A new report from Moody's Analytics CRE signals an ominous inflection point for commercial real estate: nearly a third of new CMBS issuance was afflicted with negative leverage in the third quarter as interest rates surged.

According to Moody's, about $5.5B of CMBS—equivalent to about 28% of the mortgage-backed securities that were issued in Q3—were symptomatic of negative leverage in which the cost of debt is exceeding projected returns on investment, including projected rent increases.

This represents a huge spike from the 8% of negative leverage in CMBS detected in the second quarter and a quantum leap from the Q3 2021 level of 2%, Moody's reported.

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