The Proper Care and Feeding of Bankers

When engaging a banker for the purpose of a commercial mortgage workout, your success will be in direct proportion to your understanding of what motivates your banker.  Understanding who your lender is and what their motivations are is essential to negotiating a workout.

The different types of lenders that you could encounter include, large national banks, community and regional banks, CMBS special servicers and structured sale buyers that originate when the FDIC takes over a bank.

A large national bank who may be trading on the stock market at less than book value  because of unrealized CRE losses may be more apt to recognize a loss in exchange for a quick resolution as they are trying to clean up their balance sheet.  The small community bank may be in a position that they can't afford to realize a loss and might be more apt to "pretend and extend".  In this case, it may be likely that three months from now you may be dealing with a completely different set of circumstances as the smaller banks get gobbled up or closed by the FDIC.

If the loan is with a CMBS special servicer, you must take into consideration that the special servicer usually gets 1% of what they collect and all of the default interest.  They also hold the first loss position tranche of the securitized note.  The special servicer will allow the broader investor pool to take the property through foreclosure rather than forfeit the default interest and other fees that are called for in the serviceing agreements.

A structured sale buyer is a bank that acquired a portfolio of loans from the FDIC when they took over a bank.  These lenders often paid pennies on the dollar to take over what are considered toxic assets.  These lenders are looking to maximize their investment and may be interested in acquiring the property itself through foreclosure.

Which ever of these lenders owns your note, it is important that you communicate with them.  Bankers hate surprises.  They all fall somewhere on the banking food chain and have to answer to someone.  Understanding who they have to answer to and what their motivations are will help you to formulate a workout plan that meets their goals.  Only the lender can approve a workout.

You must have patience with your lender.  There are three distinct stages the lender goes through when there is a problem on a loan.  the first stage is denial.  "Just keep sending your payments, no problem".  Then comes anger.  "I'll sue!"  Next is acceptance.  Your lender understands that the problem is real and needs to be addressed.  This is where you get a workout.  Each of these stages must be dealt with.  You can't skip ahead and these can't be accomplished in the first few meetings.


Bankers like documentation.  When you see things are getting bad, talk to the lender and give him supporting documentation.  Let him know what you are up against so that he isn't surprised if you miss a balloon or interest payment.

By Ted Schmidt, Director of Marketing
Commercial Equity Solutions, LLC