CONDUIT LENDING/CMBS FOR LENDERS
Conduit loans are nothing new, but many commercial real estate investors are still unfamiliar with them. Conduit loans, also called Commercial Mortgage-Backed Securities (CMBS), are a type of mortgage-backed security. CMBS are securities (bonds) which pool together and are backed by commercial mortgages rather than residential real estate. Due to the unique nature of underlying property assets, CMBS tend to be more complex than residential mortgage-backed securities.
CMBS provides a potential avenue for Lenders to service their clients in either placing loans that the Lender is unable or uninterested in financing. The Lender can also help refinance and remove loans from the Lender’s balance sheet which no longer fit the Lender’s business strategy remove certain loans from their books
Most conduit loans are non-recourse, with borrowers seeking higher leverage and lower fixed-rates compared to traditional commercial mortgage loans. The benefit of non-recourse loans to lenders is that the lender is able to move large loans off its books while providing a valuable service to their customers without infringing upon the primary relationship. The benefit of non-recourse loans to borrowers is that the borrower is not held personally responsible for more than the collateral amount in case of default. All CMBS conduit loans will have either a 5-, 7-, or 10-year fixed-rate term. All CMBS loans will have an amortization term of 15-30 years, with 25-30 being most common.
Benefits of Non-Recourse Lending for a Financial Institution (FI)
- The ONLY service the CMBS Lender provides is financing commercial real estate properties.
- The CMBS Lender is not interested in the Client’s bank deposits or in selling the Client any other services.
- The CMBS Lender will not require clients to move cash deposits from personal or business accounts, so the primary lender does not need to be concerned with losing a Client relationship.
- You will continue to provide services to your client as you normally do. The CMBS Lender will only provide commercial real estate financing to the Client, on transactions where you are unable to or uninterested in providing financing.
- This will avoid the Client from going to a competing FI that may try to move Client deposits or other banking relationships.
- The Lender can also help refinance and remove loans from the FI’s balance sheet which no longer fit the FI’s business strategy. The Lender can provide financing up to 75% LTV and in a case by case basis, even higher.
While CMBS loans have many benefits, they are strictly underwritten and legal representation is recommended to facilitate the process. Jackson & Jackson is not a lender and any terms or rates referenced above are observations and not quotes. To learn more about conduit lending and CMBS loans, contact Jackson & Jackson’s team of experienced attorneys. J. Kincaid Jackson specializes in Real Estate and Business Law, including Lender Closing Services, and has extensive experience in navigating the CMBS market.