There is so much confusion in the ‘streets’ about the COVID 19 relief AVAILABLE FOR CMBS BORROWERS today! That is a fact! When a new one is announced, borrowers jump at the hope that this is the one that will solve all the problems and provide the cure. 

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Quick background information:

• CMBS loans are in an IRS vehicle called a Real Estate Mortgage Investment Conduit (REMIC) for tax purposes. One of worst things a MASTER servicer could do while servicing loans in a REMIC would be to cause a termination of the REMIC status and that can be done by modifying loans. Inappropriately modifying a loan in a REMIC can result in a tax equal to 100% of the income from the CMBS pool. 

• For this reason, the CMBS servicers are all requiring that a SPECIAL servicer approve all relief requests due to COVID 19. There are a lot of rumors out there about whether or not a master servicer can grant relief due to COVID 19, and although there are some very minor exceptions, the bulk of the requests require the loan to actually be transferred to the special servicer

• Regardless of all of this, every request needs to be accompanied by a complete, industry standard, package supporting the request

• In my opinion, one of the worst things a borrower could do when requesting payment relief due to COVID 19 is to forget about all the triggers and covenants in the loan documents that are not being relieved! Borrowers need to know all of those triggers and consider the effect they will have on the future operation of the property post COVID 19.

IRS 4/13 rule:

On April 13th, the IRS issued rules that allow the REMIC to grant forbearance relief to COVID 19 affected borrowers. This rule by itself, does not offer the clarity to the servicers yet on whether this means a MASTER servicer can offer the relief and if so, under what parameters. This is a huge step toward the industry getting the relief it needs but does not change the basic steps and process outlined above.

CARES Act:

We get questions every day from borrowers on whether they can take advantage of the PPP and SBA loans offered in the CARES act. To date, the CMBS industry has not offered uniform guidance on this and the CMBS loan documents do not allow for the addition of any debt. As of today, borrowers must obtain the approval of the servicer to take advantage of the PPP and/or the SBA loan.

There are discussions about other forms of relief being entertained, which I am watching daily and will provide updates on as soon as they change anything for CMBS borrowers!

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