Lower underwriting standards and competition for CMBS conduit loan are helping borrowers in many ways to lower transaction costs. Here are some interesting trends.
– Fixed-fee CMBS conduit loan programs (see our 6.13.14 news comment “ValueXpress to Offer Fixed-Fee CMBS Program”) feature streamlined third-party reports and simplified loan documents. These features lower transaction costs for borrowers, but have less protection for the lender.
– Agreed Upon Procedures, basically an outside accounting review of the form and accuracy of property income and expenses, are practically extinct after being required on all CMBS conduit loans originated in the 2010-2012 period, saving the borrower approximately $7,500. Lenders are now relying on their internal review of property income and expenses.
– Bankers are waiving or refunding application and underwriting fees. This is another $5,000-$10,000 savings for borrowers.
– Springing lock boxes without in-place cash management accounts are becoming more available, particularly for non-hotel assets. In these cases, cash management accounts are not set up at closing, but are “triggered” to be set up only if performance deteriorates over the loan term below a prescribed level. This saves $300-$500 per month in account maintenance fees for the borrower, but significantly lowers lender protection related to property cash control should the property performance decline and the borrower refuse to set up the cash management account when requested.
“One area that continues to be a challenge to contain costs is lender’s legal charges,” commented Jim Brett, Senior Underwriter at ValueXpress. “Keeping lenders’ legal costs below $20,000 is difficult. We are hoping the small-balance, fixed-fee program can solve this challenge.”