Leonard Grunstein, a prominent real estate expert, recently released an analysis suggesting commercial mortgage backed securities (CMBS) financing may be compliant with the Halacha and Shariah. Grunstein’s analysis, published in the Fall/Winter 2014 edition of the Real Estate Finance Journal, proposes the use of CMBS non-recourse financing to ensure the free flow of capital in deals among parties of different religions; but with shared values that otherwise prohibit the making of interest bearing loans.
“Religious prohibitions against interest can make transactions between parties of different faiths difficult,” said Grunstein. “However, my analysis finds that, conceptually, the CMBS financing format, is similar to financing forms that were permitted in medieval times. Shared Values and similar financing concepts were once employed to break down barriers and foster trade. The CMBS financing structure could enable this to occur again.”
In his analysis, Grunstein explores several forms of financing common in Medieval and more ancient times. He finds many models of non-recourse and limited recourse financing structures, such as the Iska and Qirad, which were approved by leading Jewish and Muslim religious authorities at the time. Grunstein describes how these structures are similar in design and result to the CMBS model in use today. This includes an analysis of the carve-outs to exculpation in the CMBS format, as well as, similar provisions in the Iska (under the Halacha), the Qirad (under the Sha’ariah) and the Commenda (under Canon Law). He recommends the use of CMBS financing to allow deals between parties of different religions. The analysis suggests that, by using properly drafted CMBS forms, parties can follow their religious laws, while protecting their investment and completing a real estate deal.
Grunstein is currently a managing member at Hanlen Real Estate Development & Funding of Teaneck, NJ. He has played a key role in a number of historic New York City real estate deals, including the Marriott Marquis, the Hotel Pennsylvania, and the Battery Park City. The latter deal, for which Grunstein created the legal framework, helped jumpstart the stalled redevelopment of Lower Manhattan. In 2006, Grunstein worked with the tenants association of Stuyvesant Town to develop a financing model to enable them to purchase the complex and keep apartments affordable. He previously helped structure, finance and accomplish the West Village Article XI cooperative conversion that preserved the complex as affordable.