It is a fact that the special servicer in a CMBS pool must ultimately chose the outcome that will result in the highest net present value (“NPV”) to the bondholders. In fact, the only real standard that the CMBS special servicers have is what is called the servicing standard. The servicing standard states that the special servicer must maximize the return to all bondholders without regard for their own bond position based on a net present value calculation. That NPV calculation is standard and the discount rate that must be utilized in that calculation is in the Pooling and Servicing Agreement for each pool. Those all are all FACTS!
The greatest myth that exists here is that anyone can duplicate the exact NPV calculation on a loan and get the exact number that a special servicer will get on that loan. In fact, one of the first numbers used in the NPV calculation is the value of the property and we all know that you could ask 10 people today in the market what a particular property is worth and probably get 10 answers.
The NPV calculation is as much art as it is science. It requires a firm understanding of the property value today from the special servicer’s view, a firm understanding of what the special servicer BELIEVES the value of the property will be in the future, along with many other variables. It is a fact that a borrower should know HOW the special servicer calculates that NPV, what the NPV of the servicer’s options alone are and then most importantly, how to apply all those artful numbers into a logical outcome so the loan can be successfully restructured. That’s where an experienced advocate will come into play!
