Money’s getting cheaper, but the hurdles are getting higher when it comes to long-term real estate financing.

That’s the view of Michal Makar, a managing director at commercial mortgage banker L.J. Melody & Co., who said that the decline in spreads between benchmark 10-year Treasury notes and loan rates is unusual.

“I’m kind of surprised that interest spreads are falling,” said Makar, noting that a “common garden variety” good industrial project with a 75 percent loan-to-value ratio can expect long term rates of about 220 basis points above Treasury rates. He says the spread is even less for multifamily projects or projects with more borrower equity in them.

But the reduced cost of financing is being balanced by tougher lending standards.

“The countervailing trend,” says Makar, “is how tough the underwriting standards are going to be. The economy is worsening, and lenders are afraid of making mistakes.”

He cites two areas of special concern for the Seattle region.

The first is tenant creditworthiness and the large lease commitments coming back on the market in the wake of multiple high profile dot-com failures.

“So far we seem to be OK,” but Makar warns, “I’m not sure how many more waves of givebacks of space can be tolerated before it starts showing up.”

Now, says Makar, “The old economy companies are the preferred tenant type, companies that have shown a profit.” He says the biggest change in 2001 is that projects have to have “tenants that the lenders are comfortable with.” To address this concern Melody added a credit analyst to the Seattle office last fall.

The other major concern Makar sees is Microsoft. Consolidation of the company’s leased space could occur because of a federal antitrust action or the software maker’s own development activity. In October, Microsoft announced plans for an Issaquah campus that could accommodate nearly 3 million square feet at build out.

But despite these concerns, Makar still sees some overall market strength.

“There is a very good pipeline right now,” he says. And though he doesn’t see as many jumbo deals coming down the pike, “It looks very good.”

This coming off of 2000, which, says Makar, was “the best year we ever had in terms of financial volumes.” The Seattle and Portland offices did $600 million in long-term financing combined last year. Makar says a typical good year is “about $350 million.”

Recently, Melody added former Bank of America Senior Vice President John Peterson as a producer and manager in its Portland office.

Looking forward, Makar says, “We’re certainly not cutting back.” He expects business will “still be very profitable.” Though, he adds, “We may not have to work as many weekends.”