The Real Estate Capital Institute®

The Double-Digit Delight - Mortgage Spreads Continue Dropping

Spreads below 100 basis points over treasuries more common for commercial mortgages.


Chicago, IL -- (ReleaseWire) -- 01/09/2007 --Only a few years ago, mortgage spreads below 100 basis points over comparable-term treasuries were reserved for the highest quality, institutional-property loans. Such pricing required long-term, credit tenant occupancy and substantially conservative leverage of 65% or less.

Given today’s competitive real estate capital markets, double-digit mortgage pricing is much more common. With default rates hovering within one percent or less, investors are more comfortable with real estate mortgage obligations as stable fixed-income investments. Such tight risk premiums offer borrowers access to tremendously attractive priced debt.

What’s it take to tap into double-digit pricing? In general terms, the following underwriting parameters attract the lowest spreads:

1. permanent, non-recourse debt with a 10-year term
2. credit tenants with longer-term leases of 10 years or more preferred
3. major metropolitan market (unless a credit loan)
4. up to 75% leverage maximum
5. immediate funding of 90 days or less
6. larger loans of $5 million or more
7. single asset and portfolio acceptable
8. mortgage conduit loan execution more common; select life insurance companies/pension funds
9. conventional property types desired (e.g., multifamily, office, retail, and industrial), although nearly all property types will be considered at lower leverage levels
10. strong sponsorship with repeat business potential

Overall pricing for properties meeting most of the above mentioned parameters will range within the 70-to-100-basis-point arena. The low-end of this pricing range is reserved only for the finest funding opportunities, and should not be considered a "typical" spread.

According to John Oharenko, a volunteer member of the advisory group for the Real Estate Capital Institute, "Double-digit pricing is here to stay. Lenders have limited opportunities to fund high-quality assets in an effort to balance their portfolios."

The Real Estate Capital Institute independently researches various types of mortgage rates including spreads for different property types and grades. Property capitalization rates are also posted ( Overall interest rates are broadcasted every day on an hourly basis by means of the Real Estate Capital Rateline at 7RE-CAPITAL (773-227-4825).