Forum Spotlight: B-Piece Investors
November 13, 2023
Together, Jason, Peter, and Lyndsay form the “Leadership Working Group” for CREFC’s B-Piece Investors Forum. Importantly, this group — taking their cues from B-Piece Investor Forum members — sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.
Key B-Piece Investors Focus Areas:
- Working to develop best practices for newly originated loans with regards to appropriate cash-management triggers and language to be implemented for “go-dark” provisions.
- Insurance premiums continue to be a focus as coastal markets are increasingly becoming cost prohibitive to obtain insurance required under standard loan agreements.
- Five-year CMBS transactions are driving volume and more transactions are getting done, but caution is still warranted as the dynamics for these transactions are still not tested.
Looking ahead: Rates appear to have peaked and hopeful stabilizing, allowing spreads to tighten and new-issue CMBS volume to grow relative to 2023. The Forum would like to continue the push toward better use of technology to improve the speed of reporting from borrowers to servicers and trustees to investors.
In 2024, B-Piece investors see key challenges as:
- Maintaining credit quality in the current rate environment as higher rates have pushed DSCRs to near historical lows.
- The office sector story is still unresolved. Valuations and ability to underwrite remain challenging.
- Diversity among pools is low, making the ability to manage risk more challenging.
Key Policy Issues:
- SEC’s Conflict of Interest in Securitization Proposal: The definitions are broadly written and could engulf numerous CMBS participants, including B-Piece investors, and a broad range of “conflicted activities” that go beyond shorting a transaction. CREFC submitted two comment letters on the issue and is engaging with lawmakers on Capitol Hill.
- 15c2-11 Public Disclosure of 144A Bond: The SEC recently issued an order exempting 144A fixed-income securities from 15c2-11 disclosure. CREFC and its members urged the SEC and Congress to take action to prevent the application of 15c2-11 to fixed income securities. The exemption Order is a major win for the industry.
What's next: Forum leaders look forward to presenting CREFC members with an update on their forum at the Annual January Conference in Miami. Soon after, the chairs will seek nominations for the next Chair Elect to join their leadership slate.