Real-time market event reporting provides the logical alternative solution to the inherent shortcomings of credit risk management practices that focus on subjective decision-making criteria in light of data pertaining to the conditions and events that would drive detrimental credit outcomes. In short: you now have the choice of addressing the cause or the effect, which makes better sense to you? … More An End to Relevancy: Credit Reporting & Risk Management in CRE Transactions
Any insurance expert will be happy to tell you that someone will be happy to help insulate you from the consequences of your decisions for an even greater fee. The reality remains that spreading risk across a greater base of risk-takers is no substitute for preventing the risk from occurring in the first place. CRE transactions require proactive risk management and proactive risk mitigation measures that follow the transactions over the course of the full term of the investment holding period. Valuation, feasibility analysis of market opportunity, underwriting analyses and due diligence reviews that are limited to the pre-closing funding period are just not going to cut the mustard. In today’s world there is going to be no substitute for continuous, real-time monitoring of the risks that can contribute to future asset obsolescence and result in greater investment loss severity risk. … More Picking Up The Clean End Of The Turd: FannieMae & CIRT
When we approach the commercial real estate maturity default risk assessment the subject property has to demonstrate that both scenarios present a reasonable proposition to sustain both outcomes (i.e.: would be expected to be sold off and would be expected to generate sufficient funds from a refinancing to make the stated return a reality). The test is understanding the issues that create maturity default risk and how these issues have to be managed and mitigated proactively to prevent investment loss from becoming a painful reality. … More Demystifying Commercial Real Estate Investment Maturity Default Risk
he promise of artificial intelligence has allowed our firm to realize the means to provide proactive forecasting based on the only thing that matters – what is happening right now in the near-term future in a commercial real estate property’s local market in terms of advancements in technology and innovations that create the conditions that lead to declining performance and asset obsolescence with the potential for foreclosure and bankruptcy petitions being mitigated before they have the opportunity to become a real issue. This approach allows us to support an investment for the full term of the asset holding period and the cost is peanuts both in terms of its relative cost to the transaction itself (less than 1.5% over a 10-year subscription period) and in terms of the costs associated with investment loss severity risk that apply in its absence. … More Going Proactive to Manage Investment Loss Severity Risk in Commercial Real Estate
As with term default risk, the same risk elements apply to maturity default risk. Technology risk is again the chief culprit that drives asset obsolescence risk. The resulting potential reduction in revenues creates, to one degree or another, maturity default risk. The other contributors would be third-party claims risk, regulatory risk and business operations risk that could create the conditions for a materially-significant loss of investment. Yet these last three (3) risk elements are all within the power of the market to manage for the benefit of investors and lenders in commercial real estate income-producing properties. … More An End to Total Investment Loss: Part II
The one complaint that is sure to trigger frustration and make the underwriter want to find a reason to say no. Transactions close once underwriting is complete, the investment committee says it is acceptable, and the funding source(s) provide the funding. That’s not an overnight process and constantly haranguing the underwriter about it won’t make it happen faster. Remember: get an agreed upon schedule for production of the due diligence documentation, an agreed upon schedule for review and then make allowances as some underwriters will take longer if they find something materially-significant that requires additional investigation. … More The Problem of CRE Investment Underwriters
Currently, we live in a market where cap rates are quite low and that doesn’t speak to them having the potential to go any lower on CRE transactions. They are likely to go up and if you are looking at a zero-coupon DST transaction, then everything seemingly depends on what that cap rate will be in 10 years and nobody knows. All of it is done on the assumption things will be the same then as they are now. What are the odds of that being the case? … More What’s More Important in CRE Investments – Cap Rates or Interest Rates?