August 25, 2009
By Ann Hambly


Many of you may have heard about the astounding number of maturing commercial mortgage backed securities loans in the near future—more than US$400 billion between now and 2017. By adding the life company, bank and government-sponsored entities product that’s maturing, the number doubles. It’s estimated two-thirds of those won’t qualify for refinancing at an amount required to pay off the existing debt.

What are your options if you happen to be one of those commercial real-estate owners? If you happen to be one of the US$400 billion of CMBS borrowers with an upcoming maturing loan, you might remember, from my June column, the only party that can approve an extension of your CMBS loan is the special servicer (not the master servicer you deal with daily). In June, I mentioned the special servicer would be important to you as an owner at some point in time. Well, if you have an upcoming maturing loan, you’re at that point in time.

Remember, you only get to speak to the special servicer in two instances: (1) Your loan is actually in default, or (2) your loan will go into default in the near future. If you’re approaching a maturity date and can’t pay the loan off—your loan will go into default on the maturity date.

Begin the discussion

The first thing you must do if you need an extension of the maturity date is to let your master servicer (the one you make your payments to) know you’ve given it your best shot and can’t find a lender in today’s market to give you a loan that’ll allow you pay off the current loan. Most of the time, you’ll be required to demonstrate your efforts to secure the new financing.

The master servicer then should transfer your loan to the special servicer so you can begin the discussions about a possible extension. Ideally, all this should happen well before your maturity date so you never actually go into default. I say “ideally” because there’s an overwhelming amount of these loans being transferred daily to the special servicer, and they’re having a difficult time keeping up. Some special servicers won’t have any discussions with you about an upcoming maturing loan until you’re on the heels of the maturity date. This causes much angst for many hotel owners caught in this horrible predicament. Other special servicers will begin these discussions with you about 90 days before the maturity date. It depends on the special servicer.

Extend your loan

Until late 2008, most special servicers wouldn’t even grant an extension of a maturity date at all. As the capital markets completely dried up during the past year and it was abundantly clear borrowers had no other options, special servicers had no choice but to foreclose on an otherwise good borrower or offer some sort of extension. Now, they’re granting extensions regularly. That’s clearly much better for everyone involved.

How much time you get for an extension, how much money you have to pay to get it, and how painful the process will be will depend on the special servicer, although generally the extensions will be for 12 to 36 months. And, as I’ve written in earlier articles, if you have a portfolio loan (through a bank, life company, thrift, et cetera) chances are you’ll be able to work out an extension of the maturity date with your lender with little problems. They want your business when the markets come back.

Now, if your loan isn’t set to mature but isn’t cash flowing sufficiently to make the debt service payment, you have a whole different set of issues. In next month’s article, I’ll address frequent types of modifications that are possible for an owner of a hotel with CMBS debt on it.