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CRE Finance World, Summer 2012

The New World Order for Special Servicers: Is the Cure Worse Than the Disease? borrowers who have special serviced assets. Investors are concerned incentives for outcomes which may not in the best interest of the that these activities could influence the special servicers’ actions in investors. Ultimately, better transparency related to the analysis of ways that are detrimental to senior investors. These types of affiliate alternative resolution strategies and fees collected by the special transactions are prohibited in most new issue transactions. servicer will be beneficial to senior investors and restore trust to support the growth of CMBS issuance. All CMBS investors will Transparency and Disclosure. In order to build the trust of senior benefit from special servicing compensation that is fair, adequate investors and facilitate the future growth of the CMBS market, and does not create economic incentives that conflict with the special servicers should provide disclosure with respect to the servicing standard. following items on all special servicing asset resolutions: Stacey M. Berger is an Executive Vice President of Midland Loan Services, •After a specially serviced asset is resolved, the asset resolution a PNC Real Estate business. Midland is a leading provider of loan servic- strategies considered, analyzed and evaluated by the special ing, asset management and technology for the commercial real estate servicer, the primary strategy pursued and the financial results finance industry, including CMBS special servicing. The views expressed in comparison to primary strategy plan and budget. by Mr. Berger are his own, and this article was prepared for general infor- mational purposes only and does not purport to be comprehensive. The in- •Borrower paid fees associated with loan modifications, exten- formation and views in this publication do not constitute legal, tax, financial sions, forbearance and other asset management activities cov- or accounting advice or recommendations to engage in any transaction. ered by the CREFC IRP Loan Modification Report. The views expressed in this update are subject to change due to market conditions and other factors. •The use of and payments to affiliated parties for services related to specially serviced assets, such as brokerage, loan sales advisory, property management, leasing, and other services. •The acquisition, refinancing, recapitalization, investment in or other financial transactions by affiliated parties related to specially serviced assets. The provisions in new issue CMBS have addressed many of the most troublesome issues in legacy transactions. However, some of the provisions being requested appear to be reactionary to issues with certain special servicers in legacy transactions that have been addressed. Senior investors should be careful as to what ‘enhancements’ they are asking CMBS issuers to incorporate into new transactions. There are a number of changes which will improve the CMBS structure and benefit the bondholders. Others create a number of new issues which could provide economic CRE Finance World Summer 2012 18


CRE Finance World, Summer 2012
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