ARCHIVE - Year: 2010

Although It May Get a Lender’s Attention, Defaulting Is Considered a Risky Debt Strategy

Mark Heschmeyer

As the volume and number of underperforming commercial real estate loans mounts, so has the number of owners who have or have considered turning to loan defaults as a strategy for forcing a refinancing or to get out from a loan that is underwater altogether. However, experts say this is a high-risk strategy for managing troubled debt at a time when access to money has become tight and as regulators pressure lender away from workouts.

April 1 (Bloomberg) — Royal Bank of Scotland Group Plc is selling bonds backed by commercial mortgages from several borrowers in the first sale of its kind since June 2008, gauging investor demand for the debt amid climbing defaults.

The $309.7 million offering, backed by 81 properties in states from New York to Missouri, includes $240.8 million in top-rated securities, according to people familiar with the sale who declined to be identified because terms are private.

An uncertain economy and jobs market continue to make it difficult for investors to deploy capital with conviction, but a new kind of normalcy is creeping its way into the market.

Normalcy is far from normal, but, like kids adjusting to the wacky new rules of a temporary parent in ABC’s “Wife Swap,” a degree of order is making the marketplace more active than it has been in almost two years.

In this environment,

While not even on the menu six months ago, the market for commercial mortgage-backed securities (CMBS) has become a front-burner entrée as lenders finally have all the ingredients for making new loans. According to “Mastering the Recipe,” the latest podcast produced by John B. Levy & Company (available online at, commercial real estate lenders continue to search for the right mix of leverage level and loan pricing as they try to bring a tepid secondary market to a simmer.