Comments
Thanks for the blog link on Enterprise 2.0. Enterprise 3.0 advances is fundamentally a different information architecture from Enterprise 2.0 if defined correctly. Enterprise 2.0 incorporates rich interface tools and social networking concepts into existing enterprise architecture methodologies. Enterprise 3.0 begins with an idea that a change in enterprise architecture can move towards a more client centric work environment. Advancements in software innovation can allow for different kinds of business process constructs, which can in some cases advance the enterprise users interface, across platforms, to improve collaboration, communications, work-flow and data exchange. In Enterprise 3.0 many of the core "best of practice" methodologies can be redesigned. Enterprise 3.0 can be if implemented well a possible sea change.
We have an incomplete view of what has happened and what is happening. I have been working as an enterprise software architect dealing with the privatization of government non-performing mortgages and what I have learned over the past 6 months is there are no simple solutions and every solution has unrelated consequences. Bernanke and Geitner have put us on a path. To date we must say we avoided a complete collapse and there are early signs it is working. The Stimulus, which most agree is imperfect, did change the consumer confidence, which can not be underestimated, and the stimulus will be felt over the next 12 months. But any plan is very complex, and my experience is the Obama’ team he has brought in, is really smart, but it is difficult to change institutions. The only judgment I can make is I hope Bernanke and Geitner are right.
Commercial REO’s are coming. A steady decline in commercial property yields make it difficult for some real estate groups to meet debt-servicing commitments. Adding to the commercial real estate wows, are the increased number of commercial real estate backed loans, which encouraged debt, as a result of the capital glut during the run up leading to our current credit crises. Many of these notes will begin to reach maturity at the end of 2009, and will greatly accelerate in 2010 and 2011, which will create a refinancing crisis increasing downward pressure on commercial real estate value well into 2012 and maybe beyond.
There are a number of future opportunities in an unpleasant market, options include liquidation; building out and selling; building out and holding; or simply holding until the market improves and yet few people remain in the banking and real estate business that have the practical experience in a market in a significant correction. Due to the housing market problems which have driven the downturn banks have been slow in declaring commercial real estate assets as none performing. Our best prediction looks to 2010 before we see REO commercial assets begin to affect the market.
I am working full time pooling REO assets into portfolios for investors. The process we have negotiated has been educational, developing a process for recapitalizing REO asset. From my partial point of view the process the current administration is supporting is very well thought out on the macro level while allowing private industry to work out the details to match an open market economy.
The unique characteristic in a REO transaction is on the purchasing end you are communicating the deal in terms of securities which happen to be secured by real estate. On the sales side, the deals become a straight forward real estate transition. From a physical due diligence industry perspective the same process in place will be followed. The difference we might see in terms of the field work might depend on the investment group’s goals; whether they a long term holders or they are buying to divest. Whichever, the volume of work should increase for everyone involved in the process latter this year increasing in 2010.
The one area I have concerns is the area of financial contractual complications on loans made in the commercial real estate industry over the past 6 years. Complicated financial relationships between lenders are resulting in numerous lawsuits delaying time to market for REO assets, lawsuits we did not have 20 years ago. We will see how the courts and the administration react to the early lawsuits now entering the courts.
Another difference we will see will be our client lists. Many of the buyers will change as a result of changed conditions. Companies which have made money under one set of conditions lose money when these conditions change. Keeping with the capitalistic principle; one person’s loss in another person’s gain, new funds are being formed to move funds to recapitalizing the market.
I can report the systems for the disposition of toxics housing assets are just now in place. The demand for the first portfolios seems fairly strong. The sad part is between September and February without leadership it was almost imposable to purchase a portfolio of REO assets.
Now the question will be how fast will these assets be absorbed? The faster they are absorbed the more credit will be available for refinancing commercial notes. We can expect poor performing notes to be a problem but what we all hope for is the credit is available to support good investments.
- Financial institutions will be under pressure to shore up not only their balance sheets but to replace their models they have used to reduce their risks managing real estate debt. The problem will eventually lead to the question; “Where’s the Data”. All of our reporting tools and process where developed 15 to 20 years ago and are simply out dated. Financial institutions and investor groups will be looking to improve accuracy and data re-engineering in reporting to better establish “asset value” during a time of uncertainty and for years to come. If history repeats itself here it will not be long before the due diligence industry experts will be on site doing a variety of assessment reports to ascertain equity value and the investment community will demand our industry to establish new guidelines for a more rigorous and transparent approach in data acquisition and delivery which will effect the future of due diligence reporting.
Sorry to learn of your lawsuit I am afraid more will follow. Here we have a case where the PCA report was performed for the lender and used by an equity investor.
The point I would like to bring up is the flaw in our industry in our terminology when we speak about a PCA report as a singular standard report type and not differentiating the difference for what I see as two different scopes of work for what we call a PCA report.
The lender being in second position has reduced risk and is satisfied with a less detailed investigation hence pays less for their PCA report. On the other hand the savvy equity investor assuming a higher risk wants a more detailed report and is willing to pay more for the product to receive more detailed information. Both are called PCA reports. We in the industry know this but the lawyer does not or chooses not to. He is on staff, so he goes for it and a lawsuit emerges. So as a defense a lender PCA report should not be used by an equity investor because it is not an equity PCA report. There lawyer in essence is calling an orange an apple.
- Is the new Soil Remediation Countermeasures Law accompanied with workable enforcement?
Social networks form communities of interest that expand perspectives and creativity. In solving the complexities we face; global warming, rising populations, income disparity, and social uncertainty, we need to develop a fluid, creative, interactive process to provide a fresh look at the 21st century world. It is my viewpoint, our collective social capacity is need to be harnessed, in new ways, to solve greater complexities, using the next generation of business software, Enterprise 2.0.
Enterprise 2.0 applications expand connectivity, bringing data to communities of coworkers, who will experience a more social and complete form of thinking required to solve the greater challenges we are facing. Enterprise 2.0 will merge the worlds growing data stores with new software languages and tools, providing a greater capability of discovery then we have ever seen before. “The software industry is being reborn - yet again. Enterprise 2.0 will bring massive innovation to business computing,” M.R. Rangaswami founder of the Sand Hill Group. It’s affect will touch all industries.
- The institutional investor strategy has applied Modern Portfolio Theory to securitize property assets. This application of Modern Portfolio Theory requires a high degree of structured data and data accuracy. If the data is incomplete or the data is inaccurate the Portfolio Modeling will fail and when a portfolio fails, it fails completely, at a point referred to as the shear point. The properties of a shear point are; the larger the portfolio the further out along the value/timeline axis the shear point will occur. This means the larger the portfolio the larger the fall in value.
Here lies the opportunity from my viewpoint which could transform the due diligence industry by providing solutions to the current problem. What’s needed is to improve data integration across all disciplines in order to introduce transparency and improve data governance. At the risk of sounding overly simplistic, the antidote to this reoccurring problem is to deploy a property taxonomy centered around, “property as a resource”, that can integrate a comprehensive working ecology. This would open up the unrestricted lateralization of property information across a portfolio, increasing the client’s collective intelligence, establishing a broad knowledge based advantage.