Newmark Realty Capital’s new business model for CMBS 3.0
We are blazing new trails in the CMBS world at Newmark
Realty Capital. While known for our representation of life companies, Newmark
Realty Capital can now also take a CMBS deal to market and assure our clients
that will take care of them for the life of the loan; through loan placement, loan
closing all the way through until that last debt-service payment is made.
Many commercial real estate investors swore off conduit loans
after experiencing the rigidity and poor loan servicing of CMBS 1.0. Investors love getting together and trying to
top each other with CMBS loan servicing horror stories. We often hear from clients that they will
never do another conduit loan again.
This prevalent attitude may have been great for Newmark Realty Capital’s
life insurance lender/correspondents, but can limit a comprehensive commercial
real estate investment strategy, See footnote at end of this article for when a CMBS loan may be the best solution.
Choose Newmark Realty Capital as the Primary Servicer, for the life of your next CMBS loan:
When you choose Newmark
to place your next CMBS loan, you can require in your loan request that the
CMBS lenders bid your loan using Newmark Realty Capital as your Primary
Servicer.
By appointing Newmark as the primary servicer, you as the
borrower avoid the potluck of CMBS loan servicing. Usually loan servicing
contracts for CMBS pools are bid after
all the loans close. The winning bidder for the master servicing contract
is often the low cost provider, the firm that can cut costs the most by being
thinly staffed with low-wage servicing employees.
We worked to earn the right to service your loan!
S&P Rating:
Newmark obtained an S&P rating as a Primary Servicer. This took us a while. We needed to build a multi-billion dollar loan servicing portfolio, become Regulation AB compliant, use the right accounting control systems and loan servicing software, restructure our work flow and cash handling procedures, and use SEC recognized auditors to meet the demands of the rating agencies.Master Servicing Agreements:
The Primary Servicer Rating allowed Newmark to leverage the $12
billion annual production power of the SAM network (http://samalliance.com/)
to establish Primary Servicing Agreements with the five largest master
servicers who represent over 90% market share for CMBS servicing: Midland, Key,
Berkadia, Wells Fargo and GEMSA.
Conduit Servicing Agreements:
Newmark arranged agreements individually with eleven of the
largest Conduits, covering over 70% market share, who bid their loan servicing
to this core group of Master Servicers. This means that Newmark can still
create excellent competition among these eleven conduit lenders to get the best
terms for our borrowers. Yet, we can be the borrower’s primary contact
for the loan after it closes.
What this means for you
As a cashiering primary servicer Newmark conducts the NOI
reviews, inspects the property, reviews leases, releases escrowed funds and
writes the assumption memo. As with our life-company servicing accounts, Newmark
makes operational decisions throughout the life of the loan, and will give recommendations
around major loan events that are decided by the special servicer. We promise
to give you good service. Unlike the stereotypical CMBS loan servicer, we value
your relationship and we want your next deal.
We think through issues that might crop up over the life of a loan
Since Newmark, as Primary Loan Servicer, will handle all
issues that will come up during the life of the loan; we have an extra incentive
to head off problems upfront. Securitized
loans are by design inflexible; REMIC rules require decisions to be made
strictly according to the loan documents.
If an event was anticipated in the loan documents, the resolution can be
easy. If not the answer too often is... it's too late now.
The Public Private Partnership world is moving away from design and build, to design, build, operate and maintain
Users of buildings find they get a better,
lower-maintenance building if the developer has to operate and maintain the
building for its first 10-20 years. So
too with the mortgage business: Having the firm that originates your loan deal
with the loan’s issues for the loan’s life, gives the mortgage banker an
incentive to craft the loan documents into a workable form.
Newmark gives personal service
I recently attended a Brokers’ Symposium put
on by Wells Fargo Bank’s CMBS unit.
Wells Fargo is the largest Master Servicer of CMBS loans and one of the
best. They are well aware of the
problems in CMBS loan servicing and are encouraging Newmark’s efforts to build
a better mousetrap for CMBS 3.0. Wells
Fargo does offer an enhanced level of service to their biggest
customers: If you reach $500 million in loan serviced by Wells Fargo, you get a
single point of contact and a different phone number.
Newmark can give you this personalized level of service with your first loan
If you would like to
meet the servicing team who will service your next CMBS loan, come by our San
Francisco office. Feel free to give me a call on 415-956-9922
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Footnote: A CMBS loan can make sense when:
A loan request is big:
Above $150 million life-company start to club loans. When multiple lenders need to agree on terms and loan changes unanimously, loans get expensive, inflexible and messy.
High leverage or extended IO is the best solution:
On a low-risk deal, high leverage or an extended interest-only period can make sense. Especially for sponsors of investment funds, using CMBS’s aggressive underwriting can cash out the original equity investors, replacing a high rate of preferred-return on equity with a low interest rate on debt. This can turn a short-term play into a long-term hold.
Portfolio lenders pass:
Life companies are most borrowers’ first choice, thus these portfolio lenders can afford to be picky. Many good deals need to turn to CMBS for financing because life companies just are not very interested or not very aggressive.
The borrower wants to lock in today’s low cap rates:
Even if an investor plans to sell in the medium term, putting on long-term financing now might be a smart hedge. An assumable loan at today’s historically low rates can lock in a significant portion of the value in case interest rates jump which will cause cap rates to rise. Locking in a high cash-on-cash return, will preserve a good portion of your property’s value
Above $150 million life-company start to club loans. When multiple lenders need to agree on terms and loan changes unanimously, loans get expensive, inflexible and messy.
High leverage or extended IO is the best solution:
On a low-risk deal, high leverage or an extended interest-only period can make sense. Especially for sponsors of investment funds, using CMBS’s aggressive underwriting can cash out the original equity investors, replacing a high rate of preferred-return on equity with a low interest rate on debt. This can turn a short-term play into a long-term hold.
Portfolio lenders pass:
Life companies are most borrowers’ first choice, thus these portfolio lenders can afford to be picky. Many good deals need to turn to CMBS for financing because life companies just are not very interested or not very aggressive.
The borrower wants to lock in today’s low cap rates:
Even if an investor plans to sell in the medium term, putting on long-term financing now might be a smart hedge. An assumable loan at today’s historically low rates can lock in a significant portion of the value in case interest rates jump which will cause cap rates to rise. Locking in a high cash-on-cash return, will preserve a good portion of your property’s value
