Anyone have any formal training material for underwriting CMBS loans?
Can't find any books or A.CRE/BreakingIntoWallStreet type training for this subject.
[{"id": "i2xf9c5", "text": "There's nothing fundamentally different about a property collateralizing a CMBS loan versus any other loan in terms of underwriting. The difference is mainly what types of properties a CMBS originator is likely to see.\n\nSo I would use any CRE underwriting material you can find - it doesn't need to be CMBS specific.", "replies": [{"id": "i2xt9gp", "text": "CMBS originators securitize trophy assets....the big difference is CMBS loans are generally stabilized but take on more risk, generally speaking, from a cash flow interruption standpoint. And CMBS originators also go to more tertiary markets on average. They also typically provide more interest only in the loan terms and allow sponsors to take on more debt. \n\nAdditionally, the big difference in underwriting a CMBS loan versus say a portfolio/balance sheet loan is that all the cash flow must be accounted for. Portfolio or balance sheet loans can generally just get close to an NOI/NCF and it's not a big deal, but you have to ensure every dollar is accounted for in CMBS underwriting. Leases are very important. Budgets are important. The appraiser's cash flow numbers are important (along with market vacancies) etc. Loan sellers also have to factor in a cash flow haircut (typically in vacancy, mgmt fees and capital items), as rating agencies haircut the pool by a certain percentage. \n\nI don't have any material, but I've underwritten many CMBS loans.", "replies": [{"id": "i2xvpah", "text": "I've worked in CMBS, mostly on the buy-side, for 10 years. In my view underwriting CRE assets is a general skill set and can be learned generally. Many people have pivoted from CMBS, to Mezz lending, to life cos, to REITs, and back. As I said before, the types of properties each specializes in vary, and loan structures vary, but underwriting property cash flows is a constant.\n\nIf there's any meaningful way to discriminate, it would be debt vs equity..but even there the fundamentals are still the same.\n\n&gt; CMBS originators securitize trophy assets....the big difference is CMBS loans are generally stabilized but take on more risk, generally speaking, from a cash flow interruption standpoint. And CMBS originators also go to more tertiary markets on average.\n\nNone of this really matters insofar how to underwrite an asset. Your cap rate and psf assumptions will always vary by market. Certain aspects will always change if the asset does or does not require stabilization. In other words, I don't feel the product (CMBS or otherwise) is what matters here, what matters is the details of the property at hand.\n\nI will note that saying CMBS is \"trophy assets\" is a bit contradictory to \"tertiary assets\"...the nuance there is that trophy assets select to SASBs and tertiary assets to conduit.\n\n&gt; Portfolio or balance sheet loans can generally just get close to an NOI/NCF and it's not a big deal,\n\nI don't agree that accuracy of cash flow projections is any more or less important for CMBS.", "replies": [{"id": "i2yxzjk", "text": "I didn't say it wasn't a skill that could or could not be learned but don't act like the underwriting is identical. \n\nAnd you're extrapolating my one trophy asset comment to assume that I meant every asset is a trophy asset....sellers generally use a barbell approach as they generally (not always) take losses on the larger loans that they can spread out into multiple pools to get the \"smaller\" more profitable loans into the pool where they make their money. \n\nAnd we'll agree to disagree on the cash flow projections...clearly you have not been on the sell side. To truly appreciate how to underwrite a CMBS loan one (loan seller) needs to know how they are going to price loans which is dependent on how the rating agency(ies) treat their cash flows. \n\nI've worked the sell side and am on the buy side currently. It's harder to appreciate the buy side until you've worked the sell side. Buy side eats hors d'oeuvres while the sell side fights for crumbs.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i2yktpf", "text": "Everyone that has responded so far hasn\u2019t answered your question. \n\nYes most people who have worked on a CMBS desk as an analyst or associate has seen primers for CMBS. Some of these are just internal working documents that a seasoned associate or VP was tasked with writing and some are more official pieces. \n\nHopefully someone that has will possession of these materials will share with you in here or via a DM.", "replies": [], "depth": 1}, {"id": "i2z29gc", "text": "Check CREF.", "replies": [], "depth": 1}]