CMBS Financing Blog
Learn everything you need to know about CMBS loans, including terms, property types, prepayment penalties, lenders, and more.
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 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 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.
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.
Special servicers handle the servicing of CMBS loans before and during loan defaults-- but they don't always have the borrower's best interests in mind. A servicer may attempt to help the borrower achieve a loan modification, or, more commonly, they may attempt to repossess the property in order to make the CMBS investors whole.
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!
