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.
What is a Conduit Loan?
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.
What is a Special Servicer?
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.