Q&A: Top 15 Life Co CML Origination Analyst
I'm not sure if this interests anyone on here, but I'm bored so here it goes; I'm an Analyst at a large life insurance company doing commercial mortgage origination. We're typically top 15/ top 20 as far as volume is concerned. We write loans on all the typical property types with various structures. I've been personally involved in roughly $1 billion in origination so far. I've originated a few of my own deals so far, and continue to take the reins more myself. If this can be of help to anyone, ask away!
Thanks
What's compensation like, specifically if you originate it yourself?
I only sparingly originate a deal myself as they work me more into the role of a loan officer. $65k with an expected bonus this year of $15k
There has been some press lately that underwriting standards have been easing. Do you agree? I was not around last time when shit hit the fan, but from what I have read and the deals that I have looked at, it seems that the standards are no where near the 2007 levels. If standards are easing, at what point does your Life Co walk away from deals, as I am sure you like everyone else, have a bunch of capital that you need to put to work.
Thanks for doing this.
do you ever do multifamily? i have seen lifecos do multifamily, but never quite understood how they won the deal. If it's not good enough for GSE, then it's probably too shitty for you guys, and therefore probably more of a CMBS candidate, right? Or are you capable of beating Fannie on rates?
What are your criteria for carve-out guarantors? I've heard people say, "well, if it's nonrecourse then it doesn't matter, the borrower doesn't need to be extremely wealthy," but that is not true. Somebody with some personal assets needs to sign the carveout guarantees. I know there's no one-size-fits-all explanation, but please try to give a hard number as an example. For instance ... "on a nonrecourse loan of $2m [maybe that's small for you guys], i could see us being okay with a borrower whose net worth is $500k and liquid assets of $100k signing the carve-out guarantee."
Where do you max out on leverage? 65% i'm guessing?
Non-investment grade single tenant - generally, no. If it's a compelling story (industrial asset in downtown Boulder - where it's impossible to get zoning changed, etc) or a sizable non-credit tenant and we can get a shadow credit opinion from our bond desk, perhaps. We'd focus pretty hard on the exit and probably want a sweep and or springing recourse from a substantial borrower if we did though. It's a rare occasion.
We do a lot of multi-family. The GSE's generally beat us on proceeds levels and some underwriting metrics. What we win on is longer term deals (we love 15, 20 and 25 year deals), as the GSE's aren't as competitive past 10 years. We've also stolen a lot of GSE business by doing pre-stabilized but fully complete deals, though the GSE's now have a program for that. Aside from that, a lot of borrowers hate doing GSE business because they are a pain to deal with and often have ridiculous reporting and auditing requirements. We're generally orders of magnitude easier to deal with. CMBS usually seems to get the really hairy multi deals from what I've seen (the ones that don't go to GSE).
Generally we want NW excluding the interest in the asset to be at a minimum the loan amount, but obviously prefer more. Our borrowers typically seem to have net worths 1 - 3 times the loan amount (though some are "country club" deals where 10+ people put in the equity and no single sponsor has a NW equal to the loan amount, in this case we'd probably want multiple people on the CO). We have and continue to do deals where the sponsor's net worth is below the loan amount though. It's a case by case basis. To answer your question though, on a $10 million loan, I'd like to see a NW of $15 with $2 liquid....something along those lines.
We'll go 75% on multi-family and grocery-anchored retail, typically like to be no more than 70% on industrial and 65% on office.
I work for one of the largest CMBankers and a Top-5 Freddie/Fannie originator so I'll try my best to provide some commentary on this. A good chunk of the multifamily deals we work on end up going towards the agencies, but they do have their limits. A couple of recent larger deals I've worked on the agencies just weren't able to get to the dollars. And I don't mean $500,000 or so less in deal proceeds, I'm talking $1.5MM-$2.5MM. Also from personal experience I've found that recently the agencies spreads aren't even close to LifeCos/CMBS shops when looking at terms past the 10 year horizon (can't remember the rules exactly but I think the agencies can't do 10+ years if they're going to securitize the deal). They can also have just as strong rates on 10yr deals.
Also, the process can be a lot less arduous with LifeCos. Did a refi last year with Freddie and they required us to do a preliminary site inspection where we had to see 30+ units (property was less than 250 units) and then had to do another inspection with a Freddie analyst before the loan closed.
We did a deal with a lifeco once. It was a sub 5 cap, 2014 vintage is a very nice location. We got about 65% LTV, ~4% IR, 5 yr IO. Doing a deal with a lifeco is good if its a highly desirable/new asset in a nice location for a low cap rate which would translate to a low LTV(their preference, I believe)
I wasn't around the last time everything went to hell in a hand basket either. Underwriting has definitely loosened over the last couple years that I've been in my role, as the amount of capital available has increased and along with it the competition for good deals. What I've seen in the life company world is a general maintenance of discipline, with a willingness to "give up" on certain other terms (giving up partial recourse on hairy deals, lack of structure around tenant rollover in lumpy deals, more IO availability, etc.). Generally, I think the most vital underwriting metrics are holding strong....so far.
Do you guys do CMBS like some of the big Life Cos do (NY Life and Pru) or just balance sheet only? Also, do you do any mezz? What about construction loans or just perm debt only?
Yes we occasionally do CMBS loans, it's a very small part of our business though. No mezz right now, we did it before the credit crisis but haven't gotten back into it yet. Just permanent loans (though we will do pre-stabilized apartment loans with structure).
Where do you see people in your role moving to (up the ladder, acquisitions, investment/asset mngt)? You underwrite/analyze all property types; what level of analysis do you do? I met with some guys at a Life Co and when I was speaking with their analyst he said he was surprised at how basic the modeling he did was, because at his job before (a major bank, where he was a lending analyst as well) the models were much more complex... Could you shed any light or your experience on that?
I will be moving up the ladder on the origination side, as it's where I see the money often is and it's what I like to do. Others in my group have spent time in servicing, Asset Management or other disciplines though. That work doesn't interest me and I think you can generally make the most money being in originations (at least as far as the debt side is concerned).
I don't have a ton of experience at other lenders, but I think we do fairly in depth analysis. We do in-depth Argus valuation on everything and plug that into a proprietary model, along with a lot of "back of the napkin" stuff for specific deal terms. I'm not surprised that some Life Co's do more or less, If i had to guess I would say mine is probably in the middle of the underwriting depth scale. Also, we're mainly doing stabilized deals whereas lots of banks are probably doing many bridge and construction deals which require much more analysis of risk.
Thanks maserati123 for putting this forum together. I work as an analyst at a LifeCo in their Real Estate Investments group. We buy/sell/develop on behalf of the house account. Interesting to hear about what its like on the debt side.
thanks for this thread OP. Very curious as to what you guys do, but have no prior knowledge of this industry. Would you be so kind as to give a brief introduction suitable for a non-US monkey (have no idea what Fannie is)?
We are a life insurance company that invests the premiums people pay us, partly, by making commercial mortgage loans on institutional quality commercial property.
What are the best materials I can look at to stay current with the news and understand micro/macro trends?
Globe street Commercial mortgage alert Real estate alert national real estate investor online Real estate forum magazine
For any sort of trends, most of the big brokerage and data companies have some sort of free research available online. Look at cbre, c&w, Jll, etc
Check out CBRE's research page. They provide good market updates quarterly and other adhoc reports. http://www.cbre.com/EN/RESEARCH/Pages/default.aspx
What are the guys making who are originating the larger debt deals?
I guess the question - what is the salary progression as you move up the ladder from your current analyst role?
If be curious to know. I work at a regional Bank and while I'm more of a generalist, I've always enjoyed working on CRE deals the most (compared to C&I, Ag deals, etc). I've had some good experiences in large A&D deals, construction financing, stabilized and value-add deals, etc.
But sense I'm a balance sheet lender, we mainly look at deals up to $30MM - and probably have to bring in a participant greater than 15-20MM.
Wonder what it's like doing $100MM+. deals on stabilized assets in major metro markets and what the salary/comp looks like.
I honestly don't know what most of my supreriors make but I assume it's between $250-400k just based on their lifestyle. I would say we are probably in the middle of the pay range as far as life companies go, but the easy lifestyle is a benefit (I work 40hrs a week, every week).
what kind of covenants do you use? Just top headline / titles will be helpful and I will try my luck with google before i PM you with specific questions. Do you have experience in Real Estate modelling too?
Thanks for doing this AMA, extremely appreciated mate
Specific questions may be better. Our loan application is fairly standard but also sizable. We're a non-recourse lender (typically) so we have fairly standard carevouts, etc.
I did an internship at my company during college so I had plenty of Argus/excel experience coming into the job full time afterwards.
How many make it to your "superior" role on the originations side? Maybe you could offer the progression from a title perspective.
Thanks!
Analyst > Senior Analyst > Associate Director > Director > Senior Director > MD. How many people make it there isn't as relevant of a question in my company now since a lot of people were laid off during the recession. Upward mobility is present though, that's for sure.
thanks for doing this! just added it to the top of the frontpage, you'll see some more q's roll in
Thanks for doing this, very informative.
How is the analyst role structured as far as compensation and career progression goes? Is it similar to IB with A1-A3 or is it more of spending a specific amount of time as an analyst before moving to a senior analyst role? Do you guys get a fixed pay bump every year or few % outside of promotions? What are the most common exit opps?
The way you describe your role, it sounds very similar to commercial real estate lending at a BB where they have a specific underwriting group part of commercial banking that will specialize in RE. The work you describe closely resembles what a credit analyst would do at a BB and going to the origination side would compare to being a relationship manager at a Bb bringing in new business.
How is your group structured as far as loan officer/credit approval vs. origination - is it the same team doing big or a different part of the company?
Also would you mind going more into your background? 65+15 is great comp for 40h a week. Is this your first year on the job? How do you expect pay to progress next year?
Sorry for the numerous questions, sounds like a great gig and very good pay / work life balance.
There really is no structure, you're promoted when they feel you know what you're doing in your current role.
My job function is very similar to being an analyst at a BB CMBS group however I'm working less on closing checklists and more on origination and underwriting.
What you're describing is what I undestand the structure is at many banks. In our shop, there is no separate underwriter and originator... The loan officer does both. We do have a separate closing staff that closes out loans, but all origination, underwriting, preparation of credit committee presentations, etc, is done by the loan officer and I. I think this is a typical structure for many life company cml orogination groups, in fact, I know of a few that don't even have loan closers. The originators bring in, close and manage their own portfolios.
This is my second year on the job. At the end of this year I'll likely be promoted, and to be honest I'm not sure what type of bump that'll be but I'd guess fairly decent.
It is pretty good work life balance right now. I'm lucky
I work at BB that has a whole team of loan closers/transaction managers. I didn't realize life cos have a similar set-up
HI Maserati123,
I recently started an unpaid internship at boutique that acts as agents on the buyside: I am wondering if there are any websites out there where I can learn more of the terms and definitions versus just Wikipediaing everything. I always hear terms like "resi, commerical, CMBS, SMBS, whole loans, performing, reperforming" etc.
HI Maserati123,
I recently started an unpaid internship at boutique that acts as agents on the buyside: I am wondering if there are any websites out there where I can learn more of the terms and definitions versus just Wikipediaing everything. I always hear terms like "resi, commerical, CMBS, SMBS, whole loans, performing, reperforming" etc.
Can you explain the difference between origination and underwriting? How is that function typically split up in this industry?
Underwriting a deal is part of the origination process. Oversimplified Breakdown of the Origination Process: 1. Client Outreach (Depending on the deal, you're either working directly with a borrower, who you know or have worked with in the past, who is bringing you a refinance/construction loan/acquisition loan/etc. Or you're working with a commercial mortgage banker/correspondent who has a rolodex full of borrowers and is bringing you, as well as a host of other lenders, a deal) This is likely what you're thinking of as "origination" 2. Underwriting the deal (If you're working directly with a borrower you take their budgets/proformas/costs/etc. and adjust them to find the underlying value of the asset/credit worthiness of the deal/etc.) (If you're working with a correspondent/banker, they'll do their own underwriting and submit it to the prospective lenders who will make further adjustments) 3. Lender Site Visit 4. If a lender likes a deal, they'll submit a prelim. loan app and the negotiation process begins 5. Final application/term sheets 6. Loan Closing Process
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