Commercial properties have proven incredibly popular amongst investors in recent years. Since commercial real estate is broken into categories like multi-family homes and retail spaces, it offers the opportunity to create several points of income by renting out multiple units on a single property. Due to this, CRE is more expensive than residential options. If you’re looking for financing assistance for your investment, CMBS conduit loans may offer the perfect solution. Review these points to determine if this option is the best fit for your investment plans. 

A Breakdown of How CMBS Loans Work

Banks and other large lending institutions do not offer loans for commercial properties as easily as they do residential options. If you’re just starting out in the world of CRE or don’t have the credentials a bank is looking for, you may have a hard time securing the investment funds you need. Conduit loans offer a perfect alternative, providing investors with fixed rates and an easier application process. Commercial mortgage-backed security loans go through a securitization process where the mortgage is bundled with loans of a similar structure and sold to interested parties on the secondary market. 

Factors That Influence Interest Rates for CMBS Financing

Though CMBS conduit loans offer better rates when compared to other commercial financing services, there are several factors that can influence what the rate will be. The overall quality of the property will have an impact on the interest rate, with real estate graded higher being more likely to deliver lower rates. If tenants already inhabit units on the property, their ability to make consistent rent payments can influence the rates. Additional factors that can impact interest rates include the location of the real estate, how the property is managed and cared for, and the bond grade of current tenants. 

The Advantages and Drawbacks of Conduit Loans

Outside of fixed rates, there are many advantages to using conduit loans to finance commercial properties. For one, CMBS loans are available to those who may be denied traditional bank loans due to low credit ratings or a lack of collateral. Additionally, conduit loans are structured as non-recourse financing. This means that you will not lose the property to the lender in the event that you default on the loan. Conversely, one of the biggest drawbacks to using conduit loans is that it is difficult to get out of the financing earlier than scheduled without incurring prepayment penalties. 

While purchasing commercial real estate is a fantastic way to build wealth as an investor, financing the property can often prove complicated. Learn more about CMBS conduit loans and similar alternative financing services to see which options are best for your long-term investment goals.