Browse Tag: Bond market

Capital Markets Briefing From ReisReports

Let’s take a deeper dive into 2012’s commercial real estate history.  What do we find?  Increases in commercial mortgage origination volume, strength in the apartment sector, and the gradual return of bank-owned properties to the post-crisis market are among the indicators highlighted by Reis Senior Economist Ryan Severino in today’s video from ReisReports.  Among the questions posed and answered:

  • Is capital flowing into the sector again?
  • How eager are investors to place capital?
  • Did 2012 outperform 2011?
  • Is mortgage performance still improving?
  • Are we now in another credit bubble?

Capital Markets Briefing Q4 2012 – Part One from Reis Reports

I enjoyed this clip and I find Severino a welcome voice.  A couple of observations:

First, recent changes to the GSEs policies regarding multifamily lending as mentioned here at The Source don’t seem to be reflected in the numbers, as Severino characterizes the GSEs in a more flat manner.  Fannie and Freddie’s declining participation in the multifamily market is an evolving story that bears a closer look.

Second, I think it’ s notable that Severino mentions that credit market dynamics once again appear to be distanced from the facts on the ground, even if he and I seem to have opposite views as to what drives some of those facts.  He characterizes payroll tax hikes as a factor, referring to a Wal-Mart VP declaring a sales disaster in the wake of new taxes.  I find this party-line blaming of tax policy for Wal-Mart’s customer base’s shyness at the cash register particularly ironic as it comes from no less than the nation’s largest private employer, whose decades-long record of aggressively holding down wages – wages that are spent at such cash registers –  is beyond argument.

High unemployment persists and the middle class remains more or less locked out of the wider recovery.   “It is almost as if there is a bit of a disconnect between the economy and the real estate capital markets,” says Severino. While he doesn’t call this disconnect a bubble, I think he’s right to consider the possibility, because the last credit bubble was an unmitigated disaster for all of us.

New Developments In The Covered Bond Market

Cover of Covered Bonds magazineCovered bonds are a way to increase credit flow to the commercial real estate industry.  A covered bond is a way for a bank to issue a bond backed by a pool of real estate assets that are backed not only by the assets contained therein, but also by the bank’s promise to repay.

NAR has been advocating for a commercial bond market because of the benefits it would bring to the industry in terms of credit availability.  An April podcast by NAR Treasurer Bill Armstrong discusses the market and regulations on the table.

What’s new this month is that ratings agency Fitch seems to be working ahead of the coming growth in covered bonds by adjusting their rating criteria for covered bonds.  Those of you recalling Fitch’s (and Moody’s and S&P’s) enormous roles in enabling the 2008 subprime mortgage meltdown might be surprised to learn that ratings agencies actually have criteria they use to make their ratings, but indeed, they do, and here’s Fitch’s new rules for covered bonds:

Fitch has made several changes to its criteria, all of them being limited in terms of rating impact.

The three main changes are the introduction of a benefit for tenant granularity, the consideration of additional securities related to the cover assets, and an adjustment of the default modelling for loans secured by multifamily properties (MFH).

With the updated methodology, Fitch recognizes the benefit of tenant granularity in its recovery analysis for loans that are assumed to default immediately based on their current property income. Whereas previously the assumed property income was adjusted downwards under the assumption that all tenants would default in a stress scenario, now Fitch uses a rating dependent default rate to adjust the property income until lease expiry. Additional securities will now be considered in the recovery analysis if they are solely available for the benefit of the bondholders, held in cash or highly rated sovereign bonds, and assumed to have a material impact on the portfolio’s expected loss.

Additional information is available on

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