What Is A CMBS Conduit Loan? And How Can It Help Me?


In the world of commercial real estate investments, many lenders will refer to using a CMBS conduit loan as a secure solution for financing commercial properties. However – apart from the acronym – very few people know exactly how a CMBS conduit loan works, or why it seems like such an attractive solution for commercial investors.

What is A CMBS conduit loan?

A Commercial Mortgage-Backed Securities Conduit Loan – or CMBS Conduit Loan – is made up of commercial properties that are put together in a pool and then transferred to a trust. Mortgage-backed properties can be anything from hotels and retail properties, to multifamily housing, health care facilities, and even industrial complexes. Once these properties are transferred into a trust, bonds are issues and sold to investors. Since the crash of 2008, very few firms will offer a CMBS conduit loan to a commercial real estate investor, however major Wall Street investment banks, such as Bank of America, Morgan Stanley, and Goldman Sachs will handle a CMBS conduit loan without a problem.


When using a CMBS conduit loan to finance commercial real estate, it pays to weigh the pros and cons. Most CMBS conduit loans are not weighted heavily against the history of a commercial property’s revenue or its market size in a given location, simply because the collateral of the investment is tethered to existing properties. One of the big advantages of using a CMBS conduit loan to finance a commercial property investment is that there is less perceived risk in the service industry and non-profit fields (also known as tertiary markets), and CMBS conduit loans have a reputation of great lending-to-value performance. This is because the properties are already backing the issued bonds.


Ad stated above, one of the biggest drawbacks to a CMBS conduit loan is that very few investment firms are willing to handle it unless the loan is for an amount of $5 million or more, which leaves a lot of reserves for the commercial property owner. Because of that, the upfront transaction fees are higher when using a CMBS conduit loan to purchase commercial real estate.

Ultimately, a CMBS conduit loan is considered a low-risk investment, even though the initial investment may seem a bit high when financing commercial property. It should be noted that most CMBS conduit loans have 10 year terms, and 30 year amortization periods with the option to cash out at the end of that period. In the end, most investors prefer using a CMBS conduit loan as a safe solution to financing commercial properties.


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