An unexpected rapid decline in the 10-year Treasury and swap yield has driven down loan rates for CMBS conduit loans and other commercial loans tied to these indexes. The 10-year swap has declined an astounding 100 basis points (bp) since May and nearly 40 bp in the last three weeks.
Analysts are pointing to the escalating trade war and concerns of a global recession driving rates lower. The threat of trade war sparked a stampede to safe assets this week, including the 10-year U.S. Treasury bond. Additional downward pressure comes from the prospect that the Federal Reserve, which cut short-term rates in July for the first time since 2008, will cut them further. Real estate performance has generally been unaffected by any of these events, and fundamentals, with perhaps the exception of malls, remain strong and lenders remain eager to lend.
Low leverage CMBS conduit loans on strong assets are now below 4%. Full-leverage CMBS conduit loans are available in the 4.0%-4.5% area for larger loan amounts of $10 million and higher. Small balance CMBS conduit loans $2 million and higher can be closed with coupons of 4.50%-4.75%.
One veteran CMBS lender noted for borrowers, “This is the best lending environment I’ve seen in my entire career in commercial real estate.”