Everyone is aware of the myriad issues faced by commercial property owners during the latest downturn.  When values fell, their alternatives were limited and many of them followed an inevitable path into foreclosure.  However there were others that had weathered these cycles before and knew from experience, or the experience of others, that by taking a responsible approach with their lender there was a potential to negotiate a workout that would allow them to retain control of their assets.


In the past, many of them had relationships with their local banker that allowed these negotiations to take place.  Sometimes they were successful.  However even if there was not a compromise to be reached, there was typically a conversation about what could be done to resolve the problems they faced.


Today, with so many owners utilizing the capital provided through CMBS, the borrowers must turn to the Special Servicer for these negotiations where there is no true relationship and attempts at determining potential workout solutions are at best, one sided.  It is a frustrating experience for borrowers, to say the least.  And this isn’t the worst case scenario……


Recall the game we all played as kids during hot summer days, Marco Polo.  Eyes closed, swimming carefully around the pool, the kid who is “it” calls out “Marco?” and the other players respond back with “Polo!”  Hearing a voice that may be attached to a person they can reach, the blinded player swims in the direction of that voice.  If they are lucky, they reach out and touch the person and their turn in the dark is over.  More often than not they come up empty handed, call out “Marco?” again and the game goes on.


Imagine yourself with a troubled asset and you have reached a workout solution with your special servicer – usually through the help of a very experienced borrower advocate. After many months of negotiations, you learn that the Special Servicer you have been working with is no longer the Special Servicer for your loan.  And you learn that the new Special Servicer will contact you soon and you can then begin the process all over again. (Marco?)


Why does this happen? 


Remember that the Special Servicer is appointed by the controlling class certificate holder. As losses pass through the pool, the control moves up the bond stack. So, as a new class of certificate holders come into control, they can (and often do) pick a new Special Servicer.


Sadly, it gets worse since each Special Servicer can (and likely will) arrive at a different conclusion on the best outcome for the property.  So, the solution agreed to by one Special Servicer may not be the solution the next Special Servicer prefers.


We have seen instances where the borrower was  ready to sign their agreed upon modification structure,  only to find out that the Special Servicing has been transferred to a new Special Servicer and that Special Servicer has no interest in the modification terms or structure of the deal they were about to sign up for.


The hardship this creates for Borrowers needs to be recognized by our industry.  It diminishes their confidence in the presumed efficiencies that CMBS provides.  It takes patience, money and strong tenacity for a borrower to get a CMBS loan modified, let alone having to start all over again when they are finally near the finish line!


Marco!  Polo!