[Noob questions] Current Debt Pricing and Term? March 2023
Admittedly noob questions but figured I’d ask
What pricing and terms are you guys seeing for permanent financing? I’m guessing 1-month SOFR + 250-300 bps at 3 years + 1 + 1 extensions but wanted to gut check with broader market
also - how difficult are construction loans to get right now? I’d imagine more available for BTS, not spec. Are construction loans quoted at 1-month SOFR plus 300-350 bps over? What are general term/length of these construction loans and how does that differ if you can secure a construction to perm financing combo?
i ask because I keep hearing about the upcoming distress, debt maturity wall, and refi issues upon loan expirations, so trying to gauge what acquisition year these deals were closed in. Figured it’d help to make sure I understand the loan structures first
I can speak for the healthcare space. Construction loans are harder to come by but still able to find them. Pricing for ig credit tenant and 15 year lease on recent deal was 250 over on construction and 200 over on mini perm. 70% ltc
Thanks for insight. The 250 over is over 1-month to clarify, and 3 year loan?
does the mini perm convert once you get CofO? How does that work if you don’t mind me asking
Perm financing is not over SOFR, it's over treasuries or swaps. It's also a fixed term, so 5, 7, or 10 years, not 3 years + extensions. Spreads vary by property type but between 150-400+, 150 being agency loans for multi and 400+ being stabilized office.
Gotcha. So is floating better for a certain business plan or non-stabilized assets? Or is entirely on sponsor taking their own view / bet on where rates are going?
on perm, is it quotes over the 2 yr or 10, or that depends as well I suppose
Depends on who the perm financing is coming from. Insurance Cos., when they're in the market, will quote over Libor/SOFR while banks/Fannie/Freddie are over Treasuries/Swaps. At least from my experience.
There are always groups with unique programs, I too have seen some insurance cos quote over a floating index, but generally speaking most quote over the fixed index. Yes, Fannie/Freddie are over treasuries and banks usually quote over a floating index, but often have the ability to execute a fixed rate loan by 'swapping' the rate and thus quote over swaps.
60 percent LTC, 325 over, 48 month initial term. Multi construction. 60 percent LTC has been dabbling down to 57ish as of past couple months. 25-35% repayment guarantee.
for value add multi what is the spread, 200-300 if 325 is for construction?
Not sure tbh, only work on dev, not value add. I think value add financing can be diff given that some groups might put perm financing instead of floating (if they so desire), but not sure. Meaning they can either get a loan based on LTV (based on as is NOI, pre Reno) or maybe they can get based on LTC inclusive of Reno costs. But not sure about value add, sorry, just guessing here tbh.
Only doing construction for very experienced developers with real recourse. 300+ spread, 75-100 bps fee. Nothing really works at a stressed rate from current so need to trust the sponsor.
To clarify - spread from what index or benchmark? Besides the asset/land itself, are you getting any other assets as crossed collateral?
We just got quoted for a fixed rate stabilized multi deal on the west coast for T + 170. We're buying that down by 40 bps to T + 130 with an all in rate currently (haven't locked) of 5.64%. It's a 5 year loan with 3 years of I/O
Super helpful thanks. For context - what we’re all in debt costs 1.5-2 years ago, 2.75ish??
When you mention T+, is that 2 year or 10 ( or other)
Yeah somewhere from 2.5 - 3 depending on leverage. T is whatever term you want, if you do a 10 year loan it's on the 10-year, if it's a 5 year loan it's on the 5-year Tbill.
We're pricing construction debt starting at S + 550, 2% origination fee, non recourse. We size based off a debt yield that is dependent on market cap rate, but typically around 8%. Obviously deal dependent but that gets us around 60-75% LTC.
What source of capital?
Is S 1 month? Curious
correct
That's super expensive.
I've got debt funds doing it in the mid 400s for 1 point and getting up to 65% LTC. 10% minimum interest.
That's interesting. We target 11% IRR so in theory only 100 bps off 10% minimum interest. What type of product is this for?
An 8% DY is like a .9 DSCR at current perm rates. Yikes.
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