The SEC announced new rules a few weeks ago regarding structured finance and securitization. One rule was covered extensively in the press and has been criticized as more “extend and pretend.” The other, which was not as well covered, is a huge victory for those of us seeking more CMBS transparency.
The well-covered rule granted CMBS loan servicers more leeway in restructuring loans before they go into default. This issue was pushed by trade groups representing property owners under the hope that loans could be extended within the CMBS structure before going into payment default, which would help liquidity issues. Critics say that ruling just promotes the “extend and pretend” mentality.
A second ruling was not covered as extensively in the press, but it represents a huge victory for those of us seeking more transparency in CMBS.
The SEC ruled that issuers of structured products have to share the underlying data (rent rolls, underwriting assumptions, financial models) with all rating agencies, regardless of whether they were hired to rate the deal or not. The intent of the SEC was to discourage the issuers from “shopping for ratings” and to allow all rating agencies to provide analysis/ratings on deals, even if they were not hired by the issuer.
In CMBS, this issue was pushed successfully by Rob Dobilas, CEO of Realpoint (congrats Rob!). Realpoint is a rating agency with a different business model than the others. They rate all CMBS deals and sell their opinions to investors on a subscription model. In contrast, the traditional agencies only rate deals for which they were hired and paid by the issuers. Until now, Realpoint has had to rely on available IRP data and their own additional work to provide the ratings. With the new rules, they will be able to get the full issuer package — which includes data that is critically missing from the current IRP.
DBRS is another rating agency poised to gain from this ruling. They were left off most deals in 2006 and 2007 because they refused to rate deals as aggressively as the big three. In the future, they also will have rights to all the data and will be free to express opinions on all deals, not just the ones they were paid to rate.
Now, the question is, what about the data providers? We at CMBS.com provide IRP data feeds to DBRS to support their ratings and surveillance activities, and I know Trepp provides its data to Fitch. So, do the data providers also get the “full package?” If so, can we share that data directly with our CMBS investor clients?
These and other questions will be answered over the next several months, but the momentum is clearly moving toward more transparency. If all the rating agencies get all the data, how far behind will the investors themselves be from getting all the data? And if they get all the data (delivered in IRP 6 XML of course), then CMBS will truly become transparent.
The SEC ruling was a big first step in that direction.
— — —
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.pngjimflaherty2009-09-24 20:47:442020-09-16 20:48:34SEC Ruling a Victory for Transparency
I just finished up two days attending the Dealmakers Summit sponsored by Institutional Real Estate. It was held in San Diego and featured senior players primarily from the equity side of the business — owners, pension fund advisors, brokers, and consultants.
The mood was generally pessimistic, especially after hearing from the economists (CRE fundamentals would continue to deteriorate) and the transaction brokers (sales volume down 95% from the peak). However, there were at least a few people who thought “the bottom” would hit in 2010 with transaction volumes picking up in the second half. But, most thought the real estate markets would be dead through next year, would have some activity in 2011 and a bottom being found in 2012.
Regardless of opinions on timing, everyone agreed that the recovery will not happen unless and until there is a functioning debt market. There was a lot of discussion regarding CMBS and what it would take to get the market open. A panel was dedicated to the government programs (mostly TARP, TALF and PPIP), but that panel concluded the programs have so far not been particularly beneficial to commercial real estate.
Of course, I proposed the “Transparency Solution.” I argued that if CMBS investors had access to the underlying real estate information (specifically the rent rolls), that would go a long way to reestablishing CMBS as an asset class worthy of the capital markets. At a minimum, we would attract value “real estate” investors into CMBS because they could do the real estate math themselves.
Since these were people who own or deal with hard real estate assets who would never buy an asset without analyzing a rent roll, they understood the importance of that piece of data. In fact, almost everyone I spoke with assumed that full data disclosure of rent rolls would be a reasonable condition of investors returning to CMBS.
When the conversation turned to “what does that mean,” things got more controversial. I brought up the fact that, if rent rolls were included in the IRP, then for any property that had CMBS debt, tenancy schedules would be “public” because Web sites like CMBS.com would have the data available for analysis.
Most reactions to that fact were negative. Some owners went as far to say that would keep them away from using CMBS debt. Others did not think it was a major issue because people in the market always end up knowing that information anyway.
We talked about using technology to try and keep a “lid” on the offensive data (hiding tenant name, for example), but everyone assumed, at least for the discussion, the data would be “wide open.”
Even with that, the consensus was 1) a functioning debt market is critical for everyone and 2) it is reasonable for CMBS investor to have access to rent roll data in a usable format. If owners were ultra sensitive and did not want to participate, they could always stay in the private debt markets.
My take away was, if the capital markets demand rent roll transparency, the equity market, for the most part, will adjust.
— — —
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.pngjimflaherty2009-09-16 20:49:172020-09-16 20:50:38Reporting from the Dealmakers Summit
We had a very active MISMO Council of Chairs call on Tuesday. IRP 6, rent rolls in XML and transparency where all being discussed. We had a “special guest” — a master servicer who gave us perspective on the challenges of getting the standards adopted.
SEC Ruling a Victory for Transparency
/0 Comments/in Industry news, Industry standards /by jimflahertyThe SEC announced new rules a few weeks ago regarding structured finance and securitization. One rule was covered extensively in the press and has been criticized as more “extend and pretend.” The other, which was not as well covered, is a huge victory for those of us seeking more CMBS transparency.
The well-covered rule granted CMBS loan servicers more leeway in restructuring loans before they go into default. This issue was pushed by trade groups representing property owners under the hope that loans could be extended within the CMBS structure before going into payment default, which would help liquidity issues. Critics say that ruling just promotes the “extend and pretend” mentality.
A second ruling was not covered as extensively in the press, but it represents a huge victory for those of us seeking more transparency in CMBS.
The SEC ruled that issuers of structured products have to share the underlying data (rent rolls, underwriting assumptions, financial models) with all rating agencies, regardless of whether they were hired to rate the deal or not. The intent of the SEC was to discourage the issuers from “shopping for ratings” and to allow all rating agencies to provide analysis/ratings on deals, even if they were not hired by the issuer.
In CMBS, this issue was pushed successfully by Rob Dobilas, CEO of Realpoint (congrats Rob!). Realpoint is a rating agency with a different business model than the others. They rate all CMBS deals and sell their opinions to investors on a subscription model. In contrast, the traditional agencies only rate deals for which they were hired and paid by the issuers. Until now, Realpoint has had to rely on available IRP data and their own additional work to provide the ratings. With the new rules, they will be able to get the full issuer package — which includes data that is critically missing from the current IRP.
DBRS is another rating agency poised to gain from this ruling. They were left off most deals in 2006 and 2007 because they refused to rate deals as aggressively as the big three. In the future, they also will have rights to all the data and will be free to express opinions on all deals, not just the ones they were paid to rate.
Now, the question is, what about the data providers? We at CMBS.com provide IRP data feeds to DBRS to support their ratings and surveillance activities, and I know Trepp provides its data to Fitch. So, do the data providers also get the “full package?” If so, can we share that data directly with our CMBS investor clients?
These and other questions will be answered over the next several months, but the momentum is clearly moving toward more transparency. If all the rating agencies get all the data, how far behind will the investors themselves be from getting all the data? And if they get all the data (delivered in IRP 6 XML of course), then CMBS will truly become transparent.
The SEC ruling was a big first step in that direction.
— — —
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
Reporting from the Dealmakers Summit
/0 Comments/in Company history, Industry standards /by jimflahertyI just finished up two days attending the Dealmakers Summit sponsored by Institutional Real Estate. It was held in San Diego and featured senior players primarily from the equity side of the business — owners, pension fund advisors, brokers, and consultants.
The mood was generally pessimistic, especially after hearing from the economists (CRE fundamentals would continue to deteriorate) and the transaction brokers (sales volume down 95% from the peak). However, there were at least a few people who thought “the bottom” would hit in 2010 with transaction volumes picking up in the second half. But, most thought the real estate markets would be dead through next year, would have some activity in 2011 and a bottom being found in 2012.
Regardless of opinions on timing, everyone agreed that the recovery will not happen unless and until there is a functioning debt market. There was a lot of discussion regarding CMBS and what it would take to get the market open. A panel was dedicated to the government programs (mostly TARP, TALF and PPIP), but that panel concluded the programs have so far not been particularly beneficial to commercial real estate.
Of course, I proposed the “Transparency Solution.” I argued that if CMBS investors had access to the underlying real estate information (specifically the rent rolls), that would go a long way to reestablishing CMBS as an asset class worthy of the capital markets. At a minimum, we would attract value “real estate” investors into CMBS because they could do the real estate math themselves.
Since these were people who own or deal with hard real estate assets who would never buy an asset without analyzing a rent roll, they understood the importance of that piece of data. In fact, almost everyone I spoke with assumed that full data disclosure of rent rolls would be a reasonable condition of investors returning to CMBS.
When the conversation turned to “what does that mean,” things got more controversial. I brought up the fact that, if rent rolls were included in the IRP, then for any property that had CMBS debt, tenancy schedules would be “public” because Web sites like CMBS.com would have the data available for analysis.
Most reactions to that fact were negative. Some owners went as far to say that would keep them away from using CMBS debt. Others did not think it was a major issue because people in the market always end up knowing that information anyway.
We talked about using technology to try and keep a “lid” on the offensive data (hiding tenant name, for example), but everyone assumed, at least for the discussion, the data would be “wide open.”
Even with that, the consensus was 1) a functioning debt market is critical for everyone and 2) it is reasonable for CMBS investor to have access to rent roll data in a usable format. If owners were ultra sensitive and did not want to participate, they could always stay in the private debt markets.
My take away was, if the capital markets demand rent roll transparency, the equity market, for the most part, will adjust.
— — —
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
MISMO Update
/0 Comments/in Industry news, Industry standards /by jimflahertyWe had a very active MISMO Council of Chairs call on Tuesday. IRP 6, rent rolls in XML and transparency where all being discussed. We had a “special guest” — a master servicer who gave us perspective on the challenges of getting the standards adopted.
Read more