CMBS loans are fixed-rate non-recourse commercial mortgages pooled into bond securitizations. Best for stabilized industrial, retail, hotel, and self-storage at 60% to 75% LTV; non-recourse with bad-boy carve-outs ; standardized terms with defeasance prepayment. Use CMBS when you value execution and price over flexibility.
How CMBS works full
A conduit lender (typically the CRE finance arm of a major investment bank, plus a few specialty conduits) originates fixed-rate commercial mortgages to standardized credit-box specifications. Within 60 to 120 days post-closing, the loan gets pooled with 30 to 60 other loans and sold to bond investors as a CMBS securitization. The borrower is now serviced by the master servicer named in the pooling and servicing agreement (PSA).
Day-to-day servicing, payments, escrows, routine consents, is the master servicer's job. If the loan defaults or hits material non-monetary trouble, control passes to a special servicer whose duty is to maximize recovery for bondholders. The borrower's relationship is therefore mediated by the servicing structure, not a relationship with the originator.
What CMBS does well
Stabilized non-multifamily middle-market deals: industrial $5M to $200M, credit-tenant retail, hospitality with proven flag, self-storage. Large-balance multifamily where agencies cap. Office where the property is trophy or has credit-grade single-tenant character.
CMBS loans can provide fixed-rate financing for stabilized properties. Compare maturity, amortization, recourse exceptions, reserves and prepayment requirements with other proposals.
What CMBS doesn't do well
Anything that requires flexibility. Lockout for the first 1 to 2 years. Defeasance or yield maintenance for the rest of the term. Open prepayment window typically only the last 90 days. Modifications take 30 to 90 days through the master and special servicers.
Non-stabilized properties (use bridge first). Properties with significant rollover or business-plan execution required. Sponsors who prioritize prepayment flexibility over headline pricing.
Sizing math
Three independent tests, lowest binds: debt yield 8.5% to 10.0% depending on asset; DSCR 1.25x to 1.45x at the proposed rate and 30-year amortization; LTV 60% to 75% on the as-is appraisal.
On a $1M NOI stabilized industrial property at $14.3M as-is value: debt yield max at 9% = $11.1M; DSCR max at 1.30x / 6.20% / 30yr = ~$10.4M; LTV max at 70% = $10M. LTV binds; loan = $10M.
Defeasance and yield maintenance
Defeasance: replace the real estate collateral with a Treasury/agency portfolio that pays the same scheduled cash flows. Loan stays in the trust; borrower walks free. Cost is the gap between loan balance and replacement portfolio cost (large when current rates are below the loan rate; small or negative when above).
Yield maintenance: present-value calculation of the lender's lost interest if paid early. Common on smaller-balance CMBS and some non-conduit fixed-rate loans. Generally cheaper than defeasance when rates are below the loan rate; never goes below the floor (typically 1% of balance).
When CMBS is the right answer
Stabilized property with at least 12 months operating history, healthy debt yield (8.5%+), and a 5+ year hold horizon where prepayment flexibility doesn't dominate the decision. Pricing typically wins vs. agency for non-multifamily and competes with life cos at moderate leverage.
Worth quoting CMBS in parallel with life co on every stabilized non-multifamily refi over $5M. The CMBS spread can be inside life co some weeks and outside others; the only way to know is to quote both.
Process and timeline
Term sheet 7 to 14 days after the package goes out. Closing 60 to 90 days after term sheet. Third-party reports (appraisal, environmental, engineering, zoning, survey) consume the first 4 weeks. Lender legal docs and borrower review consume the next 4 weeks. Title, insurance, and closing checklist run in parallel through the final 2 to 3 weeks.
Rate is typically set at application or commitment based on Treasury benchmark plus a credit spread, not locked at term sheet. Rate-lock options exist for an additional cost and are typically used in periods of high volatility.
Frequently asked questions
What is the minimum CMBS loan size?
Most conduits prefer $5M+ for cost-efficient securitization. Some specialty conduits go down to $2M; pricing is wider.
Can a CMBS loan be assumed by a buyer?
Yes, with lender consent and an assumption fee (typically 1% of balance plus legal). The buyer must satisfy the lender's underwriting on creditworthiness and business plan.
What happens if I default on a CMBS loan?
The loan transfers to special servicing. Outcomes range from extension and modification to A/B note bifurcation, discounted payoff, deed-in-lieu, or foreclosure depending on borrower posture, asset characteristics, and special-servicer assessment.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Financial Stability Report · Board of Governors of the Federal Reserve System · 2025-11
- Treasury Constant Maturity Series (DGS5, DGS10) · Federal Reserve Bank of St. Louis (FRED) · weekly