January 2018

Our friend, Dan Rubock, just inked an interesting and timely piece entitled, “Key pillars of loan structural quality are eroding, especially in single-borrower deals.”  As usual, Dan’s views at Moody’s are worth considerable attention.  That piece focused on bad-boy carve-out guaranties, the quality of borrower financial information, property release provisions, qualified transfer provisions and cash sweep triggers.  While reasonable professionals can differ on both the incidence and the impact of the deterioration of these deal features, the point is well taken that the deterioration of legal structural features in CRE lending is often a canary in the mine for… excessive exuberance.  I’ll put off litigating Dan’s points for a future time, but this got me thinking about all that we do in legally structuring loans for the capital market.

Much of the playbook for capital markets CRE lending was established at the dawn of this business.  At that time, Dechert was outside counsel to S&P and for good or ill, Dechert was responsible for much of the early architecture of CRE documentation and legal underwriting.  While these criteria have been periodically tweaked over the years and adapted to changes to the underlying CRE lending market, the original architecture is still pretty much in place.

I would posit that it is an industry failing that we haven’t really given legal underwriting a thorough rethink in 30 years.  Here’s a start.
Continue Reading I Urgently Want to Report the Deaths of the Non-Con Opinion (But Probably Cannot…Yet)

South Beach played host to the 2018 CREFC January Conference last week, as roughly 1,800 of our best friends in the CRE lending and securitization industry assembled in Miami to reflect on another year gone by and to muse about what’s in store (or out of store, in the case of retail) for 2018. In keeping with tradition, Dechert’s reception at the SLS Hotel was a hotbed of schmoozing, deal talk and employment fair, as over 400 guests took a break from discussing the SEC to… watch the SEC. The excitement of the Alabama-Georgia national championship game was a welcomed excuse to extend the party well beyond the official ending time (a move that is quickly becoming an expected budget buster for this annual event).

As usual, Dechert was well represented at the conference. Dechert’s Laura Swihart served as conference co-chair, and Rick Jones moderated a riveting (ok, not so riveting) panel on “Floating Rate Loans: Circa 2018”.

Conference panelists and attendees were generally bullish, and why wouldn’t they be after a 2017 that saw $95.3 billion in U.S. CMBS issuance (not including the GSEs). For color, that number is up more than 25% from 2016. Not a bad way to usher in the risk retention era.
Continue Reading 2018 CREFC January Conference – Plateau or Status Quo?

Around this time of year, we slip on the prognostication goggles and take a look forward into the next year.  While there is ample evidence that prognostication is a dodgy exercise, I always tell my folks that the fact that it’s hard to do and extraordinarily unreliable is not an excuse not to have a view.  To not have a view is actually to have one and just not acknowledge that you do.  It doesn’t matter how unlikely we are to get it right: planning beats clinging to guns, God and Brownian motion as a model for the well-lived life.
Continue Reading In 2018 We Are: (a) Doomed, or (b) in the Warm Embrace of Goldilocks