1st Service Solutions founded by Ann Hambly to serve as an advisor/advocate for commercial real estate owners with CMBS debt. Ann Hambly remains the sole owner of the company.
CMBS borrowers quickly understood the value of the role and the borrower advocate was born. For the next few years, 1st Service Solutions was the only firm dedicated to serving as a CMBS borrower advocate.
In its second year of operation, the company’s revenue tripled. Commercial real estate owners with CMBS debt quickly understood the value of having a borrower advocate with servicing experience. The borrower advocate role was firmly established.
Assumptions, one of the key offerings of the firm, grinded to a halt during the market crash. Former clients of 1st Service Solutions re-approached us for assistance in modifying their existing loan, as many found themselves in a situation where the property income didn’t support the loan.
90% of the company resources and revenue was now due to the large wave of CMBS defaults. 10% was on CMBS assumptions. There was a surge in new entrants into the borrower advocate space by former originators, lawyers, brokers, and other service providers who faced a slow down or virtual stop to their business models. As one new entrant worded it …“this is where all the fish are biting”.
These few years were like drinking from a fire hose relative to CMBS modifications/restructures for the Special Servicers and us. The amount of CMBS loans in special servicing reached its all time high in 2012. Since no one really knew where the “bottom was” on commercial real estate values, modifications were mainly variations of kicking the can down the road. There were very few, if any discounted payoffs or note sales during these few years.
By 2010, 1st Service Solutions had aligned with a number of borrower friendly capital providers, which allowed more borrowers to close on their modifications.
As the market started to show signs of recovery, CMBS modification/restructures slowed down tremendously and CMBS assumptions began to pick back up.
By 2014, more loans were being liquidated by Special Servicers through note auctions and other means, rather than modifying the loan and keeping it in place. In 2014, there were only 7 loans modified on average a month, as compared to a monthly average of 48 in 2011. This required a slight change to the borrower advocate process and fee structure, as success fees were becoming much less dependable.
The company braced for the on-slot of business from maturing, overleveraged CMBS loans. At year-end 2014, most industry sources predicted that 30% of all maturing CMBS loans in 2015 (totaling approximately $87 Billion) would experience difficulty in paying off. Due to the incredibly low interest rate environment and the over abundance of available capital, only about 10% actually had trouble paying off. 1st Service Solutions worked with many of the borrowers in that 10% category.
1st Service Solutions became a rated borrower advocate. The largest volume of CMBS restructure work for the firm was from the 2016 and 2017 highly overleveraged maturities, and that volume was very high. According to many industry analysts, about 30% of the 2016 maturities did not pay off. Some of these were extended or modified, however a large amount of them were foreclosed on. This will likely have a big impact on future CMBS losses.