A commercial property loan made to be pooled with other loans and sold to investors as commercial mortgage-backed securities, not kept by the lender that made it.
The OCC’s commercial real estate handbook lists commercial mortgage-backed securitizations, which it says are also referred to as conduits, among the sources of term financing besides banks. The lender makes the loan, places it in a pool with others, and the pool is cut into bonds that investors buy by term, risk and yield. The handbook says loans from these sources usually run 10 years or more at a fixed rate and are commonly nonrecourse.
Because the loan is headed for a pool, it has to look like the other loans in it. The handbook notes that loans originated for securitization use underwriting, structures and documentation that conform to standards set by market participants. For a borrower that means standard documents with little room to negotiate, a single purpose borrowing entity, and prepayment by defeasance or yield maintenance instead of a simple payoff.
After closing, a servicer you did not choose handles the loan under the pool’s rules. A request that a bank officer could decide in a week, such as a lease consent or a partial release, goes through that servicer. Weigh that against the fixed rate and the limited recourse.
How it shows up in the data here
Conduit loans are not in this site's data. Call reports show balances banks held, and a loan made for sale into a securities pool leaves the lender's books. HMDA covers housing loans only, so office, retail, hotel and industrial conduit loans appear nowhere here. For lenders that keep loans, see investor CRE lenders and the largest investor CRE books.
Go further
- Investor CRE lenders: Banks and credit unions holding non-owner-occupied commercial property loans.
- Debt yield calculator: Net operating income over loan amount.
- Debt yield calculator: Cash flow over the loan. The one ratio that ignores the rate, the amortization and the cap rate.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- Investor commercial real estate loan checklist: On an investor property the rent pays the loan. The package is the evidence for the rent: who pays it, for how long, what it costs to collect, and who stands behind the borrower if it stops.
- Guarantor strength and recourse, explained: A guaranty is the lender's second way out. Whether you sign one, how much it covers and what the lender checks before accepting it shape a commercial loan as much as the rate does.
Related terms
- Non-recourse loan: A loan the lender can collect only from the property pledged for it, not from the guarantor personally, except for listed bad acts.
- Carve-out guaranty: A guaranty on a non-recourse loan that makes the guarantor personally liable only if the borrower commits listed acts, such as fraud or a voluntary bankruptcy.
- Defeasance: A way to free a property from a loan before maturity by swapping the collateral: the borrower pledges securities that make the remaining payments, and the lien on the property is released.
- Yield maintenance: A prepayment charge sized so the lender or investor earns about what it would have earned had the loan run to the end of the yield maintenance period.
- Life company lender: A life insurance company that makes long-term, fixed-rate commercial mortgage loans with its own investment money and usually keeps them.
- Permanent loan: A longer-term loan on a finished, leased property that replaces the construction or bridge loan and is repaid from the property's income.
- Debt yield: Net operating income divided by the loan amount, shown as a percent. It measures how much income stands behind each dollar lent, whatever the rate or term.
- Portfolio lender: A portfolio lender is a lender that keeps the loans it makes on its own books instead of selling them to an investor.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.