For those who are looking to finance their venture of buying commercial real estate properties, there are several options available. One of the most popular choices are CMBS loans or commercial mortgage-backed securities loans.
It’s a high-leverage asset-based loan that offers exceptional liquidity for both commercial lenders and real estate investors alike. Although it fell out of favor after the 2008 market crash, it’s starting to regain its previous popularity, with billions of loans issued in the last four to five years.
With that said, where can you get a CMBS loan these days?
An Overview of CMBS Loans
Before discussing where to avail of CMBS loans, let’s first discuss what they are. As mentioned, they’re high-leverage asset-based loans that can be beneficial not just for commercial lenders but also for real estate investors.
These loans are used to buy commercial real estate properties, such as office buildings, multi-family living areas, and warehouses. What’s unique about this loan is it offers more flexible underwriting guidelines and uses the property itself as your collateral.
In addition, unlike traditional commercial loans, you don’t have to pay the lender over time. Instead, the loan is packaged and sold with other commercial mortgage loans, putting them in what you call a Real Estate Mortgage Investment Conduit, a trust. These are then turned into bonds and sold to bond investors via a process called securitization.
The primary advantage of CMBS loans is that they offer more attractive interest rates like fixed-rate options that make it easier for you to pay the loan back. They’re also assumable, so your buyer can take over the loan should you decide to sell the property.
On the other hand, its downside is that there’s often less room for negotiation when applying for a CMBS loan, especially later on once you have signed the document. Prepayment also isn’t an option since this loan type is part of a trust.
Fortunately, the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission (SEC) have implemented new regulations to mitigate the risks involved with these loans.
Where to Get A CMBS Loan: CMBS Lenders
Now that you know more about CMBS loans, let’s discuss where you can get one. Typically, commercial real estate investors can turn to CMBS lenders for this type of loan. However, what are CMBS lenders?
CMBS lenders are commercial real estate lenders that offer CMBS loans to borrowers. They package the loans and sell them to bond investors as securities. These lenders span across a broad range of financial entities, including major investment banks.
In fact, some of the top names in the industry include Walker and Dunlop, JP Morgan, Wells Fargo, and KeyBank. In addition, these leading names in the financial sector contribute roughly around 50% of the market share. Of course, you can also get CMBS loans from less-known financial institutions.
Nevertheless, in general, CMBS lenders tend to adopt a more aggressive position, leaving less room for negotiation on the borrower’s end. These lenders tend to be stricter and more rigid, especially regarding the amount of money they’re willing to lend.
However, this is to be expected since CMBS loans are considered non-recourse, which poses more risks for lenders as these loans are secured using collateral.
The Different Types of CMBS Lenders
Overall, depending on the type of property you’re trying to acquire, the kind of CMBS lender you go to will be different.
Still, when it comes to CMBS lenders, the loans they offer are generally similar, but their main difference lies in the types of loans they handle.
In general, there are two common types of lenders, namely CMBS multi-family lenders and CMBS hotel lenders.
- CMBS Multi-Family Lenders
Suppose you’re looking to fund an investment for multi-family housing, such as condominium complexes or apartment buildings. In that case, this is the type of CMBS lender you should approach.
They’re better equipped and more experienced in these types of projects, so they will be able to guide you through the entire process.
CMBS loans from these lenders offer the typical benefits you would expect from this loan type, such as assumable loans, flexible underwriting, and attractive interest rates.
- CMBS Hotel Lenders
On the other hand, this type of CMBS lender is the one you go to if you’re looking to finance commercial projects like resorts, hotels, and other types of vacation housing. Like multi-family lenders, this CMBS lender is more equipped at handling financing options for these types of projects.
Aside from offering you the necessary funding for your venture, they can also help you acquire the properties needed to expand your investment property.
Moreover, CMBS hotel lenders can also offer you refinancing options to maximize your property’s benefits.
Of course, there are numerous other commercial property types as well, such as self-storage facilities, office buildings, and industrial properties.
Some lenders offer CMBS loans for mixed-use property development projects as well, so it’s best to check out what your preferred lender specializes in to get a clearer idea of what to expect.
Advantages of Going to CMBS Lenders
If you’re a commercial real estate investor, going to a CMBS lender for your loan can be an excellent choice, especially if you have a less-than-stellar financial history.
This is because having a perfect financial history isn’t much of a deciding factor in the underwriting process, unlike other types of loans.
CMBS loans are often approved based on your assets, which means that even if you go to a large CMBS lender like JP Morgan, you have a better chance of getting that loan for your venture.
CMBS loans offer numerous advantages for real estate investors looking to finance their purchase of commercial real estate properties.
Aside from offering flexible underwriting terms and higher leverage, this loan type is also fully assumable, so you can transfer the loan to someone else should you decide to sell your property.
Of course, there are downsides to this type of loan, such as the more stringent terms that leave little to no room for negotiation. Still, it can be an excellent financing option for investors, especially those who secure their loans from reputable lenders.