While market staples Morgan Stanley Dean Witter and Lehman Brothers captured the No. 1 and No. 2 positions, respectively, in the commercial mortgage-backed securities manager league tables for 2000, many CMBS players last week felt that the rest of the rankings were "skewed" due to the fact that the newly merged J.P. Morgan/Chase and Credit Suisse First Boston/Donaldson, Lufkin and Jenrette were each considered one unit in the latest volume underwriting rankings.
The extra manpower and combined efforts afforded to each of the merged entities landed JPM/Chase in the No. 3 slot and CSFB/DLJ in the No. 4 slot for CMBS, according to year-2000 data from Thomson Financial Securities Data.
Meanwhile, CMBS stalwart Deutsche Bank was stuck at the No. 7 position, and Salomon Smith Barney - though making impressive strides in the league tables for last year - hit No. 5, not quite cracking the coveted top three positions.
"Those two firms (CSFB and DLJ) were doing business as two different businesses throughout the year," said a Street CMBS investment banker. "I don't think the two would have even worked together if not for the merger, and the same goes for J.P. Morgan and Chase. This is more like a public relations ploy."
"If you consider CSFB's role in the first six to eight months of the year, they had zero impact," added another CMBS player at a different bank. "There ought to be a carve-out in the rankings for these mergers. Should CSFB and DLJ be considered one unit for last year's rankings? I would argue no.' For 2001, certainly they should get it."
Different Business Models
Meanwhile, MSDW surpassed Lehman for the No. 1 slot in the league tables, with $7.8 billion in proceeds for 2000 and 20.1% of the market share. Lehman, in second place, produced $6.2 billion in domestic CMBS with 15.9% of market share, and J.P. Morgan/Chase came in third, with $5.3 billion in proceeds and a market share of 13.7%.
Had CSFB and DLJ been merged one year ago, it would have held the No. 1 slot for 1999, with $7.8 billion in proceeds, followed by MSDW, with $7.5 billion and Lehman, with $5.7 billion for 1999, according to TFSD. Since the two banks had not been merged, MSDW took the No. 1 slot for 1999.
According to Ken Cohen, the head of CMBS trading at Lehman Brothers, the two top shops differ in their core business models, with Lehman originating collateral off of its own shelf and then securitizing a portion of it, and MSDW "sprinkling their collateral around a lot," and distributing a lot of paper.
"We are bigger as a direct lender than Morgan Stanley," Cohen said. "But we would rather make loans ourselves and take the principal risk. In terms of who originates the most collateral, we would be No. 1, but in terms of who brought the most paper to the market as a bookrunner, it is Morgan Stanley Dean Witter."
Cohen noted that the majority of the business models on the Street resemble the Lehman model, as most of them originate their own collateral. Also, since MSDW does not make loans itself, it garners fees in the origination process.
"Last year was a good year for us, even though the market had a lot to deal with," Cohen said.
Fixed to Floating
One of the more significant changes in CMBS issuance patterns last year was the shift from fixed-rate to floating-rate product for higher quality investment-grade loans.
Most of the business had been fixed-rate, but with rates and spreads where they were, borrowers wanted floating-rate loans. "We shifted our lending program to accommodate investors' needs," Cohen said. "We did $2.5 billion of that type of origination last year, and securitized about $1.5 billion of it. Our plan is to continue that type of lending."
On the other hand, there was not a huge increase in demand for fixed-rate small-balance product.
Cohen expects Lehman to be out with another fixed-rate conduit in March. Investors ate up the three fixed-rate conduits that Lehman delivered with its new partner, UBS Warburg, despite a slightly delayed first deal last March.
For 2001, Cohen also sees more use of the A/B note structure going forward: "It works for everybody - for the issuer, for the B-note buyer, for the A-note buyer," he said. "Everybody wins. Securitizing large low-leverage investment-grade high-quality loans is very much part of our business plan, especially if the economy moves toward a recession."
An uptick in single-asset deals, at least during the early part of 2001, is expected as well, especially because more single assets have been financed recently.
Solly Climbs the Charts
One of the more notable stories from the most recent CMBS league tables is Salomon Smith Barney's trailblazing rise to No. 5 from 1999's ranking of No. 12.
With $3.8 billion in underwriting volume for 2000 YTD, SSB took 9.7% of the market share, compared with a little more than $1 billion and 2.2% of the market share in 1999.
"Our goal is to maintain a strong presence in CMBS," said Paul Vanderslice, the head of CMBS trading at Salomon Smith Barney. "We've got solid origination, strong market knowledge, unbeatable relationships with investors and strong research. CMBS has become a key piece of the commercial market and SSB is the largest firm in fixed-income."
Indeed, Solly is No. 1 in the corporate bond market and No. 1 for agency MBS, according to TFSD. Within the last year and a half, the firm took 18 people from Citibank's origination team and hired CMBS veteran Joe Franzetti to head up its conduit, in an effort to maintain its strong reputation in the CMBS world.
"Last year, we did both fixed and floating as both lead and co-manager," Vanderslice said. "We did large deals, small deals and off-the-run deals, and worked with a lot of different partners, as well as sub buyers. We're running on all cylinders."
And things can only get better. When asked what the outlook for real estate looks like for 2001, Vanderslice acknowledged last week's rate cuts by the Fed and said, "With the 10-year Treasury at 5% - I'd say real estate looks pretty good."
