CMBS Wholesaling Deal

[Tyler Williams]

I've never done a CMBS deal before so I am new to this. I have come across a portfolio of apartments that have a CMBS loan of 29M on it. The seller wants an 11M check and the portfolio is ours. My question is, is there a way to wholesale this portfolio to an end buyer? I have a buyer who is interested in purchasing it, but I'm not sure on how to structure this with the seller and the end buyer. Please Help!

[Joel Owens]

Mindy it stands for a CMBS ( Commercial Mortgage Backed Securities ) loan.

This is a loan where a securities attorney draws up the papers for the loan and slices of debt are sold off on Wall Street to bond type investors. They buy a slice of the overall debt of the loan in return for a set return over the life of the loan. CMBS is typically 7 to 10 years fixed with a 25 to 30 year amortization.

These loans are more expensive for the borrower in legal costs compared to a typical commercial bank loan or a credit union loan. CMBS has a stiff penalty if you want to terminate the loan early over the hold period. Also they do not like additional payments to principal.

Used to about 3 to 4 years ago banks for commercial were pushing 3 to 5 year fixed loans and crappy 20 year amortizations. So CMBS even though more expensive to close and had more restrictions on the loan appeared to be a better deal. Over the years banks have started competing much more and now have 7 and 10 year fixed rate loan products that mimic CMBS terms and amortization but without the red tape and high costs. With banks you can pay down extra to principal and sometimes get no prepay penalty.

These days I only do CMBS with clients if a regular lender will not touch the property. Sometimes it's due to location or the property is half vacant etc. CMBS has lost business to regular lenders over the years so are eager to look at loans they would not have in the past.