Welcome to 1st Service Solutions’ official blog!

One of the best things a borrower advocate can do for a borrower is to provide information and insight into the “Lender/Servicer” side of the commercial real estate industry. These blogs are written freely by the staff of 1st Service Solutions. They offer our views, insight, and opinions and will, at times, be seen as controversial. We would rather a borrower hear it like it is though!

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  • Bill Gates and Ann Hambly
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  • Why Do I need YOU?
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  • If it sounds too good to be true...it probably is!
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  • Non-Performing CMBS vs. Performing CMBS Loan
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  • Importance of a Proper Advocate
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  • Late Fee - Look Out
    Rates are up – Now what?
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  • CMBS Loan Restructuring Firms
    CMBS Loan Restructuring Firms
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  • Trump Administration Commercial Real Estate
    Commercial Real Estate and the Trump Administration
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  • ARD
    ARD vs. Maturity
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  • CMBS Workouts
    CMBS Workouts: Truth or Fiction?
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  • As Seen On TV - Rated
    As Seen On TV - Rated
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  • Risk Retention
    CMBS Risk Retention
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  • Pension Funds and CMBS
    Is your pension fund invested in CMBS?
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  • Oil & Hotels
    The Oil Collapse & Its Impact on Hotels
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  • Request Denied – Game Over?
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  • ABC's of CMBS
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  • Re-Do’s
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  • Illogical
    “That’s Highly Illogical…”
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  • How do I return my whole retail property?
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  • Losses
    Losses to CMBS bondholders
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  • Hot Coals
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  • Late Fee - Look Out
    Late Fee - Look Out
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  • Do you like short lines or long lines?
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  • To Forbear or not to Forbear…that is the question
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  • Rack Em Up
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  • The Role of the Borrower Advocate
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  • Workout, Modification, Restructure
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  • CMBS Assumption Conditions
    CMBS Assumptions Have Painful Conditions!
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  • Wave of Maturities
    Sometimes waves are “gnarly”
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  • Refinancing
    Office and Retail Refinancing
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CMBS Loan Restructuring Firms

CMBS Loan Restructuring Firms

CMBS Loan Restructuring Firms

Who Should You Trust?

by Kevin Duty


There are many CMBS Loan Restructuring Firms in the market to choose from. How do you know who you should trust? There are several key points that good CMBS Loan Restructuring Firms should feature on its resume;

 

  1. Industry Experience: Anybody who has ever had a loan of any kind can put up a sign and call themselves a Loan Restructuring Firm. Anybody who has ever had a CMBS loan will immediately tell you that CMBS is unlike virtually any other loan product out there. The rules are not the same, neither is the process of getting a restructure. That’s why it is CRITICAL that a CMBS Loan Restructuring Firm have a staff with years (Decades!) of CMBS Loan SERVICING experience. Notice that I said “SERVICING” experience, not “loan” experience. When you are working on a restructure of your CMBS loan, you will be working with loan SERVICERS, not Originators, or Appraisers or Underwriters, and ESPECIUALLY not Attorneys! You want someone that has “been there, done that and has the t-shirt to prove it”! The processes and considerations for getting a restructure are complex and involve MANY things other than the borrower, the asset and the request. Someone who has Servicing experience will know what those things are and how to navigate the mine-laden waters to a safe harbor.

 

  1. Tenure of Company: We see it all the time; when markets decline, and new origination falls off, many originators and other industry types (other than loan servicers) try to fill the slow down by working in the restructure space until things improve, then they go back to doing whatever they did before and leave restructuring behind. The problem with that concept is that the CMBS market is an ever-evolving animal. Favored restructure methods and strategies are always changing as Special Servicers and Investors change THEIR philosophies. What worked last year, or even 6 months ago, may not work today. CMBS Loan Restructuring Firms that have been in the business for many years adapt with the market and can even help shape new trends. If you’re constantly popping in and out of the market, you will be sadly behind the times, potentially at the expense of your client (the Borrower).

 

  1. Industry Relationships: This thought ties in with #1. If you are retaining a CMBS Loan Restructure Firm, and are careful to select one that has a staff with extensive CMBS Loan Servicing experience, you are also hiring the relationships that come with that experience. The same people that used to be colleagues in servicing are still “friends”, even if now looking at the same transaction from different sides of the proposal. I deal with Special Servicing Asset Managers on a daily basis that are friends of mine from my Servicing days. What that means is that; I know who to call, and I can trust that the call will be answered. The Asset Manager won’t do me any “favors”, we both have our jobs to do, but I know that they will talk to me, which is not always the case with SOME CMBS Loan Restructuring Firms.

 

  1. Fee Stucture: Are the fees front-loaded so that there is little or no incentive to produce results? Or are the fees structured such that the borrowers and CMBS Loan Workout Firm’s interests are aligned and focused on getting a deal done?

 

  1. Legal Approach or Business Approach: Don’t get me wrong, I have many friends that are attorneys, and, YES, there are certain times and situations that call for a legal approach to a situation. BUT, know that as soon as you bring an attorney into the mix, the Special Servicing Asset Manager, who is the person responsible for getting your proposal through his credit committee, will virtually ALWAYS shut down communication and send all contact through his counsel. This usually serves no point, except for slowing down the process and greatly increasing legal fees to get a deal done. You are MUCH better served by trying to get a deal done with the Business side first, then, and only as a last resort, introducing legal counsel into the process.

 

In the end, not all CMBS Loan Restructuring Firms are created the same. Check out reputations, check out past successes, find out what the approach of choice is for a firm before you engage. The fact is, not all firms are in business to help the borrower. Some are in it to get your initial fee, then move on to the next deal, yielding poor results for the borrower. In the long run a little bit of diligence can go a long way towards increasing your chances of success.

Commercial Real Estate and the Trump Administration

Commercial Real Estate and the Trump Administration

by Rob Seidenwurm


Whatever your opinion on the results of this November’s election, it is clear that the Trump Administration will have an effect on many economic markets, including the commercial real estate market.

On one hand, it is easy to react that since Trump made his career in commercial real estate, that any effect on that market should be positive.  However, given the lack of specifics of Trump’s plan, it is more realistic to consider how a Republican President with a Republican Congress might effect the markets:

  1. Regulation – The most likely scenario is that underwriting regulation is likely to be eased, thus making financing easier. This is at least a short term positive for the commercial real estate market, as it should be easier to complete purchases and refinances.

  2. Foreign Investment – This is a tricky one. On one hand, if regulations get eased, it may be easy for foreign investment to continue coming in and feeding the US CRE market.  On the other hand, if trade is restricted, or the dollar gets too strong, foreigners could look elsewhere to put their dollars and exit the US CRE market.  Way too soon to know.

  3. Strength of Economy – It stands to reason that if the economy is stronger, and more jobs are created, the retail and office sectors should benefit. If taxes are lowered, there will be more money to put into CRE investments, driving up prices.  Again, this is conventional wisdom of Republicans, not necessarily Trump.

Overall, if we consider the election as a win for Republicans, and not Trump, the Commercial Real Estate market outlook should be bullish. Trump Administration and Commercial Real Estate.

 

 

Whatever your opinion on the results of this November’s election, it is clear that the Trump Administration will have an effect on many economic markets, including the commercial real estate market.

ARD vs. Maturity

ARD

What’s the difference between an ARD vs. maturity of your loan?

by Ann Hambly


The simplest way to explain the difference between an ARD and a maturity of your CMBS loan is this:  An ARD is a suggested maturity date and a true maturity date is a demand, not a suggestion.

ARD stands for Anticipated Repayment Date and although it is simply a suggested date by which the CMBS loan should be paid off, there are steep consequences for not paying the loan off at this suggested maturity date.  The consequences typically include an increased interest rate for the loan as well as a provision that requires all net cash flow after debt service to be applied to principal.  So, the net -net to an owner when a loan is not paid off by the ARD is that the interest rate increases by typically 2% and the owner will not have access to any cash generated from the property other than what is required to pay necessary operating expenses.  Although these consequences are painful, the owner can keep the loan in place under these conditions until the actual maturity date; which is typically at the end of the 30-year term of the loan.

It is vitally important for an owner to know if they are facing an ARD or a true maturity of the loan.  A true maturity of the loan carries steeper penalties for not paying off, including foreclosure if a forbearance or extension is not granted.

ARD stands for Anticipated Repayment Date and although it is simply a suggested date by which the CMBS loan should be paid off, there are steep consequences for not paying the loan off at this suggested maturity date.  The consequences typically include an increased interest rate for the loan as well as a provision that requires all net cash flow after debt service to be applied to principal. 

CMBS Workouts: Truth or Fiction?

CMBS Workouts

CMBS Workouts: Truth or Fiction?


Like the mythical Unicorn of days gone by, many people say that they know people that have successfully completed positive CMBS Workouts, but few have first-hand experience.

As restrictive as CMBS Loan Servicers, and, REMIC (“Real Estate Mortgage Investment Conduit”) rules are, CMBS Workouts are, to say the least, difficult and very complex to complete. Many of our clients call us after having tried to complete CMBS Workouts on their own, only to throw up their hands in frustration before seeking our assistance.

There are definite DO’s and DONT’S to successful CMBS Workouts. The “lender” (Noteholder) on your CMBS loan is NOT your local bank. In addition to the inherent restrictions of REMIC rules, CMBS is NOT a relationship based business. The Servicer is not concerned about the borrower or their interests in the collateral property(s).

What you say, what you DON’T say, how and when you say it are all CRITICAL factors in working with your servicer to achieve CMBS Workouts. Unless you have a REALLY big loan, complex, convoluted structures are often discarded simply out of convenience by the servicer. Simpler more “straight forward” structures tend to be more successful.

The Servicer holds all the leverage and, pursuant to your loan docs, doesn’t even have to talk to you. The key to mythical CMBS Workouts is approach, structure, and having an experienced guide to help you navigate the murky waters that are CMBS lending.

If you have questions about your situation/loan, and think you might need some help, give us a call, we are happy to offer every client a free, no obligation consultation. We won’t hit you with high pressure sales, and we won’t try to take your money if we can’t add value to the equation.

As Seen On TV – Rated

As Seen On TV – RATED


Ever seen an infomercial where some loud obnoxious, screaming at the top of their lungs, spokesperson is selling based on the big financial windfall due to some misfortune that happened in the past?

The in your face, over the top, and angry approach often catches us off guard and pulls us into what their selling. It’s a proven marketing strategy. Before you know it, you’ve scrambled for pen and paper to take the number down, not really knowing why…other than you were told to by this hyperventilating nut—-they shocked you into it!

Just as you start to take the information down, you notice the fine print. You know…the wording at the very bottom of the screen which says, “Not Board Certified.” Meaning, they’re really not who they say they are, or they couldn’t pass the test, or they had their credentials removed for one reason or another. Not Board Certified is the same as They’re Not Rated!

Is that who you want to represent you when you need guidance on a CMBS loan workout? Good rule of thumb, when dealing with or needing a borrower advocate on any CMBS loan, always use someone who is “rated” by a credible rating agency and not some outfit promising over the top, unrealistic outcomes…what you want to hear. You know, those loud souls who have just hung a shingle in borrower advocacy space because they think if they yell loud enough, talk fast enough and put the fear into you, you’ll not read the fine print…”Not Rated.”

There’s only one rated borrower advocate, 1st Service Solutions.

** 1st Service Solutions is the 1st and ONLY rated borrower advocacy firm. **

CMBS Risk Retention

Risk Retention

What is CMBS Risk Retention and why should I care as a Borrower?

by Rob Seidenwurm


What is CMBS Risk Retention and why should I care as a Borrower?

For years, CMBS loan securitization follow the same process.  Lenders originate the loans, package them up, securitize them, and sell them to Wall Street.  Then they move on to the next deal.

In an effort to incentivize CMBS originators to make quality loans, new regulations are taking effect called “Risk Retention” requiring originators to retain 5% of the interest in the securitization.  The rationale is make sure originators put their money where their mouth is.

Why does this matter to Borrowers?  Because the new regulations are having the effect of driving many originators out of the CMBS market entirely.  In the first half of 2016 CMBS origination is down 43%, from $54.5 Billion to $30.7 Billion.  Less competition means: 1) It may be harder to successfully refinance; and 2) Rates are trending up.

Bottom line, if you have a CMBS loan that is coming due… best to plan ahead.