Conduit Loans , also known as a CMBS Loan (commercial mortgage backed security), plays an intricate role when it comes to commercial real estate financing. This loan is secured by a first-position mortgage on a commercial property which in most cases is cash-flowing and stabilized. After the loan is closed, the issuing conduit lender will look to package and sell the loan into a pool. This process is called securitization, whereby the loan is sold to investors and carries a specific rate of return.
During the securitization process, hundreds and at times thousands of similar loans varying in size, interest rate and property types are pooled together. CMBS investors have the ability to invest in various geographic location, property types and the credit rating, assessed by credit rating agencies. There are several different tranches from which investors choose to invest their capital. Each tranche represents a specific risk factor and rate of return for that associated risk.
Conduit loans have become a very popular source of capital for commercial real estate investors looking for higher leverage, 30-year amortization and a longer loan term than what most conventional banks can offer.
Conduit lenders can also offer full-term interest only loans which is viewed as a critical advantage by some real estate investors looking for cash-flow. CMBS interest rates are competitive and the loan itself is generally 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 and/or Yield Maintenance to protect the guaranteed yield to investors. Conduit lenders offer flexible underwriting guidelines, allowing novice CRE investors to be financed creatively where a local savings bank may have been reluctant to lend. The vast majority of Conduit Loans are assumable, typically for a fee that was negotiated at Loan Document stage before closing. This mechanism 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.
Why should I elect a CMBS loan?
The truth is, though conduit loans come with structure and lockout periods, there are also many positive attributes to CMBS financing, some of which are listed below:
- Higher Leverage (75% LTV)
- Longer Amortization Period (30-Years)
- Non-Recourse (with carve-outs)
- Flexible Underwriting
- Interest Only Option
- Longer Term
- Low Interest Rates
- Available in secondary and tertiary markets
Integra Real Estate Capital offers a full gamut of financing options for stabilized and transitional properties nationwide. Our team of professionals will help you realize the full potential of your real estate portfolio and maximize its financial performance. We are committed to every debt & equity transaction, particularly where timing, structure and certainty of execution are of the utmost importance. CONTACT US FOR MORE INFORMATION: (212) 353-2800
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