With Thanksgiving upon us and the holiday season in full swing, we here at CrunchedCredit.com would like to present our “Golden Turkeys”, noting certain special contributions to the ongoing resurrection of the Commercial Real Estate Finance industry.

The Golden Turkey for the Best Self-Inflicted Wound: FASB

Hands down, this goes to the Financial Accounting Standards Board. We don’t know whether to give top honors to FAS 166 and 167 dealing with the transfer of financial assets or the new Fair Value Accounting Rules. But in any event, in a series of changes which certainly must have made more sense to academic accounting communities and to the financial markets and investors for which these little regulatory gems were designed, for reasons which remain curious even now, they’ve imported enormous financial volatility and burdened the balance sheets of financial institutions with assets they don’t own and liabilities for which they have no contractual liability in the middle of the greatest financial correction in modern memory. At least we changed the rules of the game, we drop a giant pro-cyclical engine into the balance sheet, stir in a little FinReg, and, Viola! — chaos. We could have hoped someone with regulatory gravitas could have stood up and said, "What are you thinkin’?" And now for a second heaping of goodness, FASB is considering expanding Fair Value to all financial assets, which will produce even more volatility onto the balance sheets of financial institutions. Oh, and have we mentioned Lease Accounting? If FASB has their way, all leases will be treated as capital leases. we can’t even begin to tell you how bad that is. FASB, the winner in this category, hands down.

The Golden Turkey Award for Best Regulatory Knifefight: FDIC

This award goes to the FDIC. This late, lamented Congress began spinning the tale that the absence of skin in the game caused the capital meltdown over the past three years, and, in large measure, through sheer undisputed resolution, it has become received wisdom. (There must be a Golden Turkey for that itself, isn’t there?) So the SEC begins a regulatory initiative to impose skin in the game requirements for use of a shelf in a publicly registered transaction. Good enough, and then the Congressional locomotive comes through and skin in the game becomes a part of Dodd-Frank. Under Dodd-Frank, all the relevant banking regulatory agencies and the SEC are directed to engage in joint rulemaking on skin in the game. In the middle of all this, the FDIC publishes its new securitization Safe Harbor, which contains a completely freestanding and independent skin in the game provision. Oh, sure, the Reg which is in final form is applicable as of January 1, 2011, has an auto-conform provision that the Dodd-Frank skin in the game provisions won’t be law for two years, so we have, irrespective of the FDIC imposing its own set of conflicts rules on a certain sector of the securitization market, face a specific direction to engage in joint rulemaking. What the banking regulatory community thinks about this one can make the other members of the bank regulatory community and the Federal Reserve think about this one can only imagine. We suspect the SEC might be a bit pouty too.Continue Reading Commercial Real Estate 2010 Recap: And the Golden Turkey Award Goes To…

CREFC and MBA. MBA and CREFC. Tied at the hip. Danny Kaye and Bing Crosby? (For those of an age or inclination to have watched White Christmas recently). After a period of open and somewhat notorious and perhaps a little embarrassing competition, these two trade organizations have to settle down and get along for the benefit of the industry which they both serve. The good news is that the early indicators are positive.Continue Reading Can’t We Just Get Along

Last Thursday – an archetypal rainy and windswept late October afternoon in New England (think orange and red leaves underfoot, Finny and Gene walking to class, etc., etc.) – I attended the annual Symposium offered by the Real Estate Council of Boston College . In attendance, perhaps one hundred and fifty lenders, developers, investors, lawyers, brokers, professors and priests. As someone that participates in a fair number of these things, I can’t say enough good things about the quality of the presentation coordinated by Cushman’s Rob Griffin and the balance of TREC members. Even the welcoming remarks – in this case by BC President Fr. William Leahy, S.J. – included a thoughtful recognition of the state of the CRE market (having, in the past 5 years, acquired more than 50 acres of prime real estate, commenced construction of a massive new academic building and committed the bulk of a $1.5b capital campaign to the construction of student housing, it’s clear this guy knows his way around a performance bond). His take – buy, never sell (not terribly surprising given his Boss’ investment horizon). 
 Continue Reading Cisneros Discusses State of CRE

Somehow, particularly this year, the fact that election eve and All Hallow’s Eve arrive but three days apart seems so compellingly appropriate.  Both are scary and both involve an awful lot of people pretending to be something they’re not.  But elections are supposed to have consequences while Halloween does not.  So let’s test that.  Does this election matter for CRE finance?  Or, how many treats and tricks did this election cycle have to offer?

As I write, the election is in the history books.   A resounding Republican victory in the House, while the Ds held on to the Senate by a smidge.  We hear the term game changer tossed around a lot, but will this indeed be a game changer for CRE finance?Continue Reading Elections, Halloween and the Credit Market

On October 20th at the Charlotte City Club, Dechert partner David Harris spoke on an ASF Sunset Seminar panel titled “FDIC’s Final Securitization Safe Harbor – Understanding the New Rules.”  I won’t spend too much time on the background of the FDIC’s Old Safe Harbor Rule but will tell you that the Transitional Safe Harbor Rule continues to have a place even though we have a New Safe Harbor Rule (adopted on September 27, 2010), because the New Safe Harbor Rule extends the Transitional Safe Harbor Rule so that transfers of assets into securitizations made on or prior to December 31, 2010 are permanently grandfathered and not subject to the conditions of the New Safe Harbor Rule.  Following?
Continue Reading Securitizations: An Old Rule, a Transitional Rule and a New Rule (and we’re not talking Good, Better, Best)

Of the many stories that garnered national coverage during Tuesday’s midterm elections, Thomas Miller’s successful election to an eighth term as Iowa’s Attorney General went largely unnoticed by the talking heads at MSNBC and Fox. Miller is the point-man for the 50-state investigation into the burgeoning mess the media likes to call the “Foreclosure Crisis”. We’ve already learned about the dangers of RoboSigners (see Rick’s blog post), and the past weeks have seen a notable increase in coverage regarding a ubiquitous but heretofore relatively unknown company called MERS.

The Mortgage Electronic Registration Systems– a company essentially founded by industry participants (the GSE’s and some big-time private label issuers) – serves two primary functions. First, the company acts as record title holder of the mortgage (as nominee for the noteholder) and keeps track of the owner of the beneficial interests in the note. Second, in states where it is permitted, MERS will appear in court to execute the foreclosure process. Seems pretty innocuous – placing nominal title to a security interest in the name of a nominee for the benefit of the actual stakeholders in the debt. But in early October, a judge in Oregon stopped a foreclosure of a securitized sub-prime residential mortgage loan on the grounds that the assignment of a mortgage to MERS was ineffective because MERS didn’t hold the note – leading the judge to find that MERS lacked a cognizable interest in the property (I expect that this will not be the last we here with respect to this ruling). Then Jamie Dimon commented during an earnings call that his firm no longer used MERS, a story picked up by CNBC (turns out JP Morgan cut ties with MERS in 2008). The Times followed with a story last week detailing two recent scholarly articles by law professors at Utah and Georgetown that take issue with MERS from a public policy perspective.Continue Reading Foreclosure Crisis: Much Ado About MERS?

I am on a Halloween kick right now – it’s the elections. I hear Zombies are popular this year.  Zombies indeed.  Do you ever think this could be a deeply sophisticated and sly commentary on our GSEs?  How droll.  They are scary.  How about that for a segue.

The private securitization market for residential mortgages is still dead (like Generalissimo Franco) and the GSEs, attached to a fire hose of taxpayer money, continue to fuel 90% of the United States housing market.  But they are insolvent. What apparently worked so brilliantly for twenty-five years is breathtakingly broken.  Call me silly, but I don’t think we’ve got a sustainable model here.  The good news is that no one else seems to think we have a sustainable model either.  There was a symposium at the Federal Reserve last week on the future of housing finance.  I don’t think a lot of progress was made.  I was passingly concerned to see that almost all of the talking heads were academics.  That demographic may be really good at some things; my guess is not so much at rebirthing a functional housing finance market. It struck me as more can kicking.  When in doubt, talk.  Wonk-filled symposiums give birth to papers, not markets.Continue Reading GSEs: The Night of the Living Dead

I’m shocked, shocked! Our elected panjandrums have discovered and the media has slovenly reported with considerable glee (if it bleeds, it leads) that, in processing millions of residential foreclosures, Robosigner signed off on files prepared for foreclosure by nameless employees (or machines). Anything which 47Attorneys General think is a good idea in the middle of a political season to beat most political seasons is, by definition, suspect. I hear fraud tossed around, I’m starting to hear criminal investigation tossed around. And they’re serious. I feel for the poor bastards deep in the bowels of those lenders, just doing their jobs, who may now become “targets.”

Continue Reading Robosigners Destroy the Republic! Really?

A recent Boston Magazine piece on Jack Connors (co-founder of Hill Holliday, Boston College alum and heir to the late Ted Kennedy’s position as city patriarch) noted, quite rightly, that the Hub is somewhat unique among major American cities in that no single industry dominates its cultural identity. In New York, Wall Street is (still) king. DC is lobbyists and Senate Bean Soup. Houston – oil; Los Angeles – alcohol monitoring ankle bracelets. (Not quite over the Lakers yet.) But Boston’s a bit odd – an amalgam of students, doctors, mutual fund managers, Democratic politicians and Democratic mobsters.

And let’s add commercial real estate to the list, as Boston may be among the first metro-areas to awaken from the malaise that has defined commercial real estate for recent memory. Last week – only days after announcing its acquisition of Bay Colony Corporate Center (a story covered here) – Boston Properties announced that it had come to agreement on the acquisition of the Hancock Tower, for $930 million, a stunning conclusion to a distressed-debt success story and the beginning of what some brokers are citing as evidence of a resurgence in demand for trophy office buildings. To give you a sense of the marketing and sale process, Rob Griffen of Cushman and Wakefield (Boston College, ’80) told the Globe that the bidding was “as fierce as anything [he’d] ever handled during [his] 30 years in this business.”
 Continue Reading Sale of Hancock Tower Completes Distressed Debt Turnaround