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CRE Finance World, Winter 2012

CMBS Special Servicer Behavior — As Subordinate Bond Positions Evolve From Investments to Fee Generators or Fair Market Value Options actual winning bid and brokerage commission paid. At the same time any potential increased motivation to undertake extensions/ modifications could significantly extend bond WAL and change returns. Analyzing these potential behaviors is difficult as servicer actions are being influenced by market refinancing conditions, property investment yields and value and expectations for the economy which have clearly been volatile over the past 36 months. While many times there is just information, even in the incident above, that we do not have which may drive a servicing decision. As strategists we do try to predict future outcomes, and the CMBS ALIAS system has been established to box in potential liquidation/ modification outcomes for troubled CMBS loans and the increased information that investors continue to request would be helpful to this process. But at this point we have the data servicers currently report which we will use in the remainder of this report to see if we can explain servicer actions with some level of greater precision. CMBS Loan Resolution Analysis Source: Amherst Securities Group LP, Intex Data Solutions To look for changes in servicer behavior and improve loan resolution predictability we created a database of 1592 loans ($30.2 billion) The pie chart on the left shows that out of the $30.2 billion loans that were in special servicing as of June of 2009 and tracked their that were in special servicing as of June 2009, $13.7 billion (45%) resolutions over time with an eye on the special servicer involved. were modified, $6.1 billion (20%) were liquidated while only $2.2 In Exhibit 3 show our initial data set along with resolutions that billion (7%) were cured. This reflects the dire economic condition have taken place over time. we experienced over past two years. While the chart on the right reflects all the merger and acquisition activities we showed in Exhibit 3 Exhibit 2: 4 players (C-III, CW, LNR and Midland) now dominate Resolution Of Loans That Were In Special Servicing, Servicers Responsible the industry with 93% of the troubled loans. This concentration of For Troubled Loan and Servicing As Of 06/2009 servicing rights does suggest that commercial mortgage resolutions have become very concentrated among just a few industry players, so reviewing their resolution process or potential bias is a relevant concern for CMBS investors. To consider if there is a detectable shift in servicer behavior we decided to look at servicer behavior while original B-piece first loss buyer may still have an economic interest and then as the BB+ class is eliminated or starts to take shortfall. To do this in Exhibit 4 we present resolutions results sorted by the status of the BB+ class. CRE Finance World Winter 2012 32


CRE Finance World, Winter 2012
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