Commercial Property Executive: CMBS Deals Continue in Face of Uncertainty

In addition to the overwhelming number of problem hotel and retail loans in the special servicing pipeline, the inability to price assets is contributing to a delay in loan sales and discounted payoffs, said Shlomo Chopp, managing partner with Case Property Services, a New York-based real estate advisory that specializes in restructurings and turnarounds.

But as special servicers get a grasp on the backlog of work, he predicts that the process to resolve the troubled loans will happen quickly because of changes made to CMBS rules following the financial crisis. Back then, borrowers could try to prevent foreclosures through litigation. Today such an action is covered under “bad boy” provisions and will trigger recourse. Ultimately such a measure could dampen the prospect for widespread loan modifications.

“To deal with these problems last time, we would litigate with the lenders and drag things out for a year until we got a new appraisal, and then we would educate the lender and appraiser on the issues of the property,” explained Chopp, who is also managing partner for investment management firm Case Equity Partners. “But borrowers can’t do that now, and we’re going to see an inordinate number of people losing their properties.”