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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 45%, 35% and 47% of their troubled loans. LNR appears to be public information on such security and/or any registered prospectus, and the quickest to liquidate loan with a 25% liquidation rate, but that that no reliance may be placed on the completeness or accuracy of the figure is not significantly different than other servicers and the information and/or comments contained in this document. The decision speed of liquidation may actually be proven to minimize loan loss of whether to adopt any strategy or to engage in any transaction and the severities. This is the classic fast liquidation versus patient servicer decision of whether any strategy or transaction fits into an appropriate debate and we suspect that the final optimal outcome may likely portfolio structure remains the responsibility of the customer and/or its still have more to do with the economic recovery than the servicer’s advisors. Past performance on the underlying securities is no guarantee specific approach. of future results. This material is intended for use by institutional clients only and not for use by the general public. Amherst® Securities Group LP has prepared portions of this material incorporating information provided Conclusions — Still Need More Data on by third party market data sources. Although this information has been Special Servicer Behavior obtained from and based upon sources believed to be reliable, Amherst® Overall, with only a 1,592 loan resolution sample we have to be cautious Securities Group LP does not guarantee the accuracy or completeness of about our initial conclusions as the recent 24 months of experience the information contained herein. Amherst® Securities Group LP cannot could be very different than the experience in an unpredictable be held responsible for inaccuracies in such third party data or the data economy. While several recent vintage deals demonstrate a high supplied to the third party by issuers or guarantors. This report constitutes liquidation rate once they eliminate the BB+ class most of the Amherst® Securities Group LP’s opinion as of the date of the report and deals have only reached that write down level for a few months is subject to change without notice. This information does not purport to and not really experienced sufficient time to demonstrate loan be a complete analysis of any security, company or industry. Amherst® outcomes other than liquidations. In many of those quick liquidation Securities Group LP cannot and does not make any claim as to the pre- instances the servicer may have simply decided to liquidate what payment consistency and/or the future performance of any securities or looked like hopeless situations on the few aggressively underwritten structures. Change in prepayment rates and/or payments may significantly loans that were exposed by the recent recession. Yet, in the BACM affect yield, price, total return and average life. Amherst® Securities Group 2002-2 transaction we did find one sample that suggests the LP may have a position in securities discussed in this material. servicer may have acted too quickly to take a loss, so we will have Copyright ©2011 Amherst® Securities Group, LP. All Rights Reserved. to continue to track data. If we see several more examples then This document has been prepared for the use of Amherst clients and may we have to state that conflicts of interest in servicing are hurting not be republished, redistributed, retransmitted or disclosed, in whole or investors and actions should be taken. But currently, we still have in part, or in any form or manner, without the express written consent of limited overall data set and would say that we still need additional Amherst. Any unauthorized use or disclosure is prohibited, and receipt data before making major changes to our expected loan resolution and review of this document constitutes your agreement to abide by the time frames. restrictions specified in this paragraph. 1“2011 — The Year of ‘CMBS Mod’”, by Darrell Wheeler, Vivek Tiwari, Joe Beyond the limited sample of deals that have eliminated their BB+ Yu, 1/5/2011. class we do not see a detectable variance in servicer propensity to liquidate versus modify (beyond the higher modification rate 2“Grubb & Ellis Company enters Into Agreement with C-III Capital Part- for Clarion serviced transactions). But in anticipation of changes ners and Colony Capital”, Press Release on PR Newswire, October 18th, in future activity we have now established this special servicer 2011. monitoring table format to follow their actions over the next twelve 3“Trinity Health to move corporate headquarters, 1,400 employees to months and will evolve this approach to look at achieved severities Quicken space in Livonia”, Crain’s Detroit Business, October 19th 2011, versus Amherst anticipated severity on a servicer specific basis. Jay Green and Daniel Duggan. So, while the initial results suggest the potential beginning of some suspect trends we expect to develop much more concrete conclusions 4We first reported the different in loans size between modification and in an additional twelve or twenty four months. liquidation resolution in January 2011. See page 13 of “2011 – The Year of ‘CMBS Mod’ ”, by Darrell Wheeler, Vivek Tiwari, Joe Yu, 1/5/2011 Disclaimer The material contained herein is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of securities. Any investment decision as to any purchase or sale of securities referred to herein must be made solely on the basis of existing CRE Finance World Winter 2012 34


CRE Finance World, Winter 2012
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