Commentary on the Commercial Real Estate Debt Markets, Economics, Politics and More.
The Wall Street Journal recently reported that the Papacy has denounced securitization characterizing it (in such an intellectually balanced way) as tainted by “predatory and speculative tendencies.”
Good Lord!
Now, I’m not perfect — I can’t remember the last time I participated in a black mass, inverted a crucifix or committed any of the more striking of your basic mortal sins — but I did close a securitization last week and now I’m worried.
Continue Reading God Hates Securitization?
We at Dechert had our annual business meeting last week in Miami (tough duty). Nestled in the general atmospherics of bon ami and collegiality were sessions on collaboration and connectivity amongst the lawyers in our firm. Apparently the data suggested that law firms make more money when the partners of the firm work together. Flash. The mathematical proof of the blindingly obvious perhaps, but just in case, we were stentoriously and with great seriousness told that these conclusions were based on rigorous and exhaustive academic research; research undoubtedly paid for by the American taxpayer, along with other studies of similar compelling import such as why Americans don’t like lice.
But the point here is (and I’m not for an instant suggesting that making money is not a valid point) that collaboration is now essential to getting anything done right because we have all become so damn specialized.
All professionals and business folks, including those of us in Big Law, are under enormous pressure to be intensely specialized yet issues are never so neatly defined by those specializations which all too often also mark the boundaries of our intellectual domains.
Continue Reading Life in the Silo
As we all marinate in the difficulties of Mr. Zuckerberg, who, at the end of the day, can certainly salve any wounds with a net worth measured in the tens of billions of dollars, I was struck by the continued drumbeat for “REGULATION.” Now, perhaps I am ill equipped to discuss Facebook, not being a participant and therefore never having clicked through a lengthy agreement on privacy (or the lack thereof), but I have some thoughts. I’ll largely leave the ethics of the privacy contretemps to others, but I was struck by the parallels between the current kerfuffle over Facebook and privacy and the Dodd-Frank mess, lo these ten years past.
Let’s start with this dictum: Beware the politician bearing new and comprehensive regulatory gifts for the American people.
Continue Reading I Hear This Cries Out for Regulation!
Geeking out, I just finished reading the second report from the Alternate Reference Rates Committee that was just published jointly by the Financial Stability Board (FSB) and the Financial Stability Oversight Council (FSOC) in cooperation with the Alternate Reference Rates Committee (ARRC). Does that scream bureaucracy in full, or what? The report runs 40 pages, awkwardly pats itself on the back (with a net back-patting surplus allocated amongst the Federal Reserve, the U.S. Department of the Treasury, the U.S. Commodities Future Trading Commission and the Office of Financial Research) for confirming that we need a LIBOR replacement and the Secured Overnight Funding Rate (SOFR) is way better than the Effective Federal Funds Rate (EFFR) or the Overnight Bank Funding Rate (OBFR). Ergo SOFR is the ARRC’s preferred alternate rate upon the expiry of the spavined LIBOR.
Continue Reading More Fun with LIBOR
Will 2018 be the Year of Concentration across our market? “The Urge to Merge” was the title of a January 2, 2007 Economist article. It resonates today. The cover photo was two camels copulating, which some of the Economist readers, surely a high-brow and sensitive bunch, apparently found offensive, as the picture is nowhere to be found on the internet. They would not allow me to republish the pic. A priggish fastidiousness that does not reflect well.
Seriously, 2018 could be the year of significant concentration across much of the CRE non-bank space, and perhaps some portions of the prudentially regulated bank space as well.
Continue Reading The Urge to Merge
I don’t think risk retention is applicable to a direct issuance securitization. Many single asset, single borrower (SASB) transactions can be structured to avoid the need to retain risk under the Dodd-Frank Act and the attendant Risk Retention Rule. There. I’ve said it. Read on.
Continue Reading The Astonishingly Shrinking Risk Retention Rule – SASB Transactions Unshackled
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
Did you know that the District of Columbia has assigned officers to enforce its police-your-dog laws? The Poop Police. How low do you have to go, how badly do you have to screw up to be assigned in the District of Columbia to the Poop Police? Do they go under cover? Do they pack heat? In risible juxtaposition to this Singapore-like nod to order and governance, we see our Congress attempting to do tax reform. What a mess. As I write this, the Tax Conference Committee has apparently settled on something and we will likely see a vote in both Houses this week. The belly-scratching, horse trading, posturing and the manufacturing of sly optics…ugh. At least it is almost over. Something to be said for that. It was a sorry exercise.
Continue Reading Our Nation’s Capital Has Dog Poop Police, But We Let the Congress Do This?
