IF YOU HAVE A CMBS LOAN

Transcription

1 Hosted by: WELCOME TO THIS FREE INFORMATIVE WEBINAR THE 16 THINGS YOU MUST KNOW IF YOU HAVE A CMBS LOAN

2 SPEAKERS Ann Hambly Bjorn Borgenhard Steve Banegas Stephanie Miles Kevin Duty Rob Seidenwurm Ann Hambly is Founder & CEO of 1st Service Solutions. Ann has over 30 years CRE servicing experience and has served as the CEO for many large servicing institutions. Bjorn Borgenhard is Managing Partner of 1st Service Solutions. Bjorn brings 30 years of commercial real estate and finance experience, including 20 years in CMBS. Formerly SVP at LNR Steve Banegas has 25 years of experience in customer service, employee development, facilitating, and sales. Stephanie is an Asset Manager overseeing all of the firm s CMBS assumptions. She also handles loan restructures under the direction of the senior team at 1st Service Solutions. Kevin Duty is Managing Director of Loan Workouts at 1st Service Solutions. Kevin has over 20 years experience in commercial real estate management and CMBS servicing. Rob Seidenwurm serves as SVP of Legal Outreach for 1st Service Solutions. 2

3 AGENDA 1. Recourse or non-recourse? 2. You have no lender 3. CMBS is not a relationship business 4. What can a master servicer really do? 5. The CCR is the puppet master 6. No such thing as simple in CMBS 7. What is really in your loan docs? 8. Reserves are not set in stone 9. Underwriting errors are corrected at assumption 10. Biggest factors in a restructure 11. The earlier the better for a restructure 12. How do you get to the special servicer? 13. It s never too early for a maturing loan 14. Watch out for the 5% late fee 15. How new risk retention regulations affect you 16. What you knew before doesn t help 3

4 THE NUMBER 16 Tarot # 16 is the Tower card - symbolizing great changes There are 16 ounces in a pound The Mayflower set sail on July 16, 1620 Abraham Lincoln was the 16th president of US Number 16 is a square number 16 is a symbol of wholeness The Boston Tea Party occurred on December 16, 1773 Washington D.C. became the capital of the US on July 16,

5 #1 RECOURSE OR NON-RECOURSE? Bjorn Definition of non-recourse with carve-outs Typically about 13 Carve-out provisions 3 to discuss today Waste Co-mingling of funds Insolvency 5

6 #2 THERE IS NO LENDER IN CMBS Rob Non-CMBS Structure CMBS Structure LOAN FUNDED LOAN FUNDED INVESTMENT BANKING FIRM CREATES POOL RATING AGENCIES BONDS ARE SOLD SPECIAL SERVICER IS ASSIGNED Lender Borrower Lender Borrower Bonds are rated AAA AA A BBB BB Bonds are sold AAA AA A BBB Investment Grade B piece owner becomes Controlling Class Certificate Holder CCR Loan contributed to pool B UR Rated Master Servicer is assigned to pool BB B UR Non- Investment Grade B pieces CCR selects Special Servicer 6

7 #3 CMBS IS NOT A RELATIONSHIP BUSINESS Kevin Loan is closed with intent to sell to a 3rd party Originator/Broker has no standing with loan after that point Servicer s sole purpose for existence is to enforce loan docs and maximize return on (Bond) Investment Servicer(s) do NOT own the debt 7

8 #4 WHAT CAN A MASTER SERVICER REALLY DO? Kevin The Master Servicer has very limited authority Acts as Caretaker of performing loans, and, Gatekeeper for transfer of loans to Special Servicer Pursuant to Pooling and Servicing Agreement, the Master can only perform routine functions Master Servicer can NOT modify loan terms in any way CANNOT approve modifications/assumptions/extensions, etc. They will not tell you that you have to have your loan transferred to Special Servicer Nor HOW to go about getting your loan transferred 8

9 #5 THE CONTROLLING CLASS REPRESENTATIVE ( CCR ) IS THE PUPPET MASTER Bjorn 9

10 #6 NO SUCH THING AS A SIMPLE REQUEST IN CMBS Kevin Smallest / Simplest of requests requires write-ups/reviews and can require consents of as many as 4 separate parties Even what seems like a no brainer request requires underwriting and credit committee approval Servicers view borrower requests as opportunities to review status/performance of loans and to credit enhance, if possible Lenders goal in underwriting is to ENSURE that they are accepting NO additional risk from borrower request Asset Manager has NO individual authority to grant ANY credit-based request Asset Managers all have LARGE portfolios of assets Nothing gets done quickly or without dotting i s or crossing t s 10

11 #6 NO SUCH THING AS A SIMPLE REQUEST (CONTINUED) Kevin Examples of Simple Requests Release of reserve funds Change in property management Partial release of collateral (i.e.: retail out parcel) Springing cash management issues Addition of mezz debt Condemnation/easements 11

12 #7 WHAT IS REALLY IN YOUR LOAN DOCS? Rob You have agreed to things in your loan docs that you may not be aware of We call these items in your loan docs bedbugs Hidden but everywhere Once you have them, they are hard to get rid of Pre-stipulation to a receiver These are springing based on certain criteria that often is not even a default Can also trigger cash management, triggering of reserves Newer CMBS docs may also include provisions that make it easier for originators to complete securitization Borrower pre-agreeing to allow changes in the loan documents in order to effect a securitization at an acceptable price Not clear what the limit to those changes can be Some documents even say that those changes are done at Borrower s expense! 12

13 #8 RESERVES ARE NOT SET IN STONE Stephanie During the time of an assumption or transfer of ownership, reserves will most likely be modified as a condition of consent Tenant Improvements & Leasing Commissions Replacement Reserves DSCR Reserve PIP Reserve Taxes & Insurance 13

14 #9 UNDERWRITING ERRORS ARE CORRECTED AT ASSUMPTION Stephanie Assumptions are time for servicers to correct errors made at origination Conditions that may be placed to correct these errors Increased or added reserves Cash Management Required Repairs Property Improvement Plan ( PIP ) LTP Loan to Purchase 14

15 #10 BIGGEST FACTORS IN A RESTRUCTURE Ann Sometimes the biggest factors in a special servicer s decision have nothing to do with your property What Matters to an Owner Property Repositioning Remain in Control Return of Investment Minimal Investment to Return Performing What Matters to the Special Serviceer REMIC Rules Liability to the Senior Bond Holders The Status of their Bond Investment NVP of all Options Available to them FMVPO 15

16 #11 THE EARLIER THE BETTER FOR A RESTRUCTURE Bjorn The earlier you approach the special servicer with a problem, the higher the likelihood of a good outcome Loan Workout Timeline IM Letter Transfer to Special Servicer Special Servicer Due Diligence Proposal / Negotiation Closing Days Days Days Days Total Time Line: 210 days - 2 years 16

17 #12 HOW DO YOU GET TO THE SPECIAL SERVICER? Bjorn You don t have to go into default to get to the special servicer Many borrowers believe that the only way to get transferred to the special servicer is to miss two payments or go into default We always recommend explaining the circumstances to the master servicer and requesting the transfer 17

18 #13 IT S NEVER TOO EARLY FOR A MATURING LOAN Kevin Many borrowers are finding refi s MUCH harder to get than expected Available credit for many properties is declining and getting more expensive Master Servicer is very limited on IF and HOW LONG they can keep a Maturing/ Mature loan Missing Maturity date by ONE DAY can create SIGNIFICANT additional expense and problems 5% late fee on full UPB, plus default interest Most loan documents allow for paying off the note, with no prepayment penalty, 2-3 months prior to maturity date 18

19 #14 WATCH OUT FOR THE 5% LATE FEE Ann You may have to pay a late fee on your balloon payment Any payment not paid when due (excluding the balloon payment) is subject to a late fee of 5% $10MM x 5% = $500,000 late fee! 19

20 #15 HOW NEW RISK RETENTION REGULATIONS AFFECT YOU Rob The new CMBS risk retention rules will affect you, the owner What is Risk Retention? Traditionally Originators pool their loans, then sell off 100% of the interest in a bond pool Reaction to pre-boom underwriting ( ), Dodd-Frank rules are going to require originators to retain 5% of the pool Skin in the game Effect on the owner Here is one that at first glance should only effect the lending side of the transaction However, originators have run from the CMBS market in

21 #15 HOW NEW RISK RETENTION REGULATIONS AFFECT YOU Bjorn First Deal Merry Christmas 21

22 #16 WHAT YOU KNEW YESTERDAY MAY NOT APPLY TODAY Ann CCR s play a much more active role in decisions sometimes contrary to the special servicer s recommendations Modification versus liquidation will be more driven by BONDS than LOANS or PROPERTIES Even if you do everything by the book, you still may get foreclosed on Property values are generally going up time is on their side No actual losses until REO is sold 3 year IRS time constraint If your loan is in the top 20 of a pool, you will be subject to much more disclosure and scrutiny 22

23 CONTACT INFORMATION 1st Service Solutions, Inc. (817) Upcoming Webinars 23