Introduction to CMBS Financing

Updated: Aug 5, 2021

The articles will introduce CMBS as a great alternative to bank financing.

CMBS, or commercial mortgage-backed securities, are a type of financing used by companies to buy property. The process is quite complicated and can be tricky to understand at first glance. If you're interested in learning more about CMBS financing, this blog post will provide an introduction for beginners!

CMBS are a type of financing that is backed by commercial mortgages and securitized. This means the loans have been pooled together, typically in packages with different risk levels to share both high yield and low risk among investors.

This process allows for companies who need capital, but can't get it from traditional sources like banks or the public markets, to borrow money. The loans are then used for a variety of purposes including building new properties or purchasing existing ones that can be redeveloped.

CMBS financing is also attractive because it's stable by design and typically has low default rates as compared with other types of debt securities like mortgage bonds. It's particularly appealing for those who aren't interested in the riskier aspects of lending.

The process starts with a lender issuing commercial mortgages to multiple borrowers, usually property owners or developers. These loans are then pooled together and turned into securities that can be bought by investors as well as banks looking for long-term funding sources.

There are typically two types of CMBS, called "agency" and "non-agency." The former are securities backed by the U.S. Government's Federal Housing Authority (FHA), while the latter have no such guarantee, so their default rates can be higher but they also offer more potential for return on investment.

Soon we will dive into the what's needed to process a CMBS loan.

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