That being said, Morris advocates that banks err on the side of providing only loan documentation that they believe is absolutely necessary for investors to review. "If you're a banker, you might say, ‘we probably shouldn't provide the appraisal because that could make an investor determine value based on that alone.' That isn't really the case," she says. "They're going to look at a number of different factors and perform their own due diligence."

Morris says she doesn't like to see institutions "assume which documentation should be purged from the file because they feel it's not relevant or they're afraid it's going to skew the price down. If the investors see that documentation is missing-documents that are referenced but not available for review-they discount further for that." Far from bolstering the bank's case, it can work against the lender.

Yet Greenland points out that in the interest of saving time, banks may take advantage of the fact that they're not obligated to provide as much transparency. He cites a hypothetical example: "If I'm a loan officer and someone comes in and says, ‘I'll buy that loan for x price,' more than likely whoever has the delegated authority will say yes," he says. "And nobody's going to second-guess; there's less likelihood of someone coming back and saying, ‘Wait a minute, the buyer underpaid.'"

There's a higher likelihood of such second-guessing with special servicers, Greenland adds, "because the loss is felt by the bondholders and will actually be reported on Bloomberg or Trepp." It's not a question of bankers doing any- about proper procedure, he says; they simply have more flexibility in some areas compared to special servicers.

However, Morris points out that it's not just commercial mortgages that banks have to weigh. "These institutions are balancing across their entire footprint: losses from different cost centers around the bank," she says. "The folks on the commercial special assets side might want to sell off $300 million or $400 million of commercial loans during the quarter, and while it might be a very good thing to do, they simply can't do it" because other divisions of the bank are taking losses at the same time.

It's a fair assessment to say that the decision-making for special servicers is a little more straightforward because their responsibility is solely to the trust, agrees Morris. "That doesn't mean it's less difficult sometimes," she adds. For example, if a special servicer is going to market with a portfolio of loans, "each of those loans has to be accounted for on an individual-price basis," she says. "They have to be able to report back to the trust that ‘on loan ABC, they owe $10 million in unpaid principal balance and we sold it for $7 million.' It has to be allocated in that fashion." While assets may be marketed as a portfolio, "they're esssentially all sold as one-off s or pooled individually," she adds.

By contrast, Morris says, "When we're doing portfolio sales for banking institutions, oft en we're grouping loans of like characteristics-collateral type, performance, geographic location, balance size-so that we can appeal to an investor on a basis where they can spread risk. The investor may buy five, 10 or 15 loans, and generally we're not allocating price at the individual loan level. We get one price for the pool, not the asset." Conversely, one area where a special servicer may have an edge is in finding a buyer for each loan it brings to market at a given time. Bankers may have their hands tied, so to speak, by the need to balance revenues and losses across the entire institution. "We can be working on a portfolio sale for a bank," says Morris. "They're ready to sell 100% of the loans; on the day when the offers come in, someone in the bank is told, ‘By the way, you can only sell 80% of the loans even though you met the reserve price, because we didn't have as much of a gain this quarter and we have to take a loss elsewhere.' " On the other hand, a special servicer "ought to be able to sell the loan as long as they can prove fair value" to the CMBS trust.

It's pretty much on a case-by-case basis whether banks or special servicers have an advantage, Morris says, because the assets are so different. She adds that a number of investors have told her they have yet to buy from special servicers, although with three dozen special servicers handling commercial loans, and with Morgan Stanley reporting in May that CMBS delinquencies have topped 10% for the first time, "we'll see more of that activity as time goes on." Also being decided on a case by-case basis is whether banks or special servicers are more likely to favor portfolio sales rather than individual transactions. "Internal capacity issues" are a key factor, says Morris. "It doesn't matter what type of institution it is; if they have a staff of 75 or 100 dedicated to working assets and they're not trying to grow that shop but are just trying to maintain capacity, and every month another $300 million or $400 million of loans comes through the door, something has to happen for there to be the bandwidth to handle it," she says. Absent any hiring push, the institution can manage the process through good old-fashioned prioritizing, identifying "which assets are best suited for sale at a specific time and which are more appropriate to hold."

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