CMBS Loan:
The state of CMBS loans today indicates that there most likely will be an increase of commercial loan modifications in order to prevent borrows from defaulting on their loan.
The special servicer is the only party involved in the CMBS loan process who is authorized to restructure or modify a loan or handle any loan modifications or borrower loan requests. Special servicers are called in and chosen by the unrated class bondholders because, in the investor process, these bondholders hold the lowest-rated bonds and are taking the highest risk.
Given the complexity of CMBS commercial loan modifications, and often as a result of the many people involved, investors and borrowers are equally eager to get in touch with the special servicer and start the loan modification proceedings. However, they are often surprised to find that their calls to their special servicer go unanswered!
The reason why differs if whether you’re a borrower or a real estate investor, and the answer may very well be completely different.
The reason why differs if whether you’re a borrower or a real estate investor, and the answer may very well be completely different.
If You’re an Investor
In general, special servicers do not speak to the potential real estate investors at all. If they do call back, they are doing so to let you know that they don’t have the authority to enter into third-party note sales or any other off-market transaction. In other words, special servicers most likely will not respond to your inquiry.
If You’re a Borrower
Distressed borrowers often find themselves in the throes of a lengthy and tedious process when their loans are being transferred to a special servicing agency. This can be for many reasons.
Special servicers don’t have the same incentives as a regular bank or a life company lender. In fact, they don’t react the same way. Special servicers are often compensated based on a percentage of the outstanding balance of the defaulted loan they service, plus a fixed fee—which arguably gives them some incentive to let the process go for as long as possible to collect the most from a loan. Ultimately, however, their job is to modify a loan to prevent loss.
Special servicers have no capital charges. They also have no concerns about carrying real estate owned (REO) properties on their books, so modifying the loan in question is truly at their discretion.
Special servicers don’t have an existing lending relationship with a borrower. While special servicers don’t have an existing lending relationship with the borrower, they do know whether a borrower is making payments or not. For instance, a distressed borrower may stop making payments on a loan just to see if someone is paying attention. The answer? Yes. A borrower that stops making payments or begins to delay payements can greatly inhibit the servicing process if the need should arise. The special servicer is under no obligation to modify the loan.
A 1st Service Solution
No matter which side of the coin you’re facing, trying to have your commercial loan modifications done on your own can be difficult and, in the end, not result in a positive outcome. Fortunately, if you’re a distressed borrower looking to do a modification on your CMBS loan, you don’t have to face this process alone.
1st Service Solutions, a Texas borrower advocate firm specializing in loan modifications, restructuring and assumptions, can appreciate the needs of the challenged CMBS borrower. Since 2005, we have been representing borrowers and crafting proposals, in conjunction with both the special servicer and the borrower, that protect the borrower and the property, resolving several billion dollars worth of CMBS loans and serving as a bridge between the borrower and the target asset.
For more information on how you can get help working with the special servicer on your loan modification, feel free to contact us!