CMBS loans are an attractive choice for multifamily property owners who wish to take advantage of their lower loan-to-value (LTV) ratio and interest rate spreads. Furthermore, this type of financing is highly flexible, enabling CRE buyers to obtain this funding even if they don’t meet the usual liquidity or net worth criteria set by traditional lenders.
1. Continuity of Lender
CMBS loans, also referred to as conduit loans, are one of the most sought-after types of commercial real estate financing. They can be applied for almost any income-producing property such as office buildings, shopping centers, apartment complexes and hotels.
Bank loans, which typically remain on a lender’s balance sheet, cannot be securitized and sold to investors on the secondary market. Therefore, borrowers must meet certain qualifications in order to be approved for a CMBS loan – requirements which may be quite stringent.
In addition to various requirements, CMBS loans typically undergo a rating agency confirmation process which helps prevent any actions that could lower the loan’s credit rating below an acceptable level. Furthermore, these loans tend to be fully assumable – meaning if you decide to sell your commercial property, the loan can be transferred along to the new owner without incurring an additional fee.
2. Flexibility of Financing
CMBS loans are tailored for those who may not qualify for conventional mortgages due to poor credit or strict collateral/net worth requirements. Furthermore, they offer non-recourse financing – this means even if you default on your loan, the lender cannot seize any of your personal assets to recover repayment.
Commercial real estate loans offer businesses flexibility by providing lower interest rates and payment terms. This can be especially helpful when your company experiences rapid growth or other short-term payment delays.
CMBS loans are packaged into bonds called commercial mortgage-backed securities and then resold on the secondary market to investors. This allows CMBS lenders to recycle capital while making a profit through arbitrage. Furthermore, it makes these loans more affordable for borrowers since the bonds they’re sold with typically have greater values than their individual loan amounts.
3. Lower Interest Rates
Commercial Mortgage-Backed Securities (CMBS) loans typically feature lower interest rates than traditional commercial mortgages due to their structure that minimizes the risk of prepayment or default.
CMBS loan interest rates are usually fixed for the life of the loan, rather than revolving. This eliminates the risk that borrowers will end up paying higher interest rates when refinancing.
Loan rates for CMBS loans can differ based on a property’s location and type. Generally speaking, those in stronger markets will have lower spreads than those situated in weaker ones.
4. Flexibility of Payments
CMBs loans provide commercial real estate investors with a great advantage when it comes to payments. They provide lower loan and mortgage payments that can assist borrowers purchase properties during times of rapid growth, payment delays or other difficult cash flow situations.
CMBS loans are non-recourse, meaning even if you default on your loan, the lender cannot pursue personal property to recover the money. This is a huge benefit for borrowers with poor credit histories or who must meet strict collateral/net worth requirements.
Loans like yours may be packaged together and sold on the secondary market through securitization, or collateralized mortgage-backed securities (CMBS). Unfortunately, CMBS lenders don’t service these loans themselves; rather, they contract out servicing to a third-party servicer who may not always put your needs first.