Question 1

What is a CMBS (Commercial Mortgage-Backed Security) loan?

Accepted Answer

A CMBS loan is a commercial mortgage that is pooled with other loans and sold as a security to investors in the secondary market. CMBS loans are originated by a lender (conduit lender), then securitized and sold to bond investors. This structure allows CMBS lenders to offer competitive fixed rates and long terms with more flexible qualification criteria than traditional bank loans.

Question 2

What are typical CMBS loan terms and rates?

Accepted Answer

CMBS loans typically offer 5, 7, or 10-year fixed-rate terms with 25 or 30-year amortization. Rates are competitive with conventional financing because the loans are sold to bond investors. The loan is typically non-recourse with standard carve-outs.

Question 3

What LTV and DSCR do CMBS lenders require?

Accepted Answer

CMBS lenders typically offer up to 75% LTV and require a minimum DSCR of 1.25 to 1.30. The exact requirements depend on the property type, location, and the borrower's financial strength. CMBS loans are available for a wide range of property types including office, retail, industrial, multifamily, and hotels.

Question 4

Are CMBS loans non-recourse?

Accepted Answer

Yes. CMBS loans are typically non-recourse, meaning the lender cannot pursue the borrower's personal assets in the event of default. However, standard 'carve-out' exceptions apply, typically including fraud, misappropriation of funds, environmental violations, and bankruptcy. These carve-outs can trigger full personal liability.

Question 5

What are the prepayment penalties for CMBS loans?

Accepted Answer

CMBS loans typically have strict prepayment penalties. The most common structure is 'defeasance,' which requires the borrower to purchase a portfolio of government securities that replace the loan's cash flow to the bondholders. Defeasance can be expensive, especially in a rising-rate environment. Some CMBS loans offer 'yield maintenance' or 'step-down' prepayment structures instead.

Question 6

What property types qualify for CMBS loans?

Accepted Answer

CMBS loans are available for a wide range of commercial property types including office buildings, retail centers, shopping centers, industrial properties, warehouses, multifamily (5+ units), hotels, self-storage facilities, mobile home parks, and mixed-use properties. Properties with environmental issues or significant deferred maintenance may face challenges.

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