CMBS (commercial mortgage-backed securities) are bonds created by pooling commercial real estate mortgage loans, structuring them into tranches with varying risk and return profiles, and selling those tranches to capital markets investors. A CMBS lender originates a loan, bundles it with other loans into a trust, and issues securities backed by the pool’s cash flows. This securitization process allows originators to recycle capital and offer competitive rates, making CMBS one of the largest sources of CRE debt capital in the United States. CMBS loans are typically 5- or 10-year fixed-rate loans with 25- to 30-year amortization schedules, and they commonly feature defeasance or yield maintenance as the prepayment provision.
How It Works in Practice
CMBS loans are structurally different from bank loans in ways that matter for borrowers. Once your loan is securitized, you no longer deal with the original lender — you deal with a master servicer (for performing loans) or a special servicer (for distressed situations). This means you cannot simply call your lender to negotiate a modification or waiver; servicers are bound by the pooling and servicing agreement (PSA) that governs the trust. Borrowers must understand their servicer’s rights and limitations before they need them. CMBS loans also typically have more rigid prepayment provisions, cash management requirements, and reserve structures than portfolio loans. LoanBoss abstracts and tracks CMBS loan provisions across portfolios, including servicer contact information, defeasance windows, and covenant test dates, so borrowers are never surprised by their own loan documents.
Related Terms
Part of the LoanBoss CRE Debt Glossary. For hedging-specific terms, see Pensford’s resources.