Saturday, May 2, 2009

CRE Construction Loan Rates Today

The Wall Street Journal has a story here (hat tip Deal Junkie) about a $215M construction loan Boston Properties obtained on a mixed use project in Boston.

As you would expect, the terms are much tougher in many respects than were available a few years ago. The loan is for only 40% of the cost of the project (compared to loan-to-cost ratios of up to 90% during the boom days), and there are recourse provisions to the borrower (these provisions were often waived in the past).

But then there’s the interest rate:

The five-year loan carries a floating interest rate equal to the London interbank offered rate plus 3% annually. Two years ago, rates on similar loans were lower, said Mr. LaBelle [Chief Financial Officer at Boston Properties].

I suspect the reporter got that wrong; I suspect Mr. LaBelle said two years ago the spreads on similar loans were lower. The spread on this deal is 3%, and the spreads a few years ago were 1-2%. But, two years ago 30 day LIBOR was 5.320%, so the all in rate was 6.32-7.32%; Today LIBOR is 0.435%, so with Mr. LaBelle’s loan spread of 3% the all in rate is 3.435%, which is around half what the rate was two years ago.

If you told someone two years ago that you would be able to get a construction loan for a CRE project at less than 3.5%, they would have thought you were crazy.