Industrial Warehouse, New York State

Special Servicing CMBS Loan is Converted to a Construction Loan

Background

The Borrower owned a 63,633 sf industrial property in Up-state New York, 100% occupied by FedEx®. FedEx’s lease expired in November 2009 at the same time the Lender’s loan matured. The client could not attract another tenant because the market for single industrial tenants was bleak, especially in a space that had been customized to meet FedEx’s needs. Fortunately, FedEx extended their lease twice on a short-term basis, keeping the Lender’s loan payments current well beyond the maturity of the Loan. Rent ceased in December of 2012 and the Borrower was faced with no cash flow and a dark building.

Challenges

There were a variety of challenges we faced with this client:

  • The tenant market was sparse and, consequently, the building sat vacant for 9+ months
  • The Lender/Special Servicer held significant Borrower reserves, which were inaccessible
  • The Lender racked up late fees and default interest on a loan which had matured over 2-1/2 years earlier
  • When a new tenant did become available, they required nearly $532,000 in tenant improvements, leasing commissions, and capital upgrades to accommodate their needs; cash the owner did not have on hand
Execution

Considering all factors in the deal, we were able to convince the Special Servicer to advance reserve funds as a quasi-construction loan with frequent draws to support an aggressive construction schedule. This feature required more effort on the SS’s part, but the upside for both the owner and Servicer would be worth it and we were able to make our case.

Outcome

Essentially the Special Servicer turned into a construction lender for the loan; willing to advance construction funds as tenant improvements were made. It’s unusual but possible to cooperate with the Servicer to achieve a mutually beneficial result even though it may have been outside of the Servicer’s original comfort zone to act as a “construction lender.”

Ultimately, the Lender was paid off, the owner retained the building and was able to get significant relief of late fees and default charges, while getting construction monies funded from reserves during a default situation; a complicated proposition for Servicers to digest.

Note: This client was referred to us by Carey, Kramer, Pettit, Panichelli & Associates, Inc., mortgage bankers. THG builds lasting relationships with mortgage bankers who share the “clients first, fees second” philosophy. They often have firsthand knowledge of a troubled commercial loan, as evidenced in this success story.

The Henley Group has a reputation for creating these types of innovative solutions. We work closely with the Special Servicer, building a dialogue on your behalf that drives toward a resolution that benefits all involved. Contact us for expert Advisory services.

*References are available—just ask us.

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