After suddenly slamming shut a few months ago, the real estate lending spigot is reopening but at slightly higher interest rates than before.

“More lenders that moved to the sidelines are coming back,” said George Smith, chairman and chief executive of real estate financing firm George Smith Partners Inc.

The real estate world which has increasingly relied on Wall Street for financing was hit hard last August by turmoil in world bond markets. Jittery investors shied away from commercial mortgage-backed securities, or demanded higher returns on them. The securities, bonds backed by pools of commercial loans rated triple-A or lower, are viewed as relatively risky by investors who lately have preferred blue-chip investments.

The widening spread between yields on commercial mortgage-backed bonds and the benchmark 10-year Treasury notes meant some lenders could not turn a profit. A lender issuing commercial mortgage loans at 7 percent, for example, could then pool and securitize them as 5 percent bonds, making a 2 percent return. But when risk-averse investors demanded more than that 5 percent, the profits evaporated.

That caused lenders to slam shut their loan spigots, causing many real estate acquisition and development deals either to fall apart or be renegotiated at higher rates.

But now the situation is stabilizing, as spreads have narrowed by about half a percentage point. “The flight to quality is subsiding,” said James Shaw, managing director of Cohen Financial in downtown L.A.

Despite the gradual return, fewer deals are closing than a few months ago. Borrowers are adjusting to higher equity (down-payment) requirements and interest rates are at least three-quarters of a point higher than before. “Things are being re-priced. You’re not going to get loans as cheaply as 30 to 60 days ago,” said David Blenko, managing director of El Segundo-based Haverford Financial.

Shaw cautioned that fallout from the turmoil isn’t over.

“You still have huge hangover from deals originated from early summer to now. We’re just starting to work through that,” he said. “There’s still a huge inventory of loans originated that haven’t been securitized.”

Despite that “overhang” and the resultant higher rates, Blenko and Smith said rates are still attractive compared with historical levels. Rates for the best properties are around 7 percent, and for lesser-quality properties, they are in the high 7 percent to low 8 percent range.

“In any other lifetime, I would be thrilled to get a 7.5 percent loan,” said Marc Scott, a real estate investor from Pacific Palisades. “They’re not as low as they should be, but no one is getting gouged. It happens to be the market and I’ll live with it.”

Jeff Hudson, CEO of George Elkins Mortgage Banking Co., said that one way the conduit lenders those who securitize their loans are attempting to defend themselves is by raising the minimum interest rate they charge borrowers. But that rate increase is opening conduit lenders up to competition from mainstream banks, pension funds and life insurance companies, which charge similar fees.

But those other lenders are very selective, only issuing mortgages for the highest-quality deals, said Tim Macker, president of Westmac Commercial Brokerage Co.

“Those in that segment that were competing (with the conduit lenders) are becoming more careful. There’s more deliberation,” he said.

Even with those lenders entering the field and conduit lenders returning, there are still fewer lenders than in July, Shaw said. Notably, many mortgage real estate investment trusts went bankrupt or were sidelined.

Indeed, Scott said, the reduced number of lenders and resultant reduction in access to capital has been more of a problem than higher interest rates. “There’s still money; it’s just knowing where to go to,” Scott said. “It takes a couple of extra phone calls.”

Mark Weinstein, president and chief executive of MJW Investments in Santa Monica, said even with interest rates a little higher than a few months ago, he’s not stepping back as long as the acquisition opportunities are out there. Weinstein said he currently has offers out to buy $50 million worth of retail projects.

“The higher interest rate has reduced my cash-on-cash return, but it’s still a good deal,” Weinstein said. “They have to be priced right. The interest rate is one factor, but not the only.”

While the lending environment may be tougher than a few months ago, the fundamentals of the local commercial real estate market remain healthy, several industry sources agreed.

Brad Cox, senior managing director of the Pacific Southwest for Cushman & Wakefield Inc., said speculative development may have dried up, but there’s still strong activity and “people are still leasing space.” Countywide, the office vacancy rate fell to 14.9 percent in the third quarter, from 15.5 percent in the second.

“We’ve still got a lot of stuff to close before the end of the year, and a couple of big new listings,” Cox said.

Real estate observers pointed out that the capital troubles were not a result of an oversupply of space on the market, but rather Wall Street’s method of financing real estate. And that ultimately could have a beneficial effect on the market.

“This time,” said Shaw, “we’ve had a mid-term correction that will dampen the excessive tendencies we have in the industry.”

Staff Reporter Jason Booth contributed to this report.