Last week, the CREFC Annual Conference was back in its traditional New York venue, which benefitted not only the Manhattan hospitality market’s RevPAR but also provided for an exciting and lively location in Times Square. Dechert’s bash on Monday evening was extremely well attended and the guests were treated to passed hors d’oeuvres and the (pro bono) musings of finance attorneys. And while God may hate securitizations, we can at least thank her for beautiful spring weather that allowed the 400 Dechert party attendees to enjoy the event on the rooftop patio.
As usual, Dechert CRE attorneys were well represented at the conference with Laura Swihart serving on the Industry Leaders Roundtable and Rick Jones moderating a panel on Alt-Lending (which is less alternative than one might think as evidenced by an abundance of button-down shirts and not even one face or neck tattoo).
While I would never think to suspect Rick Jones of any arrière-pensée in writing the eyebrow-raising blog post titled, “God Hates Securitization?”, the Friday preceding the Monday start of CREFC, the article certainly provided much fodder for debate (whether intended or not) among conference attendees and was oft quoted. Although it would not be hard to predict that real estate finance professionals would generally agree with Rick’s assertion that “securitization is not an evil tool of perfidious bankers, but a critically important component of our economy”, the article proved to be a rallying cry for CREFC attendees to join forces and fight the narrative that securitization is evil.
Nowhere was this more evident throughout the conference than during the legislative and political panel “Fact, Fiction & Fake News.” The FF&FN panel stressed how extremely unusual the political climate is today with the retirement of ten republican committee chairman, in addition to House Speaker Paul Ryan. Changes to regulatory policies likely to affect the CMBS industry were also discussed at length, in the usual acronym heavy legislative speak. If you missed the session, I’ll make a long story short: The ARRC (brainchild of the FSB and FSOC) prefers the SOFR more than EFFR or the OBFR to follow LIBOR, however, there is concern that the FED won’t deliver a 1MO vs 3MO benchmark by 2021. In addition, discussions included the HVCRE, FHLB, CECL and GSE Reform. If you have any questions on the foregoing, you are clearly not from D.C.
Despite the optimistic remarks made in the welcoming speech highlighting the fact that CRE delinquency hit an all-time post-crisis low in May 2018 and CMBS issuance has risen from virtually nothing to a booming $100 billion industry, the CREFC attendees displayed a cautious and somber mien. The one question that predominated the conference, and led to some fairly awful sports analogies, was “Where are we in the cycle?” The panelists on the Rating Agency Roundtable, the “CRE-CLOs: Back in Style” panel and the “Alternative to CMBS” session provided answers that referred to innings anywhere from the sixth to the tenth. While I may not be a big fan of the sports ball, I know that when they stop serving beer, it’s time to go home…or is it?
While the buzzword for the Blockchain panel and keynote speaker Randi Zuckerman was “disruption,” the buzzword for lenders was “discipline”. Banks and non-banks alike assured attendees that the lending practices were disciplined and controlled. That lending was done based on the quality of the asset, not the exit strategy. That, unlike smaller local banking institutions, they were passing on borrowers who pushed the envelope too far. Even the attorneys noted that their clients were coming to them with questions on whether they were going too far, but the ideas were less avant-garde and more “mind-numbingly boring” than what they were being asked pre-crisis.
While the tenor of the conference indicated a creeping sense of anxiety, that feeling seemed to be based on the fact that everything is going well. Survivors of the great recession, many of the panelists and conference attendees seemed to be suffering from an economic PTSD, which might be effectively preventing us from enjoying a stable and growing market. Though it also might be what saves us from repeating 2007. So what do you say, can we take this game out to the 19th inning?