The combination of lower CMBS yields, competition and a declining swap rate is contributing to rapidly declining interest rates for CMBS conduit loan borrowers. As of Thursday, April 17, the 10-year Swap rate used to set CMBS loan interest rates had fallen to 2.75% from an April high of 2.93% on April 4. In addition, CMBS lenders are lowering spreads in tandem with lower CMBS yields on recent CMBS issues amid heavy competition for new loans. The result is borrower rates in the 4.65%-4.75% range for commercial loans and around 5.0% for hotel loans.
“What is also very appealing is the spread compression happening even on smaller balance loans, those in the $3-$5 million range,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “While it was not unusual to see tight spreads on higher balance loans over $10 million and lower leverage loans, competition is extending rate benefits to smaller balance deals.”
Furthermore, CMBS conduit loans are now pretty much even with Fannie Mae on multifamily loan rates, even on small balance loans. Spreads on 10-year Fannie Mae deals are in the Treasury plus 200 basis points (bp) range, while CMBS is in the Swaps plus 200 area. “10-year Swaps are 10 bp higher than the 10-year Treasury, which means that the typical CMBS conduit deal is still 10 bp higher in rate, but we have seen CMBS lenders go to Swaps plus 190 to match Fannie Mae offers to win deals,” commented Gary Unkel, Senior Loan Originator at ValueXpress. “We are seeing a much higher level of multifamily deal flow now versus the beginning of the year.”
New CMBS conduit loan rates are in the 4.65%-4.75% range for commercial properties based on spread quotes in the 190-200 range. Hotel spreads are 200-225 depending on franchise affiliation and location, with stronger brands in primary markets seeing better pricing.