The EB-5 Visa Program: the Rebirth of the Immigration Investor Program


This is a good news story for once.  But, of course, since the father of this soupcon of good news is our government, it’s almost unintended.

From the ashes of the economic recession of 2008 came the rebirth of the Immigration Investor Program, more commonly known as “EB-5 Visa Program.”  This bit of social engineering has been around since the program was first introduced back in 1990 but got a second wind when everything else went to Hell.  The purpose behind the program was to benefit the United States economy by attracting investments from qualified foreign nationals. Continue Reading

Risk Retention – “How I Learned to Love Risk Retention and Live With It.” (Apologies to Stanley Kubrick)

93850823-1As time goes by we start to get close to the first of two risk retention effective dates; December 24, 2015 for residential product and everything else looming December 24, 2016 (does anyone really think a Christmas Eve Effective Date was unintentional?  Bah, Humbug!).  More and more attention is now beginning to focus on the Risk Retention.  We are grappling with the Rule right now in our resi market, in the CLO space where reissuance is a common deal feature (bringing forward 2017 concerns to today’s deals) and in the Single Family Rental (SFR) space which, much like the coupling of a donkey and a horse, is an oddly structured mule of a deal where no one is certain when risk retention will apply. Continue Reading

CREFC New York City (June 2015) Conference Recap

rooftopFor all of us in the commercial real estate industry, June has become synonymous with summer CREFC, a mid-year industry check-in and opportunity to mingle with industry participants.  Like past conferences, this year’s conference, which was held earlier this week, was once again filled with informative industry updates and lively panel discussions.

On Monday, much of the morning and early afternoon was devoted to various industry forums.  The day culminated with a panel titled “What Industry Titans Think of the Markets,” moderated by Citigroup’s Thomas M. Flexner, and panelist Richard LeFrak of the LeFrak Organization, Stephen M. Ross of Related Companies, and Robert S. Taubman of Taubman Centers, Inc.  Monday evening was filled with receptions hosted by a number of industry players, including Dechert’s own reception at the Refinery Hotel Rooftop. Continue Reading

Whom the Gods Would Destroy, They First Make Meet A Higher Regulatory Capital Burden

Or perhaps Prometheus had it right in its original form. “Whom the Gods would destroy they first make mad.”  Look at what we are doing to construction lending in the name of our seemingly endless safety and soundness crusade.

Under the new regulatory capital rules, we have a new asset class; HVCRE or High Volatility Commercial Real Estate.  HVCRE includes acquisition, developments and construction loans.  These loans are assigned a risk rating of 150% of the basic risk rating for commercial real estate.  Now, to be fair there are limitations and exceptions to the type of loans that attract this higher regulatory capital requirement, but those are somewhat at odds with the realities of the market.  Just by way of a few examples, to avoid HVCRE status the borrower must have 15% cash equity.  The rules about what is and what is not cash equity are artificially restrictive and not in all respects in accord with the market practice.  So-called soft costs count but appreciation in the value of the real estate is disregarded; only cash paid at acquisition counts.  As a property is held for longer and longer, this makes increasingly little sense.  Why is land value equity any less real than cash invested for so-called soft costs?  I have never met a developer without a fabulist view of what should be counted as soft costs.  Please, I’ll take real live equity in the dirt any time.  Also, for reasons which are entirely obscure, one cannot count the borrowers’ other free and clear assets, letters of  credit, cash or unencumbered readily marketable securities held on account of the borrower.  Also neither preferred equity nor subordinated debt counts. Continue Reading

A Guide to UK Real Estate and Real Estate Finance: Why Don’t You Speak Proper English?

big benThis month’s decisive, if unexpected, victory for the Tories has given a boost to the UK’s real estate markets. Following an already strong 2014 and now with even higher expectations for continued growth in 2015, the UK is an interesting play.  In light of this amiable confluence of factors and the increasing difficulty of finding yield here in the States, it’s perhaps time for a rousing rendition of George M. Cohan’s “Over There.”

And hey, legally speaking, it’s a terrific place to invest.  It’s a hot bed of red in a tooth and claw capitalism (at least compared to our other European friends).  The UK has a robust and broadly understandable legal system and a respect for property rights soundly rooted in the common law; all in all, a genial environment for investment. Continue Reading

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. 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