Face it….CMBS loans are frustrating for owners. Why is that??
Here are three reasons:
1. There is no lender and no one looking out for the owners after the loan is originated.
The Master and Special Servicers are third parties hired to look out for the bondholders. They are not a partner with the borrower. In fact, a favorite expression of many Special Servicers is “if I am the borrower’s partner, where are my proceeds from the profitable years?”
2. The economics of the PROPERTY is not a primary factor in the Special Servicer’s decisions.
The actual economics of the property matter much less than owners know. Most owners assume the primary driver of a restructure is what is best for the property. In fact, there are many factors that are much more important to a Special Servicer, like liability to bondholders in the pool. A clear example of how little the property economics matter is a property that was foreclosed on and then sold as an REO in March of this year. When it was sold, the sale price was 182% less than the loan amount.
3. The Special Servicer is not your partner and they will be happy to foreclose.
Many owners think the Special Servicers will not want their property. In fact, the Special Servicer will not hesitate to foreclose on a property if the borrower does not have a solid restructure plan, new capital at the time of the restructure, and a clear exit strategy. Statistically, Special Servicers foreclosure on properties far more frequently than they restructure them. Don’t tempt them or they will take your property!
To hear about some of the other reasons CMBS loans are frustrating, attend our upcoming webinar titled “The Top 8 Deceptions In CMBS” being held on July 21st at 2pm central. To register, go to www.1stsss.com/webinars.