Where are we seeing debt pricing for CRE deals

Hi everyone, where are people seeing real estate debt settling for new transactions across senior debt and mezzanine? The pricing I've been offered have been so wide that it's hard to understand where the market is at this stage. For example, I've had senior debt offered around SOFR+500bps but mezzanine is coming in at SOFR+1500bps... the gap is enormous... anyone able to provide any info where the private markets are coming out at across senior and mezz debt?

 

Prob not the best answer, but it depends on so many factors. Quality of sponsor? Quality of asset? Location? Leverage?

But to give you a broad summary, on conventional I am seeing SOFR+(200 to 400).

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SOFR +500 or more is just the lender telling you they either don’t want to do the deal. Or, if they are going to do it, the terms are going to realllyy make you think if it makes sense.

Depends on the lender/capital source, but caveat emptor RN.

 

Typical local banks I work with (anywhere from 750m-4b in assets) are lending to solid sponsors and non DSCR constrained projects at 75% ltc 5yr fixed 6.5-7%. Full recourse with reasonable prepay. I cant speak for regionals or lifecos. Anyone giving you a rate 8%+ or 50% ltc etc is just trying to keep you as client for when they start lending again. SO many banks are net borrowers these days, you really need to work harder than in the past when it comes to finding a good banking partner. Utilize a loan broker if you have to. 

 

Currently out to market on a large, single-tenant (non-investment grade) industrial asset in a secondary market. Indicative pricing has been as follows:

  • LTV: 55-60%
  • Pricing: 220-240 + corresponding treasury
  • Amort: Partial IO
  • Fees: Minimal

If it were investment grade credit and in a primary market, my guess is spreads would tighten to the 160-190 range. 

 

Acquisition financing of a Class A- office in a key gateway city. ~65% LTV backing a multibillion dollar sponsor. We are looking at splitting the debt burden between a senior and mezz piece but it is hard to nail down an acceptable spread for the mezz. 

 
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Multi/Industrial I'm seeing the following. I work for a subordinate capital & equity shop. Most of my commentary relates to deal capitalizations in the $30MM to $200MM range.

Senior Construction: Low end SOFR 200-250 for relationship small banks on smaller deals to their relationship clientele. Larger projects with non regional banks I'm seeing SOFR 300-375 generally for +/- 55%-60% LTC. Can't speak to the higher leverage debt fund options as we wouldn't borrow from or go behind them as subordinate debt.

Senior Value Add: SOFR 400-500 generally, plenty of lenders more expensive. Going in debt yields on value add maybe in the mid to high 5% range to low 6% range, stabilizing at an 8-9% DY. maybe 70-75% leverage. (I may be off here, this is me relaying anecdotes I hear in the market).

Senior Stabilized Existing Product: seeing anywhere from 175-220 over treasuries. Agencies obviously can get more competitive with mission driven.

Mezz/Pref Construction: Most groups sizing in the 75% LTC range, targeting an 8% stabilized debt yield, so leverage is a function of the return on cost profile. pricing for institutional sponsors can be as low as 10% for sub 70% leverage in the right market. For most borrowers/middle market, you're looking at a minimum of about 13%, with plenty of groups offering higher leverage in the 80-85% range at 15-18%. I'd say the market for most traditional mezz/pref shops is 13-15% with a  roughly 50/50 or 60/40 split on current and accrual. Current and accrual will vary. Still seeing some fully accrued pref in the market, but seeing a lot of shops that used to offer full accrual wanting a 6-8% current during development.

Mezz/Pref Stabilized: Institutional sponsors pricing in 10-12% range, this is a function of leverage. Non institutional borrowers the lowest pricing I've seen is 11.5% and that's a bit of an outlier. I'd say the floor today for middle market is around 12%, with a lot of groups in the 13-14% range, and once again, plenty of more expensive options out there. 

 

A lot of these groups are just looking for a cash neutral refi or are looking to get some additional leverage due to low seniors. 24 months of minimum interest can be standard, lots of groups looking for a 1.35-1.40x multiple.

Your yield maintenance thesis is on target. Other groups that are long term owners are using pref to pull equity out of stabilized assets behind their low leverage long term fixed debt that's been in place at 3% rates to assemble a war chest for perceived opportunities in the future. The blended cost on these is lower than a newly originated senior at the same leverage.

Assuming a $40MM senior priced at 6% and a $10MM pref priced at 12%, the blended cost is 7.2%. Not ideal obviously, but it can be a manageable cost.

Value add has moved away from debt funds to a degree, and many groups are trying to use fixed rate seniors with mezz/pref as the value add capital essentially. Few of these make sense, but the occasional deal in a great suburb of NJ works well for it. But those are few and far between.

 

Medical terms for single tenant ig and strong rent roll multi tenant are something like this:

55-65 LTV/LTC

180-225 over for stabilized, 215-275 over for ground up

.25-1% origination

60 month io on stabilized (good news financing), usually 36ish inclusive of dev period for ground up

Generally full term hedging required right now. Most lenders don’t care how you hedge (single leg or multi leg caps, swaps, swaptions) if strike helps mitigate dscr breakage. Some require swaps. Have seen groups using hedges to buy down rate and boost returns

Non recourse except bad boy

 

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