What Is a CMBS / Conduit Loan?
A CMBS (Commercial Mortgage-Backed Securities) loan — also called a conduit loan — is a commercial mortgage originated by a lender, pooled with other commercial loans, and sold to investors on the secondary market as bonds. Because the loan is securitized and sold off the originator's balance sheet, CMBS lenders can offer non-recourse terms that most banks and credit unions cannot match.
CMBS financing is designed for stabilized, income-producing commercial properties. The loan underwriting focuses heavily on the property's cash flow (DSCR) and value (LTV) rather than the borrower's personal financials. This makes CMBS an ideal solution for sponsors who want personal asset protection and predictable fixed-rate payments over a defined term.
Eligible Property Types
CMBS conduit lenders finance virtually every commercial property type, as long as the asset is stabilized and producing income:
- Office — single-tenant, multi-tenant, suburban, or CBD
- Retail — anchored centers, strip malls, single-tenant NNN
- Industrial — warehouse, distribution, flex, manufacturing
- Multifamily — 5+ units, stabilized occupancy (also eligible for agency)
- Hospitality — flagged and unflagged hotels, limited and full service
- Self-Storage — stabilized facilities with proven operating history
- Mixed-Use — properties blending retail, office, and/or residential
Loan Terms and Structure
CMBS loans are fixed-rate with terms typically ranging from 5 to 10 years. The amortization schedule is usually 25 or 30 years, with a balloon payment at maturity. Interest-only periods of 1-5 years are available on stronger deals.
Loan amounts start at $2 million with no hard cap — single-asset CMBS deals regularly exceed $50M. Leverage tops out at 65-75% LTV depending on property type, location, and cash flow strength. DSCR requirements are typically 1.20x-1.35x.
Non-Recourse: What It Means for You
CMBS loans are non-recourse, meaning the lender's recovery in a default is limited to the collateral property. Your personal assets — other real estate, bank accounts, retirement funds — are protected. The only exceptions are standard "bad boy" carve-outs for fraud, environmental contamination, bankruptcy filing, and similar borrower misconduct. As long as you operate in good faith, non-recourse means exactly what it says.
Prepayment: Yield Maintenance vs. Defeasance
CMBS loans do not allow simple prepayment penalties like residential loans. Because the loan is securitized and bondholders expect a specific return, early payoff requires one of two mechanisms:
- Yield Maintenance — You pay the lender a lump sum equal to the present value of all remaining interest payments, discounted by the Treasury rate. In a rising rate environment, yield maintenance can be relatively affordable. In a falling rate environment, it can be extremely expensive. This is the more common prepayment structure.
- Defeasance — Instead of paying off the loan, you substitute the collateral. You purchase a portfolio of Treasury securities that exactly matches the remaining loan payments, effectively replacing your property with government bonds as collateral. The loan stays on the books, the bondholders keep getting paid, and you get your property free and clear. Defeasance involves third-party costs (legal, accounting, securities purchase) but can be cheaper than yield maintenance when rates have dropped significantly.
Pro tip: If you think you might sell or refinance before loan maturity, negotiate the prepayment structure during origination. Some CMBS programs offer a yield maintenance period that converts to a declining penalty in the final 1-2 years, giving you a less costly exit window.
What CMBS Lenders Want to See
- Trailing 12-month financials (T-12) — actual income and expenses for the past year, not projections
- Current rent roll — unit/suite mix, rental rates, lease terms, expirations, vacancy
- Sponsor financial statement — net worth and liquidity (less emphasis than agency, but still reviewed)
- Property condition report — age, deferred maintenance, major systems, capex needs
- Environmental assessment — Phase I environmental site assessment (required at closing)
- Third-party appraisal — ordered by lender, confirms value and supports LTV
CMBS vs. Agency vs. Bank Financing
| Feature | CMBS / Conduit | Agency (Fannie/Freddie) | Bank / Credit Union |
|---|---|---|---|
| Property Types | All commercial | Multifamily only | All commercial |
| Recourse | Non-Recourse | Non-Recourse | Recourse (typically) |
| Minimum Loan | $2M+ | $1M+ | $250K+ |
| Max LTV | 65-75% | Up to 80% | Up to 75% |
| Rate Type | Fixed | Fixed / ARM | Fixed / ARM |
| Term | 5-10 years | 5-30 years | 3-10 years |
| Prepayment | Yield Maint / Defeasance | Yield Maint / Defeasance | Declining penalty or none |
| Speed to Close | 60-90 days | 45-75 days | 30-60 days |
| Flexibility | Rigid (securitized) | Moderate | Most flexible |
| Best For | Stabilized non-MF assets | Stabilized multifamily | Smaller deals, flexibility |
When to choose CMBS: You own a stabilized commercial property (office, retail, industrial, hospitality, self-storage) and want non-recourse, fixed-rate permanent financing with the longest available term. If your property is multifamily, agency will usually beat CMBS on rate and leverage — but for every other property type, CMBS is the non-recourse solution.
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