11/09/2012

Sandy’s Wrath Left Industry Pros Scrambling

Hurricane Sandy shut down a large segment of the commercial real estate finance industry last week, but most of the affected operations were up and running within a few days.

The Oct. 29 storm swamped Lower Manhattan, where power was shut down through the week. But the impact extended beyond the Financial District, as power, communication and transportation problems plagued the New York-New Jersey region. Bank of America, Citigroup, Deutsche Bank, Goldman Sachs, J.P. Morgan, MetLife, Morgan Stanley and UBS all were affected, as were Moody’s, S&P and Fitch.

Most of the investment banks had resumed key business activities by late in the week, sometimes relying on back-up power and creative work-arounds. Trading desks, in general, were running again by Thursday, and several lenders said they’d been able to close loans by Friday.

“Everything was put on hold, but it was only for a few days,” said one securitization lender. “We still managed to get three deals priced, and to keep working on the next round of deals, which is going to start hitting next week.”

Deutsche and Cantor Fitzgerald priced a $1.1 billion conduit offering Friday. Two single-borrower deals also priced by week’s end: an $835 million transaction backed by General Growth Properties’ Fashion Show mall in Las Vegas, from Barclays and UBS, and a $1.05 billion deal from J.P. Morgan, Deutsche and Citi on Motel 6 properties owned by Blackstone (see Initial Pricings on Pages 16-21).

A few issuers said that pre-sale reports for upcoming deals were delayed briefly, but the transaction pipeline wasn’t significantly slowed. “No deal that was supposed to come in 2012 will be forced into 2013 instead,” said one commercial MBS chief.

Large banks and insurers have redundant systems in place to deal with disasters and were able to transfer computer functions to remote locations that weren’t affected by the storm. But Sandy’s wide reach caused another problem: Many employees lost electrical power, internet service and/or cell-phone signals at their homes, making it difficult to work remotely.

“We spent a lot of time trying to figure out who had what once we knew that everybody was safe,” said one CMBS lender. “One person might be in an area that had no cell-phone service, but he could send an email. Somebody else could use his phone but he couldn’t connect to our computer system. Finally, we put together a spreadsheet of who had what kind of access, and then we could start working again.”

Individuals improvised, too. Tad Philipp, Moody’s director of commercial real estate research, spent much of last week at a McDonald’s near his home north of the city, because it was the closest place with wireless internet access.

Meanwhile, Deutsche and Goldman used generator power to get their trading floors running. The Goldman headquarters stood out as the only building at the southern tip of Manhattan with its lights on for much of last week. Other firms in Lower Manhattan booked conference rooms at Midtown hotels, and used them for staff and client meetings. Fitch said it was operating through its network of offices outside New York, and routed phone calls through its London headquarters.

One balance-sheet lender said his firm planned to reward its information technology department. “They’re all getting a bonus,” he said. “They kept us going through the storm. It was extraordinary how they pulled it together.”

CMBS lenders said they fielded numerous calls from investors concerned about flood damage to collateral properties. “They wanted to know if the loans we have on our books were backed by buildings that had adequate flood insurance,” said one. “Of course, everything that gets securitized will have complete hazard insurance. But they needed reassuring.”

Another lender said that any collateral property that may have been affected by the storm will be re-inspected before the loan goes into a CMBS pool. “We will do that as a matter of course,” he said.

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