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Notwithstanding, the overall tenor of the conference seemed to be a determined optimism projected against the overarching blanket of volatility.  European instability, a jobless recovery, a newly normalized, lumbering pace of economic growth and a constantly evolving regulatory framework continue to make uncertainty the only sure bet.  As one might expect, a number of clients we spoke with last week are adopting a cautiously optimistic demeanor for 2012 and plan to tread the market’s murky waters slowly.

Will CMBS rebound (or continue to rebound)?  Will the life co's and other non CMBS lenders be able to fill the void?  How will regulatory reform be implemented?  These questions are so 2010, and yet they stay with us.  Depending on who you believe, CMBS output in 2012 is estimated to be anywhere from $25 billion to $45 billion (compared to approximately $28 billion in 2011).  And even if the portfolio lenders have a gangbuster 2012 (which is, in fact, likely), they won't be able to bridge the void left by $360 billion of maturing debt this year.  As for Washington, we can’t even determine a cogent agenda for regulatory reform at this point, much less predict what the rules of the game will look like.

Perhaps we’ll have answers (or at least a lessened degree of uncertainty) by the mid-year in June.  

By:  Matthew Clark and Stewart McQueen

The seminar consisted of a panel of industry specialists representing issuer, investor and legal perspectives: Paul Vanderslice, Managing Director, Citigroup; our own Rick Jones, Partner, Dechert LLP; Tom Doherty, Executive Director, JP Morgan; Ken Cohen, Managing Director, UBS Investment Bank; Brian Furlong, Managing Director, New York Life; and Bruce Martin, Research Analyst, Fidelity. 

The group considered investor motivations related to the public/private distinction, including whether the appetite of some investors in registered securities is driven by limitations on the amount of private paper that they can soak up or driven by a particular desire to diligence the additional information that is available in a private context.  In addition, the panel emphasized the industry’s (thus far unsuccessful) effort to demonstrate to regulators that the CMBS space, in comparison to other asset classes, has traditionally provided voluminous (and adequate) disclosure with respect to underlying assets and deal structure, whether in a public or private context.  So maybe the line in the CMBS sand is not so bright when it comes to a) disclosure -  because public and private books are not that different; and b) investor satisfaction - because some investors just want and can handle more information, while others have limited capabilities to buy private deals. 

With respect to CMBS 2.0, the panel noted some trends across the board for public and private deals: among other things, the inclusion of (1) mortgage loan seller representations and warranties and related exceptions, (2) enhanced (e.g., Reg AB-compliant) asset-specific and party-specific information, (3) investor Q&A forums and (4) the role of the operating trust advisor (which we at CrunchedCredit.com have previously discussed). 

Unsurprisingly, the group could not avoid discussions of risk retention and premium recapture - hot topics that CrunchedCredit.com has also addressed before.  Additionally, the presentation provided timely regulatory updates, including life with (1) Rule 17g-5 (i.e., no talking to, and instead posting of materials for, the rating agencies), (2) Rule 17g-7 (i.e., comparing a deal’s reps to rating agency benchmarks), (3) Rule 15Ga-1 (i.e., reporting and disclosing repurchase demands) and (4) Rule 193 (i.e., requiring issuers to know their assets).

More generally, the panel expressed a common industry sentiment regarding the many regulatory efforts currently on the table:  just make the rules and we will figure it out from there.

If you missed this after-work episode and the related installment of updates, the instant replay is available here on CREFC’s website.  And one thing you can count on is that there is plenty more to come!

By Devin Swaney. 

The discussion began with a summary of where we stand. Pace for domestic CMBS issuance is around $40b in 2011. Obviously, a small fraction of 2004 – 07, but still a big jump from 2010 (let's let '09 alone). Nine US deals have priced so far this year that I’m aware of, and the pipeline is equally encouraging, with reports of six more deals slated for May and June. It's important to note that this activity is occurring at a time of relatively significant uncertainty - no one is quite sure what the landscape will look like when the regulators finally declare victory (especially as it regards risk retention (see also here), and we're still waiting to see how 2.0 best practices will work their way into deals (for instance, whether issuers will adopt the form reps developed by CREFC). Meanwhile, the life companies, as a group, seem to have been the most obvious beneficiaries of the (heretofore) sluggish recovery of CMBS lending – they will essentially match CMBS lending this year and are similarly in-line with bank portfolio lending.

The presentation asked the panel to discuss their approach to a series of hypothetical properties – the stabilized, suburban office complex, the un-stabilized downtown office tower, the grocery-anchored retail development, the urban boutique hotel - and to explain their strategies for hitting the bid. The similarities among the panelists analysis was striking as each walked through their concerns on the underlying fundamentals (location, tenant mix, sponsorship, recourse). The major differences? Surprisingly (or maybe not surprisingly) not nearly as pronounced. At this point in the cycle, the Life Co's and Banks are competing (more or less) for the same deals as the CMBS lenders (albeit, it seems these days, the Life Co's are winning). There was some concern expressed that this may drive CMBS lenders to lowering underwriting standards. I’m less cynical on this point – from what I can tell, CMBS lenders - for these past four years cast as the Azazel of all that is poor underwriting - are looking at the same fundamentals as everyone else.

After the event, I joined some colleagues for dinner with clients … clients that were delayed a full hour at the office. More green shoots, I suppose. It will be a really good sign when industry "After-Work" seminars don't get rolling until at least 8:30.

By Matthew Clark.