While speaking to a senior CMBS originator today who has been in the business for more than 20 years, he told me that if I crush it in volume as an originator, I would make more money being in the CMBS group as opposed to the balance sheet group at our bank. Any idea why? Anything to do with profitability for the bank? I was thinking that our balance sheet business not only does bigger and more institutional deals, it also brings in deposits which are the raw materials that help fuel a bank's growth. Our CMBS business brings almost nothing from a depository standpoint and the average loan amount is $15 MM whereas the balance sheet business does on average $40MM loans. I am not really sure how a CMBS originator can make more money than a balance sheet originator. If any of you have any idea on potential reasons, I would appreciate it. Thank you!
Trending Content
| +48 | Being asked to stay behind and train my replacement | 14 | 2d | |
| +36 | New Comp Database - Google Form (Now with Data Validation) | 24 | 1h | |
| +33 | Best CRE brokerage firms | 24 | 3h | |
| +30 | What does REPE actually do? | 12 | 5h | |
| +26 | Starting University LP Fund | 6 | 27m | |
| +24 | Public Homebuilders | 9 | 6h | |
| +22 | REPE/Development GPA | 15 | 21h | |
| +17 | MSRE/MSRED with no RE experience; Naive to think I’ll land a job afterwards? | 4 | 2d | |
| +16 | UC Berkeley MRED vs Columbia MSRED? | 2 | 4d | |
| +15 | Hospitality Finance - Perks? | 3 | 5d |
Career Resources
Because as a CMBS originator, you try to pull in 2%+ per deal in fees after selling off the pieces (I heard that Silverpeak and Rialto pull in closer to 4-5%). The money is instantaneous and is almost entirely based on Quantity over Quality. Even if the bank retains its own b-piece, it would be a leveraged loan with significant returns.
So, because of the 2% or in fees, even if a CMBS originator does a ton of 5-10MM loans, you can make more money than a balance sheet originator doing a few 30-40MM loans?
As a cmbs originator, do you truly understand how the CMBS business works?
You make 2% gain on sale all year long, and it consumes so little capital. Bank can do the cmbs business without worrying about capital and making that 2% profit as a securitization vehicle.
Every financial institution has limited capital to deploy, you can do much much more CMBS business because it consumes just a fraction of capital compared to holding loans on balance sheet
The return on equity is also three to four times higher in CMBS vs balance sheet (~30-80% vs 9-20%)
What kind of money are you talking about on the CMBS originator side? I know that the balance sheet originators at my bank make a lot as well.
I am an analyst on the CMBS originations side at our bank. I think our CMBS originators make 200K plus. I'm sure the balance sheet originators can make a lot of money too, but several people at my bank have told me that the top CMBS originators' pay beats the top balance sheet originators' pay any day at our bank. It's always been puzzling to me because the balance sheet originators at our bank are working with the Blackstones, Brookfields and Carlyle's of the world and also help being in deposits. Our conduit business is predominantly for non institutional clients and smaller loan amounts.
Just because loan sizes are larger and one works with top funds doesn’t equate to higher pay. It goes back to profitability. It is probably more profitable for your firm to do CMBS than balance sheet. I’m addition, you need to think of how are other people paid in that vertical. If CMBS pays more in general, the bank will need to pay more to keep its CMBS originators. In general, CMBS origination takes less capital and the firm can ‘turn’ it more times to do more deals which equates to higher profitability. Originators can point to that to take a higher payout.
Compensation tiers for various roles in Debt Origination: Top Tier: Commercial Mortgage Bankers (including DUS guys), CMBS originators, Debt Fund originators Middle Tier: Balance sheet guys (Banks and Life Co) Bottom Tier: Credit, Closing, Servicing, Underwriting
The major takeaway is that the more and the harder the sales that you do, the more that you make. Another takeaway is that you typically make more lending other institution's money than you do lending your own institution's money (debt funds usually finance their operations through warehouse lines).
Also, I feel like a part of the high compensation for a CMBS originator is because how hard it is compared to a balance sheet originator. If it was easy, then you would have lot more people in the business and there would not be any money in it. If you remove large loans and sasb and work mainly in the conduit space like my bank, I cannot imagine there is a tougher thing in the business than being a CMBS originator. You are literally selling a homogeneous product. A conduit loan can sometimes have very little difference in terms of pricing and structure when you compare it against another conduit loan. So, even for the world's best salesman it is a tall order to sell a homogeneous product. And then to top it off, some of CMBS's best features such as the 10 year term, fixed rate, ability to lend in secondary and tertiary markets are all being neutralized by other players such as life cos and regional banks. But of course, when done well though it can be profitable and you get paid very well if you are a good CMBS originator.
Originators typically keep a proportion of each fee they bring in as comp, similar to how brokerage is structured. Back of the envelope math, $100M loan, 1% origination fee, $500K to the house, and $500K to the originator.
Similique aliquam inventore impedit omnis. Autem occaecati fugit animi rem. Voluptatibus doloribus rem vitae excepturi iste quisquam. Totam ratione assumenda dolor dolorem exercitationem expedita atque.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...