A CMBS conduit loan is a type of loan that can be used to invest in commercial real estate. In this type of lending, investors put their money into a pool that is set up specifically to sell securities.
Advantages
CMBS conduit loans are often a good fit for investors who want to grow their portfolio but don’t have the access or resources to do so through bank lending. Also, sometimes lenders will offer these types of loans to individuals who want to invest in commercial property without paying outright.
A conduit loan is attractive because it offers higher returns than traditional fixed-income investments such as bonds or CDs. These loans are also well suited for investors who have a shorter time frame in which they need to cash out their investment.
In many cases, investors save money by choosing conduit loans over traditional loans. Lenders typically offer lower interest rates with longer repayment periods. These loans also give borrowers access to lower down payments and more flexible repayment terms than other types of loans would allow for. Rates are typically fixed, which makes forecasting and planning easier.
Another benefit of conduit loans is that they are non-recourse. This means that if the borrower defaults, the lender won’t be able to hold him or her responsible for anything beyond the collateral. The only exception to this would be if there is a clause concerning intentional harm.
Risks
Conduit loans do come with some risks that are worth considering. For one, prepayment penalties tend to be rather strict, often requiring the borrower to buy securities for defeasance. However, lenders sometimes offer yield maintenance as another prepayment option.
Borrowers should heavily contemplate their liquidity, credit score, and other factors of their balance sheet before making a decision. It’s also important to consider how long it will take to close a deal. This will depend on the borrower’s ability to keep up with the terms as well as any other qualifying factors. Borrowers should make sure that they understand what they are getting into before committing themselves and their money.
Opportunities
CMBS conduit loans are useful for many endeavors ranging from low-risk pension funds to high-risk hedge funds. Restaurants, hotels, office buildings, and townhomes are just a few types of property that can be financed. As long as investors plan, they can accomplish a lot with this type of loan.