I’m working on a ~$90mm multifamily deal for a university in Buffalo, NY. My manager assigned me the task of establishing the reasonableness of a proposed 9 percent subordinated note (which our client believes prima facia is reasonable given a 2-3 percent spread between senior and subordinate debt). Could somebody point me to a good source on commercial interest rates in the U.S. (preferably FREE sources)? Just need about 5 sources to establish “reasonableness.” Thanks.
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Gracias. Nice source.
I think you should use Miller and Modigliani. The rate for the sub debt depends on your gearing. For example, a project geared 30/20/50 Senior/ Sub/Equity would have a completely different rate to one geared 90/9/1. If however you are talking about the equity providers putting in sub debt for tax reasons then the only matter is what they can get away with from the tax authorities. In the UK it needs to be an arm’s length rate which in practice is anyone’s guess, or what was used on the previous project - 9 percent would be fine.