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Big Data is Here to Avoid Future Commercial Real Estate Meltdown

Many banks are hoping for the best, but preparing for the worst… readying for a dreaded visit from regulators over their Commercial Real Estate risk management.

American Banker reports commercial real estate, as a percentage of the industry’s total loans, remains stubbornly high, and examiners are said to be peppering bankers with questions about how they plan to avoid the kind of meltdown that took place in such portfolios nearly a decade ago.

If examiners were to raise a stink about his commercial real estate loan concentrations, Bob Mahoney at Belmont Savings Bank in Massachusetts, is ready to get down and dirty.

Using big data, the head of the $2 billion-asset bank is trying to keep tabs on all 380 tenants in properties where it is the commercial mortgage lender. If an accounting firm in an office building is named in a lawsuit, Mahoney is alerted. If a dental practice has its credit score downgraded, he knows about it.

“Having spreadsheets stored on computers and paper, across wide-ranging locations is clearly not enough for banks in the 21st century,”  said Brett Williams, President of CJC Technologies, a partner of Situs, and a provider of technology platforms that simplify CRE lending.

“Believe it or not, many banks are still using outdated programs like Microsoft’s Office 2007 and old versions of Internet Explorer,” said Williams. “It is tough for them to keep pace with the more rapid updating of traditional installed applications with so many users in their organizations.”

“Clearly, a well-designed computer program/system like ours helps them keep track of records more efficiently, plus they are able to access the knowledge of other CRE lenders by choosing a system that already supports similar lenders, especially helpful when regulators come calling,”  said CJC’s Williams.

CJC’s CRE underwriting and asset management system supports many types of CRE lenders such as large, medium, and small banks, as well as lenders focused on GSE, CMBS, balance sheet, and other such loans.

“Our software/system supports the complicated twists-and-turns of the diverse CRE workspaces,” added Williams.

American Banker reports regulators have made their concerns no secret.

The Federal Deposit Insurance Corp. warned bankers in July about the rapid expansion of multifamily lending; regulators classify multifamily loans as a subset of CRE.

The Office of the Comptroller of the Currency’s spring 2016 semiannual risk perspective report warned that investors “rapidly bid up property prices” over the past two years and that “higher interest rates will raise borrowing costs and could dampen the pace of price growth for commercial properties” over the next two years.

Even more wide-ranging was an interagency bulletin in December from the FDIC, OCC, and the Federal Reserve. It reminded banks to “implement prudent risk management practices” and maintain sufficient capital ratios in response to observations of “substantial growth in many markets, increased competitive pressures, rising concentrations, and an easing of underwriting standards” in CRE lending.

Said CJC’s Williams, “Banks now have the option of remaining prepared by collecting and analyzing data early in the process and keeping it updated in order to reduce fire drills down the road.”

Here’s How Banks’ Commercial Real Estate Exposure Stacks Up

That’s attracted the notice of regulators, which have warned about banks’ concentration in CRE. Meanwhile some investors themselves are worried that the market could be approaching bubble territory, writes FBR & Co.’s Bob Ramsey, who takes a look at what banks have the most (and least) CRE exposure Tuesday.

Ramsey writes that there’s “nothing inherently wrong with a bank that is focused on commercial real estate lending,” and growing regulation along with and falling CMBS issuance “will provide opportunities for those that are able to continue to grow.” Nonetheless, some banks, especially those that have growth their concentration too quickly without building sufficient risk management, will most likely be hurt, and investors are right to wonder how much exposure individual banks have—as well as their track record.
Ramsey writes that many banks that have the highest exposure are focused on big markets like New York City and Southern California. Dime Community Bank (DCOM) has the highest CRE concentration in the country at 976% of total risk-based capital, he writes, followed by privately held OneUnited Bank at 931% and New York Community Bank (NYCB) at 871%. Yet that’s not necessarily a bad thing: He writes that both DCOM and NYCB are “proven operators” and he likes their focus on multi-family lending in the rent-regulated buildings in New York, which usually have lower losses (when properly underwritten).

By contrast, banks that focus on commercial and industrial loans, like Comerica (CMA) and KeyCorp (KEY) often have much lower concentrations.

read more: Barrons

Ahead of Yellen’s Jackson Hole Speech, Sifting Through the Tea Leaves

The proverbial “all eyes” are turning toward Wyoming, this week’s annual econ-geek party hosted by the Kansas City Fed. They certainly won’t be disappointed by the majestic mountain range, but they may be disappointed if they’re expecting a big clue about the next rate hike.

The highlights of the Jackson Hole Symposium will be a speech on Friday from Federal Reserve Chairwoman Janet Yellen. Fed speakers have been all over the map lately, leaving traders and investors thoroughly confused about the path of interest rates. Some have been hawkish, some dovish, and miraculously one even managed to be a bit of both. “Fed types do not just contradict each other, now they contradict themselves,” UBS’s Art Cashin noted in his morning email. “Williams follows his very dovish speech with a call to raise rates soon.”

read more: Wall Street Journal

Donald Trump the Mortgage Broker Was in Trouble From Moment One

Donald Trump had heard all the chatter, the idle talk about how the U.S. housing market was overheating and trouble was looming. He was unfazed. It was the spring of 2006 and he was pushing a new mortgage business, Trump Mortgage LLC.

Trump had big plans for the company. It’d be based in his iconic 40 Wall Street building and broker $3 billion in loans in the first year alone, some $100 billion within a decade. His son, Donald Jr., had helped him shape the business plan. That April, when asked about the signs of cracks emerging in housing, he was dismissive, telling CNBC that it’s “a great time to start a mortgage company.”

A year and a half later, Trump Mortgage was out of business. Along with dozens of other lenders and brokerages, the firm unraveled when the housing market imploded and the U.S. economy sunk into its worst recession since the Great Depression. The company never got near its fundraising goals, and it left at least one lawsuit in its wake, by a former broker who alleged she was stiffed on a $238,000 commission.

Of all of Trump’s ventures outside his core real estate business — the steaks, the vodka, the airline, the board game, the travel web site, the magazine — it is this one, perhaps more than any other, that clashes with the image of financial guru that he’s cultivated on the presidential campaign trail. Not only did the episode expose the billionaire’s rush into a market on the verge of collapse but it came in an industry that’s intimately linked to real estate.

read more: Bloomberg

NYC  Fines Trump Tower $10,000 For Selling Campaign Swag

Trump Tower was fined $10,000 Wednesday because Donald Trump replaced a bench with a kiosk selling campaign memorabilia.

The ruling comes after the city fined Trump Tower another $4,000 earlier this year over the 22-foot-long bench, which was reinstalled last month. The latest fine upholds a judgment levied by the city in June after neither Trump nor his legal representatives showed up at a hearing to discuss the case of the missing lobby bench.

Trump was required to include a lobby bench for weary tourists and shoppers as part of an agreement struck with the city back when he was developing his tower back in 1979. In return for building 15,000 square feet worth of public space that includes a lobby, shopping areas and a public garden, Trump was granted a zoning variance that enabled him to add more than 210,000 square feet to his tower, or the equivalent of about 20 additional floors. The higher floors have Central Park views and include Trump’s penthouse residence. The additional space is estimated to be worth $530 million.

But some time around when Trump announced his presidential candidacy last summer in his tower lobby, the lobby bench disappeared and was replaced by a kiosk selling “Make America Great Again” caps and other such items. The city argued that the kiosk violated the 1979 agreement and demanded the bench back. In January, a Trump Organization lawyer told the New York Times that the bench could be reinstalled in four weeks, but it didn’t happen until mid-July.

read more: Crains New York

What Rising LIBOR is and is not Telling You

A rise in LIBOR rates is enough to rouse flashbacks to the dim days of the global financial crisis. But today’s rise in LIBOR is not a signal of credit stresses in the financial sector. It derives from another source: impending regulatory changes to U.S. money market funds (MMFs).

The reforms, adopted by the Securities and Exchange Commission in 2014, go into effect Oct. 14 of this year. The new rules will change the structure of money market funds by moving from a fixed $1 net asset value (NAV) to a floating NAV for institutional “prime” money funds, and imposing potential redemption fees and suspensions in the case of some other MMFs.

Normally, increases in LIBOR are associated with Federal Reserve (Fed) policy rates and expectations. LIBOR increases in July, however, occurred without much change in expectations for Fed policy. This might be interpreted to reflect concerns over bank credit quality, yet other measures of financial credit sector risk declined in July. Hence, the widening in LIBOR appears to anticipate the MMF reforms.

read more: BlackRock Blog

The Canadian Housing Boom Fueled by China’s Billionaires

The walls of Clarence Debelle’s Vancouver office on Canada’s west coast are lined with gifts from his real estate clients: jade and turtle dragon figurines; bottles of baijiu, a traditional Chinese alcohol; and enough special-edition Veuve Clicquot to fuel several high-end cocktail parties.

They are the product of Vancouver’s decade-long real estate frenzy. The city, with its stunning views of the mountains and yacht-dotted harbor, has long been one of the world’s most expensive places to live but price gains have reached a whole new level of intensity this year. Low interest rates, rising immigration, and a surge of foreign money—particularly from China—have all driven the increases.

  • The cost of a single-family home surged a record 39 percent to C$1.6 million ($1.2 million) in June from a year earlier.
  • More than 90 percent of those homes are now worth more than C$1 million, up from 65 percent a year earlier, according to city assessment figures.
  • Vancouver is now outpacing price gains in New York, San Francisco and London over the past decade.
  • Foreigners pumped C$1 billion into the province’s real estate in a five-week period this summer, or about 8 percent of the province’s sales.

read more: Bloomberg

Pricey LA Rentals Offer On-Site Botox as a Perk

Bumper-to-bumper traffic in the City of Angels is a common complaint among Los Angelenos. But now, an under-construction rental on the cusp of Century City and Beverly Hills will include a host of amenities so residents won’t have to waste hours in their cars.

In a city that’s equally as known for image-consciousness, this also means obviating the need to drive to their Botox appointments.

Yes, that’s right. Ten Thousand — a 40-story tower at 10000 Santa Monica Boulevard where rents will range $8,500 to a cool $25,000 per month — will include a wellness studio where on-call doctors can come administer Botox injections.

read more: New York Post