First Resolution: Exercise More (Good Judgment): CMBS “Do’s” and “Don’ts” on the Lender Side A publication of Winter issue 2014 sponsored by CRE Finance World Winter 2014 83 Credit Rating Agency Criteria An independent rating agency will evaluate the risk that a particular CMBS loan will default.17 Generally, lenders will require, at the outset of the loan application, that the loan achieve a certain credit rating. After the credit rating agency makes an assessment, the issuer of the loan will procure a B-piece investor to purchase the loan. B-piece buyers are generally aggressive in their investment strategies and more open to risk-taking.18 The credit rating agency will continue to monitor the loan throughout its term. Counsel must understand rating agency methods and criteria, and advise their clients (e.g., waive due-on-sale of a large loan). Conclusion DON’T focus energy on only one state of the CMBS process. DO understand the entire life cycle of the loan to truly advocate zealously on behalf of your client in the CMBS process. 1 See Edwards L. Shugrue, III, CMBS – Party Like its 2007, How Deteriorating Credit Standards are Bringing Us Back to 2007, CRE Finance World, Winter 2013, at 22, available at http://www.crefc.org/ magazine/CRE_Finance_World_Winter_2013/index.html#/22/. 2 See Id. 3 See Cathy Bronkema, Financing – “The New Normal” Financing Commercial Real Estate in Today’s Capital Markets, available at http://www.michbar.org/realproperty/pdfs/SC_11_9_Financing.pdf. 4 See Gordon L. Gerson, Special-Purpose Bankruptcy-Remote Entities, http://www.gersonlaw.com/download/real-estate-finance/loan-origination closing/specialpurpose_bankruptcyremote_entities.pdf. 5 See Generally In re General Growth Properties, Inc., 409 B.R. 43 (Bankr. S.D.N.Y. 2009). 6 See Mark H. Richardson, “Guest Column: CMBS Loans and the Special Servicer – Resolving Defaults,” Commercial Property Executive, March 14, 2013, http://www.cpexecutive.com/guestcolumns/guest-columncmbs loans-and-the-special-servicer-resolving-defaults/. 7 See Standard & Poor’s, Structured Finance CMBS Property Evaluation Criteria (January 2004), at 19, available at http://pages.stern.nyu. edu/~igiddy/ABS/CMBS_Evaluation.pdf. 8 Federal Agencies Revise Proposed Securitization Risk Retention Rules, (September 10, 2013), at 1, http://www.stblaw.com/content/Publications/ pub1639.pdf. 9 See Donald N. Lamson & Gregg L. Rozanksy, Developments in Asset- Backed Securitization Since Dodd-Frank: An Assessment of the Regulatory Landscape, (August, 2011), http://www.shearman.com/ files/News/2a6d857a-045e-493c-8a8d-1af75f8f899f/Presentation/ NewsAttachment/e23b2a35-e6f0-4a67-9d4f-7de9d9cf1379/FIA- 083011-Developments-in-Asset-Backed-Securitization-Since-Dodd- Frank.pdf. 10 See Id. 11 See Federal Agencies Revised Proposed Securitization Risk Retention Rules, at 11. 12 See Structured Finance News, “Viewpoint: B-Piece Buyers in Gatekeeper Role Key to Reviving CMBS,” (December 17, 2010), http://www.structuredfinancenews.com/news/-214296-1.html. 13 See Lennine Occhino, Procedures for Obtaining ERISA Review in Securitization Transactions, http://www.securitization.net/knowledge/ legal/erisa_issues.asp. 14 See Id. 15 See Commercial Mortgage Securities Association, Position Paper, Subject: REMIC Reform, http://www.crefc.org/uploadedFiles/CMSA_ Site_Home/Government_Relations/CMSA_Issues/REMIC_Reform/ Position_Paper_REMIC_Reform.pdf. 16 See Generally, Gennady A. Gorel, Stewart McQueen, & Chris van Heerden, An Investors’ Guide to The Pooling and Servicing Agreement, http://www.google.com/url?sa=t&rct=j&q =&esrc=s&frm=1 &source=web&cd=2&ved= 0CDcQFjAB&url=http%3A%2F%2Fw ww.dechert.com%2Ffiles%2FPublication%2F1d980804-1044-4746- 858a-187bbe66d005%2FPresentation%2FPublicationAttachment %2F6833e68e-763a-4dde-8bc3-1ca51e4e6106%2FAn%2520Inv estor%25E2%2580%2599s%2520Guide%2520to%2520The%2 520Pooling%2520and%2520Servicing%2520Agreement%2520- %2520June%25202013.pdf&ei= BZVhUsrqBYOG9QShuIHIBw&u sg=AFQjCNHlIEXHGaAhjwMrFVX1aNh896nQEg&sig2=Vs416Gc Yb_HxYDJIOmbD0w&bvm=bv.54176721,d.eWU. 17 See Kenneth J. Cusick, Understanding CMBS: A Borrower’s Handbook, (December 2009), http://www.google.com/url?sa=t&rct=j&q =&esrc =s&frm=1&source=web&cd=15&ved= 0CFAQFjAEOAo&url=http%3 A%2F%2Fwww.cusickfinancial.com%2FBorrower’s%2520CMBS%25 20Handbook.pdf&ei=AX9UUuSiLY_Y8gTsoIHwDg&usg=AFQjCNEQa pHsrHJ6inq0suUQcHai8ldqdQ&sig2=zQOvitEMcEfymw1CwlI8Bw. 18 See Lai, at 10.
CRE Finance World, Winter 2014
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