Rising interest rates pose challenges for CRE borrowers

Borrowing costs have been affected by the increase in interest rates and market volatility since the start of 2022, noted Brian Gould, managing director at Chatham Financial, in an interview with IREI.

“We’ve seen borrowing costs rise at an extraordinary pace over the last six months,” said Gould. “Whether you are a floating- or fixed-rate borrower, base rates have climbed by more than one full percentage point year-to-date. In addition to the base rate movement, we’ve seen loan spreads widen out, especially for CMBS and debt fund loans. When you put those two elements together, the rate movement upward has been the quickest we’ve seen in years.”

Gould noted the movement in loan spreads has been less pronounced for life insurance company or bank balance sheet lenders, compared to the CMBS and debt fund lenders. “Banks and life companies tend to be slower to change their spreads, especially for strong borrowers and lower-leverage loan requests,” said G