After almost 100 years of combined experience learning, mastering, and teaching the ropes at top-tier CMBS and commercial real estate platforms, we’ve brought our expertise to the other side: the properties borrowing those loans. We’re leveraging our knowledge to help properties pivot in this new normal and transition to financing options that make sense, and sharing that with our clients. We know what it takes to get what you need from lenders, and we’ll stop at nothing to make it happen.
With the new CMBS landscape, things can seem pretty complicated. We’ve answered a few of the most common questions we get, to help you better navigate your options, including:
- Who do I contact about my distressed CMBS Loan situation?
- What information do I send to the Servicer to present my case?
- The Servicer has my request/proposal, what are the next steps?
- Are there pitfalls or hot buttons I should be aware of when dealing with the Servicer?
- Why not Defease and exit my CMBS Loan?
- What experience should an ideal Advisory Firm have?
- What other roles of business should my Advisory Firm have?
- Should I use my Attorney instead of an Advisor?
A: The initial conversation should start with the Servicer of your Loan, which is the party you send your loan payments to. There are three types of Servicers: Sub, Master and Special. A Sub Servicer is typically associated with the Mortgage Company that originated your loan. The Sub Servicer’s authority is governed by a sub-servicing agreement and is typically limited to document administration. The Master Servicer’s actions are governed by the Pooling and Servicing Agreement (“PSA”), which dictates the guidelines and authority the Master and Special Servicer possess. The Master Servicer is the main document and collections administrator. The Master Servicer performs loan covenant tests and other administrative responsibilities, such as tax and insurance payments and managing the property reserves.
Each CMBS Securitization has its own unique Pooling and Servicing Agreement, which is the document that controls the Securitization and the interaction between the parties. The Special Servicer is also governed by the PSA to handle issues outside the Master Servicer’s purview and issues related to loan defaults, such as modifications and default waivers. Prior to implementing these actions, the Special Servicer must obtain the consent of the Designated Class Holder (DCH). The DCH typically starts as the non-rated bond buyer of the CMBS Remic Trust, but the DCH can change control as the bond incurs loan losses. Once the loan is transferred to the Special Servicer monthly Special Servicer fees will be incurred.
Complicated? An Advisory Firm with experienced professionals and contacts throughout the CMBS industry is critical and can make this process seamless and less costly.
A: If you send a two sentence proposal email you will not get your problem reviewed or resolved quickly. Providing the Servicer with a presentation that anticipates the Servicers questions and documentation needs which can be analyzed quickly and efficiently will have a much better chance of getting your request reviewed in a timely manner. An experienced CMBS Advisor can provide a concise and complete package which can be reviewed and approved expeditiously.
A: Understanding the process of CMBS Servicing, applicable parties, and approval rights helps to set expectations and mitigate anxiety of a stressful situation. Depending on the nature of the request, next steps may include, (but are not limited to), an appraisal, an environment assessment, various consents from the special servicer, subordinate loan holder(s), or the DCH, as well as rating agency review. An experienced Advisory Firm informs the client of the anticipated timeline and potential fees at the beginning of the process.
A: Yes. In a CMBS loan it is necessary to understand how any modification or consent affects the entire REMIC Trust. Many issues that a balance sheet lender may be able to easily address could be “non-starters” because of REMIC rules and the Pooling and Servicing Agreement. Examples of probable non-starters are additional debt of the Borrower, long term extensions without a capital infusion (i.e. typically greater than 12 months), and change of use of collateral. A well-seasoned Advisor with CMBS legal and Special Servicing experience is invaluable when requesting Loan relief from the Servicer to understand what is achievable and avoid time delays and unnecessary legal fees.
A: Defeasance is the substitution of the real estate collateral with government securities (typically US treasuries) that mimic the loan payment requirements. In the current interest rate environment, to mimic the payment stream, securities in an amount greater than the outstanding balance of the loan will need to be purchased (which costs approximately 25%-30% of the Loan balance in the form of a defeasance premium). In addition to the cost of purchasing the securities, the Borrower is responsible for the payment of Servicers’ costs and other related expenses which typically total in the $30,000 to $50,000 range.
A: A full service advisory team should be comprised of bankers, underwriters, former special servicers, and attorneys from top tier organizations. Their knowledge and relationships within the various lenders and servicing shops can create a path to success and achieve the optimal outcome for the Borrower. Dealing with loan servicers can be daunting as the actions of the Servicers are constantly changing as the market evolves. Choosing experienced professionals with real-time knowledge of all aspects of the process is critical.
A: Along with experienced Loan Workout Advisors, a team that has access and experience in raising new equity and/or obtaining debt can work together to create an optimal customized solution for your asset. Dedicated teams base their success on your outcome, not what other business they can derive from helping you.
A: Attorneys are critical to the loan modification process as they will offer legal advice and be responsible for the documentation of any modification. However, engaging legal counsel to speak with the Servicer requires the Servicer to involve their counsel in the discussions, adding to legal fees. A full-service Advisory Firm can engage with the Servicers and keep your attorney informed in the background. The Advisor should be able to negotiate the business terms of the modification while incurring nominal legal fees.
“Presenting the right information and analysis to clearly identify Loan issues and thoughtful modification [to the Servicer] facilitates a path to find solutions quickly.”
– Tina McNeill