News Archive

News

CREFC Publishes C-PACE Primer

January 9, 2025

The CRE Finance Council on January 9 published a comprehensive Commercial Property Assessed Clean Energy (CPACE) Primer to serve as a valuable resource for our members.

The Primer provides an in-depth overview of the key features, stakeholders, and market trends associated with C-PACE financing, one of the tools used to drive sustainability and resiliency in the CRE sector.

Key topics include:

  • Financing Mechanics: Understanding how C-PACE enables CRE owners to implement energy efficiency, renewable energy, and resiliency upgrades.
  • Stakeholder Roles: A breakdown of responsibilities for property owners, mortgage lenders, legal counsel, and program administrators.
  • Market Trends: Analysis of the growing C-PACE market, with over $7 billion in cumulative financing and nearly $2 billion in 2023 alone.
  • Important Considerations: Insights into underwriting concerns, lease implications, and compatibility with CMBS transactions.

Why it matters: As the CRE industry continues to prioritize sustainability, C-PACE financing is one avenue for property owners to enhance asset performance while meeting environmental and resiliency goals.

  • This Primer equips CREFC members with the insights needed to navigate and leverage this growing market segment effectively.

CREFC would like to thank the group of investors, bankers, rating agencies, lawyers, and lenders who contributed to the development of the Primer.

Please contact Sairah Burki (sburki@crefc.org) with questions.

Contact 

Sairah Burki
Managing Director, Head of Regulatory
Affairs & Sustainability
703.201.4294
sburki@crefc.org
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2025 CRE Finance Council. All rights reserved.
CREFC Publishes C-PACE Primer
January 09, 2025
The CRE Finance Council on January 9 published a comprehensive Commercial Property Assessed Clean Energy (CPACE) Primer to serve as a valuable resource for our members.

News

Treasury and FHFA Agree on Administrative Logistics for GSE Reform

January 7, 2025

The Treasury Department
and Federal Housing Finance Agency (FHFA) announced on Jan. 2 an agreement that would give Treasury the ability to block any proposal to remove Fannie Mae and Freddie Mac (the Enterprises) from conservatorship.

  • The agreement restores Treasury’s previous right to consent to a release of the GSEs from conservatorship.
  • Under a separate side letter from FHFA to Treasury, FHFA will solicit public input on the potential impacts on the housing market and the GSEs, before releasing the GSEs from conservatorship.
  • Additionally, Treasury will consult with the President prior to consenting to a release of the GSEs from conservatorship.

Many market participants believe that President-Elect Trump will prioritize removing the Enterprises from conservatorship.

  • This could be effected via either legislatively or administratively, with the FHFA declaring the Enterprises ready for exit.

What they’re saying: According to TD Cowen’s Jaret Seiberg:

We see this as an effort by the Democrats to ensure Donald Trump owns any negative outcome from ending the conservatorships of Fannie and Freddie as it deprives Team Trump from saying the independent regulator made the decision to proceed with recap and release.”

However, the Trump administration could amend or nullify this agreement. According to Jonathan McKernan, a commissioner at the Federal Deposit Insurance Commission (FDIC) and potential contender for new FHFA director, the agreement marked a:

“Bad day for financial stability and protecting taxpayers against bailouts . . . even if all easily reversed.”

What's next: CREFC will keep a close watch on developments related to GSE reform, ensuring that our members are able to comment on potential paths for an exit from conservatorship.

Contact Sairah Burki (sburki@crefc.org) or David McCarthy (dmccarthy@crefc.org) with questions.
 

Contact 

Sairah Burki
Managing Director, Head of Regulatory
Affairs & Sustainability
703.201.4294
sburki@crefc.org

David McCarthy
Managing Director, Chief Lobbyist, 
Head of Legislative Affairs
202.448.0855
dmccarthy@crefc.org
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2025 CRE Finance Council. All rights reserved.
Treasury and FHFA Agree on Administrative Logistics for GSE Reform
January 07, 2025
The Treasury Department and Federal Housing Finance Agency (FHFA) announced on Jan. 2 an agreement that would give Treasury the ability to block any proposal to remove Fannie Mae and Freddie Mac (the Enterprises) from conservatorship.

News

Capital Markets Update Week of 1/7

January 7, 2025

2024 Issuance Recap

N/A

 

  • Private-Label: 2024 CMBS and CRE CLO issuance totaled $112.8 billion, 145% ahead of the $46 billion in issuance for 2023 and 12% higher than the $100.5 billion in 2022.
  • Agency: 2024 Agency issuance totaled $124.1 billion, 3% higher than the $120 billion in 2023 and 24% lower than the $162.4 billion in 2022.

The Economy, the Fed, and Rates…

Economic Data

  • Initial Jobless Claims Show Labor Market Resilience: Initial jobless claims declined to 211,000 in late December 2024, reaching an eight-month low, signaling resilience despite the holiday-season volatility. Continuing claims, while trending higher earlier, also fell to a three-month low, indicating a less tight labor market but not one in distress. The unemployment rate stood at 4.2% in November, with December data due on January 10.
  • Manufacturing Activity Shows Mixed Signals: The ISM Manufacturing PMI rose to 49.3 in December, the highest level since March, though still indicating contraction. The improvement was driven by increased production and accelerating new orders, suggesting potential stabilization in the sector.
  • Mortgage Rates Approach Critical Level: Home mortgage rates approached 7% again, threatening to squeeze buyers. The average 30-year mortgage rate rose to 6.91% as of January 2, potentially exacerbating the ongoing "lock-in" effect in which homeowners with low-rate mortgages are reluctant to move.
  • Consumer Resilience through 2024: The economy defied expectations for a slowdown throughout 2024, with Bloomberg Economics estimating household outlays advanced 2.8% - faster than in 2023 and nearly double their projection at the start of the year. However, pandemic savings have largely been exhausted, and spending is increasingly driven by higher-income households benefiting from wealth effects in housing and stock markets.

Federal Reserve Policy

  • Fed Officials Signal Continued Vigilance: Despite three rate cuts in 2024 totaling 100 basis points, Fed officials emphasize the fight against inflation isn't complete. Core PCE inflation stands at 2.8%, still above the Fed's 2% target. Fed Governor Adriana Kugler stated explicitly:

"We are fully aware that we're not there yet... No one is popping Champagne anywhere - not close to us." 

  • Housing Inflation Remains Key Concern: Officials are particularly focused on housing inflation, which measured 4.8% year-over-year in November despite showing month-to-month improvement. The situation is complicated by what Kugler describes as the "unusual" dynamic of homeowners holding onto low-rate pandemic-era mortgages.

Treasury & Bond Markets

  • Treasury Yields Defy Rate Cut Impact: Despite three Fed rate cuts since September, the 10-year Treasury yield has climbed ~90 basis points since the initial easing move (ending 2024 at 4.57%). Market forecasts show divergence, with the median analyst prediction expecting yields to fall to 4.15% by end-2025, while market-implied forecasts suggest 4.67%.
  • Debt Sustainability Concerns Mount: The federal deficit reached $1.8 trillion (over 6% of GDP) in fiscal 2024, matching World War II-era debt-to-GDP levels. With nonpartisan CBO projections showing continued high deficits and potential additional tax cut costs under the incoming administration, analysts increasingly warn about risks to America's last remaining triple-A credit rating.
  • Tight Corporate Bond Spreads Persist: Corporate bond valuations have reached their most extreme levels, flashing their biggest warning in almost 30 years as an influx of money from pension fund managers and insurers boosts competition for assets. Spreads, the premium for buying corporate debt rather than safer government bonds, can remain low for a prolonged period, partly because fiscal deficits have made some sovereign debt less attractive. As Christian Hantel of Vontobel notes: 

"You could easily make a call that spreads are too tight, and you must go somewhere else, but that's only part of the story...When you look at history, there are a couple of periods when spreads stayed tight for quite some time. We are in such a regime at the moment."

You can download CREFC’s one-page MarketMetrics with statistics covering the economy and the CRE debt capital markets here.

Contact Raj Aidasani (raidasani@crefc.org) with any questions.
 

Contact  

Raj Aidasani
Managing Director, Research
646.884.7566

N/A
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2025 CRE Finance Council. All rights reserved.
Capital Markets Update Week of 1/7
January 07, 2025
Private-Label: 2024 CMBS and CRE CLO issuance totaled $112.8 billion, 145% ahead of the $46 billion in issuance for 2023 and 12% higher than the $100.5 billion in 2022.

News

On Again, Off Again: Corporate Transparency Act Cases 

January 7, 2025

A flurry of court decisions in late December once again left the Corporate Transparency Act (CTA) and the Beneficial Ownership Information (BOI) reporting requirements in limbo ahead of the January 2025 filing deadline for existing legal entities.

Why it matters: Amid the decisions, Treasury’s Financial Crimes Enforcement Network (FinCEN) has paused BOI reporting requirements. Click here for additional background on the litigation. The latest procedural history is summarized on FinCEN’s website below:

  • On Tuesday, Dec. 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., the U.S. District Court for the Eastern District of Texas, issued an order granting a nationwide preliminary injunction. The Treasury, via the Department of Justice, appealed that decision.
  • On Dec. 23, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction.
  • However, on Dec. 26, a different Fifth Circuit panel issued an order vacating the Court’s Dec. 23 order granting a stay of the preliminary injunction. On Dec. 31 the Department of Justice, on behalf of the Treasury, sought a stay of the injunction pending the ongoing appeal from the Supreme Court of the United States.
  • The injunction issued by the district court in Texas Top Cop Shop, Inc. is once again in effect.

What’s next: The Supreme Court is likely to have the final say on the preliminary injunction and the constitutionality of the CTA. But changes in Congress and the administration could alter course, as there is both bipartisan support and frustration with the CTA.

  • The original legislation was enacted in 2021 with broad bipartisan support as a measure to streamline BOI reporting and combat illicit finance. But FinCEN’s implementation has been rocky and delayed, adding to frustrations among some of the Act’s supporters.
  • The original year-end 2024 government funding bill, torpedoed by Elon Musk, contained a provision that would have extended the CTA compliance deadline. That extension was not included in the slimmed-down version of the bill.

Contact David McCarthy (dmccarthy@crefc.org) with questions.

Contact 

David McCarthy
Managing Director, Chief Lobbyist, 
Head of Legislative Affairs
202.448.0855
dmccarthy@crefc.org
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2025 CRE Finance Council. All rights reserved.
On Again, Off Again: Corporate Transparency Act Cases
January 07, 2025
A flurry of court decisions in late December once again left the Corporate Transparency Act (CTA) and the Beneficial Ownership Information (BOI) reporting requirements in limbo ahead of the January 2025 filing deadline for existing legal entities.

News

Congressional Outlook: Reconciliation Paths 

January 7, 2025

Senate Republicans officially took control of the chamber on Jan. 3, and House Republicans re-elected Speaker Mike Johnson (R-LA) on the first ballot after some initial internal sparring among Republican lawmakers.

Why it matters: With the speakership race out of the way, lawmakers now will chart key legislative priorities to address ahead of President-Elect Donald Trump’s inauguration on Jan. 20. Immigration, energy, and tax are the top priorities, and policymakers are jockeying on how to structure legislative vehicles amidst narrow congressional majorities.

What they’re saying: A key question is whether Republicans will move their top priorities in one or two reconciliation bills. Recall that reconciliation is a legislative process that allows the Senate to consider certain bills (tied to spending) with a simple majority rather than a 60-vote threshold.

  • The current plan points to one reconciliation bill encompassing tax, border, energy, and a debt ceiling increase. Part of the calculus is to craft a bill addressing key campaign promises and priorities to ensure Republican support.
  • Senate Majority Leader John Thune (R-SD) said late last year that Trump advisors and the Senate would move two reconciliation bills, first immigration/energy and then tax. House Ways and Means Chairman Jason Smith (R-MO) pushed back against the two bills, instead arguing for one bill encompassing all priorities.
  • Proponents of two bills argue that border/energy should go first for easy and early wins, while tax should be separate due to its complexities.
  • Trump has changed course on this posting Sunday for “one powerful bill,” but kept his option open for two bills in an interview on Monday morning.

The big picture: Both paths will be politically challenging in a narrow trifecta in which House Republicans can lose one or two votes at most.

  • Reconciliation processes involve complex legislative procedures where committees propose instructions on modifying federal inlays, outlays, and the debt limit.
  • Just reauthorizing expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA) will have budgetary costs in the trillions of dollars. But with additional priorities — including state and local tax (SALT) reform, lower corporate rates, and other tax cuts — the “cost” of the bill would increase.
  • The GOP is looking to cut some spending via reconciliation, but the politically palatable cuts are unlikely to approach anything close to the “cost” of the bill, which may be an issue for deficit hawks.
  • Tariffs will be part of the calculus, but Trump is likely to implement those outside of the legislative process using executive authority.

What’s next: Speaker Johnson has set an ambitious agenda with budget instructions passed in February with a House-passed bill by early April and the final legislation on Trump’s desk by the end of April. He acknowledged that the timeline may slip.

Contact David McCarthy (dmccarthy@crefc.org) with questions. 

Contact 

David McCarthy
Managing Director, Chief Lobbyist, 
Head of Legislative Affairs
202.448.0855
dmccarthy@crefc.org
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2025 CRE Finance Council. All rights reserved.
Congressional Outlook: Reconciliation Paths
January 07, 2025
Senate Republicans officially took control of the chamber on Jan. 3, and House Republicans re-elected Speaker Mike Johnson (R-LA) on the first ballot after some initial internal sparring among Republican lawmakers.

News

Forum Spotlight: Alternative Lenders and High Yield Investors

January 7, 2025

Samir Tejpaul (Chair), Samantha Rotchford (Chair-Elect) and Rachel Hunter-Goldman (Chair Elect) make up the Leadership Working Group for CREFC’s Alternative Lenders and High Yield Investors Forum. This working group sets agendas and priorities for the Forum and represents their constituencies on CREFC’s Policy Committee.

Why it matters: Each industry Forum addresses issues critical to their business sector and works to achieve solutions that serve a common purpose.

CREFC works closely with Forum leaders and members to:

  • Ensure all voices are heard,
  • Assist in finding consensus amidst disparate and converging views,
  • Share those views when appropriate with regulators and legislators, utilizing CREFC’s experienced Government Relations Team and our CEO Lisa Pendergast,
  • Develop new best practices and monitor old ones.

What they’re saying: There have been significant opportunities for high yield investors and alternative lending platforms, including bridge and mezzanine loans, preferred equity, and special/distressed situations.

By the numbers: Market trends that impacted this constituency last year include:

  • Floating rate coupons tightened ~160 basis points due to:
    • Spread compression of 50-75 basis points (depending on property type and quality)
    • One-month SOFR rate falling nearly 80 basis points
    • Participants expect further spread tightening amidst heightened investment-sales activity.
  • “De-bankification” accelerated in 2024 as bank balance sheet lenders remained on the sidelines:
    • Banks provided fewer direct loans and focused more on structured finance (repo / note-on-note / participations / syndications) due to better capital treatment.
    • For now, direct lending in the bank market is not expected to return to pre-COVID levels.
    • As long as that dynamic persists, alternative lenders will continue to gain market share.
  • The construction financing pipeline has slowed materially as buyers and sellers of land re-assess yield-on-cost (YoC) requirements to attract LP capital.
    • Student housing and data centers have filled the void, while industrial and multifamily development has slowed.
  • The bridge lending pipeline improved moderately with several construction loans originated between 2020-2023 nearing completion and requiring bridge financing for take-out.
    • Existing borrowers of bridge financing returned to the marketplace to source “bridge-to-bridge” financing vs. taking on fixed-rate debt as they awaited Fed rate cuts, the results of the presidential election, and any new policies from the incoming administration.
    • Competition in the “lower-yielding” and “lighter-transition” bridge space is robust, further driving down spreads going into 2025.

What’s Next?

  • Forum leaders will present an update on their Forum at the upcoming CREFC conference in Miami.
  • Planning is in full swing for CREFC’s High Yield, Distressed Assets & Servicing Conference on March 4, in New York.
  • Soon after, the chairs will seek nominations for the next Chair-Elect to join their leadership slate.

To join the Alternative Lenders and High Yield Investors Forum, please register here.

Contact Rohit Narayanan (RNarayanan@crefc.org) for Forum-related questions.

Contact 

Rohit Narayanan
Managing Director, Industry Initiatives
646.884.7569

Alternate Lenders and High Yield Investors Forum Leadership

Winter 2025

The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2025 CRE Finance Council. All rights reserved.
Forum Spotlight: Alternative Lenders and High Yield Investors
January 07, 2025
Samir Tejpaul (Chair), Samantha Rotchford (Chair-Elect) and Rachel Hunter-Goldman (Chair Elect) make up the Leadership Working Group for CREFC’s Alternative Lenders and High Yield Investors Forum.

News

Barr to Step Down As Fed Vice Chair for Supervision

January 7, 2025

The Federal Reserve announced on Jan. 6 that Michael Barr will step down from his position as Federal Reserve Board Vice Chair for Supervision, effective Feb. 28, 2025, or earlier if a successor is confirmed.

  • Appointed by Biden in 2022, Barr was expected to serve as Vice Chair until July 2026.
  • Of note and according to the Fed’s statement, Barr will continue to serve as a member of the Board of Governors (his term ends early 2032).

Why it matters: As one of the nation’s most influential financial regulators, including a key architect of the very controversial bank capital proposal, Barr has long been in the GOP’s crosshairs.

  • Trump and Senate Republicans have been investigating ways in which to demote Barr, which would be unprecedented and not without major legal hurdles.
  • In the Fed’s release, Barr stated:

“The risk of a dispute over the position could be a distraction from our mission. In the current environment, I've determined that I would be more effective in serving the American people from my role as governor."

What does this mean: Without Barr driving the Fed’s regulatory agenda, the future of key rulemaking, including proposed bank capital, liquidity, and long-term debt requirements, has become increasingly uncertain.

What they’re saying: Despite opposition to Barr’s policy activities over the past few years, Fed Chair Jay Powell’s post seems secure.

  • According to the Washington Post, Treausry Secretary nominee Scott Bessent “emphasized his belief that Fed Chair Jerome H. Powell should serve out his full term.”

What’s next: Potential Fed Vice Chair replacements could include current Fed governors Michelle Bowman and Christopher Waller, both of whom were appointed during Trump’s first term.

CREFC will closely cover this important transition given its significant implications for regulatory policy.

Please contact Sairah Burki (sburki@crefc.org) with questions. 
 

Contact 

Sairah Burki
Managing Director, Head of Regulatory
Affairs & Sustainability
703.201.4294
sburki@crefc.org
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2025 CRE Finance Council. All rights reserved.
Barr to Step Down As Fed Vice Chair for Supervision
January 07, 2025
The Federal Reserve announced on Jan. 6 that Michael Barr will step down from his position as Federal Reserve Board Vice Chair for Supervision, effective Feb. 28, 2025, or earlier if a successor is confirmed.

News

NCREIF and CREFC Release Third Quarter 2024 Debt Fund Aggregate Report 

January 2, 2025

We are pleased to provide you with the NCREIF/CREFC Open-End Debt Fund Aggregate Report for Third Quarter 2024. The full Membership Report is located in the CREFC Resource Center for CREFC Members only. This Snapshot Report is available to the public and also can be found on the CREFC website.

For any questions or suggestions and/or if you wish to become a debt fund contributor to the Aggregate, please contact Lisa Pendergast.

The NCREIF/CREFC Open-End Debt Fund Aggregate

The NCREIF/CREFC Open-End Debt Fund Aggregate is a fund-level aggregate comprising open-end funds that provide credit and financing to commercial real estate owners. This report will be issued in a draft “consultation” format for at least one year to obtain the appropriate level of industry feedback before it is rolled out as an official NCREIF/CREFC product.

About the NCREIF/CREFC Open-End Debt Fund Aggregate

  • Is a project by the industry for the industry that has been in the works for several years with input from NCREIF, CREFC and its members, and data contributing managers, investors, and consultants.
  • Is anticipated to be published quarterly. Results will never reveal individual fund performance.
  • Is NOT a BENCHMARK, yet, but is a major step toward the goal of creating a more focused index/benchmark of funds that meets certain investment inclusion criteria (which are to be determined)
  • Will enhance investors’ interest and understanding of the rewards and risks of private real estate debt funds, which may lead to increased allocations to debt, benefiting managers, investors, and commercial real estate finance industry professionals.
  • Contains funds with various strategies and styles ranging from core to value-add, as reported by the managers. The performance metric is a time-weighted return. The returns are equally weighted across the funds since the aggregate contains a few large funds that would dominate the results if it they were value weighted.
  • Furthers NCREIF’s and CREFC’s missions:
    • CREFC is the trade association for the commercial real estate finance industry. It promotes liquidity, transparency, and efficiency in the commercial real estate finance markets. It does this by developing benchmarks such as the NCREIF/CREFC Open End Debt Fund Aggregate, acting as a legislative and regulatory advocate for the industry, playing a vital role in setting market standards and best practices, and providing education for market participants. Member firms include balance sheet and securitized lenders, loan and bond investors, private equity firms, servicers, and rating agencies, among others.
    • NCREIF is a member-driven, not-for-profit association that improves private real estate investment industry knowledge by providing transparent and consistent data, performance measurement, analytics, standards, and education.

Fund Inclusion

Investment Managers must:

  • Offer an open-end debt fund product to institutional investors that includes predominantly private U.S. commercial and multifamily real estate debt. Specifically, 80% of total assets must be invested in private commercial and multifamily debt real estate.
  • Calculate quarterly net asset values and returns on a market-value basis.
  • Agree to submit all requested data and do so within the time frame required.

Funds included have different:

  • Structures, strategies, liquidity provisions, dividend, accounting, and valuation policies, all of which affect performance and comparability. As a result, this product is not a benchmark.

Contact 

Lisa Pendergast
Executive Director
646.884.7570

The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2025 CRE Finance Council. All rights reserved.
NCREIF and CREFC Release Third Quarter 2024 Debt Fund Aggregate Report
January 02, 2025
We are pleased to provide you with the NCREIF/CREFC Open-End Debt Fund Aggregate Report for Third Quarter 2024.

News

Reporting Guidance for CMBS Trust Holdbacks

December 26, 2024

Overview of Trust Termination Process and Need for Holdbacks

CMBS securitizations have been around for 30 years. The governing securitization servicing document, the Pooling and Servicing Agreement (collectively referred to as the PSA for CMBS conduit transactions, Trust and Servicing Agreement for SASB transactions, and Servicing Agreement for CRE CLO transactions), expressly includes mechanics for the winding down of a trust, but it does not specifically address how the transaction parties are protected from, and reimbursed for, ongoing or anticipated costs and expenses following such wind-down.

The transaction parties in a securitization are hired by the trust on behalf of the certificate holders and have the contractual right to be indemnified by the trust for certain costs, expenses, and liabilities related to each deal party’s actions on behalf of the trust. As a practical matter, the value of the indemnification to the transaction parties is limited to the assets and resources available to the securitization trust. As pool assets dwindle, the value of the indemnification protection afforded to the transaction parties erodes and participants become more exposed to loss.

The use of Holdback Amounts can arise at the disposition of one particular asset or through the final loan liquidation of the trust that may at the time contain more than one asset.

The trust typically unwinds in one of two ways:

  1. A natural pay down of the loan(s); or
  2. election by one of the designated parties to acquire the remaining loans (also called a “clean-up call” or “pool collapse”).

In a natural pay-down of a trust, all of the loans are paid off and the investors receive the distribution of funds via the full payoff of loans and/or through the proceeds returned from the resolution of defaulted loans. In a clean-up call or pool collapse, one of the designated parties to the PSA elects to terminate the trust by purchasing the remaining assets from the trust in accordance with the terms of the PSA.

Whether unwound via natural pay down or a clean-up call, once unwound, the trust will no longer have any assets but is likely to have trailing or contingent liabilities (including, but not limited to, final legal bills, vendor invoices, and ongoing or potential litigation costs). Such amounts are costs and expenses of the trust for which the transaction parties are not liable. It is established servicing standard practice to have transaction parties determine the appropriate Holdback Amounts and report accordingly to investors. 

CREFC IRP - Reporting Holdback Amounts to Investors

The current CREFC® IRP includes data fields to facilitate the reporting of Holdback Amounts to investors when it is tied to a specific loan liquidation. Specifically:

(1) [L116] (Amounts Held Back for Future Payment)

This scenario is typically seen when there are trailing expenses or potential litigation expenses tied directly to the asset being liquidated. The responsible transaction party (master servicer or trustee, as applicable) will report any Holdback Amount under this scenario per the CREFC® IRP for the reporting cycle during which the Holdback Amount was established. Reporting guidelines dictate that the loan level information is not reported in subsequent reporting cycles. As such, the remaining balance should be addressed in the annual deal-level reserve reporting.

At the unwinding of the trust, the transaction parties will incur certain expenses to effectuate the closing of the trust and associated accounts. Typically, these expenses are not significant and are resolved within the 12 months following liquidation of the final asset in the trust. Any remaining funds from the holdback are remitted to the Certificate Administrator for further remittance to certificateholders. There is no currently required additional reporting for these transaction-level Holdback Amounts other than the normal remittance process with the Certificate Administrator.

Due to the sensitive nature of disclosing the amount of estimated litigation exposure or potential settlement amounts, such information would likely constitute privileged information pursuant to the PSA, which generally is not shared with certificate holders or other transaction parties because the disclosure of that information could significantly compromise the trust’s position in litigation and related settlement discussions and also could increase overall trust losses. Inappropriate disclosure has the potential to undermine litigation defenses to the detriment of transaction parties, as well as certificate holders.


Considerations for Holdback Amounts Post-Wind-Down

Once a trust is wound down, there typically has been no additional reporting to investors required under the governing transaction documents. Alternatively, if a trust is wound down but there are material Holdback Amounts, market participants are asking that the transaction party holding such Holdback Amounts provide a deal notice identifying the Holdback Amount to the Certificate Administrator to be posted on the Certificate Administrator’s website and that any additional or outstanding Holdback Amounts after the trust has wound down should be updated, provided to the Certificate Administrator, and posted on the Certificate Administrator’s website on an annual basis until such Holdback Amounts are fully liquidated or disbursed. Such additional reporting would provide transaction parties and investors with heightened transparency regarding material Holdback Amounts, notwithstanding the fact that the trust no longer holds mortgage loan assets or REO property. The CREFC® IRP committee is working on future reporting templates. In the interim it is suggested that the Master Servicer annually provides notice to shareholders of holdbacks in excess of $1,000,000.

Please contact Rohit Narayanan (RNarayanan@crefc.org) with any questions.

 

Contact 

Rohit Narayanan
Managing Director, Industry Initiatives
646.884.7569

The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2024 CRE Finance Council. All rights reserved.
Reporting Guidance for CMBS Trust Holdbacks
December 26, 2024
Read for reporting guidance for CMBS Trust Holdbacks.

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