“Be very careful what you ask for,” top broker warns borrowers seeking relief

Simon Ziff, Ira Zlotowitz and Dustin Stolly talk debt markets, special servicing in age of coronavirus

TRD NATIONAL /
Apr.April 14, 2020 05:00 PM

As thousands of commercial real estate borrowers look for help to make their monthly mortgage payments, they should do so cautiously.

“We’re advising our borrowers, be very careful what you ask for,” warned Ackman Ziff Real Estate Group president Simon Ziff. “Make sure you can back it up and have a need for it, or you may find yourself in special [servicing] faster than you want to be,”

Servicers, he added, are open to working with borrowers who have truly been hurt by the Covid-19 pandemic, but they’re “very defensive if it’s not a real situation,” Ziff said.

Ziff joined Eastern Union Funding president Irz Zlotowitz and Newmark Knight Frank’s Dustin Stolly Monday for the latest installment of “TRD Talks Live.” The panel discussed the commercial mortgage brokerage industry’s perspective on the global crisis, with The Real Deal’s Keith Larsen moderating.

Stolly said that borrowers with loans pooled into commercial mortgage-backed securities will have a more difficult time dealing with special servicers than those who can turn to balance sheet lenders like banks.

“The balance sheet lenders are a little bit ahead of CMBS special servicers, who move at a slower, more bureaucratic pace,” he said, adding those servicers have been hit with a “tidal wave of requests from borrowers.”

Zlotowitz said smaller community banks are being more flexible.

“For the most part they’re taking the approach, any level of help you need we’ll work with you, but the work is for 90 days and then you have to pay it back for the most part over those next 12 months,” he said.

Shopping centers and other retail properties, along with hotels and apartment rental buildings have been hard hit as the economy has ground to a halt and millions have lost their jobs.

While the industry watches anxiously to see how many tenants pay their April rent, the panelists said May collections will draw a more comprehensive picture of how landlords will be impacted.

“People did or they didn’t get their April payments, but I think they’re more worried about what happens in May,” Ziff explained. “A lot of the conversation is around what’s going to happen with those debt service payments.”

For now, the CMBS market remains virtually shut down, cutting off a significant stream of financing for commercial real estate.

The panelists said their companies are considering shifting resources toward doing loan workouts and preparing for an increase in defaulted loans, if and when it comes.

“If collections in May are 70 percent or less, note-sales are going to come in all around because there’s going to be more forbearances and people are going to have to come up with cash again,” Zlotowitz said. “If it’s 75, 80 [percent] or above … I don’t think there will be note-sales.”

Ziff said one of the big looming questions is how real estate values will be affected in the coming months. He said some of the biggest players could go on buying sprees snapping up properties or companies at significant discounts.

“I remember the last time around, people regretted not buying quality when it was available,” he said. “Now for Blackstone …. they’re going to be able to do things — and maybe Brookfield and maybe Starwood and a few others — that others can’t do.”

Contact Rich Bockmann at rb@therealdeal.com or 908-415-5229


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