The headlines tell the story of the current state of CMBS and CRE defaults here and abroad. "Watch out for CMBS Re-Defaults" trumpets Real Estate Finance Intelligence. Financial News announces "Break Time Over as CMBS Bounce Back on Wall St." "Cumulative CMBS Defaults Up but Slowed by New Issuances" states a headline in DSNews.com. The Wall Street Journal informs that "CMBS Issuance Marks Largest Ever New-Year Kickoff." Some predict that CMBS 2.0 will include improved structures to deal with problems not contemplated during the boom years and champion more conservative underwriting. Other fear that as securitization volumes rise and investors become increasingly desperate for yields, underwriting and collateral standards will fall.
While the cautious exuberance about CMBS 2.0 grows, the fact remains that in the defaulted loan recovery trenches, Special Servicers continue facing significant difficulties: limited exit strategies, guarantors willing to trigger recourse obligations by filing bankruptcy, increased lender liability allegations, expanded borrower use of "CMBS consultants" to threaten holders to restructure deals, and a continued seeping of adverse rulings arising in residential mortgage cases that taint the commercial remedy process. Add an increasing number of defaulted TIC deals into the mix, and the challenges abound.
So what are Special Servicers dealing with in the day-to-day default world across the Southeast? A review of recent issues faced by Baker Donelson's 35-professional CMBS Special Servicer Team provides a brief glimpse. They have obtained a transfer of venue (in two unrelated cases) to return an individual TIC member's bankruptcy case to the venue of the underlying CRE. They have defended a chapter 11 debtor's attempt to surcharge collateral sold through a §363 bankruptcy sale. In Florida, they have faced off against borrowers who continue to challenge the validity of the assignment of notes and other loan documents. Further, they have increasingly pursued carveout claims against guarantors based on post-default use of rents contrary to the loan documents.
A logical question to ask at this point is why start a CMBS Special Servicer blog that covers legal issues, trends, strategies and issues across the Southeast. As author and speaker Seth Godin says, "tomorrow is too late, yesterday is over and now is exactly the right moment to start." We endeavor to use this blog to highlight emerging trends, discuss industry issues and post on CMBS Special Servicing topics relevant to workouts, bankruptcy, and restructuring of defaulted securitized loans. Feel free to engage with topics of interest to you that we can cover. We look forward to our road trip together across CMBS issues around the Southeast.