Wondering if anyone working in CMBS (whether buy or sell side) could shed light on how you guys think about investing / trading conduit CMBS (from a high level). New to the securitized (buy side) space and trying to pick up the tricks of the trade.
I come from a CRE background and have familiarity with underwriting at the collateral and loan level, but generally lost when it comes to analyzing a conduit deal backed by 30+ loans across multiple asset types, geographies, and borrowers. How do you get comfortable with the collateral here and determine whether its money good?
Are you sorting loans by size and analyzing the top 10 by allocated balance? Or are you looking at high level metrics such as vintage / origination year, asset type exposure, debt yield, cash flow coverage etc.? Is it stress testing CDR / loss severity / CPY assumptions and seeing what that does to yields and credit support?
Asked another way: what are the top things I should be thinking about the moment I look at a conduit deal?
Thanks!
Based on the most helpful WSO content, here are some key points to consider when analyzing and underwriting conduit CMBS:
Property Cash Flow Underwriting and Valuation:
Analyzing Top Loans:
High-Level Metrics:
Stress Testing:
Flexibility and Structuring:
Prepayment and Defeasance:
By focusing on these aspects, you can better assess the quality and risks associated with a conduit CMBS deal.
Sources: So you want to work in CRE Debt? Here are the options..., How to think about Debt for Acquisitions, How to think about Debt for Acquisitions, Math behind pricing a CMBS loan, Investment Sales Vs. Debt/Equity Brokerage
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