I just got off the phone with Don Shapiro (President & CEO) of Foresite Realty Partners. I was remarking on the tremendous amount of recent interest in special servicing and special servicers and wondering from where this interest derives. Don wasn’t surprised, saying that for many years no one knew exactly what it is that special servicers did. To me, it seems that we still want to know.

As he explained it to me: special servicers have a process in place to deal with loans that require unusual attention, because they are in–or are about to go into–default. Don elaborated that special servicers do more than just shepherd properties through foreclosure; they are also highly involved in operating and performance issues surrounding non-performing loans including management, resolution and disposition of those loans.

I asked about special servicing and CMBS; are special servicers involved with other types of properties? He explained that special servicers work within a variety of areas in all of the four food groups: multifamily, office, industrial and retail but it is the CMBS that is the strong tie that binds those worlds in many ways, because of the high complexity of dealing with a pool of loans, especially when a large portion are in delinquency or default.

At one time the special servicer’s role was basically to collect principal and interest (P & I) on the loan pool, pay the P & I on the note and provide reports to the investors. However, with so many loans defaulting, and the issues involved with working through and disposing of these loans, the special servicer’s role has expanded exponentially. Today, their role is critically important, far reaching (distress has no geographic boundaries) and they could potentially provide an abundant source of acquisition opportunities. 

No wonder so many people want to hear what they have to say.

I just got off the phone with Terry Kaufman of Rockhouse Capital (speaker at our upcoming Summit)… he mentioned that real estate investors should reconsider investing in Mortgage-Back-Securities (MBS).  In his estimation MBS investment is more profitable and less risky today than either flipping property or renting residential properties (be they either condos or multifamily properties.) 

I find his hypothesis intriguing, but the jury is still out.  Yes, everything you hear or read suggests the general consensus is that the days of guaranteed home price appreciation are gone; no one can view flipping property as a low-risk-high-return investment strategy these days.  Also, securing returns through rental cash flow can sometimes seem like more trouble than it’s worth.  However, in the wake of Wall Street’s meltdown, with MBS, ABS and CDOs all sharing the blame, are investors ready to give MBS another ‘go-round?’ 

Thoughts, comments?

According to Spencer Garfield of  Hudson Realty Capital, one of our expert speakers at the upcoming Distressed Real Estate Summit – New York 2010: despite what many others are saying, there is a lot of activity in the distressed multifamily sector. The nature of the asset lends itself to more transactions getting done than with other types of properties. Historically and today, there is generally more available financing because distress in multifamily properties becomes apparent sooner than with other property types. Shorter lease periods create greater clarity for those looking to purchase at the right price and begin to stabilize the property.

The number of modifications on commercial real estate loans held in securities trusts has “accelerated dramatically” in 2010, according to Trepp LLC, a New York-based company that tracks the commercial real estate market. So far in 2010, loan modifications have already surpassed the total number of mods done in 2008 and 2009 combined, Trepp reports. At this pace, 2010 modifications are set to triple those completed last year. With servicers stepping up resolutions of troubled commercial real estate loans, increases in delinquency numbers are beginning to moderate.

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