Calling all debt fund analysts/associates... I work at a mortgage REIT as an analyst and we are a typical bridge lender. I am curious to see how detailed other shops underwriting/modeling is.
- Besides the typical DCF, market research (comps), etc. that goes into your origination models, what else do you guys/girls usually put together.
-When you get an Argus from a broker/sponsor how often are you going through their MLAs and changing their assumptions? Generally, are you guys trending rents?
Thanks y'all
Also curious about this topic
Bump. This sounds interesting to know.
I work at a well capitalized debt shop that buys b-pieces. The UW on our acquisitions are pretty detailed. In particular, analyst are expected to have a thorough presentation of market level risks, understand the loan type and structure, and being very comfortable with the number you provide as a valuation of the debt and collateral. Management level positions/ IR teams will know how the trust waterfalls and how each securitization will effect the bond holders.
What is a trust waterfall? I model single and double promotes for equity returns, but have never seen a "trust" waterfall. Can you share (or trade) one with me? Very curious to see how this works.
Our trust waterfall would be how the BB's, B/NR, XE-G positions flow through to our bondholders. I work on the Asset Management side, so unfortunately I don't have access into how we price the issuance or model our returns. I find B-Piece debt acquisition very interesting based on the competitive nature in pricing your bid correctly since their is so much inherent risk within the issuance. We generally take a pretty steep discount below par on these purchase.
i would be very curious to read other people's investment/credit memos and or see their underwriting models...
We look at the numbers as much as anyone but we focus a lot on the borrowers. REO, PFS, management team selection, etc. To your third point regarding figures put together from the potential borrower or broker, we might make note of a proforma budget illustrated in the OM but as you know, these always paint the picture a little too bright.
are you predominately providing recourse financing?
Usually an investment committee memo walking through the deal structure, sponsor background & PFS, valuation, property, market, risks & mitigants, etc.
I always run a model w/ 100% my own MLAs. I never want to be in the position of having to say "the Sponsor/broker were assuming 5% rent growth." when a deal becomes non-performing and I'm asked why my valuation/CF projections were what they were.
Whether or not we UW rents trended or untrended is property/market specific.
Thanks for the response. I assume you are focused on a specific region or asset type? It is almost impossible to build MLA's from scratch otherwise. I guess you could be reaching out to leasing brokers/contacts in each market but even then every asset has a story. Costar, Compstak, RCA, etc. only tell you so much...
Yeah, I don't know where I would go about getting assumptions from other than talking to brokers/contacts in the market (other than an appraisal).
What sources are there for detailed expense comps?
We're not property type or region specific, but we do have markets that we tend to do more deals in, which makes things somewhat easier. If it's a market that I'm not familiar w/, I'll reach out to brokers. Admittedly, some properties' assumptions are more bullet-proof than others.
We always tweak Argus MLAs based on the appraisal and calls to market participants. In addition to the typical analyses you listed, we put together: Take-out analysis, Real Estate Tax Analysis, Rollover Analysis and Funding Schedule. I assume most shops are doing the same...
How much do your firms rely on conversations with market participants?
I feel like sometimes we get very strong comments from brokers and with some markets, it gets tricky because they all know one another and you have to account for some bias when talking about your deal since they likely know the people on the other side which can have an impact based on their relationship...
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