Part I: Handing Back the Keys

Handing Back the Keys to a Special Servicer

Given the financial climate and its significant impact on CRE, it is likely you know someone who has landed in the difficult position of handing back the keys to their Special Servicer. In a situation fraught with emotional, financial, and practical implications, Borrowers must tread carefully to protect themselves and/or their entities, ensuring a smooth transition process while also avoiding additional risk and liability.

Here we round up goals and key considerations when handing back the keys.

Reaching the Tipping Point: Your Goals

Most often due to market struggles and cashflow constraints, Property Owners have reached a tipping point where they are unwilling or unable to continue to fund their mortgage. They can’t justify putting in more equity when there is no clear timeframe for a market recovery.

So, they engage The Henley Group (THG) to facilitate the complex process of transferring their property back to the CMBS Lender. We start with a set of goals:

Put no additional capital into the project
Maintain an upstanding reputation in the lending and finance community
Abide by the loan documents and be aware of any actions that may trigger recourse events under the “bad boy” carve-outs
Review specific Interest and Carry Guaranty language
Deal fairly with critical vendors
Minimize present tenant disruption
Keep legal costs reasonable, avoiding duplicative work by the advisory group and their attorney

And, then consider the following factors when transitioning the Property back to the Special Servicer.

What Factors to Consider:

The Devil is in the Details

1. The State in which the property is located: judicial vs. nonjudicial, transfer taxes, and specific statutory laws

2. Special Servicer preferences determine how the Property will be transferred: deed-in-lieu, consensual sale, or note purchase.

-- Onerous Lender Reps & warrants language can make a deed-in-lieu difficult to execute from the Borrower’s perspective. Also, Lenders want a clear title which often favors a consensual foreclosure versus a deed-in-lieu.

3. Recourse triggers and loan carve-outs: What Borrower action and/or inaction may trigger liability for the sponsor?

4. Lender’s legal ability and ease of appointing a Receiver and the implications for the Property Owner. What does the Receivership Order allow?

5. Property Management Responsibilities during the transition

6. Operating costs, real estate taxes, and insurance: Who is paying these expenses, and for what duration of time?

This is Part I of a two-part series. In Part II, we will delve into what Borrowers can specifically do to avoid unforeseen financial hardship and safeguard their position during the transition process. We'll reveal a recent case to give you a behind-the-scenes look at how THG was able to get a Borrower unexpected reimbursements.

Let's start a conversation today!

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 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.

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David Goldfisher

(617) 320-0284

david@thehenleygroup.com

Tammy Goldfisher

(617) 512-1135

tammy@thehenleygroup.com

David Arthur

(617) 719-1087

davidarthur@thehenleygroup.com