Editor’s Page
Cynthia J. Hoffman
Time of Change
AT THIS YEAR’S TRANSWESTERN/REAL ESTATE FORUM
pension fund advisory symposium, a recurring theme among our
panel of experts is that 2008 will be a time of great change for the
commercial real estate industry, particularly on the debt side.
Expect to see a whole new roster of participants, new deal structures and perhaps most importantly, new standards. (The article
begins on page 38.)
Those changes are already starting to take shape. In recent
weeks, the nation’s major credit ratings agencies—Standard &
Poor’s, Fitch and Moody’s Investors Service—have each
announced they would be instituting measures designed to
improve their ratings systems and to increase transparency. The
big three had taken a good deal of heat regarding their participation in the subprime mortgage crisis and subsequent downturn in
the overall debt market, including charges that they had been too
slow to downgrade ratings on subprime mortgage securities.
According to various industry sources, the reforms range from
S&P’s 27-point program that includes hiring an ombudsman to
address conflict of interest concerns to Moody’s re-examining the
way it rates mortgage-related securities to Fitch’s plans to increase
standards for structured financing products.
Not everyone, however, is a fan. New York State Attorney
General Andrew Cuomo, for one, says the efforts come “a little too
late” and that the agencies are “attempting to make piece-meal
change that seem more like public relations window dressing than
systemic reform.” Cuomo also vows to continue looking into the
ratings agencies role in the mortgage meltdown.
On the commercial side, the outlook for the mortgage-backed
securities market is quite grim. Issuance levels this year are
expected to be half of what they were in 2007. Meanwhile, a
recent report from S&P says the number of delinquencies in 2008
or 2009 could surpass the peak of approximately $4 billion
reached in December 2003.
While these reforms might be too late to stem the downfall
of the public debt market, a little transparency may help to
instill a measure of confidence among investors in the ratings
agencies and structured financing products—both of which are
sorely needed.
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