CREFC Annual Conference

Last week, the CREFC Annual Conference was back in its traditional New York venue, which benefitted not only the Manhattan hospitality market’s RevPAR but also provided for an exciting and lively location in Times Square.  Dechert’s bash on Monday evening was extremely well attended and the guests were treated to passed hors d’oeuvres and the (pro bono) musings of finance attorneys.  And while God may hate securitizations, we can at least thank her for beautiful spring weather that allowed the 400 Dechert party attendees to enjoy the event on the rooftop patio.

As usual, Dechert CRE attorneys were well represented at the conference with Laura Swihart serving on the Industry Leaders Roundtable and Rick Jones moderating a panel on Alt-Lending (which is less alternative than one might think as evidenced by an abundance of button-down shirts and not even one face or neck tattoo).

While I would never think to suspect Rick Jones of any arrière-pensée in writing the eyebrow-raising blog post titled, “God Hates Securitization?”, the Friday preceding the Monday start of CREFC, the article certainly provided much fodder for debate (whether intended or not) among conference attendees and was oft quoted. Although it would not be hard to predict that real estate finance professionals would generally agree with Rick’s assertion that “securitization is not an evil tool of perfidious bankers, but a critically important component of our economy”, the article proved to be a rallying cry for CREFC attendees to join forces and fight the narrative that securitization is evil.

Nowhere was this more evident throughout the conference than during the legislative and political panel “Fact, Fiction & Fake News.”  The FF&FN panel stressed how extremely unusual the political climate is today with the retirement of ten republican committee chairman, in addition to House Speaker Paul Ryan.  Changes to regulatory policies likely to affect the CMBS industry were also discussed at length, in the usual acronym heavy legislative speak.  If you missed the session, I’ll make a long story short:  The ARRC (brainchild of the FSB and FSOC) prefers the SOFR more than EFFR or the OBFR to follow LIBOR, however, there is concern that the FED won’t deliver a 1MO vs 3MO benchmark by 2021.  In addition, discussions included the HVCRE, FHLB, CECL and GSE Reform.  If you have any questions on the foregoing, you are clearly not from D.C.

Despite the optimistic remarks made in the welcoming speech highlighting the fact that CRE delinquency hit an all-time post-crisis low in May 2018 and CMBS issuance has risen from virtually nothing to a booming $100 billion industry, the CREFC attendees displayed a cautious and somber mien.    The one question that predominated the conference, and led to some fairly awful sports analogies, was “Where are we in the cycle?”  The panelists on the Rating Agency Roundtable, the “CRE-CLOs: Back in Style” panel and the “Alternative to CMBS” session provided answers that referred to innings anywhere from the sixth to the tenth. While I may not be a big fan of the sports ball, I know that when they stop serving beer, it’s time to go home…or is it?

While the buzzword for the Blockchain panel and keynote speaker Randi Zuckerman was “disruption,” the buzzword for lenders was “discipline”.  Banks and non-banks alike assured attendees that the lending practices were disciplined and controlled.  That lending was done based on the quality of the asset, not the exit strategy.  That, unlike smaller local banking institutions, they were passing on borrowers who pushed the envelope too far.  Even the attorneys noted that their clients were coming to them with questions on whether they were going too far, but the ideas were less avant-garde and more “mind-numbingly boring” than what they were being asked pre-crisis.

While the tenor of the conference indicated a creeping sense of anxiety, that feeling seemed to be based on the fact that everything is going well.  Survivors of the great recession, many of the panelists and conference attendees seemed to be suffering from an economic PTSD, which might be effectively preventing us from enjoying a stable and growing market.  Though it also might be what saves us from repeating 2007.  So what do you say, can we take this game out to the 19th inning?

God Hates Securitization?

The Wall Street Journal recently reported that the Papacy has denounced securitization characterizing it (in such an intellectually balanced way) as tainted by “predatory and speculative tendencies.

Good Lord!

Now, I’m not perfect — I can’t remember the last time I participated in a black mass, inverted a crucifix or committed any of the more striking of your basic mortal sins — but I did close a securitization last week and now I’m worried. Continue Reading

“Pop the Champagne but Don’t Get Too Drunk”: HVCRE Reform Passes the House

When House Speaker Paul Ryan announced earlier this month that the House would vote on S.2155, I wasn’t holding my breath (you know you’re on your last lame duck leg when a “senior GOP lawmaker” says you’ve “run out of juice”).

Miracles do happen AND sometimes I love to be wrong (but – shh…don’t tell my husband): In the spirit of deal making, the House just passed S. 2155 (the Economic Growth, Regulatory Relief, and Consumer Protection Act) with bipartisan support (Yup – the Dems and the Republicans did this in both the House and the Senate…maybe there is more to come!). The President still needs to sign the bill before it becomes law, which everyone expects will happen soon. Continue Reading

D.C. Circuit to CFPB: “Go forth and conquer!” CFPB Responds: “No thanks.”

In seven short years, the Consumer Financial Protection Bureau (CFPB) has managed to court controversy across the political spectrum.  Under the leadership of former Director Richard Cordray, the bureau (for better or worse) tested the limits of its jurisdiction and enforcement power in a wide range of areas, including the Home Mortgage Disclosure Act and Equal Credit Opportunity Act, student loan servicing, and let’s not forget the since-disavowed arbitration ruleEnter new Acting Director Mick Mulvaney, who, along with the rest of the Trump administration, is sending the clearest of signals that he does not intend to “push the envelope” at the CFPB.  In short, the CFPB’s mission has turned inward—instead of policing the markets, it’s policing itself and the regulatory state, and with about the same degree of fervor.

Continue Reading

Life in the Silo

We at Dechert had our annual business meeting last week in Miami (tough duty).  Nestled in the general atmospherics of bon ami and collegiality were sessions on collaboration and connectivity amongst the lawyers in our firm.  Apparently the data suggested that law firms make more money when the partners of the firm work together.  Flash.  The mathematical proof of the blindingly obvious perhaps, but just in case, we were stentoriously and with great seriousness told that these conclusions were based on rigorous and exhaustive academic research; research undoubtedly paid for by the American taxpayer, along with other studies of similar compelling import such as why Americans don’t like lice.

But the point here is (and I’m not for an instant suggesting that making money is not a valid point) that collaboration is now essential to getting anything done right because we have all become so damn specialized.

All professionals and business folks, including those of us in Big Law, are under enormous pressure to be intensely specialized yet issues are never so neatly defined by those specializations which all too often also mark the boundaries of our intellectual domains. Continue Reading

I Hear This Cries Out for Regulation!

As we all marinate in the difficulties of Mr. Zuckerberg, who, at the end of the day, can certainly salve any wounds with a net worth measured in the tens of billions of dollars, I was struck by the continued drumbeat for “REGULATION.”  Now, perhaps I am ill equipped to discuss Facebook, not being a participant and therefore never having clicked through a lengthy agreement on privacy (or the lack thereof), but I have some thoughts.  I’ll largely leave the ethics of the privacy contretemps to others, but I was struck by the parallels between the current kerfuffle over Facebook and privacy and the Dodd-Frank mess, lo these ten years past.

Let’s start with this dictum:  Beware the politician bearing new and comprehensive regulatory gifts for the American people. Continue Reading

Morningstar Requests Comments on Proposed Rating Methodology for SASB Deals

Morningstar has published a proposed method for rating single-asset/single-borrower (SASB) transactions. The new approach is slated to replace the “U.S. CMBS Subordination Model” with respect to SASBs and other forms of CMBS securities with similar credit and diversity profiles, including large-loan transactions and rake certificates. Morningstar has issued a request for comments on the proposal. We plan to provide our thoughts, described below, before the April 20th deadline, and encourage you to do the same. But first, answers to what are sure to be your most burning questions:

Continue Reading

The Day I (Almost) Met Mark Zuckerberg

It’s day 2 of Mark Zuckerberg’s Congressional debut and I still have yet to catch a glimpse of him or his entourage. But – I have had the opportunity, with some fellow industry players, CREFC staff and members of the CREFC-HVCRE Working Group, to meet and speak with members of the House Financial Services Committee (Andy Barr and Trey Hollingsworth), Senate Banking Committee staff and regulators from the FDIC, OCC and the Fed. The topic on hand: not Facebook or Russia, but HVCRE and HVADC. Continue Reading

More Fun with LIBOR

Geeking out, I just finished reading the second report from the Alternate Reference Rates Committee that was just published jointly by the Financial Stability Board (FSB) and the Financial Stability Oversight Council (FSOC) in cooperation with the Alternate Reference Rates Committee (ARRC).  Does that scream bureaucracy in full, or what?  The report runs 40 pages, awkwardly pats itself on the back (with a net back-patting surplus allocated amongst the Federal Reserve, the U.S. Department of the Treasury, the U.S. Commodities Future Trading Commission and the Office of Financial Research) for confirming that we need a LIBOR replacement and the Secured Overnight Funding Rate (SOFR) is way better than the Effective Federal Funds Rate (EFFR) or the Overnight Bank Funding Rate (OBFR).  Ergo SOFR is the ARRC’s preferred alternate rate upon the expiry of the spavined LIBOR. Continue Reading

Dechert’s Cryptocurrency and Blockchain Tracker: The Times They Are A-(Block)cha(i)ngin’

Come gather ‘round people wherever you roam because, with apologies to Bob Dylan, in the past year the blockchain and cryptocurrency waters have grown.   In less than a year these topics went from obscure lore to a multibillion dollar question on most everyone’s mind. From tokenized securities to decentralized ledgers to smart contracts, blockchain technology will fundamentally change the landscape of financial services and real estate as we know it – and fast! In one minute, an initial coin offering (ICO) raised $36 million for a new venture. In one day, cryptocurrency markets can experience Great Recession-level gains and losses. And in the time it took you to read this, a techie in Silicon Valley probably developed another application of blockchain technology to transform an entire industry.

If your time to you is worth saving’ then you better start swimmin’ and we at Dechert are here to help. In order to keep you up to blockchain speed, we at Dechert are excited to provide the Cryptocurrency and Blockchain Tracker, where we cover all of the latest developments in the cryptocurrency and blockchain spaces, including regulatory status updates, tax implications, the use of real estate tokens and ICOs and more.

So if you don’t want to sink like a stone, subscribe to receive email alerts or visit the Cryptocurrency and Blockchain Tracker for more tales from the crypt(o) (and other mediocre puns). And if you want to talk about all of this, please reach out to Rick Jones, Bruce Bloomingdale or Tim Spangler for more information about how blockchain technology continues to affect finance, real estate and securitization matters.