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Forum Spotlight: Servicers

March 20, 2023

Together, Stacy Ackermann, Leslie Hayton, Rich Carlson, Carl McLaughlin, Andrea Helms, Tony Yousif and Niral Shah form the “Leadership Working Group” for the Servicers and Special Situations Forum.  The group sets agendas and priorities for the Forum, as well as represents the constituency on CREFC’s Policy Committee.

What’s new:  In January, the forum debuted its new expansion as we combined the servicing administration and special situations forums. The Special Situations component newly incorporates the special servicing/special situations and distressed asset management as part of the forum.  The decision to evolve and formally combine servicing administration and special situations was due to feedback from members regarding current market conditions and related pressing issues that the members want to explore and address. 

The newly recast forum will have two sets of leadership – one representing servicing administration and the other representing special situations. Importantly, both sets of leadership will continue to work together to address all aspects of member interests and concerns.

Key Servicer Focus Areas

• Monitoring and tracking servicing activity 
• Transfers of interest and assumptions
• Distressed asset resolutions for securitized and portfolio assets
• Floating rate - transitioning away from LIBOR
• Collateral Valuation

What they’re saying:  Discussions at the January conference focused on the following points:

• Payoff efficiencies and success during 2022
• Increased defeasance volume – will it continue in 2023?
• Moderate uptick in transfers of interest and assumptions
• Increased requests for rate cap modifications and differences across portfolio vs securitized
• Continued valuation uncertainty  - impact on default resolution/enforcement and servicer advances
• Bespoke distressed asset resolution requests and approaches

Looking ahead, servicers are highly focused on current market conditions and the impact on maturing loans and default resolution and enforcement.  The forum leadership expects our forum discussions at the June conference to focus on the current state of the market and what servicers are seeing as “boots on the ground” with respect to the point of contact with borrowers.

 Key Policy Issues:

• SEC’s Conflicts of Interest in Securitization Proposal. The proposal would limit CMBS and CRE CLO sponsors from certain transactions in the first year after issuance. CREFC is asking for express exclusion for servicers from being treated as a “sponsor” under the regulation.
• LIBOR transition:  US Dollar LIBOR is scheduled to cease being published on a representative basis beyond June 30, 2023. Servicer Forum members and CREFC have published the CREFC LIBOR Legacy Playbook, which is designed to address operational issues related to transitioning floating-rate loans currently indexed to LIBOR to the recommended SOFR index plus the ARRC recommended spread adjustment or another contractually agreed-upon benchmark.

What’s Next:  Forum Leaders are seeking nominations for the next Chair Elect to join their leadership slate and look forward to presenting CREFC members with an update on their forum at the Annual June Conference in New York City.  Please send any nominations to Kathleen Olin.

To join the Servicing Administration and/or Special Situations Forums, please register here.  For any forum related questions, please contact Kathleen Olin.

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Meet CREFC's Servicers and Special Situations Forum Leaders - Stacy, Leslie, Rick, and Carl

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Forum Spotlight: Portfolio Lenders 

February 27, 2023 

Together, Stefanie, Chris, Michael, Jonathan, Scott and Lissette form the Leadership Working Group for CREFC’s Portfolio Lenders Forum. Importantly, this group sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.

Key Portfolio Lender Focus Areas

• Valuation and Rates: Declines in valuation, higher interest rates and more disciplined underwriting (moderate rent growth and increased expenses). Higher rates and tighter coverage have led to more CM2 business across the board
• Lending Pipeline and Appetite: More capital available than second half of last year but volume still down. Transactions are limited due to the delta between sellers and buyers. Less interest rate volatility should help increase transaction volume. 
• Asset Management: Maturing transitional/bridge loans are facing refinance risk (increased cap costs, tight DY and DSCR metrics that don’t allow for a perm takeout). Office will have a hard time with little liquidity in the market and multifamily will see some hiccups as well as syndicated borrowers aren’t able to write the checks required for the pay down or extension costs.

What they're saying: Conversations at CREFC’s January conference focused on the availability and appetite of various debt capital sources (such as CMBS, GSE’s, debt funds, life companies and banks), and the impact of higher rates on risk ratings of loans in the portfolio and overall portfolio risk.

Key Policy Issues:

• Regulatory framework for ESG and climate change compliance and reporting
• Bank Capital Review
• SEC Climate Reporting
• Beneficial Ownership Reporting
• Multifamily reporting requirements under Home Mortgage Disclosure Act (HMDA)

What's next: Forum leaders are seeking nominations for the next Chair Elect to join their leadership slate and look forward to presenting CREFC members with an update on their forum at the Annual June Conference in New York City. 

To join the Portfolio Lenders Forum, please register here.  For any forum related questions, please contact Kathleen Olin at kolin@crefc.org. 

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CREFC Forum Spotlight: CMBS B-Piece Investors Forum

February 6, 2023 

Together, Lyndsay, Zach, and Jason form the “Leadership Working Group” for CREFC’s B-Piece Investors Forum. Importantly, this group — taking their cues from B-Piece Investor Forum members — sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.

Key B-Piece Investors Focus Areas

• Ensuring that newly originated retail and office loans have adequate upfront capital reserves, hard lockboxes, and/or set deposits as lower DSCRs make it more challenging to collect significant TI/LC dollars monthly and for loans to withstand declines in tenancy.
• Watching upcoming maturities closely, as higher interest rates and wide bid/asks on the underlying assets are impacting exit strategies on refinances and sales, respectively.
• Evaluating potential five-year CMBS transactions cautiously, as these transactions require sterling credit characteristics, and are more sensitive to losses or extensions.

Looking ahead, leaders are hopeful that stabilizing rates will increase CMBS issuance relative to 2022. The Forum would like to continue the push toward better use of technology to improve the speed of reporting from borrowers to servicers and trustees to investors. In 2023, B-Piece investors see key challenges as:

• Today’s higher interest rates and their impact on borrower demand and refinancings,
• Enforcing rights in loan documents, such as springing lockboxes and “go-dark” sweeps, and
• Underwriting office loans as the sector continues to evolve.

What's next: Forum leaders are seeking nominations for the next Chair Elect to join their leadership slate and look forward to presenting CREFC members with an update on their forum at the Annual June Conference in New York City.

To join the B-Piece Investors Forum, please register here. For any forum related questions, please contact either the Forum Chairs or CREFC’s Kathleen Olin at kolin@crefc.org.

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B-Piece Investor Forum Leadership

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CREFC Introduces New Forums

December 12, 2022. 

This week CREFC announced changes to its industry sector forums:

• A new High Yield Investments/Alternative Lending Forum will serve debt funds and others that comprise private lenders and investors in commercial real estate debt (whole loans, mezzanine loans, preferred equity, and sub-performing/non-performing loans).
• An expanded Servicers Forum will more fully incorporate CREFC members focused on special assets and special situations.

The changes reformulate the existing High Yield and Distressed Reality Assets (HYDRA) Forum and reflect the evolution of this sector of the CRE finance market. More information on the new forums is below.

CREFC Member Action Required: Current CREFC members of both the HYDRA and Servicers Forums will receive an email request to make new forum selections based on their role in the industry and the descriptions of the forums as presented above.

• Forum sessions at the January Conference will incorporate the new Alternative Lenders and High Yield Investors Forum, as well as the newly expanded Servicers Forum.
• To sign up for a forum, please click here. For any forum related questions, please reach out to either Lisa Pendergast or Kathleen Olin.

Alternative Lenders and High Yield Investors Forum

The Alternative Lenders and High Yield Investors Forum will focus on the needs of this growing and important source of market liquidity. Alternative lenders now represent 15% to 20% of annual CRE lending activity.

Membership in this forum will include Alternative lenders and High yield investors in the CRE debt and equity space:*

• Lenders and investors include debt funds, public/private mortgage REITs, money managers, separately managed accounts (SMAs), and other public or private entities.
• Investments include bridge and mezzanine loans, preferred equity, and special/distressed situation opportunities.
• Third-party service providers and business partners who work closely with such lenders and investors.

Importantly, this forum will be instrumental in the development and ongoing maintenance of the soon to be launched CREFC/NCREIF Open-End Debt Fund Index, with the goal of increasing transparency and liquidity in this important sector of the market.

The forum will also:

• Afford this CREFC member segment a clear, formal voice in CREFC
• Provide members with a stronger voice with regulators and legislators on Capitol Hill.

Updated Servicers Forum

The HYDRA transformation will shift the Distressed Realty Assets (DRA) portion of HYDRA to the Servicers Forum. CREFC is realigning the Servicers Forum to include two main focus areas:

• Servicing Administration
• Special Situations/Special Assets

The newly cast Servicers Forum will represent market participants with separate leadership teams in the servicing of performing asset and non-performing/distressed assets, and include primary servicers and the GSEs.

The combined and expanded Forum will create a collaborative environment to focus on all servicing and trust administration issues within a single forum, while recognizing the diverse issues associated with servicing performing and non-performing loans.

Note that both the current leadership within the Servicers Forum and the Distressed Realty Assets sub-forum of HYDRA will remain in place.

Go deeper: Over the years, content for the existing HYDRA Forum has become divergent into near separate discussions that relate to either alternative lending/investing or distressed asset management and special servicing. This divergence has made it challenging to optimally serve the varying needs of existing HYDRA members. The revised forums aim to better align these conversations.

 * Does not include (is not intended to replace) lenders/investors that are served by the Investment-Grade Bondholders, B-Piece Investors, Portfolio Lenders-Bank, Portfolio Lenders-Insurance Company, or Issuer forums

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HYDRA Forum members will be asked to realign themselves with new forum structure.

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Portfolio Lenders Forum Spotlight

October 17, 2022. 

Together, Stefanie, Chris, Michael, Jonathan, Scott and Lissette form the “Leadership Working Group” for CREFC’s Portfolio Lenders Forum. Importantly, this group sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.

Key Portfolio Lender Focus Areas

1. Regulatory considerations and muted capital markets activity pressuring bank balance sheets, along with CRE allocation or other loan book size constraints.
2. More disciplined underwriting (increasing expenses and cap rates) coupled with higher interest rates (heightened emphasis on rate sensitivity analysis) and declines in valuations across the board.
3. Escrows (taxes and insurance for example) that were once waived due to low leverage are back as a result of lower valuations and DSCRs.
4. Credit focus shift towards the office sector, with increasing delineation between the ‘haves’ and ‘have nots’.
5. ESG-linked financings are increasingly a focus for both borrowers and lenders.

Looking ahead:  Due to the uncertainty in the capital markets, asset managers are looking ahead to avoid maturity defaults on maturing bridge debt. From a portfolio management perspective, lenders are examining office concentrations as well as transactions that no longer hit DSCR targets in the current rate environment. Refinancing comes at a high cost with a principal paydown, fees and high cap costs.  Those borrowers looking to sale as an exit no longer have certainty of execution. 

What’s Next? Forum leaders are planning a virtual forum-wide legislative and regulatory policy update and will soon be formulating the agenda for the forum session at CREFC’s January conference. 

To join the Portfolio Lenders Forum, please register here.  For any forum related questions, please contact Kathleen Olin at kolin@crefc.org. 

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Together, Stefanie, Chris, Michael, Jonathan, Scott and Lissette form the “Leadership Working Group” for CREFC’s Portfolio Lenders Forum. Importantly, this group sets the agendas and priorities for the Forum, as well as represents their constituencies on CREFC’s Policy Committee.

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Forum Spotlight - Investment-Grade Bondholders

October 3, 2022

Together, Jane, Rich, and Manish form the “Leadership Working Group” for the IG Bondholders Forums. This group sets the agendas and priorities for the Forum, as well as represents investors on CREC’s Policy Committee.

Key Investment-Grade Bondholders Focus Areas/Goals

1. Quality, consistency, and standardization of investor reporting for the CRE CLO sector;

2. Improving disclosure of strike rates on interest rate caps for SASB loans in extension periods;

3. Re-authorization of National Flood Insurance Program (NFIP) to provide a backstop for flood insurance (NFIP has been extended to Dec. 16, 2022, as part of the the government funding deal); and

4. Continue CREFC efforts in establishing a set of disclosures focused on environmental factors, including data points relative to climate perils, energy consumption/efficiency, and greenhouse gas emissions.

Looking ahead, leaders are concerned about liquidity in the market, the impact of higher rates on loans’ ability to refinance, any degradation in floating-rate DSCRs and interest rate caps. They continue to consider the reduced representation of conduit CMBS in the Bloomberg Agg. Index and alternative benchmarks that incorporate a larger component of the CMBS universe.

What’s next?:  Forum leaders are planning a virtual forum wide legislative and regulatory policy update and will soon be formulating the agenda for CREFC’s January Conference.

To join the IG Bondholders Forum, please register here. For any forum related questions, please contact Kathleen Olin at kolin@crefc.org.

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