A Mid-Year Report Card on the Commercial Real Estate Capital Markets

We at Crunched Credit have taken a bit of a pause of late.  It is, of course, the dog days of summer.  But it’s time to get back into the fray.  Let’s start by noting the doldrums seem to have taken a pass.  From where we sit, the markets seem to be in robust health.  As we look over this complex web of transactions, deal structures, innovations, capital flows, business plans, business goals, failures and successes that is our market, things look pretty damn good.

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CREFC Annual Conference 2014 Preview

New York will again play host to CREFC’s annual conference, and over 800 of our colleagues are scheduled to attend. The conference begins next Monday with a slate of forums discussing current issues relating to high yield distressed real estate assets, portfolio lending, GSE multifamily lending, investment grade bonds, B-pieces, issuers and servicers. Continue Reading

Ribbet – The Green Cassandra of the Capital Markets

Moody’s published a piece the other week that analogized credit quality in the CRE capital markets to the boiling frog – that if you put a frog in cold water and slowly raise the temperature, it never jumps out until it, pardon the pun, croaks.  Tad, please tell me you never actually tried that in your youth.  I may have done some things as a 12 year old that might have led to questions about whether I was entirely well adjusted, but I never boiled a frog.  Do we know that it even works?  What a great MythBusters episode.  PETA would have a fit.  Continue Reading

The Shadow: What’s in a Name – The Maleficence of Shadow Banking

Long ago and far away, a radio show gave birth to the catchphrase “Who know what evil lurks in the hearts and minds of men?  The Shadow knows.”  I think, although I’m not entirely certain at this point, that the Shadow was a good guy, but deeply misunderstood and viewed with enormous suspicion by more main stream enforcers of right thinking and morality.  Shadows are where bad things happen, where the bad guy hides and jumps out when the teenage starlet inevitably walks into the darkened derelict house, saying in a little voice, “Hello, hello?  Billy, are you there?”  Bad things inevitably ensue.  Shadows are bad.

Okay, what’s this all about?  We need to stop the narrative right now that all financial market participants; funds, specialty finance companies, advisors, BDCs, etc., which are not insured depository institutions (let’s call them non-banks for short) are creatures of the shadows.  Shadows are bad, non-banks are in the shadows…ok, you get the picture.  Our traditional banks, which take deposits guaranteed by the US of A are under the loving and protective wing of the FDIC, the Federal Reserve or the Office of the Comptroller of the Currency (and yes dear Lord, the FSOC).  That makes sense, they take Caesar’s coin and Caesar is entitled to a bit of supervision.  But the non-banks do not; they risk private capital.  That makes a difference. Continue Reading

Fed Issues Additional Guidance on Extended Conformance Period – Be Careful What You Ask For

A few steps forward and a giant leap back.  This familiar phrase might be the perfect summary of the CLO market’s Volcker Rule roller coaster since December 2013.  A few weeks ago we wrote about the Federal Reserve Board’s (the “Fed”) less than satisfying “fix” to address what the market has perceived as one of the Volcker Rule’s unintended consequences.  The Fed, in what had seemed to be an honest (although insufficient) attempt to prevent the need for banks to divest of holdings in CLO 1.0 transactions, agreed to provide two 1-year Volcker Rule conformance extension periods.  As extended, the conformance periods will expire in mid-2017. Continue Reading

CRE Securitization: Rehabilitation Still In Progress

During the past several years, CRE Securitizations were airbrushed off the financial products reviewing podium like a discredited Politburo member. Not here, never ever here; nope, never heard of it. This was a mistake rooted in populous politics and the conflation of the tools of finance with the tool users (okay, with some very unhelpful help from a few admittedly alarming design failures in the tool itself).

But now, eight years on, plenty of political and regulatory water has gone over the dam. As we said in a recent blog, it’s time for a reset and not just in the legal and regulatory arena, but in the market itself. Taking some liberties with recent news from Detroit, this nifty little coupe of a financial tool has had its successful recall, it’s new and improved, the engineering errors of the early models have been fixed and we’ve sorted out that neither the underaged nor the ethically challenged ought to be allowed to take this little guy out for a spin. Continue Reading

EU Banks –Dog Bites Man, Again

The Financial Times reported on April 2 that the Eurozone Banks continue to load up on sovereign debt; generally, the debt of their respective host countries.  A few days later, the Financial Times reported a bevy of talking heads crowing over the end of the EC financial crisis.  And then on April 16, the European Parliament voted to approve a slew of new laws for the EU banking marketplace, including a single resolution mechanism so comprised to be almost useless and a common rulebook for winding down the banks.  Does anyone here or there think any of this really matters?  First, it’s going to take years to generate the rules that this legislation birthed and even after the Euro apparatchiki spend years creating detailed rules, the dynamics of Brussels will ensure there will be so many loopholes it would make a block of Swiss cheese blush.  Moreover, does anyone actually think the various nation states will honor these rules if a champion bank is in trouble?  I, for one, do not.  Continue Reading

Federal Reserve Extends Volcker CLO Compliance Period

On April 7th the Federal Reserve Board (the “Fed”) announced that it would provide banking entities with two additional one-year extensions to conform their ownership of CLOs covered by the Volcker Rule.  The Fed stated that it would act on these extensions in August of 2014 and 2015.  The Fed’s action would extend the conformity period from the current deadline of July 2015 to July 2017.  The Fed’s approach to remediating the unintended consequences created by the Volcker Rule brings to mind a famous quote by famed publisher Malcolm S. Forbes, that “[i]t’s so much easier to suggest solutions when you don’t know too much about the problem.”  While the extension offers some relief for CLO 1.0 (i.e. pre-2008) deals, it fails to alleviate the effects of the Volcker Rule on the CLO market.  Considering the overwhelming testimony regarding the potential impacts of the Volcker Rule, one must wonder if the regulators appreciate the Volcker Rule’s material impact on the CLO market.

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