Impending CMBS Loan Maturities Should have Borrowers Preparing to Avoid Crisis According to November ABI Journal Article
Alexandria, Va. — The looming maturity of large numbers of commercial mortgage-backed securities (CMBS) is a signal to borrowers and professionals involved in commercial loans to be prepared for a potential crisis, according to the November edition of the ABI Journal. “Borrowers and their professionals should be acting prior to the maturity or default of the loan and seeking out solutions in anticipation of crisis,” Brian G. Rich writes in his article, “Maturing CMBS Loans: A Looming Crisis, or Nothing to Worry About?” CMBS loans account for approximately 25 percent or more of the U.S. commercial real estate debt market, according to Rich. “Numerous reports and studies indicate that there will be a wave of CMBS loan maturities in the next two to five years,” Rich writes. “A significant number of CMBS loans securitized during 2005-07 will be maturing in 2015-17.” As an example, Rich said that a developer with a completed project that was financed by a CMBS loan, and has managed to weather the economic storm that many believed to have passed, may still be at risk of losing its asset. “This might seem counterintuitive at a time when many borrowers/lenders are seeing numerous CMBS loan opportunities for new projects, but underwriting requirements are being significantly tightened as compared to pre-crisis standards,” Rich writes. He added that many of these loans will not qualify for refinancing without a significant capital contribution from the borrowers, largely because the property values securing the loans have declined, drastically lowering the loan-to-value ratios and making refinancing difficult. While the best option to borrowers would be to pay off the loans upon maturity, Rich writes that this is not viable as many borrowers lack sufficient capital to satisfy the loans, and an asset sale is out of the question due to the drastic declines in property values. According to Rich, a few options presented to struggling commercial loan borrowers include: • negotiating a loan modification; • negotiating a deed-in-lieu of foreclosure; • short sale (with the CMBS servicer’s approval); or • chapter 11 filing. Given that each option presents its own reward and risk, Rich warns that borrowers and their financial professionals should weigh each option carefully in advance. “Borrowers and their professionals need to be prepared for the prospect that these loans, based on the restrictions in the PSA [pooling and servicing agreement], the reduced collateral valuations and the likely inability to easily refinance, may not simply move into renewed loans on the same terms and conditions,” Rich writes. “Past experience has demonstrated that there will be viable strategies for dealing with these CMBS loans.” To obtain a copy of “Maturing CMBS Loans: A Looming Crisis, or Nothing to Worry About?,” published in the November issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at [email protected] ### ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.
Monday, November 10, 2014