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CRE Finance World, Summer 2013

Hole in One A publication of Summer issue 2013 sponsored by CRE Finance World Summer 2013 13 Sam Chang: I do agree with you Frank. Though, I think on the opposite end is “not winning the investment” or, “not being able to get invested.” This is pressure that all of us feel at the end of the day. On the balance side, there is a pressure to get invested in this market, which could cause an investor, not Torchlight of course, to put themselves in the exact scenario that you’re describing. Frank Scavone: I don’t doubt that, but that’s a separate topic. If a new entrant comes into the market place, and through some miracle raises a lot of money only to then make a really big mistake, it doesn’t really matter whether he is experienced or a new guy, again it hurts us all. So what we’d like to see are people who are not accepting loans that have been previously kicked out, without meaningful restructuring. This is critical for dissuading bad behavior. It will take very few disasters to scare investors away, thus creating another disruption to the overall capital delivery system. Lainie Kaye: To go back to Jon’s point, with some of these money buyers that are coming in and have been through the 1.0, we’ve had situations where some of these investors in some of these funds have had bad experiences with some specific sponsors and have said to the B-piece buyers, we are not investing in a deal that so-and-so sponsor is involved with. So we’ve heard through the B-piece, or the investor of that B-piece that they’re not taking this loan no matter what the structure because they had a problem with the sponsor. So as Jon said, the history, whether credit related, a bad sponsor or someone that behaved poorly, is coming back. In certain ways, you’re going through more checks-and-balances than ever before. Frank Scavone: It’s very true. Most of us run discretionary funds, so we don’t have to call investors and ask permission to buy the next deal. But if we are in a meeting trying to raise follow up capital and the investor learns that there is an infamous sponsor involved in something we have already done, that is a bad conversation to be in. At a minimum it’s going to cause that investor to question whether they want to give you any more money next year. Who really is the “decision maker” in the equation? Is it the rating agency, the B-piece buyer? The answer is always the source of the capital, and as fund managers we ultimately have to answer to that. Matt Salem: I don’t think I’d make a comment that new participants in the market necessarily have looser standards than current participants. I don’t know whether that’s true or not. I would say that the more the competitive a market gets, I feel it gets more competitive on both price and credit. There are definitely times where we lose deals, because we didn’t like a couple loans, but they have the same price for the B-piece. Simply put, we are competing on both fronts and in a more competitive market you would expect pressure on both fronts. Paul Fiorilla: What is the dynamic at work today with regard to structural changes in loan documents, things such as special servicing fees, the scope of the power of operating advisors to oversee special servicers, fair value purchase options and the like. Lainie? Lainie Kaye: As Matt said, we are competing on price and structure. Our structure is what protections we have built into the PSA for the investors. We’ve tried to hold up the standards that we’ve heard investors say they want, we saw some of the problems and loop-holes that were exhibited in 1.0 and tried to solve for a lot of CRE Finance World Roundtable: The B-piece Buyer 176,000yd Par 350lbs www.BIGFOOTSPORTFISHING.COM


CRE Finance World, Summer 2013
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