CMBS Is Back: A Refresher

CMBS has been out of sight and out of mind for many years based on interest rate hikes through 2025. Now that rates are dropping, guess what? CMBS is back in play. It is time to dust off your checklists and refresh your memory as to what CMBS is and what it is not. I also added some practice tips at the end.

I. The Market Came Back

2025 CMBS issuance hit roughly $150 billion — up about 140% over 2024, and the highest annual volume since 2007.¹ KBRA’s 2026 forecast is $183 billion, a post-GFC high.² Approximately $900 billion in CRE mortgages mature in 2026, and that wall will keep origination volume elevated through next year.³ The catch: loan distress sits at roughly 10.9% as of October 2025, up from 6.7% at year-end 2023.² Volume is back; credit performance is not fully back. Bond investors are absorbing the risk anyway because yield is scarce elsewhere.

II. What Changed in 2025

Fed rate cuts that began in late 2024 and continued through 2025 brought borrowing costs down and put deals back in the money.⁴ Sponsors who had spent 2023 and 2024 negotiating maturity extensions stopped extending and refinanced into the conduits. Single-asset / single-borrower (SASB) volume eclipsed traditional conduit as the most active CMBS subsegment.⁵ Data-center SASB deals more than tripled year over year — roughly $3 billion in 2024 to $10.7 billion in 2025.⁵ Trophy office did $25.7 billion in SASB volume, of which $17.2 billion was Manhattan alone.⁵ Counterintuitive, but quality assets retained institutional bid even as the broader market wrestled with vacancy. Spreads tightened; pricing improved. The marginal deal still gets passed on, but bond demand has been strong.

III. The Structural Refresher

A. REMIC, briefly. Securitized commercial mortgage pools are held in a real estate mortgage investment conduit (REMIC), authorized by the Tax Reform Act of 1986 and governed by I.R.C. §§ 860A–860G.⁶ The REMIC qualifies for pass-through taxation if it satisfies the 95% qualified-mortgage asset test, the permitted-investment limits, and the prohibited-transaction rules.⁷ The vehicle is typically organized as a New York common law trust. Once a loan is inside, modification flexibility is constrained by both the Pooling and Servicing Agreement (PSA) and the IRS prohibited-transaction rules. That single fact drives most of what counsel needs to remember.

B. Conduit vs. SASB. Conduit deals pool multiple loans — typically $15 million to $75 million each — diversified across property types and borrowers, with standardized documentation.⁸ SASB deals are one loan, one asset (or one borrower’s pool), used for large experienced borrowers, and heavily negotiated at origination.⁸ Most of 2025’s growth was SASB, particularly in data centers and trophy office.⁵ The practical implication: a SASB engagement means actually negotiating the modification mechanics, transfer rights, defeasance terms, and intercreditor provisions. A conduit engagement means mostly accepting the originator’s standard forms and pushing back narrowly on a small set of borrower-critical points.

C. Closing-day checklist. Any CMBS closing will require, at minimum: a true-sale opinion (loan isolated from the originator’s bankruptcy estate); a non-consolidation opinion (the special-purpose entity not substantively consolidated with its affiliates); SPE covenants on separateness, restricted indebtedness, restricted ownership, and independent director / springing member requirements; bad-boy carve-outs to the non-recourse provision (bankruptcy filing, transfer violations, fraud), with springing recourse for the same triggers; and risk-retention compliance under Regulation RR, with the B-piece holder typically taking the 5% retained position and meaningful control rights with it.⁹

D. Post-closing reality. After securitization, the borrower deals with a master servicer for routine matters and a special servicer if the loan defaults or hits an “imminent default” trigger.¹⁰ Even routine asks — partial releases, lease consents, escrow restructurings — can require special-servicer involvement, rating-agency confirmations, and REMIC opinions. The 2009 modification expansion at T.D. 9463 helped, as did Rev. Proc. 2009-45’s safe harbor for loans with significant risk of default,¹¹ but the framework remains meaningfully tighter than portfolio lending. For floating-rate deals, Treas. Reg. § 1.860G-1(e) (adopted by T.D. 9961) governs “covered modifications” tied to the IBOR sunset.¹² Most of that LIBOR work was finished in 2023–2024; flag anything still referencing LIBOR.

IV. Five Practice Tips Before the Next Deal

1. Draft for the trust, not the originator. The originator’s hold period is incidental. Every covenant, consent, and cure provision will be enforced through the PSA. Draft and negotiate as if the lender across the table is the special servicer — because eventually it will be.

2. Build operating flexibility in at origination. Lease consent rights, partial release mechanics, transfer provisions, and capital expenditure approvals are materially easier to negotiate at closing than to obtain post-securitization. Once the loan sits in the trust, every modification requires special-servicer engagement, often opinions, sometimes rating-agency confirmations, and always time.

3. Brief the borrower on the SPE regime. Independent director / springing member requirements, separateness covenants, and recourse carve-outs are non-negotiable. The borrower needs to understand what behavior triggers personal liability before signing — not after. Post-closing borrower complaints concentrate here.

4. Set realistic workout expectations. Special servicers are institutional, time-pressured, and constrained by PSA standards rather than relationship considerations. The 2009 modification expansion gave them more tools, but a CMBS workout is not a portfolio-loan workout.¹¹ A borrower who has only ever dealt with relationship bank lenders will be surprised, and counsel should say so up front.

5. On SASB, negotiate the modification mechanics carefully — you will live with them. This is where SASB practice has diverged most from conduit practice. SASB sponsors have meaningful leverage at origination and should spend it on the provisions that govern the life of the loan: modification standards, control-shift triggers, transfer rights, defeasance terms, and intercreditor mechanics with any mezzanine or preferred-equity layers.

V. Bottom Line

CMBS spent two-plus years quiet enough that practitioners reasonably let the muscle memory go cold. It is back, the deals are different in composition — SASB-heavy, data-center-driven, trophy-office-resilient — and the structural constraints that always governed this product are unchanged. The work to do is not learning new law. It is remembering the operational discipline this product demands at origination, and setting borrower expectations accordingly.

Citations

Footnotes

1. Commercial Property Executive, Another Strong Year for CMBS? (Jan. 29, 2026), https://www.commercialsearch.com/news/another-strong-year-for-cmbs/. ↩

2. KBRA, 2026 U.S. CMBS Outlook: Issuance Momentum Builds; Loan Distress Remains Elevated (Nov. 21, 2025). ↩ ↩²

3. CRE Daily, CMBS Market Outlook Shows Resilient Growth in 2026 (Jan. 30, 2026); see also Agora, Commercial Real Estate Lending Trends in 2026 (Jan. 12, 2026) ($936B in 2026 CRE maturities). ↩

4. MBA NewsLink, Q&A with KBRA — 2026 U.S. CMBS Outlook (Dec. 18, 2025). ↩

5. CRE Daily, CMBS Outlook 2026 Shows Signs of Stability (Dec. 23, 2025) (citing Moody’s data). ↩ ↩² ↩³ ↩⁴

6. Tax Reform Act of 1986, Pub. L. No. 99-514, §§ 671–675; I.R.C. §§ 860A–860G. ↩

7. I.R.C. § 860D(a); Treas. Reg. § 1.860G-1 et seq. ↩

8. See JPMorgan Chase, Commercial Mortgage-Backed Securities (CMBS) Loans; Alan Kronovet, An Overview of Commercial Mortgage Backed Securitization: The Devil Is in the Details, 1 N.C. Banking Inst. 288 (1997). ↩ ↩²

9. Credit Risk Retention, 17 C.F.R. pt. 246 (Regulation RR). ↩

10. ALI-ABA Course of Study, Commercial Securitization for Real Estate Lawyers (CM100); see also Hunton Andrews Kurth, Commercial Real Estate Loan Defaults and Remedies (TX) (LexisNexis Practical Guidance). ↩

11. T.D. 9463, 2009-40 I.R.B. 442 (Sept. 16, 2009); Rev. Proc. 2009-45, 2009-40 I.R.B. 471. ↩ ↩²

12. Treas. Reg. § 1.860G-1(e) (as adopted by T.D. 9961, 87 Fed. Reg. 166 (Jan. 4, 2022)). ↩