8A — March 13 - 26, 2015 — M id A tlantic

Real Estate Journal


F inancial D igest By David Goldfisher, The Henley Group, Inc. “Catch the wave”—Timing is key in CMBS loan workouts

D uring the next three years, a little more than $1 trillion in com-

which originated from 2005 through 2007. While memories can be somewhat short in our industry, most will agree that these CMBS loan vintages are arguably among the most ag- gressively structured and un- derwritten commercial mort- gages currently outstanding. In general, while properties within primary markets may be positioned to obtain viable takeout financing, given to- day’s underwriting guidelines and lower values, many other assets will struggle to be refi- nanced. The extent to which they struggle is dependent

on many factors not directly within a borrower’s control. However, one very important

loans representing record low levels. This is down from the 2012 peak of 10.3% or about

were healthy years for a prop- erty owner needing to borrow money in the capital markets. Projected CMBS volume for 2015 is estimated to be ap- proximately $125 to $130 bil- lion. Given today’s very low CMBS default rate, why would a CMBS Borrower be focused on a loan restructure? The tide is rising — Based on The Henley Group ’s re- search, 17% of all CMBS loans are either on the Servicer’s watch list or already trans- ferred to the Special Servicer. We believe the percentage will likely increase in the following three years. The upcoming 2015-2017 loan maturities, which comprise 2.5 times the loan volume that matured from 2012 to 2014, appear to already be taking a toll in markets that have not economically rebounded to the levels of 10 years ago. Many property own- ers with overleveraged loans are finding it difficult to justify expending capital for lease-up costs or deferred maintenance or even for persistent monthly debt service shortfalls. Frankly, if there is little chance of refinancing their current loan in any economi- cally reasonable fashion, mak- ing significant contributions to the property makes little sense, especially given the non-recourse nature of CMBS debt. While handing the Servicer the keys is always an option, due to tax consequences, reputa- tion concerns, and economic incentives, a modification or restructure of the current loan may yield a much more advan- tageous result for the Owner. Riding “the wave” to suc- cessful resolution —Owners should not procrastinate – the sooner the Owner begins the dialogue towards a resolution, the higher the probability of successfully retaining the property. The Henley Group, a CMBS loan workout specialist, has tracked data on the $1.5 billion in loan workouts that they have advised on since 2009. To view the results, visit (www.thehenleygroup. com/the-henley-group-risk-paradigm). Approximately two-thirds of the properties where the Owner was either “Proactive” or “Active” in dealing with is- sues resulted in a Borrower favored resolution. David Goldfisher is a co- founder and principal of The Henley Group. n

mercial mort- gages will be maturing. In and of itself, the sheer vol- ume of this tidal wave of ma t u r i t i e s will be a chal- l e n g e f o r lenders to

“Owners should not procrastinate – the sooner the Owner begins the dialogue towards a resolution, the higher the probability of successfully retaining the property.”

aspect is firmly within the bor- rower’s grasp. As in surfing, a key factor to successfully catching a wave is timing. CMBS loan restructures ebbing low — Currently, the CMBS delinquency rate is about 5.66%, comprising approximately $29.9 billion in

$60 billion. The number of loans more than 60+ days past due has dropped steadily from 2012 as many primary mar- kets have rebounded. CMBS issuance in 2014 was $105 billion vs. $86.1 billion in 2013 and $48.6 billion in 2012. By all accounts 2013 and 2014

David Goldfisher

digest. More significantly, ap- proximately one-third (~$350 billion) of these mortgages are CMBS loans, the majority of

Credit Company/ Portfolio Lender $10,500,000 Suburban Office FORBEARANCE AGREEMENT

Floating Rate CMBS Loan

$35,000,000 Regional Shopping Mall LOAN EXTENSION

With option for 50% Discounted Payoff

Fixed Rate CMBS Loan $12,000,000 Supermarket Anchored Retail DISCOUNTED PAYOFF - 36% PRINCIPAL REDUCTION

Fixed Rate CMBS Loan $16,000,000 Office DISCOUNTED PAYOFF

Loan Write-Down exceeded 50%

No Default

O: 508-318-6520 M: 617-320-0284 david@thehenleygroup.com www.thehenleygroup.com

David Goldfisher The Henley Group, Inc.

Workout Advisory for CMBS Loans

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