Capital Markets - Is it basically mortgage brokerage?

So I'm planning on joining a CRE brokerage firm this summer for an internship. I'm going to be working with the capital markets guys. So far all I know is that they connect the clients with financing. I listened in on one of them doing calls and basically he was cold calling people asking if they wanted to refinance their property, he was also working with a client doing a 1031 exchange.

Any more info on what the capital markets do in a brokerage firm? He was talking about treasury yield and how that effects pricing? Could someone give me a crash course on this stuff lol. Or provide a link to some resource I can use to learn about commercial mortgage brokerage? I know basics like TMV, how an amortization works and LTV ratio but only because I learned this in my finance class. I don't how how this applies to commercial lending.

Any insight on what I might be doing this summer? Any articles/information that will be useful for me to read up on before then? I really want to do well and get into this after I graduate. Whats the outlook on this kind of work? (average commission amount?)

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Comments (5)

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Mar 23, 2021 - 7:34pm

I'll bite but I suggest researching past WSO threads. 

Commercial Mortgage Brokerage/Banking serves the basic function of Capital Markets in the CRE space (also known as D/E brokerage). Basically, CRE is a capital intensive arena and sponsors require either investors (equity) and/or loans (debt). The important distinction between a Mortgage Broker and Banker (also referred to as D/E brokerage) is that Bankers have some level of exclusive access to Life Insurance capital (and typically have fiduciary and servicing agreements) or have DUS (Fannie/Freddie) agreements. 

All shops and teams work differently. Some I/S teams include a D/E guy who primarily utilizes the I/S relationships to generate business whereby splitting a portion of the fee with the I/S team. Some D/E guys are primarily focused on multifamily Fannie/Freddie lending and source some of their business from other D/E brokers. Some D/E guys are more institutional and focus on larger or more complex deals (and will occasionally even work on entity level Investment Banking transactions), some focus on straight forward Permanent Lending, some are exclusively focused on sourcing Debt or Equity and some are focused on small balance "base hits". 

Given the breadth of the space, it is hard to predict the typical day to day. Many in the space have large established books of clients who use them as their outsourced "capital markets desk" or have prominent reputations where they generate business passively through referrals. Other shops operate under a boiler room or "runner" model. 

Industry standard fees are typically .5%-1% for senior debt and 1%-2% for Mezz and Equity. A typical originator takes home about 50% of the fees that they generate. Top guys in the industry perennially rake in low 7 figures while I'd say the average originator makes between $200-$400k/year. 

Mar 24, 2021 - 9:03am

I'll add here, a mortgage banker can be a life insurance company originator, a traditional banker (think: BAML, WF etc. as the larger banks and think your local credit union as the smaller banks). Mortgage banker usually just refers to someone who works for the actual lender while broker is an intermediary. In the mortgage business there is also something called a Correspondent lender, which basically means there are a few select people running around representing a specific lender, and they are finding deals for that lender, although they don't actually work for that lender. 

Mar 24, 2021 - 9:01am

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