CMBS Lenders vs. Life Companies: A Comprehensive Comparison

When financing commercial real estate, borrowers have two prominent options: CMBS and life company loans. CMBS loans, backed by commercial mortgage-backed securities, and life company loans provided by life insurance companies offer unique advantages and considerations. 

It’s essential to consider the dynamics, strengths, drawbacks, and comparisons between CMBS lenders and life companies to help you make an informed decision based on your specific financing needs.

CMBS Loan Dynamics:

CMBS or commercial mortgage-backed securities loans are a commercial real estate debt market staple. Here are some key points about CMBS loan dynamics:

  • Priced for the open market: CMBS loans are securitized and held as bonds by buyers on the open market. If a property has steady cash flows and stable occupancy, CMBS loans can offer competitive interest rates.
  • Interest-only periods: CMBS loans can provide the option for interest-only periods, maximizing cash flow during the loan term.
  • Strong leverage: CMBS loans offer high leverage, often reaching up to 75% of a property’s appraised value.

Drawbacks of CMBS Loans:

While CMBS loans have their advantages, it’s essential to consider the drawbacks as well:

  • Loan servicing experience: Borrowers often express frustration with the administration of their CMBS loans. Dealing with a national servicing company can be challenging, as their priority is cost control rather than expeditiously resolving issues.
  • Interest rate uncertainty: CMBS loan interest rates can be uncertain until closing due to market fluctuations. Economic volatility can drive up interest rates between when a term sheet is signed and when the loan closes.
  • Potentially expensive loan origination: The setup process for CMBS loans can be costly due to legal fees and regulatory standards. Expect substantial billable hours from lawyers.

Life Company Loan Dynamics:

Life insurance companies offer commercial real estate loans off their balance sheets, commonly known as life company loans. Consider the following points about life company loan dynamics:

  • Easy loan servicing experience: Borrowers only need to interact with their direct lender for loan administration, simplifying the process.
  • Low, locked-in rates: Life company loans typically offer the lowest rates, and the rates are fixed at the time of loan application, providing peace of mind.
  • Fixed, long-term loans: Life company loans often have long-term fixed-rate loan terms exceeding 10 years and extending to 15 or 20 years. This allows borrowers to plan for the long term before needing to refinance.

Drawbacks of Life Company Loans:

While life company loans have several advantages, they also have certain considerations:

  • Weaker leverage: Life company loans may have lower leverage than CMBS loans, typically ranging between 55% to 70% loan-to-value (LTV).
  • Selective lenders: Life insurers tend to be picky about borrowers they lend to. They prioritize borrowers with solid experience in the market, reliable cash-flowing assets, and properties in economically strong geographic markets.

Face-Off: CMBS vs. Life Company Loans:

To understand which loan type is suitable for your circumstances, let’s compare CMBS loans and life company loans based on several factors:

Factors CMBS Loans Life Company Loans
Pricing Competitive rates Lowest rates available
Leverage Up to 75% LTV Typically lower LTV
Loan Term Flexible options Longer fixed terms
Loan Servicing National servicing Direct lender
Borrower Requirements Stabilized assets Strong market presence
Interest Rate Lock Uncertain until close Locked at application
Loan Origination Costs Potentially expensive Varies
Loan Assumption Typically not assumed Often fully assumable
Prepayment Penalties Possible penalties Varies


CMBS lenders and life insurance companies provide distinct financing options for commercial real estate. CMBS loans offer competitive rates, high leverage, and flexibility, while life company loans provide low rates, long-term fixed loans, and a streamlined servicing experience. 

By understanding each option’s dynamics, strengths, and drawbacks, borrowers can make an informed decision tailored to their specific financing requirements. 

Consider your market, capital needs, and repayment terms to choose the right financing option for your commercial real estate venture.


What are CMBS loans, and how do they work?

CMBS loans, or commercial mortgage-backed securities loans, are investment products backed by mortgages on commercial properties. These loans are securitized and sold as bonds to investors in the open market. 

The underlying mortgages are packaged into trusts, and the principal and interest payments are passed on to investors.

What are life company loans for commercial real estate?

Life company loans for commercial real estate are loans provided by life insurance companies. These loans are typically offered to finance high-quality apartment buildings, industrial properties, retail centers, or office buildings. 

Due to their longer-term investment perspective, life insurance companies provide competitive rates and longer loan terms compared to other lenders.

How do CMBS loans and life company loans differ in terms of leverage?

CMBS loans generally offer higher leverage, allowing borrowers to borrow up to 75% of a property’s appraised value. In contrast, life company loans tend to have lower leverage, typically ranging between 55% to 70% loan-to-value (LTV).

Which loan type offers more competitive interest rates?

Life company loans typically offer the lowest interest rates in the market. They are known for providing highly competitive rates fixed at the time of loan application. CMBS loans can also provide competitive rates, but the rates may vary depending on market conditions.

What are the advantages of CMBS loans?

The advantages of CMBS loans include competitive interest rates, the possibility of interest-only periods, and the potential for high leverage. CMBS loans can be suitable for properties with stable cash flows and occupancy, allowing borrowers to maximize cash flow during the loan term.

What are the advantages of life company loans?

Life company loans offer several advantages, such as low fixed interest rates, long-term fixed-rate loan terms, and a simplified loan servicing experience. Borrowers can lock in a loan for 15 to 20 years, ensuring consistent repayments and avoiding changes in interest rates.

Are CMBS loans non-recourse?

Yes, CMBS loans are typically non-recourse loans. This means that in the event of default, the lender can only seize the collateral (the property) and cannot hold the borrower personally liable for the debt.

Can life insurance companies consider loan modifications during the term?

Life insurance companies can consider loan modifications or special requests during the loan term. They may accommodate changes such as loan modifications or secondary financing requests, providing flexibility to borrowers.

Do CMBS loans have prepayment penalties?

CMBS loans often have prepayment penalties to discourage borrowers from paying off the loan early. These penalties can vary and may be structured as yield maintenance fees or fixed premiums based on the remaining loan balance.

Can new property owners assume life company loans?

Yes, most life company loans are fully assumable. When a property is sold, the new owner can assume the existing loan, subject to a fee. This allows for easier property transfers without needing a new loan.

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