A watch-list, a special servicing event, and maximizing NPV recovery all have this in common.

Question: “What is a landlord with a troubled CMBS loan?”

Back in the day, a landlord may have had a loan with a life insurance company in Iowa or a pension fund in California that retained the loan through maturity.

Then smart money came along and structured a secondary market for the trading of commercial mortgage backed securities (CMBS). 

Now, mortgage bankers could transfer loans to a tax-advantaged trust.  The trustee, with promissory notes in hand and an expectation of receiving regular interest payments on the pool of loans, could issue a series of bonds varying in yield and risk.  Rating agencies could come in and assign ratings to the various bond classes: from the most secure AAA down through the below-investment grade and unrated bonds.  Bankers could underwrite and sell the securities to investors.  Bond investors could select from the tranche matching their credit risk, yield, and term preferences.  Meanwhile, down in the boiler-room, a master servicer, engaged by the trustee to service the loans, would collect mortgage payments, release disbursements from escrow, and handle other routine loan matters, all so long as a loan performs as expected.

However, a wheel or two came off the truck during the last few years and some loans have not performed as expected.  

And rating agencies expect more troubled CMBS loans to surface, despite the gradual improvement in the economy. 

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