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September 21, 2018  

Surging Competition Impacts Syndications

Shifting sands in the loan-syndication market are prompting some lenders and borrowers to change tactics.

The number of lenders pursuing loan participations is up, increasing competition. As a result, some lenders are now seeking to take down larger chunks of loans or entire mortgages in order to maintain their market share. That, in turn, is reducing the supply of syndication opportunities for others.

What’s more, the scramble to line up loans is giving borrowers more clout to put together “club” deals themselves with a handful of lenders, rather than paying extra to get one or two banks to commit to funding an entire loan and later syndicating it.

Lenders agree that the trend has reduced syndication activity in recent months, although it’s impossible to quantify by how much. They added that it remains to be seen how long the changes will last.

At the same time, the syndication staffs at two of the biggest lenders — Bank of America and Wells Fargo — have shrunk, which sources attributed to the deal slowdown. “I think it’s a reflection of a decrease in the actual number of deals that are being syndicated, and maybe a realization that they could get away with more-junior people,” said one longtime syndications pro.

Wells laid off several syndications staffers a few weeks ago, including managing director Craig Moyer in Los Angeles and directors Yvonne Werdick in San Francisco and Kurt Woolley in Charlotte.

BofA, meanwhile, doesn’t plan to replace one of its top syndications executives, director David Friedman, who jumped to TD Bank to work on originations as a regional director in New York. His duties at BofA have been assumed by other employees, including managing director Mick Neigoot.

BofA also lost another syndications specialist, director Mauricio Duran, who moved over to CIBC to lead its syndication efforts. It’s unclear if BofA plans to replace him.

“Big shops like BofA, Wells — where there’s typically a big syndications team for real estate — they’re volume shops,” said one person familiar with the syndications landscape. “So if there’s not enough volume to justify the number of people, yeah, they would have to rethink it.”

“Real estate is the ultimate cyclical business,” added another experienced syndications executive with knowledge of the moves. “It ebbs and flows. That has many manifestations, and one of them is personnel.”

Wells declined to comment on personnel matters, but said in a statement: “As part of the normal course of business, we periodically adjust our staffing levels to most efficiently serve our clients.” The bank, which has by far the largest commerical real estate loan portfolio among banks, noted that it “is consistently one of the largest commercial real estate syndicators.” BofA didn’t respond to a request for comment.

The heightened competition for loans is coming from various types of players that have either entered the market or increased their appetites over the past year or so. Some of those shops have been adding to staff:

Helaba Bank hired Brad Bitting as a director in New York. He previously worked at BNY Mellon.

People’s United Bank recruited John Montesi as a senior vice president in New York. He had a long stint at GE Capital Real Estate and a couple of years at Annaly Capital.

BBVA Compass added Jeff Titherington as head of syndications, working out of Charlotte. He had held an originations post at BofA.

All of those moves came within the past four months. The banks in hiring mode have indicated they’re willing to take down larger loans and therefore needed dedicated staffers to syndicate some of the debt.

With competition strong, banks are willing to hold larger chunks of individual loans in order to meet investment goals. “Banks need funded term deals, and I think a lot of banks are increasing their holds,” said one veteran syndicator.

Added another: “People are taking larger hold positions — that’s clear.”

Property owners seeking large debt packages often need certainty of execution, and in the past typically had to pay a premium in underwriting fees for a commitment from one or two banks to fund the entire amount. Those lenders then syndicated pieces of the debt down the line.

While that certainly still happens, the willingness of more lenders to take down larger chunks of debt is enabling big borrowers to obtain commitments from multiple banks and then match them up, effectively syndicating loans themselves and avoiding the premium.

“For example, sponsors are saying: ‘BofA, you’re going to work with Wells and J.P. Morgan and other lenders,” said one syndication specialist. “Borrowers are self-clubbing and -syndicating deals,” added another pro.

While participating banks can still sell off portions of their allocations, the volume tends to be lower.