By Jeff Rauth. Email Here or 248 885-8797. SBA Loan Officer at a Bank That Lends Nationally. 15 Years Commercial Real Estate Experience. Past Commercial Mortgage Broker.
CMBS conduit loans are for income producing properties, with a minimum loan amount at $3,000,000. The main benefits of this type of financing include no personal guarantees, loan to values up to 75%, low long term fixed rates, and amortization schedules to 30 years. CMBS loans are often the best type of financing available for investors.
Conventional commercial mortgage financing, as a comparison, is typically capped at 65% loan to value, up to 25 year amortization schedules and of course requires full personal guarantees.
However, because CMBS loans are non recourse, the underwriting is strict with the property itself. Properties must be “B quality” or higher as the properties cash flow is the sole source of loan repayment. The property and tenants need to be solid and stabilized. In addition, the pre payment penalties are more expensive than on recourse loans, which are structured as yield maintenance or treasury defeasance. Borrowers that do not have a long term hold strategy should focus more on conventional commercial mortgage financing as the pre pays are much less expensive/flexible. In addition, the transaction costs are more expensive with CMBS loans than with conventional loan programs.
Despite these negatives CMBS loans can be a great type of financing, depending on the investors situation.
CMBS Loans Overview
- Loan amounts – $3,000,000 plus.
- Loan term and fixed period – 5, 7 or 10 years.
- Amortization Schedules – Up to 30 years.
- Available nationwide.
- Max loan to value – 75%.
- Minimum DCR – 1.25
- Eligible property types – Shopping centers, office, industrial, self storage, multifamily, credit single tenants and franchised hotels.
- Tax and insurance escrow – Monthly deposits required.
- Replacement reserves – Required per industry standards, depending on building type itself.
- Recourse – Non recourse.
- Eligible borrower – Single asset entity.
- Prepayment penalty – Treasury defeasance or yield maintenance.
- Assumability – Lenders consent and 1% transfer fee.