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The commercial mortgage securitization process begins when an owner of income-producing commercial real estate seeks to borrow money to refinance existing debt or to acquire new property. The owner typically obtains a mortgage for a portion of the property value. Investment bankers then assemble a diverse pool of these loans, which may be backed by apartments, office buildings, shopping centers, warehouses and/or hotels located throughout the United States. As the pools of loans are sold, they are sold in the form of bonds. The principal and interest payments received from the underlying loans in the mortgage pool are passed directly to the purchasers of the bonds. CMBS are divided into bond classes, which receive ratings from the major rating agencies based on their payment priority. Bond classes with ratings from AAA to BBB are called investment grade securities. Bond classes with ratings from BB to B and the unrated class are called non-investment grade securities. LNR specializes in the purchase of non-investment grade securities because we find that the market most frequently undervalues these securities. LNR, however, typically seeks to invest only when we are allowed to monitor, control and add value to the securities' performance through special servicing. It is important to note that all classes, even non-investment grade securities, are backed by significant collateral value. The diagram below illustrates the construction of a typical CMBS transaction.
LNR is uniquely positioned to benefit from investing in CMBS. Because of our over 35 year history of successfully investing in and developing, redeveloping and/or repositioning real estate, we are able to quantify the value of almost any piece of real estate underlying a CMBS with unusual accuracy. Due to the scale of our activities, we are often able to reject properties scheduled for inclusion in a newly constructed pool of securities. Indeed, the due diligence skills and systems that we have developed to evaluate and monitor property values are so highly regarded that a host of leading financial institutions have partnered with us in the purchase of real estate securities. See the Due Dilligence Process section of our website for a detailed description of our due diligence process. Once the due diligence process is complete and an investment is made, our special servicing team monitors the portfolio so that it performs to its maximum potential. Our goal as special servicer is to keep the loans performing. Our proprietary systems enable us to monitor large volumes of information relative to the underlying loans so that we can quickly identify potential issues at the loan level, negative trends at the property level, and tenant and borrower relationships or property type and geographic concerns across portfolios. We have developed distinct strategies for working with borrowers on problem loans, designed to maximize value from these assets, and there are many measures of our success in this area. LNR has the highest ratings afforded to special servicers by the rating agencies. |
LNR was one of the first
companies to enter the commercial mortgage-backed securities ("CMBS") business
in the early 1990's as an investor in non-investment grade CMBS. We recognized
the potential for success early on and employed our real estate and workout
know-how to seize an emerging opportunity. We have created one of the nation's
leading and most respected franchises in the world of CMBS investment and
oversight.