CMBS spread tightening has resulted in a very favorable rate environment for CMBS conduit borrowers compared with a few weeks ago.
“Benchmarking borrower rates is becoming a daily event,” commented Michael D. Sneden, Executive Vice President of ValueXpress. “Borrowing rates are once again solidly under 5.0% and larger transactions are seeing rates under 4.5%. In fact, the Morgan Stanley/BoA CMBS issue that priced on July 13th featured two large loans with borrowing rates under 4%.”
The Morgan Stanley/BoA issue contained 6 additional loans with rates between 4.0% and 4.5% and a total of 36 loans (75% of the entire CMBS issue) that carried a rate of less than 5.0%. Similarly, the Wells Fargo/RBS issue featured 3 loans with rates between 4.0% and 4.5% and 38 loans (67% of the entire CMBS issue) that carried rates under 5.0%.
With the 10-year swap rate at 1.55% and loan spreads just south of 300 basis points, the all-in rate to borrowers on a $10-million shopping center or office building underwritten to a 70% LTV and 1.35x debt-service coverage ratio is in the 4.5% area, consistent with the rates seen in the Morgan Stanley/BofA and the Wells/Fargo CMBS deals.