Average market credit spreads—Q4 2021

Underlying data

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 REITs, debt funds, public REITs, and private equity fund daily priced investment vehicles. The information in this report represent averages of market rate and spread conclusions on 1,268 loans. The loan population used for this analysis was limited to loans valued in both Q3 2021 and Q4 2021 with a current date of value as of December 31, 2021, 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.

Spread calculations

The spreads referenced in this report are calculated by subtracting the trailing 10-day average origination term base rate 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 trailing 10-day average 10-year Treasury yield 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.

Additional resources

Resources on debt and capital markets as well as debt valuation best practices and white papers can be found on our website. To learn more about our independent debt valuation practice or to speak to a valuation professional, please contact Chatham’s Valuations team at [email protected].