Debate: Is it smarter to lock in a fixed rate now or float with SOFR for a multifamily deal?

I keep seeing people push fixed-rate CMBS loans for 5-year terms like it's the only safe play, but with SOFR still under 5%, floating seems way cheaper for a value-add property in Phoenix I'm looking at. Last month a lender quoted me SOFR+250 with a floor at 6%, while fixed was at 6.8%, and I estimate the spread could save me $15k a year if rates hold. Are you guys locking in for peace of mind or riding the floating wave and hoping the Fed cuts come through?

2 comments

2 Comments

thea1438d ago

yeah I did a similar deal in Atlanta last year and ended up going floating with a cap - the savings were real for the first year but then SOFR started creeping up and it got tight. honestly wish I'd just locked in fixed for the peace of mind cause the margin on value-add is thin enough without worrying about rate hikes.

angelapalmer8d ago

One thing in your numbers is off a little - that SOFR+250 with a 6% floor means your actual rate is already 6% right now, not under 5%. SOFR is around 5.3% last I checked, so add 250 bps and you're at 7.8%. The floor kicks in if SOFR drops, but right now it's higher than the floor. So that $15k savings you figured is probably wishful math unless you're betting on SOFR falling hard. I get why floating looks cheaper on paper with fixed at 6.8%, but with that floor, you're not saving much today. Plus value-add deals in Phoenix are seeing cap rates compress, so any rate jump could eat your margin quick. I'd run the numbers again with the actual current rate before deciding.