CMBS Loans and Conduit Financing
A CMBS Loan (commercial mortgage backed security), also known as a Conduit Loan, plays an intricate role when it comes to commercial real estate financing. CMBS loans are secured by a first-position mortgage on a commercial property which in most cases is cash-flowing and stabilized.
After the loan is closed, the issuing conduit lender will look to package and sell the loan into a pool. This process is called securitization, whereby the loan is sold to investors and carries a specific rate of return. During the securitization, hundreds and at times thousands of similar loans varying in size, interest rate and property types are pooled together.
CMBS investors have the ability to invest in various geographic location, property types and the credit rating, assessed by credit rating agencies. There are several different tranches from which investors choose to invest their capital. Each tranche represents a specific risk factor and rate of return for that associated risk.
CMBS loans have become a very popular source of capital for commercial real estate investors looking for higher leverage, 30-year amortization and a longer loan term than what most conventional banks can offer. Conduit lenders can also offer full-term interest only loans which is viewed as a critical advantage by some real estate investors looking for cash-flow.
CMBS interest rates are competitive and the loan is non-recourse, with standard “bad-boy” carve-outs. Interest rates are often fixed for 10-years, however, 5 and 7-year term loans are also available. CMBS loans often come with more stringent prepayment provisions such as Defeasance and/or Yield Maintenance to protect the guaranteed yield to bond investors.
Conduit lenders offer flexible underwriting guidelines, allowing novice commercial real estate investors to be financed creatively where a local savings bank may have been reluctant to lend. The vast majority of Conduit Loans are assumable, typically for a fee that was negotiated at Loan Document stage before closing. This mechanism allows the current owner to sell the property to a perspective buyer who subsequently assumes the ownership position and the terms of the existing loan.
Integra Real Estate Capital maintains its unique relationships with core CMBS lenders. We assist clients in obtaining competitive conduit loans and negotiate aggressively on their behalf to achieve their goals and objectives.
Speak to one of our professionals about your next project: (212) 353-2800
There are many positive attributes to CMBS loans, some of which are listed below:
- Higher Leverage (75% LTV)
- Longer Amortization (30-Years)
- Non-Recourse (with carve-outs)
- Flexible Underwriting
- Interest Only Option
- Longer Term
- Low Interest Rates
- Available in secondary and tertiary markets