What is a CMBS LOAN?

Commercial mortgagebacked securities (CMBS) are a type of mortgagebackedsecurity backed by commercial mortgages rather than residential real estate. CMBStend to be more complex and volatile than residential mortgagebacked securitiesdue to the unique nature of the underlying property assets

A CMBS Loan, also known as Conduit Loan, is a type of commercial real estate loan that is secured by a first-position mortgage on a commercial property. These loans are packaged and sold by Conduit Lenders, commercial banks, investment banks, or syndicates of banks.

CMBS Loan Parameters

Fixed Rate
Eligible Locations: MSA’s within the U.S. and its territories exhibiting strong economic and property-type specific fundamentals
Property Types: Stabilized property types including Office, Retail, Industrial, Multi-Family and Hotel. Self-Storage and Mobile Home Parks will be considered on a case-by-case basis
Loan Amount: $3MM to $50MM
Loan Term: 5, 7 and 10-year loan terms
Amortization: Typically 30 years (shorter terms may be required based on property type and use)
Loan to Value: Up to 75% of FIRREA Appraised Value
DSCR : Minimum 1.25x DSCR on CCRE underwritten net cash flow.
Processing Fee & Expense Deposit: $5,000 Processing Fee (may vary depending on transaction)Expense Deposit sufficient to cover third party, legal and out-of-pocket expenses
Reserves: Tax, Insurance and Replacement Reserves required
Sponsor/Borrower: Creditworthy individual(s) or entity acceptable to Lender with sufficient liquidity and net worth
Borrowing Entity: Single asset or special purpose entity required depending on loan size
Recourse: Non-recourse, with the exception of industry standard “bad boy” carve outs
Assumability: Permitted subject to lender approval and an assumption fee
Prepayment: Defeasance with 90 day open period during the 90 days prior to scheduled maturity date. Yield Maintenance available on a case-by-case basis


Owner Occupied Commercial up to 90% LTV 

Definition: A mortgage on property in which you do not live is considered a non-owner occupied mortgage.

Eligible Applicants

 Eligible applicants include for-profit small businesses with a net worth less than $15 million and $5 million in profit after taxes.

 Eligible Use

Uses  can vary but typically encompass acquisition of land and existing buildings, site improvements, building renovations, leasehold improvements, new construction, machinery & equipment with a useful life of at least 10 years. Refinancing of existing commercial real estate and/or equipment debt may be eligible.  Loans may not be used for working capital, venture capital or investment purposes.

 Loan Amount

The gross amount of the loan can be up to $5 million for regular loans and $5.5 million for Public Policy Goal loans as well as small manufacturers or 40% of the total eligible project costs (whichever is less). Additional equity requirements will reduce the amount. Minimum loan size is $50,000.

 Interest Rate

Interest rates are based on the sale of U.S. Treasury Bonds. The rate changes every month until the loan is disbursed. Once the loan has been disbursed, it then becomes fixed for the life of the loan. (6-6.5%)


• 10 years for machinery & equipment

• 20 years for real estate

 Equity Requirement

Existing businesses (must be in operation for 2+ years) must provide a minimum of 10% of the total project cost. New businesses or new ownership of businesses must provide a minimum of 15% of the total project cost. If the project involves special use assets, an additional 5% will be required.

 Advantages for Borrowers

– Finance up to 40% of the project at a long-term fixed rate

– Lower down-payment, as little as 10% of project, helps preserve working capital

– Decreased risk for banks – makes most deals happen

– Long term and amortization with no balloon payment

Advantages for Banks

– Finance larger projects by spreading risk with lower loan to value ratio

– Finance in specialized markets and/or specialized equipment

– Gives your small business client access to capital markets without the high expense of bond council

– Blended fixed/variable rate with re-pricing capability

– A large portion of the project is financed at a fixed rate

– Offers creative financing to differentiate your bank in the market place

– Hedge you client’s exposure to rate increases as prime changes

– Gives your client a cushion in the credit limit and allows you to keep those cultivated relationships without affecting your legal lending authority

– The long term fixed rate leaves mores money available in your customer’s cash flow to pay your debt service

– Market for the purchase of the first lien mortgage

Industries financed 

– Manufacturing

– Medical

– Commercial

– Agricultural

– Hospitality & Service

– Research & Engineering


DSCR: 1.20

Loan Term  Up to 25 years

Amortization: Up to 25 years

Loan to Value: Up to 90% of Appraised Value

Recourse: Full Recourse

Prepayment:  5- Year Prepayment Penalties

Experience with business type >4 Years Experience in market >
4 Years Guarantors
Principal must have cash equity in the deal
Net Worth 30% of the Loan Amount
Liquidity 5% of the Loan Amount
Principal Financial Status Borrower Credit Score >660 Business
DSCR >1.20x Global DSCR >1.10x
Market Demographics Minimum MSA populations of 50,000
Commercial Properties Acceptable Property Types Office, Industrial, Warehouse, R&D, Retail, Medical/Dental
Restricted Property Types Gas Stations without c-store, Restaurants.
Implied debt yield >11% on 1st lien loan
Quality of asset B or better Age <= 25 years or renovated
Ground Lease Fee Simple
Age 1985 or newer unless substantial renovation
Implied debt yield >11% on 1st lien loan
Property Size Minimum of 50 rooms
Franchise Proven national flag or boutique concept
Parking Ratio 1 space per room minimum
Management/Franchise Agreement ! Related party or 3rd party management contract cancel-able on 30-day notice. ! At least 10 year term remaining for franchise agreement.
NCF Underwriting Must account for FF&E reserve ad management fee as % of revenue
Min. Management Fees 3% minimum
Min. FF&E Reserves 4% for properties < 10yrs old or properties undergoing substantial renovation, 5% for properties > 10yrs old
Ground Lease Fee Simple
Special-Use Properties
Acceptable Property Types Day Care/Preschools, Vet Clinic, Restaurant/Banquet, Auto Dealership
Restricted Property Types Swimming pools, Bowling Alleys, Car Washes
Implied debt yield >11% on 1st lien loan
Quality of asset B or better
Age <= 25 years or renovated
Ground lease Fee Simple

Examples:  Liquor store, Funeral Home, Daycare, Mobile Home Park, Self Storage, Hotels, Motels, etc


What is a lease hold improvement loan?

Leasehold improvement financing can be simply defined as all alterations, renovations, and repairs to leased facilities that increase the value

While a leasehold improvement project is harder to do versus other real estate needs such as a building acquisition, construction, or renovation, they can be done given the right circumstances

The first underwriting criteria that needs to be addressed is collateral.  For a leasehold improvement loan, the money will go to improve someone else’s property and chances are, the owner is not willing to provide a mortgage on the property to secure the loan.  So we need to look at what other collateral would be available.  For most Lease Hold Loans, the project collateral is generally sufficient to secure the loan.  But in the case of leasehold improvements, other real estate property and/or equipment would need to be considered.  Even if such business collateral is available, depending on the value and existing liens, the Lease Hold Loan could very well need to look at personal assets to secure the loan as well.  This typically means the owner(s) personal residence(s) or other investment property they own.

The second underwriting criteria, which is more directed at the closing of the Lease Hold Loans, is the Assignment of Lease and Landlord’s Waiver.  When a substantial portion of the loan proceeds are to be used for leasehold improvements or a substantial portion of the collateral consists of leasehold improvements, fixtures, machinery, or equipment that is attached to leased real estate, we must obtain: an Assignment of Lease with a term including renewal options that equals or exceeds the term of the loan and a requirement that the lessor provide a 60-day written notice of default to us with option to cure the default.  A Landlord’s Waiver must also be obtained as that gives us access to the leased premises and facilitates the liquidation of the collateral on the borrower’s premises and should be obtained for all Lease Hold Loans with tangible personal property as collateral.

While leasehold improvements are vital to some small businesses because they are not ready or cannot afford their own property, using the Lease Hold Loans to partially finance those costs can become problematic, especially if there is no other collateral available to secure the loan and/or the owner of the property will not abide by the requirements of the lease.  However, for those situations where all the pieces can come together, this loan can be an excellent choice for small businesses needing to do leasehold improvements.

Lease Hold Improvement and Start up Business. This program assists borrowers to secure loans either for business expansion or starting up a new business, and generally does not own the space but rather has leased space to operate a business.

New equipment, renovations and working capitol can also be included in this type of loan.

For Business expansion, renovation or new equipment you must show that this loan will not only increase revenue but create jobs in the community.

There is a wide variety of leasehold improvements that can be performed.

Start-up funding is usually used for exterior and/or interior renovation to accommodate a business move-in.

Expansion funding needs are usually, but not necessarily limited to when your business is growing and it’s time to expand your operations.

A common term for a leasehold improvement loan is 5 to 7 years, depending on the improvements. In addition, interest rates are usually fixed and depend entirely on current market factors and the overall risk of the business and/or project.

Accounting Treatment

The cost of leasehold improvements over the capitalization threshold of $50k should be capitalized.

Examples of costs that would be included as parts of a leasehold improvement include:

  • Interior partitions made up of drywall, glass and metal
  • Miscellaneous mill work, carpentry, lumber, metals, steel, and paint
  • Acoustic, drywall, and plaster ceilings
  • Restroom accessories
  • Electric lighting fixtures
  • Interior floor finishing, including carpet, vinyl and tile.


Leasehold improvements should not include maintenance and repairs done in the normal course of business. Further, movable equipment or office furniture that is not attached to the leased property is not considered a leasehold improvement.


The cost of a leasehold improvement should be depreciated over the shorter of

  1. the remaining lease term, or
  2. the estimated useful life of the improvement.

Leasehold improvements do not have a residual value. Improvements made in lieu of rent should be expensed in the period incurred. If the lease contains an option to renew and the likelihood of renewal is uncertain, the leasehold improvement should be depreciated over the life of the initial lease term or estimated useful life of the improvement, whichever is shorter.

ChartField Notes

Expenditures for leasehold improvements must be recorded in the construction funds (80000 & 80500) on a project grant

Whether you are just leasing the space or buying the building we offer different products to assist you.

I had attempted to explain but every deal is different so please email me your scenario? mark@commercialmortgageunlimited.com