Commercial mortgage-backed securities (CMBS) conduit loans are one of the most widely used financing tools in commercial real estate, and for good reason. They offer competitive fixed rates, non-recourse structures, and loan amounts that can reach well into the hundreds of millions. In 2025, domestic CMBS issuance topped $125 billion across 173 deals, the highest level since 2007, and KBRA projects that 2026 volume will climb even higher to a post-financial-crisis record of $183 billion.
Whether you are acquiring a stabilized property, refinancing a maturing loan, or simply exploring your capital options, understanding how conduit loans work will help you negotiate better terms and avoid costly surprises. This guide breaks down everything borrowers need to know about CMBS conduit financing in today's market.
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What is a CMBS conduit loan and how does it work?
A CMBS conduit loan is a type of commercial mortgage originated by a lender (the "conduit") with the specific intention of pooling it with other similar loans and selling the pool as bonds to investors on the secondary market. The term "conduit" refers to the originator acting as a pipeline between borrowers who need capital and bond investors who want exposure to commercial real estate debt.
Here is the basic lifecycle of a conduit loan:
- Origination. A conduit lender underwrites and funds a commercial mortgage on a stabilized, income-producing property.
- Aggregation. The lender groups your loan with dozens of other commercial mortgages into a single pool, often totaling $700 million to $1 billion or more.
- Securitization. An investment bank structures the pool into a series of bonds called tranches, each carrying a different risk profile and credit rating from AAA down to unrated.
- Bond sale. Institutional investors, pension funds, and insurance companies purchase the tranches. Proceeds from the bond sale replenish the originator's capital so it can make new loans.
- Servicing. A master servicer collects your monthly payments and distributes them to bondholders. If you default, a special servicer steps in to manage the workout.
Because the loan is ultimately funded by bond investors rather than a single bank's balance sheet, conduit lenders can offer larger loan amounts and more aggressive terms than many portfolio lenders.
What are the minimum requirements for a CMBS loan?
CMBS underwriting focuses primarily on the property's cash flow rather than the borrower's personal financial strength. That said, there are firm minimums you need to meet.
Debt service coverage ratio (DSCR). Most conduit lenders require a minimum DSCR of 1.25x, meaning the property's net operating income must be at least 125% of the annual debt service. Higher-risk asset classes like hotels and special-purpose properties may require 1.40x to 1.50x. In rare cases where the property is exceptionally strong and leverage is conservative, some lenders will accept a DSCR as low as 1.20x.
Loan-to-value (LTV). The standard maximum LTV for a conduit loan is 75%, though some lenders will stretch to 80% for top-tier properties. Lower leverage, say 65% LTV or below, typically earns a tighter spread and a lower overall interest rate.
Borrower net worth. Expect to demonstrate a net worth of at least 25% of the total loan amount. For a $10 million CMBS loan, that means a minimum net worth of $2.5 million.
Liquidity. Lenders generally require post-closing liquidity equal to at least 5% of the loan amount.
Property stabilization. The property must be stabilized with a consistent operating history, typically at least 90% occupancy for the trailing 12 months.
Use our commercial mortgage calculator to estimate your DSCR and see how different loan amounts affect your coverage ratio.
What is the difference between a CMBS loan and a bank loan?
The distinction between CMBS conduit financing and a traditional bank loan comes down to how the loan is funded, who services it, and how much flexibility you have during the loan term.
Underwriting focus. A bank loan is relationship-driven. The bank evaluates your credit score, net worth, real estate track record, and deposit relationship alongside the property's fundamentals. A CMBS loan is asset-driven. The conduit lender focuses almost entirely on the property's ability to generate income, making it a strong option for borrowers who may not meet a bank's personal financial thresholds.
Recourse. Bank loans for commercial real estate are frequently full-recourse, meaning you are personally liable if the property's income falls short. CMBS loans are structured as non-recourse with standard "bad boy" carve-outs (more on that below).
Loan servicing. When you borrow from a bank, that same bank typically services your loan. You can pick up the phone and talk to your banker. With a CMBS loan, servicing is transferred to a third-party master servicer after securitization. Borrowers often find this less personal and more rigid.
Flexibility. Bank loans generally allow you to prepay with a modest penalty or negotiate modifications if circumstances change. CMBS loans are locked into a trust with strict pooling and servicing agreements. Modifications, additional financing, and early payoff are all significantly harder and more expensive to accomplish.
Loan size. Banks are limited by their own capital and regulatory lending limits. CMBS conduit lenders, backed by the bond market, routinely fund loans from $2 million to $500 million or more.
Are CMBS loans recourse or non-recourse?
CMBS conduit loans are structured as non-recourse financing, which means the lender's sole remedy in a default is to foreclose on the property itself. Your personal assets, other real estate holdings, and bank accounts are generally protected.
However, every CMBS loan includes "bad boy" carve-outs, also called springing recourse guarantees. These carve-outs convert the loan to full recourse if the borrower commits certain prohibited acts, including:
- Filing for voluntary bankruptcy or colluding with creditors to force an involuntary filing
- Committing fraud or intentional misrepresentation on the loan application
- Misappropriating rents, insurance proceeds, or condemnation awards
- Transferring the property or ownership interests without lender consent
- Failing to maintain required insurance coverage
- Committing environmental violations on the property
As long as you operate the property honestly and in compliance with the loan documents, the non-recourse protection remains intact. This structure is one of the primary reasons experienced investors favor CMBS loans for larger commercial acquisitions.
Ready to explore non-recourse conduit financing for your property? Contact our CMBS lending team for a no-obligation rate quote.
What are the disadvantages of a conduit loan?
While CMBS loans offer clear advantages, they come with trade-offs that every borrower should understand before signing a term sheet.
Prepayment penalties are severe. Most conduit loans require defeasance to prepay, a process where you purchase U.S. Treasury securities to replace your loan's collateral and continue making scheduled payments to bondholders. The combined cost of legal fees, accountants, and defeasance consultants can range from 10% to 30% of the unpaid principal balance. For a detailed breakdown, see our CMBS defeasance guide. Some conduit loans use yield maintenance instead, which typically costs 1% to 3% of the loan balance plus the outstanding principal.
Limited flexibility during the loan term. Once your loan is securitized into a CMBS trust, it is governed by a rigid pooling and servicing agreement. Getting approval for lease modifications, property improvements that alter the collateral, or partial releases is much harder compared to a bank loan.
Third-party servicing can be frustrating. You will not deal with the originator after closing. Instead, a master servicer handles day-to-day administration. If your loan becomes a "specially serviced" loan (due to a technical default or missed payment), the special servicer's primary obligation is to the bondholders, not to you.
Upfront costs are higher. Expect to pay for a full MAI appraisal, Phase I Environmental Site Assessment, Property Condition Assessment, legal review, and rating agency fees. Closing costs for a CMBS loan typically run 1% to 3% higher than comparable bank financing.
Rate lock risk. CMBS rates are not locked at application. Your rate is set at or near closing, which means market moves during the 60-to-90-day underwriting period can push your rate higher than originally quoted.
What property types qualify for CMBS financing?
Conduit lenders finance a broad range of stabilized, income-producing commercial properties. The most commonly funded property types include:
- Multifamily (5+ units, though agency lending from Fannie Mae and Freddie Mac often competes here)
- Retail (anchored shopping centers, strip malls, single-tenant net lease)
- Office (suburban and CBD, though post-pandemic underwriting has tightened for this sector)
- Industrial and warehouse (strong demand given e-commerce growth)
- Hospitality (full-service and select-service hotels, typically with higher DSCR requirements of 1.40x or above)
- Self-storage (an increasingly popular CMBS asset class)
- Mixed-use (properties combining retail, office, and residential components)
Properties that generally do not qualify for conduit financing include raw land, ground-up construction, owner-occupied buildings, and properties with fewer than 12 months of stabilized operating history.
How long does it take to close a CMBS conduit loan?
The typical CMBS conduit loan takes 60 to 90 days to close, though some transactions can stretch to 120 days depending on property complexity and third-party report timelines. Here is a realistic breakdown of the process.
Weeks 1 through 2: Application and preliminary quote. You submit your loan request along with trailing 12-month operating statements, a current rent roll, property photos, and borrower financial statements. The conduit lender issues a preliminary quote with an estimated rate range and maximum proceeds.
Weeks 3 through 4: Third-party reports ordered. Upon acceptance of the preliminary terms, the lender orders the appraisal, Phase I ESA, and Property Condition Assessment. These reports take 3 to 5 weeks to complete and are the most common source of delays.
Weeks 5 through 8: Underwriting and due diligence. The lender's underwriting team reviews all reports, verifies income and expenses, inspects the property, and sizes the loan. They confirm the DSCR, LTV, and borrower qualifications meet their standards.
Weeks 8 through 10: Loan commitment and legal documentation. The lender issues a formal commitment letter. Loan documents are drafted and negotiated. The borrower's attorney reviews closing conditions.
Weeks 10 through 12: Closing and funding. Final conditions are satisfied, the loan closes, and funds are disbursed. After closing, the lender holds the loan on its warehouse line until it is securitized into a CMBS trust, typically within 30 to 90 days.
Need to discuss your timeline? Reach out to our team to get a customized closing schedule for your property.
What are the current CMBS conduit loan rates in 2026?
As of early 2026, CMBS conduit loan rates generally range from 5.75% to 7.50% for most stabilized commercial properties, depending on leverage, property type, and location. Rates are structured as a spread over the comparable-term U.S. Treasury or swap rate.
Here is how spreads break down by bond tranche (which affects the all-in cost of capital for conduit lenders and, ultimately, borrower rates):
- AAA (A-S class): +75 to +105 basis points over Treasuries
- AA: +125 basis points
- A: +175 basis points
- BBB-: +435 basis points
For borrowers, the all-in rate depends on where your loan falls within the pool's risk profile. Lower-leverage loans on institutional-quality properties in primary markets will price at the tighter end, while higher-leverage loans on secondary-market assets will price wider.
Key factors that affect your CMBS rate:
- LTV: Each step below 75% LTV tightens your spread. A 65% LTV loan may price 25 to 50 basis points lower than a 75% LTV loan.
- Property type: Multifamily and industrial properties command the tightest spreads. Hotels and special-purpose properties price wider.
- Market location: Gateway cities and high-growth metros get better pricing than tertiary markets.
- Lease structure: Properties with long-term, credit-tenant leases reduce risk and tighten spreads.
The $100 billion CMBS maturity wall in 2026 is creating significant refinancing demand. Many loans originated between 2019 and 2021 are resetting at rates higher than their original notes. Borrowers should plan for tighter proceeds if net operating income has not kept pace with rate increases. Refinancing options are available through multiple channels, and conduit lending remains one of the most competitive.
How does a CMBS conduit loan compare to agency financing?
For multifamily properties, borrowers often weigh CMBS conduit loans against agency loans from Fannie Mae and Freddie Mac. Agency loans offer lower rates (typically 50 to 100 basis points below CMBS), higher leverage (up to 80% LTV), and more borrower-friendly servicing. However, agency financing is limited to multifamily properties, while CMBS conduit loans cover the full spectrum of commercial asset types.
For non-multifamily assets, the comparison is typically between CMBS and permanent bank loans. Bank loans offer more flexibility and relationship benefits, while CMBS provides non-recourse protection and potentially larger loan amounts.
Want to compare your CMBS options side-by-side? Schedule a consultation with our commercial mortgage team to find the best fit for your property and investment goals.
What else should borrowers know about CMBS conduit loans?
What is the minimum loan amount for a CMBS conduit loan?
Most conduit lenders set a minimum loan amount of $2 million to $5 million, though the sweet spot for conduit lending is generally $5 million and above. Loans below $2 million are usually better suited for bank or credit union financing.
Can I get a CMBS loan on a property I own and occupy?
Generally, no. CMBS conduit loans are designed for investment properties where the borrower collects rent from third-party tenants. Owner-occupied properties are typically financed through SBA loans or conventional bank loans.
What happens when my CMBS loan matures?
At maturity, you must either pay off the loan in full (typically by refinancing into a new loan) or face default. Unlike bank loans, there is no option to extend. Planning your exit strategy 12 to 18 months before maturity is critical, especially in the current environment where many 2019-2021 vintage loans are coming due.
Can I get supplemental financing on top of a CMBS loan?
Yes, many CMBS trusts allow "B-notes" or mezzanine financing to sit behind the first mortgage. However, the combined leverage (first mortgage plus supplemental debt) must typically stay below 80% LTV and maintain a minimum DSCR of 1.10x on a combined basis. The supplemental lender must also execute an intercreditor agreement with the master servicer.
What credit score do I need for a CMBS conduit loan?
There is no hard minimum credit score for CMBS loans because the underwriting is asset-based rather than borrower-based. That said, most conduit lenders prefer to see a credit score above 650, and a score below 620 may trigger additional scrutiny or require compensating factors like lower leverage or stronger property cash flow.
Are CMBS loans assumable?
Yes, CMBS conduit loans are generally assumable, subject to a 1% assumption fee and full underwriting of the new borrower. This is a significant benefit when selling a property, as the buyer can take over your existing loan rather than securing new financing. Assumption can be especially valuable in a rising rate environment when the existing loan carries a below-market rate.