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New York
Savills managing director Dan Gorczycki
Major loan servicers are still inundated by loans entering special servicing, Savills managing director Dan Gorczycki tells us. But certain loans are more likely to go to market than others. Smaller loans are less profitable (since servicers are paid a percentage-based fee) but require the same amount of servicer man-hours, so there's incentive to push those out the door quicker. Savills is actively marketing a portfolio of retail loans secured by properties inCalifornia and Arizona on behalf of a servicer; only one of the loans is worth more than $10M. Another factor that can encourage sales of distressed loans: Servicers may have reached a point of deal fatigueon some loans that have been in servicing for, say, a year. If the borrower has been unwilling or unable to inject fresh equity into the deal by now, it likely never will.
Trepp Chart on Special Servicing, New York, December 2010
In the NY metro, 202 loans worth $6.8B were in special servicing in December, according to exclusive research from Trepp. Dan says that a rising tide has lifted all boats and simply “extending and pretending” has worked so far. However, the servicers—and the bondholders they represent—have realized this could instantly change and they'd rather deploy the capital elsewhere. Expect servicer-driven sales to increase during the latter half of ’11, especially for smaller-balance loans, he tells us. But if interest rates rise and/or we experience a double-dip recession, this will be more than offset by new transfers to special servicing from loans that are currently performing. “Like Lucy in the candy factory, the loans might be coming in the door faster than they can be processed,” he says (but we don’t think they’d taste as delicious).