Cap rate trends are on the rise, indicating shifting dynamics in the underwriting landscape. This is the conclusion of a CRED iQ analysis of key metrics for new CMBS conduit lending in Q4 2024 compared to Q3 2024 performance. This analysis encompassed 819 properties across 284 loans, resulting in over $7 billion in loan originations for securitizations.
The increase in cap rates is notable across various property types. Office cap rates ranged from 4.60% to 10.50%, with an average of 7.40%, up from 7.16% in Q3 2024. Multifamily cap rates fell between 3.90% and 7.60%, averaging 5.90%, a slight increase from the previous quarter's average of 5.77%.
In the retail sector, cap rates ranged from 5.00% to 9.10%, averaging 6.70%, compared to 6.45% in Q3. Industrial assets saw cap rates between 5.20% and 7.70%, with an average of 6.40%, up from 6.24%. Self-storage cap rates ranged from 5.30% to 7.60%, averaging 6.20%, an increase from Q3's average of 5.86%. However, hotel cap rates were the only category to experience a decline, ranging from 3.30% to 10.60% and averaging 7.30%, down from an average of 7.80% in Q3.
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Interest rates also exhibited varied trends across property types. For office loans, interest rates ranged from 3.40% to 7.90%, with an average of 6.70%, down from Q3's average of 6.90%. Multifamily loan interest rates ranged from 5.20% to 7.70%, averaging 6.60%, a slight increase from Q3's median of 6.55%. Retail interest rates fell between 3.70% and 7.90%, averaging 6.50%, down from the previous quarter's average of 6.58%.
Industrial loans had interest rates ranging from 3.50% to 7.90%, with an average of 6.40%, a decrease of five basis points from Q3's 6.45%. Self-storage interest rates ranged from 5.50% to 7.20%, averaging 6.30%, down slightly from the 6.34% in the previous three months. Hotel interest rates ranged from 5.50% to 8.00%, with an average of 6.90%, compared to Q3's figure of 7%.
CRED iQ also assessed debt yield, which measures the ratio between net operating income and total loan amount as an indicator of loan riskiness; while there are no absolute interpretations, a debt yield of around 10% is often considered a desirable minimum by lenders.
Office debt yields ranged from 8.50% to 17.10%, averaging 13%, down slightly from Q3's 13.2%. Multifamily loans in CMBS deals averaged a debt yield of 9.50%, down from Q3's 9.93%, with a range between 7.50% and 14.40%. Retail debt yields varied from 8.30% to 17.80%, with the median at 11.60%, up marginally from Q3's 11.55%.
In terms of loan volumes, self-storage experienced the most significant increase at an impressive rate of 254%. Hospitality followed with a substantial rise of 147%. Conversely, multifamily loans saw the largest decline in volume at -55%, closely followed by office loans at -50%.
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