Commercial mortgage-backed securities (CMBS) are first-position loans that are tailor-made for financing your commercial real estate ventures. The spate of building types for which they are most viable include retail warehouses, office buildings, apartment complexes, storage unit (buildings), condos, multifamily residences and shopping malls. The primary lending institutions from which you can obtain these loans include commercial banks, conduit lenders and specialized investment banks.
Primary Features of CMBS Loans
Among other things, these types of loans are known for their fixed rate of interest, which spans between 3% and 5%. The term lengths run the gamut: you can get a conduit loan for a 5, 7, 10 year term with an amortization period of 25-30 years.
As for how much you can secure from them, the number is determined in full by features such as underwriting parameters that consist of the debt to service ratio and the loan to value ratio. Under general conditions, you would not pursue a CMBS loan unless you need at least $2 million for the intended commercial property.
The Working Mechanism of a Conduit Loan
The conduit loan is so called because it is actually comprised of a combination of other loan types, which is then put in a Real Estate Mortgage Investment Conduit for interested investors to acquire. The purveyors of the Mortgage Investment Conduit no longer preside over the loan once it is sold to the investor; the bank or lender now deals solely with the investor.
Why Choose CMBS Loans Over Others?
First of all, it is of mutual benefit; the lender can advertise with the pitch that taking on a CMBS loan doesn’t adversely affect the borrowers’ liquidity position. The low interest rates are, of course, always welcome, and the hassle-free underwriting conditions only further these benefits.
If there’s a default on the conduit loan, however, an outside entity known as a servicer will take responsibility from the lender, and enact a viable option. This entails either selling the relevant property, foreclosing on it, or perhaps working with the CRE investor to modify the original terms of the loan.
Contact Sterling Capital Consulting today to learn more about our CMBS Conduit loan program.