Author Archive

Covered Bonds Could Be a Viable Alternative to CMBS

Monday, November 15th, 2010

A financing vehicle invested in Prussia in 1769 could be the solution to failed #CMBS.A financing vehicle that has been used in Europe since it was invented in Prussia in 1769 is finding its way to American shores as a replacement for commercial mortgage-backed securities (CMBS).  The vehicle is known as covered bonds, which is a securitized debt instrument backed by a pool of top-quality assets, primarily mortgages. What is different about covered bonds is that the assets – known as a cover pool – are maintained on the issuer’s balance sheet.  This acts as a safety measure because the issuer is less likely to underwrite loans that carry significant risk.

Currently, the United States has no established market for covered bonds, although they are a $3 trillion business in Europe.  In July, the House Financial Services Committee approved a bill that would establish a regulatory framework for covered bonds.  Although the bill just missed being included in the Dodd-Frank financial reform overhaul, the consensus is that the legislation could win House and Senate approval in 2011.

“We have seen the difficulties wrought by the complexity of securitizations,” said Bert Ely, a financial and monetary policy consultant.  “Covered bonds, on the other hand, are a very clean and simple tool.  A bank makes a loan, keeps the loan on its books, and issues a covered bond.  There is no sale and resale of mortgages.”  With a covered bond, several elements protect the bondholder.  All assets in the covered pool are subject to monthly monitoring by an independent third party.  If one of the loans becomes non-performing, the issuer must remove it and replace it with a loan that is performing.  Thanks to the safety features, the majority of covered bonds enjoy a triple-A rating.

Despite the fact that many in the investment community support covered bonds, the Federal Deposit Insurance Company (FDIC) has some concerns about them.  Primary is the fact that the pools are over-collateralized – sometimes by as much as three times the bonds’ face value.  The FDIC wants access to these assets when a bankruptcy occurs.  The FDIC argues that if the cover pools protect the bulk of the banks’ assets from being claimed, the depositors are being asked to take on too much risk.  “We support covered bond legislation, but not at the expense of our obligation to protect the deposit insurance fund,” said the FDIC’s Michael H. Krimminger.

Up In the Sky! It’s 2010’s Best Tall Buildings

Monday, July 19th, 2010

The Council on Tall Buildings and Urban Habitat recognizes 2010’s best tall buildings.  The Council on Tall Buildings and Urban Habitat (CTBUH) recently announced the finalists for its 2010 “Best Tall Building” awards.  The annual awards recognize exceptional tall buildings from each of four geographical regions and are chosen for their design and technical innovations, sustainable attributes, and the enhancement they provide to their cities and the inhabitants.

The 55-story Bank of America Tower in New York was hailed for its commitment to sustainability, which has made human health and corporate responsibility a priority.  Its exceptionally high indoor environmental quality results from hospital-grade, 95 percent filtered air; abundant natural daylight; an under-floor ventilation system; and views through floor-to-ceiling glass curtain wall.

This 51-story Pinnacle at Duxton includes 1,848 public housing units in central Singapore. It redefines urban high-density living by weaving continuous Sky Gardens on the 26th and 50th stories through the seven tower blocks.  Multiple access points to the Sky Gardens also mean that they are an ideal evacuation strategy.  Because they are connected, the seven tower blocks share three sets of water tanks and pumps and one building maintenance unit.

A key design element of the 23-story Broadcasting Place in Leeds, England, is the irregular elevations, tailored to optimize daylight and reduce solar penetration. An innovative analysis calculates the optimum quantity and distribution of glazing/shading at all points on the façade to ensure high levels of natural day lighting but without overheating.

The unprecedented height of Dubai’s 163-story Burj Khalifa required rethinking design techniques, building systems, and construction practices to create a practical and efficient tower. The building’s shape references regional architecture in the pointed ends of the “Y” which are reminiscent of Islamic archways.  As the tapering tower rises, setbacks occur at the end bay of each wing in an upward spiraling pattern that decreases the tower’s mass as the height increases.  These setbacks minimize wind forces.

The best tall building of 2010 will be announced at the CTBUH’s awards ceremony in October.