As we head into more uncertain times with a looming recession, we continue to see CMBS loan delinquency rates fluctuate. According to Trepp, CMBS delinquency rates were up in December 2022, rising above the 3 percent mark for the first time since July of last year. That was the third consecutive month rates have risen.
As delinquent CMBS loans are turned over to special servicers, they will have to decide how to get each loan back on track through several possible avenues including forbearance plans, loan restructures, short sales, and – you guessed it – property foreclosures. As soon as a foreclosure is anticipated, the best course of action is to become familiar with the property through rigorous due diligence.
First thing’s first: get to know your property
When dealing with foreclosures, special servicers typically have little to no background on the property at hand, which can make it difficult to make informed decisions on property upkeep, existing conditions, asset management, and more. That’s where foreclosure due diligence comes into play. Environmental and property due diligence are the keys to understanding your foreclosure properties and dealing with them efficiently and cost effectively.
Customize your approach for maximized success
When special servicers are left with the aftermath of a foreclosed property, the due diligence approach needs to be conservative, efficient and thorough to set the special servicer and investors up with the information needed to make the best possible business decisions moving forward. Oftentimes, due diligence is required to track down all previous property reports, previous building upgrades, upcoming maintenance, recognized environmental conditions (RECs) and more. Look for a firm that will create a customized approach to your needs as opposed to a transactional, one-and-done project plan. Depending on the property, you may need customized services to get to know your property on a deeper level, including:
- Desktop reviews
- Phase I environmental site assessments
- Phase II environmental site assessments
- Mold/indoor air quality assessments
- Radon testing
- Asbestos containing material (ACM) testing
Work with an experienced consultant
While foreclosure due diligence can seem overwhelming, the key is to work with an experienced consultant who will guide you through each step of the process and provide clear and consistent communication. There are a lot of moving pieces when it comes to navigating foreclosure properties, and firms that have been around for previous recessions and influx in the need for special servicers are your best bet for success.
EBI’s experts are ready to support you every step
Making sure special servicers are equipped with the information they need to move forward with foreclosed properties is where EBI comes into play. Our expert consultants have been there for our clients in previous economic downturns; and getting them the best information in complex times remains our number one goal.
If you anticipate foreclosing on properties in the near term, reach out to EBI’s experts. We can help you navigate these difficult times to end up with the best possible outcomes.
Questions? We’re here to answer.