The Basics of CMBS Conduit Loans

Also known as conduit loans, Commercial Mortgage-Backed Security (CMBS) loans are used to purchase commercial property. These are usually packaged into a trust – Real Estate Mortgage Investment Conduit (REMIC) – before they are sold to investors on a secondary market. The entire process is called securitization.

Benefits of CMBS Loans

Conduit loans attract a lower interest rate. Most of these loans are non-recourse, too: borrowers are not directly responsible for the repayment. The loans are fully assumable as well: should the borrowers opt to sell the property, the buyers can take over the loan repayment obligation.

CMBS Loans Versus Traditional Commercial Mortgages

When it comes to conduit loans, borrowers need to know two things: how prepayment works and the concerned parties as far as loan management goes.

Unlike with traditional commercial mortgages, where prepayment penalties are often computed as a percentage of the interest lost, a conduit loan’s prepayment is calculated using defeasance or yield maintenance.


When you get a CMBS loan, your property is used to secure the loan. If you can’t make the payments, a lender can keep your property in what is known as a lien. Some lenders, however, will require the borrowers to release the lien on the property via the defeasance process.

Yield Maintenance

Lenders lose out on future interest payments when borrowers prepay a loan. So, they charge yield maintenance, as a prepayment penalty, to deter borrowers from paying off the loan early or refinancing the loan for reduced interest rates.

Loan Administration

There are several players in the REMIC trust, but borrowers will often interact with two main ones. This includes a commercial mortgage servicer: Master Servicer, to whom the loan repayments will be made. If the loan goes into full default, a Special Servicer will take over to work with borrowers to ensure the investors’ needs are met.

The Takeaway

Borrowers should evaluate their financing needs, including those of the property, before opting for a conduit loan. After the trust is formed, they will not be able to make key changes to the loan terms unless the loan is in default. Advanced Commercial Capital is always there to advise you on how best you can leverage your needs for viable financing options before agreeing to a conduit loan. Feel free to contact us today!

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