Commercial Mortgage-Backed Securities
Would really appreciate anyone's help explaining this!
"In CMBS, first mortgages (usually from several diff properties diversified by property type ie office, retail, multi-family etc and location) are pooled & held by trust which serves as pass through entity for bondholders"
Question: What does "pass through entity for bondholders" mean? Why are bondholders related to CMBS?
Essentially they create a Special Purpose Vehicle to hold the mortgage investments.
Thank you for taking the time to respond! Why is this related to bondholders? That is the part that confuses me!
Essentially, this SPV will raise money from bondholders, use this money to buy CMBS, and then "pass through" the mortgage payments to the bondholders.
It won't be like, for example, the mortgage payments go to the SPV which pays tax on them, then distributes this money onto the bondholders. As a pass-through entity, mortgage payments directly go to bondholders of the SPV without any taxation in between.
This makes sense, thank you! Does the bond that bondholders buy include different things one of which includes a part of CMBS trust?
I'm not quite sure I follow - what do you mean by "include different things"? And what do you mean by CMBS trust?
If your question is about how a trust factors into CMBS, that's just because the first lien mortgages are packed into an SPV which essentially holds these mortgages "in trust". A third party ("the trustee") such as a bank will be in charge of running the CMBS and ensuring that mortgage payments are passed through to the bondholders. Or at least, that's my admittedly poorly worded understanding of the structure.
Not sure if I answered your question though.
CMBS is sold into the fixed income/bond markets. As it is a fixed income product - and sold in pools into the capital markets.
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