CMBS LOANS
Non-Recourse conduit financing for the acquisition and refinance of commercial real estate and multifamily properties.
We provide our clients unique access to real estate capital markets for the acquisition and refinance of stabilized and cash flowing properties.
As a trusted adviser to private and institutional real estate investors across U.S., we secure competitive non-recourse CMBS loans for all property types in every market segment. Cash-out refinance and full-term interest-only loan options are also available.
Achieve better returns on your real estate investment by engaging Integra for your next transaction.
Multifamily
Non-recourse financing in all market segments.
Hotels
Flagged and independent hotel financing nationwide.
Office
Fixed and floating rate loans for all office building classes.
Mobile Home Parks
Loans for MHP communities in secondary and tertiary markets.
Shopping Centers
We finance anchored and non-anchored retail centers.
Self Storage
Climate controlled and mini storage facilities.
Student Housing
On and off-campus financing for student housing properties.
Warehouse & Industrial
Investment property and owner occupied financing.
CMBS LOAN ADVANTAGES
Non-Recourse, with standard carve-outs
Up to 75% Loan-to-Value (LTV)
5, 7 and 10-Year Term
30-Year Amortization
Cash-Out Above Cost Basis
Education Center
Skip to Section of Interest: What are CMBS Loans ⋅ How Do CMBS Loans Work ⋅ CMBS Loan Rates ⋅ Pros and Cons of CMBS Financing ⋅ Conduit Financing Today ⋅ General Loan Terms ⋅ CMBS General Guidelines
What Are CMBS Loans?
CMBS loans have become a very popular source of capital for commercial real estate investors looking for non-recourse financing. CMBS stands for commercial mortgage backed securities and is often referred to as a conduit loan. This type of loan plays an intricate role when it comes to commercial real estate financing. CMBS loans are secured by a first-position mortgage on a commercial property that is generally cash-flowing and stabilized.
Many property types can qualify for a CMBS loan, some of which include: apartment buildings, shopping centers, office, hotel, industrial and self storage properties. Our CMBS financing experts can also finance warehouses, mobile home parks, student housing, marinas and parking garages.
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CMBS Loan Rates
Conduit loan rates are generally based on U.S. Treasury or Swap rate, plus a specific margin, otherwise known as spread. So how do lenders determine CMBS loans spreads? They are determined by underwriting various underlying factors that either increase or decrease the risk profile of the loan. Some of these factors include:
- Loan-to-Value (LTV) – CMBS lenders usually max out at 75% LTV. Lower LTV’s can produce lower spreads, therefore reducing the overall interest rate.
- Property Location – Since there is a direct correlation between loan spreads and risk, properties in stronger markets will benefit from reduced spreads that yield lower rates.
- Property Type – Generally speaking, riskier asset classes such as hotels and special purpose properties will warrant wider spreads. Multifamily, industrial, office, retail and self storage properties will command tighter spreads which result in lower rates.
- Tenant Roster – A diversifed tenant roster for commercial properties can be beneficial when compared to a single-tenant asset, which creates binary risk for a lender. A tenant’s credit rating can play a role here as well – as tenants with strong balance sheets and a higher credit rating are less likely to default and are more desirable to CMBS lenders.
- DSCR – Conduit lenders typically require a minimum debt service coverage ratio (DSCR) of 1.25x for most property types. Hotels are usually underwritten to a minimum DSCR of 1.40x. Naturally, the higher the DSCR the lower the risk. Same applies for an underwritten minimum Debt Yield, which is more commonly used when sizing a loan.
- Sponsorship Experience – CMBS loans are almost always non-recourse, with standard lender “bad-boy” carveouts. Having said that, CMBS lenders compete harder for borrowers with experience in leasing, property management and general ownership. Lenders will reduce spreads, offer lower debt-yield requirements and improved overall deal terms to beat out the competition to secure such relationships.
CMBS Loans Explained
After the loan is closed and funded, the issuing conduit lender will look to package and sell the loan into a pool via a process called the “securitization”. During the securitization, hundreds of similar loans varying in loan size, interest rate and property type are pooled together and sold as bonds. One thing to keep in mind here is that conduit lenders do not look to have the loan on their balance sheet once a loan is made.
CMBS investors, also known as bond holders, have the ability to invest in various geographic location, property types and the credit rating, assessed by credit rating agencies prioer to closing. There are several different tranches from which investors choose to invest their capital. Each tranche represents a specific level of risk and rate of return with that associated risk.
CMBS Lenders
The largest CMBS lenders account for two-thirds of the loan origination in this space.
Due Diligence Overview
The due diligence process for a CMBS loan is very similar to one of a balance sheet lenders such as credit unions and life company lenders. Below is a comprehensive overview of the diligence requirements.
(1) FIRREA-compliant appraisal with respect to the Property prepared by a firm selected by Lender.
(2) Phase I environmental survey and, if deemed necessary or appropriate by Lender, Phase II surveys of the Property, from a firm selected by Lender.
(3) Seismic Study, if deemed necessary or appropriate by Lender, of the Property, from a firm selected approved by Lender.
(4) Structural engineering report from a firm selected by Lender. Also known as Property Condition Report (PCA).
(5) Historical and current financial statements, operating statements, budgets, rent rolls and other information related to the financial condition of Borrower, Sponsor, their respective principals and the Property.
(6) Survey of the Property.
(7) Certificate of occupancy for the Property and zoning report prepared by a firm selected by Lender evidencing compliance with laws applicable to the Property.
(8) Copies of all leases and material contracts for the Property and appropriate estoppels relating thereto.
(9) Evidence that all utility services required for the Property are available and that the Property is subject to a separate tax assessment.
(10) Opinions of counsel and local counsel to Borrower and Sponsor in form and substance reasonably satisfactory to Lender.
(11) Organizational documents and evidence of authorization for the transaction of Borrower, Manager and such other entities as may be required by Lender.
(12) Such references, resumes and credit, litigation, tax, lien, judgment and other reports (including “Lexis/Nexis” reports) regarding Sponsor, Borrower and their principals as Lender may request (with such reports to be obtained by Lender, at its option).
Pros and Cons of CMBS Loans
Like many other commercial real estate loan types, CMBS loans have advantages as well as some disadvantages that borrowers need to know about.
Pros:
The many benefits of CMBS loans is that they offer borrowers an opportunity to secure highly competitive non-recourse financing at higher leverage (LTV) than what some local banks or life insurance companies may allow. Conduit lenders can offer up to 75% LTV for a term of 5, 7 or 10 years.
Another upside is the longer amortization period, which can go up to 30 years, providing borrowers better cash-flow. CMBS lenders can also lend in secondary and tertiary markets, an area life company lenders generally avoid. Borrowers often seek out conduit financing when they find a need to cash-out equity above their cost basis.
Conduit lenders can also offer interest-only financing for a part or full term of the loan. CMBS loans are assumable. This allows the current owner to sell the property to a perspective buyer who subsequently assumes the ownership position and the terms of the existing loan. This can benefit commercial real estate investors who are in a 1031 Exchange during a soft lending climate.
Last but not least, conduit lenders offer flexible underwriting guidelines, allowing novice commercial real estate investors to be financed creatively where a local savings bank may have been reluctant to lend.
Cons:
There are several aspects that make CMBS financing less attractive to commercial real estate investors. The lack of prepayment flexibility is usually at the forefront. Although some CMBS loans have Yield Maintenance as a prepayment penalty, the majority of these loans require Defeasance, which involves the borrower purchasing bonds in order to repay the bond holders with same revenue stream for the duration of the loan term. The collateral is usually replaced by U.S. Treasury bonds.
Supplemental or secondary financing is generally prohibited as increased leverage may pose additional risk to bond investors.
CMBS General Guidelines
CMBS interest rates are competitive and the loan is non-recourse, with standard “bad-boy” carve-outs. Interest rates are often fixed for 10-years, however, 5 and 7-year term loans are also available.
CMBS loans often come with more stringent prepayment provisions such as Defeasance or Yield Maintenance to protect the guaranteed yield of bond investors.
CMBS Financing in 2022
CMBS loans generally come with fixed interest rates for a pre-selected duration of 5, 7 or 10 years. Even with the recent rise in Treasury and Swap indexes, it is possible to secure a commercial loan between 4.5% – 5%
GENERAL CMBS LOAN TERMS
Loan Amount: $3,000,000 mimimum, no maximum
Locations: Primary, secondary and tertiary markets across U.S.
Property Types: Multifamily, Office, Retail, Industrial, Hotel, Self-Storage, Mobile Home Parks & Student Housing
Maximum LTV: Up to 75%
Loan Term: 5, 7 and 10 year fixed-rate terms
Amortization: Up to 30-Years, with interest-only options available
Recourse: Non-recourse, with the exception of industry standard “bad boy” carve outs
Prepayment: Defeasance or Yield Maintenance
Minimum DSCR: Minimum 1.25x DSCR on underwritten net cash flow. Mezzanine debt can be permitted up to a 1.10x DSCR
Reserves: Generally Tax, Insurance and Replacement Reserves required
Assumability: Available with lender approval
Borrowing Entity: Single asset or special purpose entity required depending on loan size
Sponsor (Borrower): Creditworthy individual(s) or entity acceptable to Lender with sufficient liquidity and net worth
Closing Time: Generally 30 days from the date of signed application.
Pricing: Competitive tiered pricing based on LTV, DSCR and Debt Yield.
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Integra Real Estate Capital maintains its unique relationships with core CMBS lenders. We assist clients in obtaining competitive conduit financing and negotiate aggressively on their behalf to achieve their financial goals and objectives.
Speak to one of our professionals about your next project: (212) 353-2800
