CMBS Loans, also known as commercial mortgage-backed security loans or conduit loans, are different than other debt service mortgage products used to finance commercial real estate income properties. This is because they’re actually a private equity product and securities instrument! Both essentially serve the same purpose, however – the CMBS securitized mortgage is usually tied to an index (such as the 10-year treasury) and swap rates to convert an indexed-rate to a fixed-rate.
With CMBS loans, securities are written for a specific commercial property, funded from their balance sheet and sold to investors (or pooled and pre-sold), providing liquidity to the fund in order to underwrite for additional CMBS mortgages. How such a pool of multiple CMBS commercial real estate (CRE) mortgages is rated is based on several factors – including the number of loans in the pool, debt service coverage ratio (DSCR), loan-to-value (LTV) and more. The private equity fund underwrites the security, places it with either institutional or accredited investors, and makes the spread (or the difference between the cost of money and the mortgage rate) as their compensation.
Sound complicated? They are. However, if your commercial real estate includes a stabilized property requiring a loan of more than $3+ million, with national/regional credit tenants (or a grocery chain anchor in a retail property) , you’re going to want to read on for this reason:
CMBS is the lowest-priced commercial money available (better than the bank prime rate) and it intrinsically enhances the value of its commercial real estate.
CMBS loans are the best option for non-recourse CRE financing and they offer the most competitive rates (generally lower than the best possible bank lending rate in most cases) with fixed-rate terms of 10 years. Since the collateral must be a high-quality, stabilized income property, a CMBS mortgage is typically assumable if purchased by another qualified owner with experience. The ability to transfer the loan at a fixed rate provides an intrinsic value to this class of commercial loans in the event that interest rates are rising.
For example, let’s assume your rate today is less than 4% and is fixed for 10 years. Five years from now, imagine the rates jump back to 8%. If your $10 million building has an assumable CMBS mortgage with a 4% rate, (half of what is available at the current time) then you have effectively created an intrinsic value of almost 50% of the annual debt service – or in this case, about $25,000 per year – in additional net operating income (NOI). The benefit is that you have cheaper financing than anyone else – which increases the property’s net operating income.
So, what are the qualifications for CMBS Loans?
These loans should be considered for commercial real estate purchase or refinance loans of greater than $3 million for income properties with stabilized, high-quality tenants. Interestingly enough, retail and office property types are still included in the qualifying property types, despite the effects of the recent pandemic.
*It’s important to note: these loans are NOT for construction.
It’s imperative that these properties meet these minimum requirements because while CMBS is the lowest-priced money available in commercial financing, it also involves a fair amount of legal work to close (and legal fees, which replace the typical bank origination fee of approximately 1% of the loan amount ie. $30K on $3MM, $50K on $5MM, etc.) This is why it is imperative that these properties include such high-quality, stable tenants with long-term leases that are not likely to go out of business or default on leases.
How do I apply for CMBS Loans?
The team at ComCapFL are knowledgeable and skilled at closing CMBS loans. In addition to having extensive commercial real estate and financing experience, CEO Dave Dambro has a background in securities and understands the nuances of these bond-type instruments from multiple angles.
To get started on qualifying your commercial property for a CMBS loan today, contact ComCapFL through their website or by calling them at (888) 959-1648. It costs nothing to discuss your options – so why not discover what your options are for locking in an assumable CMBS loan and multiplying your profits today?
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