Commercial Real Estate and the Broader US Economy: What Me, Worry?

You know, as an economist, I am a pretty good piano player. I struggle every morning, marinating in the news cycle, to try to understand what’s happened to the US economy and what its impact will be or might be upon the business of commercial real estate finance. We apparently are inching up on the point where the Fed may or may not do something, but as we discussed in this column a while back, the Fed’s idiosyncratic love affair with transparency is creating a cacophony of voices both in and outside of government that make even that threshold question hard to answer. It would seem we ought to pay attention, but, as the fed-heads and the commentariat continuously randomly blather and bloviate it’s just all noise, so what’s the point? I have been and remain fundamentally confused and in all the chatter I don’t see much wisdom or insight.

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The New Terrorism Risk Insurance: Still a Cost of Doing Business

libertyTRIA is back.

On November 26, 2002, in the wake of the September 11th attacks, President Bush signed the Terrorism Risk Insurance Act of 2002 (TRIA), and with it, breathed life into a new player in the catastrophic event insurance market: the government.

TRIA created a terrorism risk insurance program (TRIP) of dual back-scratching: the insurer was required to make available terrorism insurance, and the federal government committed itself to taking the cataclysmic risks off the table. The law created a temporary federal program that provided for shared public and private compensation for certain insured losses resulting from a certified act of terror.  The Terrorism Risk Insurance Extension Act of 2005 (TRIEA) extended TRIP through December 31, 2007, and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA 2007) further extended TRIP through December 31, 2014.

TRIA and its progenies have helped to ensure the continued widespread availability and affordability of commercial property and casualty insurance for terrorism risk. Unfortunately, TRIPRA 2007 was not extended and expired on December 31, 2014.

On January 12, 2015, however, President Obama raised terrorism risk insurance from its shallow grave and signed the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA 2015), making a few key changes to TRIP and providing a new expiration date of December 31, 2020. Continue Reading

Section 546(e) Protects Two Tiered Securitization Structures

What happens when a debtor, whose loan is pooled and securitized, files for bankruptcy? Are payments made to investors recoverable as fraudulent transfers or preferences?

Until recently, no published court opinion addressed this issue.  However, in what is sure to be welcome news for investors in securitization vehicles, late last month, a Bankruptcy Court in Illinois shed light on the issue and ruled that such payments are in fact protected from avoidance. Specifically, the court held that the securities contract safe harbor found in section 546(e) of the Bankruptcy Code generally protects payments made to investors in the two-tiered securitization structures so commonly used in CMBS transactions (i.e. mortgages pooled together and held by a REMIC trust) from fraudulent or preferential transfer claims. This section of the Bankruptcy Code has long been understood to provide stability to securities markets by shielding from avoidance pre-petition payments which met certain criteria, including being made by or to certain financial market participants and being made in connection with a securities contract. Until this decision, however, while many believed that these protections extended to payments made to investors in typical two-tiered CMBS transactions, there was no legal precedent directly on point. We now know that at least one court thinks that they do – the question now is whether other courts will follow suit.

For more information on this decision, please see: Payments to Investors in a Securitization Structure Protected from Avoidance

Foreclosure Attempt Blocked? What You Should Know Before the Clock Hits Zero

Close-up Foreclosure Real Estate Sign in Front of House.Just when you thought we were out of the housing crisis weeds of ’07—think again.  Apparently when an abundance of people buy homes they can’t afford and predictably fall behind on their payments, the judicial foreclosure process becomes log-jammed.  Enter our latest housing crisis nemesis: the statute of limitations.

Lenders must generally file a foreclosure action prior to the expiration of the state specific statute of limitations.  This means that once a borrower has defaulted on their mortgage payments and the lender has accelerated the debt, the lender has a statutorily defined time period in which it may bring an action in foreclosure.  But what if the initial foreclosure action, filed within the limitations period, is dismissed for technical reasons?  Must the lender file the second foreclosure action within the same limitations time period that began running on the date of the original default and acceleration?  Some New Jersey and Florida courts think so, which can be a terrifying result.

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3rd Annual IMN Single Family Rental Investment Forum – 7 Thoughts on the State of the Single Family Rental Market

The 3rd Annual IMN Single Family Rental (SFR) Investment Forum was held at the Loews Hotel in Miami Beach last week.  Over 1,000 SFR professionals attended the forum, including buyers, investors, lenders and service providers.  The number and range of attendees at this year’s conference demonstrated significant enthusiasm for a growing and vibrant SFR industry. Continue Reading

Three Top Considerations After Omnicare

In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U. S. ____ (2015), the Supreme Court clarified issuer liability under §11 of the Securities Act. Section 11 provides that issuers are liable for registration statements that contain “an untrue statement of a material fact or omit to state a material fact required . . . to make the statements therein not misleading.” While the Court’s opinion applies in the context of publicly registered offerings, there are some important take-home messages for private placements too. Click through for three top considerations for issuers in light of Omnicare.

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Crowdfunding: The Next Commercial Real Estate Frontier?

56402406In a world where we buy groceries, book travel, and even date online, it should come as no surprise that online investment is becoming increasingly prevalent. The rapid shift towards an internet-centric world has made crowdfunding the next “big thing” when it comes to raising capital and finding investment opportunities.

What is Crowdfunding?

In the most basic sense, crowdfunding is a means of raising capital by seeking small amounts of money from a large number of individuals. There are hundreds of websites that act as intermediaries between the investors and the businesses and/or individuals, and provide a platform for the exchange of information and funds to happen in a systematic (and hopefully more legitimate) way.

Regulatory Hurdles

Historically, rigid securities laws and regulations, specifically Section 4(a)(2) of the Securities Act of 1933 and the Regulation D safe harbor, limited the ways in which private companies have been able to raise capital. The JOBS Act of 2012, however, seemed to be these companies’ ticket to the crowdfunding party. The JOBS Act required the SEC to modify Regulation D in a way that now allows private companies to seek individual equity investment from accredited investors through “general solicitation”.

Crowdfunding as a Capital Source for Real Estate Developments?

Budding entrepreneurs and start-up companies have been leveraging crowdfunding platforms since the law’s passage, but recently, crowdfunding has become a source of capital for real estate developments, too. And though initially used for small residential projects, the scope of real estate crowdfunding is continuing to expand, and it is even being used by real estate developers to raise equity, mezzanine financing and debt for larger commercial projects.

This shift in securities regulation and the increased potential of crowdfunding has piqued the commercial real estate world’s interest. However, despite the JOBS Act, real estate crowdfunding could potentially open up a Pandora’s Box of securities regulation issues and create traps for the unwary.

Stay Tuned

For more information on crowdfunding and real estate investments, check out the CRE Finance Council’s upcoming seminar, hosted by Dechert, and check back on Crunched Credit as we continue to explore this emerging field.

Photo: Thinkstock

Mrs. Yellen, What in the World Are You Doing?

Is the Federal Reserve overreaching by broadening the scope of its policies?

If extremism in the defense of liberty is (reportedly) no vice, unremitting, continuous undisciplined chatter for the sake of transparency is no virtue.  God knows transparency has become the sine qua non of public ethics these days.  To be accused of not being transparent is pretty much the same thing as being accused of being an anti-Semite (with notable exceptions for certain parts of the world).  When it was reported recently that Mrs. Clinton had used a private email address as opposed to an official State Department email, someone suggested that this evidenced a lack of transparency.  The democratic establishment shuddered, only matched by the glee over at Fox News.

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Europe and Its Common Currency: It’s Really Over… But Not Today

I’ve written about Europe a lot over the past couple of years and not out of just a Schadenfreude enjoyment of watching a slow motion disaster far from our shores but because it seems to me that really matters, both in terms of its impact on the global financial marketplace and the probable knock-on effect on domestic U.S. finance markets. It also deserves our attention because it contains lessons for all and sundry policymakers and opinion purveyors about policy choices that simply don’t work.

Of course, the first and most portentous mistake in Europe is don’t ever get into a land war in Southeast Asia, er, I mean never sever control of fiscal and monetary policy; in other words, their big mistake, the Euro-zone currency itself.

Until now, I have shied away from the conclusion that the center could not hold, and held firmly to the notion that somehow Europe would muddle through. Continue Reading

ABS Las Vegas 2015

A securitization community coming off of record issuances in 2014 has entered the new year with a mixture of nerves and optimism.  An estimated 6,500 finance professionals and attorneys converged for the 2015 ABS Las Vegas conference.  The new risk retention rules, and their impact on CLOs in particular, were on everyone’s lips – to the point that one panel moderator opened his remarks by saying that he was narrowing the stated discussion topic to focus exclusively on CLO risk retention, at the urging of the panelists and audience. Continue Reading