CMBS Loan Refinancing: The Basics
Since the vast majority of CMBS loans are not fully amortizing, CMBS borrowers typically face hefty balloon payments when the term of their loan is up. If you’re a CMBS borrower who’s about to face a big balloon payment, refinancing your loan is often the best solution. And, when it comes to refinancing, you have a variety of options.
CMBS Refinancing Options Include Bank Loans, Private Lenders, and New CMBS Loans
One of the most common ways to refinance a CMBS loan at maturity is through a traditional bank loan. However, if you initially took out a CMBS loan due to the fact that you had trouble getting bank financing because of credit problems or insufficient collateral, you’ll likely need to resolve those issues before becoming eligible.
If bank financing requirements are too rigid for your needs, you may want to look into getting a CRE loan from a private lender. In most cases, private CRE loans are short-term deals, but some longer-term loans do exist. For borrowers with lower credit scores, hard money lenders may be the best option, but for better-positioned borrowers, a “soft money” loan may be able to provide lower interest rates and better loan terms.
Finally, if you find that bank loans and loans from private lenders aren’t the right fit for your needs, you may want to consider refinancing with another CMBS loan. Your new CMBS loan will likely have most of the benefits of your old CMBS loan— including having competitive interest rates, being fully non-recourse and fully assumable. Of course, it will also likely have many of the drawbacks, such as having somewhat strict prepayment penalties and a general prohibition on supplemental financing. And, if you’ve built up enough equity in your property during your loan term, you may even be able to complete a cash-out refinance.