Jersey City skyline

JERSEY CITY, NJ-From his home office in Brooklyn, commercial mortgage brokerage securities analyst Shlomo Chopp looks at CMBS loan statistics for New Jersey, and tells about some worrisome numbers:

  • There are 248 loans on the servicers “watch list,” out of a total of 957 CMBS loans originated between 2005 and 2009.
  • There are 68 more loans for which borrowers are more than 90 days behind on payments.

But that’s not even the half of the problem, says Chopp, managing director of Case Property Services, a company specializing in CMBS loan workouts.

This is what he says is “particularly disturbing”: Right now 400 of the New Jersey CMBS loans are for properties that would have difficulty qualifying for a refinance. Changed banking regulations and procedures – and declining property values – have changed the situation of the properties so that the debt service coverage ratio is less than what is required for a new loan.

“Given that, borrowers must be proactive in increasing their properties’ cash flow, or decreasing their debt burden, where necessary,” says Chopp.

Many of the mortgage-holders are not aware of their altered situations, he points out, because their existing loans were bundled into securities that are collateralized by all the properties in the bundle.  When they attempt to refinance, they will find the situation of their individual property may well be entirely different, he says.

“We have found there to be a significant learning curve on this front,” Chopp says.  “Many of the people that have these types of properties are also not aware that there are services such as ours that can work with them and help them work it out.”

In a recent blog giving tips to CMBS borrowers, Chopp notes that many believe they cannot work with the trust handling their securitized loan until the loan is in default. In fact, he says, servicers must only concede that default is likely before work can begin.

In addition, he advises that delaying a workout can result in higher fees later, and even loss of a property.

“If your property is not cash-flowing or if it doesn’t seem like you’ll be able to recover any additional capital that you are investing into the property,” Chopp says, “chances are that you should explore a potential workout, even if you are not prepared to default. By waiting too long you lose significant leverage, put yourself at risk of paying lender and bank fees, and start the ticking clock to foreclosure.