When mortgage bankers, lenders and investors convene at Walt Disney World's Dolphin Hotel for MBA's Commercial Real Estate Finance/Multifamily Housing Convention, they'll find a myriad of opportunities to learn about how the events of Sept. 11 have left an indelible mark on the commercial mortgage industry.
This year's panel discussions will feature the hottest topics and most authoritative industry speakers around. Just check out the following sampling of sessions attendees can choose from at this year's show in Lake Buena Vista from Feb. 3-6.
The evolving effects of terrorist attacks
This session is sure to attract a large crowd. After all, who doesn't want to know how the industry is reacting to the tragic terrorist attacks of Sept. 11? “The reason I think this panel will be so well attended is we don't know the answers to the questions yet,” said panel moderator Jan Sternin, senior vice president at Kansas City, Mo.-based Midland Loan Services. “We've never been here before. As we live through the emergence of the new commercial real estate market post-9/11, every day we deal with new, evolving challenges.”
The panel, titled “Evolving Effects of Terrorist Attacks on the Commercial Real Estate Finance Community,” will discuss the attacks' impact on the hospitality, office, retail, multifamily and industrial sectors, as well as how these factors have changed the commercial mortgage industry.
“We were already headed toward a recession, and the events of 9/11 acted as a catalyst,” Sternin said. “Our industry continues to seek information and identify emerging trends related to the long-term effects these events will have on our business. We look to those sectors of our business that have been directly affected, including master servicers, special servicers, investors and originators.”
Sternin and Midland know a thing or two about the industry. Midland was just named the top CMBS servicer in the MBA's third-quarter 2001 survey of CMBS servicers, with a portfolio of $49.7 billion as of Sept. 30. She expects terrorism insurance coverage, as well as capital market origination and issuance levels since Sept. 11, to be among the topics explored.
Recovering from disaster
Perhaps it was only a matter of time before the nation's faltering economy finally began to take its toll on the mortgage markets.
With technological advances and paperless offices, the implications on the mortgage banking industry are potentially enormous.
The “Disaster Recovery/Business Contingency Programs” presentation will focus on what happens when an unexpected sequence of events interferes with normal business operations and what to do when problems occur. Industry experts will describe the steps that should be taken to avoid service disruption in the event of catastrophes ranging from earthquakes to terrorism.
What's on the minds of chief investment officers?
According to Deborah McAneny, president of Boston-based John Hancock Real Estate Finance, it's important to hear from chief investment officers (CIOs) because they routinely review real estate asset allocation, investment diversity and relative value. “What we want to hear about is the future of real estate,” McAneny said. “Will you increase your allocation to real estate and decrease allocations to commercial mortgages? What's the risk versus reward there?”
In the “What's on the Minds of Chief Investment Officers” panel, CIOs from leading life insurance companies will explore capital allocation decisions, demutualization and consolidations within the life insurance industry, the growth and relative value of CMBS vs. whole loans, loan servicing and technology. The CIO's world of alternative investments, portfolio management and allocation, and the changing landscape of finance also will be discussed.
Does technology really matter?
If the paperwork is piling up on your desk these days, you're definitely not alone. But don't blame it on technology. Unfortunately, the commercial mortgage industry was slow to adopt the latest gee-whiz techno systems, and must still tame the paper tiger after most of the over-hyped dot-coms flamed out over the past few years.
So now the question begs: Does technology really matter? “You bet. There has been a recognition in the industry that efficiency leads to profitability,” said panel moderator Joseph Rubin, director of financial services at New York-based Ernst & Young Real Estate Group. Rubin cited a recent Ernst & Young study, which concluded that the time and effort spent managing data is one of the greatest difficulties in the lending process, within companies and between companies or their vendors and clients. “The industry does not effectively use technology to support its business processes,” he said.
In the current economic downturn, technology will play a larger role in helping companies combine portfolios into higher-yielding securities, Rubin emphasized.
“Their systems need to be able to talk to each other,” he said. “We need data standards, such as the commercial MISMO [Mortgage Industry Standards Maintenance Organization] project, and more effective databases to easily move information among the many participants in a transaction. The inability to do so is costing real money.”
No one should expect a paperless transaction system overnight. “This is evolutionary,” Rubin continued. “We won't flip a switch and the whole industry will adopt and realize the value. It will take a few years. Paperless is only one objective in the overall goal of efficiency. It is important, but most of the savings will come from more efficient business processes.”
But efficiency will only come with wider industry adoption of the technology tools that are available, a topic the “Does Technology Really Matter?” panel will address. Rubin said many companies are embracing technology, despite the failure of many dot-coms.
“As we started to see in late 2000, technology shifted its emphasis from front-office origination to back-office data management, underwriting and pipeline management,” Rubin said, adding that the survey found that many major institutions are looking into new online platforms. “A few pioneers have purchased online platforms, and when they confirm the realized value to the industry, everyone will jump in,” he predicted.
Demystifying rating agency criteria
Rating agencies play a critical role in the CMBS industry, noted Nathaniel Margolis, vice president and counsel of John Hancock Real Estate Finance. “It is important for lenders and mortgage bankers who intend to participate in securitized lending to understand the issues and perspectives of the agencies,” he said.
That may explain why the “Rating Agency Criteria Demystified” panel is certain to be well attended. After all, this is a good chance to discuss with rating agency representatives their criteria and concerns pertaining to the CMBS marketplace. But there also is the inherent mystery surrounding the method agencies actually use to arrive at their ratings.
“This is one of the topics that we plan to explore with the rating agency representatives,” Margolis said. “Each rating agency has criteria to apply to the given rating activity, be it rating a pool of mortgage loans for a securitization, evaluating master or special servicers or conducting ongoing surveillance.”
So are ratings more science than art? According to Margolis, rating agencies appear to use a combination of quantitative modeling to evaluate cash flow and qualitative analysis to underwrite properties.
So why are the ratings so important, and what do they really mean to investors these days?
“Ratings are crucial components of many CMBS transactions,” Margolis said. According to Margolis, they provide a framework for evaluating the transaction itself, comparing it to other ones, pricing and selling the various levels of bonds to investors of all stripes, monitoring performance of the transaction over time and viewing trends in securitized transactions.
“Investors view ratings differently, depending upon their investment strategies, the level of bonds they purchase and hold, and their evaluation techniques and capacities,” Margolis said. “Some investors rely upon them heavily, others less so.”
For more details on the convention schedule, please turn to page M16.