Commercial Loans Blog

Commercial Mortgage-Backed Securities 2.0

Posted by George Blackburne on Tue, Oct 5, 2010

Conduit Lending is Back!

Before the sub-prime meltdown in late 2007, conduit lenders made about 53% of all commercial loans nationwide by dollar volume. Conduits offered commercial mortgage loans at extremely low, fixed rates - rates almost as low as those offered by life companies. More importantly, conduits would make commercial loans on average quality commercial properties located in secondary locations, like the central business districts of Rust Belt cities.

CMBS lenders (conduit lenders) would also regularly make loans up to 75% loan-to-value ... and sometimes even higher. This turned out to be the straw that broke the camel's back. When the sub-prime crisis ignited in 2007, nervous investors dumped commercial mortgage-backed securities at huge discounts. Their concerns proved to be justified as commercial real estate plummeted by 40%.

For the past three years, conduit lending dropped to practically nothing.It was as if the entire industry was nuked off the face of the planet.

I am pleased to announce that conduit lending is back! Major banks with CMBS loan departments are now making conduit loans again. These are long-term (10 year), fixed rate loans in the noise range of 5.25% to 5.5%. The typical loan is between 65% and 70% loan-to-value. Most of these banks are holding these conduit-style loans in portfolio, but with a serious eye towards securitization.

Several CMBS pools have already gone to market. The bonds sold quite well. These were small pools, however. The pools were around $600 million to $700 million. Prior to the crash in 2007, some CMBS offerings were close to $1.5 billion in size.

The sale of commercial mortgage-backed securities depends on the appetite of the B-piece buyers, the go-go guys who buy the riskiest bonds in an offering - those that are unrated. In the 2007 downturn, a great many of the B-piece buyers were completely wiped out. Therefore it was surprising to see a fairly strong market for B-pieces develop early this year.

Of course, CMBS loan today are much more conservative. The loan-to-value ratios for CMBS loans have fallen from 75% to 80% all the way down to 60% to 70%. This makes the B-piece much more attractive.

How can commercial property owners get by with a conduit loan of just 62% LTV based on today's already-depressed commercial property values? Many new conduit loans are being written with mezzanine loans at the time of origination, taking the combined loan-to-value ratio up to 75% to 78%.

Banks and conduits throughout the nation are on a hiring binge. A number of the major banks already have a fairly sizable pipeline of deals.

Need a conduit loan right now?  You can submit your deal to scores of hungry CMBS lenders in just four minutes using

Topics: CMBS loan, conduit loan, CMBS lender