CMBS and Conduit Loans
Through Source Realty Capital’s CMBS Conduit loan platform, we deliver exceptional access to real estate capital markets for the acquisition and refinance of virtually all real estate asset classes. Our CMBS Conduit loan solutions offer non-recourse permanent fixed rate financing and covers the full capital stack. We also offer cash-out refinance and interest-only alternatives.
What is a CMBS/Conduit Loan? CMBS Loans (Commercial Mortgage Backed Securities), also known as Conduit Loans, play a key role for owners and investors of commercial real estate. CMBS loans are generally issued for stabilized, cash-flowing properties. The loan is secured by a first-position mortgage on property. These loans are securitized and sold to investors once the loan is closed.
What is Securitization? Securitization is when hundreds, and at times thousands, of comparable loans with different size, interest rate and property types are packaged together and transferred into a trust. Investors choose which CMBS bonds to purchase based on the level of credit risk, geographic location, property type, interest rate and loan duration. There are several different tranches from which investors choose to invest their capital. Each tranche represents a specific risk factor and rate of return for that associated risk.
CMBS loans have become a widespread source of capital for savvy commercial real estate investors since they allow for higher leverage, 30-year amortization and are generally non-recourse, which is more advantageous than what conventional banks can offer. Real estate investors looking for increased cash-flow can also obtain full-term interest only loans which are regarded as a critical advantage by some. However, CMBS loans frequently come with more rigid prepayment provisions such as Defeasance and/or Yield Maintenance to ensure that the guaranteed yield is paid to the bond investors.
Compared to a local saving bank or other traditional long-term debt provider, conduit lenders offer flexible underwriting guidelines, allowing novice commercial real estate investors to obtain a relatively cheap source of permanent capital. By and large, the vast majority of CMBS/Conduit loans are assumable, typically for a predetermined fee that was negotiated prior to closing. This is a very advantageous feature, especially in a time of raising rates, because it allows the owner to sell the property to a perspective buyer who can subsequently assumes the ownership position and the terms of the existing loan.