Bank loan or CMBS conduit loan for a commercial property

The core trade

Ask one question first: will you still own this property, unchanged, in ten years? If yes, a conduit loan’s rigidity costs you little and its non-recourse, interest-only terms are worth a lot. If no, a bank loan’s flexibility is worth more than anything a conduit offers.

Worked deal: a $6.5 million strip center

Illustration. A neighborhood strip center is worth $6,500,000 and underwrites to $455,000 of NOI, a 7.0% cap rate. The bank offers 6.60% fixed for 5 years on a 25-year schedule, up to 70% of value at 1.25x coverage, with a 5-4-3-2-1 step-down and a full guarantee. The conduit offers 65% of value, 10-year fixed, interest-only, at this site’s indicative retail rate: the 10-year Treasury at 4.94% (October 30, 2026) plus CRED iQ’s retail spread of 176 bps, about 6.70%.

Sizing (illustration)	Bank	CMBS conduit
Leverage limit	70% = $4,550,000	65% = $4,225,000
Coverage limit	1.25x on the amortizing payment: about $4,451,000	not binding
Loan offered	about $4,451,000	$4,225,000
Annual debt service	about $364,000	about $283,100
Coverage	1.25x	about 1.61x
Debt yield	about 10.2%	about 10.8%

The bank lends about $226,000 more here, which surprises borrowers who assume CMBS always means more leverage. On a small retail property with a local bank that wants the relationship, that is common. The conduit leaves about $80,900 a year more cash flow because it pays no principal, and it is non-recourse.

Now sell the center at the end of year four.

Exit in year 4 (illustration)	Bank	CMBS conduit
Balance at sale	about $4,130,700	$4,225,000
Prepayment cost	2% step-down: about $82,600	Defeasance: buy Treasuries that cover 69 more monthly payments and the balance
If Treasury yields are 4.25%	about $82,600	about $527,000 plus fees
If Treasury yields are 5.00%	about $82,600	about $358,000 plus fees
If Treasury yields equal the 6.70% note	about $82,600	close to zero plus fees

That table is the whole decision for a seller. When yields are below the note rate, defeasance costs several times a bank step-down. A buyer who assumes the loan avoids it, so a conduit borrower who may sell should make sure the loan is assumable on reasonable terms.

What lenders actually check

Bank: the guarantor’s personal financial statement, liquidity and global cash flow across everything they own; tenant credit for the largest leases; local market knowledge; and whether the borrower will bring deposits. Banks also measure how much room they have under their own concentration screens, and those screens exclude owner-occupied loans: Loans on owner-occupied commercial property do not count toward the 300% CRE screen⁴.

Conduit: the rent roll and lease terms, especially leases expiring before maturity; a debt yield floor, the test that ignores the rate; the B-piece buyer’s view of the property; and a single-purpose borrower with clean title. Conduit pools in 2026 have been conservative: CRED iQ put the average conduit retail loan at 20.3% debt yield, 47.8% LTV⁵.

The costs people miss

• Conduit reserves. Expect tenant improvement and leasing reserves on retail and office, collected monthly, plus a cash sweep if a major tenant goes dark.
• Conduit closing costs. Lender counsel, rating agency review and a nonconsolidation opinion run higher than a bank closing.
• Bank guarantee spillover. The guarantee counts against the guarantor on every future loan application.
• Bank renewal. The bank’s 5-year balloon in this example comes due before the conduit loan would. If rates or the center’s leasing are worse then, the bank sets the new terms.
• Bank rate swaps. A bank fixed rate built with an interest rate swap carries a swap breakage cost on an early payoff, which works like yield maintenance. Ask whether the fixed rate is swapped.

Where the market stands

Both lenders are active. MBA’s originations survey showed depositories and CMBS both well ahead of a year earlier in Q2 2026: CMBS up 68%, depositories (banks) up 61%, investor-driven lenders up 18%, Fannie Mae and Freddie Mac down 17%, life companies down 27%. Credit quality differs by measure, so compare each against itself. FDIC data for Q2 2026: 1.42% of bank non-owner-occupied commercial property loans noncurrent⁷. Trepp’s September 2026 CMBS delinquency rate was 8.02%⁸, with retail at 6.58%⁸.

If you own retail, office or industrial property and want a bank quote and a conduit quote on the same numbers, send the rent roll and operating statements through the form.