A recent article in the Wall Street Journal* placed a spotlight on the role of “middlemen”, or special servicers as they are known in the CMBS loan marketplace. It described how high profile investors such as Andrew Farkas and his Island Capital Group recently bought special servicer C-III, and how Fortress Investment Group, which purchased CW Capital, are seeking to profit by purchasing these special servicers, thereby getting a “front row seat,” to distressed commercial real estate assets sold at auction, a scenario that many view as replete with conflict of interest issues.
CMBS loans are securities backed by pools of commercial real estate mortgages and which are administered by master servicers. When a CMBS loan goes into default, the master servicer passes the loan to a special servicer, which is charged with working out loans on behalf of the investors who bought the bonds. On the one hand, the special servicers are supposed to represent the interests of the bondholders. On the other, the same special servicers have the right to buy the distressed asset as long as they pay a fair market value. Hence, the conflict. While the article goes on to focus on conflicts within the CMBS investment marketplace, the impact will be felt by CMBS borrowers as well.
Continue reading “Investors Looking for Distressed Real Estate Deals Are Purchasing Special Servicers” »
CMBS Loans, Special Servicers
Commercial mortgage-backed securities (CMBS) capitalize on the non-residential real estate market. In light of an uncertain economic environment, the default rate on these mortgages has led to a sharp rise in CMBS defaults. The Internal Revenue Service (IRS) has since introduced a way of easing the investor pain associated with defaults by actually offering an attractive option: instrument modification.
Known by the IRS as Revenue Procedure 2009-45, this ruling enables loan servicers to choose securitized loan restructure and modification prior to the fiscal instruments’ actually arriving at a default state. Best of all, there are no tax penalties associated with the process. This empowerment places servicers on par with so-called balance-sheet lenders – like pension funds and regional banks — which have all along made frequent use of the practice to navigate through the credit crunch relatively unscathed.
Continue reading “CMBS Loan Modifications” »
CMBS Loans, Commercial Loan Modification
For those who are considering a new commercial real estate loan, it is important to know that commercial-backed securities (CMBS) are experiencing historically high delinquency rates. Not only will this affect future interest rates, it may mean that banks and other financial institutions will be tightening their belt and approving fewer loans regardless of the borrower’s past history or ability to repay the loan.
The overall delinquency rate has climbed from a relatively normal 2.77% last year to the historical high of 8.42% in May, 2010. For, seriously delinquent loans (this figure eliminates anything under 60 days past due) the current figure is 7.55% while last year’s rate was 2.18%. Fitch Ratings forecasts that this trend will continue through the end of 2010 and will exceed 11% by the end of December. Continue reading “CMBS Delinquencies Reach Historic High” »
CMBS Loans, Commercial Loan Modification, Commercial Real Estate Loan Workout
A recent article in the Wall Street Journal* placed a spotlight on the role of “middlemen”, or special servicers as they are known in the CMBS loan marketplace. It described how high profile investors such as Andrew Farkas and his Island Capital Group recently bought special servicer C-III, and how Fortress Investment Group, which purchased CW Capital, are seeking to profit by purchasing these special servicers, thereby getting a “front row seat,” to distressed commercial real estate assets sold at auction, a scenario that many view as replete with conflict of interest issues.