Commercial Mortgage-Backed Securities (CMBS) Loans
Commercial Mortgage-Backed Securities (CMBS) loans are a popular
financing option for commercial real estate projects in the United States.
These loans are available for a wide range of commercial properties and
offer several advantages compared to other commercial property financing methods.
CMBS loans, or “conduit loans,” are named after their resale as securities.
They are bundled and sold to investors as fixed-income instruments,
effectively transforming into bonds. This gives commercial property owners
an indirect way to access bond investors’ capital.
(CMBS) Loans Terms
Eligible Properties: | Multifamily, Office, Warehouse/Industrial, Mixed Use, Retail, Medical/Healthcare, Self Storage |
Loan amount range: | Minimum $2,000,000 |
Interest Rate: | Fixed rate throughout term and priced over corresponding swap rate. |
Loan Term: | 5, 7, and 10-year fixed |
Amortization: | 25-30 year amortization with up to 10 years of interest-only available in select instances. |
Maximum LTV: | 75% |
Minimum DSCR | 1.20-1.25x |
Minimum Debt Yield: | 7-8% |
Recourse: | Non-recourse except industry-standard "bad boy act" carve-outs. |
Prepayment | Typical 2 to 3 year lockout, defeasance or yield maintenance thereafter. |
Reserves: | Taxes, Insurance, Replacement Reserves, Tenant Improvements and Leasing Commissions typically required. |
CMBS Loan Cons
- Difficulty releasing collateral
- Expensive to exit (long lock-out periods may require defeasance in order to exit the loan early)
- Dealing with a master servicer may be challenging for borrowers
- Reserves required
- Secondary financing is sometimes prohibited
- Loans are fully assumable
- Legal fees can be particularly expensive
CMBS Loan Pros
- Non-recourse
- Competitive rates for long-term financing
- Relatively high leverage
- Flexible loan sizes
- Cash-out refinancing options available
- Borrowers with credit and legal issues may qualify
- Relatively relaxed borrower net worth requirements
- Mezzanine financing and preferred equity may be arranged in some scenarios