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
Treasury 2022: Opportunities, Priorities, and Trends
Join senior treasury and accounting leaders from Moderna, McCormick & Company, and Nissan North America as they share how they’re preparing now for managing financial risk in 2022. Participants will discuss how today's market has shaped corporate hedging and hedge accounting priorities,...
Perspectives on ESG in commercial and multifamily real estate
We are often asked what we are seeing with respect to ESG terms or provisions in financings, derivatives, investment vehicle structures, etc. While a tremendous amount of attention is being allocated to ESG broadly across the global real estate markets, there is a wide variance of approaches,...
Big banks report strong Q3 earnings
Building on the previous week’s gains, the major U.S. equity indices finished the week in the green, while short and mid-term Treasury yields moved notably higher as investors digested the latest economic data releases, the minutes from the latest FOMC meeting, and Q3 earnings releases.
Persistent inflation weighs on the market as energy prices continue to rise
Treasury yields lost recent gains last week despite continuing inflation as consumer prices rose 5.4% year-over-year. Energy prices continue to rise amidst high demand and supply constraints.
Pre-hedging future exposure to swap rates
The sharp rise in interest rates in the last few weeks has shone a light on the risk of returns being eroded as the cost of debt assumed in an investment decision is now substantially higher than the original investment case. It has also led borrowers to look ahead to upcoming refinancings and...
Long-term yields continue march higher
After falling substantially in the final week of the third quarter, the major U.S. equity indices started the fourth quarter on solid footing, each moving higher last week, while long-term Treasury yields continued their march higher, as investors digested mixed economic data releases, primarily...
Non-core inflation strikes again
Despite many central banks’ transitory inflation perspectives, inflation returned this week as commodity and food prices continued to rise. The five-year breakeven inflation rate, a broad measure of the market’s long-term inflation expectation, hit its highest reading since May after rising 13...
Is the inflation story over-inflated, and what does it mean for interest rates?
The global inflation story has captured the headlines as we emerged from COVID-19 lockdowns and economies reopened. There are different measures of inflation, showing different trends over different measurement periods. This piece considers the key market inflation measures and discusses how this...