In CMBS, the only constant is change…
In CMBS, the only constant is change…
By Kevin Duty
The CMBS industry is, if nothing else, dynamic by nature. Things are constantly changing, especially post-securitization.
The industry is now working under “CMBS 3.0” rules, with each new version introducing significant changes for lenders, borrower and investors. The changes result from new/modified rules issued by the IRS and Dept. of Treasury, which govern CMBS.
Most CMBS borrowers don’t realize that a securitization (pool of Conduit Commercial Real Estate Loans) are viewed by the Government, not as a real estate loans, but rather as collateral for Investment Grade bonds issued and traded on Wall Street.
In addition to the new rules, other factors can affect a CMBS borrower, specifically when it comes to achieving a loan workout. Many of those factors are invisible to the borrower. Even within a specific Special Servicing shop, strategies change on a frequent basis, in response to other market factors.
Just because Servicer “X” approved a certain deal structure 5 years ago, 5 months ago, or even 5 weeks ago, DOESN’T mean they will look positively at the same structure today. Every deal is its own unique animal, with its own strengths and weaknesses. You can be sure that is how the Special Servicer will look at it.
The two key things to keep in mind going into ANY workout situation are:
- Presume NOTHING. You’re starting at square one with the Asset Manager, regardless of past deals you may have done with them.
- The Special Servicers ONLY goal, in a workout scenario is to maximize return to the Trust (Investors), they do NOT worry about what is best for the borrower.