October 16, 2020
To cut a long story short, 2020 got in the way of what market participants anticipated in January would be a record year for commercial/multifamily originations. By March, those expectations were lowered as production teams shifted to assisting with portfolio management tasks in a marketplace which, in some respects, shut down with the economy.
The Mortgage Bankers Association’s daily MBA Newslink publication recently interviewed senior professionals from a credit rating agency and highly rated servicers to get their perspective on forbearance, loan workouts and portfolio management challenges for agency and non-agency CMBS amid a very changed environment. Excerpts from their observations appear below:
Alex Killick, head of CWCapital’s special servicing business: “The big change brought about by COVID-19 is that we are much more focused on property-level expenses, accounts payable and critical items such as payroll/utilities. While we have dealt with abandoned or closed assets in the past, it has never been this widespread. We are finding that a good barometer of whether a forbearance/workout can get done is whether property payables/expenses are being kept under control while the loan is in default. If borrowers are not willing/able to cover operating expenses, and aged payables grow while the loan is in default, then this is a strong indicator that we will end up on the remedies track.”
Gina Sullivan, SVP of KeyBank Real Estate capital’s loan servicing and asset management division: “Unfortunately, the pandemic spared no geographic location or property. Most properties, regardless of type, were impacted in some way. Beginning in March, we started to receive a high volume of debt relief and loan modification inquiries.
“Initially, the unknown of the impact of a pandemic across different industries contributed to the high volume of inquiries. Borrowers sought to understand the pandemic’s implications to their properties and tenants as shutdowns commenced and unemployment numbers accelerated. Questions around the government stimulus packages and regulations pertaining to owners and landlords’ operational processes also increased anxiety. Hospitality properties have suffered the most as the travel industry was hit hard from the beginning, with retail following closely behind.”
Adam Fox, senior director in Fitch Ratings’ U.S. CMBS group: “Beginning in March all servicers began to see a large influx of requests from borrowers for debt relief across all lending products. North American servicers responded by reallocating existing staff and, to a lesser extent, hiring new staff to increase resources to customer service to deal with the record levels of increased requests.
“In some cases, servicers tried to programmatically resolve loans using standardized approaches; however, commercial real estate assets are idiosyncratic operating businesses, so debt relief or loan workouts ultimately need to be tailored to the individual property and loan sponsor. As a result, we’ve also seen special servicers increase their ranks of asset managers, again largely pulling experienced workout talent from other business lines, in order to analyze each loan individually and identify the best workout or debt relief plan.”
For comments, questions or concerns, please contact Paul Bubny