What's Going On: CMBS Loan Modifications
Now and Ahead
The CMBS market has seen significant changes in recent years, particularly with the pandemic catalyzing new ways in how we work, live, and play. Cut to today, and economic conditions continue to create immense challenges for businesses and commercial property owners.

Then and now, Borrowers looked to CMBS loan modifications as a crucial tool to find relief. Here are some of the trends we are seeing in the CMBS loan modification space and what we expect over the next 24 months. Reach out to us for access to THG's comprehensive CMBS Mod List. We know the road ahead is rocky, so let's start a conversation.
Trending Now
With the primary focus on avoiding defaults and maintaining cash flow, Lenders and Servicers have been accommodating in considering loan modifications. This always comes at a cost to Borrowers, but is preferable given the alternatives. Some key trends include:

  • Forbearance and Extensions: Whether you call it “extend and pretend” or “kicking the can" payment deferments and loan extensions are providing temporary relief to buy time for businesses to recover.

  • Interest-Only Conversions: Within the framework of complex modifications, Borrowers have converted loans to interest-only payments. REMIC approval is required.

  • Loan Paydowns: Usually considered a good faith move, some Borrowers have negotiated a paydown to get an extension or as a part of a more complicated loan modification.

  • Equity Contributions: Similar to loan paydowns, Borrowers have pledged additional collateral, such as paying into a reserve account tied to building improvements.

  • A/B Note Modifications: Very few A/B modifications have been documented in 2023 but we expect to see an increased number in 2024 and 2025 as property valuation bid-ask pricing between Borrowers and Lenders tightens.

We commonly advise our Borrowers to pursue two or more of the above modifications within their proposal and to remain nimble and continually advance strategies throughout the negotiation process.
What's Ahead
As the economy continues to gyrate and market conditions evolve, the CMBS loan modification landscape is likely to see further changes over the next 24 months. Here's what to watch for:
  • Focus on Long-Term Solutions: While short-term relief measures were crucial during the pandemic, Borrowers may start seeking more long-term solutions to address underlying financial challenges, e.g., permanent modifications.
 
  • Continued Flexibility from Lenders and Servicers: With $296 billion of CMBS loans alone maturing through 2025, Servicers and Borrowers need to work together to find mutually beneficial solutions. Occasionally, these solutions require a modification to the Trust document which can be "a tough ask".
 
  • Customized Solutions: Considering the changing dynamics of the market and the impact on various asset classes, Borrowers will look for more customized solutions to address their specific financial situation and property.
 
  • Case-by-Case Evaluations: Looking at factors such as property performance, market conditions, and borrower financials, loan modification requests will be scrutinized and evaluated on a case-by-case basis.
According to Morgan Stanley, $1.5 trillion of CRE loans are due to mature by the end of 2025. With constrained liquidity in most markets, it's imperative that we work collaboratively and creatively over the next 30 months to preserve ownership and minimize defaults. Borrowers and industry stakeholders need to work preemptively and continue to be agile in their negotiations.

About The Henley Group
We are expert CMBS Borrower Advocates with extensive experience partnering with clients to catalyze loan resolutions. Dedicated to service excellence and outstanding outcomes, we have worked out over $12 billion in CMBS deals to date. We are proud of the deep relationships The Henley Group has forged with Special Servicers for nearly 15 years. Our unique skill set, patient negotiating style, and understanding of Special Servicing allow us to get results that may not be available to you.
David Goldfisher
(617) 320-0284
Tammy Goldfisher
(617) 512-1135 

David Arthur
(617) 719-1087