GSE vs CMBS vs Life Companies
Anyone care to share some knowledge on the three different types of financing sources? Pros and Cons? Lending tendency? Who they typically lend to? Leverage? Etc.. Thanks!
GSE - Multi-family only. They will take properties that have very small retail components built into them, but no true mixed use (we are talking like 5,000 SF retail to 150 unit ratio).
Pros: Rates that are so low that nobody else can match them as long as the property fits into one of their programs. They take all classes of properties.
Cons: No construction loans (they will do take out financing if your property is in final lease-up). 10 year or shorter money. Processing can take a long time, so if you need a quick close, GSE is not the way to go. Their credit standards are very specific and there is no deviation - if you don't make it, then you don't get your cash.
CMBS: Typically 10 year money, generally you can push proceeds to higher LTVs (I've seen 75 quite frequently).
Pros: Probably has the biggest menu of options available for financing a deal - you can find a CMBS loan for almost any property type. Class A/B properties fit into a CMBS pool. Single Asset CMBS is one of the best executions for really large deals currently because of rates.
Cons: Once it gets sold into the pool, unless it is a single asset deal, nobody at your master servicer gives a damn about you as the borrower (until you default). The loan documents are the loan documents and if something comes up that you didn't contemplate before you signed the papers, either you are SOL or you will pay out the ass in admin fees to get them modified. Your rate lock is just a few weeks before closing so you are subject to swings in the market.
Life Companies: Generally they deal in the four major asset classes and are more conservative in their underwriting. Very few life company lenders will go past 70% LTV (and usually 70% is reserved for multi and possibly industrial). They like Class A, low leverage deals that are amortizing.
Pros: Most will lock a rate on a term sheet or an application for 90 days without it costing anything. Will price or include forwards or flex prepay if you want/need. They will go long (I've seen 15/27, 20/20, 30/30) and many have construction-to-permanent, mezz, b-note and CTL programs. Because they are all balance sheet lenders, they have the ability to modify your documents/quickly waive stuff if you need. Also, people stay at life companies forever, so if you ever have a problem it is really easy to pick up the phone and call someone. Can quick close - I've seen several closings in less than 2 weeks when the borrower already had recent documents.
Cons: They usually have stricter requirements about structure - you are going to have lockboxes (hard/soft and potentially springing for major rollovers), carve-outs to a monied entity, independent directors, etc. They are stricter on the sponsors they will accept - they generally have minimum net worth/liquidity requirements and they do bank reference checks. Also, if you ever default or give keys back with one, they all know it and like elephants, they never forget. Also really big loans are a problem - The big 5 (Metlife/NYLIC/TIAA/Prudential/PacLife) typically top out around $300 million each, so they partner with each other for larger loans. Metlife is the one that usually breaks the $300 million mark the most. You will occasionally see the others do a bigger deal (I can think of one currently in the pipeline, and two others in the last two years) for either a specific sponsor or for a specific property type (industrial/multi)
Thanks for the excellent write-up. SB for you.
One thing that caught my eye - why is it that you say people stay at life companies forever?
A lot of people start working at a life company and never leave. The lifestyle is pretty good - you are institutional capital, so while the stuff you work on can be a tad boring and safe, you still have some power in the market. The hours are really reasonable - 40 hr weeks mostly but may put in a 50 hour week every once in a while, benefits are excellent and while it is highly unlikely you will see a 7 figure bonus, you will always be comfortable.
At my life co, out of 150 odd people, 2 celebrated 35 years this year, 1 celebrated 30, 3 celebrated 25, 1 celebrated 20, 2 celebrated 15 and there were 6 that celebrated 10 years. That is 10% of people celebrating milestone anniversaries in one year.
Of my group of 8 people, I'm the newest hire at 4 years (in August). The others are: 7, 11 (MD), 17, 22, 28, 32, 35. The ones at 22+ have never worked anywhere else.
what is the usual progression of positions along with their comp ranges at most life cos?
Life cos are pretty structured. Analyst -> associate -> director/VP -> MD, with tiers for each level.
Comp is all over the place (most are base + bonus), but all in comp is generally competitive. Generally no carry, but at higher levels most do some sort of long term performance award thing similar to what banks do. Benefits are generally excellent.
what is the modeling like for a lending analyst position? how intense/in depth is it or is it pretty straight forward? what would a candidate need to know/what skills would a candidate already have to know to get hired?
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