The Eeyore Factor

Any reporter who’s been covering real estate finance for a while would probably confess to harboring a mild streak of Eeyore. Like Christopher Robin’s stalwart but pessimistic donkey pal, we’re absolutely convinced that a cloud lurks behind every silver lining.

In my defense, I come by my Eeyore streak honestly. When I started at CPE’s predecessor in 2005, it seemed like the good times in the capital markets might roll forever. And then the music stopped.

So now my inner pessimist is forever nudging me to stay alert for the slightest hint of trouble. That was on my mind last month when I sat in on a breakfast briefing hosted by the local office of Cushman & Wakefield here in Midtown Manhattan.

Along with scrambled eggs and Danish, attendees were served updates on a wide variety of topics, including the capital markets. Presenting that report was Steve Kohn, president of the company’s Equity, Debt & Structured Finance business. I’ve known Kohn for a decade, and his command of real estate finance is second to nobody’s. I listened intently.

Running Amok (or not)

While discussing CMBS, Kohn reported that “underwriting is based on in-place cash flow, not projected cash flow.” Sure, that sounds prudent and all, I thought, but how about those rating agencies? Could they be up to something? “The rating agencies,” he told us, “are reasonably conservative.”

Then he mentioned interest-only terms. Aha! One of the top finance executives in the business is really going to blow the lid off now!

“There’s been some creep, but if you do 70 percent loan to value or higher, you’re not going to see I.O,” Kohn explained. Needless to say, this account of rampant sobriety failed to mollify my inner Eeyore.

Next, I turned to the finance story in the February digital issue of CPE, which offers multiple perspectives on mortgage banking. Contributing Editor Poonka Thangavelu writes that loan-to-value ratios are both relatively conservative and attractive to qualified borrowers. Reassuring stuff, yes, but strike two for my moody alter ego.

Wondering whether the third time would be the charm, so to speak, I turned to another article in the February issue and pored over Associate Editor Mallory Bulman’s interview with Angela Mago, the head of KeyBank Real Estate Capital. Her comments gave me the distinct impression that lending practices are generally quite sound.

As their conversation was wrapping up, though, Mago noted that bank regulators are expressing concerns that, in some cases, lending standards may be getting too relaxed. Hooray! My inner Eeyore was validated at last!

Then it struck me that I’d actually been encountering kindred spirits all along. The watchful regulators, the chastened rating agencies, the bankers who insist that borrowers have significant skin in the game—all know that a lack of prudence can exact a high price. And that realization finally cheered up my inner Eeyore. (Well, maybe just a little.)

—Paul Rosta