- What Are Basis Points?
- Why Basis Points Exist
- How Basis Points Are Used in Commercial Real Estate
- Interest Rate Quotes and Changes
- Credit Spreads
- Origination Fees and Points
- Cap Rate and Yield Movements
- The Dollar Impact of Basis Points
- Basis Points in Common CRE Loan Pricing
- Compare Lender Pricing on Your Deal
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What Are Basis Points?
A basis point is one hundredth of a percentage point (0.01%). In commercial real estate finance, basis points are the standard unit for expressing interest rate changes, credit spreads, yield movements, and fee structures. The abbreviation is "bps" (pronounced "bips") or "bp" for a single basis point.
The conversion is straightforward:
| Basis Points | Percentage | Decimal |
|---|---|---|
| 1 bp | 0.01% | 0.0001 |
| 10 bps | 0.10% | 0.001 |
| 25 bps | 0.25% | 0.0025 |
| 50 bps | 0.50% | 0.005 |
| 100 bps | 1.00% | 0.01 |
| 200 bps | 2.00% | 0.02 |
Why Basis Points Exist
Percentages create ambiguity. If someone says a rate "increased by 2%," that could mean two different things: the rate went up by 2 percentage points (from 5% to 7%) or the rate increased by 2% of its current value (from 5% to 5.10%). In commercial real estate, where fractions of a percent translate into tens of thousands of dollars, that ambiguity is unacceptable.
Saying "200 basis points" eliminates the confusion. It means exactly 2.00 percentage points. No interpretation needed.
How Basis Points Are Used in Commercial Real Estate
Interest Rate Quotes and Changes
Lenders, brokers, and capital markets professionals quote rate changes in basis points. When the Federal Reserve raises the federal funds rate by 25 basis points, they are increasing it by 0.25 percentage points. When a CMBS lender tightens pricing by 15 bps, the spread over Treasuries dropped by 0.15%.
Credit Spreads
Most commercial real estate loans are priced as a spread over a benchmark rate. CMBS loans are typically quoted as a spread over the swap rate or Treasury yield. For example, "Swaps plus 180" means the coupon is the current swap rate plus 180 basis points (1.80%). If the 10-year swap rate is 3.90%, the all-in rate is 5.70%.
Bank loans often price over SOFR (Secured Overnight Financing Rate). A floating-rate bridge loan might be quoted at "SOFR plus 350 bps," meaning the rate floats at the current SOFR rate plus 3.50%.
Origination Fees and Points
Loan origination fees are expressed in basis points of the loan amount. A 100 basis point origination fee on a $5 million loan is $50,000 (1.00% of $5 million). Some lenders quote fees at 50 bps, others at 200 bps. Knowing the conversion lets you compare fee structures across different lenders quickly.
Cap Rate and Yield Movements
Cap rates move in basis points. When a broker says "cap rates compressed by 50 basis points over the last year," that means a property that traded at a 6.00% cap rate a year ago might now trade at 5.50%. On a property with $500,000 in NOI, that 50 bps of cap rate compression increases the implied value from $8.33 million to $9.09 million.
The Dollar Impact of Basis Points
On commercial loans, small basis point differences translate into real money. Here is what 25 basis points means on different loan sizes, measured as additional annual interest cost:
| Loan Amount | 25 bps Annual Impact | Over 10-Year Term |
|---|---|---|
| $2,000,000 | $5,000 | $50,000 |
| $5,000,000 | $12,500 | $125,000 |
| $10,000,000 | $25,000 | $250,000 |
| $25,000,000 | $62,500 | $625,000 |
| $50,000,000 | $125,000 | $1,250,000 |
This is why rate shopping matters. A broker who secures pricing that is 15-25 bps tighter than the next best offer has earned their fee many times over on larger deals.
Basis Points in Common CRE Loan Pricing
Here is how basis points appear in typical commercial real estate loan pricing structures. These are general ranges and vary by lender, property type, market, and borrower strength.
| Loan Type | Typical Spread (bps over benchmark) | Benchmark |
|---|---|---|
| CMBS / Conduit | 150-250 bps | Swap rate or Treasury |
| Fannie Mae DUS | 140-225 bps | Treasury |
| Freddie Mac Optigo | 140-220 bps | Treasury |
| Bank (fixed) | 175-300 bps | Treasury or swap |
| Bank (floating) | 200-350 bps | SOFR |
| Bridge loan | 300-600 bps | SOFR |
| Life company | 125-200 bps | Treasury |
These ranges shift with market conditions. In a tight credit environment, spreads widen. When capital is abundant and competition among lenders is high, spreads compress.
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Try Janover Pro →Disclaimer: This glossary entry is for educational purposes only and does not constitute financial, legal, or investment advice. Loan pricing, spreads, and rate benchmarks change frequently. Consult with a qualified commercial real estate professional for advice specific to your transaction.
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Try Janover Pro →This content is for informational and educational purposes only and does not constitute financial, legal, tax, or investment advice. Janover Pro is a technology platform that connects commercial mortgage brokers with lenders. Janover Pro is not a lender and does not make lending decisions. Loan terms, rates, eligibility, and availability are determined by individual lenders and are subject to change without notice. Consult qualified financial and legal professionals before making financing decisions.
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