CMBS loans are priced by taking the appropriate swap or Treasury rate and adding a credit spread, which compensates the lender for their work during the loan application and underwriting process.
CMBS Pricing: What You Need to Know
Pooling and Servicing Agreements for CMBS Loans
Pooling and Servicing Agreements (PSAs) are highly detailed legal documents that define all aspects of a CMBS loan, including the rights and responsibilities of the borrower, the lender, the master servicer, the special servicer, and the CMBS investors.
Can You Get a Rate Lock on a CMBS Loan?
Due to market fluctuations, CMBS lenders often re-price their loans before closing. However, some lenders do offer 30-day rate locks to help protect borrowers from rate increases.
CMBS vs. CRE CLOs: What’s The Difference?
CMBS are securities backed by longer-term fixed-rate loans, while CRE CLOs are securities backed by shorter-term, transitional financing. Here’s what else you need to know.
What is CMBS Syndication?
CMBS syndication occurs when multiple lenders pool their funds together to issue a large CMBS loan. This reduces the risk of having the entire loan on any one lender’s balance sheet.
Agency CMBS vs. Non-Agency CMBS
There are two types of commercial mortgage-backed securities (CMBS), agency CMBS, which consist of loans pooled by government-sponsored entities (GSEs) including Ginnie Mae, Fannie Mae, Freddie Mac, and non-agency (private) CMBS, which consist of loans pooled and securitized by private lenders, such as JP Morgan or Goldman Sachs.
What is a Master Servicer?
CMBS loans are not serviced by the lender who issued the loan and are instead serviced by third-party entities referred to as master servicers. In many situations, the master servicer will assign the day-to-day servicing duties to another entity, known as a primary servicer.
What is a Conduit Loan?
Conduit loans, which are more commonly referred to as CMBS loans, are commercial real estate loans that are pooled together and sold to investors on the secondary market.
Using CMBS Loans to Fund Hotel PIPs
Hotel property improvement plans (PIPs) are a series of specific renovation guidelines for franchise hotels. Sometimes, but not always, they can be funded using the proceeds of CMBS loans.
What is a REMIC?
A Real Estate Mortgage Investment Conduit, or REMIC, is a legal entity, typically a special purpose vehicle (SPV) or a special purpose entity (SPE) used to pool loans and issue mortgage-backed securities (MBS), or commercial mortgage-backed securities (CMBS).
Using Defeasance to Prepay CMBS Loans
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 Origination: What You Need to Know
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).
DSCR Requirements for CMBS Loans
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: What You Need to Know
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.
CMBS Primer: The Essentials of CMBS and Conduit Loans
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.
CMBS Tranches, Explained
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.
What is a CMBS B-piece?
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.
Are CMBS Loans Assumable?
CMBS loans are generally fully assumable with servicer approval and a small fee. Fees vary but are typically around 1% of the remaining balance of the loan. CMBS loan assumption can be of significant benefit to both the seller of a property and a new borrower, but it isn’t a good idea in all situations.
CMBS vs. RMBS: What's the Difference?
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.
The Pros and Cons of CMBS Loans, Explained
CMBS loans can be a great source of financing for commercial real estate investors. In general, they’re the only type of non-recourse loan that can finance nearly all income-producing property types. However, CMBS loans aren’t without their drawbacks. In this article, we look at both the pros and cons of CMBS loans in order to give you a fuller picture.