THE RECENTLY PASSED $2.2 trillion Coronavirus Aid, Relief, & Economic Security Act may provide some financial assistance to hotels suffering from the COVID-19 pandemic’s economic shutdown, but it doesn’t cover everything. CMBS loans, or conduit loans, are not covered in the bill, according to recent AAHOA webinar.
The webinar, featuring Peter Berk, president of PMZ Realty Capital LLC Hotel Finance Group, offers tips on how to handle the loans to prevent default as drastic drops in occupancy crush RevPAR growth. It comes at a time when Trepp research firm predicts a 35 percent default rate on commercial mortgages resulting from the pandemic.
Berk said the CARES Act provides Small Business Administration loans.
“There isn’t much that we’ve seen that helps with the CMBS loans side of it except perhaps the 2.5 times payroll loan and perhaps loan forgiveness and some accelerated depreciation,” he said. “At the end of the day I think there’s going to have to be some legislative action to deal with CMBS loans and the problems that are created.”
The government intervention is necessary because of the way CMBS loans are structured, Berk said. A loan servicer acquires multiple loans that they then sell or “securitize”.
“The loan payments from all those loans go to something called the ‘master servicer,’” Berk said.
The master server is usually a big company, like Wells Fargo or Midland that actually collects the checks and sends out statements.
“After the master servicers, there’s something called a special servicer,” he said. “There’s an agreement between the master servicer and the special servicer and the special servicer deals with bond holders.”
The group loans are converted into bonds and sold to pension funds, such as those for teachers and firefighters.
“If they granted relief, if the special servicer said ‘Hey, we’ll give you three months relief, Mr. hotel owner,’ if they did that enough, all those people who receive pensions all of a sudden would not receive their pensions, or at least would not receive their full pensions,” Berk said.
There is no one approach to communicating with servicers, Berk said.
“I don’t know under each specific situation how a special servicer is going to react, but I do know that they’re going to react differently for different people,” he said.
Overall, however, it is important to communicate with the servicers and to do all you can to maintain the loan and make payments.
Near the end of the webinar, Berk revisited the topic of the SBA and PPP loans in the CARES Act and whether they violate CMBS loan terms.
“They’re called loans, which generally would be a bad thing, but then they say they’ll be forgiven, which isn’t a loan. That’s called a grant,” Berk said. “It’s a nuance that I think the government has to clear up.”
In the end, he said, more legislation will probably be necessary.
“There’s lots of things in [the CARES Act] that weren’t addressed, lots of questions and hopefully some new legislation that I know AAHOA and their PAC are actively working on will button up a lot of this stuff and make it tighter so that all of us have a little more direction,” he said.