An Introduction to CMBS Loans
As an investor, you may have to apply for a variety of different kinds of loans throughout your career for a number of reasons. You may need to borrow money to start out investing, or you may need a loan to bridge the gap between purchasing one property and getting returns on another. For a lot of investors, CMBS loans are a great solution. Here is some more information about this borrowing option.
CMBS Conduit Loan
A CMBS is also known as a conduit loan. CMBS stands for Commercial Mortgage Backed Security. It is a commercial mortgage that is usually packed with other commercial loans of a similar type and then sold in the secondary market in a process called securitization. The loans will be held in a trust and they will be collateral. Conduit loans are permanent, fixed-rate commercial real estate loans, and they usually provide lower rates compared to traditional loans. This is why they are a good solution for someone looking to fund their next investment purchase, because they are easier to budget monthly payments for. The rates are based on the comparable treasury rate plus a spread. The spread is determined by many aspects of the properties you own, such as property quality, tenant quality, location, management and more.
CMBS loans have different prepayment procedures than traditional commercial loans; they typically use defeasance, which allows the borrower to purchase different collateral for the loan. This involves a purchase of US Treasury securities, and there is no minimum prepayment. In some cases, the borrower can actually receive a payment during this process.
Conduit loans are relatively unknown to a lot of investors since a lot of small banks don’t offer them. They have been around since the late 90s, and they can offered a few benefits to the borrower. For example, if you want higher leverage and lower fixed-rates, this is the loan for you. Conduit loans usually come from life insurance companies, pension companies, financial services firms and larger banks, including investment banks. The lender will usually hold the loan until it is securitized, which takes typically less than two years.
There is a lot of information that can be learned about CMBS loans, and if you are relatively unfamiliar with them it can be a little confusing to understand how they work. If you are interested in pursuing this type of loan, it is wise to speak to your accountant or financial advisor for more information before you get started.
If you think CMBS Loan is right for you, speak with us at Source Commercial Funding by calling 202-753-8866 to learn more about your options.