Conduit Loans from $2,000,000+ (CMBS)

Conduit Commercial Mortgage Conduit Loan

Conduit loans, also known as commercial mortgage backed securities (CMBS) loans are a type of mortgage backed security secured by commercial mortgages on commercial properties, such as: apartment buildings, office buildings, retail properties, warehouse and industrial properties and hospitality properties. These loans are called conduit loans and commercial mortgage backed securities loans because they are usually originated by Wall Street Investment Banks which act as a bridge, or conduit, between commercial mortgage borrowers and the capital markets. A CMBS or conduit loan provides liquidity in the capital markets by providing a ready source of commercial mortgage capital to the marketplace. Whereas a traditional bank lender will make a commercial mortgage and hold the loan in its portfolio, a CMBS lender will originate the loan with the intent of combining that loan with hundreds of other commercial mortgages and creating a mortgage pool. That pool of loans is then packaged and sold to investors as securities. Investors in these securities are able to diversify their risk by owning securities backed by many hundreds of loans. When a bank holds an individual loan on its balance sheet, it assumes all of the risk if that loan defaults. Investors in CMBS loans, on the other hand, are secured by a small slice of many loans contained in the portfolio. If a loan defaults, the risk is spread among all of the CMBS investors. Most commercial mortgage backed securities contain many individual commercial mortgage loans of varying size, property type and location, thereby diversifying the overall risk of the security. These loans are pooled and transferred to a trust which issues a series of bonds. These bonds are often subdivided into different tranches (or classes) with varying yield, payment priority and duration. Several national credit ratings agencies rate the bonds into various bond classes. The most safe and secure bonds (least likely to suffer from defaults) are assigned a AAA/Aaa rating. CMBS portfolios may have three or four different bond ratings assigned to any given transaction. When payments are collected from borrowers, bond holders are paid in order of the bond rating: the highest rated bondholders are paid first, etc. Since investors in these securities expect to receive their payments for the life of the bond, all CMBS transactions contain prepayment penalties that require borrowers to pay interest if the loan is prepaid. These prepayment penalties are usually defeasance or yield maintenance. CMBS loans are recommended for mortgage borrowers who are looking for a long term fixed rate who don’t anticipate paying off their loans early.

Participants in a typical CMBS or Conduit transaction:

Primary Servicer – the primary servicer typically maintains the relationship and contact with the CMBS borrower.

Master Servicer – the master servicer typically services (collects payments and pays the investors) up until the default by the CMBS borrower.

Special Servicer – the special servicer will take over the service of the loan in the event that the CMBS borrower defaults.

B-piece Buyer – most institutional clients who purchase CMBS bonds purchase the most highly rated piece of the security, known as the A-piece. The B-piece is the riskier (and higher yielding) portion of the security. These securities are often purchased by investors with significant industry experience who understand the CMBS market and are willing to assume higher risk for increased yields. These investors are known as the B-piece buyers.

Rating Agencies – rating agencies such as Moody’s and Standard and Poor’s evaluate the entire CMBS transaction before the securities are offered for sale. They assign investment class designations to the various portions of the security.

Bond Holders – the persons or institutions that purchase (invest in) the underlying bonds and hold them for long term investment.

Our Conduit Loan Benefits

Commercial Mortgage Backed Securities (CMBS) loan rates as low as 6.65% (as of March 29th, 2024)
• No upfront application or processing fees
• Simplified application process
• Up to 75% LTV
• Usually 10 year fixed rate term with amortizations of up to 30 years
• Loans for purchase and refinance, including cash-out
• 24 hour written pre-approvals with no cost and no obligation
• Yield maintenance and defeasement prepayment penalties
• Loans are usually non-recourse (no personal guarantee)

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