Commercial Mortgage Loans: the ABCs of CML

Lynette Pineda Headshot

Lynette Pineda Podcast Graphic

Stewart: Welcome to another addition of the Insurance AUM Journal podcast. My name is Stewart Foley, I'll be your host. And today we have Lynette Pineda from Securian Asset Management. Lynette, welcome.

Lynette: Thank you, Stewart. It's great to talk to you today.

Stewart: We're thrilled to have you on. You're talking about a very important topic. You are going to teach us the ABCs of CMLs, which you got to love the acronyms in this business, CML stands for commercial mortgage loans. That's what your team to does and you're an expert in it. CMBS I'm familiar with, I think our audience is, CMLs a little different. Can you start us off with sort of a high level overview of what CMLs actually are?

Lynette: A CML is a loan put on or a mortgage that is secured by a property. And the property is completely underwritten by my peers and myself to make sure that the value is there to properly backstop the mortgage, the investment that we're placing on it.

Stewart: And so within this market, what sets Securian Asset Management apart from other asset managers who also offer CMLs?

Lynette: That's a great question, Stewart. I would say that there are multiple reasons why Securian is such a strong lender. Number one, just the team itself, which includes underwriters, legal closers and so on. We have a very strong business oriented understanding and we believe in long-term relationships. We are in the business of bringing in repeat borrowers. We have documentation and a demeanor that really helps work with our borrowers to make sure that the closing is effective and that we have longterm dialogue to make sure that they have a relationship, a partner in us. I think that that's been very strong for us as borrowers come back and really appreciate our process.

Lynette: In terms of just even before that, with bringing in new loans and reviewing them, we focus on what is called the middle market. And I think a lot of the very large lenders with large programs need to deploy that amount of money on larger transactions. And so in terms of the markets where they penetrate, it's going to be more limited. Perhaps, the top markets across the country. However, my peers and I will look across all markets throughout the US and we get very close in to each of the different markets, even if they're a little bit smaller and really try and find those gems to make sure that alongside our correspondents, that are our eyes and ears on the ground and have been a part of a relationship with us for many, many years will help us find those properties that fit within the Securian strategy. And not only provide an attractive risk adjusted yield for our portfolio, for our clients' portfolios but to really help us get to understand the economy and to appreciate the population, the demographics that are within there.

Lynette: We look for a strong population but at the same time, it doesn't necessarily to have a minimum income provided by the property. If the property serves the community, that's what we really look for because it's going to have a longterm life there. And it's going to, if not only just withhold its value but also just grow over time and make sure that it's a healthy property within the market it's located.

Stewart: And what about typical loan size? Do you have a range that you're focused on?

Lynette: Yes. I would say we focus on three million to 40 million. Our real sweet spot is somewhere between, right now 15 to 25 million.

Stewart: And so lots has been made about COVID-19 and the impact on real estate in general and in particular commercial real estate. With regard to property types, what's your kind of overview of how you're seeing this market?

Lynette: Sure. I think that we're not saying no to any particular property type but there are certain property types that where we'll be a lot more selective. Industrial and multifamily are strong across the country in terms of, it's just very, very competitive so many lenders are going after these properties. And it's just been hard to bring in more loans, encumbered, secured by industrial and multifamily. But we keep trying. Office, I think has improved over this time period. In the beginning, we were focused only on suburban office where the density is much lower and people were returning to the workplace a lot faster. I think New York is getting there but just given the amount of the population, it's harder to manage given health concerns. And so that's a little bit slower in terms of seeing tenants going back into the marketplace and new leases being signed up. Retail again, that's also somewhere where we were selective. Grocer anchored properties, where you have large supermarkets, those continue to do well despite the pandemic.

Lynette: The strip malls, the kind of inline space, that's where we're a little bit more cautious even today, just given the ongoing concerns about new variants with COVID because those are the ones that were hit the hardest when they had to close down. We're reviewing all of those but just being a little bit more cautious on some. In terms of hotel loans, we have started to look at hotel loans again but I would say that we are much more selective than we used to be. Again, until we can be sure that the COVID pandemic is truly under control. We have seen certain hotels come back strongly, especially where there's just driving distance or perhaps as an option for vacations and so on but business hotels, we haven't seen the comeback that we've seen in other hotel types.

Stewart: And Securian as an investor in CMLs obviously directly and Securian Asset Management does that on a third party basis, you are significant players in this space. You've been at this a while. Can you talk a little bit about your team's history and kind of your background in the business?

Lynette: Sure. I've been in commercial real estate and business for probably around 25 years. I started out in accounting for three years and then I moved into the commercial mortgage space. I did that for about 12 years, at TIAA-CREF, so that was my prior employer. And then I actually went into the equity side of the business and I ran the sales program for the US portfolio for six years for TIAA-CREF. And then I moved into credit underwriting for the same company. And then I went back into commercial mortgage origination. I've pretty much covered most of the country and even Canada for a short bit of time in terms of origination. I'm pretty familiar with a lot of the markets, especially the gateway markets. And then I moved to Securian Asset Management about three years ago. I manage originations for the Northeast.

Stewart: You used a term that I'm not familiar with, which is gateway markets. Can you talk a little bit about that?

Lynette: Sure. Gateway markets are really the largest markets within the US. That's determined generally by population, the size of the economy, the diversification of the economy. The demographics are key within commercial mortgage underwriting so they tend to include, markets that everyone is quite familiar with such as New York, Los Angeles, Boston, that type of thing. They tend to be just the largest markets within the US.

Stewart: Lynette, as I understand it, you focus on the middle market CMLs. Why have you chosen that particular segment of all of the possibilities in the real estate market?

Lynette: when I was at TIAA-CREF, large lenders tend to focus on gateway markets. However, I moved to Securian in order to expand that experience because I think that the middle market is unexplored. It's a market where we can take advantage of opportunities across the country, as opposed to a few markets within the US. It takes a lot more in depth, just working the market, understanding the economy. We're covering larger markets within the US in order to cull all of the transactions and find the right deals that fit within the Securian and strategy. In terms of the middle market, we can and find more opportunities that provide perhaps more attractive yield. It helps diversification of the portfolio for Securian Asset Management and Securian has been focused on growing the commercial mortgage business for the past few years, which is actually why several new originators were brought on to the team in order to make sure that that happens.

Lynette: There's been such a high demand but internally by Securian Life, Minnesota Life, as well as third party clients that are really interested in this particular space. And there are just a lot more opportunities to satisfy all of those different buckets within the middle market. Now it's not necessarily that we get a particular premium versus certain gateway opportunities at this point in time just because there are a lot of wonderful, great transactions and we're always focused on really top tier properties within their sphere of their area, but it's a matter of diversification and being able to penetrate more without having to compete with those larger lenders per se.

Stewart: And the term of these loans is in the neighborhood of 10 to 15 years, is that fair?

Lynette: We've done from five to even 30 years but the sweet spot for us tends to be about 10 and that matches our assets, our liabilities as a life lender.

Stewart: Within middle markets, can you about property types?

Lynette: Sure. Securian Asset Management generally focuses on what we call the four food groups of commercial real estate, which include retail, office, industrial and apartments. Now, in terms of breaking down each one of them, retail, we generally will pursue grocer anchored neighborhood shopping centers. Those have actually done fairly well, even during COVID-19. These are essential retail tenants and so generally they've continued to maintain that traffic flow, despite what's been going on generally in the economy. We have had some strip retail or inline centers, non-grocer anchored properties but today we would only look at those if they made sense given the demographics and they were lower leveraged than what we would've done pre-pandemic. Office, we've been looking very carefully. I think the market has been coming back and people are returning to the workplace in person but it really depends on the market.

Lynette: For instance, New York has been a little bit slower to recover, just given the density and the population that needs to be managed in order to safely return to the office. But suburban office has returned much faster just given that there's been less density in terms of the population. We have definitely originated retail office. Industrial, everyone wants. That was a very popular property type before the pandemic and definitely afterwards, just given the shift in the logistics, just the industry of logistics, industrial has become even more popular and it has been such a competitive asset class. Our preference has always been what we call last mile industrial, which is perhaps older, lower ceiling heights but they are closer to the population. They tend to be smaller than the very large warehouses but again, they're closer to the clients, the targeted demographics.

Lynette: And then apartments again, has been traditionally very competitive, very hard to get. And that continues to be the case, despite our fears of during the pandemic, will people be able to pay the rent? Moratoriums on evictions and so on. Multifamily continues to be very strong element. Again, our focus has always been more what we call workforce housing. Maybe class B, class C, located in the right markets with strong demographics, strong density in terms of population. And that's done very well for us. Again, it's just been so competitive. Other lenders are very similar in their strategies as well. We've been able to again, bring a lot of the loans in house but it has been competitive. We don't tend to focus on new construction just because luxury, brand new product, it needs to be tested. And luxury has not necessarily over historically been able to hold the level of rent and growth that more workforce housing has been able to hold onto.

Stewart: When you're underwriting loans, what are you looking for?

Lynette: Property fundamentals such as market tenancy, any individual property characteristics are things that we focus on. Number one is location of the property. Again, I've been mentioning demographics, density, obviously that's important. Commercial real estate is about people. For us, the stronger the value will be held will be sustained in a longer period of time. And despite perhaps hiccups in the economy, when it is a strong local economy, there's a strong population to keep the commercial real estate asset going. And definitely it's important for retail for instance. We definitely focus on what the trade area is, who lives there, who's going to be shopping there. Is there enough support to keep that grocer going? Same thing for office, is this where people want to live, work, play? People don't want extensive commutes, although it does happen but it definitely, if people live close by, it's going to support the industries that are located in that office. Apartments, the more diverse the universe of potential tenants in the market of course, that's going to help long term value.

Lynette: And the same as I was saying with industrial. Industrial lives by being able to use the infrastructure and get close to the ultimate consumer. And so, the population surrounding the property is obviously important. We do look at other asset types as well. We have a portfolio of hotels but it's smaller and definitely during this per period of time, we're much more cautious about that. We also have parking, mobile home parks and things like that. But in terms of the four food groups that gives you an indication of what we look for. We also want to make sure that the market is supply constrained. We look to make sure that the tenancy at the particular property makes sense in terms of the rollover, the expiration of the leases. We look at if it's a granular rent roll, which means no tenant really represents a large portion of the asset, that's always gives us more comfort.

Lynette: There's more diversification in the tenancy. However, if there are fewer tenants, we do review the quality of the tenants much more strongly. We look at lease terms, if there's anything that concerns us longterm as a lender. And we do fully review the condition of the asset. We don't just do MAI appraisal to make sure that our underwriting internally is substantiated by an objective third party but we also do environmental and engineering reports to make sure that the quality of the property is there. And we also review land value just to make sure that if worse came to worse with the actual improvements, there is some value there to be recovered from land. There are different aspects that we do look for.

Stewart: That's really helpful. Can you estimate the premium you can capture in middle market CMLs today? And do you think it's sustainable going forward?

Lynette: My question to you is when you say premium, premium to corporate bonds? Premium to something else?

Stewart: Yeah. I think that where interest rates are today with investment grade credit being so tight, I think that there's a real scramble for yield, so that's really kind of the heart of my question is versus investment grade credit, what kind of premium do you think you're going to see and an investor would see in mid-market CMLs?

Lynette: We believe we're getting probably a 100 basis points over corporate bonds. It has definitely been an attractive risk adjusted return for investors coming into this space. Now, that does depend on how the economy moves. We do feel that spreads have been compressed during this time period, just as it's been, there's so much capital flow in this space. It's been very competitive for lenders. The incremental yield has probably been slightly compressed but I would say just recent historical reports would probably show about a 100 basis points.

Stewart: A big part of this deal is deal flow. How are you sourcing loans? Can you talk a little bit about that process?

Lynette: Sure. Lenders have their own strategy, but ours we depend heavily on what we call correspondents and these are licensed mortgage brokers in the various markets that we cover. They have been with us, probably some have been with us for more than 20 years and some are more relatively new but these are individuals in their respective markets that have over time, gained a lot of experience, strong reputation for honesty, accuracy and developing strong relationships with their particular clients who ultimately will become our sponsors' borrowers. We work very closely with them and we're constantly talking to them, making sure we understand what's happening in their particular markets. And they send us deals that correspond to the strategy that we've put forth to them. That's basically how we work very, very closely. And they're involved throughout the process from rate lock to closing.

Stewart: Securian Asset Management is part of Securian Life and Minnesota Life so you're very familiar with how insurance portfolios are constructed. How do you view the role of CMLs in an insurance company's portfolio?

Lynette: CML is a fantastic way to diversify an existing portfolio. Traditionally, commercial mortgage investment have not been correlated to other investments within the portfolio so it provides a good balance and diversification tool for institutional investors.

Stewart: Can we talk a little bit about liquidity because that's something that I think insurance companies have done the down in liquidity trade to capture some of that yield spread. How would you characterize liquidity in the CML space?

Lynette: Commercial mortgage investments do provide an attractive risk adjusted yield and the premium does include the concept that it is less liquid than corporate bonds and even CMBS, which is a bond in itself. However, it still remains a great way to boost the yield of the portfolio while adding the diversification factor and reducing the overall risk of the portfolio.

Stewart: And I think it's fair to say that versus CMBS, you're looking at these individual loans on a one by one basis, you're underwriting these very carefully. Which is different than if you're buying a CMBS that has a mix of loans in there that you really don't have good visibility, right?

Lynette: That is correct. And I didn't originate CMBS but I did help the CMBS group many, many years ago. And so in underwriting a package of a variety, a portfolio of loans that can have a variety of different quality within that package, you don't have the direct access to the information that you would as a whole loan underwriter. I visit my properties. I will be in direct contact with all of the individuals that produce the third party reports so I can review those materials directly. I work with the legal group in order to make sure that all of the documentation related to the property and the leases for the tenants, that all makes given the information that I have. We're much more carefully involved with the individuals. And I also can speak to the sponsors, the borrowers directly and so get a sense of how they manage the properties and what their longterm plans are. You don't have those touch points with CMBS.

Stewart: And you've got this proprietary network of sourcing as well, that you've got a trusted source there, which has got to be helpful. We've now reached the ask me anything portion of the program. We are big fans of diversity, equity, inclusion and belonging and we've done a number of things along those lines. And I want to take you back to, with that in mind, to a day that I know you'll remember and this is the day that you graduated from your undergraduate institution. And so regardless of whatever festivities may have taken place the evening before, you are bright eyed and bushy tailed for the event. Your name is kind of in the last half of the alphabet so you've been waiting a while. Finally they call your name up the stairs you go, you're in your cap and gown, you walk across the stage, the crowd goes crazy. You get a quick handshake from the president, quick photo op and you walk across the stage and down the stairs. And at the bottom of the stairs, you run into yourself today. What do you tell your 21 year old self?

Lynette: I think I would say, take more risks. You mention diversity. That's interesting. I went into an industry that's been dominated by white males and as the industry has grown and I've seen diversification and inclusion grow as a topic within the industry, not necessarily having complete solutions at this point but at least the topic is now on the table. That's been remarkable. And hopefully just being a woman, Hispanic woman in this industry, I've done my small part to help make that movement go forward a little bit more. But I definitely would say, take more risks. I'm part of the life lending industry and traditionally, that's a very conservative investor type but definitely I try and push the boundaries a little bit because when I see value in something and it's measured with the appropriate return, I think it's worth pursuing.

Lynette: I think that that is a lesson, not just for a professional me but also for personal me. Definitely take more risks and look at different types of professions. I've done equity, I've done debt, I've done mezzanine, I've done senior hold loans. Definitely widen the experience and really get a good, not just for the portfolio, but diversification of your skillset. That's definitely something to learn.

Stewart: That is great advice. That was really well done. Lynette Pineda, vice president commercial mortgage investments, Securian Asset Management. Lynette, thanks for being on.

Lynette: Oh, thank you, Stewart. This has been great.

Stewart: It's a lot of fun. Thanks for listening. If you have ideas for podcasts, please email us at My name is Stewart Foley and this is the Insurance AUM Journal podcast.

Securian Asset Management
Securian Asset Management

Our asset management business has been built with a risk and liability management focus, coming from our history investing for the General Account of our parent, Securian Financial Group. Since 1880 we’ve been committed to providing investment solutions enabling our clients to achieve their goals with confidence.
We are staying true to our purpose, and our values, while being innovative and nimble to prepare our clients to meet their future from a position of strength. As a financially stable, non-public company we focus on the long-term and execute consistently for our clients.

John Messing
Vice President, Institutional Solutions
(651) 665-5097

Amy Theuninck
Managing Director, Institutional Solutions & Head of Consultant Relations
(651) 665-3879

View our LinkedIn Page
400 Robert St. N.
St Paul, MN 55101

View the contributor page

Related Articles

Register for Insurance AUM Journal

Register today to confirm your status as an institutional investor and gain access to the latest thought leadership in the industry.

  • Thought leadership delivered to your inbox
  • Confirm your status as an Institutional Investor
  • Complete CFA Continuous Professional Development requirements

By clicking submit you confirm that you qualify as an institutional investor and you consent to allow Insurance AUM to store and process the personal information submitted above.

Lost password