I attended the Mortgage Bankers Association annual commercial real estate finance conference in Las Vegas last week. Attendance was about 2,000 people, which was better than last year’s 1,600 but well off the 5,000 who attended during the peak.
Money Available
The mood was better than last year but still pretty bleak.
I would describe the major difference as this: This year, if you own a class A property that is well leased and you only need moderate leverage (based on today’s value), there is plenty of debt available. Last year, even for that deal, there was no money.
The problem is, not many borrowers need that deal. If you assume values are off by 40% and lenders are only willing to make 60% LTV loans, the amount of leverage available compared to 2007 pricing is 36%, calculated as
(100 – 40) x .60 = 36
Most borrowers still have debt equal to 80 cents of 2007 values so 36 cent debt is not that helpful. Nonetheless, at least the low-leverage money has come back.
Several new lenders and distressed funds were offering money, but that money is all chasing 20% yields. The problem they have isn’t accessing money; it’s finding deals that make sense. Low-leverage money is facing the same problem.
Deal Flow
The problem really comes down to deal flow.
There’s no doubt that values are way off from 2007, but there hasn’t been significant deal volume for a host of reasons:
1) The extend and pretend mentality of lenders/special servicers,
2) The low interest rates on the distressed debt that is keeping them alive,
3) Regulatory relief in terms of suspension of mark-to-market accounting, and many others.
That being said, I sense the cracks are starting to grow and 2010 will be the start of the deleveraging process that needs to occur.
In CMBS, special servicers, I predict, will finally start moving bad loans in decent volumes. I also think the FDIC will continue to liquidate banks as quickly as they can.
Borrowers, on the other hand, will remain optimistic and only give up properties as a last resort, so the bid ask on non-forced sales will remain wide. Fundamentals will not improve (and may very well continue to deteriorate) so, despite my prediction for more deal flow, the market will be nowhere close to normal in 2010.
Rent Rolls
I spoke out on the need for disclosure of rent rolls for CMBS loans during the public policy meeting, the technology council and the servicers forum.
Not surprisingly, I was met with consistent and vocal opposition from the servicer community. I must say it is discouraging, but not surprising, that the servicers are still fighting this issue. The need for transparency is not their driving factor and, apparently, many are content to keep operating as they have in the past. In fact, I received complaints that MISMO was going too far in even creating rent roll standards. Ouch!
I will say that more and more folks are recognizing the common-sense need to disclose rent rolls to CMBS investors, but the old guard is fighting hard. I think the Senate passing the financial reform legislation and Obama signing it into law might be the only catalyst to force a change. Until then, we will keep up the pressure.
Off to Mexico with the family for winter break. I will report in after that.
— — —
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, rating agencies and investors.
https://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.png00jimflahertyhttps://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.pngjimflaherty2010-02-12 20:21:512020-09-16 20:22:42MBA in Las Vegas
The CMSA conference in Washington, DC just ended and the transparency issue was one of (if not the) dominant issues of the conference. Many attendees — as well as the guest speakers that included a senator, two congressmen, the head of the FDIC and a treasury spokesman — stressed transparency as critical to market recovery and the intent of the reform legislation.
Over 1,000 people showed up, and the parties were actually pretty good. Although we all missed South Beach, it was fun to be in DC on the one year anniversary of the inauguration and on the day that Teddy Kennedy’s seat went red.
The White House
IRP Committee
The day started with the IRP Committee meeting, where we learned about a new structure the CMSA put in place to facilitate the process of determining policy.
The idea is to create a series of forums that will give voices to the interests of the different types of CMSA members (Investors, Servicers, Portfolio Lenders, Multifamily/GSE). The CMSA stated that recommendations from the forums would influence CMSA policy.
So, if we could get a forum to conclude the IRP should change to XML, the committee could finally move ahead on the conversion. I gave the audience an update on the MISMO standards, and how they were improved from the original proposal, and then we headed off to the Investor and Servicer Forums.
Investor and Servicer Forums
The debate regarding rent roll disclosure really started in the Investor Forum and was brought to a head in the Servicers Forum.
A CMBS trader from a large money manager and I both asked about disclosing rent rolls as an essential element to our disclosure levels as an asset class. We both pointed out that without disclosing full rent rolls, CMBS was not a transparent asset class and would, therefore, suffer in the eyes of investors. The response from the panel was mostly dismissive.
But: The panel had to address the question twice, not all panel participants were 100% negative and I was not the only one asking.
Agenda
There was enough coverage on this issue and enough recognition by the CMSA that this issue needs to be addressed that transparency is at least on the agenda for consideration again.
Now, let’s see if the forums work as intended and if we can get positive movement out of the CMSA.
— — —
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, rating agencies and investors.
https://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.png00jimflahertyhttps://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.pngjimflaherty2010-01-21 20:22:562020-09-16 20:23:45Transparency: On the agenda
The commercial real estate news service CRE News picked up the MISMO press release and wrote an article about the new rent roll and operating statement standard.
Hopefully, this will help broaden the debate and discussion about this issue at the CMSA conference in Washington DC next week.
https://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.png00jimflahertyhttps://www.cmbs.com/wp-content/uploads/2019/03/cmbslogo030619.pngjimflaherty2010-01-14 20:24:102020-09-16 20:25:15Press coverage of MISMO rent roll and operating statements standards
MBA in Las Vegas
/0 Comments/in Industry news /by jimflahertyI attended the Mortgage Bankers Association annual commercial real estate finance conference in Las Vegas last week. Attendance was about 2,000 people, which was better than last year’s 1,600 but well off the 5,000 who attended during the peak.
Money Available
The mood was better than last year but still pretty bleak.
I would describe the major difference as this: This year, if you own a class A property that is well leased and you only need moderate leverage (based on today’s value), there is plenty of debt available. Last year, even for that deal, there was no money.
The problem is, not many borrowers need that deal. If you assume values are off by 40% and lenders are only willing to make 60% LTV loans, the amount of leverage available compared to 2007 pricing is 36%, calculated as
(100 – 40) x .60 = 36
Most borrowers still have debt equal to 80 cents of 2007 values so 36 cent debt is not that helpful. Nonetheless, at least the low-leverage money has come back.
Several new lenders and distressed funds were offering money, but that money is all chasing 20% yields. The problem they have isn’t accessing money; it’s finding deals that make sense. Low-leverage money is facing the same problem.
Deal Flow
The problem really comes down to deal flow.
There’s no doubt that values are way off from 2007, but there hasn’t been significant deal volume for a host of reasons:
1) The extend and pretend mentality of lenders/special servicers,
2) The low interest rates on the distressed debt that is keeping them alive,
3) Regulatory relief in terms of suspension of mark-to-market accounting, and many others.
That being said, I sense the cracks are starting to grow and 2010 will be the start of the deleveraging process that needs to occur.
In CMBS, special servicers, I predict, will finally start moving bad loans in decent volumes. I also think the FDIC will continue to liquidate banks as quickly as they can.
Borrowers, on the other hand, will remain optimistic and only give up properties as a last resort, so the bid ask on non-forced sales will remain wide. Fundamentals will not improve (and may very well continue to deteriorate) so, despite my prediction for more deal flow, the market will be nowhere close to normal in 2010.
Rent Rolls
I spoke out on the need for disclosure of rent rolls for CMBS loans during the public policy meeting, the technology council and the servicers forum.
Not surprisingly, I was met with consistent and vocal opposition from the servicer community. I must say it is discouraging, but not surprising, that the servicers are still fighting this issue. The need for transparency is not their driving factor and, apparently, many are content to keep operating as they have in the past. In fact, I received complaints that MISMO was going too far in even creating rent roll standards. Ouch!
I will say that more and more folks are recognizing the common-sense need to disclose rent rolls to CMBS investors, but the old guard is fighting hard. I think the Senate passing the financial reform legislation and Obama signing it into law might be the only catalyst to force a change. Until then, we will keep up the pressure.
Off to Mexico with the family for winter break. I will report in after that.
— — —
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, rating agencies and investors.
www.cmbs.com
www.backshop.com
Transparency: On the agenda
/0 Comments/in Industry news, Industry standards /by jimflahertyThe CMSA conference in Washington, DC just ended and the transparency issue was one of (if not the) dominant issues of the conference. Many attendees — as well as the guest speakers that included a senator, two congressmen, the head of the FDIC and a treasury spokesman — stressed transparency as critical to market recovery and the intent of the reform legislation.
Over 1,000 people showed up, and the parties were actually pretty good. Although we all missed South Beach, it was fun to be in DC on the one year anniversary of the inauguration and on the day that Teddy Kennedy’s seat went red.
The White House
IRP Committee
The day started with the IRP Committee meeting, where we learned about a new structure the CMSA put in place to facilitate the process of determining policy.
The idea is to create a series of forums that will give voices to the interests of the different types of CMSA members (Investors, Servicers, Portfolio Lenders, Multifamily/GSE). The CMSA stated that recommendations from the forums would influence CMSA policy.
So, if we could get a forum to conclude the IRP should change to XML, the committee could finally move ahead on the conversion. I gave the audience an update on the MISMO standards, and how they were improved from the original proposal, and then we headed off to the Investor and Servicer Forums.
Investor and Servicer Forums
The debate regarding rent roll disclosure really started in the Investor Forum and was brought to a head in the Servicers Forum.
A CMBS trader from a large money manager and I both asked about disclosing rent rolls as an essential element to our disclosure levels as an asset class. We both pointed out that without disclosing full rent rolls, CMBS was not a transparent asset class and would, therefore, suffer in the eyes of investors. The response from the panel was mostly dismissive.
But: The panel had to address the question twice, not all panel participants were 100% negative and I was not the only one asking.
Agenda
There was enough coverage on this issue and enough recognition by the CMSA that this issue needs to be addressed that transparency is at least on the agenda for consideration again.
Now, let’s see if the forums work as intended and if we can get positive movement out of the CMSA.
— — —
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, rating agencies and investors.
www.cmbs.com
www.backshop.com
Press coverage of MISMO rent roll and operating statements standards
/0 Comments/in Industry news, Industry standards /by jimflahertyThe commercial real estate news service CRE News picked up the MISMO press release and wrote an article about the new rent roll and operating statement standard.
Hopefully, this will help broaden the debate and discussion about this issue at the CMSA conference in Washington DC next week.
Here is the article:
Read more