Starting in CMBS Structuring / Syndication - Some Questions
Just got an offer to join the CMBS Structuring / Syndication Desk at a top BB in the space (think JPM, BoA, CS, Citi). Wanted to run through a few questions:
-
Is this the same thing about CMBS Origination? I see a lot of talk about that specific role but obviously there's the underwriting side which I wouldn't be as involved with... my understanding is that I'd be acting on the "deal" side of things in terms of taking the provided pool of mortgages, evaluating them, structuring them into an SPV that has an acceptable profile (tranched appropriately), and then selling securities from each tranche to the appropriate investors.
-
I see a lot of people talking about CMBS Lending vs. Balance Sheet Lending. Can someone explain the difference here? My two cents on what this means, let me know if I'm off base: balance sheet lending you go in with the mindset that you're keeping these loans on your balance sheet for the foreseeable future thus securitization is not something you consider. As such, the mortgage profiles differ in terms of what is acceptable (lending rates, LTV, etc.). As a follow up, is the CMBS Lending team typically housed differently at a BB from the Balance Sheet lending team? I would think that they would be two peas in the pod in the same way that SASB vs. Conduit deals are both within my team's remit but have different principles / considerations.
-
What skillset would I be building in a role like this? What are the typical exits that I'd be looking at (if I choose to exit)?
I'm sure these are probably stupid questions but everyone starts somewhere... just looking to learn as much as possible.
A few quick thoughts (though please know I've never worked directly in this type of role, but know the lending/cmbs world decently from equity side)..
To answer your Qs
1. I do not think this is same as CMBS origination, this sounds like sales/structuring of the CMBS securities themselves and thus further down the "chain" of the CMBS conduit process. You may work with the originations desk on pricing/terms, but likely have decent "firewalling" by practice. This sounds like the desk that "makes" the CMBS (i.e. pools the loans and issues the securities), originations is more of sales process to the borrower, this is more sales to the investor/buyers of the CMBS securities (at least that is my assumption based on what you describe). To that end, this is more "finance" than "real estate" in the purest sense.
2. CMBS lending just means the loan is sold/securitized into a CMBS security and thus ultimately owned/funded by a pool of cmbs investors. "Balance sheet" is fancy way of saying traditional bank lending, meaning the bank makes the loan (i.e originates/funds it) then keeps it (earns the interest). Banks can "syndicate" parts of balance sheet loans to other banks, similar in concept to CMBS but extremely different by operational practice; as far as I am aware, banks usually only syndicate to mitigate "exposure" risks (i.e. loan to large for bank, or too much concentration in type of loan, etc.). CMBS is a business to itself, the loans originated by this platform are pre-destine for a CMBS pool and the bank never intends to own (just float the money until CMBS securities all sold) and the profit is in the spread of buy vs. sell price. This is more of a classic i-banking trading strategy (but they self-underwrite the security issuance mostly). Are loans different that go bal sheet vs. CMBS? Yes, but not as clean cut as you may think (go read up on CMBS 2.0 and the risk retention rules, kinda blurs this all, nothing like pre-08 CMBS world tbh).
3. I would think you get a lot of exposure to sales/trading of CMBS securities, underwriting/pricing of CMBS securities, risk metrics, and all sort of legal/technical stuff (REMIC rules, credit ratings, pool terms, servicing agreements, etc.). You do need to understand property, real estate, and macro risks/drivers, but more in a finance/fixed income context. Tbh, not so sure about "typical exits", I would think a lot of buyside fixed-income roles would be obvious, moving to originations shouldn't be hard, as would be other roles in the bank. I'd guess you would be a high interest to debt funds and other CRE lending platforms (bank and non-bank). If you really want to move to buyside equity real estate, I'm sure you could, but maybe more of a "jump"
Congrats on the offer!
Can say this description is pretty spot on from working on the debt side in balance sheet lending. Primarily you'll be the one underwriting securities and sending presentations to credit rating agencies as well as determining the accurate market clearing prices to put on it. General life cycle of a deal is that a bank would have a 3-5 year loan for a new construction or lease up on their balance sheet then after the property is complete, the borrower will pay off their original loan or seek a refinance since their property now commands a lower interest rate once it's stabilized. So then those rents might become part of a mortgage backed security underwritten by the cmbs team then sent to the trading desk which then sells it off to institutional investors. If you're at a full service bank, they will have a balance sheet lending team, cmbs team, and trading team that handles all parts of that deal from start to finish.
Depends on the bank you work at but I think most of them have their cmbs team as part of their CRE division which is under CIB. Skills are different than a balance sheet lending guy because you're a few more steps removed from the real estate itself although that's definitely a critical element because if the underlying asset isn't performing well you obviously can't underwrite something that is securitized by those faulty assets. A lot of it will be more quantitative and understanding how credit rating agencies evaluate new securities as well as underwriting stabilized cash flows. Balance sheet lending teams will have more experience working with properties that are under construction, more speculative, or not fully leased out whereas the real estate CMBS teams work with is nearly always stabilized.
There's also different terms and metrics that people use on both. So while a lender is more concerned about Debt Yield, a CMBS person would focus on the DSCR. Profit for the bank for CMBS is also based on spread off of the 10 year treasury whereas it's spread off of LIBOR for lending which is another small nuance.
OP here... been in the role for a few months now. Obviously can't speak to exits but as far as everything else you were right on the money.
How are you liking it so far? In a similar situation myself.
I've worked in both Balance Sheet Lending and CMBS "Securitization / Structuring / Capital Markets". Feel free to PM me.
CMBS and Balance Sheet, the two often compete for the same deals, especially in-house.
Hi this is great, I’m starting a role as a capital markets analyst on an agency trading desk supporting the traders. Typically, what is the TC for this role?
Not too familiar with agency but for non-agency CMBS I anecdotally know of a recently hired VP with ~9 years experience structuring getting a base of 250K. I’d imagine bonus in the 150 range so probably ~400K. But that can go up or down depending on tenure, firm (this is at a T1 shop), general market / issuance levels, etc.
Delete
Aut omnis qui pariatur enim nobis sunt dicta. Incidunt repellat animi veniam ducimus fugit autem ab. Aut aut sunt adipisci distinctio neque. Est reiciendis ut nihil tempora ipsa modi blanditiis. Architecto rerum pariatur ut itaque cum.
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...