Mart Martindale, senior director with Cushman & Wakefield ofTexas Inc. brokered the transaction between the special servicerthat the asset at 9655 Chimney Hill Lane and the local buyer. Hetells GlobeSt.com that what he, the buyer and the special servicerencountered in trying to assume the Credit Suisse CMBS loan toldhim that, in the end, such an assumption may not be worth thehassle.

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The $11.9 million loan was on the asset in 2006 by owner JungelBumi Ltd. of Houston, a partnership owned by CNC Investments. Threeyears later, the asset was in receivership, with a special servicergaining control of management. The next step, Martindale remarks,was to put the complex on the market, which happened in March2009.

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

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

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

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

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

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

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The end result was more delay, with final approval coming downin mid-February, 2010. Closing took place in early March, but notas a note purchase. "When we were about to sell the note, the buyerpanicked, because he was afraid the existing borrower would filefor bankruptcy. We decided to foreclose on it instead," Martindalesays. Following foreclosure, the buyer acquired the 40% occupiedasset.

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Experts these days are touting CMBS assumptions as a way to buyassets. However, Martindale points out that some buyers don't wantthe CMBS debt because of its constraints. "Once you're in it, it'shard to get out of," says Martindale, who is currently working ontwo assets in Tulsa also involving CMBS assumptions. These dealshave been in the system for nine months so far, with no end insight.

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

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

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