CMBS Loans 101: A Definitive Guide

Interested in a secure option for gaining capital for new projects?  Commercial mortgage-backed securities (CMBS) loans aren’t widely known but are becoming more popular since they offer several advantages for borrowers and lenders.

CMBS Loan Defined

This commercial real estate loan is backed by a commercial mortgage. Held by commercial banks, investment banks or conduit lenders, CMBS loans are usually used to finance property such as hotels, apartments, offices, retail space, or warehouses. CMBS loans are available in traditional or delegated versions.

  • Traditional CMBS loans mirror conventional loans, with terms set by the investor and lender. A trust vehicle is appointed by the lender and the loan is separated into bonds (tranches) reflecting a risk assessment of the loan value.
  • Delegated CMBS loans have a single buyer. Terms are set by the originating financial institution before the loan application is completed.

Uses for CMBS Loans

CMBS loans are versatile financing tools for several audiences, including real estate developers and investment companies and commercial real estate (CRE) investors.

  • Borrowers use CMBS loans for profitable commercial property development, either new construction or renovation. Some of the profits from the development repay the loan completely or according to the terms of the agreement.
  • Capital from CMBS loans can help foreign-based companies finance headquarters in new countries.
  • Investors in CMBS loans add value through new office and retail spaces and residential properties.

Getting CMBS Financing

The process for obtaining a CMBS loan includes research and negotiating, but the time invested will pay dividends.

  • With the loan amount and property type outlined, talk with several financial institutions to find the best pricing and terms.
  • CMBS loan agreements contain standardized terms, usually around prepayment penalties and balloon payments, but you can negotiate loan term and assumption.
  • Discuss the collateral for the loan. Typically, this is the property being built or renovated but can also be bonds.

For more information about the CMBS loans available at 8th Street Capital, contact our team. And if a CMBS loan isn’t right for you, we’ll find the flexible financing solution you need.

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