Into the Looking Glass: Reports on Market Trends from the 2009 MBA-CREF Convention
In October 2008, Brenda Brown, Keith Mullen and Lou Strawn authored a series of posts while attending a real estate conference in Munich, and then from London as we returned to the United States. The series chronicled the European perspective as the economic crisis first rattled around the world (Day 1, Day 2, Day 3, Day 4 & Last Day). A "big picture" view of the crisis can be helpful in dealing with a troubled loan.
Before we attended the conference in Munich, we anticipated some of the topics that we thought would be of interest to Europeans, as the EU anticipated changes in U.S. politics, and as they watched alarming events in the U.S. economy (Pre-EU Trip ).
Early next week, we'll focus on the "big picture" in the U.S., as the three of us (and other Winstead lawyers) attend the Mortgage Bankers Association's Annual Commercial Real Estate Convention. The focus of the convention is commercial real estate finance in the U.S. It is a huge "meet and greet" for lenders and mortgage brokers - where lenders explain their loan production in the prior year and present their projected production in the coming year, and ask mortgage bankers to help them achieve these goals.
Just as we did prior to our EU trip, we have listed what we think will be some of the "hot" topics at the MBA-CREF convention:
- Some anticipate that the turnout will be 40% below the attendance at last year's convention. What does this say about the anticipated volume of commercial real estate loans in 2009? Are people NOT attending the convention because they anticipate a significant decrease in loan production in 2009? Or is all or part of the drop-off simply because the investment banks, and the CMBS loan production shops (and product) have disappeared?
- As to CMBS, what about the looming "maturity defaults"covered by our earlier post? What will replace this large component of the financial market? What will happen when there are limited sources of commercial mortgage finance? What does a severly constricted loan production line look like?
- Will the life companies increase their investment allocations to allow for an increase in mortgage loan production? What about the rumor that several life companies remain "out" of the market, and that other life companies have a defacto "no new loan" policy, based upon extremely cautious underwriting criteria? What will this look like in the market?
- Another rumor is that interested investors actively are contemplating starting new loan production platforms (partly in response to the void created by the death of the CMBS loan origination market). Is this for real?
- Some believe that we're about to enter the "age of regulation." How will this play out in 2009? For example, the risk-based capital rules severely limit the ability of insurance companies to restructure troubled loans. Will these rules be revised? Also, will Federal regulation of insurance companies be implemented; and how will that play out in mortgage investments? Turning to banks, one rumor is that bank regulators effectively have put a freeze on new commercial mortgage lending. Will the regulators change their tune, so that banks, who hold a majority of commercial mortgages in the U.S., start to lend again?
- In 2009, will we (finally) experience a significant up-tick in defaulted commercial mortgage loans? Will they be bank loans, CMBS loans or life insurance company loans? And is the industry prepared?
These are incredibly troubled times in commercial real estate finance. This should be an incredibly interesting convention. We will be reporting on what we hear and discover at the convention next week.
Please post your comments and questions.
