It is very unclear what will be the final role and businessstrategy of the agencies. They have lost credibility, many of thesmartest and most experienced have left or will leave as soon asthey find a new job, they will soon be subject to the fear of thetort lawyers coming after them for any reason that can force apayoff to the lawyers, and they have competition. If there were notthe requirement to use investment grade ratings from ratingagencies imposed on pension funds and certain other investors, itis very likely that the rating agencies would simply go away.

There is now an internal layer of monitors in the agencieschecking to make sure the underwriters are doing it by the book andnot going out on a limb on anything. This makes working conditionsless than wonderful and it results in generally more conservativeratings than might otherwise be the case and might otherwise bewarranted. Similar to appraisers who always get it wrong on theupside and then over compensate and get it wrong on the downsidewhen there is a recession, raters are now being conservative. Ifyou know a tort lawyer is sitting there waiting for you to make anyjudgment that may prove later to be over optimistic, you will errto the conservative side. If you know Barney Frank and his band ofclowns on his committee will potentially drag you in front of thecameras for political theater, you will be overly conservative.Being overly negative can be as bad as being overly optimistic ifthe rating is too restrictive and the cost of capital resulting ishigher than it should be.

Blackrock and Pimco and others are now taking market share fromthe agencies as they are considered to be better analysts of thesecurities for investors such as insurance companies and others. Iexpect this trend will continue just as it did years ago withequity research when there was a major move away from the big wirehouses research groups who were found to have another axe to grind-mainly push the companies who were clients and IPO issuers of thefirm. The rating agencies never, to my knowledge, did anything likethe dishonest work of the investment banking research groups, butthe trend to use better quality research firms will be the samebecause the results of the past were unsatisfactory and ofteninaccurate.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.