Informed commercial real estate news

CMBS loans are priced by taking the appropriate swap or Treasury rate and adding a credit spread, which compensates the lender for their work during the loan application and underwriting process.

Pooling and Servicing Agreements (PSAs) are highly detailed legal documents that define all aspects of a CMBS loan, including the rights and responsibilities of the borrower, the lender, the master servicer, the special servicer, and the CMBS investors.

Due to market fluctuations, CMBS lenders often re-price their loans before closing. However, some lenders do offer 30-day rate locks to help protect borrowers from rate increases.

CMBS are securities backed by longer-term fixed-rate loans, while CRE CLOs are securities backed by shorter-term, transitional financing. Here’s what else you need to know.

CMBS syndication occurs when multiple lenders pool their funds together to issue a large CMBS loan. This reduces the risk of having the entire loan on any one lender’s balance sheet.

There are two types of commercial mortgage-backed securities (CMBS), agency CMBS, which consist of loans pooled by government-sponsored entities (GSEs) including Ginnie Mae, Fannie Mae, Freddie Mac, and non-agency (private) CMBS, which consist of loans pooled and securitized by private lenders, such as JP Morgan or Goldman Sachs.

CMBS loans are not serviced by the lender who issued the loan and are instead serviced by third-party entities referred to as master servicers. In many situations, the master servicer will assign the day-to-day servicing duties to another entity, known as a primary servicer.

Conduit loans, which are more commonly referred to as CMBS loans, are commercial real estate loans that are pooled together and sold to investors on the secondary market.

Hotel property improvement plans (PIPs) are a series of specific renovation guidelines for franchise hotels. Sometimes, but not always, they can be funded using the proceeds of CMBS loans.

A Real Estate Mortgage Investment Conduit, or REMIC, is a legal entity, typically a special purpose vehicle (SPV) or a special purpose entity (SPE) used to pool loans and issue mortgage-backed securities (MBS), or commercial mortgage-backed securities (CMBS).

Defeasance is generally the most common type of CMBS prepayment penalty. Unlike percentage-based prepayment penalties, a borrower needs to replace their CMBS loan’s collateral with new securities, typically U.S. Treasury bonds in order to replace CMBS investors’ income.

CMBS loan origination occurs when a lender processes a potential borrowers’ loan application and determines whether they will be approved for a loan. This generally involves credit checks, background checks, a financial analysis of the subject property, and the reviewing of third-party reports, like the property appraisal and a phase 1 environmental inspection (ESA).