The conduit market does not absorb a lot of bandwidth in my day-to-day practice; I’m more of a CRE/CLO/warehouse/SASB/new products/innovation sort of guy. But it’s painful to watch this marquee capital markets product wither away, a product that transformed $200 billion of mortgage loans into securities in a single year. That biz might limp over the finish line with a meager $25 billion this year. What happened? The demand for CRE leverage certainly hasn’t changed. The CRE market has gotten significantly bigger since 2008 and consequently, the need for leverage has grown concomitantly. The nature of the underlying real estate assets hasn’t changed all that much, nor the nature of the ownership structure, albeit it is probably a bit more institutional today than it was in 2008. The product is no different, in large measure, today than it was back then and indeed in some minor, twiddling respects might even be better from the perspective of the borrower.
Continue Reading Can We (Should We) Try to Fix the Conduit Before It’s Gone?
Servicing
“I Was Just Following Orders”
My last commentary, Playing with Broken Toys in Coronavirus Land, touched on the notion that sometimes following rules can guarantee a bad outcome. I’ll leave more important musings about ethics and morality aside here (I still don’t have a clue about what Kant was nattering on about) and focus on the more mundane question of whether one should do what a contract says when the contract conflicts with the exercise of good judgment.
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Securitizing Marijuana Dispensary Properties in the Sessions Era
In 2013, the Obama administration issued the Cole Memorandum, which called a truce between federal prosecutors and marijuana businesses operating legitimately under state law. After regime change in Washington, however, it may come as no surprise that Jeff Sessions—the Attorney General who once opined that “good people don’t smoke marijuana”—rescinded the Obama-era guidance. The only real surprise is that it took him a whole year to do it.
Since at least 2013, marijuana-related businesses have generally been operating on predictable, albeit legally shaky, ground. Dispensaries have expanded dramatically. Though details vary wildly, nine states currently allow recreational use and medicinal use is currently permitted under the laws of all but four states.
As a result, commercial real estate lenders have to grapple with the increasingly common problem of the dispensary tenant, and a number of lenders are dipping their toes into lending in expectation of securitizing loans secured in part by dispensaries. But given the January 2018 announcement that the Cole memo is no longer in effect, the question everyone’s asking is: are things really that different? The answer, we think, is no—but with an asterisk.
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The Dilemma of the Really Annoyed Borrower
Since my earliest days in the CRE capital markets biz, there has always been a drumbeat of grumbling from the borrower community about the annoying complexity, expense and delay of having one’s loan serviced in a capital markets transaction. It’s been going on forever. Like noise, like listening to Brits complaining about their weather; it’s ubiquitous, apparently personally gratifying, but largely inconsequential for outcomes. The business goes on. Data indicates that as many as 60% of all new CMBS loans come from refinancing non-CMBS loans, so it’s not like a structured finance ghetto here. The sell side takes comfort from the old saw that no sensible borrower would go to the CMBS window except as a last resort… like, three basis points or five bucks in extra proceeds. Ok, that’s a tad too harsh and dismissive. But going to the capital markets window for lower rates, more proceeds or less recourse is entirely rational. On the other hand, the narrative about the pain through servicing in the capital markets is also real.
Continue Reading The Dilemma of the Really Annoyed Borrower