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Discount Rate Spread Calculator
Every DCF embeds a discount rate. This calculator decomposes it into risk-free + risk premium so you can sanity-check the spread.
Project spread (bps)
475
Delta vs typical
75
Assessment
In range
How the math works
Spread = (discount − risk-free) × 100 bps. Compare to asset-class benchmarks.
If your DCF uses a spread materially below benchmark, re-underwrite. Under-discounted models hide negative outcomes and produce overbidding. Calibrate quarterly against lender quotes and published surveys.
How to Use
- Enter project discount rate.
- Enter 10-year treasury yield (risk-free proxy).
- Enter asset-class typical spread.
- Read premium vs benchmark.
Frequently Asked Questions
Typical spreads?
Multifamily: 250-400bps over 10Y. Office: 400-600bps. Hotel: 500-800bps. Opportunistic: 700-1000bps. Spreads expand with asset risk and market uncertainty.
What if spread too low?
Under-discounted cash flows inflate NPV. Deals pencil that shouldn't. Under-pricing risk is a top LP complaint in underwrites.
Calibration?
Review recent comps. Survey lender quotes (all-in rates). Cross-check against PwC/Korpacz quarterly surveys. Spreads drift with credit conditions; update annually.
How does this interact with the rest of the capital stack?
Each tier of the stack affects the next. Senior debt constrains LTC and DSCR. Mezz and pref consume equity spread. Interest rate hedges protect DSCR but cost premium. Always model the full stack holistically — optimizing one tier alone often degrades another. Institutional underwriters run three or four scenarios across the stack before committing capital.
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