Multifamily Real Estate Investing – Financing a Deal with Conduit Lenders

Conduit lenders are very much like national lenders, but they usually get their money from major lenders on Wall Street. They then sell their loans to life and casualty companies, large investors, and pension funds. Whoever may be in the market to buy a package of loans, conduit lenders will sell a package to them.

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These loans are traditionally packaged in the form of CMBS loans, commercial mortgage-backed securities loans. Loans are pooled together with similar commercial mortgages and sold on the secondary market. CMBS loans are known for their relaxed credit requirements, but are only available for income-generating properties, and cannot typically be used as land or construction loans.

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On the secondary market, conduit loans are divided into tranches—different groups based on risk, return, and loan maturity. Risker loans with longer terms and higher interest rates will likely be sold to higher risk investors, like hedge funds, while lower risk investors, such as pension funds, are more likely to go with lower-risk tranches.

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Conduit lenders are more flexible than national ones. Their guidelines are not as strict and because of this, you may be able to fund more deals through them. In general, CMBS loans are non-recourse, fixed-rate, and fully assumable, giving them a lot of benefits for potential borrowers. In addition, conduit loan interest rates are generally competitive, and are based on U.S. Treasury rates plus a margin, or spread. This spread is determined by a several factors, including property quality and condition, quality of management, quality of tenants, and property cash flow, as determined by debt service coverage ratio, or DSCR.

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Conduit lenders typically require borrowers to have…

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Read the full blog post here: https://connormccarl.com/financing-a-deal-with-conduit-lenders/

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