Winter is surely coming. One might hope it will arrive without the sorcery, murder, mayhem and intrigue of that memorable HBO show, but surely it will be freighted by its own quantum of trauma and anxiety. Actually, what am I saying? Winter is coming? Winter is already here, but many have elected to not yet get out of the comfy confines of our Barcaloungers and walk outside to notice.
Welcome to the New Normal – Funny Times Revisited
Several weeks ago, I wrote a commentary called Funny Times in which I bemoaned the complete lack of coherent data, making the process of predicting the course of interest rates, cap rates and transactional velocity over the next couple of quarters awfully hard. This uncertainty, itself, contributes to a knock-on doom cycle sort of way to depressed animal spirits and transactional activity.
The CRE CLO is Coming Back Soon: Who You Gonna Believe, Me or Your Lying Eyes?
I’ve written extensively about the CRE CLO technology for a long time and why it is the best leverage technology across securitization markets. With the sponsor typically holding up to 20% of the bottom of the capital stack, it represents the best alignment of interests between sponsor and investor. For the sponsor, it provides unique, non-mark-to-market, match term financing, otherwise simply not available across CRE markets.
Funny Times
What funny times in which we live; an observation perhaps highly dependent upon your notion of fun. Maybe curious is the better description. Daunting? Frightening? Opaque and unknowable? All probably good descriptions. True of politics. True of business.
Sticking to business, it’s hard to get conviction around anything right now. Nonetheless, we must. Everyone needs a view as to where our business world is going, a base case, something on which you would be prepared to invest time, energy and treasure. It’s simply untenable to merely observe that things are pretty screwy out there and shrug. The lack of a view on where the economy is going and how to conduct business in this current environment is, in effect, a commitment to let unreflective inertia be your guidepost and that’s not a good idea. (I’d use pococurante, but that’s a silly fifty cent word, so I won’t.)
As this difficult year has progressed, questions remain: Which strategies are viable and which are not?
The CRE CLO Repurposed: Part II
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? [1]
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?
