Need Commercial Real Estate Financing? Consider CMBS Loans
If you need commercial real estate financing, the options can get overwhelming. You could go to a bank for a traditional loan, but these can be arduous and time-consuming. They are sometimes known to carry high interest rates, too. While there are other loans out there, Commercial Mortgage Backed Securities, or CMBS loans, could be the solution you need.
Also known as “conduit loans,” CMBS loans are basically bundles of loans from different investors. The originator of the conduit loan securitizes this package of loans and sells it to investors. It is then held in trust while it functions as collateral for the loan, or Mortgage Backed Security.
Whether you’re a real estate investor or you’re in the market to build, you’re going to need working capital in your hand, not tied up in some certificate or bond. CMBS loans provide the liquidity you need to get your project off the ground.
Good for Both Parties
CMBS works for the borrower as well as the lender because of its financial structure, making this type of loan popular for those looking to invest in real estate. With low interest rates and a fixed term of up to 10 years, these loans can keep you on track with your financial goals. The non-recourse debt is typically amortized over a period of up to 30 years with the ability to cash out. Some loans have a balloon payment and pre-payment parameters.
That’s great for the borrower, but when CMBS loans work well for a lender, it makes the whole process less stressful and more affordable for both sides. One of the attractive benefits for lenders includes diversification. This occurs when the large pools of loans are grouped together at the beginning of the process. This money comes from various geographic markets, varying widely by product type. This makes the default risk in any one sector very limited. Loan originators are, in turn, able to save money as their share of loss exposure is lessened.
Other benefits to the loan originator are standardization across the industry, improved liquidity and First Loss Subordinate Bond Structure. The standardization of reporting, practices and loan documents ensures consistency. This efficiency is passed along in cost savings.
Securitization of these loans enables investors to purchase low-balance bonds with various maturities and payment structures, thereby becoming more liquid.