Bloomberg reported that Capmark Financial Group, one of the largest U.S. commercial real estate finance companies has filed for Chapter 11 bankruptcy. Capmark was feeling pressure on two fronts. First and foremost, they had originated more than $10 billion worth of commercial real estate debt. As the default rates on these loans began to increase, the pressure on the company mounted. The company took a second blow when an increasing number of loans that were being serviced by Capmark for other lenders began to go into default. Generally, the extent of Capmark’s servicing duties included sending out statements and collecting checks. This is typically the duty of a master servicer under a CMBS loan.
Once a CMBS loan goes into default, it is generally moved to what is a called a special servicer. Often times, this is simply another division of the master servicer. The special servicer has the authority to make modifications to the original loan in order to maximize the return to the investor. This gives the special servicer a broad range of duties and powers, but is also very labor intensive. The influx of defaults and the subsequent strain on its special servicing unit was a critical factor leading to Capmark’s bankruptcy.