- A conduit loan is a commercial mortgage that is pooled with other loans and securitized into a CMBS bond sold to investors.
- Conduit loans are non-recourse, fixed-rate, and typically run a 10-year term with 25–30 year amortization.
- LTV reaches up to 75% and the minimum DSCR is usually 1.25x; minimum loan size is around $2 million.
- Rates are priced as a spread over the 10-year Treasury or swap rate, not set by a single bank's balance sheet.
- Prepayment is restricted through defeasance or yield maintenance — plan your exit before you close.
A conduit loan is a type of commercial real estate mortgage that is originated by a lender, then pooled together with hundreds of other commercial mortgages and securitized into a Commercial Mortgage-Backed Security (CMBS) — a bond that is sold to fixed-income investors. The term "conduit" describes the lender's role: it acts as a conduit (a pass-through channel) that moves the loan from the borrower to the secondary bond market, rather than holding the loan on its own balance sheet like a traditional bank.
Because the loan is ultimately funded by bond investors rather than bank deposits, conduit loans follow a standardized underwriting playbook designed to make the resulting securities predictable and rateable. That standardization is what gives conduit loans their defining characteristics: non-recourse structure, fixed rates, long amortization, and strict prepayment rules.
How a Conduit Loan Works, Step by Step
The conduit loan process follows a defined path from origination to securitization:
1. Origination. A conduit lender underwrites and closes the loan against an income-producing commercial property — a hotel, multifamily community, office building, industrial facility, or self-storage asset with stabilized cash flow.
2. Warehousing. The lender temporarily holds the loan on a "warehouse" line of credit while it accumulates enough loans to form a pool, typically $1 billion or more in aggregate principal.
3. Securitization. The pooled loans are transferred into a trust and divided into tranches with different risk and return profiles. Rating agencies assign credit ratings, and the tranches are sold to investors as CMBS bonds.
4. Servicing. A master servicer collects monthly payments and passes them to bondholders. If a loan runs into trouble, it moves to a special servicer who handles workouts, modifications, or foreclosure.
Conduit Loan Terms at a Glance
| Feature | Typical Conduit (CMBS) Loan |
|---|---|
| Loan term | 5, 7, or 10 years (10-year is most common) |
| Amortization | 25–30 years |
| Rate type | Fixed for the full term |
| Pricing | 10-year Treasury or swap + credit spread |
| Max LTV | Up to 75% (65–70% for hotels) |
| Minimum DSCR | 1.25x (higher for hospitality) |
| Recourse | Non-recourse with standard "bad-boy" carve-outs |
| Minimum loan | ~$2 million |
| Prepayment | Defeasance or yield maintenance |
What Makes Conduit Loans Different From Bank Loans?
A traditional bank loan is funded by the bank's own capital and stays on its books. The bank sets the rate, often requires personal recourse, and may demand a relationship (deposits, other business). Because the bank carries the risk, it can also be more flexible on prepayment and modifications.
A conduit loan is funded by bond investors. The lender cannot simply renegotiate terms after closing because the loan now belongs to a trust governed by a pooling and servicing agreement. This makes conduit loans less flexible mid-term but more attractive up front: they are non-recourse, carry long fixed rates, and allow higher leverage than many banks will offer.
When Does a Conduit Loan Make Sense?
Conduit financing is ideal for stabilized, income-producing properties where the owner wants long-term fixed-rate debt without personal liability. It is especially popular for hotels, retail, office, industrial, self-storage, and larger multifamily assets that may not qualify for agency (Fannie Mae / Freddie Mac) programs. If you plan to hold the property for the full loan term and value rate certainty and non-recourse protection, a conduit loan is often the lowest-cost option available.
Conduit loans are a weaker fit when you expect to sell or refinance early, since defeasance and yield maintenance penalties can be expensive. In those cases a bridge loan or a bank loan with softer prepayment may serve you better.
Frequently Asked Questions
Is a conduit loan the same as a CMBS loan?
Yes — the terms are used interchangeably. A conduit loan is the individual commercial mortgage; CMBS (Commercial Mortgage-Backed Security) is the bond created when many conduit loans are pooled and securitized. When people say "CMBS loan" or "conduit loan," they mean the same financing product.
What is the minimum loan amount for a conduit loan?
Most conduit lenders set a minimum loan size of approximately $2 million. Loans below that threshold are usually better served by SBA 7(a), SBA 504, or community bank financing, which First Realty Capital also arranges for transactions starting at $500,000.
Are conduit loans non-recourse?
Yes. Conduit loans are non-recourse, meaning the lender's only remedy upon default is the property itself, not the borrower's personal assets. The exception is standard "bad-boy" carve-outs — fraud, misappropriation of funds, or unauthorized transfers — which can trigger personal liability.
How long does it take to close a conduit loan?
A conduit loan typically takes 45 to 60 days to close from a complete application. First Realty Capital delivers preliminary term sheets in 5–7 business days, with full commitment and closing following once third-party reports (appraisal, environmental, engineering) are complete.
First Realty Capital arranges conduit (CMBS) loans for commercial properties across Florida, Texas, Tennessee, Georgia, and the Southeast. Contact our team for a preliminary term sheet on your next transaction.
Related reading: How CMBS Loans Work | CMBS vs. Agency Loans | Yield Maintenance vs. Defeasance
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