
When planning your next real estate investment, choosing the right financing is key. You’ll likely come across two major options: CMBS vs agency loans. Though each has its own advantages, they have different applicability in terms of the kind of investors and projects. It’s to your advantage to learn how they work so that you can make a faster and smarter decision.
In this article, we’ll compare CMBS vs agency loans, their pros and cons, and which one aligns best with your real estate goals. It is all in simple terms that could be followed whether you desire to look at a multifamily property or a large commercial project.
What Are CMBS Loans?
CMBS stands for Commercial Mortgage-Backed Securities. Lenders pool these loans, repackage them as bonds, and sell them to investors. Large institutions typically purchase them, and the original lender stops servicing the loan. Instead, a third-party servicer takes over.
Key Features of CMBS Loans
- Used for income-producing properties
- Fixed-rate terms (typically 5 to 10 years)
- Non-recourse (you’re not personally liable)
- Standardized underwriting
- Available in larger amounts
CMBS loans are ideal for investors looking to finance commercial real estate like office buildings, shopping centers, or hotels. However, they come with rigid terms. You can’t easily change the loan once it’s closed.
What Are Agency Loans?
Agency loans come from government-sponsored enterprises (GSEs) like Freddie Mac and Fannie Mae. These are mostly used for multifamily housing. Unlike CMBS loans, agency loans are backed by the government, offering more stability.
Key Features of Agency Loans
- Best for multifamily properties
- Competitive interest rates
- Longer amortization periods
- Flexible prepayment options
- Recourse and non-recourse options available
Agency loans tend to be investor-friendly. Because they’re backed by GSEs, they offer lower risk to lenders—and better rates to you.
CMBS vs Agency Loans: The Key Differences
So, let’s compare CMBS vs agency loans side by side:
Feature | CMBS Loans | Agency Loans |
Backing Entity | Private investors | Government agencies (Fannie/Freddie) |
Property Type | Office, retail, industrial, hotel | Primarily multifamily |
Loan Size | $2M to $100M+ | $1M to $100M+ |
Amortization | Typically 25–30 years | Up to 30 years |
Term | 5–10 years | 5–30 years |
Prepayment Penalties | High (defeasance/yield maintenance) | Lower (step-down or none) |
Servicing | Third-party master servicers | Typically retained by GSE |
As you can see, the choice between CMBS vs agency loans depends heavily on your property type and long-term goals.
When to Choose CMBS Loans
CMBS loans make sense if:
- You want to finance large commercial properties.
- You’re comfortable with fixed terms.
- You want a non-recourse structure.
- You don’t plan to sell or refinance early.
These loans are best for stabilized assets with predictable cash flow. However, be cautious. You’ll have limited flexibility if market conditions change or if you need to sell the property early.
When to Choose Agency Loans
Agency loans are a better fit if:
- You’re investing in multifamily housing.
- You want lower interest rates.
- You need flexible prepayment terms.
- You value stability from a government-backed lender.
Agency loans are popular among long-term investors who want reliable cash flow and minimal risk. Additionally, they often allow interest-only periods, which can help boost returns in the early years.
CMBS vs. Agency Loans: Which Strategy Matches Your Goals?
So, if you’re still torn between CMBS vs agency loans, think about your investment strategy.
- Long-term buy and hold: Agency loans are ideal. They offer lower rates and steady amortization.
- Stabilized retail or office space: CMBS loans may offer higher leverage for larger deals.
- Short-term fix and flip: Neither is a perfect fit. You may want a private lender instead.
Also consider your exit strategy. If you may sell or refinance early, agency loans are less punitive when it comes to prepayment penalties. In contrast, CMBS loans can be costly to exit early.
CMBS vs. Agency Loans: Real-World Example
So, let’s say you’re investing in a 100-unit apartment building. An agency loan could offer you:
- A 30-year amortization
- 3–5 years interest-only
- 4.5% fixed interest rate
- Flexible prepayment
But if you’re purchasing a $20 million office building downtown, a CMBS loan might be more appropriate due to the property type and size.
Why Work With Loan Locker?
Choosing between CMBS vs agency loans is only the first step. What you want is a team member that takes you through the process fast and with assurance.
Loan Locker is a direct private money lender with its headquarters in Tampa, Florida, and mainly lends money on:
- Fix and flip properties
- RV parks
- Land deals
- Mobile home parks
- Multifamily properties
- And more
Unlike the other conventional lenders, Loan Locker does not need to go through a third party to access capital. This implies quicker approvals, easy terms as well as products tailored to your needs.
You may be just beginning or building-up your portfolio, we as a team, can get you the financing you need–no red tape.
Final Thoughts: CMBS vs Agency Loans
CMBS and agency loans are excellent forms of financing for investors in commercial real estate. Your strategy should however influence decisions.
Use CMBS loans when financing large commercial real estate assets, especially if you want high leverage and non-recourse terms. On the other hand, choose agency loans if you’re working with multifamily properties and prefer conservative income with long-term profits.
So, need help picking the right option? We’re here to guide you.
Apply now or learn more at Loan Locker.