A flattening credit curve is leading to greater demand for mezzanine debt among commercial real estate borrowers. “When the credit curve is steep, each incremental dollar of debt is expensive. When it is flat—and it has flattened quite a bit—there will be even more pressure among borrowers to put leverage on,” said a lender at an insurance company.

The last time credit curve saw substantial flattening was in 2006-2007, when BBB-rated CMBS were in the range of swaps plus 85, and AAA-rated, super-senior bonds were trading at....

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