Who are the Top CMBS Lenders?
If you’re on the market for a conduit loan, you may want to know who the biggest players in the lending game are— in essence, who you might be getting a loan from. In 2017, some of the biggest CMBS lenders in the U.S. included Goldman Sachs, JP Morgan, Deutsche Bank, and Morgan Stanley.Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!
Goldman Sachs Contributed Nearly $12 Billion to CMBS Deals in 2017
If you’re on the market for a conduit loan, you may want to know who the biggest players in the lending game are— in essence, who you might be getting a loan from. In 2017, some of the biggest CMBS lenders in the U.S. included Goldman Sachs, JP Morgan, Deutsche Bank, and Morgan Stanley. Below, we’ve provided the statistics, as well as little information about each of the biggest conduit lenders of 2017.
Goldman Sachs: Goldman is the world’s second largest investment bank by revenue, but when it comes to CMBS loans, it takes first place. With an eye-popping $11.7 billion in CMBS loans issued in 2017, the bank commands nearly 14% of the market share of CMBS financing issued that year.
JP Morgan: JP Morgan is the world’s most valuable bank by market capitalization, with more than $2.5 trillion in assets— and it’s CMBS statistics aren’t too shabby either, with a massive $10.1 billion in CMBS loan issuances in 2017 alone.
Deutsche Bank: Deutsche Bank, headquartered in Frankfurt, Germany, is the 17th largest bank in the world by total assets, and has offices in 58 countries. Its CMBS loan issuances in 2017 reached a combined $9.6 billion, placing it just behind JP Morgan and Goldman Sachs.
Morgan Stanley: Founded in 1935, Morgan Stanley is actually one of the newer banks on this list, but it still issues a lot of CMBS loans. In 2017, the investment bank issued $8.5 billion in CMBS financing.
Citigroup: The third largest bank in the U.S., Citigroup traces its origins way back to 1812, when it was chartered as the City Bank of New York. Today, the company does business in 160 countries, and, in 2017, issued more than $8 billion in CMBS loans.
Wells Fargo Bank: Wells Fargo may still be recovering from its 2016 scandal involving millions of fake accounts, but it remains the the world's second-largest bank by market capitalization. And, while its 2017 CMBS numbers may not have been as high as other similarly-sized banks, it still managed to issue $6 billion of CMBS loans that year.
Bank of America: While Bank of America may sound as American as apple pie, you might not know that it was actually founded as Bank of Italy, way back in 1904, in order to provide Italian immigrants with the financial services they desperately needed. Today, the bank has more than $1 trillion of assets under management, and in 2017, issued $5.1 billion in CMBS financing.
Barclays Bank: Perhaps the oldest bank on this list, Barclays can trace its history way back to 1690, when it began as a banking institution for London goldsmiths. Barclays is considered one of the most powerful banks in the world, and, in 2017, managed to issue $4.9 billion in CMBS financing.
What are the criteria for qualifying for a CMBS loan?
In general, lenders look at three major factors when deciding if a borrower is eligible for a conduit loan: Debt Service Coverage Ratio (DSCR), Capitalization Rate (Cap Rate), and Loan-to-Value (LTV) ratio. Most borrowers will accept properties with a maximum LTV of 75% and a DSCR of 1.25 to 1.35x. Lenders also look at a property’s debt yield, which can be determined by taking a property’s net operating income, dividing it by the loan amount, and multiplying it by 100. CMBS lenders typically prefer properties with a debt yield of 7% or more. Additionally, lenders typically require a borrower to have a net worth of at least 25% of the entire loan amount, and a liquidity of at least 5% of the loan amount.Source 1
What are the advantages of a CMBS loan?
CMBS loans have several incredible upsides. First, these loans are available to a wide swath of borrowers, including those that might be excluded from traditional lenders due to poor credit, previous bankruptcies, or strict collateral/net worth requirements. Plus, CMBS loans are non-recourse, which means that even if a borrower defaults on their loan, the lender can’t go after their personal property in order to repay the debt. In addition, CMBS loans offer relatively high leverage, at up to 75% for most property types (and even 80% in some scenarios).
Perhaps most importantly, CMBS loan rates are incredibly competitive, and can often beat out comparable bank loan rates for similar borrowers. CMBS loans are also assumable, making it somewhat easier for a borrower to exit the property before the end of their loan term. Finally, it should definitely be mentioned that CMBS loans permit cash-out refinancing, which is a fantastic benefit for businesses that want to extract equity out of their commercial properties in order to renovate them, or to get the funds to expand their core business.
The advantages of CMBS financing include:
- Flexible underwriting guidelines
- Fixed-rate financing
- Fully assumable
- Lenders and bondholders can potentially achieve a higher yield on investments
- Investors can choose which tranche to purchase, allowing them to work within their own risk profiles
What are the differences between a CMBS loan and a traditional loan?
CMBS loans are typically easier to get approved for than traditional bank loans, as banks will usually put a lot of emphasis on a borrower’s credit score, net worth, and commercial real estate experience. CMBS lenders, on the other hand, focus more on the property itself. Unlike borrowers for commercial bank loans, CMBS borrowers will not continue to deal with the same lender that originated their loan during the remainder of its life; instead, they will have to work with a loan servicer, referred to as a master servicer. CMBS loans are also asset based, meaning that a borrower may not necessarily need to have strong financials in order get approved, as long as the property can generate sufficient income. CMBS lenders typically offer leverage up to 75% LTV, which is relatively generous, considering that they often offer loans to properties in secondary or tertiary markets. However, for borrowers, CMBS loans typically do not offer a great servicing experience; since these loans are securitized and sold on the secondary market, borrowers generally cannot expect any assistance if they have trouble making their mortgage payments. In addition, servicing is often outsourced to a different firm (not the original lender), who may not have the borrower’s priorities in mind. Finally, CMBS loan rates may be volatile, and, while the vast majority of CMBS loans are fixed-rate, rates can vary significantly before closing.
What are the risks associated with a CMBS loan?
The major risks associated with a CMBS loan include difficulty getting out of the loan early, as most CMBS loans have prepayment penalties. Additionally, CMBS loans typically do not permit secondary/supplemental financing, as this is seen to increase the risk for CMBS investors. Finally, most CMBS loans require borrowers to have reserves, including replacement reserves, and money set aside for insurance, taxes, and other essential purposes.
What are the current CMBS loan rates?
The current CMBS loan rates vary by the day but usually stay within a tight range for most borrowers. According to CMBS.loans, CMBS loan rates are generally based on the swap rate, plus a margin, also known as a spread, which compensates a lender for their risk and provides for their profits. Of course, CMBS loans are later securitized and sold to investors, so the spread also provides for the investors’ profits.