The new Opportunity Zones program that came to us in 2017’s major tax reform offers investors the chance to roll the capital gains from the sale of any appreciated property into new investments, located within specially designated areas known as Opportunity Zones, and defer—and potentially partially eliminate— capital gains taxes on such sale. The program is similar to a 1031 Exchange, but with a socially conscious geographic focus, that applies broadly to investments across asset classes – not just to real estate. The tax benefits of the program will begin stepping down for investments made after December 31, 2019, so the clock is ticking on the chance to pull capital out of appreciated assets and invest it in a Qualified Opportunity Fund (QOF). The time is now to start thinking about where all this capital will be sitting when the music stops.
Continue Reading Opportunity Zones: Monetary Musical Chairs, Anyone?

We’re all just back from CREFC and the mood was broadly constructive.  (Don’t you love that word, “constructive”?  When did “constructive” become a fancy way to say “good”?)  We all went to South Beach this year wondering where the investors were, wondering whether the market was okay and wondering whether December was a blip or a coda. If the industry chatter captured the gestalt, and the gestalt is right, then while this recently strong market will surely expire at some point, this is not that point.

Amongst the frolicking in Goldilocks Land in SoBe, there were some actual issues discussed.  One of these that got some attention, at least by the wonkier members of the crowd, is the new risk retention rules out of Europe.

We’ve written about these before.  It is very much a moving target.  If you think the American rulemaking process is baroque, turgid and opaque, spend some time in Brussels. 
Continue Reading More Fun With Risk Retention: Europe and Japan Weigh In

It’s 2019. Nothing really terrible or shocking has happened yet…at least by the standards of December. But it’s early yet. As a card-carrying member of the commentariat, I could not possibly pass up the opportunity to bloviate on the “Year Ahead” with the certain knowledge that no one will remember if I’m wrong, and if…

My, my, what a couple of weeks.  People, don’t you understand that I’m trying to run a business here?  Is a recession on the doorstep or is that a 2022 thing?  Are things really bad, or really good?  How am I supposed to stay dispassionate and analytic when the stock market gyrates and the drumbeat of portentous news never stops?  The worst December in the market since the Depression says The Financial Times!  It’s very annoying and I feel very much put upon.

All of this has got me thinking, are we ignoring Macro?  Are we not seeing what’s actually in front of us?  Not seeing the Big Stuff?  There is surely enough disturbing things out there to get and hold our attention.  The stock market continues to oscillate widely, the 10-year Treasury Rate is now well below 3%, volume is up and every time another headline crosses the ticker, everything changes again.  Is our trade dispute with China existential?  Is Prime Minister May in or out – happy or sad?  Is Boris Johnson having a good hair day?  The Italians are leaping around and gesticulating broadly, outraged now about how France may be getting a pass on budget discipline.  If France starts to cheat (again), can the center hold?  Japan is building an aircraft carrier…think about it.  In China, some young general suggested it might be a good idea to shoot at an American warship in international waters.  There’s a great idea.  The Donald continues to tweet and we almost had a smack down in the oval office between the President, Nancy Pelosi and Chuck Schumer just last week. 
Continue Reading Ignoring Macro…Or Are We as Smart as a Horse?

We have been writing off and on about the restoration to good graces of the commercial real estate CLO since the early days of this current recovery, and it’s important to keep the conversation going.  Hey, if Pete Rose can get into the Hall of Fame (and as MLB is embracing gambling, that cannot but happen, right?), the full restoration of the reputation of the CRE CLO cannot be far behind.

First, let’s just stop and get some definitional clarity here for those of you who actually have a life.  Fundamentally, the CRE CLO is a device that provides match-term leverage for a portfolio lender, though the technology can be used for other purposes.  Loans are pooled, investment-grade securities are sold to investors, and the loans are repaid from debt service payments.  Customarily, the sponsor retains all of the equity and junior debt, creating structural leverage to enhance returns on the dollars invested in the structure.

It’s really a warehouse funded by the capital markets. As such, it provides for an excellent alignment of interests between investors and the sponsor, who holds the bottom of the capital stack.  The sponsor is in it for the long haul, managing financial assets for its benefit and the benefit of the investors alike.
Continue Reading The CRE CLO Is Back…and That’s Good

It’s that time again for Dechert’s CrunchedCredit Annual Golden Turkey Awards. In a year made most remarkable by the extraordinary performance of the US economy, idiocy, silliness, pigheadedness and stupidity have tended to be somewhat obscured by the economic good news machine. At the other end of the spectrum, the continued high volume of outrage over almost everything from both the left and right (and I’m sure the middle would do their fair share here if there was anyone at home) makes it harder to suss out the truly memorable and award-winning, but it’s our job to try. As we have said in the past, this would be really hard if the world actually behaved in a predictable, rational, Newtonian universe sort of way, but blessedly it does not.Continue Reading 2018 Golden Turkey Awards

We haven’t written much about Brexit…largely because, for the life of me, I have been unable to embrace, with any conviction, a view as to whether the Europeans will dodge this bullet, as they have dodged so many in the past, or whether chaos will finally ensue.  Then, if chaos ensues, I’m equally clueless about what the contours of the chaos will be; what a hard Brexit will look like.  I am baffled.  And while it is demonstrably true that cluelessness and bloviation are not mutually exclusive, I, perhaps more thin-skinned than most of the chattering class, have been waiting for some sort of an epiphany before I wrote on the topic.

But birds gotta fly, fish gotta swim and us members in good standing of the commentariat gotta prattle on.  Since I’m not convinced I’m going to get any smarter and since this is likely to be one of the seminal economic events of 2019.  I’m diving in.  Might be ugly.  Hide the children.Continue Reading Do I Have to Talk About Brexit?

With full and complete credit to the Bard (Macbeth), and to Mr. Ray Bradbury who repurposed this line as the title for his 1962 dark fantasy (of which I was and still am a huge fan), there is just not a better title for this note. Trust me. A few weeks ago, I inked a note about whether the current expansion was soon coming to an end and whether it made sense to begin to “get the distressed debt band back together again.” Tongue slightly in cheek then because things seemed awfully good, I made the argument that we are not really all that far away from an abrupt right turn off the highway of good times onto the dirt road of distress. It apparently resonated (or at least there’s lots of people who think like me). Dechert is hosting a distressed debt conference on October 18, 2018 in New York which will touch on a wider range of issues but will include a distressed debt panel and we now have almost 400 RSVPs. We’ll report on that next week. That’s either 400 people with nothing better to do, or 400 folks who think it might just as well be time to start thinking about the end of days.
Continue Reading The Next Recession: Something…Perhaps Not Really Wicked… But Certainly Annoying…This Way Comes

Last week, an estimated gathering of over 4,700 of the industry’s finest descended on Miami for IMN’s ABS East conference. The mood was upbeat and the meeting rooms (and the lobby bar) were crowded, as participants raced to fit in as many meetings as possible. If there was one overall takeaway from the conference, it was that there is a lot of money looking to invest in the ABS sector, which continues to enjoy strong fundamentals and a hearty appetite for deal making. We are excited to see all the term sheets that come out of this conference and help get some of those deals closed.
Continue Reading IMN 2018 ABS East Conference

Are you ready? The proposed rule regarding HVCRE ADC has been published in the Federal Register today and is open for comment. You know the drill, comments are due in 60 days (by November 27, 2018). Give us a ring for more background on HVCRE ADC and the proposed rule. We’re always happy to discuss…