In Part 1 of this series, we covered what a CMBS loan is, its advantages and disadvantages, and how lenders size proceeds using as-is loan-to-value and debt yield. This installment covers CMBS loan rates and the structural elements — reserves, cash management, and assumability — that shape how a CMBS loan actually operates over its term.
How CMBS Loan Rates Are Priced
CMBS loan rates are priced as a spread over the swap rate — for a 10-year loan, that means a spread over the 10-year swap rate. While floating-rate CMBS loans exist, most CMBS loans carry an interest rate that remains fixed for the entire duration of the loan term.
Interest-Only, Amortizing, and Hybrid Structures
CMBS loans can be structured as interest-only, fully amortizing, or a hybrid of both — for example, a 10-year loan with a two-year interest-only period followed by eight years of principal and interest payments.
| Property Type | Typical Amortization Period |
|---|---|
| Standard commercial (10-year loan) | 30 years |
| Hotels | 25 years |
| Single-tenant net lease | Correlates to the remaining lease term of the tenant |
For a 10-year CMBS loan, amortization is usually 30 years — hotels are the notable exception, typically underwritten on a 25-year amortization schedule given the operating-business risk profile of hospitality assets.
While CMBS lenders must follow certain standards to keep loans eligible for securitization, there is still meaningful flexibility in how an individual loan is structured. The remainder of this guide covers the six structural elements that most commonly shape a CMBS loan.
Six Structural Elements of CMBS Loans
1Rollover Reserves
Rollover reserves ensure enough cash is set aside to fund tenant improvements and leasing commissions for spaces occupied by tenants whose leases expire during the loan term. Because the borrower depends on the property's cash flow to pay debt service, lenders want vacancies filled quickly — tenant improvements and leasing commissions help the borrower sign new leases. Before closing, the CMBS underwriter builds a rollover schedule projecting how much will be needed based on existing tenants' rollover dates. An upfront deposit is often required at closing, with ongoing monthly deposits required thereafter.
2Free Rent Reserve
Similar to tenant improvements and leasing commissions, free rent or rent concessions are often given to prospective tenants to induce them to sign leases. The CMBS underwriter reviews existing leases to determine whether any tenants have rent concessions that will burn off — if so, the difference between normal rent and reduced rent may be reserved at closing. Free rent for future tenants is also estimated as part of the broader rollover reserve analysis.
3Deferred Maintenance Reserves
This reserve is typically established and funded at the time of loan closing. As the name implies, it reserves money for deferred maintenance that needs to be completed at the property.
4Replacement Reserves
A replacement reserve funds ongoing maintenance at the property. Deposits are typically made monthly and calculated as a dollar amount per square foot for commercial properties, per unit for multifamily properties, and as a percentage of gross revenue for hospitality properties.
5Cash Sweeps
Cash sweeps fall under the cash management provisions of a loan agreement. If certain triggers occur during the loan term — such as a major tenant leaving — the CMBS lender can activate a cash sweep, trapping all cash flow from the property in a lender-controlled bank account. The lender then prohibits distributions to the borrower until certain conditions are met, such as filling the vacant space with a new tenant.
Cash management provisions are a substantial enough topic that they deserve their own dedicated discussion. For now, the key takeaway is that a cash sweep is a lender protection mechanism triggered by specific events — not a routine occurrence — and understanding your loan's specific triggers before closing is important to avoiding surprises during the loan term.
6Assumability
CMBS loans are usually assumable for a fee, provided the master servicer approves the new guarantor. This gives sponsors flexibility to sell the property during the loan term without necessarily requiring the buyer to obtain new financing.
Frequently Asked Questions
CMBS loan rates are priced as a spread over the swap rate matching the loan term — for a 10-year loan, that's a spread over the 10-year swap rate. Most CMBS loans carry a fixed rate for the entire loan term, though floating-rate CMBS loans exist.
A rollover reserve sets aside cash to fund tenant improvements and leasing commissions for spaces whose leases expire during the loan term, helping the borrower re-lease vacant space quickly to keep debt service payments on track.
A cash sweep is a cash management provision that traps all property cash flow in a lender-controlled account if certain triggers occur, such as a major tenant leaving. Distributions to the borrower are prohibited until specific conditions, like re-leasing the vacant space, are met.
Replacement reserve deposits are typically made monthly and calculated as a dollar amount per square foot for commercial properties, per unit for multifamily properties, and as a percentage of gross revenue for hospitality properties.
For a standard 10-year CMBS loan, amortization is usually 30 years. Hotels are a notable exception, typically underwritten on a 25-year amortization schedule given the operating-business risk profile of hospitality assets.
Yes. CMBS loans are usually assumable for a fee, provided the master servicer approves the new guarantor, giving sponsors flexibility to sell the property during the loan term without requiring the buyer to obtain new financing.
Skylatus advises multifamily and hospitality sponsors on CMBS, bridge, and permanent debt strategy — helping structure reserves, cash management terms, and pricing that fit your deal.
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