In July I wrote that CMBS spread tightening has resulted in a very favorable rate environment for CMBS conduit borrowers compared with just a few months earlier. Well, based on the recent CMBS issues, borrowing rates are poised to drop further in upcoming weeks as the results of recent CMBS issues are reflected in new loan quotes.
“New loan quotes are expected to be in the range of 225-250 basis points (bp) over the 10-year swap rate,” commented Michael D. Sneden, Executive Vice President of ValueXpress. “With the 10-year swap rate at 1.75%, borrowing rates are solidly under 4.50% and larger transactions are seeing rates under 4.25%.” As evidence, 70% of the recent Wells Fargo/RBS CMBS deal that priced on September 12 contained loans with rates under 5%, and those loans were based on wider spreads prevalent a few months ago when most of the loans were closed.
With the 10-year swap rate at 1.75% and anticipated loan spreads of 250 bp, 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 4.25% area, very attractive indeed.