BS Lending to Agency Transition
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Agency guy here, what would your role be? Originations or screening? What you described is what screening does except they dont get paid commissions per deal like originations does. But its still a cushy stable gig with a nice base + bonus and its not brain dead slow pace work like underwriting. There are tons of forms and guides which you can read but nobody actually reads all that if you are not actually working in the agency space. Example is form 4660, it is the bible that we live by on the fannie side. What you can do instead is google for fannie & freddie product types- conventional, near stabilization, etc. You will see a overview of their credit box and terms. That will give you an idea on what they do and how it differs with balance sheet or cmbs. Not too worried about the forecast. 70 billion for each agency or 80 billion for each agency does not really matter, its all a shit ton of volume. It also particuarly does not matter for the top agency lenders- you can google the top 10 lenders for freddie and fannie. It is literally the same names almost every year (CBRE, W&D, Berkadia, Wells, etc). If you are at Basis, Sabal or Ready Cap, then sure it's a bigger deal.
Thanks for the reply.
Its a position working directly for an originator and I would get a piece (nominal relative to the originator's piece) for every deal that gets closed, plus a base salary.
Not sure how it will shake out comp wise yet, but I imagine it would be > bs underwriting so long as I'm not working for a crummy originator, but I've seen that this person has had some good volume over the past several years.
Could you maybe give me an idea on any recent updates or news to be in the know of? I've been researching as much as I can but an insider's take would be huge.
My big concern would be volume drying due to up to rates ticking up. Depressed pricing from caps climbing, less refi activity, etc. But you're right, still a massive market and plenty to go around. Just seems like the space may become increasingly competitive when compared to the past few years.
Being a junior originator is a good way to get started in the agency business. As you mentioned, it all depends on who the senior originator is but if its a top producer with strong repeat business, you will be fine. You can also directly ask what was the originator's volume last year and how did it compare to the previous years so that you can see if there is year over year growth. For reference and a data point, we expect our originators bare minimum to be $100MM in new business and $2.5MM in revenue (fees). The top producers will absolutely smoke that and be at $500MM+ in new business and $13MM+ in revenue. At my place, there is a base and once you cross a certain threshold in fees (for some the threshold is 2x the base) you earn a % of the fees (the % varies based on the tier- it can be 20% for $1-100K over the threshold but 50% for $300K-750K over the threshold). Top producers easily can easily clear more than half a million. One thing I noticed is how repeat business is the lifeblood of the business. Dont know the exact % but wont be surprised if it is 50%+ repeat business every year. It's the same sponsors over and over, thats why who the clientele is for your senior originator is important. Volume drying up is a fair concern but look multifamily is the best place to be in a down market. And if rates go up, it is usually also up for everybody. I do not see a scenario where it is only up for the agencies, we shut down for business and CMBS and banks take over. We have 50% market share and I dont see that changing anytime soon due to the nature of our product. We offer long term non recourse loans, 7-10 with the occasional 12, 15 or 30 years. Banks that offer 3-5 year floaters are not competition and they are bigger players in the value add space which we do not really play in. CMBS is often the last resort and only finances multi only when they do not qualify for agency, so they are not really competition. There are not many other alternatives to agency if clients are looking for long term non recourse debt. Agencies also offer supplemental financing, it's another way of getting repeat business and staying in front of the sponsor. CMBS cannot offer that. Example- if its a 10 year deal, in the 3rd or 4th year, if NOI has increased significantly due to mainly rent growth, agencies can offer a second lien that will be coterminous with the first loan. It has to size for at least a min of $1MM though. And the stips wont change, meaning even with the additional debt, it should still size to a min combined 1.25X dscr and 70% LTV if that was the stip for the 1st loan. I have seen properties with even a third lien. This gives you an idea on how agencies have different products with the goal of capturing repeat business every year.
There has been a focus lately on what the agencies call mission driven business, it's essentially properties with affordable rents at 60% AMI, 80% AMI, etc.These properties get discounts in spreads. Mobile home parks, 5-50 unit properties, small loans, green loans etc fall under this category, so if your senior originator does a lot of these, it is a good sign as these will be sustainable even during a down year.
Lastly, are you going to be at a bank like Wells, Capital One, Key bank or a non bank like Berkadia? As long as its a top 10 agency lender, you will be fine I think but there are some nuances. With a bank, there is always internal bank referrals though I guess you also get leads from investment sales at a place like Berkadia but I have always felt referrals from banks were stronger. Better base too at a bank in my experience though maybe bonuses are higher at other places. Another reason I like banks is that they can offer an agency term sheet but also a bridge loan so they can be a one stop shop for clients who find that convenient. Not every deal is a fit for agency and some need a bridge loan before an agency can provide the takeout. Being a balance sheet lender that also has an agency business has its perks. Overall as you can tell I am bullish on the business. It is an extremely profitable business for my team that does a lot more than just agency. From a headcount perspective agency absolutely punches above its weight. We did over $12 billion in new agency loans, a 20% increase over 2020 but if we look at our headcount vs the balance sheet/bridge team, we are tiny so from a P&L perspective we are seen as superstars and get taken care off well.
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