CMBS

CMBS Loans

Commercial Mortgage-backed Securities, also known as Conduit Loans, are a type of commercial real estate loan that is secured by a first-position mortgage on a commercial property. These loans are offered by Conduit Lenders, commercial and investment banks, or syndicates of banks. A CMBS Loan has a fixed interest rate (which may or may not include an interest-only period) and is typically amortized over 5, 7, or 10 years (with 15 years as a rare exception) and 25-30-year, with a balloon payment due at the end of the term. Because the loans are not held on the Conduit Lender’s balance sheet, CMBS Loans are a great way for these lenders to provide an additional loan product to Borrowers while at the same time maintaining their liquidity position. Because of the more flexible underwriting guidelines, CMBS Loans also allow CRE investors that cannot usually meet stringent conventional liquidity and net worth guidelines to be able to invest in commercial real estate.

Characteristics of CMBS Loans

Recourse. CMBS (Conduit) Loans are always Non-Recourse, except for what is colloquially termed the “bad-boy carve outs.” What this means is that the Borrowers are not personally liable for the repayment of the loan and that the collateralized property and its cash flows would be the sole source of repayment of the debt in the event of a default or foreclosure. However, in the event the Borrower actively participates in an activity that could cause harm to the property, Conduit Lender, or investors, there could be springing recourse in some limited circumstances; this may include loan fraud, property transfer or subordinate financing without consent of the Lender, voluntary or collusive activity leading to a bankruptcy filing or failure to maintain SPE status, among other such actions.
Sources: Understanding Cmbs Loans.Commercial Loan Direct