Eric Von Berg - Newmark Realty Capital - 595 Market Street, Suite 2550, San Francisco, CA 94105 - for loan quote: 415 956 9922

January 18, 2011

Commercial mortgage loan restructuring - old skills, new toolbox

Standard & Poor’s reports that 354 securitized commercial real estate loans with a principal balance $15.6 billion were modified from January through November of 2010, up from 216 loans valued at $7.06 billion for all of 2009.

We can work it out…
Newmark’s Debt Advisory Group is very active working with borrowers who have existing CMBS loans that are underwater, i.e. where value < loan amount.  Since its formation in 2009, the group has achieved significant discounted pay offs (DPO’s) that have allowed properties to be recapitalized, achieving a better outcome than would have been achieved through foreclosure - for both the borrower and for the CMBS trust.

The three R’s still apply

Debt Advisory is a highly specialized area; even Newmark’s most experienced mortgage bankers do not attempt it on their own. But while the toolbox is completely different, debt advisory uses the same skills and strengths that are the foundation of a successful mortgage banker; what I call the three R’s:

1. Relationships
On the new loan production side, commercial property finance is a small community.  On the Special Servicing side it is a different and much smaller community.  There are very few Special Servicing firms and they are understaffed.  The asset managers for Special Servicers are deluged with calls from developers, brokers, and mortgage bankers all trying to get in the door to pitch their services and/or get an inside track on distressed notes and assets.  Most of these calls go unanswered and unreturned!
Ted Norman who heads Newmark’s Debt Advisory Group worked for two firms that are major special servicers and before that he ran a CMBS production shop for TIAA-CREF.  Newmarks contacts with the special servicers run through one person, so relationships build with each assignment. Ted gets his calls returned!

2. Reputation.
It is one thing to be known and another thing to be respected.  A stellar reputation is built upon years of doing business fairly, adding value for the fees earned and being reasonable.  And remember, Special Servicers are just doing their job, they want to deal with reasonable people; table pounders or those who use legal threats are best dealt with through foreclosure.  Ted gained his reputation through working to achieve and document a win-win result. He’s learned that presetting a borrower’s expectations to a realistic outcome is greatly appreciated by the Special Servicer.

3. Real Estate Knowledge.
What distinguishes top mortgage bankers is the depth and breadth of their knowledge of commercial real estate.  A gut-level knowledge of real estate values with the ability to back up these assessments with data is the most important value-add for commercial property mortgage banking.
The difference in loan workouts is that the mortgage banker is focused on distressed real estate vs. stabilized assets,   Instead of collecting the highest rent and value comps, the work-out specialist is collecting the lowest.  This glass-half-empty mind set is completely different than what is needed for new loan production, another reason Newmark created a specialized group to handle debt restructuring.

For an on-topic article by Ted Norman for the California Mortgage Bankers Association click here. 
Download Eric's CMBS workout's worksheet.