Today marks the 22nd anniversary of 9/11 and the 15th anniversary of this blog. If you read the first post you’ll see how the events of 9/11 are part of our founding story:
The anniversary of 9/11 always gets me thinking about the formation of this company and the state of our industry.
The CRE debt markets have been slow with higher interest rates, rising costs, and decreasing values. It is possible, if we get another significant down cycle and bond losses, there could be an opportunity to revisit the IRP disclosures. Rent rolls are key to understanding risk, especially for an office building, where there is high risk for severe losses. Right now seems like the calm before the storm.
Jim Flaherty
https://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.png00Lee McCormackhttps://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.pngLee McCormack2023-09-11 17:32:582024-08-07 17:39:47Checking in on 9/11
I hope this post finds you healthy, prosperous and vaccinated. Gratefully, we are all three here. There’s been a lot going on, and I’ve not posted in a while, so here is the update.
We launched our dedicated tool for CMBS borrowers to support their quarterly servicer reporting requirements. If you have a CMBS loan, you can easily find your loan in our CMBS database, then we pre-load all the loan, servicer and property information — including all the operating statements that you have submitted to your servicer.
So, if you have had your CMBS loan for 5 years and you sign up for CMBS.com, once you find and load your deal, you will see 20 operating statements (4 per year for 5 years). For your 21st submission, modify the last one you sent and send in the new one through our system. Going forward, the process will be automated.
For rent rolls, since they are not part of the IRP, you will have to upload the first one and then let our tool automate it from there.
For more details about automated quarterly CMBS servicer reporting, check out our help pages for CMBS Borrower Reporting.
Speaking of rent rolls, if you are a reader of this blog you know I believe they need to be disclosed as part of CMBS transactions, and it turns out I am not the only one. In my last post, I talked about the whistle blower complaint and the University of Texas study about lenders inflating the income on properties. I recently came across this interview. Starting at about 3:30 is a pretty good description of how CMBS “liar loans” are made.
To be clear, using our new CMBS borrower reporting tool does not mean your rent rolls will be disclosed to the investors or the public. It just automates the submission to your servicer, who will only disclose what is in the IRP. But the issue of rent roll disclosure is a story that is not going away.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders and investors.
https://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.png00jimflahertyhttps://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.pngjimflaherty2021-05-20 01:05:272021-05-20 01:05:27Automate your quarterly CMBS servicer reporting
Today marks the 12th year I’ve been writing this blog, which I started to provide an inside perspective on how financial reform would affect the CMBS finance markets and, more importantly, provide commentary on how it should. In my opinion, data transparency is the single most important factor in ensuring the markets stay fair, honest and healthy — and the most important tool to prevent a repeat of the 2008 financial crisis.
The reforms that were ultimately included in the 2014 Dodd-Frank Act did about everything but require full transparency. They put in things like risk retention, rating agency reform and better disclosures, but they came up short on requiring the single most important item: information on the lease payments (the rent roll).
The big-picture result of Dodd-Frank has been to effectively “deleverage” the CMBS structures. The percentage of the pool rated as junk bonds is now bigger, and the less risky AAA bonds form a smaller percentage, which creates bigger credit support levels. It also effectively pushed out the smaller, undercapitalized players because of the new capital and regulatory requirements. Most CMBS loans are now originated by the top 5 banks. All have seemingly gone well for the last several years with generally increasing originations, low loss levels, and the industry earning back its reputation.
Now we are being tested again because of the negative impact the pandemic is having on both CRE in general and CMBS specifically. In August an article in the Wall Street Journal called out that the lenders were inflating the revenue of properties to make the loans look less risky, according to an academic study and a whistleblower complaint to the SEC summarized as follows:
“A study of $650 billion of commercial mortgages originated from 2013 to 2019 found that even during normal economic times, the mortgaged properties’ net income often falls short of the amount underwritten by lenders. The underwritten amount should be a conservative estimate of how much a property earns. Instead, the actual net income trails underwritten net income by 5% or more in 28% of the loans, according to the study of nearly 40,000 loans by two finance academics at the University of Texas at Austin.”
– Wall Street Journal, August 11, 2020
The industry responded forcefully with a six-page defense of the current practices and basically said the study was flawed. They said current delinquencies are being caused by the pandemic, not bad underwriting. Download the industry response.
While I agree with the CREFC premise that underwritten income does not always match in-place income, CREFC fails to concede that, if there is a difference, investors and rating agencies deserve to know. Why is it different? Which loans? Then investors can make informed decisions.
Rent roll disclosure would accomplish this.
Today is also the 19th anniversary of 9/11, and as I finish up this post I am listening to Bruce Springsteen’s “The Rising,” top to bottom. The album always gets me and reminds me of how we only get one trip through, there are no guarantees, and you need to make the best of the ride by living an honorable life.
I remember post 9/11, the tragic events caused people to be more empathetic, respect our first responders, be unified, and were generally inspired to live honorably.
The financial crisis of 2008 did bring meaningful reform that successfully de-levered the system, making us better prepared for this Covid-induced down cycle. Professionally, my “honorable” cause is trying to make CRE finance markets better by enabling transparency at the system level and promoting the merits of opening the data to my industry peers. I’ll do my part to try and make one of the unexpected positives of Covid be triggering the final step in CMBS transparency.
I hope you all stay safe and healthy.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders and investors.
https://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.png00jimflahertyhttps://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.pngjimflaherty2020-09-11 00:01:592020-09-11 01:52:43Checking In on 9/11
Checking in on 9/11
/0 Comments/in Company history, Industry news /by Lee McCormackToday marks the 22nd anniversary of 9/11 and the 15th anniversary of this blog. If you read the first post you’ll see how the events of 9/11 are part of our founding story:
The history of Backshop and CMBS.com
The anniversary of 9/11 always gets me thinking about the formation of this company and the state of our industry.
The CRE debt markets have been slow with higher interest rates, rising costs, and decreasing values. It is possible, if we get another significant down cycle and bond losses, there could be an opportunity to revisit the IRP disclosures. Rent rolls are key to understanding risk, especially for an office building, where there is high risk for severe losses. Right now seems like the calm before the storm.
Jim Flaherty
Automate your quarterly CMBS servicer reporting
/0 Comments/in Industry news, Industry standards /by jimflahertyI hope this post finds you healthy, prosperous and vaccinated. Gratefully, we are all three here. There’s been a lot going on, and I’ve not posted in a while, so here is the update.
We launched our dedicated tool for CMBS borrowers to support their quarterly servicer reporting requirements. If you have a CMBS loan, you can easily find your loan in our CMBS database, then we pre-load all the loan, servicer and property information — including all the operating statements that you have submitted to your servicer.
So, if you have had your CMBS loan for 5 years and you sign up for CMBS.com, once you find and load your deal, you will see 20 operating statements (4 per year for 5 years). For your 21st submission, modify the last one you sent and send in the new one through our system. Going forward, the process will be automated.
For rent rolls, since they are not part of the IRP, you will have to upload the first one and then let our tool automate it from there.
For more details about automated quarterly CMBS servicer reporting, check out our help pages for CMBS Borrower Reporting.
Speaking of rent rolls, if you are a reader of this blog you know I believe they need to be disclosed as part of CMBS transactions, and it turns out I am not the only one. In my last post, I talked about the whistle blower complaint and the University of Texas study about lenders inflating the income on properties. I recently came across this interview. Starting at about 3:30 is a pretty good description of how CMBS “liar loans” are made.
To be clear, using our new CMBS borrower reporting tool does not mean your rent rolls will be disclosed to the investors or the public. It just automates the submission to your servicer, who will only disclose what is in the IRP. But the issue of rent roll disclosure is a story that is not going away.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders and investors.
Checking In on 9/11
/0 Comments/in Industry news, Industry standards /by jimflahertyToday marks the 12th year I’ve been writing this blog, which I started to provide an inside perspective on how financial reform would affect the CMBS finance markets and, more importantly, provide commentary on how it should. In my opinion, data transparency is the single most important factor in ensuring the markets stay fair, honest and healthy — and the most important tool to prevent a repeat of the 2008 financial crisis.
The reforms that were ultimately included in the 2014 Dodd-Frank Act did about everything but require full transparency. They put in things like risk retention, rating agency reform and better disclosures, but they came up short on requiring the single most important item: information on the lease payments (the rent roll).
The big-picture result of Dodd-Frank has been to effectively “deleverage” the CMBS structures. The percentage of the pool rated as junk bonds is now bigger, and the less risky AAA bonds form a smaller percentage, which creates bigger credit support levels. It also effectively pushed out the smaller, undercapitalized players because of the new capital and regulatory requirements. Most CMBS loans are now originated by the top 5 banks. All have seemingly gone well for the last several years with generally increasing originations, low loss levels, and the industry earning back its reputation.
Now we are being tested again because of the negative impact the pandemic is having on both CRE in general and CMBS specifically. In August an article in the Wall Street Journal called out that the lenders were inflating the revenue of properties to make the loans look less risky, according to an academic study and a whistleblower complaint to the SEC summarized as follows:
“A study of $650 billion of commercial mortgages originated from 2013 to 2019 found that even during normal economic times, the mortgaged properties’ net income often falls short of the amount underwritten by lenders. The underwritten amount should be a conservative estimate of how much a property earns. Instead, the actual net income trails underwritten net income by 5% or more in 28% of the loans, according to the study of nearly 40,000 loans by two finance academics at the University of Texas at Austin.”
– Wall Street Journal, August 11, 2020
Here is the full story.
The industry responded forcefully with a six-page defense of the current practices and basically said the study was flawed. They said current delinquencies are being caused by the pandemic, not bad underwriting. Download the industry response.
While I agree with the CREFC premise that underwritten income does not always match in-place income, CREFC fails to concede that, if there is a difference, investors and rating agencies deserve to know. Why is it different? Which loans? Then investors can make informed decisions.
Rent roll disclosure would accomplish this.
Today is also the 19th anniversary of 9/11, and as I finish up this post I am listening to Bruce Springsteen’s “The Rising,” top to bottom. The album always gets me and reminds me of how we only get one trip through, there are no guarantees, and you need to make the best of the ride by living an honorable life.
I remember post 9/11, the tragic events caused people to be more empathetic, respect our first responders, be unified, and were generally inspired to live honorably.
The financial crisis of 2008 did bring meaningful reform that successfully de-levered the system, making us better prepared for this Covid-induced down cycle. Professionally, my “honorable” cause is trying to make CRE finance markets better by enabling transparency at the system level and promoting the merits of opening the data to my industry peers. I’ll do my part to try and make one of the unexpected positives of Covid be triggering the final step in CMBS transparency.
I hope you all stay safe and healthy.
— — —
Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders and investors.