There’s now a $32 billion pile of commercial real estate loans in special servicing, the first step to debt relief


Landlords have been scrambling for debt relief on hotels, stores, office buildings and other commercial properties that sat mostly vacant over the past two months of U.S. lockdowns, with more woes on the horizon.

There is now $32 billion worth of commercial property loans in “special servicing” as of May, or more than double the late-February tally when the coronavirus deepened its hold on the U.S., according to a new Moody’s Investors Service report.

Special servicing is the first stop for borrowers seeking relief on loans bundled into commercial mortgage-backed securities (CMBS), a type of bond deal. Transfers to special servicing often happen once a default occurs, a borrower threatens to default or one looks likely.

Like at a bank, special servicers handle debt payments, but do so on behalf of bondholders instead of a single lender. They also are in charge of negotiating any workouts with borrowers, sometimes offering debt relief and other times handling a foreclosure or bankruptcy.

Lately, however, more property loans are being transferred to special servicing even while borrowers remain current on their debts, but operate in industries hard hit by COVID-19.

That’s how $975 million of property debt on the famed Fontainebleau hotel in Miami Beach hit special servicing in April.

See: Miami Beach’s iconic Fontainebleau tops list of U.S. hotels facing debt woes during pandemic

Servicer notes for…

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