What is a CMBS Conduit Loan?

What is a CMBS Conduit Loan?

A conduit loan, or CMBS loan (that is, Commercial Mortgage-Backed Security), has been around since the late 1990s. However, they are still unfamiliar to some real estate investors.

This is a type of commercial mortgage that is packaged with other types of commercial loans and sold to institutional investors in the secondary market. The loans are held in trust and are the collateral for the mortgage-backed security.

The secondary market is quite large and offers a lot of liquidity in the commercial mortgage market. The CMBS loan is usually divided into tranches. Which is security broken up into various parts with various levels of risk, return, and maturity rates. Low-risk investors take on low risk which high-risk investors take on high risk.

The CMBS loan is a permanent, fixed-rate loan with specific, standardized requirements for underwriting and documentation. These requirements expedite the ultimate securitization of the loan.

CMBS loans usually offer lower fixed rates than other commercial real estate loans. The price is based on the “on the run” rate from the treasury with a spread added in.

Several things can positively or negatively affect the interest rate spread, such as:

-Property quality grade
-Property cash flow
-Tenant bond grade
-Tenant quality

Pre-payment on a conduit loan is different than that of a traditional commercial loan, it’s usually defeasance. This allows the borrower to purchase collateral for the loan. With this type of pre-payment, single or multiple U.S. Treasury securities must be purchased to complete it. There’s no minimum required for CMBS loan defeasance and in some cases, the borrower may receive payment once the loan is defeased.

Another pre-payment penalty is yield maintenance. This is based on a minimum yield to the investor who purchased the CMBS and is the value of the difference between the interest rate on the loan and the interest rate of the Treasury.


If you would like to learn more about a CMBS loan, contact Masters Commercial Capital Group today. We can help you understand how this type of loan could be beneficial for your business.