CMBS conduit loans

How a conduit loan works

A conduit lender makes the loan to sell it. The originating bank or finance company warehouses loans for a few months, then deposits a few dozen into a trust that issues bonds in rated layers. The top bonds are protected by everything beneath them: in the August 2026 MSBAM 2026-C36 deal, the senior AAA classes had 30%⁴ initial credit support. The lowest layer is bought by a B-piece investor who keeps the risk, because federal risk retention rules require 5%⁵ of the credit risk to stay with a sponsor or eligible buyer for 5 years⁶.

That is why CMBS behaves the way it does. Your loan has to look like every other loan in the pool so the bonds can be rated, and after closing nobody who made the decision is still there to bend.

CMBS is one source among several. It held $651 billion (13% of the total)⁷ of commercial and multifamily mortgage debt at mid-2026 (MBA), and conduit deals are the smaller part of CMBS today: CRED iQ counts $21.2 billion³ of conduit issuance through September 2026, against $66.0 billion³ of single-asset deals. For the large single-asset version, see SASB loans.

What 2026 conduit pools actually look like

No rulebook publishes conduit limits. The SEC filings do publish the result, and they show loans sized well inside what a borrower would guess:

Pool (filing date)	Term	Weighted average LTV	NCF DSCR	NOI debt yield	Share interest-only
MSBAM 2026-C36 (Aug 2026)	Ten-year	54.3%4	2.17x4	15.4%4	74.1%4
BANK5 2026-5YR24 (Aug 2026)	Five-year	56.8%8	1.89x8		87.3%8
BBCMS 2026-5C43 (Oct 2026)	Five-year	59.9%9	1.71x9	13.2%9	81.8%9

Leverage differs a lot by property type. CRED iQ’s read of conduit loans issued June to August 2026:

Property type	What conduit loans looked like
Multifamily	62.0%2 LTV at a 6.0%2 coupon
Office	49.5% LTV, 1.94x DSCR2
Retail	20.3% debt yield, 47.8% LTV2
Hotel	22.4%2 debt yield

Read the hotel and retail lines as the market telling you where it sees risk: lenders lend on those properties, but only at debt yields that leave a deep cushion.

Sizing: the debt yield test usually binds

Conduit underwriters run three tests and lend the lowest result. Debt yield is the one borrowers forget. In CMBS, underwritten NOI debt yield = underwritten NOI divided by the loan balance at the cut-off date¹⁰, so it does not move when rates fall or when the loan is interest-only. Coverage, by contrast, improves on paper with every interest-only year.

Illustration only, with assumed lender thresholds (not program limits): a stabilized retail center worth $23,000,000 with $1,500,000 of underwritten NOI and $1,450,000 of net cash flow, priced at an assumed 6.80% fixed.

Test (assumed threshold)	Math	Maximum loan
65% LTV	$23,000,000 x 0.65	$14,950,000
1.35x DSCR, interest-only	$1,450,000 / 1.35 / 0.068	$15,795,000
1.35x DSCR, 30-year amortization	$1,450,000 / 1.35 / 0.0782 constant	$13,730,000
10% debt yield	$1,500,000 / 0.10	$15,000,000

On an interest-only quote, LTV binds at $14.95 million and debt yield is close behind. If the lender insists on amortization, coverage drops the loan to about $13.7 million. That gap is why the interest-only question matters as much as the rate. Run your own numbers in the debt yield calculator and the DSCR calculator.

The REMIC rules add one more limit: a qualified mortgage must be secured by real property worth at least 80%¹¹ of the loan’s adjusted issue price. Conduit loans are sized to the real estate, not to equipment, business value or a guarantor’s balance sheet.

Costs and timeline

• Rate. Today’s indicative range sits in the tile above: the 10-year Treasury plus the CRED iQ spread range. Five-year loans price off the 5-year Treasury, and the actual spread is set at rate lock.
• Origination and reports. Points to the lender, plus appraisal, Phase I environmental, property condition and often zoning and seismic reports, all paid by the borrower.
• Single-purpose entity. The borrower must be a bankruptcy-remote single-purpose entity, often with an independent director or manager. Restructuring an existing owner into one takes legal time.
• Reserves and cash management. Expect upfront and monthly tax, insurance and replacement reserves, leasing reserves on commercial property, and a springing lockbox that sweeps cash when coverage or debt yield drops below a trigger.
• Timing. A conduit lender wants your loan closed before its next securitization. Allow time for reports, SPE formation and rating-agency-style review; the loan application and third-party reports come first.

Prepayment: plan the exit before you sign

Conduit call protection is the most expensive term to get wrong. The prepayment penalty guide walks through each structure with worked numbers.

Structure	How it works	What it costs
Lockout	No prepayment at all for an initial period	You cannot sell with the loan paid off; a buyer must assume it
Defeasance	You buy government securities that replace every remaining payment, and the loan stays outstanding in a successor entity	The securities can cost more or less than the balance, plus fees
Yield maintenance	A premium that repays the investors’ lost interest	Greater of 1% of the amount prepaid or yield maintenance10
Open window	No penalty	Only the final few months before maturity

The mix in one 2026 five-year pool: 57.5% of the pool (24 loans) is lockout then defeasance; 25.6% (8 loans) allows yield maintenance¹⁰. Defeasance has its own mechanics:

• Defeasance collateral must be non-callable government securities¹⁰.
• An independent CPA must certify the securities cover every scheduled payment¹⁰.
• The borrower pays rating agency fees and the other expenses of defeasance¹⁰.

When Treasury yields have risen above your coupon since closing, defeasance can cost less than the loan balance. When they have fallen, it can cost much more. Estimate it with the prepayment penalty calculator, and read the prepayment comparison before you choose a structure.

What conduit underwriters check

1. Trailing income, not pro forma. Underwritten NOI starts from trailing twelve-month actuals and the current rent roll, then applies a market vacancy and management fee. Above-market leases get marked down.
2. Rollover. Tenant leases expiring before loan maturity, especially a large tenant, drive leasing reserves or a lower loan.
3. Sponsor history. Prior foreclosures, deeds in lieu, bankruptcies and litigation all get searched. A carve-out guarantor needs net worth and liquidity the lender sets deal by deal.
4. Physical condition. The property condition report’s immediate repairs become a holdback at closing.
5. Market and property data. The appraisal and the lender’s own read of comparable rents and sales, because the bonds will be rated on them.

Common deal killers

• Pro forma income. A property still leasing up does not size; it belongs on a bridge loan first.
• A plan to sell early. Defeasance or a required assumption can kill a sale; compare a bank loan with a step-down.
• Ownership that cannot become a single-purpose entity, or a property with other businesses, liens or partners inside the same entity.
• Subordinate debt the pool will not allow. Secured second mortgages are generally out; mezzanine debt needs an intercreditor agreement, and in MSBAM 2026-C36 only 4.3%⁴ of the pool had it.
• Small balances. Fixed legal and report costs take a large share of a small loan, so small stabilized properties usually do better with a bank, credit union or Freddie Mac small loan.

Where it wins and where it loses

CMBS wins on hotels, older retail, secondary markets and sponsors who want non-recourse proceeds on in-place income. On apartments it competes with Fannie Mae and Freddie Mac, which usually offer more leverage and more flexible prepayment. On low-leverage stabilized assets, life companies usually price tighter and are easier to work with after closing. It loses whenever the owner needs flexibility: a sale, a partner buyout, a lease the servicer must approve.

Credit is also a live issue in the bond market. Trepp’s CMBS delinquency rate was 8.02%¹² in September 2026, with office at 12.16%¹², and $69.53 billion¹³ sat with special servicers. Weak property types get sized harder in new pools as a result.