Legal structures governing real estate financing were exploited prior to the 2008 crisis. Regulators put in controls but new structures bypassed these, creating a timebomb.
The underlying theme of this talk will revolve around the misuse and exploitation of legal structures in financing real estate during a boom market and the paradox of an overbearing regulatory response that can follow.
Damian Perry’s talk will focus on market ‘irrationality and exuberance’ leading up to the last financial crisis (2003-8) and the regulatory over-reaction that followed (2008-2015). He will then look at legal structures in the real estate debt markets that have recently emerged which are again at risk of being misused in a rising market.
This talk will cover a critical analysis of:
(i) what happens when markets abuse and exploit legal structures which serve perfectly legitimate purposes in "normal" times
(ii) what happens when regulators (having been caught sleeping at the wheel) over react and clamp down on the legitimate use of these structures,
(iii) how this over reaction can cause a contraction in available bank liquidity with knock-on effects particularly in the European debt markets where many banks cannot re-liquify their loan books and are therefore incapable of providing new lending, and
(iv) how, when the regulators are busy solving the last crisis, the market arbitrages the new regulatory regime to build new legal structures which can serve legitimate purposes in "normal" times but which run the risk of being over exploited and becoming a ticking debt timebomb in the near future.
Damian Perry is a leading real estate finance lawyer with nearly 30 years experience who recently retired as a partner from Clifford Chance.
Olmo Silva is Professor of Real Estate Economics and Finance, LSE.