Subordination Premium Calculator

Sub-debt commands premium. This calculator sizes.

Senior rate %

Senior LTV %

Sub debt LTV %

Asset class risk factor

Sub debt rate %

17.80%

Premium vs senior

10.80%

Sub loan stress

15.00%

How the math works

Premium = (3% base + 0.4 × LTV gap) × risk factor. Sub rate = senior + premium.

Senior 7%, LTV gap 15%, factor 1.2: premium ~10.8%. Sub rate ~17.8%. Industrial, stabilized, strong sponsor lowers factor to 1.0. Weak sponsor, soft market: factor 1.4+.

How to Use

Enter senior rate %.
Enter senior LTV %.
Enter sub debt LTV %.
Enter asset class risk factor.
Read sub debt rate and premium.

Frequently Asked Questions

Typical premium?

Senior CMBS: 6-7.5%. Mezzanine (70-80% LTV): 10-14%. Preferred equity (80-90% LTV): 12-18%. Premium widens into riskier tranches. Market spreads fluctuate with liquidity — tight in 2021, wide in 2023-24.

Why subordinate?

Higher yield than senior. Equity-like in upside (participation). Limited downside (priority over common equity). Risk-adjusted return can exceed equity on well-sponsored deals. Institutional: 10-20% of fund allocation to subordinated positions.

Liquidity?

Secondary market for mez/pref small but growing. Price often 70-90% of face (illiquidity discount). Hold-to-maturity common. Mature in 2-7 years typical. Re-trade on major life events (refi, sale).

How often should I rerun this?

Rerun this calculator whenever inputs change materially — new rent roll data, rate moves, loan balance updates, or quarterly operating data. For active deals, monthly refresh is typical. For stabilized assets under monitoring, quarterly is fine. Treat the output as a decision tool, not a one-time answer — market conditions evolve and so should your analysis.