Why some investors are slowing down on commercial deals

While investors and real estate experts had been expecting a new cycle for the beleaguered  commercial real estate market, rising borrowing costs in the last few weeks have caused some to put a pause on dealmaking, Bloomberg reports. 

“It started to feel like we were at the bottom and it was the turn of a new cycle, but the backup in Treasuries right now in the last week has put a pause on institutional real estate investors and investors as a whole,” says Madison Realty Capital co-founder Josh Zegen, whose firm manages $21 billion. “The fact that this has now put a pause on the market, or a reluctance to commit to new deals, is a challenge.”

Rates will need to stabilize and be in a tighter range before investors feel comfortable closing deals again, he says. In recent weeks, yields on U.S. 10-year Treasuries have increased as stronger-than-expected economic data cast doubt on how much more the Federal Reserve can cut rates.

“There’s still a perception rates will be coming down, but the question is, at what pace and how much?” Zegen says. “There’s a lot of uncertainty in the market and some are saying, ‘Why commit now? Am I being rewarded for being early in the cycle?’”

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