Outsourcing in the real estate industry has expanded with the tremendous growth of commercial mortgage-backed securities (CMBS), which are investments that pool individual commercial mortgages (called "conduit loans") and issue bonds that are backed by the pool. The ability of CMBS to provide a liquid and transparent investment product for investors and supplying competitively priced loans for borrowers has helped fuel the growth of the commercial real estate market. Today there are approximately $500 billion in outstanding CMBS in the U.S. alone. Loans that are pooled for CMBS now represent about 40% of the total commercial real estate financed each year. The loans included in these pools are backed by commercial real estate property types such as office buildings, apartments, warehouses, self storage facilities and shopping centers.



The CMBS process starts with a borrower submitting an application for a loan to a conduit lender, either through a mortgage broker or directly. The lender can process the application in-house or outsource to a contractor. After a loan is underwritten and approved it goes to funding. After the loan has been funded, the loan goes into a large pool of 200-400 loans. The values of these CMBS pools typically range from $2 to $4 billion. The pool is then rated by a credit rating agency, such as Standard & Poor's. The bonds rated BBB or higher are called the Investment Grade Bonds and the bonds rated BB or below are called the Below Investment Grade Bonds (referred to as the "B" piece). Since there is a large amount of risk involved with Below Investment Grade Bonds, the buyers of the "B" piece need to re-underwrite every loan in the pool, in order to assess the overall risk. Once again, a portion of the underwriting is usually outsourced.