CMBS: standardized, securitized, fixed-rate
CMBS loans are originated by Wall Street banks and conduit lenders, pooled into securitization trusts, and sold to investors as bonds. CMBS debt is typically fixed-rate, 5- to 10-year term, with 25- to 30-year amortization, sized to 65%-75% LTV with a debt yield floor (typically 8%-9%).
CMBS wins on pricing for stabilized cash-flowing assets, it's often 25-50 bps cheaper than bank execution at comparable leverage. The trade-off is structural rigidity: defeasance prepayment, limited future funding, and standardized documentation that doesn't accommodate complex business plans.
Banks: flexible structure, relationship-driven
Balance-sheet banks (national, regional, and community) offer the most flexibility on structure. They can quote floating or fixed, accommodate future funding, allow flexible prepayment, and customize covenants to the deal. Pricing is typically 25-50 bps wider than CMBS at comparable leverage.
Banks win on transitional and value-add product where structure matters more than absolute coupon, on relationship-driven sponsors with deposit relationships or repeat business, and on assets requiring future funding or unusual underwriting.
Debt funds: speed, leverage, flexibility, at a price
Debt funds (private credit, mortgage REITs, alternative lenders) offer the highest leverage (up to 80% LTC) and the most structural flexibility for transitional and value-add deals. They're typically floating-rate over SOFR, 12- to 36-month term, with future funding and flexible prepayment.
Debt funds win when speed, leverage, or business plan complexity demand it, most bridge loans, heavy value-add multifamily, lease-up bridge, and time-sensitive acquisitions. Pricing is the trade-off: debt funds are typically 200-400 bps wider than bank or CMBS at comparable leverage.
Frequently asked questions
- Which lender is cheapest for stabilized commercial real estate?
- For stabilized cash-flowing assets at 65%-75% LTV, CMBS is typically the cheapest execution. Life companies are competitive for trophy assets at lower leverage. Banks are competitive for relationship sponsors and assets requiring structural flexibility.
- When should I use a debt fund instead of a bank?
- Use a debt fund when the business plan requires higher leverage than a bank will offer, when speed is the binding constraint, or when the asset isn't yet stabilized enough for bank underwriting. The price premium is the cost of flexibility.
- Can the same deal get quotes from CMBS, bank, and debt-fund lenders?
- Often, yes, for stabilized or near-stabilized assets. We run dual- or triple-track processes regularly: a quote from CMBS, a quote from a balance-sheet bank, and a quote from a debt fund. The right answer depends on what the sponsor values most.
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