Manns Investment Banking Group LLC

In CMBS transaction, many single mortgage loans of varying size, property type and location are pooled and transferred to a trust.  The trust issues a series of bonds that may vary in yield, duration and payment priority.  Nationally recognized rating agencies then assign credit ratings to the various bond classes ranging from investment grade to below investment grade and an unrated class which is subordinated to the lowest rated bond class.

The typical structure for the securitization of commercial real estate loan is a real estate mortgage conduit [REMIC].  A REMIC is created of the tax law that allows the trust to be a pass-through entity which is not the subject to tax with respect to its activities; therefore, compliance with REMIC regulations is essential.  CMBS has become an attractive capital source for commercial mortgage lending because the bonds backed by a pool of loans are generally worth more than the sum of  the value of the whole loan.  The enhanced liquidity and structure of CMBS attracts a broader range of investors to the commercial mortgage market.  This value creation effect allows loans intended for securitization to be aggressively priced, benefiting Borrowers.

published by the Commercial Mortgage Securities Association