Losses to CMBS bondholders

Losses to CMBS bondholders

by Rob Seidenwurm

CMBS loans taking losses to the bondholders has become a reality for distressed properties.  We can argue whether all of these losses should take place, and then you run in to this snippet from a CreditSuisse newsletter:

“The Executive Complex at 1010 Second Avenue in San Diego has sold, according to BisNow. The sale price was $54.4 million. The property backs a $40 million loan in LBUBS 2006-C3 (30% of the remaining balance). The loan failed to pay off when it matured in February. The servicer comments indicate the borrower was trying to sell the property, its preferred route, but also had financing lined up, in case it was not able to do so. It was transferred to the special servicer in April. We expect the sale will lead to a payoff of the loan, with potential for a minor loss due to special servicing fees. Nevertheless, we view this as another example of a post maturity successful payoff.” (emphasis added)

So a $40 Million loan worth $54.4 million that was sent to special servicing for less than 2 months will somehow not result in the full amount being repaid to bondholders.  Why?  Because the fact that it got sent to special servicing at all likely means a disposition fee is generated.

If bondholders are taking losses on these kind of loans, it should be no surprise when there are much more significant losses on the real problem deals.