Commercial Servicers Have Work to Do
A survey of commercial mortgage borrowers commissioned by the Mortgage Bankers Association and the Commercial Mortgage Securities Association finds that one area that needs improvement is servicing. Survey respondents were asked what were their experiences with different capital sources and what were the factors that could be improved on.
A number of the factors they mentioned as being least satisfied with - loan assumption, prepayment and defeasance, escrow and collateral release, physical modification of real estate and loan modification - relate to the servicing function, which means that servicers have scope to improve upon their performance. Respondents also specifically cited servicing as an area that needs to be improved on. In the commercial mortgage-backed securities arena especially, borrowers were unhappy with the lack of flexibility in modifying loans based on their need to manage the collateral real estate. They also cited post-closing servicing issues as a CMBS concern.
The survey was conducted by a Minneapolis-based research firm, Gantz Wiley, and a sample size of 156 borrowers, a size considered statistically relevant by Gantz Wiley, were asked about their borrowing experiences and perceptions. The information sought was on how they opted for a specific capital funding source - such as CMBS, commercial banks, insurance companies or pension fund - their preferences across funding sources and suggestions on how to improve the borrowing process.
The respondents - who are borrowers on the four major commercial property types (retail, apartment properties, office and industrial) and are members of the Urban Land Institute, the International Council of Shopping Centers and the National Multifamily Housing Council - were surveyed over the telephone. The respondents had borrowed at least twice in the last two years, with two different funding sources.
Jack Cohen, CEO, Cohen Financial, and chairman of the borrower survey task force, told Commercial Servicer that 17 different factors were looked at so as to find out what was important for the borrowers in choosing a financing source. The five that emerged as most important were certainty of execution, lowest interest rate, best loan conditions, communication skills and proceeds.
CMBS conduits were seen as having the best showing in terms of interest rates and loan proceeds. It also emerged that the borrowers who chose to do a CMBS execution were the least satisfied with their experience, according to Mr. Cohen. He speculates that it is the rate and proceeds advantage that causes borrowers to go with CMBS, since those two factors might be seen as compensating for the overall dissatisfaction of the experience with this funding source. Another area explored was the actual experience with a particular funding source relative to the borrower's expectations. In this aspect, too, CMBS borrowers were least satisfied. And of the borrowers who had a post-closing issue, 62% were in the CMBS camp.
As for recommendations for improvement, the respondents mentioned increased communication, education and awareness, more flexibility in the post-closing phase, the ability to improve their properties, and for servicers to have more of a service orientation, improved co-operation and speed. Standardized closing costs, terms and turnaround, as well as a greater sense of relationship were also on their wish lists, Mr. Cohen said.
The survey was initiated by a group of about 20 industry participants, following up on the CMSA and MBA's initiatives on borrower satisfaction over the last couple of years. Going forward, the CMSA and the MBA will decide how best to act on these results. "It is fair that CMSA find an interest in one area and focus on that, whereas the MBA may find an interest in another area and focus on that. And if it gets out broadly enough, individual companies will focus on different areas even still. Our hope is that somebody may decide to survey deeper in one area as opposed to another," Mr. Cohen said.
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