Few things are as closely watched in commercial real estate as the shifting sands of underwriting metrics. CRED iQ’s latest analysis, which dives into the cap rates, interest rates, and debt yields for properties packaged into CMBS securitizations, reveals a landscape marked by dramatic swings and subtle shifts.
While CRED iQ’s findings are based on the latest ten transactions packaged into CMBS securitizations—a relatively small sample that warrants some caution—they nonetheless offer a valuable snapshot of current market dynamics. In a data-driven industry, even small windows into market activity can provide crucial insights when more comprehensive information is unavailable.
Office cap rates, for instance, displayed the widest variability among property types, spanning a remarkable 632 basis points. The range stretched from a low of 4.31% to a high of 10.63%, with the average settling at 7.34%. This marks a slight decline from February’s average of 7.44%, signaling a modest softening in the sector. Multifamily properties weren’t far behind in volatility, with cap rates ranging from 2.65% to 8.61%, a 596-basis-point spread. The average cap rate for multifamily dipped to 5.74%, down from 6.38% earlier in the year.
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Retail properties saw cap rates fluctuate between 5.13% and 9.19%, a 406-basis point difference, with an average of 6.28%—a 41-basis point drop from February’s 6.69%. Industrial assets experienced a 383-basis-point swing, from 3.67% to 7.50% and averaged 5.74%, down from 6.38%. Self-storage cap rates averaged 5.81%, a decrease from 6.22%, and ranged from 4.50% to 8.20%. The outlier was hospitality, the only sector where the average cap rate increased, climbing from 7.31% to 7.95% and spanning from 5.85% to 9.49%.
Interest rates told a similarly varied story. Hospitality led the way with the largest spread—305 basis points—ranging from 5.54% to 8.59%. The average interest rate for hospitality rose to 7.30%, up from 6.89% in February. Office properties saw interest rates between 5.49% and 8.05%, a 256-basis point spread, with the average slipping slightly to 6.61%. Multifamily interest rates averaged 6.50%, down from 6.58%, with a range of 5.24% to 7.52%. Industrial properties saw rates from 6.12% to 7.51%, a 139-basis point spread, with the average climbing to 6.81% from 6.38%. Self-storage interest rates ranged from 5.50% to 7.09%, a 159-basis point difference, with an average of 6.47%, just below February’s 6.65%.
Debt yields added another layer to the story. In the office sector, yields ranged from 10.2% to a striking 36.2%, with an average of 13.9%, up from 13% in February. Multifamily loans in CMBS deals averaged 12.9%, a significant jump from 9.50% in the first quarter, with yields spanning from 7.5% to 45.1%. Retail properties posted a range of 8.3% to 21.5%, averaging 12%, a slight increase from 11.6%. Data for industrial and self-storage debt yields was not provided.
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