Money Available
The mood was better than last year but still pretty bleak.

I would describe the major difference as this: This year, if you own a class A property that is well leased and you only need moderate leverage (based on today’s value), there is plenty of debt available. Last year, even for that deal, there was no money.

The problem is, not many borrowers need that deal. If you assume values are off by 40% and lenders are only willing to make 60% LTV loans, the amount of leverage available compared to 2007 pricing is 36%, calculated as

(100 - 40) x .60 = 36

Most borrowers still have debt equal to 80 cents of 2007 values so 36 cent debt is not that helpful. Nonetheless, at least the low-leverage money has come back.

Several new lenders and distressed funds were offering money, but that money is all chasing 20% yields. The problem they have isn’t accessing money; it’s finding deals that make sense. Low-leverage money is facing the same problem.

Deal Flow
The problem really comes down to deal flow.

There’s no doubt that values are way off from 2007, but there hasn’t been significant deal volume for a host of reasons:

1) The extend and pretend mentality of lenders/special servicers,

2) The low interest rates on the distressed debt that is keeping them alive,

3) Regulatory relief in terms of suspension of mark-to-market accounting, and many others.

That being said, I sense the cracks are starting to grow and 2010 will be the start of the deleveraging process that needs to occur.

In CMBS, special servicers, I predict, will finally start moving bad loans in decent volumes. I also think the FDIC will continue to liquidate banks as quickly as they can.

Borrowers, on the other hand, will remain optimistic and only give up properties as a last resort, so the bid ask on non-forced sales will remain wide. Fundamentals will not improve (and may very well continue to deteriorate) so, despite my prediction for more deal flow, the market will be nowhere close to normal in 2010.

Rent Rolls
I spoke out on the need for disclosure of rent rolls for CMBS loans during the public policy meeting, the technology council and the servicers forum.

Not surprisingly, I was met with consistent and vocal opposition from the servicer community. I must say it is discouraging, but not surprising, that the servicers are still fighting this issue. The need for transparency is not their driving factor and, apparently, many are content to keep operating as they have in the past. In fact, I received complaints that MISMO was going too far in even creating rent roll standards. Ouch!

I will say that more and more folks are recognizing the common-sense need to disclose rent rolls to CMBS investors, but the old guard is fighting hard. I think the Senate passing the financial reform legislation and Obama signing it into law might be the only catalyst to force a change. Until then, we will keep up the pressure.

Off to Mexico with the family for winter break. I will report in after that.

— — —

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.

www.cmbs.com

www.backshop.com

Over 1,000 people showed up, and the parties were actually pretty good. Although we all missed South Beach, it was fun to be in DC on the one year anniversary of the inauguration and on the day that Teddy Kennedy’s seat went red.

The White House

IRP Committee
The day started with the IRP Committee meeting, where we learned about a new structure the CMSA put in place to facilitate the process of determining policy.

The idea is to create a series of forums that will give voices to the interests of the different types of CMSA members (Investors, Servicers, Portfolio Lenders, Multifamily/GSE). The CMSA stated that recommendations from the forums would influence CMSA policy.

So, if we could get a forum to conclude the IRP should change to XML, the committee could finally move ahead on the conversion. I gave the audience an update on the MISMO standards, and how they were improved from the original proposal, and then we headed off to the Investor and Servicer Forums.

Investor and Servicer Forums
The debate regarding rent roll disclosure really started in the Investor Forum and was brought to a head in the Servicers Forum.

A CMBS trader from a large money manager and I both asked about disclosing rent rolls as an essential element to our disclosure levels as an asset class. We both pointed out that without disclosing full rent rolls, CMBS was not a transparent asset class and would, therefore, suffer in the eyes of investors. The response from the panel was mostly dismissive.

But: The panel had to address the question twice, not all panel participants were 100% negative and I was not the only one asking.

Agenda
There was enough coverage on this issue and enough recognition by the CMSA that this issue needs to be addressed that transparency is at least on the agenda for consideration again.

Now, let’s see if the forums work as intended and if we can get positive movement out of the CMSA.

— — —

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.

www.cmbs.com

www.backshop.com

Hopefully, this will help broaden the debate and discussion about this issue at the CMSA conference in Washington DC next week.

Here is the article:

Mortgage Tech Group Adopts Standard Requiring Full Rent Rolls for CMBS Loans

Wednesday, 13 January 2010
Commercial Real Estate Direct Staff Report

The group that sets technology standards for the mortgage industry has released a new standard, that if adopted by the CMBS industry, would increase the amount of property-level information available to all bond investors.

The standard, developed by the Mortgage Industry Standards and Maintenance Organization, or Mismo, would require that mortgage servicers include information on every lease in every property securing a CMBS transaction and would standardize the way property operating statement information is provided.

The standard, Rent Roll and Operating Statement v. 2.0.1, would need to be approved by the Commercial Mortgage Securities Association before it gets adopted widely in the CMBS market.

The CMSA long ago adopted a uniform investor reporting package, or IRP, that lays out what mortgage-level information must be made available to CMBS investors. The information package was instrumental in the growth of the CMBS market by mandating that certain key information elements about collateral loans and their underlying properties be made available for every deal. The IRP, in essence, is the source for all collateral information available in the CMBS market.

But the IRP only requires that rent information be made available for the three largest tenants of any given property that backs a securitized mortgage. The mandated information includes tenant name, amount of space leased and lease expiration.

That was sufficient for most investors when property values were skyrocketing and investors were evidently not particular about the bonds they bought.

But when the market started crashing three years ago, investors began clamoring for details about every lease in every property in CMBS deals. They argued that to properly value a property or loan, they needed data, such as rents and maturities for every lease, not just the three largest.

That information has long been available to B-piece investors, but investors in more senior tranches only had access to what was mandated by the IRP.

The proposed standard would mandate that entire rent rolls be made available for every property backing a securitized mortgage. That information would include the identity of every tenant, the rent each pays, the maturity of each lease and the amount of available space in the property.

Servicers and property owners, understandably, have long opposed such a mandate. Servicers, because of the costs involved in implementing the standard, and property owners fear that the information could jeopardize their properties. After all, if a property owner knows the expiration date and rents of every lease in a neighboring property, he can siphon off tenants.

But proponents of greater transparency argue that the information is already available through third-party data providers, such as Costar.

As the IRP is currently structured, information is disseminated either in simple database or spreadsheet format, both of which have limitations. Mismo has been trying to move the IRP to the more flexible XML format which, because it’s a system of tagging data, would effectively allow for an unlimited amount of information to be provided on nearly all aspects of a property.

But it hopes the industry adopts the rent-roll standard even if it doesn’t shift to XML reporting anytime soon.

At the same time, Mismo would like portfolio lenders and the housing-finance agencies to adopt the rent-roll standard. But the key is for the CMBS industry to adopt it.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.

— — —

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.

www.cmbs.com

www.backshop.com

I will be at the CMSA Conference next week in Washington, DC and the MBA CREF Conference in Las Vegas in early February drumming up support. If not now, when?

Keep reading for the MISMO press release.

Commercial MISMO Releases Standards For Rent Roll and Operating Statements

RESTON, VA, January 12, 2010 - The Mortgage Industry Standards and Maintenance Organization (MISMO) announces the release of two new commercial real estate XML standards for the exchange of financial data. The Rent Roll and Operating Statement Version 2.0.1 specifications began their 30 day IPR Disclosure period on January 6, 2010. These standards provide a normalized way for borrowers, servicers, lenders, investors, and regulators to share critical financial information on all types of commercial real estate collateral.

Currently, most participants in commercial real estate finance are unable to access critical financial data contained in rent rolls and operating statements in a timely and useable format to perform easy and accurate valuations of the underlying collateral. These new standards provide the road map to move and access this data in XML format from one system to another and from one company to another. MISMO believes adoption of these standards will serve at least two immediate needs:

Internal Risk Management: Within financial organizations, the need to report on asset valuation for all business lines has increased. For commercial real estate, the most important data elements needed to perform accurate asset valuations are found on rent rolls and operating statements. Normalizing the data structure for such critical information allows valuation models to work. These standards provide that road map.

External Reporting Transparency: Increased transparency in securitized finance is generally supported by both industry players and regulators alike. The concept that rating agencies and investors should have access to enough information to value the underlying assets in any securitization is common sense and a key component of regulatory reform that enjoys bipartisan congressional support. These standards provide a foundation for parties that are required to report to investors, rating agencies or regulators on their commercial real estate portfolios.

These standards are available for review and download from the MISMO web site on the Commercial Mortgage Specifications page.

About MISMO
The Mortgage Industry Standards Maintenance Organization (MISMO), a not-for-profit subsidiary of the Mortgage Bankers Association (MBA) and managed by MERSCORP, Inc., is the leading technology standards development body for both the Residential and Commercial industry segments. MISMO promotes data consistency throughout the broader industry, reduces processing costs, increases transparency, and boosts investor confidence in mortgages as an asset class, while passing cost savings on to the consumer. More information on MISMO can be found at www.mismo.org.

FOR QUESTIONS, PLEASE CONTACT
Gloria Zimmer
800-646-6377

— — —

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.

www.cmbs.com

www.backshop.com

The schema we propose is capable of handling all common data templates for both Rent Rolls and Operating Statements. The schema will be made public around the first of the year for its 30 day Intellectual Property Review period and then, hopefully, be ready for finalization by the MBA CREF Conference in early February.

MISMO’s goals for 2010 include promoting the adoption of these standards as an essential part of improving risk management, investor reporting, and compliance with the new transparency requirements of the pending financial reform legislation.

Some color on the two schemas:

Rent Rolls
The biggest concept of the rent roll schema is Rent Roll Template Type. We came up with four templates that are commonly used to handle commercial properties, multi-unit properties (in both summary and detail mode), hotel properties and healthcare. The data schema will support all the essential data elements for the major property types. Specifically: retail, office, industrial, apartments, mobile homes, self storage, hotels, assisted living and skilled nursing properties are covered.

Operating Statements
The biggest concept in the Operating Statements schema is also the concept of template types. Unlike the four templates that were needed for rent rolls, we have already needed 10 templates for op statements. The goal is to have an all-encompassing list of NOI categories (the current list has 234 items) and then provide templates that can roll up by user group. Of the 10 we have already planned for, we have eight to support the CMSA’s IRP templates, and we plan to have one each for Freddie Mac and Fannie Mae. Unlike the data for rent rolls, the list of NOI categories is endless so we went with a roll up approach with easy template expansion capabilities.

I’ll post the final package on this site when it is ready.

— — —

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.

www.cmbs.com

www.backshop.com

We are especially proud of the new Software Tour, which combines screen shots with descriptions of functionality to show how Backshop can aid loan origination, asset management and fund management.

Check out the new www.backshop.com

New Backshop home page.

Software Tour > Pipeline Management

— — —

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.

www.cmbs.com

www.backshop.com

My kids had never been to NYC so we sampled some of the great things The City has to offer including the Empire State Building, the Statue of Liberty, the museums and the Macy’s Thanksgiving Day Parade.

A week like that certainly makes you thankful.

View from the top of the Empire State Building.

Macy’s Thanksgiving Day Parade > Snoopy

Macy’s Thanksgiving Day Parade > Sponge Bob

Statue of Liberty

— — —

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.

www.cmbs.com

www.backshop.com

I am just back from our 2009 Backshop user conference in New York. Bank of America hosted it in a beautiful board room overlooking Bryant Park. About 10 clients invested the day with us to go over our accomplishments from last year and help set priorities for next year.

Backshop User Conference
We unveiled our new look for Backshop that we undertook as part of converting Backshop from a ASP/ASP.NET hybrid application to a 100% .NET application.

The new look and feel was really well received, and we got some good feedback on some additional design tweaks. Check out the Backshop web site in the near future as we will be adding a Software Tour section featuring the new design.

We also had time for informal discussions on customers’ outlooks for 2010 and beyond. I would say no one expects 2010 to be a good year as far as originations go. The belief is a few low leverage deals will get done, but traditional conduit origination will be small.

Asset management and deleveraging were much more the talk than originations. However, for the first time in a while people were talking about some allocation of capital for 2010 new loans, so we will see.

Into the belly of the beast.

Metallica!
The real fun started on Saturday night when a group of 16 of us met at Stout Bar (on west 33rd street) for a pre show dinner.

We got to the Metallica show right when the house lights dimmed and watched them kick off the show. As usual (this was my 7th time seeing this show), they were awesome. Sellout crowd, downtown New York City, flames, lasers and 20,000 outlets of energy.

While I was cruising around back stage, I ran into John McEnroe getting a drink in the green room. Last time I had seen him was at a Metallica show a few years ago out in the Meadowlands. He is a big fan.

The after party was at Del Posto, a great restaurant owned by Joe Bastianich and Mario Batali on 10th Avenue at 16th street.

We arrived with about half the crew still standing and all got in and had a great time. I went to Boston College with Joe and we played rugby together (I was the hooker, he was a prop) so it was good to see him also.

I got to spend a few minutes with Lars and could not thank him enough for the hook up. Food, drink and famous people. Not a bad way to spend an evening.

Robert and Lars rock the bass and beat.

Metallica plays “Turn the Page” at Madison Square Garden:

— — —

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.

www.cmbs.com

www.backshop.com

As an aside: The asset highlighted in the Asset Summary Report - CVS Holliston Mass. (PDF) is a property my brother and Dad own that has CMBS debt on it. It’s interesting seeing your own loan in the database.

ULI Conference in San Francisco

Last week we had a booth at the Urban Land Institute Conference in San Francisco. The 5,500 registrants included a wide range of equity players including developers, REITS, funds, architects and city planners. There were not as many lenders as in the past, but attendance was strong and the exhibit hall sold out.

While the attendance numbers were good, the frozen debt markets, rising cap rates, and detiorating fundamentals were affecting most people. The bright spots were 1) the few REITs that have accessed the capital markets and 2) the funds with dry powder looking to buy into the downturn. I did some promoting for transparency but spent most of my time selling Backshop, Leads and our bond tools.

Leads Release

We upgraded the CMBS Leads product by adding a new PDF report at the asset level and adding expanded data to our download features.

Here are two sample reports:

CMBS Leads report - Alaska Hotels (Excel)

Asset Summary Report - CVS Holliston Mass. (PDF)

MISMO

The MISMO rent roll and operating statement committee, which I chair, had a call this week to go over the proposed XML schema we came up with at the end of August.

It took us a bit longer than we had hoped to get the structure integrated into the core data model, but we are moving again. We have another call set up for next week to finalize the schema, then it will be ready for its the 30-day public review period. Hopefully there will be a lot more on that in the coming weeks.

Backshop User Conference

Julian Marley rocks The Independent in San Francisco.

We are having our annual user conference in New York this Friday. The last two years, we have hosted two-day conferences in San Francisco. This year, given the markets and travel budgets, we decided to have the meeting in New York instead. Our good friends at Bank of America are contributing the meeting space, and we have more than 10 clients coming in for a day of updates and priority setting.

We have traditionally had a music theme at the conference. The first year we went to see Willie Nelson at the Fillmore. Last year we saw Dark Star Orchestra at the Great American Music Hall. This year, we are going to the Metallica concert Saturday night at Madison Square Garden. We have a crew of 16 going and, as always, I am looking forward to a rocking night!

Speaking of rocking, I saw Julian Marley play last night at The Independent in San Francisco. Julian, a son of Bob Marley, is touring with his brother Stephen in support of Julian’s new album, “A Time and Place.”

It is an awesome album and a great show. If you see this show pop up in your city, consider going for great taste of some current reggae. If you want to learn more, here is a good place to start: http://web.bobmarley.com

I’ll report in after the user conference and Metallica show with some cool pics/video.

— — —

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.

www.cmbs.com

www.backshop.com

I had a front-row view of law being made.

Access was granted on a first come, first served basis, so I arrived at 8:30 a.m. and got in line for the 10 a.m. start. Everyone around me looked like a bike messenger and I thought, wow, I’m over dressed in my suit. Then, at 9:30, all the lobbyists showed up and the bike messenger “line sitters” disappeared. By the time we filed in, everyone wore a suit.

They walked us into the room, and I grabbed an aisle seat. Having never experienced anything related to politics, I found the process fascinating. Various members of the committee — Democrats Barney Frank and Paul Kanjorski on one side, Republican Spencer Bachus on the other — submitted amendments trying to tune the bill to their liking.

In the end, the committee accepted a handful of constructive amendments but kept the major requirements.

The way I read it, proposed legislation in House Bill 3890 makes transparency an actual requirement. The bill even has the word “Transparency” in its title!

Let’s see if it becomes law.

Check out the Committee Schedule and Webcasts.

Waiting with the bike-messenger line sitters.

I got there early and got a great seat.

A front-row view of law being made.

And the classic:

— — —

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.

www.cmbs.com

www.backshop.com