free Webinar THE SECRET TO SUCCESSFULLY RESTRUCTURING OR DELEVERAGING YOUR CMBS LOAN
PRESENTED BY: Commercial Real Estate Advisors Commercial real estate is no longer a relationship business. Ann Hambly Owners often don’t have access to, or even know who the decision President & CEO makers are on their loans. We provide advice and solutions for anything ranging from the addition or removal of collateral on an 1st Service Solutions existing CMBS loan, to the most complex loan restructure for all loan types, nationwide. We create a strategy for the owner based on their specific objectives, including avoiding or delaying tax consequences and blend that with the expectations/requirements of the particular Lender/Special Servicer. 2
CMBS STRUCTURE
PARTIES IN A CMBS STRUCTURE 4
EFFECT OF LOSSES ON SPECIAL SERVICERS Current CCR appoints special servicer • Losses hit lowest tranches of bonds first • As losses wipe out a class of bondholder, CCR changes • Original Face Current Amount of Example Losses Amount of Bond Bond $100 pool AAA 50 — 50 20 AA 20 — 5 (CCR) A 10 5 BBB 10 10 0 6 B 6 0 UR 4 (CCR) 4 0 5
SPECIAL SERVICER
SERVICING STANDARDS “Maximize return to all bondholders regardless of the special servicer’s own interest based on a net present value of all options available” Options: Borrowers modification • Foreclose and sell immediately • Foreclose and sell within 3 years • 7
MODIFY OR FORECLOSE What Factors into the Special Servicer’s Decision to Modify or Foreclose? Current value of the property – LTV • Remaining term of the loan • Will value recover to appropriate LTV by maturity date • NPV of the foreclosure alternative • Length of time to foreclose • Cash flow versus advances • Other considerations and costs • 8
FMVPO Fair Market Value Purchase Option Gives the CCR the right to buy a defaulted note out of • the pool 9
SPECIAL SERVICER DRIVERS What Matters to an Owner What Matters to the Special Servicer Property Repositioning REMIC Rules Remain in Control Liability to the Senior Bond Holders Return of Investment The Status of their Bond Investment Minimal Investment to Return to Performing NPV of all Options Available to them FMVPO 10
CMBS MODIFICATION HISTORY
MODIFICATION VS. LIQUIDATION Modification Loan stays in place • No loss to bondholders • Liquidation Loan is “removed” from pool • Loss to bondholders • 12
PERCENT CMBS UNIVERSE WITH MODIFICATION 13
A VERAGE MONTHLY MODIFICATIONS: Modifications per month: 2011 = 48 • 2012 = 32 • 2013 = 24 • 2014 = 7 • 2015 = 4 • 14
2014 LIQUIDATIONS 2014 MODIFICATIONS Original Original Balance Modifications Loan Count Resolution Type Loan Count Balance ($Mil.) ($Mil.) Combination 44 2,181.8 DPO 47 1,086.9 Maturity Extension 10 230.4 Paid in Full 8 35 Other 17 250.3 Note Sale 108 1,947.7 Amortization Change 8 65.4 REO Liquidation 314 5,714.9 Writedown 1 12 Total 79 2,727.9 Foreclosure 9 63.4 Repaid (Loss of Hope Note) 15 1,145.3 Total 502 10,005.2 15
BASIC KINDS OF MODIFICATIONS (RESTRUCTURES)
BASIC TYPES OF RESTRUCTURES Payment Modification • Debt amount stays the same • Debt Deferral • Debt Forgiveness • Maturity Date Extension • Note Sale / FMVPO • 17
PAYMENT MODIFICATION Reduction of payment alone • Typically for properties not • under water Maturity extension can be • granted Reserves • Amortization • Interest • Principal • Taxes & Insurance • 18
DEBT DEFERRAL Property under water today • Some or all of value will be recovered by maturity date or • extended maturity date A/B Structure • 19
SAMPLE OF A/B STRUCTURE (DEBT DEFERRAL) A = (as is) Appraisal Amount • Payments made on A note can be I/O or amortizing • Also can be reduced interest rate • Capital = Borrower (or capital partner) provides TI-LC and all • capital needs New capital can earn pref • B Note = Hope Note • Difference between A note and total loan • Maturity date can be extended • 20
LIQUIDATION EVENT Sale or refinance 1. A note payoff 2. Capital + Pref 3. Split of remainder until B note is paid off 4. Remainder of B note is written off 21
DEBT FORGIVENESS Property is under water today • Little to no value will be recovered by maturity date • Can be executed through: • Short sale • Note sale • Discounted payoff • FMVPO • Borrowers can partner with FMVPO buyers • 22
MATURITY DATE EXTENSION Performing loans only • Borrower must make pay down at time of extension • (Typically 10%) Cost = 1% per 12 month extension • All PSA’s have outside date for extensions • (Typically 2 - 3 years) 23
APPRAISALS
ARA (APPRAISAL REDUCTION ACT) What is it Proxy for expected losses to bondholders • Basic formula – • principal balance of loan + trust expenses and advances - Appraisal Amount = ARA What it is NOT The amount the special servicer will do a deal for • 25
OWNERS
WHAT A BORROWER NEEDS TO KNOW TO MODIFY THEIR LOAN Who the special servicer and the CCR are • What the particular special servicer will entertain based on: • Location of property • Size of loan • Maturity date • Current value of property • Their affiliate companies • What the NPV of the other options available to the special servicer are, including • advancing obligations How to present the request to increase the odds of acceptance • How to keep the negotiation progressing even though it is one sided • What the various requests made by the special servicer mean • 27
TOP 10 MUST HA VES 1. Know where the value of your property is today 2. Have a clear plan for the near-term and long-term of your property 3. Have new capital to put to use 4. Understand who you are negotiating with 5. Understand what their motivations are 6. Have a clear exit plan 7. Submit a clear, comprehensive road map of the value creation for your property 8. Be transparent 9. Be prepared to remit all your net cash flow throughout the process 10. Patience 28
UPCOMING WEBINARS 2016 Series - EMPOWERING COMMERCIAL REAL ESTATE OWNERS WHO HAVE CMBS LOANS March 16th - WHY OIL AND CMBS LOANS DON’T MIX • April 20th - HOW TO MODIFY A PERFORMING CMBS LOAN • June 15th - THE STARTLING DIFFERENCES BETWEEN CMBS 1.0, • 2.0 AND 3.0 1stsss.com/webinar/ 29
CONTACT 1 st Service Solutions, Inc. (817) 756-7227 1stsss.com Upcoming Webinars 1stsss.com/webinar/
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