Mid Atlantic Real Estate Journal — November 9 - 22, 2012 — 15A


L enders D irectory

he commercial mort- gage-backed securities (CMBS) office sector By David Goldfisher, The Henley Group CMBS Office Loans: Owners may be unable to control the rising tide of national office vacancy T

peak leases rolling to lower market rates and 5) the dis- parity in re-tenanting costs vis-à-vis attainable rents. CBRE reports that “rents are currently about where they were in 2002” Office owners may be un- able to control the rising tide of national office vacancy rates, but with some advance planning they may better ar- ticulate their own reposition- ing strategy to their CMBS loan servicer. In 2011, a mid-Atlantic

suburban office building lost approximately 60% of its ten- ant base and the debt service coverage dropped to 0.25x. As in most secondary mar- kets, tenants were scarce. The servicer became aware of the poor market conditions and executed on a forbear- ance agreement with a built in 50% discounted payoff op- tion. By the time the forbear- ance agreement expired, the borrower had bought almost 12 free months to canvas the tenant market. CMBS office borrowers

should test the potential tenant market in advance of loan maturation and deter- mine the viability of acquir- ing tenants within the next 12 to 24 months. Market activity may inspire a high- er NPV offer to your asset manager. Lack of activity may influence a lower NPV offer and better prepare you should the Lender embark on the foreclosure route. Borrowers who have lost tenants but have confidence in their market prospects should likely pursue a basis

reduction with the servicer immediately. Office rents are not rising swiftly enough to counterbalance the TI/LC expenses demanded by new tenants. With a reset basis via a DPO or A/B note, bor- rowers can attract new ten- ants at prevailing market rents, stabilize their proper- ties NOI, meet debt service payments and preserve their future asset appreciation. David Goldf isher is founder of the Henley Group. n

c o n t i nue s to struggle and is ex- hibiting the worst per- formance of all the ma- jor property types. The delinquency

David Goldfisher

rate, according to Larry Kay’s recent Standard and Poor’s report, is at a record high for CMBS office loans as of the first half of 2012. Net operating incomes (NOI) have declined for more than half of the fixed-rate CMBS office collateral that had ser- vicer reported 2010 and 2011 financial information. Major urban markets like NewYork City and LosAnge- les may account for 20% and 10%, respectively, of the total unpaid office principal bal- ances, but have significantly lower delinquency rates than secondary and tertiary mar- kets. Without NYC’s paltry 1.16% delinquency rate, the office credit metrics would look significantly worse. Properties in secondary and tertiary markets account for almost two-thirds of the CMBS office collateral by principal balance and are experiencing the largest NOI declines. With 44% of all office prop- erties on the Master Ser- vicer’s watch list (Morning- star) it comes as no surprise that we are seeing Servicers “kick the can/pretending and extending” on certain large loans and delaying the fore- closure of assets. We believe the “large loanmodifications” and “low liquidation activ- ity” are direct results of the Servicer’s desire to stave off immediate pool losses, collect fee income, and standby their belief that property valua- tions will climb over the next few years. Office vacancies are pro- jected to stay at the 15% mark or increase through 2015 given: 1) the tepid de- mand for space resulting from the protracted weak job market 2) unabsorbed shadow space 3) changing de- mographics of younger work- ers willing to work in smaller and more mobile quarters 4)

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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