CrunchedCredit : Capital Markets Finance and Real Estate Attorneys

Although there is renewed optimism for a vibrant CRE lending market in 2011 (or at least a significantly better market than the prior 3 years), many lenders and servicers continue to face challenges in dealing with delinquent or defaulted commercial mortgage and mezzanine loans (whether held on balance-sheet or securitized). The volume of these “scratch and dent” assets are expected to increase this year and are responsible for continued misfortune by masking positive returns and causing realized losses. Despite this misfortune and the associated headaches, there is appetite in the industry to acquire or aggregate large portfolios of these loans on the cheap, and make a buck or two in the process of restructuring the loans or exercising remedies.

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I'm sitting in the Grand Ballroom at the JW Marriot (filled to capacity) and listening to Tucker Carlson give his thoughts on likely GOP challengers to the President. I've seen him before - he did a great bit with Paul Begala a few years ago at the MBA in San Diego; very likable and very, very funny (told a great story about receiving a call from Donald Trump that I don't think I can reprint here). His early pick for the Republican nominee is New Jersey's Chris Christie.

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The industry descended on our Nation's Capital this morning for the 2011 CREFC conference: "Commercial Lending: The New World Order". It was -2 at Logan when my shuttle took to the air - needless to say I'm more than happy for the opportunity to spend a few days with friends, clients and colleagues in a warmer climate. (Current DC temperature is 24 degrees - not quite Stone Crabs at Joe's, but I'll take what I can get.) 

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In a widely-covered slip opinion issued late last week, the Supreme Judicial Court of Massachusetts denied two securitization trustees’ requests to quiet title with respect to a pair of foreclosed homes. Press reaction was fast and perhaps a touch too furious - CNN Money hailed the Court giving “banks a ‘beat-down’ over foreclosures”, while Reuters used the word “catastrophe”. The Journal saw the decision as a “setback” - probably the more sober analysis (which isn’t meant to downplay the importance of the Ibanez decision – lots of uneasy servicers will be scrubbing mortgage loan files in the coming months). But the decision itself is not, from a Massachusetts’ lawyer’s perspective, terribly surprising and, in fact, could actually be read to ratify certain practices common in securitized lending.

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I have a Leapster Explorer™ on order for my son’s 5th birthday that I seriously hope arrives in the next two days, but in addition to that delivery, there’s a lot of securitization-related rulemaking required or permitted to be delivered under the Dodd-Frank Wall Street Reform and Consumer Protection Act that was enacted on July 21, 2010 (“Dodd-Frank”).

Fewer than half of the rulemaking provisions in Dodd-Frank specify when the required or permitted rule should be issued or go into effect. Some of the Dodd-Frank rulemaking provisions require multiple agencies to issue rules jointly, some provisions require multiple agencies to issue rules separately, several provisions require that rules be issued by one agency in consultation with another agency… Some rulemaking deadlines are based on date of enactment of Dodd-Frank (July 21, 2010), others on the effective date (July 22, 2010, except as otherwise specifically provided in Dodd-Frank).

Below is a discussion about where we are in connection with some of the Dodd-Frank provisions that are of particular interest to the securitization industry.
 

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My New Year began this past Monday morning with the following email from a client (a Giants fan): "Now that football season is over it's time to get back to work". Not quite right for those of us here in New England, but I agree overall with the sentiment (albeit, with this year’s blizzard of year-end deals, not all of us were ever too far removed). Amid last week’s understandably slow news cycle appeared a story in Bloomberg on the growing desire in the private equity sphere for CRE mezz debt. Indeed, the stars seem to be aligning in a way that could mark 2011 as the beginning of a bull market for CRE mezz investors.
 

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While perhaps akin to stories of sixteen foot gators in the New York sewer system, I have heard that there is a physiological basis for suppressing the more painful memories of childbirth which is the species’ way of ensuring that couples have more than one child. Perhaps a similar thing is affecting investors and market participants to allow animal spirits to be rekindled this January.

Oh, I think it’s fair to say that there were precious few animal spirits in January ’08 and ’09 and we were all a bit fluttery at the beginning of 2010, but I think we’ve put the worst memories of the last 3 years’ unpleasantness behind us and appear intent on enjoying the delightful frisson of booming times once again.
 

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