Special Servicers’ New Revenue Drive

Competition in the universe of special servicers can be strong, and it may only grow stronger once the current spate of peak-market problem loans are worked through and servicers are left with a finite pie of defaulted loans.

Competition in the universe of special servicers can be strong, and it may only grow stronger once the current spate of peak-market problem loans are worked through and servicers are left with a finite pie of defaulted loans. Truth be told, much of the workout activity has occurred already in CMBS, asserted Glenn Brill, managing director of real estate solutions for FTI. Demand is going to fall.

To benefit their bottom lines, some special servicers are seeking additional fee opportunities. If you are a special servicer that is affiliated with a B-piece-owning entity and all the B piece has lost value, then the only thing left is the special servicing fees that come from servicing those loans, explained David Rodgers, principal at Park Bridge Financial.

Additionally, these companies may seek to buy other, more highly rated bonds up the stack of the trust in order to protect their special servicing fees should losses eliminate their stack. Or they may simply buy tranches of other securitizations so they can be in a position to take over the special servicing when the time comes.

As a result of the focus on fee income, borrowers may see more or higher fees for services, routine or otherwise, such as short-term extensions and lease approvals, said Rodgers.

Can the search for additional fees present a bigger problem for borrowers? Rodgers said he sees no evidence that special servicers are failing to service the loans in accordance with servicing standards.

Read more about special servicers’ business strategies today in “Tug of War” in the July 2012 issue of CPE.