CMBS Financing Blog
Learn everything you need to know about CMBS loans, including terms, property types, prepayment penalties, lenders, and more.
Defeasance is generally the most common type of CMBS prepayment penalty. Unlike percentage-based prepayment penalties, a borrower needs to replace their CMBS loan’s collateral with new securities, typically U.S. Treasury bonds in order to replace CMBS investors’ income.
CMBS loan origination occurs when a lender processes a potential borrowers’ loan application and determines whether they will be approved for a loan. This generally involves credit checks, background checks, a financial analysis of the subject property, and the reviewing of third-party reports, like the property appraisal and a phase 1 environmental inspection (ESA).
In addition to LTV and debt yield, DSCR, or debt service coverage ratio, is one of the most important metrics used by lenders to determine if a borrower is eligible for a CMBS loan. Most CMBS lenders require a property DSCR of at least 1.25x in order to be eligible for a loan.
CMBS credit spreads are defined as the difference between the appropriate swap or Treasury rate and the interest rate of the CMBS loan. CMBS loan pricing is based on the current swap rate or U.S. Treasury rate plus this credit spread, which compensates the lender for the risk of providing the loan to the borrower.
When it comes to getting a CMBS loan for a commercial property, there’s a lot that potential borrowers need to know. In this quick, comprehensive primer, we’ll explain all the basics to help borrowers determine whether getting a CMBS loan is right for them.
When CMBS loans are pooled together and securitized into commercial mortgage-backed securities, they are split into multiple tranches based on risk and return. CMBS tranches can generally be split into two major categories, investment-grade CMBS and sub-investment-grade CMBS.
The CMBS B-piece refers to the tranches of commercial mortgage-backed securities rated BB+/Ba1 through B-/B3, providing the highest risks and the highest returns for CMBS investors. If the underlying loans that back a CMBS go into default, the B-piece investors are the last to be paid back, if they get paid back at all.
CMBS loans are mortgage-backed securities (MBS) collateralized by loans on commercial properties, while residential mortgage-backed securities (RMBS) are mortgage-backed securities collateralized by loans on residential properties between 1-4 units.
If you’re looking for a CMBS loan for a multifamily or commercial property, leave it to our team of experienced capital markets advisory partners. Fill out a form today to get a free quote from an experienced commercial mortgage banker today!
