If you’re looking to invest in commercial real estate, it helps to have a good financial plan before you make any moves. Commercial property can be volatile, especially when the economy is shaky. To make the best investments without hurting your wallet, you may want to look into CMBS conduit loans.
You might be used to paying lenders back in installments over time, but CMBS loans operate under slightly different conditions. A CMBS loan is securitized instead of being paid back to the lender. The loan is sold into a trust with similar mortgage loans, and then bond investors buy it in the secondary mortgage market. Let’s take a look at some other ways CMBS loans can help your business.
When you close on commercial property, whatever bank or credit union you go to funds the conduit loan. The lender then makes bonds by combining different CMBS conduit loans. The loan-to-value ratio, loan amount, debt service coverage ratio, and other elements will determine the bond’s rating and price. As long as investors buy the bond, the lender will afford to provide more loans in the future.
With traditional commercial loans, you work with the initial lender for the whole term. With CMBS conduit loans, you wind up working with a master servicer after the loan is sold. The master servicer will handle escrow accounts, payments, and other factors of the loan. If for whatever reason you default on the loan, you will work with a special servicer to see if any terms can be adjusted.
One of the biggest advantages of CMBS loans is the interest rate, which tends to be far more reasonable than what other loans offer. To help with financial planning, you also might be able to select a fixed-rate option.
Another advantage is that CMBS conduit loans are nonrecourse. If you have trouble making your payments, nobody can hold you personally liable. The only exception is that with some loans, you will be held liable if you do anything to deliberately hurt your investors, your lender, or the property.
If you ever want to sell the property, CMBS conduit loans are assumable. The person who buys the property can take on the loan and its conditions. While this service usually comes with a fee, it can give you leeway in your financing decisions.
A CMBS loan can do wonders if you’re looking into commercial real estate. With the right plan, you’ll be able to adjust to the market and boost your purchasing power.