cmbs loan

March 12, 2020 2 min to read

What are CMBS loans and how are they used

Category : Finance

If you are just starting out in the commercial real estate world, then you have probably heard of CMBS loans. It is essential for you to know what a CMBS loan is and how it works as this may aid you in making prudent decisions when it comes to your commercial property investment ventures in the future.

What is CMBS?

A CMBS loan, which stands for Commercial Mortgage-Backed Securities loan, is a protected and tenable loan usually offered on commercial properties.

Also called conduit loans, CMBS loans have recently been on the rage these days when it comes to commercial real estate financing. This secured loan provides liquidity both to commercial lenders and to the real estate investors.

This loan is mainly reserved for commercial real estate with a stabilized price for several years. As soon as the financier has verified and ascertained that the real estate has a stabilized value for a couple of years, the CMBS loan can be made.

CMBS loans are popular with both investors and lenders due to their lenient credit requirements and lower prepayment risk. Usually, they follow agreed fixed-rate terms of either 5, 7, or 10 years.

Qualities of a CMBS Loan

In general, CMBS lenders have more lenient financing standards than banks. Thus, it is no wonder why real estate investors and lenders opt to opt for this type of loan.

CMBS loans usually have the following qualities to fulfill with REMIC regulations, except for some instances.

  • A preset interest rate with interest-only period
  • Term lengths of up to 5, 7, to 10 years and occasionally could go up to 15 years
  • A period of amortization up to 25 to 30 years
  • Balloon payment at the end of the term
  • Loan-to-value ratio not exceeding 75%
  • Debt Service Coverage Ratio of at least 1.25 times
  • Debt yield which starts at 7 percent
  • Debtor net worth requirement of at least 25 percent of the amount borrowed
  • 5% post-closing liquidity of the credit amount
  • It can be assumed but with a specific fee. For instance, the owner of the property on a CMBS loan would want to sell the property. Thus, the buyer must be eager to take responsibility for the loan to avoid prepayment penalty.
  • Naturally, they will not allow other supplemental or secondary financing
  • Oblige the debtor to dismiss reserves for insurance, taxes, and other important purposes
  • Advance payment penalty structures of yield maintenance or defeasance

How CMBS works

Commercial Mortgage-Backed Securities loans are accessible for several commercial properties which include retail properties, multifamily properties, industrial buildings, warehouses, office buildings…
Continue reading the article and learn more about CMBS loans on

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