Face Off: CMBS vs Life Co Lenders

Tim Milazzo
November 7, 2018

Presenting tonight’s heavyweight match-up!

In one corner, we have commercial mortgage-backed security (CMBS) loans. CMBS issuers create loans to be securitized in tranches and held as bonds by buyers on the open market. CMBS loans are a staple of the commercial real estate debt market and often offer the best pricing for many borrowers who have stabilized real estate assets.

In the other corner, we have life insurance companies lending on commercial real estate assets off their balance sheet, often referred to as “life co loans”. These lenders are typically viewed as conservative but very cost-effective. Life companies will often compete on raw price (lowest rate).

How do CMBS loans and life loans face-off? Let’s take a look at the strengths and weaknesses of each.

CMBS loan dynamics


  • Priced for open market: If an asset has steady cash flows and stable occupancy, then the interest rate on the CMBS loan can be very competitive. Rates on an individual loan will vary on a number of factors, but the aggregate pricing of a CMBS conduit is tracked by companies like Trepp, which tracks both new issuance and trading of CMBS bonds.
  • Interest-only periods: It’s possible to establish interest-only periods at the front end of a CMBS deal, or even for the full term of the loan. This means that only interest needs to be paid throughout the whole term with a lump payment for the principal at the end. This can be optimal for maximizing cash flow during the loan period.
  • Strong leverage: Many CMBS loan scenarios can go up to 75% of a property’s appraised value


  • Loan servicing experience: a common complaint among borrowers is that it is too frustrating trying to deal with the ongoing administration of their loan. Unlike a relationship with a local bank lender, gaining a required approval or working out an issue probably means contacting a national servicing company that isn’t invested into the relationship, and whose priority is keeping down costs, not solving issues expeditiously.
  • Interest rate uncertainty: While creating a CMBS loan, the loan’s interest rate can be uncertain until near closing because of market fluctuations. Changes in the market at large, and especially periods of economic volatility, can drive up interest rates between the time a term sheet is signed and the time it is closed.
  • Potentially expensive loan origination: Setting up a CMBS loan for your property can be costly because of the heavy legal fees involved in the process. It’s a complicated process with stringent regulatory standards to create a CMBS loan for a property or portfolio, so expect lots of billable hours from the lawyers.

In their own words

“In my view, an often understated advantage of CMBS is the ability to offer financing in most secondary markets and even in tertiary markets when appropriate. Large balance sheet lenders are typically more comfortable in primary markets. So, you will often have only regional banks lending in secondary and tertiary markets. Some of our most recent CMBS deals have been done in South Lake, Texas which has a population of less than 50K and Traveler’s Rest, SC which has a population of less than 10K. The way CMBS is structured, we are able to efficiently disperse risk that comes with smaller markets. Thus, CMBS offers an additional competitive financing option to borrowers who are seeking non recourse financing with a long term fixed rate along with higher leverage and longer amortization.” — Dushyant Ravichandran, CIBC Capital Markets

Life Company loan dynamics


  • Easy loan servicing experience: Because life co loans are kept on a life insurance company’s balance sheet, the borrower only needs to interface with their direct lender for any administration issues.
  • Low, Locked-in Rate: Life co loan rates are typically the lowest around, and are fixed at the time of the loan application. That gives greater peace of mind than the undulating CMBS market.
  • Fixed, long-term loans: Life co loans typically have fixed-rate loan terms that exceed the 10-year horizon of a CMBS deal, often available for a period of up to 15 or 20 years. That enables the borrower to plan to hold the asset for a long period of time before needing to refinance.


  • Weaker leverage: Life co loans can be weaker on leverage than CMBS loans. Often, life co loans will only reach between 55 to 70 percent loan to value (LTV).
  • Picky lenders: Life insurers can be picky about the borrowers (sponsors) they lend to. They’ll want to see strong experience in the given market, a reliably cash-flowing asset, and a geographic market with strong underlying economics.

Who Wins the Face-Off?

If you’ve made it this far in the article, you’ve seen that there are real strengths and drawbacks to both CMBS loans and life co loans. Which loan type is right for you depends on your circumstance, including aspects like your market, how much capital you need to raise, and the repayment terms you desire.

When it’s time for you to choose between a CMBS loan and a life co loan, you’ll want to explore all your options, so you can lay them out for comparison and make an informed decision, specific to your own deal.

With StackSource, you can use our simple online platform to submit a loan request and receive competitive loan quotes from CMBS lenders and life insurance companies, in addition to banks, credit unions, and debt funds.

Find the right commercial real estate financing with StackSource by getting instantly matched to the best debt and equity options for your project from our nationwide network of capital sources. 

Our expert Capital Advisors help you secure your ideal capital stack, resulting in a lower cost of capital for your investments in less time and with more transparency than a traditional commercial mortgage brokerage. Learn more at StackSource.com.