CMBS Lenders Jack Up Loan Spreads; Others Follow Suit

Commercial Real Estate Direct Staff Report

Lenders in recent weeks have responded to the volatility rocking the CMBS market by increasing the premiums, or spreads, they use to determine their loan rates.

Their loan spreads are now 235-250 basis points more than swaps, up from 175-200 bps two months ago. But because Treasury rates, from which swap rates are derived, have declined since July, the overall rates that borrowers are seeing haven’t increased much.

While CMBS lenders have been most impacted – spreads for benchmark CMBS are now some 25 bps wider than they were two months ago, and for lower-rated classes, spreads are 75 bps wider – other lenders are following suit.

CMBS lenders are now quoting rates of 4.5 percent to 4.75 percent. While those are still historically low levels, they’re up from the 4.15-4.3 percent rates that were commonly seen earlier in the year.

Other lenders, including life insurance companies, banks and the housing-finance

agencies, haven’t widened their spreads as much as CMBS lenders – they’ve widened them by at least 20 bps – so they’re evidently not taking advantage of volatile market conditions to pick up market share. That’s in part because they might not be able to. Still, they’re hotly pursuing low-leverage loans against favored property types in strong locations.

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