What is a Commercial Mortgage Backed Security in Commercial Real Estate?
A Commercial Mortgage Backed Security (CMBS) loan is a fixed-income security backed by a commercial mortgage. Sometimes referred to as a conduit loan, these loans are for commercial property types such as malls, apartments, office buildings and factories.
A CMBS is created when a financial institution groups all its commercial loans, then sells them in securitized form as a series of bonds. Each of the series of bonds is put together to create segments, with each segment characterized by the level of risk attached to it. They are organized from low-risk and low-yield to high-risk and high-return. The low-risk segments are first to get paid the principal and interest, while the high-risk segment is the last to be paid should the debtors' default.