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Worries Over a Slowdown in Lending May Be Premature

Earlier this summer, when gas prices neared $5 per gallon and the United States was dealing with inflation worries, many commercial real estate experts predicted a slowdown in lending for the rest of 2022.

Now, two rates that are considered leading indicators for commercial real estate loan activity suggest that the forecast of a slowdown may not come to pass.

The spread between yields for the 10-year Treasury and BBB-rated corporate bonds has narrowed since late July. That bellwether spread suggests commercial real estate borrowers and lenders may be busier in late 2022 than they once thought, Raj Aidasani, senior director of research for the CRE Finance Council, told CoStar News.

“If the spread increases, that means the markets are generally more negative and risk-averse,” Aidasani said. “But if it narrows, as it has in recent weeks, it might indicate improving creditworthiness and overall credit conditions.”

The spread certainly increased in early summer, jumping over 215 basis points in mid-June. Since then, it has steadily inched downward and fell below 200 basis points in mid-August.

*Article courtesy of Costar

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