Offices, Insurance Top Commercial Servicing Conversations, Panel Says

(From left: Christine Chandler, Adam Fox, Carina Johnson, Jamie Woodwell, Stephanie Milner and Brian Hanson, by Anneliese Mahoney)

NEW ORLEANS–Looking at servicing in the current commercial market, offices and insurance issues are top of mind. That’s per a panel at the Mortgage Bankers Association Commercial/Multifamily Finance Servicing and Technology Conference, here, May 20.

Christine Chandler, 2024 MBA Vice-Chair and Executive Vice President, Chief Credit Officer and Chief Operating Officer at M&T Realty Capital Corp., Baltimore, started the conversation by announcing she was ripping off the metaphorical “band aid” to delve into the office landscape.

“Office is the No. 1 topic of every meeting we have, whether it be with a servicer, an originator, an investor and regulators, whether they be foreign or domestic,” Adam Fox, a Senior Director at Fitch Ratings, New York, said. He noted, among other challenges, some major shifts and lack of clarity in valuations have contributed to the increased attention from media and regulators.

Brian Hanson, Managing Director of CWCapital Asset Management, Washington, D.C., said his company is seeing a mix of factors affecting the office space, from location to size of assets. However, they’re still seeing some loans moving through special servicing, and ultimately, “maybe there’s a little bit of light at the end of the tunnel.”

And Jamie Woodwell, MBA Vice President, Head of Commercial Real Estate Research, noted that due to the nature of long leases and other factors in the commercial space, that metaphorical band aid may be more of a slow peel before the market settles into a new normal.

The current state of insurance is another key issue.

“As I was going through my list of everything that’s going on in the world of insurance, I had a thought that the best question is probably what’s not going on in the world of insurance,” said Carina Johnson, a Senior Vice President at Walker & Dunlop, Bethesda, Md.

She listed a number of factors, from climate change to increased scrutiny and basic economic headwinds, as affecting insurance costs and availability.

Stephanie Milner, MBA Associate Vice President, Head of Commercial and Multifamily Policy, noted that state-level hold ups on raising premiums also present plenty of challenges.

“At the end of the day, I ask: How is all of this–everything that’s going on in the insurance market–impacting our borrowers? Well the biggest thing is that it’s been increasing their premiums. It’s been increasing their deductibles, and they’re starting to lose the ability to get coverage,” Johnson said.  

“What we have to do as servicers is find that middle ground,” she said. “How do we become creative in a way that allows our lenders to be comfortable with either a higher deductible or maybe even a lower limit, but also in a way that borrowers can sustain the coverage and the cost as well?”

However, Johnson offered some tentative pieces of good news too–she said she’s hearing that some reinsurers may slowly and progressively get back in the market, and premium amounts may be starting to stabilize.

While offices and insurance are the clear No. 1 and No. 2 topics, Chandler polled the panelists on what else is impacting the commercial servicing market. The varied topics cited included appraisals, interest rates, senior housing defaults and special servicing, volatility, building sustainability standards and rent control.

And moving forward–over the next four to five years–what do the panel expect to be the next hot topics?

Many struck similar notes, including climate, sustainability and technology–with cybercrime a concern cited by multiple panel members.

However, with future challenges–and opportunities–in mind, many on the panel expressed optimism about the current state of commercial servicing.

“I think for an industry that’s under a lot of stress and a big microscope, the state of the servicing industry is actually really, really good,” Fox said.

And, he cited one past concern the industry has already overcome.

“One of the big concerns coming out of COVID that people had is […] how are they going to make this work? How are they going to make the hybrid environment work, their concerns about young people coming in, retiring more senior people–it’s all been figured out. And people have set up their hybrid infrastructures, they figured out the training, turnover numbers are down,” Fox said. “And I think that’s coming through in kind of how they treat their borrowers. So I think the market–with everything that’s going on–the servicing market is generally pretty good.”