Interest rates on CMBS conduit loans have decreased significantly in the last 30 days. Low leverage CMBS conduit loans (50%-60% LTV) are being quoted in the 4.25%-4.50% range, while full leverage (70%-75% LTV) loans are available at rates under 5.0%.
Rates this low have not been available for a number of years. A confluence of events is creating an exciting opportunity for borrowers. Recall that the interest rate on a 10-year fixed-rate CMBS conduit loan consists of the 10-year swap rate plus the loan spread. The swap rate has decreased over the past month from 2.73% to 2.41%, a drop of 32 basis points (bp).
The second piece of the rate equation, loan spreads, has also decreased. Loan spreads are based on the pricing and yields on CMBS securities. Strong demand for CMBS securities and limited supply has resulted in better CMBS securities pricing since the beginning of 2019. As a result, loan spreads have decreased 10-15 bp.
As an example, a full-leverage loan quoted a month ago may have a spread of 260 bp (2.60%). The interest rate would have been set by adding the 10-year swap at the time of 2.73% to the loan spread, resulting in an interest rate of 5.33% (2.60% + 2.73% = 5.33%). That same loan today would have a loan spread of 2.45% and adding today’s swap rate of 2.41% would result in an interest rate of 4.76%.
To lock in these low rates, contact Michael Sneden (email@example.com), Dennis Suh (firstname.lastname@example.org) or Gary Unkel (email@example.com).