– Michael Cohen, Brighton Capital Advisors
A longstanding commercial real estate finance drama featuring the codependency between commercial mortgage-backed securities (CMBS) loans and property owners seeking capital through the public markets has fueled a cycle that shows little signs of stopping.
According to CRED iQ’s latest data, $69 billion of CMBS loans are with special servicers as of August 2025. Maturity defaults are the main reason for the increase in defaults in these specially serviced loans, the CRED iQ data shows.
While many commercial real estate borrowers have been drawn to CMBS as a lending vehicle since it was spawned in the late 1990s, accessing the public debt markets has taken on added importance in recent years as banks have become more selective with their balance sheet lending.
Risks remain however for CMBS borrowers related to more complex loan modifications and restructurings.
Michael Cohen, managing partner at CMBS workout specialist Brighton Capital Advisors, said problems can come when borrowers pursue the CMBS market not fully understanding the power bondholders have in the deal and fees associated with loans that get transferred to a special servicer. Cohen, who prior to founding Brighton in 2020 originated CMBS loans for Wall Street investment banks, Citigroup, UBS and Deutsche Bank, said the lack of flexibility in loan documents can often put borrowers in a challenging position in not being able to communicate directly with the originator.
“If you’re floating down the Amazon on a peaceful river and then you stick your hand in and get your fingers bitten off by piranhas, you’d understand what you’re seeing on the surface is not what is on the bottom,” Cohen said. “The inherent problem in CMBS is that you don’t necessarily have an aligned interest amongst the borrower and the lender.”
Cohen said one way to minimize CMBS surprises in troubled times would be if special servicers treated the process more like balance sheet loans, but doing so may drive away investors willing to buy these more risky products. He said borrowers can also help themselves by gaining more understanding about recourse carveouts and triggers.
CMBS lenders will often return to borrowers who encounter hiccups with past loans because of how lucrative the product is for banks, according to Cohen. Demand has also picked up for CMBS due to rising interest rates, tougher underwriting standards at banks and the lack of balance sheet capacity, according to Cohen. All of this means that borrowers have fewer options when seeking capital.
“Many of the loans executed via CMBS today would have been handled by super-regional and regional banks in the past when their portfolios were in better shape,” Cohen said. “That’s why there is now a predominance of five-year CMBS loans compared with years past. For many it serves as a haven until the interest rate and devaluation storm clears.”
