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Mortgage Pricing Continue Narrowing between Credit and Non-credit Loans


Chicago, Illinois – March 9, 2007 -- historically income-producing real estate debt has been indexed to Baa Bonds. However during most of this decade, the price differentiation favors real estate instead of corporate bonds. Corporate Baa Bonds are currently trading in the range of 6.5%; commercial mortgage bonds are trading in the 5.5% to 6% range.

Within the mortgage markets, properties occupied by credit tenants with strong cash flows are priced within the 70-to-100-basis-point range over comparable-term treasuries. Yet properties backed by non-credit tenants with volatile cash flows represent most income-property rent rolls. Such entrepreneurial properties attract mortgage pricing of 90 to 150 basis points, creating a somewhat narrow differential of about 50 basis points between credit and noncredit fundings. By historic standards, variation on these types of transactions often approached 100 basis points or more.

John Oharenko, Advisory Board Member of the Real Estate Capital Institute, notes “The market is extremely tight as far as mortgage spreads are concerned. Properties in strong locations with weaker tenants can attract pricing reasonably close to credit-anchored properties.”

The Real Estate Capital Institute ( records credit and noncredit income-property mortgage spreads. The Institute features daily and monthly data compiled for office, retail and industrial credit/noncredit properties nationally. Hourly interest rates are broadcast by the Real Estate Capital Rateline at 7RE-CAPITAL (773-227-4825).


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