FOR Q2 2017 ORIGINATIONS, SENIOR CRE LENDING RETURNS ARE FORECAST TO BE 3.4%PA ON A GROSS BASIS AND 3.0%PA ON A RISK-ADJUSTED BASIS. THIS REPRESENTS AN INCREASE OF 4-7BPS ON Q1 RETURNS.
- We estimate that senior margins fell slightly again in Q2 2017. A fall of around 10bps on margins on prime lending coupled with static margins for secondary lending, combined to produce an overall decline in all property margins of 6bps.
- 5yr swap rates rose over the second quarter, ending 13bps higher than at the end of Q1 2017.
- A weakening in the forecast for capital growth resulted in a modest rise in Probability of Default and Expected Loss over Q1.
- Senior CRE lending offers an extremely healthy premium of 2.3%pa to the risk-free rate, on a risk adjusted basis.
- Against corporate debt, the relative return offered by senior CRE debt remains very strong, at 1.8%.
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