Mortgage Restructuring

CMS provides the full range of mortgage restructure alternatives available to commercial property owners. We pay particular attention to the nuances of every situation and have multi-faceted options available for different needs. We are here to give you the direction you’re looking for!
Following is an overview of Mortgage Restructuring Alternatives that CMS considers for our clients:

1. Debt Service Payment Reductions

Debt Service Payment Reductions can eliminate the need for cash calls from owners or third parties until the property recovers.

2. Extensions

Extensions are a key element in many mortgage resolutions, as they provide additional time for recovery measures.

Utilizing an extension may provide borrowers with additional time to re-stabilize a property, obtain refinancing, or complete a sale of a property. They can also contribute to a negotiated resolution for several types of modifications agreed to by the lender or special servicer. We work for our clients to obtain extensions so that their investments can be successful.

3. Principal Reductions
Principal Reductions provide ownership the opportunity to bring their mortgage debt more in line with the current property value. In effect, owners gain equity by reducing the principal on their loan (by reducing their negative equity position). This, in turn, facilitates owners’ ability to refinance the property, to raise new capital (debt or equity), or simply to recover and return to a positive cash flow position.

There are several modification types that reduce or defer the principal on a commercial mortgage. We expertly guide our clients to the types of resolutions that will provide the mortgage relief they seek – and that will be acceptable to the lender / special servicer.

a. Bifurcations (A/B Note Splits)
Bifurcations provide reduced mortgage payments by setting aside a portion of the mortgage. This can result in a reduction of the principal amount of your loan!

In a Bifurcation the mortgage note is split into an A-note and a B-note. The A-note approximates the current value of the property, which is determined by the lender. The borrower continues to service the A-Note under the existing terms and conditions of the mortgage documents.

The B-note, is the remainder of the outstanding balance of the mortgage, minus the amount assigned to the A-note. This amount is set aside and the principal and interest are deferred until a) the property performance returns to a certain level, b) the property is refinanced, c) the property is sold or d)another negotiated event occurs.

Once one of these options takes place, the Bifurcation agreement will address how the B-note will be handled. In most cases, there is a split of excess cash, refinance, or a sale proceeds between the lender and the borrower. The terms and conditions of this split are key points that are agreed upon. We work between the different parties to obtain the most beneficial conditions available to our clients.

b. Settlements
Settlements are a form of principal reductions that can provide significant opportunities for property ownership.

In a settlement the borrower pays a portion of the principal, or all of it, for a fraction of the original amount. This can be a part of a broader modification resolution, which we will advise you through.

c. Discounted Payoffs (DPO)
DPO’s are principal reductions in which the lender agrees to a discounted payoff of the mortgage loan if the loan is paid off within a certain time period.

If a loan is retired all at once, at the discount, a lender or special servicer may provide a principal reduction. For example, say your property has a 20 million dollar outstanding balance on the Mortgage loan. The property is valued at 16 million and the lender is willing to accept a 16 million Discounted Payoff or DPO. If you can obtain a refinancing package for the loan for 16 million and pay off the original loan, you end up with 4 million dollars in principal removed.

4. The Capital Stack
The positioning of new capital directly behind a first lien mortgage lowers the risk to the new capital provider, and the cost of that capital to the owners. The result of restructuring the Capital Stack enhances owners’ ability to raise new capital.

The amount of financing behind a property is the Capital Stack. This is a critical element of mortgage options, and in a comprehensive mortgage resolution, borrowers may have to add value to a property in order to receive modification concessions from the lender.

Adding value is typically addressed by the infusion of new capital into the property. The new capital provider will usually require that their capital be placed second in the Capital Stack- behind the first lien on the mortgage.