The havoc in the credit markets could reduce prices that office, industrial, apartment and shopping-center properties have commanded over the past few years.

The sale prices of assets are going to decrease, said Robert Horowitz, of Cooper-Horowitz Inc, which arranges financing. Prices are a reflection of what people can borrow. The buyers can't get the level of financing that they were able to obtain six months ago.

Additionally, commercial mortgage interest rates have gone up a minimum of half a percentage point, he said.

Because of the turmoil in credit markets that started in the residential mortgage sector, commercial mortgage lenders are charging higher interest rates and lending lower portions of the purchase price -- despite lower vacancy rates and higher rental rates.

During the past couple of years, cheap money and the demand for commercial real estate allowed buyers to finance their investments by borrowing as much as 95 percent of the purchases.

About 40 percent of those mortgages were from the start headed for the commercial mortgage-backed securities market, usually the cheapest way to borrow money.

In the commercial mortgage-backed securities process, fixed-rate senior mortgages are issued, sold and pooled to create a base on which sponsors issue the CMBS bonds. The pool sponsors, usually investment banks, make their money selling the bonds at a higher price than the price they pay for the mortgages.

However, because of the volatile credit markets, issuers have had a difficult time selling the bonds at the prices they had baked in when they bought the loans. The bond prices are based on a rate above the benchmark swap rate. The spread has been widening, driving down the bond prices.

The spread widening is because the investors are just not there, so you have to offer a higher spread to induce people to buy the paper, said Dennis Irvin, senior managing director of CIT Commercial Real Estate. It's not because suddenly you're seeing weakness in the office, retail or apartment sectors.

It's difficult to price the deal, said Wachovia senior analyst Brian Lancaster. Nobody wants to make a loan that they're going to lose money on. Better not to make any loan. You're not sure you can sell it.

Lancaster estimated that new loans in the CMBS pools have raised some borrowing costs 80 basis points to 180 basis points -- or as much as nearly 2 percentage points.

It also could delay projects by large players such as Brookfield Properties, experts said.

Still, deals are getting done.

Any bank that I'm aware that has a loan under application, the banks are fulfilling their obligations and closing the loans, Horowitz said. I think the banks are hesitant to issue new ones, and if they do they're not setting a price. They'll set a price a few days to closing so they don't misprice the deal.

But borrowers with good histories looking to finance strong deals can still get loans, experts said.

There is still capital available for well-underwritten deals, said William Rudin, president Rudin Management Co., a New York real estate dynasty.

We're being told there is capital but it's more expensive than it was two or three months ago. For some people the window is closed, said Rudin, whose firm also is the joint-venture partner in the Reuters Building in Times Square.

To make up for the amount the CMBS bank loans won't cover, borrowers are searching for other lenders in the business of making up the difference. Mezzanine financing as it is called, usually comes at a higher rate.

I've gotten five calls this morning on deals, each one of us getting 10 new calls a day, because people are saying you're not a CMBS lender, said Irvin, of CIT Commercial Real Estate, a unit of CIT Group Inc. CIT Commercial Real Estate plays in the mezzanine financing sector.

It's not a matter that deals are not getting done. It's that they're getting done in other shops, he said.

(See www.reutersrealestate.com for the new global service for real estate professionals from Reuters)

Investment Mortgage Wachovia