CMBS Loans

CMBS loans serve as a significant source of mortgage capital for multifamily investors. These loans, known as commercial mortgage-backed security loans, are marketed through Wall Street investment banks. CMBS lenders provide individual loans to borrowers, which are then bundled and sold to investors as securities.CMBS Loan Outlook 2023Over the past few years, commercial real estate investors have faced challenges due to the Covid-19 pandemic, high inflation rates, and substantial interest rate hikes by the Federal Reserve. These factors have negatively impacted the issuance of new commercial mortgage-backed securities. We anticipate this slowdown to continue into 2023, as high interest rates, market volatility, and weak GDP growth exert downward pressure on the market. Experts predict a 30% decrease in activity compared to the already reduced volume in the previous year. While certain sectors, such as multifamily and industrial markets, are performing well due to strong demand, the office and retail sectors are struggling under the current economic conditions. In 2023, there will be a significant volume of maturing CMBS loans, and many borrowers may face challenges in refinancing their properties due to reduced cash flow and higher market rates. Consequently, we expect considerable market volatility, including potential defaults, as these loans come due.CMBS Loans vs. Traditional Loans: Which is the Better Option for Commercial Real Estate?When it comes to financing commercial real estate, borrowers have various options available. Traditional lenders have long been the preferred choice, but in recent years, the CMBS market has emerged as a viable alternative for those seeking larger loan amounts, longer terms, and more flexible underwriting standards. In this article, we will explore the advantages of CMBS loans compared to traditional loans.Larger Loan AmountsOne major advantage of CMBS loans over traditional bank loans is the ability to secure larger loan amounts. CMBS loans are typically used to finance commercial properties ranging from $3 million to $25 million or more. For borrowers seeking financing for larger properties, CMBS loans can be a more suitable option.Longer Repayment TermsCMBS loans also offer longer repayment terms compared to traditional bank loans. With terms of 10 years and an amortization period of 30 years, CMBS loans provide borrowers with more manageable monthly payments and greater flexibility in cash flow management.Competitive Interest RatesCMBS loans can provide competitive interest rates relative to traditional bank loans. Since CMBS loans are securitized and sold to investors, they are subject to market forces that can drive down interest rates. This makes CMBS loans an attractive financing option with potentially lower interest rates for borrowers.Non-Recourse FinancingCMBS loans are often structured as non-recourse loans, meaning that borrowers are not personally liable for the loan. In the event of default, the lender can only foreclose on the property and cannot pursue the borrower's personal assets. This offers borrowers a level of protection and reduces the risk of personal financial loss.More Flexible Underwriting StandardsCMBS loans may have more flexible underwriting standards compared to traditional bank loans. Traditional lenders typically require strict criteria, such as high credit scores, low debt-to-income ratios, and substantial collateral. CMBS loans, on the other hand, maybe more flexible in their underwriting standards, enabling borrowers with less-than-perfect credit scores or weaker collateral to qualify for financing.In conclusion, CMBS loans offer several advantages over traditional bank loans, including larger loan amounts, longer repayment terms, competitive interest rates, non-recourse financing, and more flexible underwriting standards.CMBS Loan - Eligibility, Qualifications, and Additional DetailsLOAN AMOUNT $3 million to $25 million or moreMARKETS Primary, Secondary, and Select Tertiary MarketsELIGIBLE PROPERTIES Multifamily, Manufactured Housing, Office, Retail, Industrial, and Self-StorageSECURITY First Lien MortgageTERM (YEARS) 10 yearsAMORTIZATION (YEARS) 25 – 30 yearsMAXIMUM LOAN TO VALUE 75%MINIMUM DSCR 1.25xRATE Fixed rate based on a spread premium over 10-year US swap ratesNON-RECOURSE Non-Recourse, except for standard industry carve-outsPREPAYMENT Permitted after a typical lockout period, subject to defeasanceASSUMABLE Permitted, subject to Lender's Approval and 1% assumption feeCAPPED COSTS Third-party costs and legal fees are cappedRESERVES Real Estate Taxes, Insurance, Replacement Reserves, TI/LC (if applicable), and others as reasonably determined by underwriting.