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March 31, 2025
Cadwalader's recent webinar, titled "Capital Relief Trades on Commercial Real Estate," was covered by Structured Credit Investor in an article, "Regional banks advised to build investor confidence in CRT deals," published on March 28. The webinar was moderated by partner Stuart Goldstein, with partners Jed Miller and Kahn Hobbs participating as panelists.
The article focuses on the challenges that US regional banks executing CRT transactions face in managing regulatory expectations and navigating complex servicing arrangements. It states that one major challenge is balancing strong borrower relationships with compliance with tightened regulations, including the possible required involvement of a third-party loan servicer, especially in distressed scenarios.
As Jed notes, primary servicing can remain with the originating bank, allowing it to manage day-to-day borrower interactions. However, once a loan defaults, GAAP rules may require third-party servicers to take over to ensure impartial management.
Meanwhile, disputes in commercial real estate CRTs often centre around whether servicers adhere to previously agreed standards. Kahn notes that clear, well-defined servicing agreements are crucial for minimising conflicts. He believes that it is better for banks to negotiate detailed servicing terms that align with investor expectations while protecting their interests.
Management of cash collateral is another aspect that regional banks should consider, Jed advised. Opting for a third-party cash management, for example, can reduce risk perception for investors, though it may come at a pricing premium. Other elements like having a robust internal reporting system and effective communication are also essential for the banks to ensure transparency with stakeholders.
Cadwalader further believes that a good balance between control and compliance can significantly help regional banks optimise the benefits of CRT transactions. The prioritisation of servicing agreements, dispute resolution mechanisms, as well as transparent reporting, can enhance both risk mitigation and investor confidence in the long term.
Read the full article here (subscription required)
