In general, CMBS loans are not available for owner-occupied commercial real estate. Instead, businesses usually need to get a bank loan or an SBA loan if they want to purchase a building that they will occupy. However, in certain situations, larger businesses may be able to utilize conduit financing to purchase an owner-occupied commercial property.
In most circumstances, owner-occupied conduit loans are only available for properties that are partially owner-occupied. For example, if mid-size or larger business purchases a property and only uses a certain portion of it, say 50-60%, and decides to rent out the remaining portion to a tenant with great credit, the property could be CMBS-eligible.
Owned-Occupied CMBS Loans Have Stricter Lending Requirements
If only part of the building is owner occupied, the remaining barrier to conduit financing remains the financial strength of the company itself. Since owned-occupied CMBS loans are significantly riskier for lenders, they will most likely want to take a look at the borrower’s credit score and see audited tax and income statements for the last several years. Companies with growing revenues, strong profits, and low amounts of debt are generally good candidates. In general, lenders are more likely to approve of owner-occupied CMBS refinancing, and somewhat less likely to approve of the acquisition of a property that the borrower plans to occupy in the future.
If the lender decides to approve the borrower, the borrower will most likely have to form a separate entity (if they have not already done so), in order to lease the property back to themselves. In many cases, the borrower will sign a long-term “synthetic lease” with the building-owning entity. Just as with other conduit loans, this entity must typically be a bankruptcy-remote special purpose entity (SPE), in order to reduce risks for both the borrower and the lender.