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Deferred financing costs are amortized over the maturities of nontraded REIT debt financing. What is the range of annualized cost of debt financing that these expenses add to the weighted average cost of debt financing (calculated based upon the stated interest rates for mortgages and other financing)?

March 28, 2019

Deferred financing costs are amortized over the maturities of nontraded REIT debt financing. What is the range of annualized cost of debt financing that these expenses add to the weighted average cost of debt financing (calculated based upon the stated interest rates for mortgages and other financing)?

Answer: The additional annualized deferred financing costs can add anywhere from 0.05% to 1.44% to the annualized cost of debt financing. For a sample of 38 nontraded REITs with deferred financing costs, the average additional cost of borrowing was 0.36% annualized, added to the weighted average cost of debt of 4.33% for a total average cost of borrowing of 4.66%.

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Gil Armour, CFP
February 3, 2016

I have been using Blue Vault Partners for the past five years.  I have found them to be a valuable, unbiased resource when it comes to evaluating and comparing non-traded REITs.  The reports help me analyze which sponsors are doing a responsible job of managing their offerings.  This allows me to limit my REIT recommendations to only the most competitive products, and then track those REITs throughout their life cycle.