Say you’ve been on the market for a while, looked at just about every space there is and finally – with the expert help of your broker – you’ve found the perfect space to lease, under the right terms and the landlord/leasing agent is ready to seal the deal. But wait…the deal can’t go through until certain details associated with a CMBS loan are resolved.
Why you might ask? In some cases, the property you are interested in leasing has a CMBS loan on it, requiring leases be approved by the Master Servicer and/or the Special Servicer of the CMBS loan before you (the tenant) can move in. Without the servicer’s consent, important things such as leasing commissions, tenant-improvement allowances, and/or landlord costs can’t be paid and the deal can get delayed.
So what exactly are CMBS loans and who are Master and Special Servicers?
CMBS stands for commercial mortgage backed securities. These securities are bonds whose payments are derived from a loan or pool of loans on commercial real estate. As such, these securitized loans are held in a trust that are then “serviced” by a lender. It is the servicer’s utmost responsibility to protect the trust and thus its investors. The primary method of protecting the trust is to review major leases within these portfolios of CMBS properties.
According to a Senior Credit Analyst on the lease team for Wells Fargo Bank, “Servicing CMBS loans are more complex than a non-securitized loan. We have more regulations to follow and more parties to get approval from. We can move things faster that are within our authority to approve as master servicer and the bigger the lease the longer it takes to get consent because many times we must send it to the special servicer and they usually have other parties they need approval from too; all of which takes longer.”
In the heat of lease negotiations, the last thing you think of is lender consent. Here are several things you can do to prevent any snags through the leasing process:
- Think of the lender earlier in the process; at least a month before lease execution. You are not the only borrower who needs an SNDA (Subordination Non-Disturbance and Attornment Agreements) negotiated and/or a lease reviewed.
- The lease approval process can take up to 15 days; sometimes longer. Would it surprise you to know that Wells Fargo reviews around 5,000 leases a year and enters into about 700 SNDAs?
- Lease consents from servicers can cost up to $500 or more. These costs are often passed through to the landlord and sometimes the tenant.
- The lease should not be fully executed (signed by tenant and landlord) without lender (servicer) consent.
- The lender (servicer) is not a party to the lease.