Thread by @ClarenceWongCRE

So cool when someone on #retwit teaches you a concept & you run across it.

@MattLasky asked me about credit on interest rate cap counterparties for diff quotes we got.

Buy downgraded interest rate cap if accepted by lender. A- on S&P & A3 Moody’s vs A+ & A1 respectively.

$47k savings using downgraded credit; actually sub A- S&P & A3 Moody’s.

If the lender is fine with the “lower trigger downgrade requirement”, will run with it.

@CREGraveDancer @DallasAptGP

For bridge debt, eg a 3-yr term w/ two (2) 1-yr extensions, interest rate is typically SOFR + spread (basis points aka bps eg 300 or 3%)

So by buying an interest rate cap for let’s say x yrs, you put a ceiling or “cap” on the SOFR & fix your all-in rate for x yrs.

For bridge debt, a 3-yr term w/ two (2) 1-yr extensions is also known as a “3-1-1”.

Some lenders require you to purchase a “full term” interest rate cap, so a x-yr cap to match the x years of the loan.

Others might be fine w/ let’s say a 2-yr interest rate cap on a 3-yr loan. Or 1 yr at a time aka “rolling interest rate caps”.

Adding color to thread above.