Commercial Mortgage-Backed Security (CMBS)

A Commercial Mortgage-Backed Security (CMBS) is a type of mortgage-backed security that is backed by a pool of commercial real estate loans, such as loans for office buildings, shopping malls, hotels, or industrial properties. These loans are packaged into securities and sold to investors. CMBS provide investors with an opportunity to earn returns from commercial real estate without owning the properties directly. The payments made by the commercial borrowers flow through to the CMBS investors. The risk and return of a CMBS depend on the quality of the underlying commercial properties and the structure of the security.

Example

A real estate investment firm might purchase a CMBS that is backed by loans for various shopping malls. The firm receives regular payments from the tenants’ rental income, distributed through the CMBS structure.