by Calculated Risk on 6/01/2007 09:56:00 PM

From the WSJ: Skyscraper Prices Might Start Returning to Earth

... lenders have become worried that prices have gotten so high that buyers wouldn't be able to raise rents high enough to pay off their loans. In response, the interest rates that buyers have to pay have risen, and banks have demanded that buyers put up bigger portions of the purchase price.

The following sounds familiar ...

At the root of the buying frenzy was a change in the way investors viewed real estate. In the past, buying a building was like buying a bond -- you were purchasing a stream of income for years to come. ... More recently, investors started treating buildings like stocks, betting that they could sell them later at significantly higher prices. Loans were being underwritten based on predictions of future cash flow.

"It used to be people bought for the current rents, and the upside was a surprise," said Cedric Philipp Jr., managing director of Commercial Mortgage-Backed Securities Structured Finance Group for Moody's Investors Service. "Now, they are banking on the upside."