Beds without Heads: Hotels in the Era of the Coronavirus

The spread of COVID-19 has created a new reality for the hospitality industry. As of March 25, the CDC reported 54,453 confirmed cases in the U.S., and the number is expected to grow exponentially. In the hopes of slashing infection rates, governments have implemented international travel bans, shelter-in-place orders and other restrictive measures. The second-most popular tourist destination in the world, Spain, has ordered all its hotels and other tourist accommodations to be closed. Continue Reading

Beware of Global Elites Bearing Consensus

Trigger Warning:  If any of you, my readers, or your senior management, who might actually read this, are card carrying members of the global elite, please be assured that I am only talking about other people here. 

This season of election insanity, where only big ideas packaged in often eye rolling tropes have their day (you don’t get elected by saying, “Vote for me and I will make a couple of small annoying things just a little bit better”) got me thinking about where all these big ideas came from.  They come from think tanks, academics, opinion makers and talking heads of all sorts, of course, or, as they would say, the global opinion elite.

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OnPoint: Flood Insurance, Commercial Real Estate and Climate Change

The commercial real estate finance industry is facing substantial challenges due to climate change, particularly with respect to extreme flooding. As flood events continue to occur more frequently and with greater severity across the US, the role of the Federal Emergency Management Agency (FEMA)—and its administration of the National Flood Insurance Program (NFIP) and flood zone maps—are coming under greater scrutiny as part of overall assessment of risk and reward in commercial real estate finance and development. How are state and local governments, lenders, insurance companies and industry groups reacting to the inherent weaknesses of flood insurance combined with the greater number of damaging floods that are threatening commercial real estate? To find out, read Flood Insurance, Commercial Real Estate and Climate Change by Jason S. Rozes and Alexandra M. Hill.

Quick Note: The NY Fed is Publishing Compounded SOFR Screen Rates

The Federal Reserve Bank of New York announced last week that it will be publishing “Average SOFR” for 30, 90 and 180 days on its website starting on March 2, 2020. The confusing thing about this announcement is that the Fed has named these rates the “SOFR Averages” when the rates clearly use the ISDA Compounded SOFR methodology.  The NY Fed will also publish a “SOFR Index” which will allow users to calculate Compounded SOFR for a custom period of time.

The published SOFR Averages are likely to be used by consumer cash products only.  Most commercial cash products will switch from LIBOR to a 1-month or 3-month Compounded SOFR rate (assuming that Term SOFR is not available).  Although it is possible to use the NY Fed’s SOFR Index to calculate 1-month or 3-month Compounded SOFR, it is likely that most market participants will use Compounded SOFR screen rates to be published by Bloomberg starting later this year instead.  One last point—any of these published rates could be used for setting Compounded SOFR “in advance” or “in arrears”.

Life in the Time of Conferences: CREFC, CREF and SFA

With apologies to Mr. Marquez for repurposing the title of his haunting book, it’s conference season here in CRE and ABS securitization-land and therefore a time to reflect (more Marquez) on the risks that the world will become more disorderly, or whether we will progress gently from a perfectly fine 2019 to 2020.  We attended CREFC in Miami, are currently attending MBA CREF in San Diego and SFA in Las Vegas (as mere vendors, we don’t get to go to Beaver Creek, more’s the pity). After having seen thousands of our best friends, we’ll have a pretty good sense of what the market thinks of 2020.  We’ve already published our outlook for the year, but now we test it against the wisdom of the crowd (or perhaps herd is closer to the mark). Continue Reading

Top 10 Things to Know About the Final HVCRE Rule

The Federal Reserve, OCC and FDIC have (finally) issued the Final HVCRE Rule (for background, our analysis of the 2018 Notice of Proposed Rulemaking and 2019 Notice of Proposed Rulemaking are here and here), regarding High Volatility Commercial Real Estate (HVCRE) regulations that affect acquisition, development or construction (ADC) loans made by banking organizations that are subject to the capital rule, including bank holding companies, savings and loan holding companies and U.S. intermediate holding companies of foreign banking organizations. The Final HVCRE rule becomes effective April 1, 2020. Here are the Top 10 takeaways from the Final HVCRE Rule:

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It’s Time to Originate a SOFR Loan! Really!

It is time to start originating Single Asset Single Borrower (SASB) large loans priced on SOFR.  There, I said it.  Not just LIBOR indexed loans containing a SOFR fall back when LIBOR inevitably goes away, but new loans indexed to Compounded SOFR, implementing all the necessary tweaks to documents, systems and processes to make that work now! Continue Reading

2020: An Outlook

One of the good things about the 24/7 news cycle, perhaps one of its few positive externalities, is that it’s a boon for the pontification business. It enables all sorts of otherwise serious people to make fools of themselves day in and day out predicting generally gloomy stuff, as sunshine doesn’t sell.  As a card-carrying member of the chattering class, this empowers me to publish periodic outlooks about the future with little risk of any fundamental embarrassment.  It’s sort of a no risk undertaking, isn’t it?  If you happen to get something right (think blind cat finding dead mouse), you can claim to be a star.  If you get it wrong, well, everyone else got it wrong, too – and often on national television.

The other thing we’ve got going for us in the bloviating business is that we remain in fraught and friable times.  We are running short of good synonyms for shock and outrage and struggling to describe what might actually be viewed as extraordinary.  What really does extraordinary mean these days?  These make good times for the prediction biz.  It’s not much fun making predictions when not much changes.  Imagine that poor sod, talking to the Pharaoh during the Old Kingdom after reading many entrails,  I foresee…nothing really changing for 2000 years; more news at 11.

Unburdened by much of the way in data and little in the way of anxiety about getting it wrong, I’m ready to tell you all about 2020:

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Ode to Optimism:  I’m Proudly Bullish (and not embarrassed to say so)!

‘Tis the season and I think it’s way overdue to put in a good word for sunny optimism.  It’s been a while since the Golden Turkeys, and I apologize for being offline.  This having to work for a living gets in the way of serious bloviating.  Here is what is bothering me.  The overall tone of the national dialogue as mediated through the mass media seems overly dark and bleak.  The Sunday talk shows and the business press seem to deliver day in and day out an entirely untoward and, in fact, largely data free bias toward pessimistic outcomes and gloom.  I think that’s wrong (so I’m really writing about how stupid and obdurately mule-headed, faux sophisticated pessimism about virtually everything really can be, but ode to that made for an awkward title.) Continue Reading