Commercial Mortgage Backed Securities (CMBS), also known as Conduit Loans, are an extremely attractive option for stabilized properties with national credit tenants. These loans offer the lowest rates (generally lower than any other bank mortgage option,) with fixed-rate terms of 10 years. Since the collateral is required to be a high-quality, stabilized income property, the rate is fixed against a margin such as US Treasuries, or LIBOR (now SOFR).

The conduit loan is a regulated security with a fixed period and return. CMBS mortgages have two distinct characteristics: they are technically not pre-payable (and if they are, will have a yield maintenance penalty); and they are assumable by another qualified sponsor. This creates a unique, intrinsic value to this class if interest rates start rising. CMBS loans also have special provisions in place to protect the loan in the event of any malfeasance or potential losses.

A conduit loan is packaged into a pool with other similar-type commercial loans, then securitized and sold in the secondary market to institutional investors. The loans in the pool are held in trust and the stabilized property and cash flow serve as collateral for the mortgage-backed security.

Bridge Loans may cover Tenant Improvements (T.I.’s) and Lease-up Expenses, also rehab Leases or make Property Improvements allowing an investor to make improvements and cover the costs of lease-up expenses prior to stabilizing a newly acquired property.

Investors may use these special CRE loans for a temporary purchase or refinance loan before the collateral is fully stabilized.

Freddie Mac, Fannie Mae, and other agency programs provide incentives or insurance to lenders. This allows them to take on more risk for CRE mortgages by using these programs, allowing them to offer better rates and terms for a wider array of properties.

The Federal Home Loan Mortgage Corp., also known as Freddie Mac (FHLMC) insures many multifamily loan programs for multifamily housing, student housing, senior housing, or affordable housing properties. These mortgages may be held in the FHLMC portfolio or sold to bond investors. Terms and options may include fixed or floating rates (which may or may not include an interest-only period) and are typically amortized over 25-30 years. (Note: Shorter-term programs of 5-7 years are available which include fixed rate and hybrid choices.)

The Federal National Mortgage Association mortgage, also known as a Fannie Mae mortgages, offers competitive terms. These include fixed and floating rate financing for multifamily properties, including apartments, student housing, affordable housing. These terms are especially competitive when paired with the Low-Income Housing Tax Credit (LIHTC) program, for assisted living and other healthcare facilities, mobile home parks and more. Fannie Mae financing is also an option for financing properties previously under HUD legacy programs that are being converted to Section 8 housing under the Rental Assistance Demonstration (RAD) program. However, timing to close and prepayments can be an issue, and qualifying can be challenging, as Fannie Mae loans require very detailed paperwork, and usually about a 6 to 9-month lead time.