Commercial Mortgage Backed Securities

Commercial Mortgage Backed Securities are often abbreviated as CMBS.  These can provide a safe and secure way to gain capital for new projects.  They are in the form of a loan and are held and sold by commercial and investment banks or conduit lenders and are most often used for properties such as apartments, hotels, warehouses, offices, retail, or other real estate used in connection with business.

There is the traditional version or the delegated program.  In simple language, the traditional version works much like a conventional loan.  Terms are agreed upon by both the investor and lender, then the lender appoints a trust vehicle for the loan.  It is separated into bonds (tranches).  The delegated program is a loan where there is one buyer for the loan and terms are agreed upon before the actual loan application is filled out. 

The terms generally come from the financial institution where the CMBS loan originated from.  They may  offer good fixed interest rates with a balloon payment occurring at the end of the loan period and often run 25 to 30 years.

Some terms can be negotiated and an attorney can be key in helping you with this.  The amount, the length of the loan, and the inclusion of loan assumption may be negotiable.  Other terms such as prepayment penalties and balloon payments may not.  Regardless, when making a long term financial commitment, being sure you understand everything in the contract through the services of an attorney is crucial.