What is a CMBS loan?

How does a CMBS loan work?

A loan originator (a bank, an investment bank, or a non-bank conduit lender) closes a fixed-rate commercial mortgage to your specifications. Within 60 to 120 days, that loan gets pooled with 30 to 60 other loans and sold to bond investors as a CMBS securitization. The bond investors get the principal and interest payments; you, the borrower, are now serviced by the master servicer named in the pooling and servicing agreement (PSA).

Day-to-day servicing, collecting payments, managing escrows, processing routine consents, is the master servicer's job. If the loan goes into default or material non-monetary trouble, control passes to a special servicer, whose job is to maximize recovery for bondholders.

What is a CMBS loan good for?

Long-dated fixed-rate non-recourse debt on stabilized cash-flowing CRE, typically 5- or 10-year terms with 30-year amortization, 60% to 75% LTV, no recourse beyond standard carve-outs, and pricing tied to the swap curve plus a credit spread. Best uses are stabilized retail (with credit tenants), industrial, hotel (with proven flag), self-storage, and certain mixed-use product.

What is a CMBS loan bad for?

Anything requiring flexibility. CMBS prepayment is locked-out for the first 1 to 2 years and then defeased or yield-maintained for the remainder of the term, both of which are expensive. Modifications and consents are slow and formal; expect 30 to 90 days for routine asks. CMBS is a poor fit for value-add stories that may need flexibility on capital plans, leasing, or partial sales.