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What are commercial mortgage-backed securities?

On Behalf of | Jul 14, 2022 | Commercial Real Estate |

Commercial mortgage-backed securities play an important role in the real estate market in Michigan. They are a useful way to get access to the market without having to own property and they are a key tool for investors.


A commercial mortgage-backed security is also known as an CMBS. It is a group of mortgages joined together and then formed into a bond. They are divided into junior and senior bonds, which are different in the sense that if the mortgages start to go bad, then senior bondholders get paid off sooner than junior ones.

The commercial real estate sector is a big part of the economy, so it makes sense to find a way to invest in it. However, for most people, buying real estate for investment is a highly expensive and very risky move. A CMBS provides access to the commercial real estate sector’s performance and exposes the investor to a part of the economy that would otherwise be inaccessible. By packaging them together into bonds, the investor is less reliant on a specific real estate project.

Moreover, a CMBS is easier to manage in terms of accounting and tax treatment than owning properties directly. That means that for projecting returns as well as for filing taxes, there is a lot less stress and work about getting the paperwork correct.

Investing in these types of securities might not be for everyone, but they are a useful tool that individuals should be aware of if they are interested in getting involved in the commercial real estate market.