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How does a CMBS structure with multiple tranches mitigates risk from the perspective of investors?

How does a CMBS structure with multiple tranches mitigates risk from the perspective of investors?

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CMBS are commercial mortgage backed securities where the underlying investment is commercial properties not residential properties. This is one way to provide liquidity to the investors in real estate. The way CMBS works for the investors is there are different tranches and they are classified into different traches based on the liquidity and risk factor. With the different level of tranches, the interest rate also differs. The highest quality tranches have low interest rate but high liquidity and safety of the investment, lower tranches have high interest rates but higher risk associated with it. So the CMBS divides the risk into different tranches and investor can enter into transaction with their own level of risk and perception of the market.

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