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Generally, most commercial
bank loans allow for the insurance proceeds to be used to
rebuild under certain conditions.
With a securitized (CMBS)
conduit loan, the borrower is likely to be able to utilize the
insurance proceeds only if the damage is of a more moderate
level, usually 20% to 40% of the property's rebuild-able
value. The borrower must demonstrate that it is obligated to
rebuild under certain tenant leases to avoid the percentage
restrictions.
Standard
commercial mortgage loan documents for
conduit financing generally prohibit any subordinate or
secondary commercial financing. A borrower considering a
conduit loan, as opposed to a traditional commercial loan,
should consider the future needs of additional financing
requirements.
While secondary commercial financing
restrictions are often a downside for conduit financing, a
large upside exists with the flexibility for the borrower
to easily transfer their ownership interest in the property
to another party often without negative financial consequence. Thus, gaining broad popularity with commercial
real estate investors as a transfer of ownership option and
avoidance of estate taxes.
Another issue which the
borrower must consider carefully involves the borrower's
willingness to have the
conduit loan remain in place for the entire
loan term, usually 10 years.
With conduit financing, there
is a "lock-out period" during which no prepayment of the
conduit loan is permitted. This period is generally the period
between securitization and delivery to the capital markets.
Thereafter, until the last three or four months of the term,
when prepayment is fully permitted without penalty, the
conduit loan
may be prepaid only through a process known as defeasance.
The defeasance process
involves the purchase of securities, commercial mortgage backed
securities or other governmental securities. The securities
are, in effect, substituted for the mortgaged property as
the collateral for the conduit loan, hence the name used often as a
"swap." The securities which are purchased have staggered
maturities to coincide with the monthly payment dates under
the commercial real
estate loans original terms and conditions.
Capital Assets,Inc
provides conduit loan programs for commercial real
estate property types nationwide.
Our minimum loan size for conduit financing is
$2,000,000. You can review all of our conduit loan
program guidelines online, check
interest rates online, calculate the cost to defease
your CMBS loan, and even track and review the status
of your conduit loan throughout the entire
commercial loan process! Contact a commercial
mortgage banker for more
information.
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