Solutions to CMBS' Sub-Par Due Diligence and Underwriting Proposed by Workout Firm.

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Case Property Services, a leading CMBS workout firm releases quarterly newsletter proposing methods to enhance underwriting and rating agency methodologies.

In working out loans gone bad, we often encounter some that were bad from the start. This includes several that we have already seen from CMBS 2.0. Concerns are not strategies, so we have proposed what we believe are effective solutions.

Case Property Services has released its latest issue of “Restructuring Quarterly,” which focuses on commercial real estate and particularly CMBS loan underwriting and rating agency methodologies. The issue highlights some of the flaws inherent with the current process of originating, rating, and securitizing loans.

"In working out loans gone bad, we often encounter some that were bad from the start. This includes several that we have already seen from CMBS 2.0" said Shlomo Chopp, managing partner of Case. "Concerns are not strategies, so we have proposed what we believe are effective solutions.

These solutions include a formula for separation of powers so that due diligence personnel are not influenced by fees, and rating agencies are less reliant on the data provided by the originating lender. A key proposal is the establishment of industry and company specific occupancy costs analyses similar to the widely used “health ratio” for retail shopping center tenancy. This would replace the rating agencies usual methods of stressing the CMBS trusts’ cash flows by employing boiler plate percentages, and stressing property values by selecting a predetermined cap rate from a table.

The newsletter is available publicly on the Case website at http://www.caseps.com/newsletter/.

Case Property Services was established in 2009 to address the crisis of unresolved distressed CMBS loans. Case brings to bear its best-in-industry protocols and processes. Since inception, Case has consulted on distressed properties and loans worth over $1.5 Billion. More information can be found at http://www.caseps.com

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Shlomo Chopp
@Case_PS
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Case Property Services, LLC
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