CMBS loans, also known as conduit loans, are non-recourse and offer low interest rates and relatively high leverage, with LTVs going upto 75% for eligible properties. (CMBS stands for “commercial mortgage backed security,” as these loans are pooled into securities and sold on the secondary market to investors). CMBS financing is often ideal for projects that are not a good fit for agency lenders like Fannie Mae or Freddie Mac.
Since CMBS is primarily asset based, lenders are more likely to approve borrowers with credit or legal issues, such as a recent bankruptcy. These loans are also ideal for situations that require a faster closing process, with less red tape and more focus on the property income than the borrower. CMBS loans are available for properties in most commercial real estate asset classes, including office buildings, retail centers, apartment buildings, hotels, industrial properties, and more. CMBS Loans Can Offer Significant Advantages and Benefits for some Multifamily Investors.
NOTE: CMBS borrowers should understand that, unlike bank loans, you will not be dealing directly with your lender after your loan has been securitized and sold to investors. Instead, you will work with a master servicer, a company which specifically works to administer (collecting payments, property inspections, etc.) conduit loans.
Example CMBS Terms for Apartment & Commercial Property Loans
Size: Typically,$2 million, and up
Term: 5, 7, and 10 year fixed
Interest Rates: Typically based on a margin (~200bps) over the swap rate
Amortization: 25 to 30 years
Maximum LTV: Up to 75%
Minimum DSCR: From 1.25x+
- Attractive fixed rates
- Up to 75% LTV
- Will consider non-Class “A” assets
- Less scrutiny for borrowers
- Provides cash-out refinancing
- Loans are fully assumable
- Can be combined with mezzanine debt or preferred equity in many scenarios
- Limited flexibility to deviate from the terms of the loan documents
- Difficulty in releasing collateral
- Can be expensive to exit (prepayment penalty, defeasance, or yield maintenance)
- Lock outs often prevent prepayment for 2+ years
- Reserves required