June 2016

Back in early April I observed in this commentary that I wasn’t really sure how much Brexit mattered, at least here in North America.  Of course, looking back, I realized we issued it on April Fool’s Day and now I simply can’t remember whether I was being ironic or not.  In any event, at that time we were exploring the notion that neither in nor out may ultimately affect the arc of the success of the European Union project, the health and viability of the City of London or CRE deal volume in the States.

But now that it’s happened…damn!  We needed another disruption in this volatile economy of ours like we need a social disease.  And while I am absolutely sure that a Remain vote would not have ended the ongoing debate about the future of Europe and its ability to get its sclerotic economy performing again, it sure would have been nice to at least take one issue off the table.Continue Reading Brexit – Okay, I Really Do Care!  (I Think)

The slow start to 2016 did not dampen the enthusiasm at CREFC’s Annual Conference, held last week in New York City.  The conference saw record attendance, with standing-room-only crowds at virtually every panel.  As with the Industry Leaders Conference in January, the hot topics on people’s minds were risk retention (and the rest of the regulatory headwinds), liquidity and the competitiveness of the CMBS market.

The conference made very clear that we are at an inflection point in the current cycle.  The general mood of the conference, in our view, was the confluence of nervousness and cautious optimism.  The gloominess of the first quarter, and fears over the “sky is falling,” has yielded to mild bouts of enthusiasm (at least if the parties were any indication).  The capital markets have settled down over the past few months, spreads have tightened, and borrowers have begun to trickle back into the CMBS market.

Clearly our industry faces headwinds, and nobody is betting on a record second half, but we also did not hear anyone ringing the death knell for our business.  We left the conference with more questions than answers.  Here are some:Continue Reading CREFC Annual Conference 2016: Headwinds or Head First Into the Wall?

With apologies to George Dangerfield, who published The Strange Death of Liberal England in 1935 chronicling the collapse of the British Liberal Party prior to World War I, I’m borrowing his title for this commentary.  Okay, bear with me.  Regrettably, we may be witnessing something happening to our banking system which is somewhat reminiscent of the death throes of one of England’s great political parties. The Liberal Party expired in the years leading up to the Great War not because of some single momentous and metamorphic event, but because of a series of modest crises, each in its own right small bore which, at the time, was not viewed as terribly consequential.  It failed because of the stultifying, dismal and confused responses of the Liberals to these events.  In the end, the party became untenable as a party of government.  Let’s hope no one writes that book about our banking system in the years to come.

Our enormously complex, interdependent, vibrant, entrepreneurial, adaptive, world girding and dynamic U.S. banking system has played a seminal and still critical role in making this economy succeed.  It is now under assault by large segments of our political elites and their attendant and enabling (self-identified) intelligencia.  This fraternity inspired by the twin idee fixe that the Great Recession was caused by the failures and failing, economic, structural and ethical of our banking system and a fabulist conviction that banking can be “fixed.”  This is a chimerical crusade to overturn the business cycle.  Fruitless and dangerous.Continue Reading The Strange Death of the Modern Financial System

On June 6, 2016, the Rapporteur of the European Parliament released a draft legislative resolution to modify EU Risk Retention.  The stated goal of this draft is to promote “Simple, Transparent and Standardized” (STS) securitization.  Since STS securitization assets must be fully self-liquidating, commercial real estate (CRE) is again left out in this proposal; not…

We thought it would be useful to give a quick, interim update on the slow-motion train wreck that is our industry’s response to the upcoming effectiveness of the Risk Retention Rule.  For those of you who have been blessedly snoozing under a rock these past couple of years, the Risk Retention Rule becomes effective on Christmas Eve and applies to all transactions closed (priced?) after that date.  The Rule, to generalize a bit, requires the sponsor of a securitization to retain a 5% vertical or horizontal strip with the additional possibility of laying off some or all of that risk onto a qualified B piece buyer or a mortgage loan originator.  For more detail, please see our OnPoints, our risk retention briefing white papers and many, many back issues of this CrunchedCredit.

Here’s the headline in Muddville in May of 2017:

We As An Industry Are In Trouble. 

We as an industry don’t have a scalable solution to the problem.  We as an industry do not know what this will cost, who will pay for it, and to what extent this is an existential risk to CRE capital formation as it has been conducted for the past twenty-five years.Continue Reading Risk Retention: It’s the Fourth Quarter and the Home Team is Getting Glum