by Calculated Risk on 6/15/2007 12:24:00 AM

From the WSJ: New Reality For Real Estate. This article is about Commercial Real Estate (CRE) (hat tip Sam).

[There is a] growing concern in the commercial real-estate world that higher interest rates are killing deals or causing prices to be renegotiated lower. ...

"Lenders are becoming a lot more careful about the borrower," says Phil Feder, a real-estate attorney at New York law firm Paul, Hastings, Janofsky & Walker LLP. "... I have seen approval for new loans slowing and it's generally becoming more difficult for real-estate funds and other investors to get financing for their projects."

The change in borrowing costs was triggered April 11, when Moody's Investors Service fired a warning flare about Commercial Mortgage Backed Securities, or pools of real-estate loans that are sold to investors as bonds. Moody's said lenders' underwriting standards had become too lax during the real-estate frenzy. That warning scared investors and forced bankers to raise yields on CMBS offerings to attract investors, sending shock waves through the real-estate lending world.

The situation got worse last week when Treasury bond yields, on which the loans are based, shot up.

"It's going to bring the price of real estate down," says Gary Mozer, principal with George Smith Partners, a Los Angeles-based commercial real-estate finance firm. The "meltdown" in the CMBS market, as Mr. Mozer calls it, has caused a "sea change" in the amount that real-estate investors can borrow.

An incipient CRE credit crunch?