When CMBS loans are pooled together to create commercial mortgage backed securities, these securities vary in credit quality and payment priority. Typically, they are divided between investment grade securities, (AAA/Aaa through BBB-/Baa3) and sub-investment grade securities (BB+/Ba1 through B-/B3). While the A-class bondholders are paid first, B-piece bondholders must wait until all A-class bondholders are fully paid before they receive any compensation. Due to their higher risk, however, B-piece CMBS offer investors significantly higher returns when compared to A-rated CMBS.
When it comes to getting financing for a multifamily property, Fannie Mae and Freddie Mac multifamily loans, also known as agency loans, are some of the most popular options on the market. When compared with CMBS financing, these agency loans have a variety of similarities and differences. Both agency and CMBS are typically non-recourse and fully assumable, and offer highly competitive interest rates. However, agency loans usually offer even lower rates than CMBS, with rates starting at 3.75-3.9%.
If you own a branded hotel or hotel franchise, you may be interested in participating in your franchise’s property improvement plan (PIP). Property improvement plans are typically required in order to bring a hotel in line with the franchise’s latest design standards, and in some cases, are mandatory, especially if a franchisee wants to expand their hotel or purchase a new franchise location.
While conduit loan issuances have risen steeply in the last few years, the amount of lenders has actually fallen slightly— and experts believe that’s a direct result of a new federal risk retention rule that took effect in Dec. 2016. Before the market crash of 2008, the CMBS market was incredibly hot, and lenders were quite liberal with who they provided loans to— especially because they knew they could transfer 100% of the risk to CMBS bondholders.
While the average CMBS, or commercial mortgage backed security, often consists of a pool of 50-100 loans, single-asset, single-borrower (SASB) conduit loans consist of one, large loan for a single property that is securitized and sold on the secondary market. These SASB loans are becoming an increasingly popular form of financing for the largest and most exclusive commercial properties.
If you’re considering taking out a CMBS loan for a commercial property, your lender will typically require you to form a special purpose entity, or SPE, that will own the property and will act as the legal borrowing entity. Specifically, the borrower must form a single-purpose, bankruptcy-remote SPE, a special purpose entity that is specifically designed to hold one asset and to prevent that asset from being involved in external bankruptcy proceedings.
CMBS loans and SBA 504 loans are two incredibly popular forms of commercial real estate financing, but they have several important differences. CMBS loans, also known as conduit loans, are issued by lenders, pooled with other similar loans, and then sold on the secondary market. In comparison, SBA 504 loans, which are guaranteed by the Small Business Administration (SBA), are 50% financed by a lender, and 40% financed by a Certified Development Company (CDC), a local non-profit group intended to increase economic development in a specific area.
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.