Wednesday, September 23, 2009

More on restructuring guidance - a good start but not a panacea

As I mentioned in my last post, I thought it was about darn time the government came out with some guidance on restructuring CMBS to allow modifications to individual loans in the pool without having to throw everything into default and the special servicer.

That doesn't make this move, however, good, a cure-all for the market. As an excellent story in Retail Traffic points out, this just might be a delay to solving the fundamental problem rather than a solution. Think of it as, perhaps, a more complex and less personal extend and pretend? But the hope is not completely illusory -- but modifying the loans the thought is that they could be extended into the next cycle, although I suppose you could also argue that the extensions could delay a new cycle too. I tend not to think that way.

One potential difference between CMBS pool loan extensions and bank extensions, in my opinion, has to do with the future. In some cases, banks that extend have another factor to consider: the customer relationship. I can think of some lenders with foresight who are trying to give the client the benefit of the doubt because they want to maintain a good relationship into the next cycle. Well, that and they probably do not want some of these assets on the rolls and the losses that come with them. Call it a symbiotic relationship if you will.

And as we all know, what goes around comes around. It isn't a matter of if but when in the market. There are just a lot of different opinions as to when "when" will happen.