CMBS Modification Trends
Modifications will remain a key workout method for troubled CMBS loans amid an increasingly challenging lending environment, according to a new report from Citi.
Special servicers still preferred modifications over liquidations, even as some servicers seemed to be shifting to an aggressive liquidations strategy late last year. Softening CRE lending in 2H11 and still-challenging fundamentals in some sectors likely rendered liquidations relatively less appealing in such cases, according to the Citi analysts.
Since the beginning of the year, nearly US$10bn of loans was modified, maintaining a trend that started in late 2009. However, compared to 2010, the number and volume of modifications somewhat decelerated later this year. The elevated 2010 mod level is partially due to the significant impact of the GGP modifications, executed late last year.
The Citi analysts suggest that servicers will likely provide shorter extension periods, but mods will continue to include many additional terms beyond simple maturity extensions. Indeed, complex modifications (read $100M and larger) remain prevalent, as recent notable mods suggest.
The analysts identify three noteworthy trends seen in recent modifications:
First, they are seeing more split A/B modifications - albeit they are expected to become less common in light of senior bondholder concerns over the practice.
Second, extension periods vary. Extension options, which are based on the borrower meeting certain conditions, are also becoming more prevalent.
Third, the Citi analysts suggest that mod reporting timing and breadth is inconsistent. "In general, quite a bit of sleuthing is still required for tracking mods."
Special servicers still preferred modifications over liquidations, even as some servicers seemed to be shifting to an aggressive liquidations strategy late last year. Softening CRE lending in 2H11 and still-challenging fundamentals in some sectors likely rendered liquidations relatively less appealing in such cases, according to the Citi analysts.
Since the beginning of the year, nearly US$10bn of loans was modified, maintaining a trend that started in late 2009. However, compared to 2010, the number and volume of modifications somewhat decelerated later this year. The elevated 2010 mod level is partially due to the significant impact of the GGP modifications, executed late last year.
The Citi analysts suggest that servicers will likely provide shorter extension periods, but mods will continue to include many additional terms beyond simple maturity extensions. Indeed, complex modifications (read $100M and larger) remain prevalent, as recent notable mods suggest.
The analysts identify three noteworthy trends seen in recent modifications:
First, they are seeing more split A/B modifications - albeit they are expected to become less common in light of senior bondholder concerns over the practice.
Second, extension periods vary. Extension options, which are based on the borrower meeting certain conditions, are also becoming more prevalent.
Third, the Citi analysts suggest that mod reporting timing and breadth is inconsistent. "In general, quite a bit of sleuthing is still required for tracking mods."
posted by ENSO Advisors at
12:29 PM
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