How CMBS Loans Work: Spreads, Underwriting, and Refinance Risk

CMBS — Commercial Mortgage-Backed Securities — is the securitization engine that moves commercial real estate debt from bank balance sheets to bond investors worldwide. Understanding how CMBS loans work is essential for any CRE borrower, because the mechanics of securitization directly shape the loan's pricing, flexibility, and what happens when things go wrong.

The CMBS Origination and Securitization Process

A CMBS conduit loan begins at a bank, insurance company, or specialty finance firm (the "conduit lender"). The lender originates the loan, then pools it with dozens or hundreds of other commercial mortgages into a trust. That trust issues bonds — called CMBS — rated from AAA down to BB and unrated ("first loss" or "B-piece"). The bonds are sold to institutional investors. The lender collects origination fees and servicing economics, then removes the loan from its balance sheet. This "originate to distribute" model is why CMBS spreads are driven by the bond market, not the lender's cost of capital.

How CMBS Loans Are Priced

CMBS pricing has two components: the index (10-year Treasury yield) and the credit spread (the premium above Treasuries that bond buyers demand). In the current market (2026), spreads for standard hotel, multifamily, and industrial assets run 150–220 basis points. Office assets carry wider spreads (250–350+ bps) reflecting perceived demand risk. Add the 10-year Treasury yield (~4.3% at time of writing) and all-in CMBS rates land in the 5.9%–7.5% range depending on asset quality.

Rates are locked at rate lock (typically within 30 days of closing), not at application. This rate lock risk is one of the biggest practical risks in a CMBS transaction — Treasury yields and spreads can move materially between application and closing.

CMBS Underwriting: What Lenders Actually Measure

CMBS underwriters focus on two ratios above all others: LTV (Loan-to-Value) and DSCR (Debt Service Coverage Ratio). LTV is typically capped at 65–75% for most asset classes. DSCR — net operating income divided by annual debt service — must exceed 1.25x for most CMBS programs. The NOI used is "underwritten NOI," which means the lender may haircut revenues and gross up vacancy, management fees, and reserves, often producing an underwritten NOI 10–20% below the borrower's stated actual.

Refinance Risk: The 2024–2025 Maturity Wall

CMBS loans typically have 10-year terms. Loans originated in 2014–2015 — when the 10-year Treasury was 2.0–2.5% and CMBS spreads were tight — matured into a market where all-in rates had nearly tripled. Borrowers who counted on refinancing at similar or lower rates faced a choice: inject significant equity to pay down the balance to a level supportable by current-rate debt service, or hand the keys to the special servicer. This refinance risk is baked into every CMBS deal — model your maturity scenario at the time of origination, not just at closing.

First Realty Capital originates CMBS conduit loans for hotels, multifamily, office, industrial, and self-storage properties nationwide. Get a CMBS term sheet in 5–7 business days.