- Has your loan been transferred to Special Servicing?
- Is your loan balance under $20 million?
- Is there limited upside to increase value in the collateral in the near term?
If you answered yes to the 3 questions listed above, then your loan may be destined for a note auction.
The CMBS special servicing space continues to be dominated by the 3 largest special servicers (LNR, CWCapital, and C-III), who collectively service over 60% of the $700 billion in CMBS loans outstanding. With roughly $70 billion of CMBS loans in special servicing, the “big three” firms are collectively handling $40 billion in distressed CMBS loans. Of the $40 billion, 1st Service Solutions, Inc. believes that at least one quarter or $10 billion of these loans will be liquidated via note sale. Reasons that these very busy Servicers have opted for this resolution path include the following:
- Open marketing process that fully vets what “true market value” is for a property
- Relatively quick loan resolution strategy compared to foreclosure, modification, or even discounted payoffs
- Gives the Servicer the ability to clear out the books on smaller loans (<$20 million) so that personnel can focus on larger loans (>$20 million) which often incur more costs and higher loss severities to the Trust
What do I need to know if my loan is being placed into Auction or I am interested in bidding on distressed notes?
- Stay in communication with the Asset Manager or Loan Sale Advisor who is assigned to the loan so that the exact auction date can be determined
- Have proof of funds – Registered Bidders must show proof of funds prior to bidding, or be considered a “proven and active” investor
- Be ready for a quick close – Bidders are typically required to fund a winning bid within 30 – 45 days of execution
Post Purchase –
Buying your own loan out of auction can allow you to take full control of the collateral. At this point, you own the debt on your real estate. You can refinance the debt through a new loan or keep the debt in place to avoid immediate tax consequences.
What if a third party wins the bid? This means that the loan is sold from the CMBS Trust to a third party who now effectively has become your new Lender. As a Borrower, you will begin discussions with your new Lender on how to resolve the existing loan based on both parties’ motivations and goals for the collateral.
1st Service Solutions, Inc. has expanded its business to guide Borrowers throughout the Auction process whether they are looking to acquire their note back from the Lender or they are interested in acquiring notes for investments. Post purchase, 1st Service Solutions can also work with clients to restructure debt whether they are acting as a creditor or debtor. Please contact us at 817-756-7227 for more information.