Can anyone explain CMBS lending to me?
How exactly is it different from originations? Is it just where the loan goes after it’s made? Was always a bit confused by this.
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Yes, what happens after the loan is made is the difference. Originations by definition just means lending out money and could apply to any loan from any lender of any type, but you're likely thinking of originations as balance sheet lending.
Normally, a loan is made by a lender and kept on their balance sheet as an asset that produces income in the form of loan payments. A CMBS lender makes loans in the exact same way, but they eventually take several of them, combine them into a "pool" of loans, and sell portions of that pool to investors that purchase a % of all the loans in the pool.
Why is it that some roles are specific to balance sheet lending vs cmbs originations?
Balance sheet lending is typically regionally focused and more relationship driven, as the Lender will stay involved from day 1 to maturity and will know the market and sponsors well and will have an understanding of the sponsors entire portfolio and financials, not just the one loan/property. Balance sheet lenders can also do cradle to grave with construction, bridge, and stabilized lending (CMBS is almost always stabilized or light refurb capex work). Once you get a property stabilized, some find CMBS financing more attractive due to rates and leverage available.
CMBS lenders are more transactional as your clients may not come back to the well as frequently depending on size, and the day to day ‘relationship’ changes hands to a loan servicer (as the face of the lender) once they sell it into the pool. The servicer generally is unfamiliar with the sponsor, property and market and has limited involvement unless things go south or borrower needs lender’s consent, whereas balance sheet lenders are more involved, knowledgeable, and flexible (and ideally are paid accordingly).
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