Learning About CMBS Financing With an Orange County Business Lawyer

November 8, 2016

Occasionally, investors have to get creative when they want to take advantage of an opportunity. Maybe they don’t qualify for a traditional loan or perhaps they have other reasons for looking for a more flexible alternative. That’s why many of these investors turn to a commercial mortgage-backed securities (CMBS) loan. If you’d like to learn more about CMBS loans and whether or not they make sense in your situation, then contact an Orange County business lawyer at Fitzgerald Yap Kreditor today.

Investors and entrepreneurs who are considering owning part or all of a commercial real estate property may be interested in learning more about CMBS loans. Also called a conduit loan, this investment tool features a fixed interest rate and a term of five, seven or 10 years. A term of 15 years may also be possible, but this tends to be a rare exception. Although the term of the CMBS loan is relatively brief, its amortization schedule is stretched over a 25 to 30 year period. This means that a balloon payment will be due at the end of the CMBS loan term. If the borrower does not want to make the balloon payment for any reason, then they must refinance the remaining loan balance.

CMBS loans typically have less stringent underwriting guidelines than more traditional loans. This means that you may be able to get approved for a conduit loan even when you’ve been turned down for other alternatives. While CMBS loans are generally more flexible than others, lenders are being more conservative in their approach than they used to be, thanks to the economic turmoil of the last several years. A lender is more likely to rely on existing rents and income instead of projections of future income that is expected to be generated by escalating rents. Underwriters will also want to take a closer look at lease details, and they are likely to require that the borrower maintain liquidity of at least five percent of the loan amount after closing. Complying with all of these terms can be tricky, which is why legal advice is so highly recommended while working to close a CMBS loan.

The better informed you are about your CMBS loan options, the better your financial decisions will be. Don’t get involved in a complex loan without first seeking competent legal advice from an Orange County business lawyer. Call Fitzgerald Yap Kreditor today at (949) 788-8900.