CMBS & Conduit Loans

CMBS stands for commercial mortgage backed security. In the case of commercial real estate it refers to the loan being pooled with other loans and securitized so as to be sold off to investors for a return. What happens is, hundreds, or perhaps thousands, of similar loans varying in size, rate, collateral (property type), etc. are bundled together, a blended rate of return is established, and investors may buy shares of that bundles of mortgages. CMBS investors may elect to invest in various CMBS bonds depending on property types, risk aversion, geographic location of the properties in the portfolio, the credit rating, and so-on.

CMBS loans, also know as Conduit Loans, have become a very popular source of capital for commercial real estate investors. Rates are competitive and they are generally non-recourse, and fixed for a term of ten years. However CMBS loans often come with prepayment penalties and provisions such as yield maintenance and defeasance to protect the guaranteed yield to the investors. 

Click the following link to find more information on CMBS & Conduit loan terms.