CONDUIT LENDING/CMBS BENEFITS FOR OWNERS

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.

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 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 Client

    • With a non-recourse loan, the borrower does not provide personal guarantees on a loan other than for certain customary carve outs.
    • The Client can continue to bank for personal and business with any financial institution it chooses. They are not required nor are asked to move bank deposits or any other banking relationship.
    • The Lender can finance in all 50 states. The borrower is not required to live or have an office where the property being financed is located.

SUMMARY OF NON-RECOURSE LOAN TERMS

Loan Amount: $2,000,000 to $100,000,000+
Asset Types Self-Storage, Office, Retail, Industrial, Multifamily, Hospitality and Manufactured Housing Community. Other asset classes can be considered on a deal by deal basis
Interest Rate: Interest rates range varies from 3.85% to 4.95% depending on the loan amount, property cash flow and loan to value for each transaction
Term: 5 Years or 10 Years
Amortization: Up to 30 Year Amortization, Interest-only options available
Maximum LTV: 75%, higher on a case-by-case basis
Minimum DSCR: Minimum DSCR of 1.25x based on a 30 year amortization schedule
Origination Fee: No origination fee
Prepayment: Each loan is structured with a specific prepayment structure depending on the Loan Term
Non Recourse: The Loan is non-recourse other than for certain customary non-recourse carveouts. No personal guarantee is required.
Reserves: Standard reserves for taxes, insurance, replacement reserves and tenant improvements and leasing commission depending on the asset type.

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, and has extensive experience in navigating the CMBS market.

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