It's a critical time for the commercial and multifamily real estate finance industry, and the Mortgage Bankers Association of America (MBA) has in place an ambitious agenda to provide the industry timely tools to meet a myriad of challenges.

The horrific events of Sept. 11 are expected to cost insurers nearly $40 billion. Just four days after the attacks on the World Trade Center and the Pentagon, insurers responded by sending letters to commercial property owners stating that existing insurance policies would not be renewed for 2002 or that renewal policies would exclude terrorism acts.

The news, while not surprising, dealt another blow to an industry already reeling from the events of Sept. 11. The attacks raised the likelihood that commercial real estate property insurance will undergo a dramatic transformation.

This uncertainty over the terrorism insurance issue is in stark contrast to what is likely to be a record year in 2001 for loan production. Commercial mortgage originations through the end of third-quarter 2001 were up 31% from the first three quarters of 2000, $53.1 billion vs. $39.2 billion. The increases were for all property types, with lending for multifamily properties particularly large in the first half of 2001. Commercial mortgage bankers report that loan demand remained strong in the fourth quarter of 2001.

By year-end 2001, CMBS issuance was expected to reach nearly $95 billion, surpassing the 1998 record year of $78.3 billion. Commercial mortgage commitment levels by life insurance companies in 2001 were also on pace to possibly exceed the record of $24.8 billion in 1990. But with the economy in a downward slide, the future pace of production remains unknown.

The MBA's 2002 agenda positions the industry for future challenges, encompassing five platforms: advocacy, education, communication, commerce and research.

Targeted advocacy

The insurance issue became one of the top items on the legislative agenda of MBA, an active trade association representing the real estate finance industry in Washington, D.C. “Insurance companies underwrite risks such as terrorist acts that we, as lenders, cannot underwrite,” said Gil Lorenz, chairman of the Commercial Real Estate/Multifamily Finance Board of Governors (COMBOG), the association's commercial real estate governing body. “We have to rely on insurance companies to underwrite acts of terrorism.”

During the past three months, MBA has worked in conjunction with several industry groups, including the Building Owners and Managers Association International, the International Council of Shopping Centers, the National Apartment Association, the National Association of Industrial and Office Properties and the National Association of Real Estate Investment Trusts, to lobby Congress about adequate insurance coverage in a post-Sept. 11 world.

In a statement before the House Financial Services Committee, the MBA and other associations laid out the issues that the real estate industry would face without insurance coverage. “The lack of adequate reinsurance in the current market means that coverage our members need could very soon become unavailable to large segments of the U.S. economy,” the statement said. “A significant percentage of owners of commercial properties open to the public, including shopping centers, offices, apartments and hotels, renew their insurance coverage on Jan. 1 of each year.”

Reinsurance involves the sharing of risk among insurance companies. Without reinsurance, insurance companies could drop policies that might prove to be too expensive for one insurer to bear alone.

Rodrigo Lopez, who serves on MBA's legislative committee and is president of AmeriSphere Multifamily Finance in Omaha, Neb., says real estate lenders will be forced either to delay deal closings or prevent developments from moving forward.

The MBA and its partners scored a victory Nov. 29 when the U.S. House of Representatives passed the Terrorism Risk Protection Act. The association cited the legislation as a step toward ensuring the availability of adequate insurance coverage for terrorism risks. However, the U.S. Senate broke for the Christmas and New Year's holidays without passing the bill, which requires the approval of both the House and Senate. “Since the Senate didn't act, the MBA and its partners will regroup to renew our efforts in 2002,” said Lorenz, who also is senior vice president and regional manager at Laureate Capital in Atlanta.

MBA's long-range goals have remained in place despite Sept. 11, according to Lorenz. “The overall objective will be to provide tools, assistance and advocacy to help our membership operate their businesses more effectively in a changing world,” Lorenz said. Of course, insurance has been a hot topic, but other important issues, such as education, technology and multifamily housing, will be on the 2002 agenda.

Emphasizing education

Development training and improved communication are important missions for the association. MBA has an established educational arm called CampusMBA. However, the content of the commercial/multifamily courses and programs needs to be updated to remain contemporary with the delivery mechanism — Web-based learning — which is why education takes an even more relevant place on the agenda this year, Lorenz explained.

With curriculum progress in mind, MBA set up an educational task force led by Jack Cohen, CEO of Chicago-based Cohen Financial. Cohen said he was chosen to head the committee because of his company's emphasis on providing ongoing training for its employees. Last year, 200 classes were taught at Cohen Financial. Cohen's mission for the task force is to prepare a white paper on education to address a broad education and training strategy for the future. “Our job is to look at the entire industry, to examine what's out there and what's available,” Cohen said. “Our hope is that the industry will look at CampusMBA as a center point.”

Cohen added that the ever-changing industry requires a revamping of course offerings. “The industry needs to figure out a way to manufacture the real estate professional of the future,” he said. “Like anything else in life, you have to do advanced training to stay current.”

The newly established Regional Servicing Forums also exemplify MBA's emphasis on education. These forums offer an overview of the loan-servicing industry and act as a regional gathering for members to interact. “We determined that there was a need to offer these kinds of educational forums for people who are in the servicing industry and wanted to further their knowledge and skills,” said Ann Hambly, president of Prudential Asset Resources in Dallas and a COMBOG vice chair. “We implemented the regional-servicing forums that were directed toward the people who would not necessarily be able to attend the national forums, but who wanted to advance their servicing skills.”

These forums also had broader implications, specifically to help members get the job done. “In servicing, the more educated your staff, the more efficient your company can be,” Hambly said.

Proportionate productivity

Technology is designed to increase productivity, but achieving that requires implementing the appropriate solutions. For the MBA, two particular agenda items are in place to increase industry efficiency through technology.

These two technology items focus on the movement and security of data. The first is the development of data standards for commercial mortgages using the methods pioneered by the Mortgage Industry Standards Maintenance Organization (MISMO). “The execution of this vision is to have data standards that are codified like a dictionary for the entire real estate business,” said Shekar Narasimhan, managing director at Prudential Mortgage Capital Co. and vice-chair of MBA's Technology Steering Committee. “We are in the process of developing a set of standards for the commercial industry. We plan to roll out a working draft at the MBA convention in February.”

The second stage of MBA's technology vision is the development of a Public Key Infrastructure (PKI), enabling transactions such as mortgages to be executed electronically in a secure and private environment. Even though the PKI structure is designed to work with federal and state laws that enable electronic transactions, its ability to add additional layers of security to a firm's operations also is needed in the post-Sept. 11 world. “It is extremely important that our networks and Intranets are secure,” Narasimhan said.

Raising the bar

Standards are another way to ensure member productivity, said Joe Forte, chairman of the real estate practice at New York-based Thacher, Proffitt & Wood.

Two areas that are on the radar screen include guidelines for CMBS transactions, which essentially will make the process run more smoothly, and the Mortgage Electronic Registry System (MERS) Commercial Model.

The MERS Commercial Model is an electronic depository for mortgage documents. “Everything that gets recorded is in the name of MERS,” Forte said. “You don't have to worry about issues of transferring documents anymore.” Instead, documents are entered once into the electronic system and different parties can access the documents when needed.

Reaching out to members

MBA is striving to communicate with its members in a variety of ways: organizing CEO Roundtables for industry leaders, promoting the role of the mortgage banker and hosting Regional Life Insurance Company Forums.

For example, the CEO Roundtable program focuses on industry trends. “The group has traditionally addressed current issues that can potentially affect our business,” said Brian Stoffers, executive managing director and COO of L.J. Melody in Houston. Topics have included the collapse of the Russian ruble in 1998 and the accompanying Asian fiscal crisis, potential problems related to post-closing items on CMBS loans and current issues revolving around terrorism insurance. “We'll talk about many issues germane to our specific businesses, such as the trend of hiring and growing the business,” Stoffers said.

The Regional Life Insurance Company Forums are another example of MBA's communication with its members. Begun last year, these forums provide a small group setting for life companies to discuss ideas and trends, said Jeff Williams, managing director of David L. Babson & Co., an investment subsidiary of Mass Mutual Financial Group in Springfield, Mass.

Addressing multifamily issues

Another constant issue is the effort to increase the production of affordable housing. “There is a crisis of affordable housing,” said Terry Havens, chairman and CEO of Reilly Mortgage Group in McLean, Va. “One of the reasons is the FHA insurance programs have traditionally been used to finance this type of housing, and we've had a very difficult time getting sufficient credit subsidy appropriated for FHA. The programs were shut down for six months in 2001 because of insufficient appropriations.”

He added that the crisis is proportionate to the growth of metropolitan markets over the past 10 years. Havens said many employees can't afford to live in the cities in which they work. “For example, you frequently hear about people commuting an hour and a half each way for a secretarial job,” he said.

MBA has played an important role in making the FHA multifamily programs viable tools for producing affordable housing. In 2001, Congress increased the maximum mortgage limits, which allow the programs to be used in high-cost areas and cities where they were not effective. MBA was instrumental in convincing HUD and Congress that the increase was needed. MBA also has worked with HUD and Congress on recalculating credit subsidy. MBA is hopeful that for fiscal year 2003, the battle over credit subsidy will be successful and appropriations will no longer be required.

A goal of better business

Ultimately, Lorenz said, the organization is charged with the responsibility of helping members succeed in an evolving industry. “I see the association working on things very relevant to the members' day-to-day issues and interests,” he said. “I see that potential being further developed and membership in the MBA being a real asset to running the members' business.”