Saturday, April 18, 2009

CMBS Loans Harder To Negotiate Because More Parties Involved?

I repeatedly hear how CMBS loans are more problematic because there are so many parties involved in each loan. It came up again this week with the GGP bankruptcy.

Let's be crystal clear here. You default on a loan, you have 1 party to deal with, and it is the Special Servicer. That is their precise job, and they get paid 100 bps for doing it. You do not deal with the master servicer, bond holders, originator, trustee, or anyone else.

The Special has some pretty defined steps they may take in order to resolve the loan. They can foreclose on it, put in place new management, and eventually sell the property and apply any recoveries to the Trust (after taking out for any expenses involved). Alternatively, they can extend the loan term, generally for 1 year at a time, and rarely more than 2 years. Without any data to back it up, but with reasonable insight, these two options account for the overwhelming majority of workouts on defaulted loans.

It is not supposed to be easy to violate a contract you signed on a mortgage document - so, you don't get to complain about it too much.


sweet! said...

negotiate for who?

Dark Space said...

Everytime there is a big loan default, i.e. GGP, there are numerous parties that come out discussing how CMBS loans are tougher on the borrowers because they have so many parties involved in the CMBS deal. There are some nuances, but the fact of the matter is that there is generally one party (the Special), and they're generally taking away the sponsor's property because the sponsor has defaulted on a contract, so its worthwhile to put that in perspective.

Dark Space said...