I have been working on sizing loans. While I work on comps, cash flows, pre lim underwriting, I dont get to work on structuring/pricing a loan. So, I am trying to learn how CMBS loans get priced.
We have a break even spread in our model. Right now, its 180-185 bps for a lot of my loans sized. I get that it is market driven, but can anybody ELI5 the math behind how that is derived? or even what the break even spread is actually is? I am assuming this varies across product types?
Secondly, based on the break even spread of say 180-185, I think my structuring team comes up with the all in spread of 210-220 bps. I also see references to a "15 bps per point". I dont know what this is, but I think this helps the team come up with the 210-220 bps.
If somebody can walk me through the math behind this, I would really appreciate it, thank you!