With tight pricing and market acceptance of the vertical and L-shaped retention structure, what remains unknown is how the smaller CMBS originators will participate. As of now, only the largest bankers — Citi, Deutsche, Morgan Stanley, Wells and Bank of America — have contributed to these risk-retention compliant deals. These firms held five of the top seven slots in the CMBS origination league tables for 2016. These highly capitalized banks have the capacity to hold vertical and horizontal strips of CMBS on their balance sheets and are very good at originating high-quality CMBS loans.
But what about the other firms further down the league tables? At spots 11-16 are Rialto, Nataxis, Starwood, Credit Suisse, Ladder Capital and Benefit Street Partners. These firms originated a combined $10 billion of CMBS loans in 2016, which is significant. They also typically serve the smaller balance, higher leverage, “B” quality asset market. Without these participants, borrowers would have significantly fewer options for financing. Most of the firms seem to have opportunities. Rialto and Starwood are affiliated with b-buyers and could team up on risk-retention deals. Ladder is a public company that holds CMBS securities in its investment portfolio, so holding a “vertical strip” is not unfamiliar to the company. Nataxis and Credit Suisse are large banks that could do what the Morgan Stanley team is doing.
Hopefully, these firms and the rest of the top 20 can find a best execution to remain active in the CMBS market. We should find out their direction in the next few months as their newly originated loans are securitized.