Highlights of the REISA 2009 convention

Highlights of the REISA 2009 convention

Highlights of the REISA 2009 convention

Conflicting undercurrents of cautious optimism and impending doom have been on show on the Actual Property Funding Securities Affiliation (REISA) annual convention, held October 18-20, 2009 on the Bellagio Resort in Las Vegas, Nevada. . About 700 attendees, about half of whom have been registered representatives, loved a report 45 academic periods and fascinating keynote addresses from Alison Levine, group captain of America’s first ever ladies’s expedition to Mount Everest, and by Dr. Mark Dotzour, chief economist and analysis director for the Actual Property Middle at Texas A&M College. As proof of the brand new vitality and curiosity within the group emanating from its latest rebranding from TICA to REISA, convention organizers estimated that almost fifty % of convention attendees have been non-members. of the group or have been new members attending their first annual convention.

Whereas I wasn’t capable of attend all the breakout periods, I did handle to attend just a few, and under are my high 5 highlights from the convention.

1. The business actual property market – Extra dangerous information. The final consensus amongst trade consultants who spoke on the convention is that the business actual property market will worsen earlier than it will get higher. The dearth of liquidity within the debt markets will proceed to cripple the business actual property market. Job losses proceed to harm market fundamentals with few firms reporting hiring plans over the following six months. Business actual property costs are down 40-50% from their 2006-2007 peak (dubbed a “fairyland” we’re unlikely to see once more anytime quickly) and should not present important indicators of restoration earlier than 2012-2013. The principle financial indicators to observe are (i) the private financial savings charge (this charge stabilization will mark the top of the recession) and (ii) company earnings.

2. Capital markets stay frozen. Lenders stay reluctant to lend because of regulatory and danger administration points. The CMBS debt market has but to resurface, however there have been some constructive developments in latest months that provide some optimism for the longer term. In September, the IRS issued steerage in Tax Continuing 2009-45 which will make it simpler to switch CMBS loans by offering reduction from tax rules that may in any other case prohibit mortgage modifications. CMBS mortgage servicers now have some extra flexibility to work with debtors earlier than a mortgage goes into default. With $150 billion of CMBS debt set to mature between 2010 and 2012, this flexibility might have a big affect, however mortgage servicers and debtors will nonetheless face numerous hurdles in reaching a mutual settlement on a mortgage modification. .

Multifamily properties are nonetheless being financed by Fannie Mae, Freddie Mac and HUD financing, however companies, whereas nonetheless lively on this declining market, usually are not displaying a lot curiosity in TIC or DST buildings presently.

There’s a premium in at present’s market on so-called “relationship banking”. Some sponsors are profitable in growing relationships with regional and native lenders.

3. New merchandise and deal buildings current alternatives. Convention presenters akin to Keith Allaire predicted that syndicated debt applications will stay well-liked as numerous sponsors promote: (i) alternative funds that can put money into distressed debt, discounted debt or CMBS paper ; (ii) most well-liked fairness funds and mezzanine debt funds that can present extra short-term funding; (iii) oil and gasoline applications; and (iv) gear leasing applications, to not point out the rising sum of money raised by registered, non-traded REITs. A typical theme in these applications is that sponsors waive upfront charges and compensation to be able to higher align their pursuits with these of their buyers.

4. RIAs current an untapped distribution platform. Sponsors are more and more in search of to distribute their applications by way of funding advisers along with, or in some instances a substitute for, the community of unbiased brokers. The benefit for the sponsor group is that this community represents a comparatively new and untapped distribution community for his or her applications, to not point out a extra favorable compensation mannequin that, not less than at the beginning of a proposal, can save 6 to eight% on the preliminary gross sales cost. For the funding advisory group, the problem from a regulatory compliance perspective is to construction their compensation round these illiquid Regulation D securities. The principle points relate to administration, valuation and liquidity. Some funding advisory companies are comfy with their insurance policies and procedures on this regard. Different firms much less comfy given the shortage of definitive steerage on these points have inspired REISA to pursue a proper request for steerage from the SEC, and REISA has responded by forming a particular working group to discover these points to make clear how RIAs might be compensated below Regulation D non-public placements.

5. The sponsor bar has been raised. The financial downturn has unsurprisingly led to a rise in litigation, arbitrations, bankruptcies, defaults, breaches of contract, sponsor bankruptcies and, in probably the most egregious instances, legal lawsuits. Regulators and trade associations are promising nearer scrutiny of Regulation D non-public placements and the trade professionals concerned in these transactions. Business surveys recommend that it will likely be tough for brand spanking new sponsors with no confirmed observe report to efficiently enter the non-public placement market, as previous efficiency and a distinct segment funding or administration technique might be important to efforts. of a sponsor to lift capital in these tough occasions.

From a disclosure perspective, sponsors are leaning in direction of extra disclosure and transparency, with extra consideration paid to investor relations and reporting. On the identical time, nonetheless, sponsors face growing strain to regulate prices, significantly upfront providing prices (gross sales commissions, authorized charges, and so forth.) and to develop buildings that higher align the pursuits of sponsors. sponsors with these of their buyers.

Favourite quote: Keynote speaker Dr. Mark Dotzour set the stage for a really informative and sometimes hilarious presentation by beginning with the next zinger:

“I am not a motivational speaker…I’ve zero shallowness, so I do not care in case you have any if you depart right here.”

#Highlights #REISA #convention

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