Interest Rate and Cap Rate Delta When analyzing Syndication Deal

[Duke Giordano]

Hey Guys,

I am trying to get an idea of whether evaluating the delta between interest rate and initial cap rate is a reasonable metric to evaluate when analyzing a syndication deal? For example, if the cap rate is 5.5 and interest rate on loan is 3%, the delta is 2.5. If so what are some target Delta's in different asset classes such as Multi-Family, Self Storage, Mobile home (I have heard a target Delta of 3 is desired in Mobile home class). Does this vary by market, or is this parameter independant of market geography? Id be curious to hear what some target metrics others look for in this delta when analyzing a deal. It goes without saying that this delta allows the deal to have a chance at profitability, so thats why it appears it should provide a value, at least on face value. In addition, the loan terms LTV/LTC I realize effect overall profitability in relation to this delta, but I am trying to keep it simple.

Thanks in advance for your time and answers.