Non-Performing CMBS vs. Performing CMBS

What is the difference between a non-performing CMBS loan and a performing CMBS loan?

That is the question!

The reason that is a very important question is because there are very different options available to an owner on a performing CMBS loan than a non-performing CMBS loan.

When a loan is a CMBS non-performing loan and in special servicing, the resolutions available to a borrower open wide up. Anything that will get the most amount of money for the bond holders should be considered. There are industry best practices that have been adopted throughout the years by special servicers and those will come into play, but overall, the structure of the resolution is wide open.

When a loan is a performing CMBS loan and in master servicing, the resolutions are very restrictive. The master servicer cannot do anything that would result in a change to the bond holder’s payments; which virtually eliminates any kind of modification. These restrictions are in place to protect the pass-through tax structure of CMBS. There are many things that can be done to the PROPERTY (such as releasing an out-parcel) but monetary concessions of any sort are generally not something the master servicer can consider. It’s easy for a borrower to believe its loan is “non-performing” if the value of the property is less than the debt, but that is not the deciding factor.

In summary, a borrower will need to clearly understand the IRS rules which govern CMBS loans before understanding what can and can’t be done on the CMBS loan and ultimately the driving factor is whether the loan is “performing” or “non-performing”. That’s what a good borrower advocate will do for you!