Commercial mortgage-backed security

What are commercial mortgage backed securities?

Commercial mortgage backed securities (or CMBS) are a category of mortgage backed securities that are commercially backed as opposed to residentially backed. They are thought to be more complicated than residentially backed mortgage securities because of the idiosyncratic nature of the undisclosed property assets.

Where have you heard about commercial mortgage backed securities?

If you’ve ever owned or managed a business that requires an office or any property that is used exclusively for business activity, it’s likely that you will be aware of commercial mortgage backed securities as a way of financing these properties.

What you need to know about commercial mortgage backed securities.

With any security there is a certain amount of risk involved, but with American CMBSs there is less of a prepayment risk due to the structure of commercial mortgages. With regards to European CMBS there is, on average, less prepayment protection. With CMBS agreements, mortgage loans of different sizes, location and property type are grouped together and moved into a trust. This trust then issues a number of bonds that differ in payment priority, yield and duration. These bonds are then assigned ratings by nationally recognised agencies which range from investment grade to unrated.

Find out more about commercial mortgage backed securities.

If you are interested in commercial mortgage backed securities, see our page on commercial real estate.