CMBS servicers are not only performing loan extensions but have ventured into other forms of loan modifications as well, according to a just-released NewOak Capital report.

"Loan extension has been one of the most common modification strategies used by special servicers, and has been criticized by many as extend-and-pretend or delay-and-pray, etc,” said Malay Bansal, head of portfolio management and advisory for commercial real estate and CMBS at NewOak.

Bansal said, however, that loan extension is not the only type of modification being done.

For instance, a case in point is the recent 270 Peachtree loan on a 336,000 San Francisco office in Atlanta that backed the LBUBS 2000-C3 deal.

The $33.9 million loan, which had matured in July 2009, was modified in three ways, according to Bansal. About $10.87 millionor 32% of the principal was forgiven while the loan coupon was dropped from 7.77% to 3%.  This was done together with extending the loan by two years.

Another example that Bansal gave was a $18.25 million loan on Houston apartments was modified to forgive 33% of the loan. This came with an 18-month extension.

"As the volume of these modifications grows, it will become even more important for CMBS investors to have a good surveillance program,” Bansal said in the report.

NewOak is an asset management, advisory, and capital markets firm in Manhattan.

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