CMBS vs CRE Balance Sheet Lending

Incoming analyst on a CMBS Team. I had a couple of balance sheet opportunities I was in the process for and could have pursued but for me it came down to 3 things.

Firstly, CMBS demand is very strong in the current marketplace. With all the uncertainty in today’s market I felt that I’d do a ton more volume over balance sheet since a lot of banks do not want to take on any additional CRE debt. Properties that normally would not be an ideal candidate for CMBS a couple years ago are now forced to do a CMBS execution.

Secondly, In a CMBS role the loans originated only sit on the balance sheet for around 60 days. This means that CMBS analysts spend no time managing their loan book. In a CMBS role, after the loans get securitized I could really care less what happens to them. Comparatively, the health of the loans for balance sheet is vital for balance sheet teams which is challenging these days. I have a couple buddies who interned in balance sheet and spent all summer managing existing loans since they had little capacity for new loans. In a CMBS role you can keep chugging along as long as the business line remains profitable.

Third, CMBS roles are more scarce and harder to get. At my bank our team is very lean across the country. The balance sheet team at our bank is massive. Also there’s a ton of banks that do balance sheet but not CMBS. Because of that these roles are scarce. I might be wrong about this but this also translates to better exits from what I’ve seen. Through LinkedIn I’ve seen a good number of CMBS analysts end up exiting to mega funds or other large RE shops but don’t see that for balance sheet. I could also be wrong about that but that’s just what I’ve observed.

I did a stint in CMBS in my analyst years. Not something I would want to do long term, maybe if i was part of a really strong team on a great platform…but looking back, it was a great experience for me as an analyst. CMBS is a volume game. Originators underwrite and quotes tons of deals and hit in and close on a handful. You get exposure to all geographies, all types of markets and all property types. You’ll be a mile wide and an inch deep, but on a lot of cmbs platforms, you’ll underwrite everything from shitty retail anchored by bingo halls in San Antonio to the Fontainebleau in Miami and everything in between. Same goes for sponsors, you’ll see everything from small local players to blackstone.

It was great starting point for me and allowed me to decide what geography, property type and place in the market (private client/middle market or institutional) that I wanted to build a career in.

I think SASB origination is a good middle ground between conduit and balance sheet lending but ultimately you are solving for different things. You are originating CMBS loans with the anticipation that they will be sold and you aren’t going as in depth as the balance sheet side. This is especially true with the agented nature of the market right now with most loans getting signed off on by investors/rating agencies before closing. Additionally, you do not get the exposure to value add and construction loans like you do on the balance sheet side. On the contrary though, you see significantly less volume on the balance sheet side and asset management may be more of your day to day than actual origination depending on your bank and location. You’re also getting recourse on a lot of these loans which turns the analysis from a real estate focused approach to a sponsor evaluation. I’ve seen people exit to some of the largest firms from both seats so you’re not pigeon holed either way but unsure if it would be more difficult one way or the other.