Although traditional loans are available for your commercial real estate investment endeavors, you have to consider that some banks simply will not offer loan amounts that are substantial enough to cover properties on the higher end of the cost spectrum. Commercial properties can be quite expensive to finance, and CMBS conduit loans consistently top several million dollars.
First of All – What is a CMBS Conduit Loan?
The loan, itself, is so named because the financial institutes that offer it are usually conduit lenders, commercial and investment banks, or an established syndicate of banks. This type of loan is specifically for commercial properties and is held in a trust that is apart from the property so that it can be used as viable collateral for security backed by a first mortgage. The characteristic loan term is 25-30 years, and you can expect a large balloon payment due at the close of the loan term.
CMBS Loan Audience
As you may have guessed from the title, the primary users of CMBS conduit loans are commercial real estate investors interested in funding the purchase of multifamily housing units, hotels, large office buildings, warehouses for self-storage units, and other substantial industrial buildings. They are generally regarded useful if the requisite loan amount exceeds $2 million, and the leverage being sought tops out at 75%.
The Benefits of a CMBS Loan
Besides the superior leverage terms, their chief attribute is their availability to new commercial real estate investors who might not have the capital necessary to acquire traditional loans of the requisite amount to buy commercial property. Conduit loans are not as bound by red tape, and the interest rates are often better than what traditional loans provide to all but the most stellar credit histories. Overall, the record is clear: investors enjoy superior interest rates when using CMBS conduit loans, as well as a better ROI (return on investment).