It’s been about two weeks since the SEC released its final rules on disclosure requirements for CMBS, and I have some more details to report.
Let’s start with what the SEC did not mandate:
1) Rent rolls. While the SEC held firm on asset level disclosures, they declined to mandate that rent rolls be disclosed.
2) 144 A deals. Originally the SEC was going to require public disclosures for both public and private (144 A) deals. The final rule exempts 144 A deals from the public disclosure requirements.
3) Waterfalls. The bond waterfall programs that spell out cash flow distributions do not need to be filed.
4) Credit risk management. No third party credit risk manager is required.
Asset level disclosures:
Despite pressure, the SEC stood strong and required public reporting in XML on asset level fields. The final list of data fields for asset level disclosures came out to 152 data elements (download the detailed list here). Of the 152 required fields, 26 are not currently on the IRP. There are only six new code tables (30 new fields). The new fields do fill some gaps at the note level and provide some other key info. The CREFC IRP committee is going to create a working group to analyze the fields and prepare a response on how market participants are going to comply.
Of these four items that the SEC decided to not mandate, the only one I disagree with is the rent rolls. I think the SEC got it right by not mandating the other three. Regarding asset level disclosures, the 30 new data elements are helpful, and it’s a big deal to make all that data publicly available in XML.
However, while this is a big step forward, it ultimately falls short of transparency because of the missing tenant information.
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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.