Loan Types
CMBS Loan
A CMBS (Commercial Mortgage-Backed Securities) loan is originated by a conduit lender and then pooled with other commercial mortgages, securitized, and sold to bond investors in tranches of varying risk and yield. CMBS loans offer competitive fixed rates and non-recourse structures but come with strict, standardized underwriting and rigid prepayment terms like defeasance or yield maintenance.
Example
A stabilized retail shopping center might be financed with a 10-year, fixed-rate, non-recourse CMBS loan that is later pooled with dozens of other commercial loans and sold to bond investors as part of a rated securitization.
CMBS lending brought Wall Street capital markets into commercial real estate financing by allowing individual mortgages to be pooled, tranched by risk and payment priority, and sold to bond investors seeking different risk-return profiles — from senior, highly-rated tranches through subordinate, higher-yielding B-pieces.
Because CMBS loans are sold to investors who expect a defined, uninterrupted cash flow, they come with rigid structural features: fixed rates, standardized underwriting (typically requiring minimum DSCR around 1.20–1.25x and debt yield around 8–10%), non-recourse with carve-outs (bad-boy guaranties) for fraud or misconduct, and prepayment restricted via defeasance rather than a simple penalty.
Once closed, a CMBS loan is serviced by a master servicer for routine matters and, if it becomes distressed, transferred to a special servicer with authority to negotiate workouts, modifications, or foreclosure — a structurally different process than negotiating directly with a balance-sheet lender, since the special servicer represents bondholders across the whole pool, not just the individual loan.
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