CMBS
vs
Bank Loan
A CMBS loan is commercial real estate debt that is securitized into bonds and sold to investors, offering long-term fixed-rate non-recourse financing with rigid covenants; a bank loan is a portfolio-held commercial mortgage originated by a bank, with more flexibility, potential recourse, and typically shorter terms.
TL;DR
Pick CMBS when you want maximum long-term leverage and rate certainty on a stabilized property and you can live with rigid prepayment penalties. Pick a bank loan when you want flexibility, a relationship lender, or the property doesn't fit CMBS underwriting boxes.
What is CMBS?
A Commercial Mortgage-Backed Security (CMBS) loan is originated by a bank or conduit lender, then pooled with other loans and sold as bonds through a trust. The borrower receives long-term fixed-rate non-recourse debt. Terms are rigid: 5–10 year fixed rate, aggressive prepayment lockouts (defeasance or yield maintenance), special servicing on default, limited flexibility to modify. Sized on debt yield (typically 8–10% minimum) and DSCR.
What is Bank Loan?
A bank loan (or portfolio loan) is a commercial mortgage that the originating bank holds on its own balance sheet rather than securitizing. Terms and underwriting are more flexible — banks can tailor structure to a relationship, the property, or unusual deal circumstances. Typical terms: 5–10 year fixed or floating, 25–30 year amortization, often recourse, with more permissive prepayment terms.
Side by side
CMBS vs Bank Loan — the differences.
| Dimension | CMBS | Bank Loan |
|---|---|---|
| Origination model | Securitized into bonds | Held on bank balance sheet |
| Term | 5–10 years fixed | 5–10 years, fixed or floating |
| Recourse | Non-recourse (bad-boy carve-outs) | Can be recourse or non-recourse |
| Prepayment | Defeasance or yield maintenance | Open prepay or modest penalty typically |
| Flexibility | Low — rigid covenants, special servicing on default | High — relationship-based modifications possible |
| LTV max | 65–75% | 65–75% |
| Typical property types | Stabilized CRE — office, retail, industrial, multifamily, hospitality | All property types; particularly strong for local/regional product |
| Speed to close | 60–90 days (more rigid documentation) | 45–75 days (relationship-dependent) |
| Pricing | Treasury + spread (market-driven) | Relationship + Treasury spread |
| Best for | Maximum long-term leverage on stabilized CRE | Flexibility, relationship continuity, non-standard properties |
When to use CMBS
- You want maximum long-term fixed-rate leverage
- Property is stabilized with strong cash flow
- You have no plans to sell or substantially modify the property during the loan term
- Non-recourse structure is important
- You're a sponsor managing the loan through servicers, not via relationships
When to use Bank Loan
- You value relationship-based flexibility
- You may sell, refinance, or substantially modify the property within 5 years
- The property has unusual characteristics that don't fit CMBS underwriting boxes
- You want personal relationship with the lender's decision-makers
- You're okay with potential recourse in exchange for flexibility
Verdict
CMBS is the lowest-cost long-term leverage for stabilized institutional CRE but sacrifices flexibility. Bank debt is the flexibility play — more expensive potentially, but easier to live with. Sophisticated sponsors use both: CMBS for long-term holds and bank debt for properties they expect to actively manage or exit in the near term.
Frequently asked questions
Is CMBS cheaper than a bank loan?
CMBS is often — not always — cheaper on rate for long-term fixed debt. Bank debt prices can compete or beat CMBS in specific markets, especially for relationship borrowers. The total cost comparison should also weigh prepayment flexibility, which materially affects the real cost if you exit early.
What is defeasance?
Defeasance is a CMBS prepayment mechanism where the borrower substitutes a portfolio of U.S. Treasury securities for the property as collateral. The Treasuries generate cash flows matching the remaining loan payments. Defeasance can be expensive or cheap depending on the spread between the loan rate and current Treasury yields.
Can a CMBS loan be assumed?
Yes, CMBS loans are typically assumable with lender (and master servicer) approval and payment of a fee (usually around 1% of loan balance). Assumption is often attractive in rising-rate environments when the existing rate is well below current market.
What happens if I default on a CMBS loan?
The loan goes to special servicing. Special servicers have strong legal tools and modest incentive to accommodate borrower workouts. CMBS workouts are generally slower and more contentious than bank workouts, though outcomes vary by servicer.