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Forum Spotlight: Issuers

December 11, 2023

Together, Jane, David, and Brigid form the “Leadership Working Group” for the Issuers Forum. Their duties include setting agendas and priorities for the Forum and representing the constituency on CREFC’s Policy Committee.

Why it matters: Each of the Forums interacts and addresses issues critical to their business sector and works to achieve solutions that serve a common purpose. CREFC works closely with Forum leaders and members to:

• Ensure all voices are heard,
• Assist in finding consensus amidst disparate and converging views,
• Sharing those views when appropriate with regulators and legislators, utilizing CREFC’s experienced Government Relations Team,
• Develop new best practices and monitor old ones.

Key Issuer Focus Areas

• Building conduit pools to balance investor preference and borrower demand
• Solving for risk retention amidst lopsided origination volume among sellers
• Managing deal timing given new filing requirements
• Maintaining open dialogue with other market participants to help promote responsible lending, including incorporating feedback on structural and documentation enhancements necessary to improve both the borrower experience and loan performance
• Actively working to increase 10-year loan origination volume, while keeping keep B-piece investors engaged in today’s 5-year CMBS transactions.

Looking ahead: Leaders are concerned about continued lackluster origination volume, the lack of property-type diversification, and regulatory concerns such as the SEC’s Conflict of Interest and the Basel III End Game. That said, the Forum remains focused on sourcing loans and bringing securitizations to market, bridging the demands between borrowers and investors.

Key Policy Issues:

• SEC’s Conflict of Interest in Securitization Rule: On November 27, the SEC published its final rule on Conflicts of Interest in Securitization. CREFC submitted two comment letters on the issue and engaged with lawmakers on Capitol Hill. The final rule included changes that addressed some of CREFC’s concerns such as narrowing the definition of “sponsor” to exclude some service providers, “long-only investors” exercising contractual rights, and allowing certain affiliates to be excluded from the rule.
• SEC Timely Filing Issue: On August 30, SEC staff issued a Compliance and Disclosure Interpretation (CDI) on Reg AB that could be read to require the filing of a final prospectus two business days after the first time of sale, whether or not the final prospectus has been used. The change upends the filing timeline regulations for CMBS. CREFC has been working with members and the SEC to address the issue.
• 15c2-11 Public Disclosure of 144A Bond: The SEC recently issued an order exempting 144A fixed-income securities from 15c2-11 disclosure. CREFC and its members urged the SEC and Congress to take action to prevent the application of 15c2-11 to fixed income securities. The exemption order is a major win for the industry.

What’s Next?

• Forum leaders will present an update on their Forum at the Annual January Conference in Miami.
• Soon after, the chairs will seek nominations for the next Chair-Elect to join their leadership slate.

To join the Issuers Forum, please register here. For any forum related questions, please contact Kathleen Olin (kolin@crefc.org) or Lisa Pendergast (lpendergast@crefc.org).

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Forum Spotlight: Investment-Grade Bondholders

November 20, 2023

Together, Richard, Rajesh, and Jane form the “Leadership Working Group” for the IG Bondholders Forums. This group sets the agendas and priorities for the Forum, as well as represents investors on CREFC’s Policy Committee.

Key Investment-Grade Bondholders Focus Areas:

• CRE CLO Surveillance template is being developed to provide standardized information to investors in a usable Excel-based format.
• Dialogue with stakeholders of the forum (IG investors) to understand their concerns and identify solutions.
• Work on improving reporting in Conduit and SASB transactions as the buy-side looks for standardized financials from borrowers and better disclosure from servicers with regard to loan modifications and fees.
• Leadership is concerned with loan extension risk as a result of higher interest rates; as a result, corporate single-A rated bonds continue to outperform AAA-rated CMBS.
• In the floating rate market, the replacement of SOFR caps upon expiration is an important topic, especially as loans lack the ability to cover debt service in the current interest rate environment. We continue to focus efforts on disclosure improvements and updating the IRP for these items.
• Transaction volumes are down considerably leading to decade low volume in the Conduit/SASB markets.

Looking ahead, leaders are focused on working with servicers to improve reporting accuracy and timeliness. Rising insurance costs in coastal markets put added stress on landlords.

Key Policy Issues:

• SEC’s Conflict of Interest in Securitization Proposal: The definitions are broadly written and could engulf numerous CMBS participants and a broad range of “conflicted activities” that go beyond shorting a transaction. CREFC submitted two comment letters on the issue and is engaging with lawmakers on Capitol Hill.
• 15c2-11 Public Disclosure of 144A Bond: The SEC recently issued an order exempting 144A fixed-income securities from 15c2-11 disclosure. CREFC and its members urged the SEC and Congress to take action to prevent the application of 15c2-11 to fixed income securities. The exemption order is a major win for the industry.

What’s next? Forum leaders look forward to presenting CREFC members with an update on their forum at the Annual January Conference in Miami. Soon after, the chairs will seek nominations for the next Chair-Elect to join their leadership slate.

To join the IG Bondholders Forum, please register here. For any forum related questions, please contact Kathleen Olin at kolin@crefc.org

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Forum Spotlight: B-Piece Investors

November 13, 2023

Together, Jason, Peter, and Lyndsay form the “Leadership Working Group” for CREFC’s B-Piece Investors Forum. Importantly, this group — taking their cues from B-Piece Investor Forum members — sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.

Key B-Piece Investors Focus Areas:

• Working to develop best practices for newly originated loans with regards to appropriate cash-management triggers and language to be implemented for “go-dark” provisions.
• Insurance premiums continue to be a focus as coastal markets are increasingly becoming cost prohibitive to obtain insurance required under standard loan agreements.
• Five-year CMBS transactions are driving volume and more transactions are getting done, but caution is still warranted as the dynamics for these transactions are still not tested.

Looking ahead: Rates appear to have peaked and hopeful stabilizing, allowing spreads to tighten and new-issue CMBS volume to grow relative to 2023. The Forum would like to continue the push toward better use of technology to improve the speed of reporting from borrowers to servicers and trustees to investors.

In 2024, B-Piece investors see key challenges as:

• Maintaining credit quality in the current rate environment as higher rates have pushed DSCRs to near historical lows.
• The office sector story is still unresolved. Valuations and ability to underwrite remain challenging.
• Diversity among pools is low, making the ability to manage risk more challenging.

Key Policy Issues:

• SEC’s Conflict of Interest in Securitization Proposal: The definitions are broadly written and could engulf numerous CMBS participants, including B-Piece investors, and a broad range of “conflicted activities” that go beyond shorting a transaction. CREFC submitted two comment letters on the issue and is engaging with lawmakers on Capitol Hill.
• 15c2-11 Public Disclosure of 144A Bond: The SEC recently issued an order exempting 144A fixed-income securities from 15c2-11 disclosure. CREFC and its members urged the SEC and Congress to take action to prevent the application of 15c2-11 to fixed income securities. The exemption Order is a major win for the industry.

What's next: Forum leaders look forward to presenting CREFC members with an update on their forum at the Annual January Conference in Miami. Soon after, the chairs will seek nominations for the next Chair Elect to join their leadership slate.

To join the B-Piece Investors Forum, please register here. For any forum related questions, please contact either the Forum Chairs or CREFC’s Kathleen Olin at kolin@crefc.org.

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Forum Spotlight: Servicing Administration and Special Situations 

November 6, 2023

Together, Leslie, Adam, Stacy, Tony, Pamela, and Andrea form the “Leadership Working Group” for the Servicing Administration and Special Situations Forums. The group sets agendas and priorities for the Forum, as well as represents the constituency on CREFC’s Policy Committee.

What’s new: The challenges in the market have caused renewed interest in the Servicers Forum.

• In June, the focus was on what servicers were seeing across markets for both performing and non-performing loans.
• Today, the focus is on non-performing loans, from all viewpoints—borrower, lender, and investor.
• There are no easy answers and the general consensus is that every loan and asset needs and will be individually evaluated for the option that yields the best results.

What is clear is that the playbook used in the GFC will not be the first place servicers look to for guidance in the current, very different environment.

Key Servicer Focus Areas

• Monitoring and tracking servicing activity;
• Complexity of non-recoverable advance decisions;
• Collateral/asset valuation;
• Rising delinquencies;
• Upcoming maturities and borrower ability to refinance; and
• Special Servicer remediation plans.

What they’re saying: Discussions focus on the following points:

• The transition from LIBOR to SOFR, which was scheduled to sunset shortly after the June conference and for which servicers were well prepared;
• Uncertainty around asset valuations and pricing of new loans;
• Exit strategies for loans in special servicing; and
• Borrowers looking for extensions and how they need to approach servicers with a clear exit plan and, in many cases, with collateral enhancements.

What's next: Servicers are highly focused on increased delinquencies, the volume of loans transferring to special servicing, the timing around exit strategies, and when valuations will stabilize. Servicing Forum leadership expects forum discussions at the January conference to focus on:

• The uncertainty surrounding valuations and the impact they will have on master and special servicer roles as liquidity providers; and
• What loans are in distress and what expectations are around exit strategies.

Key Policy Issues:

• SEC’s Conflict of Interest in Securitization Proposal: The definitions are broadly written and could engulf numerous CMBS participants, including servicers, and a broad range of “conflicted activities” that go beyond shorting a transaction. CREFC submitted two comment letters on the issue and is engaging with lawmakers on Capitol Hill.
• Basel Endgame Capital Proposal: The federal banking regulators have proposed raising capital on banks with $100 billion assets and above. The complex proposal could have impacts on banks that service CMBS. CREFC is working on a comment letter ahead of the January 2025 deadline.

What’s Next: Forum Leaders look forward to presenting CREFC members with an update on their forum at the Annual January Conference in Miami. Soon after, the chairs will seek nominations for the next Chair Elect to join their leadership slate.

To join the Servicing Administration and/or Special Situations Forums, please register here. For any forum related questions, please contact Kathleen Olin.

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Forum Spotlight: GSE/Multifamily Lenders

October 30, 2023

Together, Kate Whalen (Forum Chair), Ahmed Hasan (Chair-Elect), Emily Schultz (Past Chair), along with Jason Griest and Alonzo White (both GSE representatives) form the “Leadership Working Group” of CREFC’s GSE/Multifamily Lenders Forum. Importantly this group sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.

Key GSE/Multifamily Lenders Focus Areas:

• Macro volatility - how are rising rates and fluctuating credit spreads impacting issuance;
• Availability of credit in the wake of the regional banking crisis;
• Upcoming FHA scorecard and updates around how any changes may impact 2024 business.

What they’re saying: The GSE and multifamily arena stands out as an area of strong credit amid a tidal wave of concerns in the commercial real estate sector. Yet, heightened macro volatility and continued elevated benchmark rates, have caused multifamily loan originations and securities issuance to remain significantly depressed.

By the Numbers. CREFC polled the audience at its June 2023 annual conference and found that over 50% of participants expected GSE multifamily issuance to end 2023 north of $100 billion. Today, that goal is unlikely to be met for two reasons:

• A significant valuation gap exists between buyers and sellers, and
• Considerations around mission driven business.

CREFC is hosting its fall DC Symposium on November 28 with FHFA Director Sandra Thompson speaking with CREFC’s Executive Director, Lisa Pendergast. Attendees will be eager to hear the Director’s thoughts on issues such as the state of multifamily housing, housing affordability, and tenant protections.

Key Policy Issues:

SEC’s Conflict of Interest in Securitization Proposal

• The proposal is intended to prevent securitizers from designing a transaction to fail and then profiting from a bet against that transaction.
• The definitions are broadly written and could engulf numerous CMBS participants and a broad range of “conflicted activities” that go beyond shorting a transaction. GSE securities are not exempt from the proposal.
• CREFC submitted two comment letters on the issue and is engaging with lawmakers on Capitol Hill.

Basel Endgame Capital Proposal

• The federal banking regulators have proposed raising capital on banks with $100 billion assets and above.
• The proposal will alter the risk weights and capital requirements for multifamily loans and securities, which could impact bank participation with the GSEs and their securities.
• The proposal may affect bank trading of GSE CMBS, but not necessarily bank investments in GSE CMBS.
• GSE CMBS held for investment are subject to a 20% risk weight, which is not changing under the proposal. GSE CMBS held for trading are subject to a different formula to calculate risk weights, and that formula is becoming significantly more punitive.

Community Reinvestment Act: The banking agencies recently finalized the Community Reinvestment Act, which will have an impact on how banks support affordable housing. CREFC is analyzing the final rule.

Tenant Protections: CREFC joined with other trade organizations in responding to the FHFA’s RFI on tenant protections. The letter urged the FHFA not to unduly complicate the compliance regime or impose harmful rent control policies.

What's next: Forum leaders look forward to presenting CREFC members with an update on their forum at the Annual January Conference in Miami. Soon after, the chairs will seek nominations for the next Chair Elect to join their leadership slate.

To join the GSE/Multifamily Lenders Forum, please register here. For any forum related questions, please contact Kathleen Olin

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Forum Spotlight: Portfolio Lenders

October 24, 2023

Together, Scott, Robert, Jonathan, Chris, Kevin, and Stefanie form the Leadership Working Group for CREFC’s Portfolio Lenders Forum. Importantly, this group sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.

Key Portfolio Lender Focus Areas

Valuation and Rates. Declines in valuations and loan risk ratings continue, due to higher interest rates, disciplined underwriting, and challenging market fundamentals.  Increasing operating expenses, particularly insurance and real estate taxes, continue to impact more asset classes and submarkets.

• While the largest value declines are in office, declines in trading activity across all property types make valuation difficult in many markets. Loan sales and CMBS markets are providing insight on value and pricing.

Lending Pipeline and Appetite. Despite the slower pace of rising rates, the market continues to adjust to expectations of ‘higher-for-longer’ rates.

The result:

• CRE transaction and lending volume are likely to remain muted. 

• Floating- and short-term fixed-rate loans remain the most attractive products to borrowers in the current environment.  

Asset Management. Maturing loans are facing refinance risk from increased cap costs and tight debt yield and DSCR metrics. 

• Liquidity constraints in the debt capital markets, combined with borrowers’ reduced willingness and ability to invest capital, requires incumbent lenders to face difficult choices.  Health of the CMBS market remains important to the industry, as it’s the only source of takeout debt in some cases.

Capital Markets:  Members are monitoring stress in the banking sector closely, given dependence on banks for a fully functioning marketplace and sensitivity of the sector to interest rates. 

What They’re Saying: Conversations at CREFC’s June conference focused on both macro-economic considerations and micro matters affecting the availability and appetite of banks and insurance companies to make loans, including the:

• Regulatory environment,

• Balance sheets, and

• Capital treatment.

Mortgage-loan exposure often presents lower relative value versus liquid CRE investments, while long-term loans are difficult to source.

Key Policy Committee matters:

• SEC’s C&DI Letter regarding timing of filings

• Bank Capital Requirements

• SEC Climate Reporting

• Beneficial Ownership Reporting

• NAIC Ratings

• Fed Guidance

• FDIC monitoring

What's Next? Forum leaders look forward to presenting CREFC members with an update on their forum at the Annual January Conference in Miami. Soon after, the chairs will seek nominations for the next Chair Elect to join their leadership slate.

To join the Portfolio Lenders Forum, please register here.  For any forum related questions, please contact Kathleen Olin at kolin@crefc.org. 

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