Understanding the Differences Between CMBS Master vs. Special Servicer

Many times, our clients will tell us that they have “spoken to the Servicer” and they believe that their CMBS issue has been resolved which, unfortunately, is not always the case. In this article we explain the various servicing roles and their decision making authority.

The servicing of CMBS loans can be divided among multiple entities, each with a distinct role. The two primary types of servicers in the CMBS world are the Master Servicer and the Special Servicer. In a CMBS transaction, both the Master Servicer and Special Servicer play crucial roles, ensuring that bondholders receive their expected returns and that distressed assets are handled in a way that maximizes recovery. Below are the primary differences between them:

Master Servicer:

• This entity handles the day-to-day servicing responsibilities for CMBS loans.
• They are responsible for collecting loan payments from borrowers, managing escrow accounts (for taxes, insurance, etc.), and distributing payments to bondholders.
• They provide monthly reports to the trustee on the status of the loans in the pool.
• In essence, the master servicer manages performing loans — those that are current on their payments and not in danger of defaulting.

Special Servicer:

• This entity steps in when a loan becomes distressed or defaults.
• They have the authority to make decisions regarding loan modifications, foreclosures, or the sale of the underlying property.
• The primary goal of the special servicer is to maximize recovery for bondholders when a loan runs into trouble.
• They often have more discretion in terms of working out problematic loans compared to a master servicer.

Compensation:

• Master Servicer: Typically earns a fee based on the outstanding balance of the loans they service.
• Special Servicer: Their compensation structure can be more complex. They may earn a fee for taking on a defaulted loan and additional fees based on the outcomes they achieve (e.g., successful loan modification or sale of the underlying property).

Understanding the intricacies of the CMBS servicing process are essential to obtaining an optimum outcome on resolving any loan administrative and/or default issues. Having a CMBS advisory firm on your team with vast understanding and experience in the CMBS servicing space is a difference maker in effectively and optimally resolving any loan issues.

BCA’s 25+ years of experience in the CMBS industry provide us with the expertise and experience to navigate through the complex servicing maze that is created once a loan is in distress. BCA works to simplify the process for the client and to provide guidance as to how best engage the master and special servicer when looking for a loan modification or discounted payoff (“DPO”).