by Ann Hambly –
Almost all remaining CMBS loans have defeasance provisions, which means that a buyer of a property with CMBS debt in place must either defease the loan or assume the loan. With interest rates at an all-time low, defeasance is usually too costly, so most buyers wind up assuming the loan. It would seem reasonable that if the buyer could qualify for a new loan today for the same amount that he would be assuming, that he would qualify to assume the loan with no real problem. Most people would agree with that statement.
The problem is that CMBS assumption approvals are not based on whether the buyer could qualify for the loan or not.
What, you are asking??
This is the single most misunderstood fact about CMBS assumptions. The Master Servicer, Special Servicer, and Controlling Class Certificate Holder reviewing and approving the assumption are tasked with making sure the bondholders for this pool of CMBS loans are no worse off with the buyer in place than they were with the current owner, or seller. So, the approval is not a process of determining whether the buyer qualifies for the loan, but a process of COMPARING the seller to the buyer to ensure the CMBS pool is no worse off with the buyer in place.
So, how is a buyer going to know what the seller’s financials are to begin with?
How can the buyer know what he will need to qualify for the approvals?
It’s like submitting an application for approval with no knowledge of the requirements.
That is, unless you have an advocate as part of the process. The borrower advocate is the only business person who is privy to the entire transaction besides the very approval parties the buyer will be negotiating against.
Think about that! Why would anyone enter into a CMBS assumption blindly?