CMBS Loans for Self-Storage Properties

CMBS loans, also known as conduit loans, are a nonrecourse financing vehicle that offers low interest rates and relatively high leverage, typically reaching as high as 75% for eligible properties. CMBS, short for “commercial mortgage backed security,” dictates that these loans are pooled into securities before being sold on the secondary market to investors. In most cases, CMBS financing is the most desirable alternative for projects that are not a good fit for agency lenders like Fannie Mae® or Freddie Mac®.

Since underwriting for CMBS financing is more asset based, lenders are substantially more flexible when it comes to approving borrowers with credit or legal issues, such as a recent bankruptcy. Conduit loans are also lauded for having a faster closing process with less red tape and more focus on the income-producing capabilities of the property, rather than the finances of the borrower or the curb appeal of the project.

2022 Commercial Mortgage Terms for CMBS Loans

• Minimum Loan: $2 million and up
• Term: 5-, 7-, or 10-year fixed-rate loans
• Leverage: 75% to 80% maximum LTV
• Amortization: 30 years
• Recourse: Nonrecourse options available (with standard carve outs)
• Prepayment: Defeasance, or yield maintenance

Advantages

• Nonrecourse.
• Attractive fixed rates for long term loans.
• Can go up to 80% LTV
• Wide range of loan sizes
• Will consider non-Class A assets
• Less scrutiny for borrowers
• Provides cash out refinancing
• Loans are fully assumable

Disadvantages

• Less autonomy in the operation of the property and limited flexibility to deviate from the terms of the loan documents
• Difficulty in releasing collateral
• Expensive to exit
• Lock outs often prevent prepayment or up to two years
• Reserves required
• Secondary financing (i.e. mezzanine debt or preferred equity) not always allowed

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