Earlier this month, I and a few of my colleagues here at Dechert attended CREFC’s 2014 High Yield Distressed Realty Assets Summit. The general sentiment of optimism and exuberance for 2014 felt in Miami was not as palpable at the NY Athletic Club, although this may have been brought on more by the fact that this is a distressed debt conference, rather than anything having to do with the market.
The conference kicked off with panels entitled “Market Trends and 2014 Opportunities”, “New Waves of Securitization”, “Non-Bank “Higher Yield” Lenders”, “Litigation Risk for CMBS 1.0 and 2.0”, and “Challenges and Changes in Special Servicing”. On the final day, there were equally as interesting panels entitled “Equity Participations”, “Single Family Residential Rental Securitizations” and “B-Piece Buyers Perspective” and “Note Exit Strategies” (which included Dechert’s own Katherine Burroughs as a panelist).
A few takeaways from the conference are:
- Refis: Where will you be when the $1.4 trillion in CMBS matures between 2014-2017?
- Consider the Lone Wolf Strategy: As more and more lenders compete for the best deals (right price, right sponsor, right market etc.), think about running away from the pack towards new tertiary locations and new asset classes.
- Kick it out? Live with it?: B-piece buyers face concern that “kicking” out a loan from a pool might impact their ability to get future deals with the same securitization program. At the same time, B-piece buyers have to find the balance between not wanting to be locked out of future deals with the reality that cherry picking is not a viable strategy (i.e., if they live with something on one deal, they might need to live with it in (all) future deals).
- Litigation Pitfalls: Think twice before asking a judge the answer—As was aptly noted, before running into court consequences should be carefully considered, as bad law affects all of us greatly.
- Give me More!: The demand for CMBS is there but conference attendees are watching out for credit erosion as the market gets more competitive and the general uncertainty about the long-term health of the economy.
Lots of good advice and (modestly) optimistic tone was heard from the panelists. One thing that was missing was any discussion on risk retention….maybe that conversation is as cold as this winter?