Nothing! I had an attorney tell me very early in my career that things that seem logical outside of the courtroom are often not logical inside the courtroom. It seems to be the same for CMBS workouts. What seems logical outside of CMBS workouts is not necessarily logical within the context of a CMBS workout. Why is that?
It is not because the special servicers are trying to be difficult, although it may seem that way to a borrower/owner. The problem is that the borrower is approaching the problem AND THEREFORE THE SOLUTION by applying COMMERCIAL REAL ESTATE logic. The special servicer must approach the solution by applying BOND HOLDER logic. Those are two very different things and what might seem completely rationale and logical in a commercial real estate setting may not be logical at all for the bond holders.
An example of this that we see quite often is when an owner has a property that is predominantly occupied by one tenant and that tenant has vacated. The owner may even have a replacement tenant in sight and all he really needs is for the next 6 – 12 months of payments to be deferred to the back end of the loan and all will be fine. Everyone will get out whole at the end of the term. In a non CMBS loan, that may be a perfect solution to the problem, but in a CMBS loan, this solution will not work for many reasons and that seems very illogical! One of the big reasons this solution won’t work on a CMBS loan is that the bond holders still have to be paid during this entire time even when the borrower doesn’t make his payment, so by agreeing to this solution, the special servicer is in essence signing up to make the payments themselves for that 6 – 12 month period and that is illogical!
So, when contemplating what is logical and what is illogical in the context of a CMBS workout, you must first view things from the bond holder’s perspective – and that can seem illogical by itself!