Commercial Real Estate

Subscribe to Commercial Real Estate via RSS

Last week, I spoke in London at a conference, “Investing in Bank Assets” sponsored by the Association of Financial Markets in Europe (AFME). The Conference had a titillating, if a tad alarming, subtitle “The European Purge Begins”.

The question is, of course, is it true?  The purge, I mean.   Is there a European purge afoot, and are there massive opportunities to invest in European bank assets? I, for one, certainly hope so. 

Let’s test the case. Those who read this blog regularly will be aware we’ve been chirping about these opportunities for quite some time. Having participated on one side or another in most of the recent European banks’ initiatives to dispose of dollar denominated US assets, we’ve become quite fond of this nascent trend. And, not to bury the lead, we think there is a very large opportunity in the disintermediation from European banks, and a particularly large opportunity with respect to US commercial mortgage loan assets held by our European friends over the next 12 to 24 months. By the way, kudos to AFME, Gilbey Strub, Managing Director for Resolutions and Crisis Management at AFME and her colleagues for putting on a terrific show. It was co-sponsored by Dechert and by Alvarez & Marsal.Continue Reading MORE ON OPPORTUNITIES IN EU BANKLAND

What the hell is going on here? I’ve got a business to run, and it’s really annoying that I can’t sort out whether we’re in the early stages of recovery or on the cusp of another train wreck. When Dad taught me to drive, he had to keep saying “Don’t look at where you are but where you’re going.” Good advice. Yet only as long as I look at the road right in front of me do I feel OK. If my eyes wander to the horizon, I get really itchy.

This recovery feels very brittle. Oh, sure, transactional activity is way up. If Dechert’s practice is the first derivative of the broader capital markets (and I think it is), then things have been getting progressively more robust for the better part of a year now. We’re growing, we’re hiring, deals are coming in at a goodly pace. Yet, everyone I know with the slightest capacity for reflection is touchy, to say the least.

So let’s do a S.W.O.T. analysis of where we sit.Continue Reading What in the Hell is Going on Here Anyway?: A SWOT Analysis of the Financial Recovery

Earlier this month, the New York Supreme Court issued a decision upholding the enforceability of a springing recourse guaranty given in connection with a commercial real estate loan that provided for a full "blow-up" upon voluntary bankruptcy. [Author’s Note: the decision can still be appealed: New Yorkers tend to call their trial court the "Supreme Court", their supreme court the "Court of Appeals", their front steps the "Stoop" and their minor league team the "Mets".] Most of our readers are, at this point, intimately familiar with the "bad boy" guaranty and the leverage it provides a lender once the loan hits the fan. Conversely, our readers are also keenly aware of the degree to which sponsors were able to erode the scope of recourse carve outs and isolate liability in poorly capitalized shell entities during the go-go years. The most famous example, of course, being GGP’s ability to run an end-around the bad boy guaranty by filing borrowers and gurantors alike into bankruptcy in 2009 – leaving the holders of $ billions of CMBS paper without practical recourse.Continue Reading Bad Boys: New York Supreme Court Upholds Recourse Guaranty

Near the epicenter of the late unpleasantness was that wonder of complex engineering, the CRE CDO. It has been blamed for near everything that went wrong or was wrong in the commercial real estate space. It probably is responsible for the winters of 2010 and 2011.

The CRE CDO, as it was initially designed, was an on-balance sheet term financing facility which was designed to be free of the vicissitudes of traditional bank warehousing restrictions and, of course, the dread mark to market of the repo market. The transactions were often dynamic and had substantial term, often up to 7 years. Whole loans (as well as other stuff) which met the elaborate and complex (more on this later) eligibility criteria could be financed on a rolling basis with the proceeds from the disposition of assets reinvested for a substantial portion of the term. CRE CDO paper was customarily rated. The average cost of funds was substantially lower than what could be obtained on a straight bank facility. Continue Reading The Impossible Dream: It’s Time to Bring Back the CRE CDO

2500 of my best friends and I spent three days at the MBA’s annual CREF meeting in San Diego last week. By now, it’s old news, but, indeed, the mood was very upbeat. Just like the days of yore, everyone spent every working moment in lender-mortgage banker meet and greets, exchanging braggadocio over pipelines, products and relationships. People even had the energy to return to old fights and grudges: portfolio lenders vs Wall Street squaring off after sharing a fox hole these past three years. Most heartwarming.Continue Reading Tales From The Conference Circuit: Can I Be Both Giddy and Anxious?

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

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?

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

Like a lot of homeowners this summer, my wife and I are looking to put new windows into our home.  We moved last October, leaving our downtown condo when the impending arrival of our second daughter promised to make things a little too tight.  A drafty winter and a number of windows that, well, just couldn’t be opened this spring demonstrated a need – and President Obama’s Energy Tax Credit cemented the deal. As I’ve learned, like almost everything associated with a new-old house, windows ain’t cheap – and the windows that qualify for the tax credit really ain’t cheap.  The increased cost takes 20 years (on average) to recoup based on the marginal energy savings (something to do with U-factors and Solar Heat Gain Coefficients according to Home Depot). But the government wouldn’t have to pay you to do it if it made good economic sense.Continue Reading Keeping PACE with Green Energy Movement