Tap to get financing
CMBS Loans
Property types
Mobile Home Park CMBS LoansHospital CMBS LoansIndustrial CMBS LoansHotel CMBS LoansRetail CMBS LoansSelf-Storage CMBS LoansMixed-Use CMBS LoansOffice CMBS LoansApartment CMBS LoansCMBS Property Types
Loan basics Loan terms
About
TeamLeadership
Loan docs Blog CMBS Alternatives
Get financing
Was This Article Helpful?
Newly Published
Jun 14 at CMBS Loans
Pooling and Servicing Agreements: What CMBS Borrowers Need to Know
Jun 14 at CMBS Loans
CMBS Servicing: What Borrowers Need to Know
Jun 14 at CMBS Loans
CMBS and REITs: What Commercial Borrowers Should Know
Explore the Janover Network
Jan 27 at Multifamily Loans
4 Steps to Increase Your Apartment Building's Occupancy
Jan 26 at Commercial Real Estate Loans
How Does ChatGPT Work With Commercial Real Estate?
Jan 25 at Commercial Real Estate Loans
Capital Gains Taxes in Commercial Real Estate
CMBS Loan Secrets
Last updated on Nov 25, 2022
3 min read

CMBS Loans vs. Portfolio Loans: What's the Difference?

When it comes to commercial real estate lending, there are typically two major kinds of loans, CMBS loans, also known as conduit loans, and portfolio loans. Conduit loans and portfolio loans have several key differences— and borrowers should be aware of them before deciding which type of commercial real estate financing best fits their individual needs.

Apply for a loan in minutes and get multiple quotes today → Get Quotes

In this article:
  1. Lenders Sell CMBS Loans, While Keeping Portfolio Loans on Their Balance Sheets
  2. Recourse Provisions and Prepayment
  3. Borrower Eligibility and Loan Requirements
  4. Loan Defaults, Collateral Substitutions, and Debt Workouts
  5. Get Financing

Lenders Sell CMBS Loans, While Keeping Portfolio Loans on Their Balance Sheets

When it comes to commercial real estate lending, there are typically two major kinds of loans, CMBS loans, also known as conduit loans, and portfolio loans. Conduit loans and portfolio loans have several key differences— and borrowers should be aware of them before deciding which type of commercial real estate financing best fits their individual needs. 

Recourse Provisions and Prepayment

One of the biggest differences between CMBS loans and portfolio loans is that CMBS loans are typically non-recourse, while portfolio loans are not. In general, CMBS borrowers can only face a loan’s recourse provision if they engage in certain bad acts, such as fraud, or material misrepresentation of their financial assets. Also, most portfolio loans permit a borrower to use yield maintenance to prepay their loan, while many CMBS loans require borrowers to conduct defeasance to prepay. Defeasance, which involves the purchase of substitute bonds in order to replace the loan’s collateral and provide substitute income for the lender, is typically a more expensive and time consuming process. 

Borrower Eligibility and Loan Requirements

Since CMBS lenders don’t keep conduit loans on their balance sheets, in general, they can afford to be slightly more liberal when it comes to credit score and net worth requirements. While conduit loans typically require the borrower to have some amount of outside collateral, the main collateral for the loan is the property itself. In contrast, portfolio loans often have stricter credit and net worth requirements, which could put them out of reach of certain commercial real estate borrowers. 

Loan Defaults, Collateral Substitutions, and Debt Workouts

In general, portfolio lenders have a much closer relationship with borrowers, and this means that they can often provide personalized assistance and solutions in the case of a loan default. In contrast, CMBS lenders typically have to send any defaulted loans to a special servicer, who must comply with the CMBS's Pooling and Servicing Agreement (PSA), as well as the rules of the Real Estate Mortgage Investment Conduit (REMIC), which is an special purpose entity (SPE) used specifically to pool conduit loans. Due to this, CMBS lenders and special servicers cannot typically provide any form of debt workout, or any preemptive loan modifactions that a portfolio lender might be able to make. 

In contrast, it’s much easier for portfolio lenders and servicers to accept substitute or additional collateral, take an equity position, capitalize past due interest, or lend additional money as a way to prevent or solve a loan default. Because CMBS borrowers are required to form a special purpose entity, or SPE, that is bankruptcy remote, this limits a conduit loan borrower’s ability to file for bankruptcy, and since these entities are single-purpose, it also prevents the borrower from substituting or adding collateral to repay the loan. 

In addition, CMBS loans often have other requirements, such as providing regular financial reports to a servicer, as well as a property management control provision, which states that a lender can replace property management should they feel this is appropriate.

In this article:
  1. Lenders Sell CMBS Loans, While Keeping Portfolio Loans on Their Balance Sheets
  2. Recourse Provisions and Prepayment
  3. Borrower Eligibility and Loan Requirements
  4. Loan Defaults, Collateral Substitutions, and Debt Workouts
  5. Get Financing
Categories
  • CMBS Loans
  • Conduit Loans
Tags
  • CMBS Loans
  • Conduit Loans
  • Conduit Financing
  • CMBS Financing
  • Conduit Loan Defeasance

Getting commercial property financing should be easy.⁠ Now it is.

Click below for a free, no obligation quote and to learn more about your loan options.

Get financing →
Janover logo

CMBS Loans is a Janover company. Please visit some of our family of sites at: Multifamily Loans, Multifamily Today, Commercial Real Estate Loans, SBA7a Loans, CMBS Loans, Apartment Loans, HUD Loans, HUD 221d4 Loan, HUD 232 Loan, HUD 223f Loan, HUD 223a7 Loan, SBA Express Loans, SBA 504 Loans, and OpportunityZones Help.

Janover Inc.

6401 Congress Ave
Ste 250
Boca Raton FL 33487

hello@cmbs.loans

Property types

Mobile Home Park CMBS Loans
Hospital CMBS Loans
Industrial CMBS Loans
Hotel CMBS Loans
Retail CMBS Loans
Commercial mortgage calculator

Self-Storage CMBS Loans
Mixed-Use CMBS Loans
Office CMBS Loans
Apartment CMBS Loans
CMBS Property Types

Site Information

Privacy Policy
Terms of Use

This website is owned by a private company that offers business advice, information and other services related to multifamily, commercial real estate, and business financing. We have no affiliation with any government agency and are not a lender. We are a technology company that uses software and experience to bring lenders and borrowers together. By using this website, you agree to our use of cookies, our Terms of Use and our Privacy Policy. We use cookies to provide you with a great experience and to help our website run effectively.

Freddie Mac® and Optigo® are registered trademarks of Freddie Mac. Fannie Mae® is a registered trademark of Fannie Mae. We are not affiliated with the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), Freddie Mac or Fannie Mae.

Copyright © 2022 Janover Inc. All rights reserved.