CMBS ETFs: How Do They Affect Borrowers?

Jun 14, 2019 (updated on Sep 1, 2022)

2 min read

Table of contents

Conduit Loans and CMBS ETFs: The Basics
How CMBS ETFs May Impact The Debt Market
Why Some Investors Choose CMBS ETFs Over REITs and Bonds
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Conduit Loans and CMBS ETFs: The Basics

An exchange-traded fund (ETF) is a fund comprised of securities that is regularly traded on major stock exchanges. CMBS ETFs are exchange-traded funds composed of commercial mortgage backed securities (CMBS). A commercial mortgage backed security generally consists of a pool of loans issued to income-producing commercial properties, such as apartment buildings, shopping centers, and hotels, that is placed in a trust, securitized, and sold to investors on the secondary market. Right now, the concept of CMBS ETFs is relatively new, so only one CMBS ETF is currently being actively traded, the iShares CMBS ETF.

How CMBS ETFs May Impact The Debt Market

Overall, the impact of that CMBS ETFs will have on conduit loan borrowers is not yet fully known. Partly, this is because the first CMBS ETF, the iShares Barclays CMBS Bond Fund, was developed in and issued to investors in 2012, only 7 years ago. However, the fact that CMBS ETFs exist makes it significantly easier for average investors to place their funds in the CMBS market. This should increase demand for commercial mortgage backed securities, which should increase the availability of capital for commercial real estate borrowers across the United States. And, by increasing the availability of CMBS funds for borrowers, CMBS ETFs could also exert a slight downward pressure on conduit loan interest rates.

Why Some Investors Choose CMBS ETFs Over REITs and Bonds

For investors who want to place funds in the commercial real estate market, while limiting risk, investing in a CMBS ETF can be an ideal choice. These ETFs are generally less risky than investing in real estate investment trusts REITs, which directly hold property (though mortgage REITs only hold loans), and typically offer higher yields than bonds with a comparable risk profile. CMBS ETFs are also very liquid, though larger trades may incur additional fees.

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