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Forum Spotlight: Servicing Administration and Special Situations 

November 6, 2023

Together, Leslie, Adam, Stacy, Tony, Pamela, and Andrea form the “Leadership Working Group” for the Servicing Administration and Special Situations Forums. The group sets agendas and priorities for the Forum, as well as represents the constituency on CREFC’s Policy Committee.

What’s new: The challenges in the market have caused renewed interest in the Servicers Forum.

• In June, the focus was on what servicers were seeing across markets for both performing and non-performing loans.
• Today, the focus is on non-performing loans, from all viewpoints—borrower, lender, and investor.
• There are no easy answers and the general consensus is that every loan and asset needs and will be individually evaluated for the option that yields the best results.

What is clear is that the playbook used in the GFC will not be the first place servicers look to for guidance in the current, very different environment.

Key Servicer Focus Areas

• Monitoring and tracking servicing activity;
• Complexity of non-recoverable advance decisions;
• Collateral/asset valuation;
• Rising delinquencies;
• Upcoming maturities and borrower ability to refinance; and
• Special Servicer remediation plans.

What they’re saying: Discussions focus on the following points:

• The transition from LIBOR to SOFR, which was scheduled to sunset shortly after the June conference and for which servicers were well prepared;
• Uncertainty around asset valuations and pricing of new loans;
• Exit strategies for loans in special servicing; and
• Borrowers looking for extensions and how they need to approach servicers with a clear exit plan and, in many cases, with collateral enhancements.

What's next: Servicers are highly focused on increased delinquencies, the volume of loans transferring to special servicing, the timing around exit strategies, and when valuations will stabilize. Servicing Forum leadership expects forum discussions at the January conference to focus on:

• The uncertainty surrounding valuations and the impact they will have on master and special servicer roles as liquidity providers; and
• What loans are in distress and what expectations are around exit strategies.

Key Policy Issues:

• SEC’s Conflict of Interest in Securitization Proposal: The definitions are broadly written and could engulf numerous CMBS participants, including servicers, and a broad range of “conflicted activities” that go beyond shorting a transaction. CREFC submitted two comment letters on the issue and is engaging with lawmakers on Capitol Hill.
• Basel Endgame Capital Proposal: The federal banking regulators have proposed raising capital on banks with $100 billion assets and above. The complex proposal could have impacts on banks that service CMBS. CREFC is working on a comment letter ahead of the January 2025 deadline.

What’s Next: Forum Leaders look forward to presenting CREFC members with an update on their forum at the Annual January Conference in Miami. Soon after, the chairs will seek nominations for the next Chair Elect to join their leadership slate.

To join the Servicing Administration and/or Special Situations Forums, please register here. For any forum related questions, please contact Kathleen Olin.

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Forum Spotlight: Servicers

March 20, 2023

Together, Stacy Ackermann, Leslie Hayton, Rich Carlson, Carl McLaughlin, Andrea Helms, Tony Yousif and Niral Shah form the “Leadership Working Group” for the Servicers and Special Situations Forum.  The group sets agendas and priorities for the Forum, as well as represents the constituency on CREFC’s Policy Committee.

What’s new:  In January, the forum debuted its new expansion as we combined the servicing administration and special situations forums. The Special Situations component newly incorporates the special servicing/special situations and distressed asset management as part of the forum.  The decision to evolve and formally combine servicing administration and special situations was due to feedback from members regarding current market conditions and related pressing issues that the members want to explore and address. 

The newly recast forum will have two sets of leadership – one representing servicing administration and the other representing special situations. Importantly, both sets of leadership will continue to work together to address all aspects of member interests and concerns.

Key Servicer Focus Areas

• Monitoring and tracking servicing activity 
• Transfers of interest and assumptions
• Distressed asset resolutions for securitized and portfolio assets
• Floating rate - transitioning away from LIBOR
• Collateral Valuation

What they’re saying:  Discussions at the January conference focused on the following points:

• Payoff efficiencies and success during 2022
• Increased defeasance volume – will it continue in 2023?
• Moderate uptick in transfers of interest and assumptions
• Increased requests for rate cap modifications and differences across portfolio vs securitized
• Continued valuation uncertainty  - impact on default resolution/enforcement and servicer advances
• Bespoke distressed asset resolution requests and approaches

Looking ahead, servicers are highly focused on current market conditions and the impact on maturing loans and default resolution and enforcement.  The forum leadership expects our forum discussions at the June conference to focus on the current state of the market and what servicers are seeing as “boots on the ground” with respect to the point of contact with borrowers.

 Key Policy Issues:

• SEC’s Conflicts of Interest in Securitization Proposal. The proposal would limit CMBS and CRE CLO sponsors from certain transactions in the first year after issuance. CREFC is asking for express exclusion for servicers from being treated as a “sponsor” under the regulation.
• LIBOR transition:  US Dollar LIBOR is scheduled to cease being published on a representative basis beyond June 30, 2023. Servicer Forum members and CREFC have published the CREFC LIBOR Legacy Playbook, which is designed to address operational issues related to transitioning floating-rate loans currently indexed to LIBOR to the recommended SOFR index plus the ARRC recommended spread adjustment or another contractually agreed-upon benchmark.

What’s Next:  Forum Leaders are seeking nominations for the next Chair Elect to join their leadership slate and look forward to presenting CREFC members with an update on their forum at the Annual June Conference in New York City.  Please send any nominations to Kathleen Olin.

To join the Servicing Administration and/or Special Situations Forums, please register here.  For any forum related questions, please contact Kathleen Olin.

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Meet CREFC's Servicers and Special Situations Forum Leaders - Stacy, Leslie, Rick, and Carl

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New CREFC Forums

January 9, 2023

In December, CREFC announced changes to its industry sector forums. These forums will debut on Monday, January 9th at the CREFC’s January Conference.

Why it matters:

• A new High Yield Investments/Alternative Lending Forum serves debt funds and others that comprise private lenders and investors in commercial real estate debt (whole loans, mezzanine loans, preferred equity, and sub-performing/non-performing loans).
• An expanded Servicers Forum aligns CREFC members focused on special assets and special situations.

The Alternative Lenders and High Yield Investors Forum will focus on the needs of this growing and important source of market liquidity. Alternative lenders now represent 15% to 20% of annual CRE lending activity.

Membership in this forum will include Alternative lenders and High yield investors in the CRE debt and equity space:*

• Lenders and investors include debt funds, public/private mortgage REITs, money managers, separately managed accounts (SMAs), and other public or private entities.
• Investments include bridge and mezzanine loans, preferred equity, and special/distressed situation opportunities.
• Third-party service providers and business partners who work closely with such lenders and investors.

Updated Servicers Forum

The HYDRA transformation shifts the Distressed Realty Assets (DRA) portion of HYDRA to the Servicers Forum. CREFC realigned the Servicers Forum to include two main focus areas:

• Servicing Administration
• Special Situations/Special Assets

The newly cast Servicers Forum represents market participants with separate leadership teams in the servicing of performing asset and non-performing/distressed assets, and include primary servicers and the GSEs.

The combined and expanded Forum creates a collaborative environment to focus on all servicing and trust administration issues within a single forum, while recognizing the diverse issues associated with servicing performing and non-performing loans.

CREFC Member Action Required: 

• Forum sessions at the January Conference will incorporate the new Alternative Lenders and High Yield Investors Forum, as well as the newly expanded Servicers Forum.
• Conference attendees will be asked at registration to make new forum selections based on their role in the industry and on which forums are of most interest to the member.
• Members not attending the conference can click here to sign up for a forum.

For any forum related questions, please reach out to either Lisa Pendergast or Kathleen Olin.

 * Does not include (is not intended to replace) lenders/investors that are served by the Investment-Grade Bondholders, B-Piece Investors, Portfolio Lenders-Bank, Portfolio Lenders-Insurance Company, or Issuer forums

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CREFC is expanding its Forums to better align industry interests.

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CREFC Introduces New Forums: CREFC Recasts HYDRA Forum to More Accurately Reflect Market Shifts and Developments

December 6, 2022. 

Seeking ways to best serve our over 18,000+ members, CREFC has been hard at work to position its forums to serve the growing needs of its membership. This includes addressing the significant growth in alternative lending platforms, particularly debt funds. These funds comprise lenders and investors in commercial real estate debt, including whole loans, mezzanine loans, preferred equity, and sub-performing and non-performing loans. Alternative lenders now represent 15% to 20% of annual CRE lending activity.

Over the years, content for the existing High Yield and Distressed Realty Assets (HYDRA) Forum has become divergent into near separate discussions that relate to either alternative lending/investing or distressed asset management and special servicing. This divergence has made it challenging to optimally serve the varying needs of existing HYDRA members. With this understanding, CREFC and HYDRA leadership/members undertook a thorough review of HYDRA’s membership and determined it would be best to reassemble the current HYDRA forum and guide its members to either:

• An Expanded Servicers Forum that more fully incorporates special assets/special situations or
• A new High Yield Investments/Alternative Lending Forum

Introducing the Alternative Lenders and High Yield Investors Forum

CREFC and the Board of Governors believe that launching a new and separate forum – the Alternative Lenders and High Yield Investors Forum – will provide a more befitting platform that better serves the needs of this growing and important source of market liquidity.

This new Forum will:

• Afford this CREFC member segment a clear, formal voice in CREFC,
• Allow CREFC to better navigate the rollout and ongoing development of a Debt Fund Index (a joint project between NCREIF and CREFC), and
• Provide members with a stronger voice with regulators and legislators on Capitol Hill.

Membership in this forum will include alternative lenders and high yield investors in the CRE debt and equity space*, and may include bridge and mezzanine loans, preferred equity, and special/distressed situations. Lenders and investors include debt funds (open or closed), public/private mortgage REITs, money managers, separately managed accounts (SMA), and other public or private entities. The forum would also include those third-party service providers and business partners who work closely with such lenders and investors. Importantly, this forum would be instrumental in the development and ongoing maintenance of the CREFC/NCREIF Open-End Debt Fund Index, with the goal of increasing transparency and liquidity in this important sector of the market.

Introducing the New Servicers Forum
A companion component of the HYDRA transformation is shifting the DRA portion of HYDRA to the Servicers Forum. Today, the Servicers Forum focuses on master servicing and special servicing (issues related to distressed or nonperforming loans/assets). Consolidating the constituents and discussion of relevant DRA issues into the Servicers Forum will enable increased focus on these important and timely issues.

CREFC, its Executive Committee, and Board of Governors believe that repositioning the DRA portion of the HYDRA Forum and adding it to the existing Servicers Forum will create better alignment within the servicing sector and allow for better synergies between performing and distressed loans/assets.

With this in mind, CREFC plans to realign the Servicers Forum to include two main focus areas:

• Servicing Administration
• Special Situations/Special Assets

Both constituents within the Servicers Forum will have separate leadership teams that will not only work within their respective components of the servicing business, but also interact with each other on a regular basis to present a 360-degree view of and insights related to the current state of their respective businesses. Note that both the current leadership within the Servicers Forum and the Distressed Realty Assets sub-forum of HYDRA will remain in place.

The newly cast Servicers Forum will represent market participants in the servicing of performing asset and non-performing/distressed assets, and include primary servicers and the GSEs. The combined and expanded Forum will create a collaborative environment to focus on all servicing and trust administration issues within a single forum, while recognizing the diverse issues associated with servicing performing loans and non-performing loans.

CREFC Member Action Required

CREFC members of both the current HYDRA and Servicers Forums will receive an email request to make new forum selections based on their role in the industry and the descriptions of the forums as presented above.

Forum sessions at the January Conference will incorporate the new Alternative Lenders and High Yield Investors Forum, as well as the newly expanded Servicers Forum. To sign up for a forum, please click here. For any forum related questions, please reach out to either Lisa Pendergast or Kathleen Olin.

* Does not include (is not intended to replace) lenders/investors that are served by the Investment-Grade Bondholders, B-Piece Investors, Portfolio Lenders-Bank, Portfolio Lenders-Insurance Company, or Issuer forums

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CREFC’s Servicers Forum

September 19, 2022

Together, Stacy, Leslie, Rich and Carl form the “Leadership Working Group” for the Servicers Forum and set agendas and priorities for the forum, as well as represent the constituency on CREFC’s Policy Committee.

Current issues include:

ESG and Servicers

• CREFC is well along in establishing a set of disclosures focused on the environmental side of the equation. This includes 51 data points relative to climate perils, energy consumption/production/efficiency, and greenhouse gas emissions.
• Working to address the other aspects of ESG in a uniform manner.
• Evaluating potential guidance and playbook opportunities related to ESG initiatives for servicers to be sponsored by CREFC.

 LIBOR to SOFR Transition

• Implementation weighs heavily on the servicing community as we have been exploring how to implement the changes into day-to-day servicing operations for legacy loans and new issuance. This means deciphering myriad transition language variants within loan documents and discussing how to implement those changes with borrowers and what management of that entails, as well as encouraging consistency in new loan documentation and addressing licensing for the use of Term SOFR.
• Recommended guidance to be issued on behalf of CREFC for servicers once final Fed rules are published.

Topics discussed at the June conference included:

• Impressive handling of COVID forbearances and mods
• Pivot to WFH and now return to office
• Working through delinquencies
• Cyber risk / vendor management
• Division of duties between MS/SS/PS
• Servicing transfers
• Delays in reporting for CLOs
• Reporting timelines—CAs asking for shorter turn arounds from MS
• Staffing challenges
• Impact of rising interest rates
• Increased competition with respect to origination; impact on underwriting and documentation
• Impending maturity dates

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CREFC Servicers Forum

February 14, 2022

Meet our leadership team:

CHAIR	CHAIR-ELECT	PAST-CHAIR
Richard Carlson Managing Director, Credit Ratings DBRS Morningstar	Carl McLaughlin Vice President – Loan Servicing Freddie Mac Multifamily	Stacy Ackermann Partner and Chair of Finance K&L Gates

- ESG and what it means for servicers. CREFC is well along in establishing a set of disclosures focused on the environmental side of the equation. This includes 51 data points relative to climate perils, energy consumption/production/efficiency, and greenhouse gas emissions. - LIBOR to SOFR transition. Implementation weighs heavily on the servicing community as we have been exploring how to implement the changes into day-to-day servicing operations for legacy loans and new issuance. This means deciphering myriad transition language variants within loan documents and discussing how to implement those changes with borrowers and what management of that entails, as well as encouraging consistency in new loan documentation and addressing licensing for the use of CME Term SOFR. Topics at the January conference also included workout hot topics—a broad category that included loan document go-dark provisions (how and when to trigger them), how eviction and foreclosure moratoriums acted as a government sanctioned delay of game, specially serviced office and hospitality, plus intercreditor agreement challenges with mezzanine holders. Forum leaders, including Rich and Stacy who are part of the planning committee, are looking forward to exploring some of these topics further at the upcoming HYDRA & Servicing Conference March 31. Please click here to learn more. To join the Servicers Forum, please register here. For any forum related questions, please contact Kathleen Olin

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