WHAT IS A CMBS LOAN?
Commercial Mortgage-Backed Securities Explained
A CMBS loan (also called a conduit loan) is a type of commercial real estate financing where individual mortgages on income-producing properties are pooled together, securitized into bonds, and sold to investors on the secondary market. Because the risk is distributed across many investors, CMBS lenders can offer non-recourse terms with competitive fixed rates that portfolio lenders often can’t match.
CMBS loans are originated by commercial banks, investment banks, and specialized conduit lenders. Once originated, the loans are transferred to a trust called a Real Estate Mortgage Investment Conduit (REMIC), packaged into tranches based on risk and return, and sold to institutional investors. This securitization model is what enables the favorable borrower terms — but it also means loan modifications after closing are extremely difficult.
Non-Recourse Structure
No full personal guarantee. A sponsor signs a carve-out guaranty covering standard “bad boy” carve-outs for fraud, environmental violations, and voluntary bankruptcy.
Fixed-Rate Terms
Lock in a fixed interest rate for 5–10 year terms with 25–30 year amortization schedules, providing long-term payment predictability.
Property-Focused Underwriting
Loan sizing based on DSCR, LTV, and debt yield — with sponsor checks alongside: lenders still review the sponsor’s net worth, post-closing liquidity, credit and background.
Higher Leverage Available
Up to 75% LTV for qualified properties. Cash-out refinancing is available on qualifying stabilized properties.
Loan Assumability
CMBS loans can be assumed by a qualified buyer at sale, making properties more marketable and simplifying exits.
Interest-Only Options
Partial or full interest-only periods available for stabilized properties, improving initial cash flow during hold.
CURRENT RATES & TERMS
CMBS Loan Structures at a Glance
CMBS rates are priced as a spread over benchmark Treasury yields. Structures and terms vary by loan size, property quality, and market conditions.
| Standard CMBS | Large Loan | Single Asset | |
|---|---|---|---|
| Loan Size | $2M – $25M | $25M – $250M+ | $100M+ |
| Interest Rate | 7–8% | 6.5–8% | Negotiated |
| Maximum LTV | 65 – 75% | 60 – 70% | 50 – 65% |
| Minimum DSCR | 1.20x – 1.25x | 1.25x – 1.35x | 1.30x+ |
| Debt Yield | 8 – 10% | 9 – 11% | 10%+ |
| Term Length | 5 or 10 years | 5 or 10 years | Custom |
| Amortization | 25 – 30 years | 25 – 30 years | 25 – 30 years |
| Recourse | Non-recourse | Non-recourse | Non-recourse |
| Prepayment | Defeasance / YM | Defeasance / YM | Negotiated |
| IO Period | 0 – 3 years | 2 – 5 years | Full or partial |
Typical ranges, updated September 2026. Your terms depend on the property, the borrower and the lender.
QUALIFICATION REQUIREMENTS
What Lenders Look For in CMBS Deals
CMBS underwriting focuses primarily on property performance rather than borrower financials. The three key metrics — DSCR, LTV, and debt yield — determine loan sizing and approval.
1.20x – 1.25x
Minimum DSCR
Net Operating Income must cover annual debt service by at least 1.20x. Higher ratios unlock better rates and more favorable terms.
65% – 75%
Maximum LTV
Loan-to-value based on appraised value. Higher-quality assets in primary markets may qualify for higher leverage.
8% – 10%+
Minimum Debt Yield
NOI ÷ Loan Amount. The key risk metric for conduit lenders. Properties with higher debt yields are more likely to be approved.
85–90%+
Occupancy Rate
Stabilized occupancy preferred. Properties below that level typically require bridge financing first.
All Major Types
Eligible Property Types
Multifamily, office, retail, industrial, warehouse, self-storage, hospitality, and mixed-use properties are all eligible.
Sponsor Review
Borrower Requirements
Loan size comes from the property, but CMBS lenders still check the sponsor’s net worth, liquidity, experience, credit and background, and the sponsor signs the carve-out guaranty.
THE FINE PRINT
CMBS Closing Costs, Reserves and Cash Management
Closing costs. Beyond the lender’s origination fee, a CMBS borrower pays for the third-party reports the securitization needs — appraisal, Phase I environmental, property condition report, often a seismic or zoning report — plus the lender’s legal counsel, title and survey. Because the lender’s lawyers document the loan for bond investors, legal costs usually run higher than on a bank loan.
Reserves collected monthly with the payment:
| Reserve | What it pays |
|---|---|
| Tax and insurance escrow | Property taxes and insurance premiums as they come due |
| Replacement reserve | Roofs, parking lots, mechanical systems — a set amount per unit or per square foot |
| TI/LC reserve | Tenant improvements and leasing commissions on office, retail and industrial properties |
| Upfront reserves | Deferred maintenance found in the property condition report; sometimes rollover of a large lease |
Lockbox and cash management. Many CMBS loans route rent into a lender-controlled account. With a hard lockbox tenants pay the account directly; with a soft one the borrower deposits collections; a springing lockbox is set up only when a trigger in the loan documents is hit — typically DSCR or debt yield falling below a stated level, a default, or a major tenant leaving. Once cash management is on, the servicer pays taxes, reserves and debt service first and can hold back the excess cash until the property recovers.
PREPAYMENT
Selling or Paying Off Early: Lockout, Defeasance and Assumption
A CMBS loan sits in a REMIC trust, and federal tax rules do not allow a loan in the trust to be defeased — its real estate collateral swapped for government securities — within two years of the trust’s startup day. So most conduit loans start with a lockout of about two years, then allow defeasance (or yield maintenance, depending on the loan) until a short open period before maturity.
Example: $5,000,000 left on a 6.0% loan with 60 months to go, estimated with our defeasance calculator ($50,000 of legal, securities and servicer fees assumed):
| Treasuries at 4.0% | Treasuries at 6.5% | |
|---|---|---|
| Cost of the Treasury portfolio above the balance | $248,766 | $0 |
| Fees | $50,000 | $50,000 |
| Total defeasance cost | $298,766 (6.0% of the balance) | $50,000 (1.0%) |
Defeasance is expensive when Treasury yields are below your note rate and cheap when they are above it. The calculator is an estimate; a defeasance consultant prices the actual securities.
Assumption instead of payoff. A buyer can often take over (assume) the loan instead, with the servicer’s approval. Expect an assumption fee set in the loan documents, the servicer’s and its counsel’s costs, and a review of the buyer as if it were a new borrower. When the existing rate is below market, an assumable loan can make the property easier to sell.
Source: Treas. Reg. §1.860G-2(a)(8) (defeasance of REMIC qualified mortgages). See also how prepayment penalties work.
Typical ranges, updated September 2026. Your terms depend on the property, the borrower and the lender.
LOAN COMPARISON
CMBS vs. Bank Loans vs. Agency Loans
Understanding how CMBS compares to other CRE financing options helps you choose the right structure for your deal. Life insurance companies are the fourth option for stabilized property: they lend at lower leverage on high-quality buildings, usually non-recourse and at about 6.5–7%, keep the loan on their own books rather than selling it, and so can be more flexible after closing than a CMBS servicer.
COMMON FOR STABILIZED ASSETS
CMBS / Conduit
TRADITIONAL
Bank / Portfolio
MULTIFAMILY ONLY
Agency (Fannie/Freddie)
Typical ranges, updated September 2026. Your terms depend on the property, the borrower and the lender.
Free tools
Run the numbers
The same metrics a lender checks — free, instant, no signup. Each result links straight into an application.
- DSCR Calculator Calculate your Debt Service Coverage Ratio instantly. See if your property qualifies for CRE financing and which loan programs are available to you.
- Debt Yield Calculator Calculate Debt Yield (NOI ÷ Loan Amount) — the metric CMBS and institutional lenders prioritize over DSCR and LTV. Find your maximum loan amount based on target debt yield.
- Commercial Mortgage Calculator Estimate your monthly CRE loan payment, total interest cost, and full amortization schedule. Compare loan structures before you apply.
FREQUENTLY ASKED QUESTIONS
CMBS Loan FAQ
What is the minimum loan amount for a CMBS loan?
Standard conduit CMBS loans typically start at $2 million, though some lenders will consider deals as low as $1.5 million. Large loan CMBS programs start at $25 million and can exceed $250 million for single-asset deals.
What does “non-recourse” actually mean?
Non-recourse means the lender cannot pursue the borrower’s personal assets if the loan defaults. However, “bad boy” carve-outs exist — if the borrower commits fraud, files bankruptcy voluntarily, or violates environmental laws, the loan can become full recourse.
What reserves does a CMBS loan require?
Most CMBS loans collect monthly escrows for property taxes and insurance, a replacement reserve for capital items, and — on office, retail and industrial property — a TI/LC reserve for tenant improvements and leasing commissions. Deferred maintenance found in the property condition report is usually reserved upfront at closing.
When can you defease a CMBS loan?
Not in the first two years after the loan’s REMIC trust is created — federal tax rules prohibit it — so most conduit loans have a lockout of about two years. After that, defeasance is allowed until an open period near maturity. The cost depends on Treasury yields: in our example, $5,000,000 at 6.0% with five years left costs about $298,766 with Treasuries at 4.0% but only the $50,000 of fees if they are at 6.5%.
Can I pay off a CMBS loan early?
CMBS loans have strict prepayment protections, typically either yield maintenance or defeasance. Yield maintenance requires compensating the lender for lost interest. Defeasance requires purchasing a portfolio of Treasury securities to replace the loan’s cash flows. Both are expensive. Use our Yield Maintenance and Defeasance calculators to estimate costs.
How long does CMBS loan approval take?
From application to closing, a typical CMBS loan takes 45–90 days. The process includes underwriting (2–3 weeks), third-party reports (appraisal, environmental, engineering), legal documentation, and rating agency review before securitization.
Can I modify a CMBS loan after closing?
Loan modifications on CMBS are extremely difficult because the loan has been securitized and sold to bondholders. Modifications go through the servicer — the master servicer while the loan performs, the special servicer after a default — and must meet REMIC trust rules. This inflexibility is one of the most significant trade-offs of CMBS financing.
What property types qualify for CMBS?
Most income-producing commercial properties qualify: multifamily, office, retail, industrial, warehouse, self-storage, hospitality, and mixed-use. The property must be stabilized with consistent cash flow. Value-add, transitional, or development projects typically require bridge financing first.
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Guides & articles
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All terms →More calculators
All calculators →- Defeasance Calculator Estimate the total cost of defeasing your CMBS or conduit commercial loan. See the Treasury portfolio cost, transaction fees, and how it compares to yield maintenance. CMBSPrepayment penalty
- LTV Calculator Calculate your Loan-to-Value ratio or find the maximum loan amount for your commercial property. See which programs you qualify for at your LTV. Loan-to-value