An introduction to commercial Mortgage-backed securities

Commercial mortgage-backed securities (CMBS) are notes that are offered to investors which are collateralised by a loan or a pool of loans secured by commercial real estate property(ies) (eg office blocks or factories). The basic structure for a CMBS transaction typically involves the following:

1. •

   a special purpose vehicle (SPV) (the Issuer) is created and raises funds by issuing the CMBS notes to investors

2. •

   the Issuer utilises the proceeds from the issue of the CMBS notes to either:

   1. ◦

      purchase one or more loans (each a Loan) which are secured by way of a Mortgage over commercial real estate property(ies) from an originating bank (the Originator), or

   2. ◦

      lend directly as the original lender of the underlying Loan(s) to the underlying borrower(s) (each a Borrower) for the purpose of acquiring commercial real estate property(ies)

   the first being the more common approach than the second scenario (known as an Agency CMBS)