At Clopton Capital, we’re proud to offer access to the most trusted CMBS lenders in the industry. CMBS loans, or commercial mortgage-backed securities, are a powerful tool in the world of commercial lending that provide a wide range of benefits to borrowers.
What exactly are CMBS loans, how do they work, and what do you need to know about CMBS lenders? We’ve created this page to provide you with all the answers to the most common questions we receive about CMBS lenders.
Looking for a CMBS loan quote? Contact us today to receive your free quote and begin the process of obtaining a CMBS loan from our trusted network of top CMBS lenders.
Still want to learn more? Read on.
How do CMBS loans work?
CMBS loans, also known as commercial mortgage-backed securities or conduit loans, are used to fund the purchase of commercial real estate. This can include multifamily buildings or communities, commercial office buildings, storage facilities, and more.
Some of the primary traits of CMBS loan requirements include flexible underwriting and the fact that the property is often used as collateral in order to secure the loan.
So how do CMBS loans differ from a standard commercial loan? It has to do with the way the loan is bundled with others and sold on the secondary mortgage market.
When you enter into a traditional commercial loan, you agree to pay back the original lender at a specified interest rate and period. But in a CMBS loan, your loan is packaged with others like it and bundled into a trust. This trust is known as a real estate mortgage investment conduit (REMIC), and it gets turned into a series of bonds and then sold to investors. This is called securitization.
Benefits of Getting a CMBS Loan
CMBS loans provide a range of benefits for borrowers. First and foremost, CMBS pricing is more beneficial than some other loans, providing better interest rates on average than comparable traditional commercial loans. You also have the advantage of a fixed rate in many cases, which makes planning for your financial future more simple because you know what payments you can expect today and down the road.
CMBS loans are also non-recourse loans, which means that if you’re not financially able to repay the loan, you won’t be held personally responsible by the owner of the loan. (Note: In some cases involving intentional harm to the property purchased using the loan, you could be personally liable.)
Another benefit of CMBS loans is that they’re assumable in the event that you sell your property to a buyer, who can then assume the financing and interest rate from your loan. This transfer may come with a minor fee attached.
Who buys CMBS?
After a CMBS loan is originated, it’s bundled together with others like it and turned into bonds. These groups of bonds are rated based on a range of factors, from loan amount to debt service coverage ratio and loan-to-value ratio, as well as how many loans are included in the bundle, or pool.
So who buys these pools of CMBS loans? Mostly bond investors, who take on the loans and benefit from the interest paid over time by borrowers. This process is the reason why the lender who originates your loan will be different from the contact point you have for the rest of the loan.
Who are CMBS lenders?
CMBS lenders and CMBS agency organizations range across many different entities, from major investment banks to smaller but well-respected names you may not have heard before. The top CMBS lenders list includes JP Morgan, Deutsche Bank, Goldman Sachs, and Wells Fargo. As of 2018, these five CMBS lenders accounted for roughly 50% of CMBS loan market share.
That said, you can also find CMBS loans from other sources on the CMBS market, many with beneficial loan terms you won’t find anywhere else. That’s why Clopton Capital is such an indispensable partner in managing the CMBS market — we’ll help you find the best lender with the best terms for your needs. We also help make the CMBS issuance process as simple and straightforward as possible.
What is a conduit lender?
While researching CMBS loans, you might have come across the term ‘conduit lender.’ What does this mean? Are conduit lenders different from CMBS lenders, and what does that mean for you? It can be confusing, but conduit lenders and CMBS lenders are one and the same. CMBS loans are also known as conduit loans, because they serve as a conduit from the loan originator to the investors that ultimately buy those loans.
So if you ever see the phrase ‘conduit loan’ or ‘conduit lender,’ just assume that they can be used interchangeably with the terms ‘CMBS loan,’ ‘commercial mortgage-backed security loan,’ or ‘CMBS lender.’
What do CMBS lenders have to offer?
Wondering about the CMBS loan pros and cons? CMBS loans from trusted lenders can be ideal for anyone looking to borrow with a less-than-perfect financial history. Because CMBS issuance is often based on assets, the financial history of the borrower isn’t as central to underwriting as other factors. So if you have big plans but less-than-perfect credit, CMBS loans can be a great option for you.
Plus, we already mentioned the added benefit of CMBS loans being fully assumable, which means that you can offer the attractive feature of an already-set loan in place for a buyer.
How do CMBS lenders make money?
If traditional loan lenders earn a profit based on the interest paid by the borrower over the course of the loan, then how do CMBS lenders make money if they’re selling off loans they originate in bulk before they can mature?
Here’s how it works. CMBS lenders are essentially wholesalers, benefitting from what the retail industry would call a bulk discount. They originate loans at a certain interest rate, then sell them later at a different interest rate thanks to the bulk package they provide through their bonds.
It’s important to understand this process as a borrower only because it means that you won’t be working with your original lender after the loan has been sold in a bond. You’ll be interacting regularly with a CMBS servicer, sometimes known as a master servicer. They’ll handle any ongoing maintenance of your loan, such as payments, escrow, and more.
Types of CMBS Lenders
Which CMBS lender you choose will generally depend on the type of project you’re looking to fund. You may select a different lender if you’re looking to finance a hotel purchase versus a multifamily housing development or an office.
While the types of CMBS lenders can vary, they most frequently fall into one of two categories — CMBS hotel lenders and CMBS multifamily lenders. Their differences mainly come from the types of loans they manage, from commercial mortgage loans to construction loans, but there are some other key distinctions that you’ll want to be aware of as well. Here’s everything you need to know about hotel lenders versus multifamily loans when it comes to CMBS loans.
CMBS Hotel Lenders
Looking for a commercial loan for a hotel, resort, or other form of short-term vacation housing? A CMBS loan may be the perfect option. Both well-known and smaller CMBS lenders offer loans for hotels and hospitality companies that can bring major benefits. From acquiring new properties to refinancing, CMBS financing provides tons of benefits that we’ve already outlined in general above which become even more beneficial when considering hotel funding. In particular, the fact that the loans are fully assumable is a major plus in an industry where sales to new owners are common.
CMBS Multifamily Lenders
Investors looking to finance a multifamily housing development, such as an apartment building or condo complex, will benefit from a CMBS multifamily lender. These companies are experienced at offering financing through CMBS loans for multifamily housing purchases, so they’ll have all the expertise you need to make the process simple, straightforward, and with as beneficial loan terms for your needs as possible.
Generally, CMBS loans for multifamily properties provide all the benefits you’d expect — flexible underwriting, fully assumable loans, and more.
Who are the Largest CMBS Lenders?
Wondering who is at the top of the industry when it comes to CMBS lenders? While there are plenty of smaller organizations offering CMBS loans with beneficial rates, the industry is largely dominated by a core group of well-known names. In fact, just five lenders make up for roughly 50% of all CMBS loan market share.
Here they are in order of market share, according to data from 2018 — the most recent year information is available.
- JP Morgan Securities: $3.4 billion in loan volume, 17.7% of market share
- Deutsche Bank: $2.7 billion in loan volume, 14.1% of market share
- Goldman Sachs: $3.8 billion, 9.6% market share
- Wells Fargo Bank: $3.1 billion, 7.6% market share
Get a CMBS Loan Quote from Clopton Capital
Are you ready to get a CMBS loan and fund your commercial property investment dreams? Contact Clopton Capital today to get a free quote from our network of the most trusted CMBS lenders in the industry. Don’t wait another moment before making your goals a reality. Call us today.