Commercial Mortgage Finance

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Since my earliest days in the CRE capital markets biz, there has always been a drumbeat of grumbling from the borrower community about the annoying complexity, expense and delay of having one’s loan serviced in a capital markets transaction.  It’s been going on forever.  Like noise, like listening to Brits complaining about their weather; it’s ubiquitous, apparently personally gratifying, but largely inconsequential for outcomes.  The business goes on.  Data indicates that as many as 60% of all new CMBS loans come from refinancing non-CMBS loans, so it’s  not like a structured finance ghetto here.  The sell side takes comfort from the old saw that no sensible borrower would go to the CMBS window except as a last resort… like, three basis points or five bucks in extra proceeds.  Ok, that’s a tad too harsh and dismissive.  But going to the capital markets window for lower rates, more proceeds or less recourse is entirely rational.  On the other hand, the narrative about the pain through servicing in the capital markets is also real.
Continue Reading The Dilemma of the Really Annoyed Borrower

SFIG Vegas 2017, which took place last week at Aria Resort & Casino, was the largest capital markets conference in the world, according to the Structured Finance Industry Group. With over 6,300 registered attendees, and I suspect thousands more who came to Vegas to attend meetings without registering for the conference, it’s hard to imagine…

Since 2015, we here at Crunched Credit have tracked, followed and discussed the developments (or lack thereof) concerning the Immigration Investor Program, more commonly known as the “EB-5 Visa Program.” Throughout the past year, we’ve witnessed the approval of several extensions of the EB-5 Visa Program and in each instance, no substantive changes were included—these extensions were solely put in place in order to prevent the expiration of one of the most successful investment programs.
Continue Reading New Year! New Administration! Same EB-5 Dilemma!

The doctrine of substantive consolidation (generally- the power of a bankruptcy court to consolidate the assets and liabilities of affiliated entities in bankruptcy) is a recognized remedy exercised by bankruptcy courts – one that strikes fear into the hearts of many lenders. Justifiably so. The doctrine can be employed to order the substantive consolidation of related-debtor entities in bankruptcy and it can also be employed to substantively consolidate the assets of a debtor in bankruptcy with those of a related entity that is not a debtor in bankruptcy. Picture this: A parent entity files for bankruptcy and all the goodies are in a series of subsidiaries and the companies have never respected corporate niceties. The bankruptcy court presiding over the bankruptcy of the debtor-parent entity orders that the non-bankrupt SPE borrower will be dragged into bankruptcy and its assets used to satisfy the creditors of both the SPE borrower and the parent. Ta da.
Continue Reading Substantive Consolidation: It’s Alive and Well (or Maybe Just Alive)

As we are just inking one of the very first pre-risk retention effective date risk retention deals (Potemkin Village anyone?), we are also seeing an increased flow of what are generically referred to as CRE CLOs. It’s time to consider how the Risk Retention Rule (the “Rule”) will apply to this growing market technology.
Continue Reading Risk Retention and the CRE CLO

Your correspondent is fresh from the front-lines of the risk retention wars where great armies of lawyers, bankers and advisers are fixedly staring at each other, staring out of the redoubts of their respective defensive crouches in a complex, multidimensional chess game.  All are fervently hoping against hope that something or someone does something to create clarity and allow our business to pivot around this new set of rules so it can continue to thrive.  I think all of us in the finance world are justifiably proud of the fact that if we are given a set of rules, we’ll figure out how to conduct business.  But the uncertainty here is freezing everyone in place, a giant front court pick that we can’t seem to get around.  But one thing is certain and that is that Christmas Eve is coming and with it this Rule will become effective.  After having obsessed about the Risk Retention Rule for years now, we are broadly no closer to clarity about how one should play in the soon to be upon us risk retention world.
Continue Reading A Report From the Risk Retention Front-Lines

I’d like everyone to go out and buy a copy of Professor Paul Mahoney’s slender new book, Wasting a Crisis – Why Securities Regulation Fails.  Paul is a brilliant guy.  Until this spring, he was the dean of the University of Virginia School of Law where he is the David and Mary Harrison Distinguished Professor of Law and the Arnold H. Leon Professor of Law, teaching securities laws.  This is a great book and an important read.  Paul argues cogently that:
Continue Reading Why Regulation Fails

It seems fitting that Marriott’s upcoming acquisition of Starwood Hotels & Resorts (creating one of the largest hotel companies in the world) is anticipated to occur during the prime summer vacation season.  The combined company will be comprised of more than 5,500 hotels and 30 brands.  By way of comparison, Hilton is comprised of over 4,600 hotels and 13 brands and International Hotels Group is comprised of over 5,000 hotels and 10 brands.
Continue Reading Coming to a Hotel Near You: The Starwood-Marriott Merger

And now to return to our commentary a few weeks back about the stultifying impact of ill-thought through rules and regulations (at best) (Brexit has intervened).  This is our Regulatory State which broadly attempted to pick winners and losers and modify market behavior, to get an engineered outcome by using the blunderbuss of proscriptive rules and regulation.
Continue Reading A Trip Through the Labyrinth – The Regulatory Man in Full

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?