What’s the Deal with CMBS Conduit Loans?
If you or your company is considering purchasing commercial real estate, you are likely examining your financing options. One financing method for commercial real estate is the CMBS loan, which is used for many income-generating commercial properties. Understanding what a CMBS loan is, and how it can benefit you, can help you determine if it’s a good option to finance your purchase.
What is a CMBS loan?
A CMBS loan, also known as a conduit loan, is a commercial mortgage that is packaged with other similar commercial loans in a pool. Once they are securitized, they are sold to institutional investors in the secondary market. The loans are held in trust and are used as collateral for the mortgage-backed security. Conduit loans are permanent, fixed-rate commercial real estate loans that typically offer lower rates compared to traditional commercial real estate loans. Because these loans are different from traditional commercial real estate loans, their prepayments and some other features are different. For example, CMBS loans use defeasement, which allows substitute collateral for the loan.
Who gets CMBS loans?
Conduit loans are available for a wide range of commercial real estate that provides income, including:
- Self-storage facilities
- Office buildings
- Retail properties
- Industrial buildings
- Multifamily properties
Individuals and businesses who want to invest in these types of properties may consider getting a CMBS loan in order to acquire the commercial real estate. Specifically, a borrower who is looking for higher leverage and lower rates can benefit from a conduit loan.
How to obtain a CMBS loan
In order to secure a conduit loan, an individual or business must fill out an application with an appropriate lender. The information gathered for the application typically includes:
- Multiple years of tax filings
- Income statements
- Estimated asset value
- Industry information, such as vacancy rates for multifamily
- Additional financial and economic indicators and data
Whether you are looking to purchase your first property or add to your existing portfolio, a conduit loan may be a good option to finance your purchase. Understanding what a CMBS loan is and who obtains them can help you decide if it’s the best path for your property purchase.