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CMBS and Conflicts of Interest: Evidence from a Natural
Experiment on Servicer Ownership
Maisy Wong∗
University of Pennsylvania
April 2015
A
Data Appendix
A.1
Sample construction
Deal data set
The deal data set comes from Realpoint, downloaded on Nov 11th 2010. The raw data set consists
of 1082 deals, securitized between July 1991 and Nov 2010. The deals affiliated with the United
States government (N=186) and deals originated in Canada or have a trustee in Canada (N=60)
are dropped. This results in a final sample of 835 deals.
Loan data set
Originally, the main data set has a total of 141,976 loans coming from the same 1082 deals in the
Realpoint deal data. Each loan has an identifier for the deal it belongs to and an unique loan
ID (prospectusid). For consistency, loans from Ginnie Mae deals or Canadian deals are removed,
which gives us a data set of 121,627 loans. We obtained all of our variables for loan characteristics
from this data set.
Realized loss data set
Realpoint records each loan’s realized loss for the month that the loan was liquidated. The realized
loss report is updated every month to provide updates on old loans that have been liquidated and
to add new liquidated loans. I started downloading the realized loss data in December 2010 and
finished downloading in November 2012. I keep only the newest observation of the realized loss
∗
Wharton Real Estate.
maisy@wharton.upenn.edu.
3620 Locust Walk,
1464 SHDH, Philadelphia,
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PA 19104-6302.
Email:
for each loan. I also replaced outliers for some of the variables (see Section A.2 for more details)
and dropped around 1400 loans with missing liquidation dates. This gives us a final sample of
11,332 liquidated loans with liquidation months ranging from September 1997 to November 2012.
A.2
Data construction
Main Variables
Treat I grouped 4 special servicers that were sold in the sample period (2009-2012) into the treatment group and the rest of the 31 special servicers as the placebo group. The four special servicers
are Berkadia Commercial Mortgage (ownership change in December 2009), C-III (March 2010),
LNR (July 2010), CW Capital (September 2010). I assigned a placebo date (LNR’s event date, July
2010) to all special servicers that were not sold. I also tried other placebo dates (e.g. C-III event
date and Berkadia event date).
Loss rates The loss rates at the loan level are reported as a ratio of the total realized loss for the
loan (in dollars) divided by the loan balance before losses. For the raw data, 90 (95) percent of
loans have loss rates that are less than or equal to 100 (104) percent. Loss rates can be above 100
percent especially if the loan balance is small. Loss rates that are above 500 percent are replaced as
missing (149 loans). Some outliers appear to be loans from the same portfolio where the realized
loss in dollars for the entire portfolio was divided by the loan balance for each loan, resulting in loss
rates that seem implausibly high. These outliers are not included in the analysis.
Control Variables
These include loan attributes at origination. I first process the variables at the loan level (the next
table provides more details). Then, aggregate across loans to the special servicer level to track the
loan attributes for the portfolio of loans managed by each special servicer.
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Table A1: Variable Construction
Name
Comments
Issuance DSCR NCF
Replace by Issuance DSCR NOI (Net Operating Income) if
missing, winsorize at top 1%
Cutoff balance LTV
Replace by Original LTV if missing, winsorize at top 1%
Cutoff balance (in million dollars)
Replace by original loan amount if cutoff balance is 0
1(Number of properties>5 per loan)
Measure of loans with large portfolios
Property age
Replace to missing if property was built before 1700 or after
2010. Property age = 2010 - year built
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B
Special Servicer Background
This section provides more details about special servicers in the treated and placebo groups.
Berkadia In December 2009, Berkshire Hathaway and Leucadia National Corporation bought
Capmark Financial and renamed it Berkadia Commercial Mortgage LLC. One of Berkadia’s business lines includes "proprietary lending" to "originate loans for its own balance sheet" (Berkadia,
2015).
C-III In March 2010, Island Capital acquired the commercial mortgage loan servicing business
of Centerline Holdings Company and renamed it C-III. Island Capital also owns C-III Investment
Management LLC, which manages over $3.8 billion in assets. According to their website, C-III
Investment Management funds target "commercial real estate equity, distressed commercial real
estate mortgage loans, unrated and below investment grade commercial mortgage-backed securi˘ I˙
ties (CMBS), collateralized debt obligations (CDOs), whole loans, B-notes and mezzanine debtâA
(C-III, 2015).
LNR In July 2010, LNR was recapitalized by a consortium of investors including Cerberus, Vornado, Oaktree, iStar, and Aozora. All of these firms are active investors in the CRE property
market (Oaktree, 2014; Istar, 2015; Cerberus, 2015). Vornado is a large Real Estate Investment
Trust, Oaktree counts distressed debt and real estate as its major asset class. The primary business segments of i-Star include "real estate finance, net leasing, operating properties and land".
Cerberus has over $20 billion under management invested in four primary strategies, including "[d]istressed securities and assets (mortgage-based securities, corporate debt, non-performing
loans, structured loans) [and] real estate-related investments". At that time, Cerberus also owned
49% of Aozara Bank. In April 2013 (after my sample period), Starwood Property Trust announced
it had acquired LNR.
CW Capital In September 2010, Fortress Investment Group LLC acquired CW Capital. Fortress
has approximately $67.5 billion of assets under management as of December 2014, with some
investments in "distressed and undervalued assets...including...real estate" (Fortress, 2015).
Placebo group As discussed in the main text, special servicers in the placebo group did not experience a sharp change in the likelihood of self-dealing because there was no significant change
in ownership during the sample period that linked special servicers with major investors in CRE
assets. Most importantly, the largest special servicer in the placebo group, Midland, did not have
proprietary investment activity. I repeated the event study using Midland only and find similar
results.
One of the special servicers in the placebo group, JER Partners, was acquired by Island Capital
on August 20, 2011. At that time, JER had $4 billion of loans in special servicing compared to $13
billion for C-III. I did not include JER as part of the treatment group because there was relatively
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little liquidation by JER after the acquisition ($1.7 billion) and the acquisition was towards the end
of my sample period. I did try dropping JER from the control group and the results are similar.
References
Ashcraft, Adam B., Kunal Gooriah, and Amir Kermani, “Does Skin-in-the-Game Affect Security
Performance? Evidence from the Conduit CMBS Market,” Working Paper, 2014.
Berkadia,
“Lines of Business,”
http://www.berkadia.com/linesofbusiness/
sitepages/pl.aspx 2015. Online, accessed 4-22-2015.
C-III, “C-III Capital Partners Our Business,” http://www.c3cp.com/OurBusinesses/
InvestmentManagement.aspx 2015. Online, accessed 4-22-2015.
Cerberus, “Cerberus Capital Management, L.P., Who We Are,”
cerberuscapital.com/the-firm/ 2015. Online, accessed 4-22-2015.
http://www.
Chen, Jun and Yongheng Deng, “Commercial Mortgage Workout Strategy and Conditional Default Probability: Evidence from Special Serviced CMBS Loans,” Institute of Real Estate Studies,
2013, 46 (4), 609–632.
Deng, Yongheng, John M. Quigley, and Anthony B. Sanders, “Commercial Mortgage Terminations: Evidence from CMBS,” Working Paper, 2004.
Fortress, “Fortress Overview,” http://www.fortress.com/AboutFortress/Default.
aspx 2015. Online, accessed 4-22-2015.
Ghent, Andra and Rossen Valkanov, “Comparing Securitized and Balance Sheet Loans: Size
Matters,” Working Paper, 2014.
Istar, “Istar Financial, Our Business,” http://www.istarfinancial.com/ 2015. Online, accessed 4-22-2015.
Oaktree, “About Oaktree,” http://www.oaktreecapital.com/about/default.aspx
2014. Online, accessed 4-22-2015.
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