Mart Martindale, senior director with Cushman & Wakefield of Texas Inc. brokered the transaction between the special servicer that the asset at 9655 Chimney Hill Lane and the local buyer. He tells GlobeSt.com that what he, the buyer and the special servicer encountered in trying to assume the Credit Suisse CMBS loan told him that, in the end, such an assumption may not be worth the hassle.

The $11.9 million loan was on the asset in 2006 by owner Jungel Bumi Ltd. of Houston, a partnership owned by CNC Investments. Three years later, the asset was in receivership, with a special servicer gaining control of management. The next step, Martindale remarks, was to put the complex on the market, which happened in March 2009.

"We put our heads together and decided it would be best to keep the loan alive, especially because of the lack of debt out there. We'd heard about the CMBS loan modifications, but as far as we knew, and as far as the special servicer knew, nothing at the time had been approved to transact something like that," says Martindale, who partnered with C&W colleague Lamont Rattler on the transaction.

After receiving 16 offers on the asset – half of the bidders wanted to foreclose on the note, while half were willing to keep the loan alive – the deal was awarded in May 2009 to the local buyer, which was willing to pay $5.2 million for the loan.

However, the CMBS modification required that approval be obtained from the B-piece holder. At the time, Martindale explains, the complex's asset manager was in the middle of encouraging the B-piece holder's approval to modify and transfer the loan. This was the second approval sought from the B-piece holder. The first approval had been sought when it was decided to keep the loan alive rather than foreclose on the asset.

When the B-piece holder approved the assumption some months later, in August 2009, it was time to close on the asset. "We went to the closing table to get it done, but then the buyer took a look at the paperwork," he continues. "He said he wanted to change this and that, and wanted this out of the loan document." In a standard bank loan, such changes wouldn't be an issue and could be completed quickly, Martindale comments. But "this was a CMBS loan," he says. "it wasn't that simple."

People who have money to buy today didn't get mixed up in the debt conditions of 2005-2007, he goes on to explain, meaning they aren't familiar with how the CMBS operates or its nuances. On the surface, CMBS debt looks good and would be a no-brainer for assumption. But in reading the fine print, the buyer finds that "the debt doesn't look attractive at all," Martindale says.

The buyer, which was still interested in the property, decided in September 2009 to purchase the note and foreclose. This time, the B-piece holder had to approve the note sale. But this time, the B-piece holder got cold feet.

The end result was more delay, with final approval coming down in mid-February, 2010. Closing took place in early March, but not as a note purchase. "When we were about to sell the note, the buyer panicked, because he was afraid the existing borrower would file for bankruptcy. We decided to foreclose on it instead," Martindale says. Following foreclosure, the buyer acquired the 40% occupied asset.

Experts these days are touting CMBS assumptions as a way to buy assets. However, Martindale points out that some buyers don't want the CMBS debt because of its constraints. "Once you're in it, it's hard to get out of," says Martindale, who is currently working on two assets in Tulsa also involving CMBS assumptions. These deals have been in the system for nine months so far, with no end in sight.

Does this mean potential buyers shouldn't bother to deal with CMBS modifications? Martindale acknowledges there are certain situations in which CMBS assumptions might work. For instance, if a buyer is planning a long-term hold and there are some years left on the loan, it could work.

In the case of Forest Estates, however, the buyer was interested in rehabbing and refinancing in about a year's time. "They can't do that if they're locked into a CMBS loan that expires in 2015," Martindale remarks. "Anyone wanting to get in and out as far as buying, rehabbing and selling, or buying rehabbing and refinancing would be best advised not to go with CMBS assumptions."