Delinquencies of securitized commercial mortgages may quadruple in the next 18 months to almost 4 percent, said Kenneth Rosen, an economist at University of California, Berkeley. A buyer could borrow $1 billion a year ago and expect to pay annual debt service of $58 million. Today that same mortgage would have an annual cost of $76 million. The average down payment lenders required rose to 23 percent of the purchase price in the fourth quarter, the highest in three years, from 19 percent in the second quarter, according to New York-based Merrill Lynch & Co.

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