|Servicers are working on a case-by-case basis to help property owners, but since major modifications require Special Servicer sign off, we expect the bigger deals to be subject to significant fees. Meanwhile the Special Servicers may not have the bandwidth to address smaller deals, which may be ignored.
The good news is that we see evidence of owners, tenants and lenders across the commercial real estate spectrum coming together to avoid irreparable damage to the system. Most apartment residents understand that their rent payments are crucial to running a safe and livable property. The National Multifamily Housing Council (NMHC) found that 84 percent of apartment households made a full or partial rent payment by April 12, up 15 percentage points from April 5, based on a survey of 11.5 million units of professionally managed apartments across the U.S.
In addition, many landlords are being compassionate and flexible, offering modifications that can be paid back incrementally over the life of the lease when the crisis abates. Owners tell us they are communicating with tenants to find out who is facing hardship, and reaching out to elderly residents in particular who may lack a support system. Others say they are focused on maintaining staff and operations, as supporting tenants is the right thing to do and will have significant upside for the property’s reputation over time.
Finally, in this uncertain economic landscape, lenders are like doctors. They need to manage borrowers like a physician working to help cure a patient. To that end, we are seeing many banks, and some life companies, allowing shortfalls to be tacked on to the back-end balloon payment. Lenders also need to make allowances for this unprecedented situation and recognize that even the most stable borrowers may require forbearance and remain excellent candidates for future financing.