ABC’s of CMBS

Learning the ABC’s

by Stephanie Miles & Megan White

Recently, we were on a call with a potential client when the conversation turned to conditions being placed on buyers of properties with CMBS loans that need to be assumed. We ran through the general conditions being placed on buyers that we’ve been seeing (increased reserves, cash management, required repairs, minimum net worth and liquidity etc.…) when we noticed the other end of the line was silent. We said, “Hello? Is everyone still on the line?” and after a few seconds heard a sigh and the expression “A.B.C.”. Our response was “What was that? We didn’t quite hear you.” Our potential client repeated “A.B.C.… Anything But Conduit.”

What we learned on the remainder of the call is that our potential client had avoided CMBS loans throughout his career due to their reputation. He had only decided to work up the courage to attempt assuming this CMBS loan after thinking “how bad could it really be?”. This particular commercial real estate investor is not unlike many of the other people we speak to on a regular basis. However, we have found that there are ways to mitigate the pain of a CMBS loan assumption:

A:  Assume that the buyer should always be as strong or stronger than the seller for the assumption to be approved.

B:  Buyers of properties with CMBS loans should be aware of the probability that conditions will be placed on the approval of the assumption and, most likely, reserves will be increased.

C:  Carefully review loan documents before signing the Purchase & Sale Agreement to ensure that all terms of the loan are understood and acceptable.