Avoid The Ever Lurking Special Servicer

Never lose sight of the fact that the hotel business is cyclical, so just because things are improving in this slow recovery, there’s no reason to over-leverage yourself. If you do, you might encounter that dreaded figure so familiar from the recession that began in 2008 and spun into the start of 2010: the special servicer.

The recession is easing, what with RevPAR improving and an increase in hotel transactions. But hospitality is still a risky business, so be conservative and, if you’re looking to borrow money to buy or refinance a hotel, make sure to surround yourself with experts.

The special servicer gained prominence at the peak of the recession because of all the CMBS loan defaults. The good news is, their profile has lowered recently because that market is improving. According to a recent report from National Real Estate Investor, CBMS issuance last year hit a “post-crisis high” of nearly $48.2 billion, still far below its 2007 peak of $228 billion-plus. The resurgence in activity is based on renewed confidence in the commercial real estate market.

Everything’s hunky dory as long as payments are being made and the loan’s not in default, but if things go south, the special servicer comes on the scene.

Special servicers are “fixers” who played a major role during the recession, when hotel values dropped so sharply some owners were holding assets worth half what they were worth at the time of purchase.

No borrower can know all aspects of a desired property, the market or the financial opportunities. The recession brought that lesson home with brutal strength. Now that the tide seems to be turning, there’s no reason to be one of those borrowers who during challenging times get caught with their values blown. A rising tide lifts all boats. Only you can make sure the sailing’s smooth.

Author - Greg Morris