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- May 2012: Vol. 24 No. 5

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The Mess That Is CMBS: Delinquencies, Special Servicing and Possible Conflicts of Interest Plague the Market

by Steve Bergsman

It would be an understatement to say that commercial mortgage–backed securities have issues. The CMBS market is striving for a moderate comeback in 2012, but a steady stream of troubled assets from past issuances have been falling into foreclosures. Meanwhile, the structures in place to fix those distressed loans, i.e., the special servicers, are sometimes structurally conflicted as to whether to foreclose on a loan and clear it from the books or push out a final settlement (extend and pretend) to some point in the obscure future. Needless to say, the backdrop to the current CMBS market consists of unhappy bondholders, stressed special servicers, players who have tried to game the system, and just plain investors who would like to dive back into the pool, so-to-speak.

Early in the year, estimates by bank analysts projected CMBS issuance for 2012 to be somewhere between $25 billion and $45 billion, which would put it around the previous year’s

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