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Monday, 11 March 2019

Special Servicer Selling Troubled CMBS Loan; Comes Under Fire from Controlling-Class Holder

Midland Loan Services has agreed to sell the A1 piece of a distressed $107.8 million CMBS loan against a northern California office property. But evidently it didn't widely market the note, nor did it determine its fair value. That prompted the holder of the controlling class from one of the deals to object, arguing that the sale could result in an outsized loss to the trust holding the loan's A2 piece.

 

 

 

Commercial Real Estate Direct Staff Report

Midland Loan Services has agreed to sell a senior piece of a distressed $107.8 million CMBS loan against a northern California office property. But evidently it didn't widely market the note, nor did it determine its fair value.

So, it's come under fire from the investor that holds the controlling-class bonds of the CMBS trust that owns the senior loan piece.

The investor, Taconic Capital Advisors, had sought to put the loan's sale on hold by filing for a temporary restraining order in New York State Supreme Court. But that petition was rejected last week by judge Jennifer G. Schecter.

Taconic had argued that Midland was selling the loan piece "to a third party without complying with the purchase process set forth" in the CMBS deals' pooling and servicing agreements. That process includes the requirement that a fair value be obtained for any loan whose sale is contemplated and that the special servicer maximize recoveries to the trusts that hold any loan being sold.

The loan in question is commonly referred to as the Fireman's Fund and is backed by the 710,330-square-foot office property at 775-779 San Marin Drive in Novato, Calif. It originally had a balance of $190.25 million and was divided into a $99.9 million A1 note that was securitized through Banc of America Mortgage Inc., 2005-5, and a $90.4 million A2 note securitized through GE Commercial Mortgage Corp., 2005-C4. The notes have amortized to $56.6 million and $51.3 million, respectively.

The entire loan had transferred to special servicing last October as a lease governing the entire property was nearing its term and was not going to be renewed.

Last December, Midland had received an offer of $60.04 million for the A1 note, from an investor, DW FF1 LLC, said to be David Werner Investments.

Taconic at the time had objected to the sale, arguing that a third party can buy a loan only after its fair value was determined. And that it, by virtue of its controlling-class status, held an option to buy the loan at that value.

Wells Fargo Bank, trustee for the two CMBS deals, argued that the pooling and servicing agreement allows for a sale of a loan to other...


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