2017 CREFC Annual Conference: Into the Heart of the Swamp

Washington, DC SkylineCREFC held its Annual Conference last week in Washington D.C. Given the current politically charged climate, 2017 felt like a very appropriate time to move the Annual Conference from its traditional home in New York to Washington. Although attendance was down slightly from last year, over 1000 people attended the conference. Dechert hosted a reception on Monday at The Source restaurant for 250 friends and colleagues, where the excellent food and free flowing drinks lasted well beyond the official closing time.

The conference featured a number of new panels this year, including panels on the state of retail and the New York City real estate market. As usual, Dechert was well-represented in the panels and meetings. Dechert’s Dave Forti participated in a panel on “The Art of the Deal: Large Loan Challenges in 2017”, which discussed the current state of the large loan market and the challenges facing single-asset single-borrower (SASB) securitizations. One highlight of conference was the industry leaders’ round-table, which included Dechert’s Rick Jones and Laura Swihart, who closed out the roundtable in typical satirical, Washington fashion (Covfefe anyone?) Continue Reading

Let’s Just Fess Up and Agree, Loans are Dodgy Things:  FASB’s New Growth Killing Rule on Loan Losses

Just when you thought it was safe to go out at night again, another reason not to deploy capital is slouching into Bethlehem. We’ve written a lot here at CrunchedCredit about the Damian-like progeny of Dodd-Frank and Basel, but we’ve let this one slip through the cracks. And, boy, oh boy! – We need to pay attention to this thing. We’re talking FASB.

Okay, so what’s this all about? The story starts in Norwalk, Connecticut back in the 1970’s. The accounting industry at that time, chartered a private institution known as the Financial Accounting Standards Board (FASB) to establish financial accounting and reporting standards for public and private companies complying with Generally Accepted Accounting Principles (GAAP). A powerful organization was born. FASB still sits today in leafy Norwalk, Connecticut and generally beavers away in relative obscurity, tinkering with GAAP standards, both large and small. Periodically, however, the Board tosses a Zeus-like bolt of lightning from on high masquerading in the clothing of dry, dusty guidance to auditors which fundamentally changes how business is conducted. (Btw, let me tell you, Norwalk makes a pretty crappy Olympus).

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Monty Python Dead Parrot? Risk Retention and the Third Party Purchaser

John Cleese, one of the great classic philosophers of the mid-twentieth century, made that inauspicious (from the perspective of the Shop Keeper) observation, “This parrot is dead!”  To which Michael Palin responded that it was merely resting.  (It’s better in drag and with the East Ender accent, but you get the idea.)

The Parrot skit [I wish I could link you to YouTube here, it is really very funny, but the damn lawyers here won’t let me.] came to mind recently as I attempted to negotiate yet another Third Party Purchaser (TPP) Agreement in risk retention land.  As everyone knows and is heartily sick of hearing, all securitization transactions now require the sponsor, or in commercial real estate deals, a third party purchaser, to hold risk retention securities in accordance with the breathtakingly vacuous Risk Retention Rule.  At Dechert, we did one of the pre-effective date pretend risk retention deals and, our TPP agreement was a weighty six pages long.  Since the Rule became real, TPP agreements have metastasized into much longer, more complex documents raising numerous dauntingly trying questions.

I have begun to wonder whether the risk retention TPP agreement is already near its death bed just some brief months following its birth.

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Have Yourself a Very Trumpy Tax Plan

Well, we’ve had the big reveal and the administration’s new tax plan is out.  This plan, announced with a great deal of fanfare, feels more like a campaign promise than an actual executable plan.  At two hundred forty-six words from end to end (four different typesets, three different fonts, three colors, weird spacing and a sad little dash at the top), anyone who was hoping for clarity and a plan to go to the bank on, is either disappointed… or perhaps relieved.

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New Accounting Rules Regarding AUPs Taking Effect May 1, 2017:  More Fun for a Battered Industry

The Auditing Standards Board (the “ASB”) of the American Institute of Certified Public Accountants recently released new standards as part of the “Attestation Clarity Project” with the goal of redrafting all its standards “in clarity format” (what format were they in before?  And, while we’re at it, can we try to use English here?  Clarity format?).  This Project will require compliance by bankers and issuers with very specific disclosure obligations (reps?) before the auditors will issue an Agreed Upon Procedures Letter (AUPs) for securitizations.  Some of this formalized existing practice, but the changes go further and are far more prescriptive.  A “new letter of representation” from the party who hires the auditors (the “Engaging Party”) is required as well as similar letters from the parties providing the data that the auditors are reviewing (each, a “Responsible Party”).  These new rules will become effective on May 1, 2017.  Any AUP that is issued after May 1 will be subject to the new rules.

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The Dilemma of the Really Annoyed Borrower

Since my earliest days in the CRE capital markets biz, there has always been a drumbeat of grumbling from the borrower community about the annoying complexity, expense and delay of having one’s loan serviced in a capital markets transaction.  It’s been going on forever.  Like noise, like listening to Brits complaining about their weather; it’s ubiquitous, apparently personally gratifying, but largely inconsequential for outcomes.  The business goes on.  Data indicates that as many as 60% of all new CMBS loans come from refinancing non-CMBS loans, so it’s  not like a structured finance ghetto here.  The sell side takes comfort from the old saw that no sensible borrower would go to the CMBS window except as a last resort… like, three basis points or five bucks in extra proceeds.  Ok, that’s a tad too harsh and dismissive.  But going to the capital markets window for lower rates, more proceeds or less recourse is entirely rational.  On the other hand, the narrative about the pain through servicing in the capital markets is also real. Continue Reading

Dechert LLP and Richard D. Jones Recognized for Industry Leadership

It is awards season and we here at Crunched Credit have much to celebrate!

Dechert LLP named “Law Firm of the Year” by PDI, PEI and PERE

Dechert LLP was recently honored in five “Law Firm of the Year” awards across Europe, the Americas, and Asia by Private Debt Investor (PDI), Private Equity International (PEI) and Private Equity Real Estate (PERE), respectively. The PDI Awards 2016 named Dechert “Law firm of the Year in the Americas,” for the second consecutive year. Dechert was also honored as a finalist in Europe. PDI award winners are nominated and voted upon entirely by industry participants and service providers.

Dechert’s Representation of Private Investment Funds Recognized

Dechert finished in second place in the PEI Awards 2016 for the Asia-Pacific Region, in connection with which it was lauded for its outstanding work representing private investment funds, particularly in matters involving fund formation, and also placed second in the “Law Firm of the Year in Asia-Pacific (Secondaries)” category. The PEI Award winners are nominated by the publication itself based on feedback from a broad swath of industry participants; nominees are then voted upon by PEI’s readership.

Dechert’s significant representations and achievements in fund formation garnered it recognition as a finalist in the PERE Global Awards 2016, which honor leading industry participants in the private real estate markets and are also decided by industry vote.

Richard D. Jones named Top Investment Management Author

Crunched Credit’s blogger-in-chief, Richard D. Jones, has been recognized as a Top Author in the Investment Management industry category in JD Supra’s 2017 Readers Choice Awards. Readers of Crunched Credit know Rick as a thought leader with a style of writing all his own (just last week he mused, “our business will continue to grind along in a kind of middling trailer trash Goldilocks sort of way”), so please join us in congratulating Rick on this achievement.

This is the second year that JD Supra has given these awards, which acknowledge top authors and firms for their excellent reach with readers in a specific industry or for thought leadership writing on a key, cross-industry topic. The awards are tallied based upon the total number of reads an author had over the course of 2016; and we are thrilled that Rick was named among the top 10 out of 6,000+ in the investment management category! From all of us here at Crunched Credit, thank you to the readers who voted for Rick’s work and we look forward to another year of blogging about the black and/or orange swans on Crunched Credit.

We would like to offer our sincere and humble thanks to those who participated in the voting for these awards.

Reading the Financial Tea Leaves: CREFC Market Outlook Survey 2017

CREFC has surveyed some of its attendees—all major participants in the commercial real estate finance industry—at the 2017 CRE Finance Council January Conference in Miami.  CREFC’s 2017 market outlook survey confirmed what we observed at the conference this year, that for the most part survey respondents were cautiously optimistic in the face of the Trump Administration, Risk Retention and movement near the peak of the real estate cycle.  We decided to dig a little deeper to see how this year’s survey responses differed from last year’s. Armed with the benefit of a little hindsight, let’s consider the year we had, the year we expected, and the year we’ve just begun.

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Observations from SFIG Vegas 2017 Conference

SFIG Vegas 2017, which took place last week at Aria Resort & Casino, was the largest capital markets conference in the world, according to the Structured Finance Industry Group. With over 6,300 registered attendees, and I suspect thousands more who came to Vegas to attend meetings without registering for the conference, it’s hard to imagine that anyone in our industry wasn’t in Vegas last week. And while the weather in Vegas during the conference was unseasonably chilly, there was the warm glow of an industry feeling pretty good about its prospects inside the conference halls. The conference agenda was jam packed and the mood upbeat.

There was a lot to catchup on since our last industry-wide get together last September at the 22nd Annual ABS East conference. Donald Trump was elected President, an outcome that was uncertain at best five months ago. The Fed raised interest rates. Risk retention arrived (effective December 24, 2016) with seemingly little fanfare (although for those of us on the legal side, we appreciate all the legal work it created). The DOW set new records throughout January and February in its second-fastest rise in U.S. history. And Angelina Jolie filed for divorce from Brad Pitt. Four out of five of these topics were the focus of much discussion at the conference. I won’t say which one was left out.

Based on panels and side conversations:

The industry as a whole seems to have cleared the risk retention hurdle with limited disruption.

  • Although some industry players think there is a possibility of repeal of large portions of Dodd-Frank under the new administration, most seemed to think that a full repeal is improbable.
  • Spreads are expected to continue tightening while Treasury and LIBOR rates continue to creep upwards. All this seems consistent with steady growth ahead in the near term. Beyond that, if only I knew.
  • While some commentators believe we are nearing the end of this cycle, no one seems to be sounding alarm bells.

The conference sessions overall were lively and well attended. One of my favorites was keynote speaker Joe Scarborough, co-host of MSNBC’s Morning Joe and a former member of Congress, offering his perspective on the current political climate. He was careful not to offer any predictions. But in the end he assured us that “Americans can be trusted to do the right thing… once they have exhausted all [other] possibilities.”

Another highlight of the conference was “Blockchain University,” a series of sessions intended to give participants an understanding of the technology behind blockchain and how it can be utilized in capital markets. For those of you who are not particularly sure what blockchain is all about (no need to be embarrassed, let’s be honest), I am probably not the right person to explain it, but I get the impression that blockchain today may be similar to what the internet was 25 years ago – we have a sense that it’s important, but few can yet explain what it is.

And thus another conference drew to an end. After four days of meetings and learning, it’s good to get back to work to find inboxes full of email and offices abuzz with activity. Certainly feels like 2017 is off to a good start. See you all at the next one!

New Year! New Administration! Same EB-5 Dilemma!

Since 2015, we here at Crunched Credit have tracked, followed and discussed the developments (or lack thereof) concerning the Immigration Investor Program, more commonly known as the “EB-5 Visa Program.” Throughout the past year, we’ve witnessed the approval of several extensions of the EB-5 Visa Program and in each instance, no substantive changes were included—these extensions were solely put in place in order to prevent the expiration of one of the most successful investment programs. Continue Reading

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