The Real Estate Capital Institute®

Mortgage Pricing Continues Narrowing between Credit and Non-credit Loans

Intense Competition Creates Slimmer Risk Margins


Chicago, IL -- (ReleaseWire) -- 10/16/2006 --Historically income-producing real estate debt has been indexed to Baa Bonds. However during most of this decade, the price differentiation is dramatically moved in favor of real estate, instead of corporate bonds. Corporate Baa Bonds are currently trading in the range of 6.5%; commercial mortgage bonds are trading in the 5.5% to 6% range.

Within the mortgage markets, properties occupied by credit tenants with strong cash flows are priced within the 70-to-100-basis-point range over comparable-term treasuries. Yet properties backed by noncredit tenants with volatile cash flows represent the majority of income-property rent rolls. Such entrepreneurial properties attract mortgage pricing of 100 to 150 basis points, creating a somewhat narrow differential of about 50 basis points between credit and noncredit fundings. By historic standards, variation on these types of transactions often approached 100 basis points or more.

Nat Zvislo, research director for the Real Estate Capital Institute, notes "The market is extremely tight as far as mortgage spreads are concerned. Properties in strong locations with weaker tenants can attract pricing reasonably close to credit-anchored properties."

The Real Estate Capital Institute ( monitors credit and noncredit income-property mortgage spreads. The Institute features daily and monthly data compiled for office, retail and industrial credit/noncredit properties nationally. Hourly interest rates are broadcasted via the Real Estate Capital Rateline at 7RE-CAPITAL (773-227-4825).