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:
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.
The Urge to Merge
Will 2018 be the Year of Concentration across our market? “The Urge to Merge” was the title of a January 2, 2007 Economist article. It resonates today. The cover photo was two camels copulating, which some of the Economist readers, surely a high-brow and sensitive bunch, apparently found offensive, as the picture is nowhere to be found on the internet. They would not allow me to republish the pic. A priggish fastidiousness that does not reflect well.
Seriously, 2018 could be the year of significant concentration across much of the CRE non-bank space, and perhaps some portions of the prudentially regulated bank space as well. Continue Reading
No “Fake News” Here – Just the Facts on HVCRE
In case you’ve been too busy sifting through fake news to follow efforts to reform the High Volatility Commercial Real Estate (HVCRE) regulations that affect acquisition, development or construction (ADC) loans, here’s where we are and where we think we are going. Continue Reading
IMN 2018 New Hotel Development and Construction Conference
Last week IMN hosted an inaugural New Hotel and Development Conference in New York City. The gathering of developers, hotel operators, brands and other hospitality service providers was very upbeat. Many panelists indicated that they were more optimistic now than they had been six months ago. They credited the state of the macro economy and stimulus provided by the recent tax reforms. Continue Reading
The Astonishingly Shrinking Risk Retention Rule – SASB Transactions Unshackled
I don’t think risk retention is applicable to a direct issuance securitization. Many single asset, single borrower (SASB) transactions can be structured to avoid the need to retain risk under the Dodd-Frank Act and the attendant Risk Retention Rule. There. I’ve said it. Read on. Continue Reading
2018 MBA Conference – Soaring into 2018
Fresh off the Philadelphia Eagles’ first Super Bowl victory, a group of Dechert attorneys and 3,500 of our industry colleagues descended on San Diego for the Mortgage Bankers Association (MBA) CREF/Multifamily Housing Convention & Expo. While those of us on the cross-country flight from Philadelphia were in a particularly jubilant mood, it was clear from the conference that the commercial real estate finance industry was also ready to keep the party going.
I Urgently Want to Report the Deaths of the Non-Con Opinion (But Probably Cannot…Yet)
Our friend, Dan Rubock, just inked an interesting and timely piece entitled, “Key pillars of loan structural quality are eroding, especially in single-borrower deals.” As usual, Dan’s views at Moody’s are worth considerable attention. That piece focused on bad-boy carve-out guaranties, the quality of borrower financial information, property release provisions, qualified transfer provisions and cash sweep triggers. While reasonable professionals can differ on both the incidence and the impact of the deterioration of these deal features, the point is well taken that the deterioration of legal structural features in CRE lending is often a canary in the mine for… excessive exuberance. I’ll put off litigating Dan’s points for a future time, but this got me thinking about all that we do in legally structuring loans for the capital market.
Much of the playbook for capital markets CRE lending was established at the dawn of this business. At that time, Dechert was outside counsel to S&P and for good or ill, Dechert was responsible for much of the early architecture of CRE documentation and legal underwriting. While these criteria have been periodically tweaked over the years and adapted to changes to the underlying CRE lending market, the original architecture is still pretty much in place.
I would posit that it is an industry failing that we haven’t really given legal underwriting a thorough rethink in 30 years. Here’s a start. Continue Reading
