APRIL/MAY NEWSLETTER ADDENDUM ON DEBT YIELD
I want to further explain debt yield ratios and how they impact pricing. In the earlier email this morning, I stated that the lower the debt yield, the better. This was a TYPO error. The higher the debt yield the better. The reason the debt yield is like a cap rate for the lender. The calculation is as follows:
NOI (includes expenses for replacement reserves, tenant finish reserves, leasing commissions) / loan amount.
A $1 million NOI/ $10,000,000 loan amount yields a debt yield of 10%. Another way to look at it, if the lender took this property back, they just bought a property at a 10% cap (assuming NOI maintained the $1 million level)!
Pricing for CMBS, multifamily debt yield deals, without other consideration such as age of property and location:
Debt Yield of 11% or better: 180 over the 10 year swap
Debt Yield of 10%: 190 over the 10 year swap
Debt Yield of 9%: 200 over the 10 year swap
Debt Yield of 8%: 210 over the 10 year swap
These pricing characteristics are similar to FNMA considerations for lower LTV ratios. As stated in previous newsletter, HUD pricing does not consider LTV ratios. HUD pricing today IS THE BEST in the market at 2.95%. Add MIP, the all-in rate is 3.55, fixed for 35 years!!!! Construction rates are around 3.50% fixed for 42 years. Add MIP the all-in rate for construction is in the 4.125% range.
Enjoy the spring. We will provide another market update in June. Please contact us for quotes or analyses required on defeasance, loan quotes or instant market updates.
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