Ann Hambly, founder and co-CEO of 1st Service Solutions, an advisor to commercial loan borrowers, recently outlined the resolution of defaulted CMBS loans since 2007 in an interesting article for Northeast Business Journal. Ann notes from 2007 through mid-2011, a total of $82 billion of CMBS loans were resolved. Some takeaways:
- Approximately 30.5% ($25 billion) was modified. Modified loans have historically provided a higher level of recovery for bondholders than loan foreclosures or note sales. Often modifications are being granted in combination with new capital injection to pay down the loan.
- Approximately 12.2% ($10 billion) was brought back to current status, either through property cash flow improvement, a borrower abandoning a “strategic default” that was not producing intended results, or other dissatisfaction with the modification process.
- Approximately 11.6% ($9.5 billion) was paid off at a discount, with an average loss severity of 50%.
- Approximately 9.2% ($7.5 billion) was paid in full. The majority of these payoffs were loan maturity defaults that required additional time to refinance.
- Approximately 7.3% ($6 billion) was sold through notes sales. Although note sales resulted in significant discounts to the principal balance of the loan, the loss severity was less than foreclosure disposition because note sales were done quickly.
- Approximately 6.7% ($5.5 billion) was foreclosed and sold as REO properties. Foreclosure and REO have resulted in the highest loss severity.