Risk Retention

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A standalone securitization of a portfolio of properties closed in June. To our knowledge, this was the first transaction in recent memory done in a direct issuance format.  In this case, direct issuance means that the sponsor organized the lender and the depositor as well as a borrower and crafted the loan between the lender and borrower, which was simultaneously closed and funded by the bond proceeds from the securitization at closing.  An additional unique feature in this transaction was that the sponsor met its obligations under the risk retention rules with a horizontal cash deposit equal to 5% of the fair value of the certificates.  More on this later.

In this annoying new world of risk retention, the direct issuance model embodied in this transaction can be a paradigm for transactions in the SASB space.
Continue Reading Direct Issuance is Here – A New Paradigm for Single Asset Single Borrower (SASB) Securitization

What in the world have we done to ourselves? Our CRE Securitization business, or at least the conduit part of our business, continues to shrink:  $800 billion in outstanding principal balance in 2007 and now, $400 billion?  Maybe, right now, we’re at a run rate of $50 billion per year.  Is that enough?  Does that deliver critical mass?  Are we a going concern?

Maybe.

As the business shrinks, the CMBS share of the Lehman Index (Bloomberg Index) continues to dwindle.   That imperils liquidity and the diminishment of liquidity itself becomes yet another reason to abandon the sector.  As that happens, some investors drop out, some “right size” their CMBS teams and as fewer analysts follow the space, the business again dwindles.  Net/net, investors lose interest as there are fewer and fewer reasons to buy CMBS bonds.  As the business gets smaller, less attention is paid by the mortgage banking community, fewer opportunities find their way to the CMBS window and other service providers are stressed. Wash, rinse and repeat until someone shuts off the lights and locks the door on the way out.

Okay, I’m overstating it a bit, but you get the idea.  We’ve got a problem.Continue Reading It’s Time to Bring Back the Square State Conduit:  If We Build It, They Will Come.

Washington, DC SkylineCREFC held its Annual Conference last week in Washington D.C. Given the current politically charged climate, 2017 felt like a very appropriate time to move the Annual Conference from its traditional home in New York to Washington. Although attendance was down slightly from last year, over 1000 people attended the conference. Dechert hosted a reception on Monday at The Source restaurant for 250 friends and colleagues, where the excellent food and free flowing drinks lasted well beyond the official closing time.

The conference featured a number of new panels this year, including panels on the state of retail and the New York City real estate market. As usual, Dechert was well-represented in the panels and meetings. Dechert’s Dave Forti participated in a panel on “The Art of the Deal: Large Loan Challenges in 2017”, which discussed the current state of the large loan market and the challenges facing single-asset single-borrower (SASB) securitizations. One highlight of conference was the industry leaders’ round-table, which included Dechert’s Rick Jones and Laura Swihart, who closed out the roundtable in typical satirical, Washington fashion (Covfefe anyone?)
Continue Reading 2017 CREFC Annual Conference: Into the Heart of the Swamp

John Cleese, one of the great classic philosophers of the mid-twentieth century, made that inauspicious (from the perspective of the Shop Keeper) observation, “This parrot is dead!”  To which Michael Palin responded that it was merely resting.  (It’s better in drag and with the East Ender accent, but you get the idea.)

The Parrot skit [I wish I could link you to YouTube here, it is really very funny, but the damn lawyers here won’t let me.] came to mind recently as I attempted to negotiate yet another Third Party Purchaser (TPP) Agreement in risk retention land.  As everyone knows and is heartily sick of hearing, all securitization transactions now require the sponsor, or in commercial real estate deals, a third party purchaser, to hold risk retention securities in accordance with the breathtakingly vacuous Risk Retention Rule.  At Dechert, we did one of the pre-effective date pretend risk retention deals and, our TPP agreement was a weighty six pages long.  Since the Rule became real, TPP agreements have metastasized into much longer, more complex documents raising numerous dauntingly trying questions.

I have begun to wonder whether the risk retention TPP agreement is already near its death bed just some brief months following its birth.Continue Reading Monty Python Dead Parrot? Risk Retention and the Third Party Purchaser

What if Dodd-Frank and Basel III were to largely go away? Eliminating Dodd-Frank has been a hobbyhorse of Representative Hensarling, the chair of the House Services Committee, for several years and has figured prominently in President Trump’s campaign talking points. But the conventional wisdom has been that any sort of transformational uprooting of the Dodd-Frank and Basel III thicket was unlikely.

That’s what I thought, too. In fact, I have bloviated to that point in the press and on podiums many times. From the moment when everyone’s thinking was refocused that November 9th morning, I had thought that while major disruptions of many things were in the cards, Dodd-Frank and the Basel III architecture really weren’t on the menu. Now I’m starting to wonder. Sure, I still think major retrenchment is not going to happen, but my conviction that it’s impossible is what now gives me pause. Let’s face it, while rarely in doubt, I’m wrong a lot.

So just in case I am wrong, yet again, and some version of repeal or replace happens for Dodd-Frank and Basel III is rejected or slow-walked to death, what might that mean? It’s time to start planning for alternative facts.
Continue Reading Alternative Facts? A World Without Dodd-Frank and Basel III

The 2017 CREFC January Conference, which took place last week at the Loews Miami Beach Hotel, provided an opportunity for those in the commercial real estate finance industry to reflect on an eventful 2016, and look ahead to 2017.  Although attendance was down by almost 11% this year (we’ll blame Zika), around 1,600 people attended this year’s conference.  The mood of the conference was generally upbeat, with most attendees expressing cautious optimism for 2017.  As usual, the parties were lively, and 435 people attended Dechert’s reception at the SLS Hotel on Monday night to indulge in sushi surfboards and the national championship game.

While the panels, meetings and forums provided an opportunity to take the pulse of the industry, and we will get to 2017 and beyond shortly, we need to pause for a moment and look back at a year which may be an inflection point in our industry, our country, and possibly the world.

Continue Reading 2017 CREFC January Conference – Primed for a Comeback

As is our tradition here at Crunched Credit, each year, about this time, we present our Golden Turkey Awards. In a year of monumentally bad surprises, we truly had difficulty narrowing our list down to only the exceptionally worthy candidates. Voters, governments and regulators sent shockwaves throughout the world in 2016, upending markets and throwing much of what we thought we knew into the proverbial dumpster fire of society. If what we know now we knew when we last gave the Golden Turkey Awards, we may have taken a pass on 2016. It can’t get any worse, right? As we get ready to step into the unknown of 2017, here is our list for 2016:
Continue Reading CrunchedCredit.com’s 7th Annual Golden Turkey Awards

As we are just inking one of the very first pre-risk retention effective date risk retention deals (Potemkin Village anyone?), we are also seeing an increased flow of what are generically referred to as CRE CLOs. It’s time to consider how the Risk Retention Rule (the “Rule”) will apply to this growing market technology.
Continue Reading Risk Retention and the CRE CLO

Although registration was up this year for IMN’s 22nd Annual ABS East conference held at the Fontainebleau Miami Beach earlier this month, attendance was lower than it’s been in previous years as many industry participants decided against attending due to concerns about the recent Zika outbreak in Miami. The CLO sector, however, continued to be well represented and the consensus of the conference attendees was that CLOs have a very positive future ahead.
Continue Reading Zika Keeps Investors Away From ABS East, But Not From CLOs