C-Loans.com Commercial Mortgage Lender Databank

113086 Resource 78777 78860 78860 1137163116461 1139710650815 Controlled Commercial Real Estate Loans from Conduits = Problem #1

CMBS Loans All Have Immense Prepayment Penalties

CMBS stands for Commercial Mortgage Backed Securities.  Commercial real estate loans that are originated for the CMBS market are known as CMBS loans, and the mortgage bankers, investment banks, and commercial banks that originate CMBS loans are known as conduits.CMBS loans have terrific, long-term, fixed interest rates.  These loans are typically quoted as some small margin or spread over either 10-year Treasury bonds or swap spreads.  But CMBS loans have a bunch of problems.The biggest problem is that these CMBS loans typically have a five-year lockout clause and a huge prepayment penalty.  A lockout clause simply prohibits an early prepayment.  Let's suppose you win the lottery.  You walk over to the office of the conduit with a wheelbarrow full of cash and dump it on the floor of the conduit.  "I am hereby paying off the $2 million mortgage on my office building."A week later you will get a certified check in the mail for $2 million from the conduit.  The letter will say, "Sorry, sir, but you are not allowed to pay off this loan for the next 42 months."  Yikes.Okay, so you wait 42 months, and then return with your wheelbarrow full of cash.  "Sorry, sir, but your $2 million is not enough to pay off your $2 million loan."  (What the *%$#?)"Your loan has a defeasance prepayment penalty.  To defease this loan you will need to go out and buy a bundle of Treasury bonds and Treasury bills that will pay us the exact stream of monthly payments, plus the balloon payment, as the payments we expected to receive from your mortgage.""Okay, I can do that," you think.  So you call your local investment banker or a company like Commercial Defeasance (<a href="http://defeasewithease.com/">http://defeasewithease.com/</a>) to supply you with the required Treasuries.Now the folks at Commercial Defeasance couldn't be nicer, but they explain that your CMBS mortgage had an interest rate of 7% with six years remaining on its term.  Unfortunately U.S. Treasuries with a six year term are only yielding 4.5%.  Therefore you are going to have to buy a bunch of extra Treasury bonds to make up for the shortfall in yield.  Two million dollars worth of Treasury bonds is not enough.  You might have to buy around $2,240,000 in Treasury bonds!  A good rule of thumb when paying off a loan with a defeasance prepayment penalty is that you will have to pay an extra 2% per year for each of the remaining years of the loan.  Ouch!You can apply apply to hundreds of CMBS lenders using <a href="http://www.c-loans.com/onlineapp">C-Loans.com</a>.  You can also apply to Blackburne & Brown Mortgage Company and not pay any points or any prepayment penalty at all by calling Mike Thurman at (916) 338-3232. 9 application/xml false CMBS CMBS financing CMBS lender CMBS loan commercial financing commercial loan commercial mortgage commercial real estate loan conduit financing conduit loan C-Loans.com Commercial Mortgage Lender Databank Apply to 750 Different Commercial Mortgage Lenders in Just Four Minutes http://www.c-loans.com/onlineapp Mozilla/4.0 (compatible; MSIE 6.0; Windows NT 5.1; SV1; .NET CLR 1.1.4322) 71.50.246.209 71.50.246.209 GBlackburne false true false false true 198508 false false true false false false true 78777 blog blogsite/CLoans/web