Checking In on 9/11

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

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.

CMBS.com is a Winner of the Most Prestigious Award in Commercial Real Estate Tech

CMBS.com celebrates great achievement in the Real Estate Tech Awards (#RETAS)

New York, NY (September 5, 2019) — CMBS.com, CRE Software and CMBS Data for Property Owners and Professionals, is pleased to announce that they are a Sixth Annual Real Estate Tech Awards (#RETAS) winner in the Information & Intelligence category presented by CREtech, the largest event, data and content platform in the commercial real estate tech industry.

Sponsored by JLL Spark, the Real Estate Tech Awards (#RETAS) are the leading international award honoring excellence in commercial real estate tech. The awards recognize the most cutting-edge companies who have played an integral role in advancing tech in the industry throughout the year. Backed by the leading VCs, angel investors, corporate investors and thought leaders in the commercial real estate tech industry, the awards were open to startups or technology companies servicing the industry. 

CMBS.com was carefully selected as a winner by the #RETAS elite panel of judges, including the leading VC’s, Angel Investors, and Corporate Investors and Thought Leaders in the commercial real estate tech industry.

CMBS.com provides full-stack deal modeling and CRM for property owners and professionals. Driven by the same engine as Backshop enterprise software, CMBS.com is available on a monthly or yearly subscription. 

“We appreciate CREtech’s recognition of our platform by selecting us a RETAS winner,” said CMBS.com founder and CEO Jim Flaherty. “After spending 15 years developing our platform with leading CRE enterprises, we look forward to bringing the same efficiencies to CRE professionals and property owners, especially owners who have a CMBS loan.” 

For more information about the Real Estate Tech Awards, click here.

About CMBS.com

Backshop and CMBS.com have been in business since 2000 and have become a premier commercial real estate software and data company.

Backshop enterprise software facilitates online life of the deal management and is used by all types of originators and asset managers including private equity funds, banks, insurance companies, REITS and CMBS players.

CMBS.com retail software is used by brokers, owners and other commercial real estate professionals to find, value and transact CRE deals resulting in smarter and smoother online deal making.

Our major “break-through” is providing web-based analytical tools that underwriters use to run property, debt and equity cash flows for all different types of commercial real estate properties.

CMBS.com and Backshop are based in beautiful Sausalito, CA.

About CREtech

CREtech is the leading media and events company servicing the greater real estate and technology community. Our mission at CREtech is to connect the real estate and tech sector by hosting engaging conferences, publishing research, and content.

CREtech is owned and operated by The News Funnel, the leading content, connectivity and event platform devoted to the commercial real estate industry.

To learn more about becoming a sponsor, a list of upcoming events and other exciting news, please click here or email anne@cretech.com.

 

Join the data revolution: CMBS data, CRM and full-stack deal modeling for all CRE players

With the launch of our new Professional software, we’re making the power of our Backshop enterprise CRE platform available to individuals and small groups.

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CREFC West Coast Conference and SailGP

I just returned from Santa Monica, CA where I attended the CREFC West Coast Summit to get an update on the market.

The main takeaway: The low rate, high value environment will likely stay for a while, but investors are weary because the cycle is so old.

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2019 is off to a hot start

I’m leaving Miami after attending the annual CREFC Investor Conference. The conference, now in its 25th year, is usually the best place to find out what people are thinking and get a prediction for the year. We had great weather, and a friend of mine hosted me on a nice-sized boat to cruise around Miami Bay — making the trip that much nicer.

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Announcing our College Securitization Analysis Contest

We’re excited to announce our first college securitization analysis contest. Model your chosen securitization using our data and tools — and win $2,500.

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MISMO Releases Rent Roll Standards for Commercial Property

New language brings consistency, efficiency and accuracy to exchange of key property data

WASHINGTON, D.C. – December 12, 2016 – The Mortgage Industry Standards Maintenance Organization (MISMO®) has released a new proposed data standard for the exchange of rent roll information on commercial property. The proposed standard is open for public comment. The public comment period will remain open from Monday, December 12, 2016 through Friday, January 13, 2017. The proposed rent roll standard is expected to be elevated to Candidate Recommendation status shortly thereafter. The proposed standard is designed to provide a consistent set of data points and definitions to use in financing and managing commercial property assets.

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New CRE standards are coming!

After blogging about MISMO and CRE data standards for years, I can finally say the new rent roll standard is ready for public comment. Thanks in large part to the efforts by Fannie Mae, we will release the MISMO XML rent roll standard at the MBA’s annual convention starting Oct. 23 in Boston.

If you’re an owner, broker, lender, appraiser, investor, agency or other CRE participant, you need to pay attention.

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MISMO update May 2016

It’s been a while since I’ve posted on C-MISMO, but finally there is some real progress to report. We are releasing an updated rent roll standard for a 60-day public comment period, and Fannie Mae is going to announce its support for the standard this week in Dallas at the MBA Commercial Servicing and Technology Conference.

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REG AB II Update : May 2015

It’s been about 7 months since the SEC came out with the final rules for REG AB II, and the industry response is becoming clear.

CREFC, the industry trade group that controls the IRP, has hosted several meetings with the IRP working group, and the emerging strategy for compliance with REG AB II XML reporting is disappointing.

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