LEADER: Close ties

Welcome to the first issue of 2015 which you will notice has a distinct ‘finance’ fragrance to it. Inside these pages, not only do we bring you a 10-page special report devoted to the way real estate investment groups are interacting with senior loan lenders and originators of CMBS, but also liberal smatterings of other debt-related developments including how TPG Capital and Kohlberg Kravis Roberts are tackling the unfolding credit opportunity in real estate.

In a nut shell, all seems well. But there are two potential storm clouds gathering. First, as Al Barbarino reports from the annual CRE Finance Council conference in Miami (see page 6) a significant percentage of professionals seem bothered about the credit quality of multifamily loans in the US and also expressed concern about the number of CMBS originators now operating. The implicit question is whether the US lending market is showing signs of getting out of whack.

The other storm cloud has to do with the relationship between an RE/credit fund and a special servicer when that special servicer is owned by the same entity. There is certainly one very large situation out there where an investigation seems under way, and that points to greater scrutiny coming to bare upon this relationship. 

Court cases could be the result. I am talking specifically about borrowers becoming angry if they believe a special servicer might have an ulterior motive to foreclose and subsequently purchases the asset. If special servicers are jockeying for ownerships of a distressed asset and a financially-related real estate fund makes a bid on it, one can almost certainly expect a spotlight to be shone on the relationship, particularly if big money is at stake.

We will have to wait and see if this materializes or not in significant fashion. But I will make a prediction. If it does, limited partners in a fund that might be taking advantage of close ties with a special servicer will start pondering their own position. Will it at least become a question? I would think so.