CMBS loans, also known as conduit loans, are becoming increasingly popular in the commercial real estate market. In order to better understand these types of loans and how they may fit into your financing needs, it is important to familiarize yourself with the ins and outs of CMBS loan requirements.
Beginning With the Basics: What Is a CMBS Loan?
At its most basic, a conduit loan is a type of loan that is backed by commercial mortgage-backed securities (CMBS). This means that investors purchase the securities in order to receive interest payments. The trust funds then use those payments to pay off the underlying loan. Conduit loans are typically non-recourse, meaning that lenders cannot pursue other assets of the borrower if they default on their payment obligations.
The primary benefit of CMBS loans is that they can provide access to low-cost financing for borrowers. The cost of these loans may be lower due to the diversification associated with pooling multiple different types of assets into one collateralized loan. Additionally, since these loans are serviced by a third party rather than being held directly by a lender, there is less risk for lenders associated with not having direct control over all aspects of the loan underwriting process or maintenance.
Things to Consider…
When considering CMBS financing, it is important to consider several factors before moving forward. First and foremost, borrowers should make sure that they are aware of all their options when it comes to pricing and terms on these types of products. Second, borrowers should have an understanding of what happens if default occurs – there may be specific rules related to this depending on certain contractual agreements between parties involved in the transaction such as special servicer instructions or other stipulations imposed by rating agencies or investors in the deal. Lastly, borrowers need to consider any fees associated with these products such as legal fees or closing costs which can add up quickly if not managed effectively.
Another aspect to keep in mind when researching CMBS loans is creditworthiness; lenders will likely require a thorough review process involving income statements and balance sheets from both the borrower and guarantor before approving any type of conduit financing arrangement. Borrowers should also be prepared for additional reporting requirements related to cash flow projections and debt service coverage ratios which must be monitored throughout the life cycle of any given loan product in order for it to remain current and compliant with existing standards set forth by rating agencies or other investors involved in the transaction structure.
CMBS Loans Can Work For You – The Process of Acquisition
For those interested in learning more about conduit lending programs available today, the Array Financial blog provides comprehensive information about this topic, along with helpful resources on business and finance in general. Reach out to us for more information.