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Glossary
Call Protection
Language on specific loans that protect the lender against early prepayment. The language specifies the specific terms of the call protection: either lockout, penalty points, yield maintenance, defeasance, or a combination thereof over the loan term.
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Glossary
Capital Markets
Markets in which capital funds, both debt and equity, are traded. Included are private placement sources of debt and equity as well as organized markets and exchanges. Also see
Primary Market .
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Glossary
Capitalization Rate (Cap Rate)
Defined as the net operating income (I) for the year divided by the value of the property (V) [I/V = R]. It is used as a measure and/or benchmark for a property’s value based on current performance. Cap rates also serve as an indicator of investor expectations of risk and return. See also
Going-In Cap Rate and
Reversionary Cap Rate .
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Glossary
Cash Flow
Cash flow is examined at the level of both the security and the individual property. At the security level, the certificate holders of CMBS receive all principal and interest cash flow from a pool of mortgages in a sequential, defined manner. Early prepayments or extended maturities change those cash flows and therefore can have a material effect on how and when some certificate holders receive their sequential payments, hence affect the total yield on the bonds. At the asset level, the cash flow of each individual property in the CMBS transaction is scrutinized to calculate the ability of the property to generate sufficient revenue to service the loan.
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Glossary
Cash-on-Cash Return
The cash yield return on an investment in a property defined as the annual cash flow received divided by the cash equity invested in a property; expressed as a percentage. Also called an
Equity Yield Rate (EYR).
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Glossary
Casualty
A property damaged or destroyed by an unexpected or unusual event.
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Glossary
CDR
See Constant Default Rate.
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Glossary
Certificate
An actual certificate that defines the beneficial ownership in a trust fund.
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Glossary
Certificate Administrator
The certificate administrator administers funds and information on behalf of the trust. This role can be combined with the role of the Trustee or can be a separately appointed entity. Specific duties include: holding funds delivered by the master servicer for the benefit of certificate holders, acting as paying agent by making payment distributions to certificate holders in accordance with the waterfall set forth in the pooling and servicing agreement, compiling servicer reports, creating investor level reports, delivering the investor reporting package to certificate holders and/or posting such package on the trustee’s website, acting as certificate registrar, maintaining certificate holder information and funds, acting as a tax agent, acting as a bond administrator, and if the depositor does not retain this duty, the certificate administrator is also generally responsible for maintaining the secure rating agency website (commonly called the Rule 17g-5 website). Also see
Trustee .Learn
Glossary
Certificate Holder (also Certificateholder)
The owner of record that actually owns a certificate (security).
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Glossary
CDO
See Collateralized Debt Obligation.
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Glossary
CLO
See Collateralized Loan Obligation.
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Glossary
Closed-End Mortgage
A mortgage bond issued with an indenture that prohibits repayment before maturity and the re-pledging of the same collateral without the permission of the bondholders. Also called a closed mortgage.
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Glossary
CMBS
See Commercial Mortgage Backed Security.
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Glossary
CMBX
The CMBX is a group of indices – each index consisting of 25 equally weighted similar rated CMBS tranches from a vintage of CMBS. Using the CMBX, one can either gain synthetic risk exposure to a portfolio of CMBS by “selling protection” or take a short position by “buying protection.” The notional balance, amortization and writedowns for a CMBX Index closely mirror the balance, principal payments and writedowns of the corresponding portfolio of cash CMBS. The indices are rolled into a new “on the run” series every year. The first vintage of indices began trading in March 2006. IHS Markit is the Administration and Calculation Agent.
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Glossary
CMSA
See Commercial Mortgage Securitization Association.
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Glossary
Collateral Valuation Adjustments (CVA)
Collateral Valuation Adjustments (CVA): See
ASERs .
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Glossary
Collateralized Debt Obligation (CDO)
CDOs use the same legal/tax structure as a CRE CLO, but CDOs, which reached peak issuance in the mid-2000s, where characterized by different collateral characteristics and investor bases. CDOs included some transitional loans, but also a wide variety of other collateral including B notes, mezzanine loans, subordinate CMBS and CDO bonds and unsecured REIT debt. Subordinate bonds in CDOs were sold into the market, including to other CDOs typically. By comparison, subordinate bonds in CRE CLOs are retained by the issuer. Also see Commercial Real Estate Collateralized Loan Obligation (CRE CLO).
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Glossary
Collateralized Loan Obligation (CLO)
A collateralized loan obligation (CLO) is a vehicle that funds the purchase of a loan portfolio with the issuance of rated debt securities and an equity piece. This includes corporate and commercial real estate CLOs. Also see Commercial Real Estate Collateralized Loan Obligation.
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Glossary
Collection Account
An account established by the master servicer in the name of the trustee for the benefit of the certificate holders. Usually all payments and collections received on the mortgages and from advances made by the servicers are deposited into this account.
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Glossary
Comfort Letter
Generally defined as a letter between parties to a legal agreement stating that certain actions not clearly covered in the agreement will or will not be taken. Such declarations of intent usually deal with matters that are of importance only to the specific parties and do not concern other signers of the agreement. Specifically to CMBS, a comfort letter is an independent auditor’s letter to assure that information in the registration statement and prospectus is correctly prepared and that no material changes have occurred since its preparation.
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Glossary
Commercial Mortgage Backed Security (CMBS)
Securities collateralized by a pool of mortgages on commercial real estate in which all principal and interest from the mortgages flow to certificate holders in a defined sequence or manner.
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Glossary
Commercial Mortgage Securitization Association (CMSA)
Former name of the CRE Finance Council (CREFC). See CRE Finance Council.
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Glossary
Commercial Property
An income-producing property, e.g., multifamily housing, retail, office, warehouse, industrial or hotel.
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Glossary
Commercial Real Estate (CRE)
Property that is owned/leased for the purpose of producing income.
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Glossary
Commercial Real Estate Collateralized Loan Obligation (CRE CLO)
A commercial real estate (CRE) CLO is a securitization vehicle that uses a tax structure of Qualified REIT Subsidiary (QRS) or an offshore entity such as a Cayman Islands LLC or Cayman entity issuer (as opposed to the REMIC tax structure of a conduit CMBS transaction). A CRE CLO is typically backed by non-recourse senior (first lien) loans secured by commercial or multifamily real estate properties (these are the “assets” of the CRE CLO). The underlying loans are often called “bridge” (or “transitional”) loans as they typically bridge the redevelopment/renovation gap between acquisition and longer term, fixed-rate, stabilized lending. The loans are typically structured as floating rate with 2 – 5 year maturities. The CLO is tranched into multiple senior/investment-grade and subordinate / non-investment grade notes which are then sold to qualified investors, or, in the case of the subordinate notes, retained by the issuer.
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Glossary
Concessions
A relief or reduction in total payments for a period of time, used as an incentive to attract or retain tenants in lease agreements. Concessions can include reduced or free rent for a portion of the lease period, above-market tenant improvement and work letters. The use of concessions in leasing is a response to current market conditions, but the existence of concessions in a building’s leases makes it more difficult to calculate net cash flow and, therefore, debt service coverage ratios.
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Glossary
Conduit
A financial intermediary that functions as a link, or conduit, between the lender(s) originating loans and the ultimate investor(s). The conduit makes loans or purchases loans from third party correspondents under standardized underwriting parameters, and once sufficient volume has accumulated, pools the loans for sale to investors in the CMBS market. Also see
Real Estate Mortgage Investment Conduit (REMIC) .
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Glossary
Constant Default Rate (CDR)
A percentage of the outstanding collateral principal that is expected to default in one year. The default is assumed to be a liquidation.
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Glossary
Constant Prepayment Rate (CPR)
A percentage of the outstanding collateral principal that is expected to prepay in one year. A CPR represents an assumed constant rate of prepayment each month (expressed as an annual rate), rather than a variable rate of prepayment.
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Glossary
Constant Prepayment Yield (CPY)
A modified CPR that assumes prepayments to be zero until all yield maintenance and penalty provisions are expired. IO tranches in CMBS are priced using a 100 CPY assumption.
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Glossary
Contributions Tax
A tax imposed on a REMIC triggered by certain contributions of properties made to a REMIC after the day on which the REMIC issues all of its interests. Each pooling and servicing agreement will include provisions designed to prevent the acceptance of any contributions that would be subject to such a tax.
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Glossary
Controlling Party
A party designated in a CMBS transaction that has the right to approve and direct certain actions of the special servicer with respect to specially serviced loans. Such party is often defined as a Controlling Class Certificate Holder, Controlling Class Representative, or Directing Certificateholder.
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Glossary
Convexity
A measurement of the rate of change of duration of a security. Positive convexity implies that prices rise at an increasing rate as yields fall, and prices decline at a decreasing rate as yields rise.
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Glossary
Co-Tenancy Provisions
Permit a retail tenant to cancel its lease if another major tenant vacates the property.
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Glossary
Corporate Guaranty
A guaranty made by the issuer (issuer guaranty) or a third party to cover losses due to delinquencies and foreclosures up to the guaranteed amount. The rating of the guarantor is commonly required to be, at a minimum, equal to the highest rating of the securities. A form of credit enhancement.
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Glossary
Corrected Mortgage Loan
A mortgage loan that had previously incurred a default or related event is current or cured in the sense that all payments are current and defaults are cured and such loan is returned from the special servicer to the master servicer for servicing (i.e. no longer a specially serviced loan).
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Glossary
Corrected Mortgage Loan Fee
Corrected Mortgage Loan Fee: See
Workout Fee .
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Glossary
CPR
See Constant Prepayment Rate.
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Glossary
CPY
See Constant Prepayment Yield.
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Glossary
CRE CLO
See Commercial Real Estate Collateralized Loan Obligation (CRE CLO).
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Glossary
Credit Enhancement
Provisions in addition to the mortgage collateral to support a desired credit rating on mortgage backed securities. Provisions made by issuers to compensate for default risk in CMBS include subordination, reserve funds, cross-collateralization, cross-default provisions, and advance payment agreements. Also see
Subordination .
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Glossary
Credit Facility Loan
A mortgage loan entered into for the purpose of providing the borrower flexibility with respect to adding, releasing or substituting collateral. These loans generally have lower LTV and higher DSCR requirements.
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Glossary
Credit Tenant Lease
A loan in which all payments are guaranteed by the credit of the tenant, which is typically a nationally or regionally rated company with an investment-grade credit rating. The credit tenant assumes nearly all of the obligations of ownership, therefore making the lease payments net of any offsets or deductions to the lessor or owner.
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Glossary
CRE Finance Council (formerly Commercial Mortgage Securities Association or CMSA)
The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry. More than 300 companies and 13,000 individuals are members of CREFC. CREFC members include senior executives from every sector of the industry – including balance sheet and securitized lenders, loan and bond investors, private equity firms, servicers and rating agencies, among others. CREFC’s members play a critical role in the US economy through the financing of office buildings, industrial and warehouse properties, multifamily housing, retail facilities, hotels, and other types of commercial and multifamily real estate.
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Glossary
Cross-Collateralization
A provision in a mortgage or deed of trust by which the collateral for one mortgage loan also serves as collateral for other mortgage loan(s). Thus, should the collateral on the one mortgage loan fall short in repayment of the debt, the collateral of the other mortgage loan(s) could be claimed as well (but only in the event of such a shortfall). CMBS backed by cross-collateralized properties have reduced delinquency risk; a set of properties with the same owner might be both cross-defaulted and cross-collateralized which can serve as a form of credit enhancement.
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Glossary
Cross-Default
A provision in a mortgage or deed of trust by which a breach of terms or default under the loan documents of one loan will automatically trigger a default under other mortgage(s). A set of properties with the same owner might be both cross-defaulted and cross-collateralized which can serve as a form of credit enhancement.
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Glossary
Crowd-Funded Ownership
The pooling of money from a group of investors via crowdfunding platforms to make an investment in real estate.
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Cured
A delinquent mortgage is said to be cured when all missed payments have been made, loan payments are current and any technical or covenant default has been corrected.
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Glossary
Cut-Off Date
The date on which the portfolio securing the CMBS is firmly identified, and the numbers from that pool are used for the final calculations before issuing the securities.