CMBS Loans
CMBS loans are another major source of mortgage capital for multifamily investors. CMBS loans, otherwise known as commercial mortgage backed security loans, market through Wall Street investment banks. CMBS lenders make individual CMBS loans to borrowers which are then packaged and sold to investors as securities.
CMBS Loan Rates - Rates updated November 20th, 2024
| Loan Product | Starting Rates | LTV | |
|---|---|---|---|
| 10 Year Fixed Rates | 6.50%-7.07% | Up to 75% | Get Free Quote |
CMBS Frequently Asked Questions
A CMBS (Commercial Mortgage-Backed Securities) loan is a type of financing used to fund the purchase or refinancing of commercial real estate properties. CMBS loans are packaged into securities and sold to investors in the form of bonds. The underlying collateral for a CMBS loan is typically a pool of commercial properties, such as multifamily buildings, hotels and industrial warehouses.
CMBS loans are structured similarly to traditional commercial mortgages. The loan is secured by a mortgage on the property, and the borrower makes regular payments of principal and interest over a fixed period of time. The loan terms for a CMBS loan are typically longer than those for traditional bank loans, with terms ranging from five to ten years, and amortization periods of 30 years.
When a CMBS loan is originated, the lender typically sells the loan to a special purpose vehicle (SPV) that pools the loans together and creates a trust. The trust issues bonds, which are sold to investors. The cash flows from the underlying mortgages are used to pay interest and principal on the bonds, and any remaining cash flows are passed through to the investors.
Investors are attracted to CMBS loans because they provide a way to invest in commercial real estate without having to purchase a physical property. The bonds issued by the trust are backed by the underlying collateral of the commercial properties, which provides a level of security for investors.
One of the advantages of CMBS loans is that they can provide borrowers with access to financing that may not be available from traditional lenders. CMBS loans are often used to finance larger commercial properties that may not meet the strict underwriting criteria of traditional lenders. In addition, CMBS loans can provide borrowers with longer repayment terms, non-recourse financing, interest only payments, and competitive interest rates.
CMBS Loan Outlook 2024
For the past four years, commercial real estate investors have endured the Covid-19 pandemic, record level inflation rates, and record setting interest rate hikes by the Federal Reserve. All of these factors have had very negative effects on the issuance of new commercial mortgage-backed securities. We expect the slowdown to continue into 2024 as high interest rates and the volatility in the capital markets continue to put downward pressure on the markets. Some sectors of the market are performing better than others. The multifamily and industrial markets are performing well, as the demand for apartments and industrial space is strong. The office and retail sectors are not performing well, as these asset classes are being hurt by economic conditions. The May 2024 servicer reporting period showed an increase in the delinquency rate among KBRA-rated CMBS loans, rising slightly to 4.71%, up 4 basis points from April. The total delinquent and specially serviced loan rate (distress rate) also increased by 16 basis points to 8.45%. While most property types experienced an increase in distress rate month-over-month, the office sector saw a slight improvement with a 28-basis-point drop to 11.26%, primarily due to the modification and maturity extension of the One Market Plaza loan. CMBS loans totaling $2.2 billion contributed to the increase in the distress rate, with over two-thirds stemming from imminent or actual maturity default. The office sector had the highest volume of newly distressed loans at 35.6%, followed by mixed-use properties at 27.9%, and retail at 23.3%. There are billions of dollars of CMBS loans maturing in 2024. Many of these borrowers may struggle to refinance their properties due to lower cash flows and higher market rates. We expect to see significant volatility in this market, with potential maturity defaults as these loans come due.
CMBS Loans vs. Traditional Loans: Which is the Better Option for Commercial Real Estate?
When it comes to financing commercial real estate, borrowers have a variety of options. Traditional lenders have been the go-to financing solution for many years. However, in recent years, the CMBS (Commercial Mortgage-Backed Securities) market has emerged as a viable alternative for borrowers looking for larger loan amounts, longer terms, and more flexible underwriting standards. In this article, we will explore the benefits of CMBS loans versus traditional loans.
Larger Loan Amounts
One of the main advantages of CMBS loans over traditional bank loans is that they can provide larger loan amounts. CMBS loans are typically used to finance larger commercial properties typically ranging from $3 million to $25 million+. For borrowers looking to finance larger properties, CMBS loans can be a better option.
Longer Repayment Terms
Another advantage of CMBS loans is that they typically offer longer repayment terms than traditional bank loans. CMBS loans have terms of 10 years with an amortization period of 30 years. This longer repayment term can make monthly payments more affordable for borrowers and can provide greater flexibility in managing cash flow.
Competitive Interest Rates
CMBS loans can offer competitive interest rates compared to traditional bank loans. Because CMBS loans are securitized and sold to investors, they are subject to market forces that can drive down interest rates. This can result in lower interest rates for borrowers, making CMBS loans a more attractive financing option.
Non-Recourse Financing
CMBS loans are often structured as non-recourse loans, meaning that the borrower is not personally liable for the loan. If the property defaults, the lender can only foreclose on the property and cannot go after the borrower's personal assets. This can provide a level of protection for borrowers and reduce the risk of personal financial loss.
More Flexible Underwriting Standards
CMBS loans may have more flexible underwriting standards compared to traditional bank loans. Traditional bank loans often require strict underwriting criteria, including high credit scores, low debt-to-income ratios, and significant collateral. CMBS loans, on the other hand, may be more flexible in their underwriting standards, allowing borrowers with less-than-perfect credit scores or weaker collateral to qualify for financing.
In conclusion, CMBS loans may offer some advantages over traditional bank loans. They can provide larger loan amounts, longer repayment terms, competitive interest rates, non-recourse financing, and more flexible underwriting standards.
CMBS Loan - Eligibility, Qualifications and Additional Details
LOAN AMOUNT
$3 million to $25 million+
MARKETS
Primary, Secondary, and Select Tertiary Markets
ELIGIBLE PROPERTIES
Multifamily, Manufactured Housing, Office, Retail, Industrial and Self-Storage
SECURITY
First Lien Mortgage
TERM (YEARS)
10 years
AMORTIZATION (YEARS)
25 – 30 years
MAXIMUM LOAN TO VALUE
75%
MINIMUM DSCR
1.25x
RATE
Fixed rate based on spread premium over 10-year US swap rates
NON-RECOURSE
Non-Recourse, except for standard industry carve outs
PREPAYMENT
Permitted after a typical lock out period, subject to defeasance
ASSUMABLE
Permitted, subject to Lender’s Approval and 1% assumption fee
CAPPED COSTS
3rd party costs & legal are capped
RESERVES
Real Estate Taxes, Insurance, Replacement Reserves, TI/LC (if applicable), and others as reasonably determined by underwriting
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