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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?

Every once in a while we get some good news around the capital markets hood and this is one of those times.  Admittedly, all we’re doing here is fixing a problem which was one of the unintended consequences of the Dodd-Frank regulatory regime and just gets us back to where we thought we were before the issue arose, but hey – a victory is a victory. 
Continue Reading Third Party Purchaser Agreements Don’t Destroy Sale Treatment: A Victory for the Unintended Consequences Resistance

As we look back each November to bestow the year’s crop of Golden Turkeys to the silliest and most annoying instances of regulatory overreach, legislative inanity, governmental misfeasance or the mere idiotic behavior of people without any help from the government apparatchiki, there’s always a glorious excess of candidates. This whole commentary thing would be really hard if the world made sense and behaved in a predictable, rational, Newtonian universe sort of way, but blessedly it does not.

So, as we get ready for the season of cheer, the season of desperate efforts to close yet one more deal and the nice calculation of bonuses, and before we imbibe too much good food and drink to be at all disciplined, here is our list for 2017:
Continue Reading CrunchedCredit.com’s 8th Annual Golden Turkey Awards

Or maybe not.  At the outset, let’s give credit where credit is due.  It was gratifying to read a governmental missive on the capital markets that made sense, showed an actual grasp of how markets function and an awareness of the issues confronting capital formation.  Best damn thing I ever read coming out of the swamp.

The Treasury Report on the capital markets published in early October is indeed pretty fantastic stuff.  The Report covers the Treasury’s recommendation on re-centering many of the rules around the capital markets over a wide range of regulatory issues important to securitization and capital formation.

Let’s focus on the provisions in this Report that are central to securitization.

These can be summarized as follows:

  • There should be one agency with the responsibility for the Risk Retention Rule and we should dispense with the committee-of-committee that’s been running the clown car for the past couple of years. The old saw that “a camel is a horse built by a committee” is certainly proven by the risk retention experience.
  • Regulatory bank capital requirements treat investment in non-agency securitized instruments punitively.
  • Regulatory liquidity standards unfairly discriminate against securitized products.
  • Sponsor risk retention as set out in the Risk Retention Rule represents an unnecessary cost imposed upon securitization.
  • Some of the new and improved (read: expanded) disclosure requirements under Dodd-Frank are unnecessarily burdensome.

In other words, our regulatory regime needs a certain amount of recalibration to achieve its goals of safety and soundness in the financial market place while not impeding capital formation. 
Continue Reading Treasury Report on the Capital Markets: A New Day

As an industry, we remain in high dudgeon over the inanity of much of Dodd-Frank, the ideological and often unhinged regulatory instincts of our various governments and the vast amount of effort, time and money it takes to comply with the mind-numbing complexity of rules and regulations that seem to be largely untethered from the goal of solving actual problems. We winge. We boviate. We testify, write white papers, fund PACs and pursue “engagements” with the regulatory apparatchiki in the pursuit of sensible relief. But do we still really care?

Are we witnessing a process of reconciliation? Could it be that the capital markets have found a way to thrive inside the current regulatory state’s bear hug?
Continue Reading Welcome to Stockholm! We Are Learning To Love Our Regulatory State

Earlier this month, our very own Kenneth D. Hackman, a regular contributor to Crunched Credit, moderated a panel entitled Single-Family Rental: The Landscape and Future of CRE’s Newest Asset Class, hosted by Dechert LLP, for CREFC’s After-Work Seminar Series.

The esteemed panel consisted of Kevin S. Dwyer, Senior Vice President, RMBS, Morningstar Credit Ratings, LLC; Bradley J. Hauger, Senior Vice President, Loan Servicing Director, PNC Real Estate/Midland Loan Services; J. Christopher Hoeffel, Chief Financial Officer, CoreVest American Finance and R. Christopher Jones, Director, Deutsche Bank.

Readers of Crunched Credit know that we are bullish on SFR: single-family rental is the largest class of rental stock in America, eclipsing the multi-family market. The number of single-family rental units grew 23% from 2006-2015, with most of that growth following the Great Recession. Since then, the institutional single-family rental business has blossomed into a viable, long-term business. And as institutional ownership has grown, SFR finance has grown apace.

You know, for a long time, we, and I think many other observers, thought that SFR was a trade created by the collapse of the residential housing market in 2007-2008. We thought when the opportunity to buy single family homes at ridiculously low prices, fix them up and rent them went away, the trade would go away. We were wrong and SFR is growing into a mature industry that is likely to continue to grow for many years. Right now, depending on who you ask, 12 or 13% of US housing stock is now single family home rentals. Of that, only a small percentage is in institutional hands. Note that in several G20 countries, a very large portion of the housing stock is in institutional hands. It seems there’s plenty of headroom for this industry to grow here at home.
Continue Reading Single-Family Rental: The Landscape and Future of CRE’s Newest Asset Class

In this commentary we have talked about a lot of challenges facing commercial real estate finance and other capital market activities over the years.  With more or less “pants on fire” anxiety, we’ve talked about Dodd-Frank’s regulatory compliance burdens, the Volcker Rule, Risk Retention, the glorious and multitudinous products of the gnomes of Basil, the efforts of the “we hate all Anglo-Saxon bullshit” gang in the European Community to strangle securitization, the LIBOR scandal, geopolitical risk, and the famous unknown unknowns.

But, right now, we need to concentrate people:  it’s the tax code, stupid.  For those with limited bandwidth, and I count myself among them, this is where much of our energy needs to be focused.  
Continue Reading It’s the Taxes, Stupid

The Wall Street Journal reminded us this month that it was ten years ago, August 9, 2007, that the first regulatory domino in The Great Recession fell as BNP Paribas froze a series of resi investment funds for lack of a functioning market to value the securities. One could quibble about whether The Great Recession could be so precisely dated. Were there the blackened equivalent of green shoots earlier in the year? Did The Great Recession really only begin when the trouble in the subprime resi market morphed into all other credit markets? But that’s merely a cavil. August 9, 2007 is, for me, the date the world changed.
Continue Reading A Tale of Two Years; This Time Will Be Different