What’s Eligible for CMBS Financing? — Commercial Real Estate Loans

CMBS loans can be used for almost any kind of income-producing commercial real estate asset. This may seem vague, but truly, conduit financing is available for a diverse array of property types across sectors, including retail properties, self-storage facilities, office buildings, marinas and boatyards, parking garages, industrial assets, and more. In this article, we’ll explore some of the most popular property types for CMBS financing. 

Popular CMBS Eligible Properties

Multifamily Properties

In a market still dominated by agency products from Freddie Mac® and Fannie Mae®, many investors opt for CMBS loans to finance their larger multifamily and apartment purchases. CMBS financing isn’t only utilized for traditional apartment properties either — it’s also a widely used financial vehicle for student housing, senior care facilities, and mixed-use properties.

Office Properties

Office assets have always been quite popular in the CMBS loan market, and the financing vehicle’s non-recourse nature makes them extra attractive to office investors. CMBS financing can be effectively used for the acquisition, cash-out, or rate and term refinancing of office property types, from traditional high-rises and low-rises to single-story office parks, medical office buildings, and mixed-use buildings — though, only Class A and Class B office properties are generally eligible for CMBS financing.

Industrial Properties

The Industrial property sector encompasses assets ranging from warehouses and distribution centers to refrigeration and cold storage facilities and even large-scale manufacturing plants — all of which are broadly eligible for CMBS financing. One of the most beneficial perks to utilizing CMBS loans for industrial assets is the assumability. Investors looking to sell an industrial asset will find that this greatly increases the number of potential buyers, as some may jump at the opportunity to assume existing financing rather than go through the somewhat lengthy process of obtaining a new loan.

Retail Properties

When it comes to longer-term, fixed-rate financing for stable retail properties, investors have come to find CMBS financing indispensable. Across the sector, CMBS loans are used to finance everything from small strip malls in busy suburban areas, to regional shopping malls. CMBS lenders generally prefer retail assets with strong, long-term anchor tenants as well as properties managed by experienced organizations.

Hotel Properties

Hospitality properties typically garner higher DSCR requirements from CMBS lenders, but despite that, CMBS loans are still a popular way for hotels to get the funds they need to make necessary renovations and improvements. Within the sector, investors have sought conduit financing for boutique hotels, budget or value hotels and motels, and even major, well-known hotels and resorts.

Mixed-Use Properties

Mixed-use properties have been on the rise in recent years — and many of these completed projects have utilized CMBS financing. Lenders are issuing CMBS loans for a wide selection of mixed-use properties, ranging from apartment properties that contain a few units for commercial tenants, to much larger mixed-use complexes that have become increasingly popular in more densely populated areas that combine living spaces with a variety of different retail stores, restaurants, or entertainment businesses.

Self-Storage Facilities

The self-storage industry has shown near unyielding resilience to the economic downturn that has damaged many other sectors throughout the pandemic. As more investors show interest in adding self-storage assets to their portfolios, CMBS loans remain a solid option available for financing several different classes of self-storage businesses. Most of the time, CMBS lenders will typically only offer financing for Class A self-storage assets — but in general, the facility must have high-quality construction and be located in or near areas with high population density and equivalent demand. 

Less Common CMBS Eligible Properties: 

Healthcare Properties

From smaller healthcare office complexes to standard hospital properties, CMBS financing is available for many of the more commonly found healthcare industry assets. But, while CMBS loans can be a great way to fund these acquisitions, the hospital or healthcare firm itself cannot be considered as the borrower in most cases. This stems from the fact that CMBS financing is generally not available for owner-occupied properties, though some exceptions may occur. In order for investors to work around this, a real estate firm or similar entity would have to take out the CMBS loan on the property, and then lease it to the owners of the hospital or healthcare firm. 

Parking Garage Properties

With the right location, parking garages can generate a significant amount of revenue. Luckily, investors of these assets can finance their acquisition while enjoying the flexibility, nonrecourse structure, and competitive fixed interest rates that conduit loans have to offer. Generally speaking, CMBS-eligible parking garages are typically well-positioned Class A or B multi-story properties in dense population centers.

Marina & Boatyard Properties

As income-generating properties, both marinas and boatyards are CMBS eligible — even though they often are overlooked by borrowers. While CMBS loans place less of a burden on borrower creditworthiness, they do put more focus on the income generating ability of the collateral property. Boatyards and marinas are typically highly competitive in nature, but are often lucrative investments in the right markets — a favorable trait for obtaining CMBS financing.

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