I wrote about the disconnect between our CRE CLO technology and the task at hand (finding acceptable lever in an expanding leverage desert) in my last commentary. While the CRE CLO remains the best form of match-term, non-marked-to-market finance for portfolio lenders and represents the best alignment of interests between sponsor and investor across the capital markets, it’s a tool without a job now. The question raised last time, and again today, is: Can it be repurposed to do jobs that are in need of doing right now?
Fix the CRE CLO, Mr. Market: Tear Down This Wall!
CRE CLO technology is languishing in the toolbox. A combination of high interest rates, a mispriced legacy book, an anxious investor base and no real need to refresh capital until borrowers start borrowing again is largely responsible. When a tool just doesn’t work anymore, you don’t throw it away, you fix it. I like this particular tool. The CRE CLO was, and will again be, the best match term, non-marked to market leverage technology in the CRE space and simultaneously represents the best alignment of interests between deal sponsor and investor. It just doesn’t, as currently configured, work right now.
Sometimes, It Really Is a Duck: What If Things Are About to Go Bad?
Conspiracy theory fans, tin-foil hat wearers everywhere, Nostradamus wannabes, the broadly unhinged and, of course, our professional purveyors of doom and gloom roosting on evening cable news see patterns where there are none, embrace straight-line projections based on disparate and unrelated data and loudly and often shrilly bleat that the end is nigh. That’s all good for ratings (almost as good for ratings, which is why we hear so much of it, as talking about Donald Trump… which for many amounts to generally the same thing).
Opportunities in a Time of Broken Banks
Well, it’s been an interesting week and a bit. First Silicon Valley Bank and Signature Bank were closed by their respective State banking authorities with the FDIC stepping in as receiver and then the extraordinary action by the Fed and Treasury to address liquidity concerns and a bunch of rather disingenuous assurances from the great and good that all is well. What actually happened? We’ll undoubtedly learn more over the next couple of days and weeks, but in the meantime, we need a plan.
The SEC As Bad Santa: The Proposed Securitization Conflict Rules
The current administration’s legislative initiatives are largely bottled up in a split Congress, so the path toward achieving the White House’s policy priorities runs almost exclusively through the executive order and rule-making process and boy, have they worked it hard.
But Santa is coming down the chimney delivering lumps of coal so often these days, his knickers are smoldering (I hope they do). The pace of regulatory initiatives from the White House, the Department of Labor, the FTC, the CFPB, from the Fed banking regulators and the SEC has been blistering and shows no signs of abating. Comments are due March 27, 2023.
Birds Do It, Bees Do It, Even Educated Fleas Do It. Should The CRE Securitization Industry Advertise? 
If the wisdom of crowds has any validity (and there’s no real evidence that it’s any worse than the pontifical huffings of the chattering class), then there’s hope for 2023. Optimism did itself proud at CREFC. We’ll see if that optimism is recapitulated at SFVegas and at the MBA CREF meeting coming up in the next few weeks. It has been said that we’re capable of talking ourselves into a recession. Are we capable of talking ourselves out of one?
To Hell with Predictions; I’m Embracing My Inner Fabulist This Year
Each year about this time, I sit down and try to cobble together predictions for the performance of the economy and the performance of the CRE market in the coming year. Of course, I’m wrong every time. It’s not for lack of trying. I do try to think hard about where we’ve come, what things are likely to impact our market, add a splash of uncertainty and voila, predictive omelet…or more likely, dumpster fire. I give up. Tee up Yogi Berra. Periodically, amongst the prognostications wrapped in faux sagaciousness, I and other talking heads actually get one or two things right. More Brownian motion than insight. If you predict enough stuff, something is bound to actually happen.
2022 Golden Turkeys
It’s Golden Turkey Awards Time, Folks!
Our Turkeys are a little late this year but hey, we’ve been busy worrying about the collapse of the world’s economy. This is the 10th edition of our Turkeys and much thanks to our disorderly, often dysfunctional, regularly inscrutable and absurd government, polity and marketplace for continuing to provide us with materials for this annual compilation of that we find most silly, absurd and worthy of a Turkey.
Last year at this time, the market was on fire. I was shocked that we actually found time to put out a Turkey. This year, the market looks more like a smoldering ruin rather than a roaring bonfire, but hey, maybe that means we have an upside to look forward to. So, with irrational exuberance and hope that sometime in 2023 it’s better than now, here are our 2022 Turkeys. Continue Reading
CREFC Capital Markets Conference Recap
On October 26, 2022, Dechert partners Laura Swihart and Stewart McQueen attended the CREFC Capital Markets Conference in New York City. Stewart gave opening remarks and Laura moderated a panel on the current housing market and its intersection with multi-family, single-family and build-to-rent properties. Laura and Stewart sat down with Law Clerks Jared Goldstein and Sarahan Moser to recap the conference. Continue Reading
Auto ABS: Uncertainty and Excitement Ahead
Recently, Dechert Partner Sarah Milam partook in an auto ABS panel discussion at ABS East in Miami, Florida. Sarah and four distinguished panelists discussed the state of the ABS auto loan market, issuance, yields, collateral performance, ESG trends, and deal structures. Sarah sat down with Associate Griffin Hamilton to recap the conference.