Positioned a Hedge Fund, the Directing Certificate Holder in a CMBS, to Recover a Mall Mortgage Investment

In March 2021, the owner of a regional mall, which included a vacant department store, claimed it could not obtain refinancing on its 10-year, $128 million loan, maturing the following month. The loan was part of a commercial mortgage-backed security (CMBS). SitusAMC, the special servicer, came in to manage the defaulted loan for the directing certificate holder. With its deep knowledge of the commercial real estate landscape, SitusAMC knew the borrower had the means to pay off the mortgage but had made a decision to default. SitusAMC exercised the lender’s rights and remedies immediately, sending a notice of default and seeking a receiver in state court. But the county had a pandemic-related moratorium in place on foreclosures. 

SitusAMC filed a request to have a receiver appointed over the collateral property as soon as the loan matured. A preliminary hearing was scheduled for May 11. The property was also posted for a June 1, 2021 foreclosure sale. Four days before the hearing, the mall owner filed a motion to move the receivership hearing to federal court, managing to push the receivership issue out for two weeks. At the hearing on May 26, the borrower told the judge there was no reason to appoint a receiver, that it would pay the note in full if SitusAMC could provide a payoff statement -- knowing it can take up to weeks to procure a payoff statement for a CMBS loan. But SitusAMC had prepared for this and produced a payoff statement within several hours of the hearing. The borrower had to make good on its pledge to the court to pay off the loan or have a receiver appointed, with a pending foreclosure sale on June 1, 2021.  

The note was paid within 50 days of maturity, including the full amount due, as well as default interests, late fees and legal fees. The outcome provided cash for distribution to bondholders and maintained the CMBS investment as previously underwritten.