More XML discussion with no movement

Monday’s IRP Committee Meeting at the annual CMSA conference was more talk and no action. There were about 100 people in the room including many investors and servicers, which highlighted the importance of the topic. The committee heads gave a good summary of the IRP process and why it is no longer being pursued. Then they opened the meeting to questions.

The first question was “Are we transparent enough? If not, what are we missing?” The answer came from an investor: “No, we are not. We need rent rolls.” I literally applauded. And the debate began.

Those who are trying to kill any transparency improvements gave the typical responses:

1) Budgets are too tight right now for additional technology spending.

2) The PSA’s have this concept of “restricted data.” The servicers will bear liability if they share too much data.

3) Borrower’s don’t want rent rolls to be shared.

The responses from the folks who support better transparency where just as passionate:

1) When the market was working, the argument was we were all too busy to make the investment in XML. Now, we are not busy enough to make it? Plus, the actual cost to produce an XML report on existing data cannot be very high.

2) While some PSA’s do have the concept of restricted data, the vast majority of them state the reporting standards are dictated by the IRP, not the PSA. Sure, conservative lawyers may take a position to support their client’s goal of not sharing data, but most lawyers I spoke to agreed that “reporting could probably be significantly expanded without incurring liability.”

3) Borrowers generally are contractually obligated to supply the rent rolls. They have no ability to restrict their distribution. While some may not like this, my guess is they will all accept this openness if it helps open up the markets.

One of the major services floated an idea about keeping IRP 5 in place but amending the property file with XML-based rent rolls and operating statements. While I think we should move the entire thing to XML, I welcomed the comment because it at least represents movement. Then, quickly, another major servicer said “no” to even that step.

So, like the rest of the meetings on this topic, it simply ended with no resolution and no direction to go forward. Frustrating to say the least. I then pushed CMSA leadership to provide direction and rules on how to break the stalemate. How does a committee sponsored by a trade group get anything done if it needs unanimous consent? What are the rules? Are we like the U.N. Security Council where all members hold veto power?

Pat Sargent, the new president of the CMSA, reportedly stated at the Wednesday Board of Governors meeting that the CMSA would tackle the XML/Transparency issue “head on” and would push for resolution — one way or the other.

Hopefully Pat will provide the leadership to move this issue.

Conference Mood
The mood of the conference was a bit better than I was expecting. While there were still plenty of shellshocked people, the general mood was more of acceptance than denial. The Special Servicers are jammed and busy as can be. The investors were “playing nice” with the B Piece guys. Even some lenders where thinking about next steps. But, the main sentiment was acceptance that the next 18–36 months will include a massive deleveraging process with foreclosures, price declines and continued lack of liquidity.

And, if some have their way, no new data to help sort out the mess.

— — —

Jim Flaherty is CEO of 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.

17 Firms call in for XML kick off – CMSA next week

We had the kick-off call for the rent roll and operating statement standards making committee yesterday, and 17 firms called in representing CMBS issuers, banks, insurance companies, rating agencies, servicers and data providers. I was encouraged by the attendance number and the productive conversation. We made good progress through rent rolls and got started on operating statements.

The rent roll schema discussion was pretty straightforward. We decided we needed to add a few elements (payment frequency and number/type units), but everyone generally agreed the current schema is workable.

The discussion around operating statements was a bit more difficult. It centered on two issues:

1. How to identify the op statement in the header. Op statements can cover many periods (annual, quarterly, monthly), and they have different types (actual, normalized, adjusted). After 30 minutes of discussion, we pretty much agreed we would identify operating statements with three data elements: Start Date, End Date and Type, but everyone wanted to think about it some more.

2. The number of operating income/expense categories we would support. Basically two lists of NOI categories have been compiled. The first is the summary reporting categories used by the CMSA IRP: about 30 core categories in three different templates — commercial, multi family and hotels. The second is a much more detailed group that represents just about every chart of account value there is. There was general agreement we would map the detailed list of NOI categories up to the “roll up” reporting categories that represent the 30 or so CMSA core reporting categories. The servicers seem to do that now, so no reason to change.

The next call is in a few weeks. We hope to finish the discussion and get a draft schema out ASAP. Thanks to all who called in. Please call in next time if you’re interested.

CMSA Conference kicks off Monday

I am headed to New York next week for the Annual CMSA Conference. We sponsor this conference every year, and we will be doing our normal booth and suite (including our annual cocktail reception). Three of us will be pushing our asset management, origination, bond and data tools.

The Big Session will be the IRP 6 committee meeting, 1:15 to 2:15 p.m. Monday. Jim Cooke, who sits on the C-MISMO Board of Governors with me, is participating on the panel, so we know the topic of XML will be discussed and supported. The CMSA did a great job promoting this meeting, and it will be interesting to see how it plays out. I’ll report in from New York.

— — —

Jim Flaherty is CEO of 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.

Big Easy showed early seeds of transparency

The MBA Commercial/Multifamily Servicing and Technology Conference I just attended was much more about business issues that servicers face (covenant violations, defaults, foreclosures and a general lack of liquidity) than how technology can help solve those issues. While words like transparency and efficiency were sometimes used, the belief that technology is need to achieve these goals seemed lacking.

Read more

C-MISMO to create rent roll and operating statement standards – Flaherty to chair

We announced at the MBA Commercial/Multifamily Servicing and Technology Conference in New Orleans that C-MISMO has authorized the creation of new standards for rent rolls and operating statements.

To better aid all CRE investors/lenders, we have reduced our focus on the CMSA’s CMBS-centered IRP 6 (which we support) to instead concentrate on establishing broader commercial real estate standards.

I was named Chairperson of the effort. We plan to have these standards finalized by the end of summer.

Setting a CRE standard while supporting IRP 6

If it includes full rent rolls and is adopted by the CMSA, IRP 6 will solve the transparency issues for CMBS deals.

However, getting IRP 6 approved and adopted is a big challenge, especially because the critical players (the servicers and the trustees) are resistant to making the required investment. Also, while IRP 6 has the potential to fix reporting for CMBS, it does not automatically fix the problem for commercial real estate lenders in general; the IRP has data and structures (bond level data, for example) that are not needed by portfolio lenders.

Therefore, MISMO is moving ahead with adopting standards for the two most critical missing pieces: rent rolls and operating statements. These standards will be identical to the “rent roll” and “operating statements” containers found in IRP 6, as both are based on the already-approved MISMO XML schema.

We think pushing ahead with independent C-MISMO rent roll and operating statement standards will not only solve a critical need for portfolio lenders, but will also help the CMSA with its adoption challenges, as the benefits of the transparency improvements will become evident and the servicers can start implementing the change.

— — —

Jim Flaherty is CEO of 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.

C-MISMO Update

I sit on the Commercial Mortgage Industry Standards and Maintenance Organization’s Commercial Board of Governors (C-MISMO BOG) and we have been active this month working on two things:

  • Creating a MISMO action plan to make MISMO relevant and to help the CMSA get IRP 6 approved.
  • Preparing for our panel session at the MBA Commercial/Multifamily Servicing and Technology Conference in New Orleans May 12–15.

On the MISMO front, it has been a very interesting month. Since the CMSA officially asked for industry comment on IRP 6, the MISMO BOG has been trying to finalize our strategy to best help promote the adoption of open and transparent commercial real estate standards. Also, most members of the BOG are participating in a MISMO panel on May 13th at the MBA’s Tech Conference in New Orleans. These two events have helped us focus our message and strategy.

The process of agreeing on our strategy, as a group, has required a bit of consensus building. Frankly, the process has been refreshing because I think the position we seem to be reaching is the right one, and I am feeling good about it. When we release the statement at C-MISMO (probably around the conference), I will post it here. Stay tuned.

— — —

Jim Flaherty is CEO of 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.

Centralized Underwriting or Increased Transparency?

The CMBS Investor Group has a new proposal to improve the CMBS market. This is the same group that spoke at the January CMSA conference. I applaud the group for being proactive in trying to solve the crisis, and they have come up with many valid points. In their latest round of comments, they introduced the idea of a “centralized underwriter” to “assemble and present” underwriting and surveillance information for CMBS Investors. Basically the entity would be responsible for analyzing all financial reporting data and presenting it to investors in a concise, standardized way.

Centralized Underwriting
While the goal of giving investors easy access to reliable data is commendable, achieving that goal by paying a “Centralized Underwriter” to assemble and present the data seems redundant. This would add a human cost layer for the centralized underwriter to manually assemble and present data. And, by the group’s own admission, it’s unlikely that all (or even most) investors would outsource their credit decisions.

In the current system, we already have parties who are supposed to perform these two functions. The Master Servicers are the ones that are supposed to “assemble and present” the data via the IRP. That group has already figured out how to fix the “assemble and present” problem through IRP 6 in XML — it just needs to be implemented.

The rating agencies are supposed to interpret that data and express opinions on the underlying collateral. We should demand transparency into the rating agencies’ analysis and let them earn back investors’ trust by performing accurate, thoughtful analysis. If a particular rating agency has lost investor confidence beyond repair, they should be replaced by a rating agency that still has investor confidence. If we focus on adding another layer to this system (the “Centralized Underwriter” or a “Mirror Rating Agency”) instead of organizing and standardizing the data we produce (via IRP 6), it we’ll become less efficient, not more efficient.

Increased Transparency
The group’s spot on recommendation was the demand for increased transparency. The proposal stated: “As much information as legally possible should be provided publicly via electronic distribution.” Absolutely!

The costs of “fixing” the reporting problems so the Master Servicers “assemble and present” the right data (in IRP 6 of course) will be much cheaper and a better solution than adding another human cost layer. Instead of adding a new layer of people to the process, let’s produce clean, complete data in XML and demand transparent standardized underwriting analysis from the rating agencies.

— — —

Jim Flaherty is CEO of 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.

Commercial MISMO Kicks Off New Workgroup for Rent Rolls and Operating Statements

I’ve been writing about this for a while; here is the official announcement, plus a way for you to join the MISMO Commercial Operating Statements and Rent Rolls listserv. Do it now!

Read more

Support IRP 6 – Send this email!

As MISMO’s liaison to the CMSA, I have spent the past few weeks calling around to contacts at Lenders, Rating Agencies, Servicers and Investors, to see what each firm’s position is on IRP 6. Other than the servicers, most firms I spoke with did not know the specific issues with IRP 6 and had no official position. After explaining the benefits of IRP 6 several times, and getting several firms to send in emails of support, it occurred to me we have a marketing problem.

To address this problem, we are putting together a press piece explaining the benefits of IRP 6 and releasing it through MISMO. Plus, I will keep dedicating space on the blog to promoting IRP 6. Toward that end, i case you want to support IRP 6, I drafted a form email to save you some time.

>> Click here to email a message to the IRP Committee >>

The text of the message is on the remainder of this post.

— — —

Dear CMSA IRP Committee:

Our firm, YOUR FIRM’S NAME HERE, is an investor in commercial real estate debt, equity and CMBS.

For our CMBS investments, we have found the existing available data insufficient to perform a “bottom-up” analysis of the bonds. Specifically, we need to perform an analysis of the underlying real estate that requires access to a current rent roll, operating statements and current debt amount/terms. We have access to the debt information and sporadic access to operating statements but have not found any source for current rent rolls.

Therefore, we strongly recommend that the CMBS industry improve its transparency to current and potential investors by adopting, without delay, the new proposed standards as described in IRP version 6.

The primary benefits we see are 1) operating statements, bond, property, and loan data better formatted in XML and 2) access to basic tenant information (tenant size, contract rent, reimbursement amount, start date, end date) on all tenants.

Thank you for your consideration.

— — —

Jim Flaherty is CEO of 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.

IRP 6 Needs Support! – Send an email to

As MISMO’s liaison to the CMSA to support the adoption of IRP 6 as the new reporting standard for CMBS, I have an inside perspective on the prospects of this standard being adopted. The official comment period for IRP 6 ended on February 20 and the CMSA only received a handful of comments (around 5) with most being against adoption.

From what I understand, I had the only supportive comments, and the other comments were from a handful of master servicers and trustees who were very negative on adoption of IRP 6, presumably for reasons discussed elsewhere on this blog. With the majority of comments being negative, the CMSA is trying to build a case for adoption. I worry that if the positive voices are not registered, the special interests may stifle the transparency promised by IRP 6.

We need Your Help!
If you are a member of the CMSA or have an interest in CMBS bonds (especially if you are a current or prospective investor), please send an email to and put you and your firm on record as being supporters of IRP 6 for open and transparent CMBS standards. State in the email who you are, what role you play in CMBS, and that you support IRP 6.

After hearing the news that most comments were negative and being told that CMSA will be hard pressed to push the standard through without industry support, I sent the following email to the CMSA.

— — —

Dear CMSA IRP Committee,

I am a member of the Board of Governors of MISMO, and one of our key agenda items for 2009 is to help the CMSA usher in IRP version 6 in XML. I have been appointed as the MISMO liaison to support the CMSA IRP committee and want to offer any help needed to bring about the acceptance of this important standard.

I know there is some resistance from a handful of master servicers and trustees in implementing IRP 6. However, the investor community and the rating agencies are demanding cleaner, more complete data to better evaluate the value of CMBS bonds. Unfortunately, most players in the investor community do not understand the importance of XML to meet their information demands (they just want the data available and useable and complain loudly when it is not there). I believe if the investor community knew the relationship between solving their issues and IRP 6, they would be loud and vocal supporters of IRP 6. Unfortunately, they do not really understand the mechanics of moving data and therefore were largely silent in making comments on the exposure draft. Instead, all you received were mostly negative comments from a few servicers and trustees.

We at MISMO, and I know the two of you, understand the conversion of the IRP to XML is required if we are going to meet the information demands of the investors. Without investors, we do not have a viable asset class. Therefore, the requirements of this critical constituency and the overall goal of transparency should trump all objections. Do not let a few negative, self serving comments from a handful of servicers / trustees alter your dedication to the noble goal of data transparency.

I will reach out to all of you over the next few days to figure out a strategy to keep momentum going on this critical improvement in transparency and reporting. First and foremost is educating the investors on why this is important to help the CMSA build a case to push ahead with IRP 6. In the meantime, check out this timely article about XML and financial reporting to help remind us of the importance and righteousness of our mission.



Jim Flaherty
(415) 576 -8008

— — —

Jim Flaherty is CEO of 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.

Keep the $100 Billion. I think $20 million will do the trick

I just returned from the MBA’s annual Commercial Real Estate Finance (CREF) conference in San Diego. While we were there, the government announced $100 billion from the new bailout plan would be used to provide leverage to investors in AAA CMBS. Most people at the conference were excited. Personally, while I welcome government leadership on a host of issues, I disagree with this strategy.

Do we need to use taxpayer money to provide debt to boost the bond yield for investors in AAA CMBS? The bonds are already trading at 15% pay rates — how much more juice do these guys need!?!

A better idea

So, we came up with a better idea: Let’s take $20 million instead of $100 billion.

In San Diego we talked about the real issues, and the solutions required to fix them. I believe, along with others, investors would come back to CMBS and spreads would tighten if the investors had the information and tools to model the underlying real estate risk.

For sure, no one knows what lease rates and cap rates to use in this economy. But, if IRP 6 went live and full operating statements and rent rolls were included in the XML file, the data would be available to run a bottoms-up underwriting, and the debate could move to lease and cap rates instead of the black hole we have now. That would eventually bring in spreads and spur new lending because the risks would be understood.

Debating the merits of, and even complying with, IRP 6 was a main topic at the conference — particularly among the master servicers. Their official position seemed to be that they would comment on IRP 6, but they wanted infinite time to comply with the XML schema and new content.

They argued the asset class is dead and budgets are tight, so there isn’t enough money to make the changes required to comply with IRP 6. When pressed to quantify the expense of compliance, they gave estimates from $0 to $2 million per servicer. When asked if they would implement IRP 6 without delay if they were paid for it, most said that would make a difference.

Some simple math:

1. 10 master servicers x $2 million each = $20 million

2. For that, we get transparency into an asset class worth almost $1 trillion.

3. We arm investors with the data and tools to do the math and figure out the investments.

4. Bonds start trading, and the log jam is broken.

Think of it as an infrastructure project instead of money to boost an already generous yield. Oh, and by the way, since we would be investing in building a “pipeline” into the data, we will leave behind true reform and the transparency that will surely be the foundation of CMBS 2.0.

Don’t bring a knife to a gun fight

The XML transition has real costs, and the servicers will bear most of them. Some will say we don’t need the $20 million either because the way the PSAs read, if the IRP changes, the masters can be forced to comply.

But, if the government really wants to help the CMBS industry, and they are committed to write a check anyway, I suggest a $20 million investment in infrastructure to speed up transparency would yield far better and faster results than their current plan.

Trying to manipulate a several trillion market with $100 billion is like bringing a knife to a gun fight. Let the government provide the leadership and capital needed to disclose and reform CMBS data, but leave the economics of the bet squarely in the private sector.

Other Observations from MBA’s CREF Conference

Happy Hour at the booth.

MISMO and MERS – I spent several hours with the MISMO governance and the representative from MERS. There was clearly a frustration level with MISMO volunteers with how the transfer to MERS was conducted. But, it was driven by budgets and it was done with, so most of the time was focused on what next.

Most people agreed that origination standards would not be critical in 2009 because there would be so little origination. Rather, to get a “win” and gain credibility for MISMO, pushing for the adoption of IRP 6 (which is based on MISMO XML schema) was deemed a priority. As for MERS, they seem like nice people, and I think they could prove to be effective agents for progress. They definitely have a presence in commercial and could provide the numbering system for a “Universal Prospectus ID.”

What’s the true impact of MERS? It’s too early to tell.

People – While attendance was down, lots of key people attended the conference. The panels were timely and attracted the true leaders from the institutions they represented. I learned a bunch and had good and lively debate on several occasions.

Booth Duty – This is one of two conferences a year we actually put up a booth in an exhibit hall (the CMSA’s June New York conference is the other). Attendance was down about 50% from last year with significantly fewer exhibitors also. But, at times the floor was jamming and our new investor product was being well received. Booth duty is not glamorous, but it is fun to throw yourself and your product out there and do some old-fashioned selling. I enjoy it when you get a good crowd interested — and especially if you make a sale.

Weather – It sucked (although we need the rain so bad in California it was actually great weather).

Parties – Not great (no Eagles, Grateful Dead, or Steve Miller this year) but not bad at all, surprisingly enough. We found multiple parties around town that offered plenty of free drinks and food. Hey, what good is CMBS reform if you’re hungry and thirsty?!?

— — —

Jim Flaherty is CEO of 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.