2014 CMBS Kick-off: “More of the same, but with a twist”

4th February 2014 · Comments Off

We closed 2013 with a December blog post that summarized the Servicer and Owner situations. We expect 2014 to kick-off with much of the same. According to economist Allen Sinai, the 2014 economy will continue to improve — we will see lower unemployment, strong stock market capitalization, rising home values, slightly rising interest rates, GDP increases, and strong consumer spending.

Special Servicers are aware of this economic improvement and are therefore betting that property values will continue to rise. We think that’s not a bad bet!

Servicers who choose to foreclose on a property can hold onto the asset for up to 36 months, giving them the advantage of riding the appreciation wave. What this will mean for Owners: in many cases they will need to be prepared to pay above fair market value to retain their properties.

The Borrower’s Edge in 2014

Despite the “high” that Servicers may get from an upwardly mobile economy, factors specific to the CMBS realm may work to the advantage of the Borrower/Owner once again. We expect an astronomically high volume of CMBS loans to mature in 2015 through 2016: according to Fitch/Morningstar, approximately $100 billion of CMBS loans are coming due in 2015 and that number increases to $110 billion in 2016, which is the largest volume of maturities in CMBS history.

Aggressively leveraged loans made between 2005 and 2007 will mature, many of them unable to be refinanced. Even previously modified loans may need to be revisited if the maturity was not extended. The result of all this volume? Servicers are going to experience higher caseloads once again, which signals an advantage for Owners/Borrowers who know how to make this work in their favor. (Remember, in December we emphasized that Servicer caseloads were light in the second half of 2013, allowing Servicers to be much more cautious with the few cases they had and less willing to negotiate). Higher caseloads means Servicers may be more willing to negotiate instead of taking in record levels of REO.

How Owners and Borrowers Can Take Action

THG recommends that Owners take quick action on their maturing loans. As a Borrower Advocate we partner with Owners to help position them for the best possible outcome. We help Owners fortify their position by:

  • Considering their 2015 and 2016 refinancing prospects well in advance. In some cases it makes sense to start this process up to 18 months in advance, since value creation often needs to occur in order to refinance existing debt.
  • Deploying capital towards assets with maturing loans, judiciously, and being careful that they do not “throw good money after bad.”
  • Helping them to become well informed about their CMBS loan, when refinancing seems challenging—informed about the securitization (pool) it’s in, the players in that pool (Special Servicer and Master Servicers), and how THG will help.
Start the year off right–let’s get a jump on your maturing loan now. THG is a veteran Borrower Advocate with a long track record of guiding Owners to a productive dialogue and negotiation with Servicers. Contact David Goldfisher today.

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