Real Estate Journal — Owners, Developers & Managers — November 27 - December 10, 2015 — 3B
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O wners , D evelopers &M anagers By David Goldfisher, The Henley Group, Inc. Current Value vs. Future Value – DoSpecial ServicersDistinguish?
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to invest in the property while paying on the A note. Interest accrues on the B note but typi- cally no interest or principal is paid current. Upon a sale or refinance of the property, the Borrower shares in the build- ing’s appreciation via a pre- determined waterfall. A discounted pay-off is an- other strategy used to reduce the loan’s current principal amount. Although all of the Special Servicers can and will utilize this resolution method, the discounted pay-off is more commonly employed by only continued on page 24B
orrowers and Lenders are busy dealing with 10-year CMBS loans
modeling multiple value sce- narios and crafting realistic business proposals, the more seasoned restructuring firms can best position the Borrower to tackle negotiations and re- solve loan differences. If your property’s value is lower than the current appraised Servicer’s value and must be adjusted downward to reflect current value and you are willing to invest in your property, restruc- turing is a worthwhile option. One effective restructure op- tion often considered by two of the big three Servicers is an A/B note. The Borrower is incented
maturing be- tween 2015 a n d 2 0 1 7 . Lenders need to make snap decisions on whi ch Bor - rowers keep their proper- ty and which
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Borrowers lose their property. The Borrower’s window to influ- ence the Servicer in a favorable direction is tight and can close in the blink of an eye. Lenders are prepared and well-equipped to foreclose on virtually any asset – even with the Servicer’s general indiffer- ence as to whether a loan is restructured with the Borrower, sold in a note sale or taken into REO, the Borrower often has the first opportunity to negoti- ate with the Servicer and sub- mit a modification request or a restructure plan. The Lender’s first step is rarely to foreclose without having a conversation with the Borrower unless the Borrower will not sign the Pre- Negotiation Authorization or is non-responsive. So, if you find yourself unable to pay-off your loan at maturity with the new refinancing pro- ceeds secured by your mortgage banker or suspect this may be the case, intensely scrutinize the present and future value of your property. Make a realistic determination of the capital commitment the project re- quires in conjunction with the amount of capital you are will- ing and able to invest. Multiple variables come into play during a Servicer nego- tiation, but “Value” is the key driver to negotiating a fair resolution. No Lender is going to discount or bifurcate a loan into an A/B note and potentially take a Loss if the Borrower isn’t willing to re-invest in the asset. As a Servicer Negotiator for the last eight years, The Hen- ley Group, Inc. has identified specific resolution strategies employed by the three-major Special Servicers (LNR, C-III Asset Management and CW Capital). The Henley Group uses these metrics to make bet- ter predictions in determining the Property’s Value and know- ing where the deal will transact. By knowing the Servicer’s protocol, analyzing current and historical resolution strategies, tracking live loan pool status,
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