CMBS conduit loan rates have fallen to the lowest levels since the restart of CMBS lending in 2010. Interest rates on CMBS conduit loans are set based on a spread over the libor swap rate corresponding to the loan term. Recently, libor swap rates have declined in tandem with the 10-year treasury rate, while spreads have remained stable. Just a few weeks ago, the 10-year swap rate was 2.05% versus 1.84% at the market close on May 18.
A typical $10-million shopping center or office building underwritten to a 70% LTV and 1.35x debt-service coverage ratio is seeing a CMBS conduit spread quote of 275 basis points over the 10-year libor swap. Two weeks ago, the resulting interest was 4.80%. Today, that loan closes at 4.59%.
“Rates are solidly in the mid- to high 4% area across the board for 10-year CMBS deals,” commented Michael D. Sneden, Executive Vice President of ValueXpress. “These are exceptional levels and they are driving a significant amount of new CMBS loan applications. Even hotel loans are slightly below 5% now.”
It is possible swap rates and Treasury rates will not stay at these levels for long, but for quick moving borrowers, the window presents an excellent opportunity to lock in a very low interest rate.
