CMBS – Conduit Loan Program
At Kram Capital Group, we are your trusted source for the CMBS – Conduit Loan program, a powerful and versatile financing solution. Conduit loans, also known as CMBS loans (Commercial Mortgage-Backed Securities), represent a distinct category of commercial mortgages. They are bundled together with similar commercial loans, securitized, and offered in the secondary market to institutional investors. While they have been a part of the commercial real estate landscape since the late 1990s, they remain somewhat unfamiliar to many investors in this space. These loans, however, extend their reach to a wide array of income-producing commercial real estate properties, including multifamily residences, self-storage facilities, hotels, office buildings, industrial complexes, warehouses, and retail properties.
For borrowers seeking higher leverage and stable fixed-rates, conduit loans emerge as a preferred choice when compared to traditional bank commercial mortgage loans. One significant advantage is their non-recourse nature, which means no personal guarantees are typically required, with exceptions for standard carveouts, often referred to as “bad boy behaviors.” As you embark on your financing journey with Kram Capital Group, rest assured that we are here to demystify conduit loans and make your commercial real estate ambitions a reality.
Here are some common criteria for qualifying for a CMBS loan:
The property should be in good condition and well-maintained. Lenders typically assess the property’s physical condition, location, and income-generating potential.
CMBS loans are often suitable for larger loan amounts, typically ranging from several million to tens of millions of dollars. The loan amount should align with the property’s appraised value and the lender’s program limits.
Loan-to-Value (LTV) Ratio:
Lenders typically require a maximum LTV ratio, which is the loan amount divided by the property’s appraised value. LTV ratios for CMBS loans are often lower than those for traditional commercial loans and may range up to 80%.acquisition, refinancing, renovations, or business expansion.
Debt-Service Coverage Ratio (DSCR):
Lenders assess the property’s ability to generate sufficient rental income to cover loan payments. A minimum DSCR is usually required, often in the range of 1.20 to 1.30, meaning the property’s net operating income must be 1.20 to 1.30 times the annual loan payments.
Borrowers are evaluated based on their creditworthiness and financial stability. Lenders may consider the borrower’s credit history, financial statements, and experience in owning and managing commercial properties.
CMBS loans are often structured as non-recourse loans, meaning the borrower’s liability is limited to the collateral property itself. Borrowers may be required to sign carve-out or “bad boy” guarantees, which specify conditions under which personal liability can be triggered
It’s important to note that CMBS loan criteria may vary depending on the lender, the specific CMBS program, and market conditions. Borrowers should work closely with experienced commercial real estate advisors and lenders to understand and meet the specific requirements for their CMBS loan application.
What are the advantages of a CMBS loan?