Know Your Lineup: Banks, CMBS, Life Companies, and Debt Funds

When an ownership group announces that a property has been financed, the natural question is what rate they secured. The more revealing question is who provided the capital. Commercial real estate is financed by four principal lender types, each funded differently and each with its own priorities. Those differences determine pricing, loan terms, leverage, timing, and how much flexibility a borrower retains over the hold period. Understanding how each one works provides useful context when evaluating a financed transaction.

Banks

Banks lend from their own balance sheets, funded largely by deposits. They range from national institutions to regional and community banks, and lending decisions often reflect an existing relationship with the borrower.

Bank loans tend to carry shorter terms than other sources and may be fixed or floating. Pricing is generally competitive, and terms can be negotiated directly with the institution holding the loan, which is useful if circumstances change. Banks more frequently require recourse, meaning the borrower guarantees repayment personally or at the entity level rather than the lender looking solely to the property. Bank participation also shifts with the regulatory environment and the condition of their balance sheets, which is why their presence in the market has varied considerably in recent years.

Life Insurance Companies

Life insurers hold long-dated obligations to policyholders and seek long-dated assets to match them. Commercial mortgages suit that purpose well.

This group is typically the most conservative and often the least expensive. Life companies favor stabilized, well-located properties with creditworthy tenants, offer long fixed-rate terms, and generally lend at lower leverage than other sources. Loans are usually non-recourse. The tradeoff is selectivity: transitional assets, weaker locations, and complicated business plans rarely qualify.

CMBS

Commercial mortgage-backed securities work differently. A lender originates loans, pools them, and sells bonds backed by the pool to investors. The originator does not retain the loan.

CMBS financing is non-recourse, generally fixed-rate with ten-year terms, and can offer higher leverage than life company debt. Because the loan is packaged into a security governed by contract, the terms are rigid. Prepayment typically requires defeasance or yield maintenance, both of which carry meaningful cost, and any modification during the term is handled by a third-party servicer rather than the original lender. Borrowers gain proceeds and give up flexibility.

Debt Funds

Debt funds and mortgage REITs raise private capital and lend it directly. They occupy the space the other three categories generally avoid.

These loans are usually floating-rate, priced over a short-term benchmark such as SOFR, with shorter terms suited to a defined business plan: a lease-up, a repositioning, a construction project, or a near-term maturity that needs bridging. Debt funds can move quickly, tolerate more complexity, and often provide higher leverage. That capability is priced accordingly, and floating-rate exposure means borrowing costs move with short-term rates during the hold.

A fifth category, the government agencies Fannie Mae and Freddie Mac, is significant but limited to multifamily.

Each category represents a different position on the same set of tradeoffs: cost, leverage, term, execution speed, and flexibility. A stabilized industrial asset with long-term credit tenancy is well suited to life company or CMBS debt. A vacant building requiring lease-up is not, and would more likely be financed by a bank or debt fund. Which lenders are most competitive also changes over time. Capital moves between these channels as rates, regulation, and credit conditions shift, so the financing available for a given asset today may look different than it did a year ago.

When reviewing an offering, the debt terms warrant as much attention as the property. Useful questions include whether the loan is fixed or floating, when it matures relative to the projected hold period, whether it is recourse or non-recourse, and what prepayment costs would apply on an early sale. Financing structure determines how much flexibility a sponsor retains if conditions change. Our partners at Legacy West Partners match debt structure to business plan and prioritize terms that preserve optionality across the hold period.