Intro to CMBS Loans

Learn what sets a Commercial Mortgage-Backed Security (CMBS) apart from other finance vehicles on the market.

CMBS Securitization: A Primer

When a conduit lender issues a CMBS loan, they will add it into a pool with a variety of other loans in order to create a commercial mortgage-backed security (CMBS). These CMBS are similar to bonds, in that they are traded on the open market. From an investing standpoint, CMBS are often compared to RMBS (residential mortgage-backed securities), which are securities based on residential mortgage loans.

Much like RMBS, commercial mortgage-backed securities are divided into tranches, each of which includes loans of a different credit quality/risk. The tier of tranch represents how the securities are to be paid. For example, lower-risk tranches will be paid first in the case of a loan default, while higher-risk tranches are paid later. Most conduit lenders have between 3 and 8 securitizations per year, but this can vary greatly based on the size of the lender and the size of the loans they issue.

Single-Asset, Single Borrower (SASB) Loans

While most kinds of CMBS are created from many loans that are packaged together, Single-Asset, Single Borrower (SASB) CMBS consists of a very large loan on one property. In general, this will be a very high-quality (class A) property in a top MSA. SASB CMBS loans are typically anywhere between $250 million to $1 billion. In some situations, SASB loans/securities can consist of a group of cross-collateralized, cross-defaulted properties owned by the same borrower.

CMBS Servicing and Securitization

When a CMBS loan is sold on the secondary market, it is then usually transferred to a loan servicing company. This may not always provide an ideal experience for the borrower, as the servicing company’s priorities may not be fully aligned with the borrower’s. Issues may crop up in situations involving prepayment penalties (with which some servicers are not particularly flexible), as well as issues involving loan repayment. Unlike loans that are held and serviced by a lender, it can be very difficult for a borrower to get financial assistance (such as a commercial loan forbearance) that can prevent potential loan default when dealing with these loan servicing companies.