COVID-19 CMBS Loan Relief Modification Requests – Latest Update

COVID-19 CMBS Loan Relief Modification Requests – Latest Update

At US Hotel Advisors, we are doing everything we can to help our clients during these tough times. We have been spending considerable time consulting with borrowers, lenders, servicers and attorneys to help our clients navigate through what will hopefully prove to be a relatively short-lived, yet unprecedented, liquidity crisis. If we can be of assistance, please do not hesitate to reach out.


In the meantime, US Hotel Advisors has compiled a list of modification options that, based on preliminary conversations, may be available to borrowers to help generate liquidity, pay operating expenses and defer payments until cash flows normalize. At the moment there is no “global” relief modification being offered, so each modification needs to be handled on a case-by-case basis. It is important to note that we are still in the early stages of these modification requests and information can change at a rapid pace.


We are also currently looking into how the SBA Section 7(a) Loan and Forgiveness Package (Paycheck Protection Program) and the revised Economic Injury Disaster Loan Program may work within the CMBS construct without violating SPE and related covenants, or whether servicers will agree to waive such covenants since they were clearly not designed to impede a government sponsored relief package.


The first step in requesting any relief modification is to reach out to the Asset Manager at the Master Servicer in charge of your particular loan(s). If you need help identifying your Asset Manager, please send me your latest loan statement which should contain the necessary information to track him/her down.


Which Bucket Are You In?

Servicers have been grouping borrowers into three different buckets based on their level of distress, so we will follow their lead, while keeping in mind that there are always grey areas:


Bucket 1 – Concerned about liquidity, but not in imminent danger of defaulting. May or may not make sense to ask for a modification, depending on length of crisis.

Bucket 2 – No liquidity, will not be able to make next payment without assistance, but view this as a temporary issue and cannot foresee a situation where you want to hand the keys back.

Bucket 3 – No liquidity, equity likely underwater with a very dim light at the end of the tunnel. Likely will need a comprehensive workout to survive.


Bucket 1

Most clients I have spoken with are in Bucket 1, which is where we have focused most of our energy at this point. Based on conversations with servicers, they are much more flexible now than they were in 2008.

Hoteliers in Bucket 1 are most likely debating whether or not it is even worth approaching servicers because they are fearful of the fees, stigma or strings that may come attached to it. In the past, even the slightest loan modifications required the loan be transferred to the Special Servicer which would lead to ongoing fees and enormous legal bills with no guarantee of a satisfactory resolution.

The good news is that there appear to be modifications that the Master Servicer can implement without formally transferring the loan to Special Servicing. The options that may be on the table include the following:


1) Three Month Payment Deferral – Three months appears to be the maximum breathing room that Master Servicers can provide without the loan being transferred to Special Servicing. The mechanism for paying back the missed payments is still TBD, but would likely need to be paid back over the course of the following 12 months. Of the three options discussed herein, Payment Deferral is likely the most meaningful solution for most borrowers, but there is a catch. As part of the agreement, servicers will likely implement a hard lockbox and a cash flow sweep (if there is any excess cash flow to sweep) to make sure that you are not making equity distributions during the Deferral period. While it seems clear that the cash flow sweep would cease once you are caught up on your payments, it is unclear whether servicers will then allow you to get rid of the lockbox or whether it will remain in its dormant state for the rest of the loan term. We understand that if the lockbox must remain in place, this may be a deal breaker for Bucket 1 borrowers so we are working hard for clarity on the matter.


2)  Interest-Only Payments – I have not heard any guidance as to how long of an interest-only period can be granted, but it appears to be a modification that the Master Servicer can also make without transferring the loan to Special Servicing. It is also unclear whether or not you can combine this with the Three Month Payment Deferral to give you additional room after the deferral period or whether this is just a stand-alone solution for borrowers in less distress.


3)  Reserve Repurposing – For borrowers with available untapped reserves, the FF&E Reserve in particular, this could be a great option for both debt service payment assistance and working capital at the operations level. This is another option that should not require the loan be transferred to Special Servicing.


Bucket 2

Borrowers in Bucket 2 aren’t necessarily that different from Bucket 1, with one notable exception. The modifications discussed above may be appropriate solutions, but you don’t have enough liquidity to get you through the next payment and therefore probably need to escalate the conversation to the Special Servicer or you will be at risk of default if the Master Servicer cannot accommodate your requests in a very timely manner. A payment default will send you to Special Servicing anyway, so it is best to get ahead of that and request a transfer prior to defaulting, if possible. Given the higher level of distress than Bucket 1, you may also want additional relief beyond what the Master Servicer is currently entertaining and transferring to the Special Servicer may be the only way to get it.


Bucket 3

Bucket 3 borrowers likely had problems prior to Covid-19 and will require a much more comprehensive solution that will most certainly require transfer to the Special Servicer.



US Hotel Advisors is not a law firm. The information provided in this email does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available are for general informational purposes only. Information in this email may not constitute the most up-to-date legal or other information. Readers of this email should contact their attorney to obtain advice with respect to any particular legal matter. No reader of this email should act or refrain from acting on the basis of information provided without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.