What it is
A CMBS loan, also called a conduit loan, is a commercial mortgage that a lender originates with the intention of selling it into a securitization. The loan is pooled with others in a trust, and the trust issues commercial mortgage-backed securities to bond investors. After closing, the loan is managed by servicers on behalf of the trust, not by the original lender.
How CMBS loans commonly work
- Term. Commonly ten years, sometimes five or seven, usually fixed rate.
- Amortization. Often 30 years, sometimes with a partial or full interest-only period.
- Non-recourse. The loan is non-recourse except for standard carve-outs, often called "bad boy" provisions, such as fraud, misappropriation of funds or an unauthorized transfer. See recourse.
- Sizing. Heavily driven by debt yield, alongside DSCR and LTV.
- Prepayment. Typically defeasance or yield maintenance, with an open period near maturity.
- Single-purpose borrower. The borrower must be a bankruptcy-remote entity that owns only the property.
Servicing
After closing, a master servicer handles routine administration: collecting payments, reserves, routine requests. If the loan gets into trouble, it's transferred to a special servicer. Servicers follow the pooling and servicing agreement, which limits their flexibility. Requests that a bank might approve with a phone call, like a partial release or a loan assumption, can take longer and cost more.
When CMBS fits
| Often a fit | Often not a fit |
|---|---|
| Stabilized property with steady income | Transitional or value-add plans |
| Sponsor wants non-recourse | Sponsor may sell or refinance early |
| Asset types or markets banks avoid | Deals needing flexibility after closing |
| Borrower wants fixed rate, long term | Loans below conduit minimums |
Common mistakes
- Ignoring prepayment cost. Defeasance on a 10-year loan sold in year four can be expensive. Model it.
- Expecting bank-style flexibility. Once securitized, changes go through the servicer.
- Missing the debt yield test. Brokers sizing to LTV are often surprised when CMBS proceeds come back lower.
- Overlooking reserves and cash management. Conduit loans often require ongoing reserves and may trigger a cash sweep if performance drops.
In the package
CMBS lenders want a clean T-12, a current rent roll, underwritten NOI and a strong sponsor history. Show debt yield prominently.