How To Get Away With Murder in CMBS We will show a case study of an actual murder
Persons of Interest
Person of Interest Master Servicer Responsibility is to service the loans in the • pool through maturity, unless the Borrower defaults Manages the flow of payments and reserves • Responsible for collecting and analyzing • financials and property information Process Borrower requests related to • performing loans
Person of Interest Special Servicer Selected by the Controlling Class / B-piece • buyer Upon default the loan is transferred to the • Special Servicer. They have a responsibility to resolve all defaulted loans Has approval authority over material • servicing actions, such as loan assumptions Has a duty to the trust and is subject to the • servicing standard - to maximize the recovery to the bondholders
Person of Interest Controlling Class “CCR” Most subordinate bond class outstanding at • any given point Play an active role in monitoring the • performance of each loan, make decisions on key asset issues Appoint and/or terminate the special • servicer
Person of Interest Rating Agency(ies) Rate each securitization • Establish bond ratings for each bond class • at the time the securitization is closed Monitor the pool’s performance, • delinquency and potential loss and update the ratings for investors Any action that can potentially cause a • downgrade of any of the bond classes require Rating Agency approval Any action on the largest loan in the trust • frequently require Rating Agency approval
Person of Interest Bondholders Owners of loan holding rated bonds •
Person of Interest Borrower The entity that owns the Property •
Facts
The Loan • In 2006, Borrower got a $59 million loan on a class A office building worth $80 million • 79% loan to value • Main tenant was a reputable home builder • Loan was securitized in 2006 • Loan was one of the 10th largest loans in the pool
The Market • Market crash of 2008 • Until 2009, the property was nearly 100% occupied • In 2009, homebuilder company vacated the property, which left the property 60% vacant • Other tenants were requesting concessions and/or vacating • Loan transferred to Special Servicer in fall 2010
Property Value • Value of Property in 2010 was equal to $25 million • Down from $80 million in 2006
Crime Scene
The 1st Offer • Discounted Pay Off (DPO) $30 million 60 Day Closing All Cash
The 2nd Offer A Note = $30 million New Capital = $5 million B Note = $29 million
The 3rd Offer A Note = $35 million New Capital = $7 million B Note = $24 million
The Last Offer • Keep principal balance as is • Begin payments on of interest only, at a rate of 2% • Suspend monthly principal payments • Waive default interest and late charges • Borrower would pay re-tenanting costs and cover any debt service shortfalls out of own pocket
Foreclosure Occurred in Summer 2011
Today • Property is owned by CMBS trust • Disclosed anticipated losses to bondholders approximately $45 million, and increasing Property Not Sold Yet
Did a Murder Occur?
Who Dunnit?
Person of Interest Master Servicer
Person of Interest Special Servicer
Person of Interest Controlling Class “CCR”
Person of Interest Rating Agency(ies)
Person of Interest Bondholders
Person of Interest Borrower
1 st Service Solutions, Inc. (817) 756-7227 www.1stsss.com
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