As The Yield Curve Tightens Financing Decisions Get Tricky

Chris Moyer

NEW YORK CITY–The spread between the 5-year and the 10-year Treasuries is the tightest it has been since August 2007, resulting in all-in commercial real estate borrowing costs that are nearly indistinguishable at different terms. A year ago the spread was about 50 basis points, Cushman & Wakefield Managing Director Chris Moyer tells GlobeSt.com. Today that spread is around 15 basis points. The result has been borrowers opting for longer-term money because, after all, there is no real savings benefit to taking out a five-year loan, regardless of the deal at hand.

Here’s the issue though, Moyer says: For shorter-term deals, in five or seven years the borrower may sell the properties and now he has three to five years remaining on the loan term. “Depending on where interest rates are at the time and depending on the leverage of the loan, there could be a substantial cost or impairment to the value of the real estate because of the liability of the loan,” Moyer says.