Smoothing Out the Rocky Road to a CMBS Restructuring

(This is the first in a series of three GlobeSt.com webinars sponsored by R.W. Kline Cos. You can listen to the first one for free here. A second one, on workouts, is scheduled for Aug. 30, while a third will run the following month.)

NEW YORK CITY-Have a securitized loan in need of new equity? You’ve got plenty of company: more than $60 billion in CMBS loans are scheduled to mature and require refinancing over the next 12 months. One-eighth of that balance is already with the special servicer.

Given the rocky road that borrowers need to travel, a free GlobeSt.com webinar titled “Understand CMBS Restructuring” offered a timely primer on the whats, hows and whys of workouts. First of a three-part series, Tuesday’s one-hour discussion was hosted by Robert Kline, principal and chief executive of R.W. Kline Cos.

With the help of panelists Toni Meyer Walker, managing director at CW Capital Real Estate Solutions, and Troy Harris, managing director at A&M Capital Real Estate, Kline charted the key considerations for borrowers faced with maturing securitized debt. Among them are: what qualifies a loan for a workout; how to negotiate more favorable terms; setting proper expectation regarding servicers; why it’s best to go with an intermediary; how to prepare for a “white knight” or “rescue capital” injection; and what to do avoid bankruptcy, which Kline described as a “last ditch” option.

All three experts stressed the difference that working with an intermediary can make. Intermediaries do not represent a silver bullet, Kline said, but they can help the borrower steer around pitfalls.  One reason, he said, is that intermediaries “know the servicer lingo” and their playbooks.

That kind of familiarity with the lay of the land, and a comfort level with the potential twists and turns in a restructuring, is the kind of savvy special servicers appreciate, said Walker. “Knowledge is key from the special servicer’s perspective,” she observed. And it’s to the loan’s sponsor that the servicer looks for “truly the best knowledge,” said Harris, and working with an intermediary can bolster the sponsor’s preparedness and thus improve the odds of achieving a successful restructuring.

Leading the way in potentially troubled CMBS by sector is office. “Our calls on office have gone up 110% over the past year,” said Kline, whose firm handles CMBS and commercial loan modifications, restructurings and note sales. Charts accompanying the webinar showed that office comprises the biggest slice of specially serviced assets, and that the sector has easily topped the master servicer watchlist by property type each month for the past 12 months.

And while servicers have gotten more efficient at resolving troubled situations, volume will pick up over the next few years, Kline said. Currently the ratio in dollars of CMBS entering special servicing to resolutions is 1:1, but by 2014 or 2015, the balance will tilt toward distress accumulating faster than it can be resolved, he said.

Replays of Tuesday’s webinar can be accessed through Oct. 30 by clicking here. Registration for the first in the series will provide access to all three of the webinars.

(Visit the Distressed Assets page on GlobeSt.com.)