CMBS vs Agency Loans for Multifamily Investors
Both are non-recourse with long fixed terms. Agency usually wins on apartment rates. CMBS wins on flexibility across property types.
Two Non-Recourse Options for Multifamily
For a stabilized multifamily property, two of the strongest options are a CMBS loan and an agency loan through Fannie Mae or Freddie Mac. Both are non-recourse and both offer long fixed terms. They differ on property flexibility, pricing, and how much rigidity you accept.
Agency debt is multifamily-focused and usually the best rate. CMBS is broader and more flexible on property type, but it comes with conduit rules.
How CMBS Loans Work
A CMBS loan is originated, then pooled and sold to bond investors. Terms are typically 5 to 10 years at a fixed rate, non-recourse, with interest-only periods available. Loan sizes usually start around $2M and cover a wide range of property types, not just apartments.
The trade is rigidity once the loan closes. CMBS loans are serviced to strict conduit standards, and prepayment usually requires defeasance or yield maintenance, which can be expensive. There is little room to renegotiate mid-term.
How Agency Loans Work
Agency loans run through Fannie Mae and Freddie Mac and finance multifamily only. They offer some of the best rates in the market, non-recourse terms, and amortization schedules that can stretch long. Leverage reaches up to 80% LTV with a minimum DSCR around 1.25x.
The property needs to be stabilized, generally 90% occupancy for 90 days, and the borrower needs to meet net worth and liquidity tests. In return you get pricing and terms that are hard to beat on apartments.
Rate, Term, and Flexibility Comparison
The comparison:
- Property type: CMBS broad, agency multifamily only
- Rate: agency typically lowest, CMBS close behind
- Term: CMBS 5 to 10 years fixed, agency 5 to 30 years
- Recourse: both non-recourse
- Leverage: agency up to 80% LTV at 1.25x DSCR, CMBS up to 70 to 75%
- Prepayment: CMBS defeasance or yield maintenance, agency step-down options
When to Choose Agency Loans
Choose agency when the asset is stabilized multifamily and you want the best rate and the longest term. For apartment investors who plan a long hold, Fannie and Freddie pricing usually beats CMBS, and the leverage at 80% LTV is strong.
Agency is also the pick when you value flexible prepayment. Step-down options are often easier to live with than CMBS defeasance if you might sell or refinance before the term ends.
When to Choose CMBS
Choose CMBS when the property is not standard agency multifamily, or when the deal does not clear agency net worth, liquidity, or occupancy tests. CMBS finances retail, office, industrial, hospitality, and mixed-use, so it covers ground agency will not.
It also fits borrowers who want non-recourse leverage on a property type outside the agency box and can accept the rigid servicing and defeasance in exchange. On a mixed portfolio, CMBS often reaches deals agency cannot.
How CapitalAx Places Multifamily Debt
CapitalAx quotes agency and CMBS side by side across a national platform of more than 350 lenders. We model the rate, term, leverage, and prepayment cost of each, then route your deal to the program that fits your hold and exit. We have closed multifamily bridge and permanent deals from $20K to $500M, so we know where each option actually prices.
Frequently Asked Questions
Are agency loans cheaper than CMBS?
For stabilized multifamily, agency loans through Fannie Mae and Freddie Mac usually offer the lowest rate and the strongest leverage, up to 80% LTV. CMBS is close but tends to price a bit higher on apartments. The gap can flip on non-multifamily property, where agency is not an option at all.
What is defeasance?
Defeasance is a CMBS prepayment method where you replace the loan's cash flow with a portfolio of government securities so the bond investors keep getting paid. It can be costly and complex, which is why prepayment flexibility is a common reason multifamily borrowers prefer agency step-down options instead.
Can CMBS finance property types other than apartments?
Yes, and that is its main advantage. CMBS funds retail, office, industrial, hospitality, self-storage, and mixed-use, not just multifamily. Agency loans are limited to apartments. If your property falls outside the agency box, CMBS is often the best non-recourse, long fixed-rate option available.
What occupancy do agency loans require?
Agency lenders generally want the property stabilized at around 90% occupancy for at least 90 days before closing. They also test the borrower's net worth and liquidity. If the property is still leasing up or fails those tests, a bridge loan or CMBS may fit better until it stabilizes.