Average market credit spreads—Q3 2020
SummaryCredit spreads shown are averages based on market rate conclusions for independent debt valuations conducted as of September 30, 2020. The market spread for an individual loan may vary based on property and loan characteristics, including location, tenant profile, cash flow, and sponsorship.
Fixed-rate loans (<50% LTV)
Fixed-rate loans (50-60% LTV)
Fixed-rate loans (60-75% LTV)
Chatham Financial provides independent debt valuation services for a variety of commercial real estate entities including open-end and closed-end private equity funds, separate accounts, private REIT’s, debt funds, public REITs, and private equity fund daily priced investment vehicles. The information in this report represents averages of market rate and spread conclusions on 1,343 loans. The loan population used for this analysis was limited to loans valued in both Q2 2020 and Q3 2020 with a current date of value as of September 30, 2020 and for real estate investments located in the United States.
Market rate methodology
For the purpose of measuring the fair value of debt, the market rate conclusions represent the most likely lending rate for each individual loan given capital markets and property performance as of the date of value. Considerations in developing a market rate conclusion include property type, location, loan to value ratio, property performance, debt service coverage, and term. Capital market conditions are determined through an observation of recent and applicable loan originations as well as interviews with lenders, capital markets teams, and other market participants.
The spreads referenced in this report are calculated by subtracting the origination term base rate as of the last business day in the quarter from the market rate conclusion for each loan. For instance, if the market rate conclusion for a 10-year loan is 3.50% and the 10-year Treasury yield as of quarter-end is 1.00%, the implied spread used for this analysis is 2.50%. The average of these spreads are then aggregated by property type and LTV for reporting purposes.
Loan specific considerations
This report is intended to be a reference and guide for general trends in commercial real estate lending markets. Adjustments to the reported spreads are likely necessary for the purpose of marking debt to market to account for loan and property specifics including nuances such as embedded floors, open prepayment periods, the remaining term of the loan, lender type, and individual property performance.
Want to learn more?
Contact Chatham's Valuations team
For informational purposes only. Chatham Financial assumes no liability for the use of this document or data by any party. Credit spreads in this report do not represent Chatham Financial’s opinion of a fair market spread or quarterly change for any given loan. This report is not intended to be used on a standalone basis for valuation of individual loans.
Our featured insights
ARRC formally recommends SOFR Term Rates
In a busy week filled with corporate earnings releases, high-profile economic data updates, and the latest FOMC monetary policy meeting, the major U.S. equity indices and long-term Treasury yields drifted lower to end the month.
Powell discusses state of economy following latest FOMC meeting
Following last week’s FOMC meeting, Fed Chair Jerome Powell signaled progress towards tapering while downplaying the impact of risks including the delta variant on the overall U.S. economic recovery. Markets reacted as U.S. GDP growth for the second quarter of 2021 missed the mark.
Six key steps to implementing an operational FX program
Over Chatham’s 30 years serving clients, we identified six key activities for implementing a leading-practice operational FX program:
Freddie Mac asks borrowers to extend protection on LIBOR-indexed ARMs through June 2023
U.S. bank regulators are asking banks to discontinue offering LIBOR-indexed loans and hedges (including caps and swaps) by the end of 2021. Borrowers may no longer be able to purchase/extend LIBOR caps they otherwise would have to extend beyond 2021. Freddie Mac is asking its Optigo lenders to...
SOFR: A comprehensive guide
How SOFR, the benchmark rate chosen by the ARRC to replace USD LIBOR, works and what drives its movements
Equities shake off virus jitters; ARRC talks Term SOFR
Despite a sharp selloff to start the week, the three major U.S. equity indices recovered to finish the week higher, each setting new all-time highs, as market participants focused on a strong start to the corporate earnings season and shrugged off mostly weaker-than-expected economic data and renewed fears of the COVID-19 delta variant.
European Central Bank keeps stimulus torch lit as U.S. officials consider dimming the flame
Continued upward pressure on prices in the United States remains the economic theme as the Fed signaled more appetite for gradually reducing their bond buying program. This is in contrast with the European Central Bank’s continued economic stimulus.
European debt valuation FAQs
Debt valuation is important for any entity required to report fair value. Historically, there have been different valuation policies, methodologies, and opinions making comparisons difficult and leading to inconsistency. To facilitate transparency and confidence in the valuation of institutional...