More From The ULI Fall MeetingIn Washington, D.C.

This is Part 2 of notes I took at the latest annual fall meeting of ULI - the Urban Land Institute. The meeting was held in Washington, D.C. from October 11 to the 15th.

From Distressed Loans/Deals:

·        5,200 CRE loans are in special servicers’ hands representing $94 billion in distressed debt

·        Lenders are holding 1,100 REO properties having a value of $10.7 billion

·        73% of all outstanding CRE loans will mature over the next 6 years

·        There are 4.8 workers for every job in the USA, up from 1.8 workers per job

·        The he run-up was caused by investor demand that was fueled by Wall Street quant jocks who didn’t understand the cyclicalities in the economy

·        There is a correlation between high unemployment rates and the rate of defaults on indebtedness

·        Troubled loan goes from the master servicer to a special servicer at even the threat of imminent default, such as when someone has had a receiver appointed

·        Workout techniques:

o   Subordinate some portion of the debt to fresh equity – this creates the A note, B note situation

o   Restructure if you can get a higher NPV by doing so as opposed to the NPV on foreclosure and the issues of REO

§  The hurdle rate for the NPV is the interest rate on the note

o   Because of REMIC requirements, a special servicer who sells the asset has to do so on an all-cash basis. BUT if they get a court appointed receiver to sell it, the receiver can sell it as a structured deal

§  Also, the receiver insulates the lender from liability and becomes the manager of the asset once it goes into foreclosure

·        CMBS trusts can’t hold REO more than 5 years

From Larry Sabado: What the Elections Mean for the Economy:

·        It will take a decade to recover from the recession in the USA

·        Republicans will win control of the House with at least 226 seats and probably more

o   30 to 40 of these will be Tea Partiers, who will not compromise

·        Republicans will get 7 to 9 new seats in the Senate but will not get enough to prevent filibuster

·        Thus, gridlock will reign on Capitol Hill

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