NAPLES, Fla. - Two recurring themes discussed at length at the Naples conference were the effects e-commerce on the commercial mortgage-backed securities market, and the ramifications and loopholes of originating commercial mortgages online.
Though opinions differed as to how severely and how quickly CMBS would be affected by the onslaught of e-commerce businesses, most panelists were certain that sooner or later, Internet sales would put a dent in the commercial mortgage business - especially the in the retail sector.
"You cannot divorce CMBS from brick and mortar," said Brian Neilinger of CIBC World Markets. "If 15% of the population no longer need shopping centers [due to e-commerce], it can stymie growth of the CMBS industry. I think the effect of the Internet is definitely a negative one."
Neilinger mentioned that e-commerce would most effect the retail construction business, which would slowly "erode the brick and mortar business."
Brian Baker of J.P. Morgan & Co. agreed, but thought that the impact of e-commerce would be less severe than anticipated. "I think it will hit the catalog business first, not the bricks and mortar industry just yet."
This view was echoed by Hugh Hall, a vice president at Credit Suisse First Boston. "E-commerce might cause some spread compression in CMBS, but I think that a decline in supply of product will have a greater effect right away."
Virtual Roadshows? Security Issues?
Panelists also discussed the possibilities of conducting both origination and underwriting processes online, and what factors go into creating a good Web site. Nearly all of the participants mentioned that their companies were exploring different options on the Internet, and would be moving toward more online work this coming year.
In fact, "capturing the business opportunities via the Web" was the topic of an entire session unto itself. Already this year, new Web sites for mortgage lending have appeared, and it is predicted that this trend will continue.
"The technology is there to be online in this business," said Bill Swanson, managing director at Friedman, Billings & Ramsey, a publicly traded real estate investment trust. "I think in the near-term, moving online will have a positive effect for the business, having a standardizing effect and adding efficiencies to the business."
However, there are many obstacles to processing deals completely on the Internet. For instance, security is a significant concern, considering that prospectuses change at the last minute and often have confidential data, especially in private placement deals.
While many of the panelists believe that CMBS online is a long way off, Patti Unti, director of portfolio management at Cargan Investment Management, said that her company was already in the process of launching a site that would allow users to structure and price deals online.
"This is going to be a broker intermediary site, used to convey information like a virtual roadshow," Unti said. "This technology is becoming a reality quite fast, and it is going to be an important part of the distribution system."
Not everybody agreed, however. "It will be some time before we can generate origination online and get true quotes," noted John Glidden, senior vice president of Intralinks, Inc. "I can't see us getting into that in an uncontrolled environment. Perhaps 12 to 18 months from now. At the moment, we make great use of rating agency models online, however."
There was an impressive showing of analytical database companies exhibiting at the Naples conference, including Trepp, Wall Street Analytics and Intralinks.
"I believe we're going to have the ability to have the analysis for portfolio evaluations online this year," said Cargan's Fred Fellows. "The value of the Internet to commercial mortgage banking has not been realized yet. In the year 2000, companies like Trepp and Charter are bringing a lot of value to this market."
"I still think it is hugely difficult to replace the art of loan underwriting," countered Brian Baker of J.P. Morgan.
While participants such as CIBC's Brian Neilinger admitted that his company was already setting up Web sites, other panelists kicked around suggestions for creating an effective CMBS site, such as creating templates for each property type, doing transactions electronically and taking advantage of brokering opportunities.