By Crystal Kalinowski, Managing Director, District Capital Detroit
Everyone always asks, why do lease reviews and approvals take so long?
One of the most frustrating day-to day servicing issues encountered by Borrowers is the lease review and approval process. In commercial mortgage loans “Major” leases often require lender approval prior to being executed or amended. The Borrower must submit a lease to the lender for review and then wait to have it reviewed and approved and THEN they are required to pay a fee to receive the approval. This process can take anywhere from several weeks to several months. And the question we most often receive from Borrowers is why does this have to be so difficult?
There are several things that slow down the process:
- Most servicing analysts are severely overloaded. In larger CMBS shops one analyst can have anywhere from 400 or more loans for which they are responsible. Since leasing is such a common occurrence, that single analyst may have 200 leases on their desk to read and review so they can provide a summary to their superiors, which leads to….
- Lease approvals require several layers of approval. Your lease isn’t just going to one person to for approval, sometimes there are upwards of 4 different sets of eyes that must review and approve the lease. When you send your lease to your correspondent or sub-servicer, they then, in turn, must submit that lease with a detailed abstract and write-up, and a ton of other underlying loan information, to a life company or CMBS Master Servicer (who in turn may have to submit it to a Special Servicer). As you can see, your turnaround time begins adding up. So, it’s important to try and solve up front for the next issue at the time of your lease submission:
- Borrowers assume once they submit a lease to the Servicer they are done. Unfortunately, this is not the case. Servicers are required to provide their approval committee with all kinds of things in addition to the lease, for example, current financials, a description to any TI costs and how those are getting funded, etc. This part of the process can significantly affect timing if the Servicer must go back to the Borrower several times with follow up questions.
The best course of action to avoid these pitfalls is to be prepared and have the right team in place. We’ve spent a few decades honing our craft and building relationships with all the servicers in the industry to help expedite this process for our clients. Please give us a call and let us help with your next servicing question. Even if we don’t currently service your loan, we’d be able to help get you through your servicing issue.