Dechert 4 Real

CMBS Servicing Sitdown With Trimont’s Cindy Barreda and Leslie Hayton

• Dechert LLP

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Recording for the first time in Dechert’s Charlotte office, 4 Real’s Jon Gaynor, Sam Gilbert and Ella Smith invite Trimont Chief of Staff Cindy Barreda and Senior Managing Director Leslie Hayton to the pod to discuss Trimont’s recent acquisition of the Wells Fargo third-party commercial mortgage servicing platform, CRE trends to watch in the current and future economic landscapes and how they’re using AI to streamline their workflows. Plus, London-based Dechert partners John McGrath and Aaron Scott give the 411 on changes to the European risk retention rules, the group has some surprising brushes with fame and Sam hits the ice! 

Show Notes: 

Newsflash: EU Risk Retention Update: Priced Deals March Forward, Dechert OnPoint (April 2025) 

Jon Gaynor:

Hello, and welcome back to the Dechert 4 Real podcast, where we discuss current issues and trends in commercial real estate finance. We aim to bring market commentary about developments, updates you can use and, hopefully, a little bit of banter along the way. I'm Jon Gaynor, a partner based in Dechert's Philadelphia office. I'm

Ella Smith:

I'm Ella Smith, a partner in Dechert's Charlotte office.

Sam Gilbert:

And I'm Sam Gilbert, a partner based up in Dechert's Boston office.

Jon Gaynor:

Today, we're recording for the first time in our Charlotte office, and we are having a lot of fun experiencing Ella's southern hospitality and our producer Stewart's southern charm. In fact, earlier today, Stewart even told me to bless my own heart.

Ella Smith:

I'm not sure that means what you think it does.

Jon Gaynor:

Well, today you'll hear from our London team about some changes to European risk retention rules, and after that, joining us will be not one, but two surprise guests who are also based in southern cities.

Ella Smith:

Oh, I am so excited. We're doing another Smartless style intro here, Jon? OK, you told us our surprise guests are a duo from the south. Can you give us one more clue?

Jon Gaynor:

Don't mind if I do. These guests used to work at different companies, but thanks to a recent acquisition, now they get to work together. So

Sam Gilbert:

So, a big commercial real estate acquisition with offices in Charlotte. Hmm.

Ella Smith:

Well, I think I know where they work. I think we are talking to people from Trimont, because here in Charlotte the Trimont acquisition of the Wells third-party servicing is really big news.

Jon Gaynor:

Well, and I think it's big news across the industry generally. But that's exactly right. We have here with us today Cindy Barreda and Leslie Hayton from Trimont. Cindy is the chief of staff at Trimont in the Atlanta office, and has been with Trimont for six years, having been at Rialto before that and LNR before that. Leslie Hayton is a senior managing director at Trimont in their new Charlotte office, and was with Wells Fargo and Wachovia for over 21 years.

Sam Gilbert:

Thanks, Jon, that's amazing. I can't wait to talk to our surprise guests, but first, let's get 4 Real with the hosts.

Jon Gaynor:

Hey, wait, that's my line! So, I know this podcast has made each of us incredibly famous among our own families since we force them to listen, but have any of you had an actual brush with fame? Have you appeared in a TV or in a movie or even a local newspaper?

Ella Smith:

I honestly don't think that I've ever been as famous as I am right now due solely to this podcast. I mean, I have appeared on stage many times, first in the chorus of a middle school production of "Bye Bye Birdie," but after that, it's mostly been for karaoke performances. You must have a great singing voice. I do not. No, I just give it my all and hope the performance makes up for the lack of vocal talent. What about you, Sam, any brushes with fame?

Sam Gilbert:

Not really. I think the last one I had was right out of college. I worked at a country club in Boston. We had the Ryder Cup, and I snuck up into the locker room after the U.S. won the tournament and woke up the next morning and found myself on the front page of the globe, hanging out of the window, cheering with the team. So that's about as close as it gets.

Jon Gaynor:

That sounds pretty good. My two possible claims to fame are that I might have been an extra in the "Transformers 2" movie. They were filming B-roll shots on my college's campus, and I was in the background there. I might, I don't know if you've ever spotted me. And the other one is, when I was like, six, I was being fingerprinted at a carnival for, like, you know, police awareness or something. And local news had me on that. So if you really search YouTube, you might be able to find it like

Ella Smith:

Like, police awareness of early childhood criminals?

Jon Gaynor:

Yeah exactly. I was already on a watch list. Please. All right, so that counts as getting 4 Real. You can tell Ella did the script this time, because she says here I'm supposed to do this next part in a British accent, but I'm going to save you all from that. I'm sorry. So let's hop across the pond to our 411 with Dechert partners John McGrath and Aaron Scott from our London office. Aaron, John, welcome to the podcast.

Aaron Scott:

Thanks so much, Jon. Nice to be here.

John McGrath:

Yeah. Hi there, Jon. We'll try to do the British accent for you.

Jon Gaynor:

I appreciate that. Yours is way more authentic than mine ever could be. So, let's get into it. Aaron, do you want to set the stage for these EU risk retention changes that have recently come to pass?

Aaron Scott:

Yeah, of course, in the it's been an exciting couple of weeks, an exciting/slash daunting couple of weeks over in the in the EU market, after a report was released by the European supervisors on 31 March, The part of the report that has created quite a few issues in the European CLO market and also affects U.S. CLOs, really, is some guidance around the sole purpose test. So, I might just have to take a step back and get a little technical here for a second, but I'll try not to keep it too heavy, but in order to be an entity, too, that qualifies as an entity that can hold the retention under the regulation, one way to do that is to qualify as an originator, and that's the most common way that entities qualify to hold the retention. The regulation provides that an originator must not have been established or operate for the sole purpose of securitizing exposures. And then there's sort of secondary legislation which provides a little bit more color on that and says that in order to show that their entity has substance, it must have income from sources other than the retained interest that it holds, and that legislation says that the income from the retention interest must not be its sole or predominant source of revenue. Before this report was released, the market had interpreted"predominant" as you needed another source of income that would provide maybe 5% to 20% of an originator's revenue. But the report has told us that, no, no, the market, you've been interpreting that wrong. Predominantly means greater than 50%. And so, in order to satisfy the sole purpose test, an originator needs revenue from sources other than the retention interest that is greater than 50% of its total revenue. That's caused a few issues over in Europe, especially, you know, in the CLO market, and that the report was focused on on CLO retention vehicles, particularly third-party retention vehicles. But the change or the guidance around the definition of predominantly affects all originators, whether they're a manager originator or third party originator, and not just in the CLO space, but in the broader securitization world.

Jon Gaynor:

And John, I'm hoping you could help dig in a little deeper on that for us. Could you talk a little more about how this might impact CMBS, or folks who do commercial real estate for a living, and not just, you know, CLO And then I thought that there was also maybe another way that we could look to satisfy the requirements for an originator, even in light of the kind of changes to the sole purpose test.

John McGrath:

Sure. So I think this change does affect anyone who does securitizations that comply with the European regulations, particularly where funds are acting as originators in transactions. The entity that's acting as the originator quite often doesn't have a whole lot of other business outside of doing securitization. So, people have had to look quite carefully over the last couple of weeks in CRE CLOs, CMBS, and even, you know, even things like auto loan deals, as to whether or not the originator entity has that revenue from a variety of other sources. This is kind of going into potential change, but the European regulators mentioned in this report that they might be looking at whether or not an entity could qualify as a sponsor if it's a fund that's regulated in Europe, and that's that's something where we'll probably hear a little bit more in June when the European Commission is expected to put out a proposal for revisions to the securitization regulation. So, watch this space on that.

Jon Gaynor:

So, lately, in most CMBS deals, folks have not been complying with risk retention, in part because of the onerous reporting requirements relative to what is happening on the U.S. markets. The place where I see compliance with risk retention coming up the most is actually in repurchase facilities, which some banks have been structuring as securitizations for their own capital purposes. So, there could be an impact in those spaces, and it sounds like there's no easy fix if you're relying on the sole purpose test. Fair statements, John?

John McGrath:

I think on those deals, we're actually in a better place than you would expect, because on those deals, the entity that would be acting as originator often has income from quite a wide variety of sources. It often doesn't just have one SPV under it doing these securitized repo transactions. It often has sort of multiple SPVs underneath or other loan assets in the structure, so those are less impacted than some of the other deals we're looking at.

Jon Gaynor:

Especially for the kind of more established players, but if you're new to the space and you know, or it's a new fund, you're going to have to solve for it. But, I think there's other news that also might come into play. You were mentioning other changes to those onerous reporting requirements. Do you want to talk about those for a minute?

John McGrath:

Yeah, sure. You know, we've had some, what something might call some bad news from the regulators, but we've also had some good news. The supervisors who published the report said that they were interested in moving to reporting for some categories of U.S. deals where the ESMA templates, those very long, 130-field template reports that are filled in by people like fin docs, that those will no longer be needed for transactions going forward, provided that, substantively, the same information is available elsewhere. And again, that's something where we're expecting to hear more in June. June's the date when the European Commission is expected to come up with some bigger proposals, reform and securitization regulation, and we're hoping to see a fully worked out proposal and reporting at that stage as well.

Jon Gaynor:

I think the market would really welcome that as having access to European capital again, and the easy basis will make marketing some of these CMBS deals at least a little easier to get done. So, I think as you said earlier, watch this space. Aaron, John, I think you guys did a great OnPoint on this, so we'll include a link to that in the show notes. But thank you both for joining us on the podcast this month.

Aaron Scott:

Thanks so much, Jon. It's been good.

John McGrath:

Thanks very much for having us.

Jon Gaynor:

All right. Today, we are speaking with Cindy Barreda and Leslie Hayton. Cindy, Leslie, we're so excited to welcome you to the podcast.

Cindy Barreda:

Happy to be here.

Leslie Hayton:

Yeah, I'm so excited.

Jon Gaynor:

Now, I heard this is both of your first time being on any podcast?

Cindy Barreda:

That is correct.

Jon Gaynor:

All right.

Leslie Hayton:

It is, but I think we'll be experts.

Jon Gaynor:

Yeah, no, I think you're gonna do great. You're always doing these, like, giant panels in front of 2,000 people at CREFC, and our audience is slightly smaller now, but it's growing, so, you know, keep an eye out for that.

Leslie Hayton:

Sounds good.

Cindy Barreda:

Yeah.

Jon Gaynor:

All right. So, today, we'll be discussing everything servicing related from the recent acquisition of the Wells Fargo third-party commercial mortgage servicing platform by Trimont, and then also the current state of the CMBS servicing market, including emerging trends and what the future holds for CRE servicing in the ever-evolving current economic landscape. Before we get into any of the substance, though, let's get 4 Real with you. So, Have either of you had any brushes with fame?

Leslie Hayton:

So, yes, when I was small, I started twirling at a very young age, and I'm sure everyone's familiar with twirling. So when I was in high school ...

Ella Smith:

I'm sorry, can we back up and give just a little explanation of twirling?

Leslie Hayton:

Oh, sorry. OK. So, when I was younger, I actually twirled a flag for our high school band, and we went to the Cotton Bowl parade in Dallas, Texas, even though I'm from New Jersey, flew the whole 500-people band out there to do it, and I twirled during the halftime show as well as in the actual parade. And if you really want to know what year that was, it was Texas A&M and Notre Dame, but I'm not going to tell you what year that was. And then I continued doing that because I really enjoyed it. I then went to college. I'm a Fightin' Blue Hen, so, similar to where you're from, and we performed at halftime for the Eagles, where I got to meet Randall Cunningham.

Jon Gaynor:

Wow. I don't know when Notre Dame played A&M, but I have a good idea of when Randall Cunningham was playing so, you know, I don't need to Google that. That's great.

Cindy Barreda:

Yeah, so mine, funny enough, I was hanging out with a friend one day, and she said, "Hey, why don't you come with me?" And I said, "Where are you going?" And she said, "I'm going to go try out to be a Miami Dolphins cheerleader. You want to try out?" And I said,"Sure," and I was cut in the first round, shockingly enough. But we were in the background of a news report who was reporting on the cheerleader tryouts, which were really great. And if anybody ever sees it, I'll be the person who's completely out of step, who has no idea what she's doing and just did it on a lark. So my cheerleading career began and ended in about two seconds.

Jon Gaynor:

Well, that is really awesome. And if it were Sam or I, we wouldn't have even made it into the tryout area. So you got that over us, at least.

Cindy Barreda:

All right!

Leslie Hayton:

But see, I would disagree, because I think right now, you're just our cheerleader for our platform.

Cindy Barreda:

That is so true.

Jon Gaynor:

Look at the synergy already built. I love it.

Ella Smith:

I think it's probably a little bit more of an economically beneficial career to cheerlead for Trimont than to cheerlead for the Miami Dolphins.

Cindy Barreda:

Awww.

Ella Smith:

So you made the right choice.

Cindy Barreda:

You may be right.

Sam Gilbert:

So, before we get into the acquisition news, I just want to find out a little bit more about each of you. Can you guys each tell me why you got into the CRE industry and maybe what drew you into the servicing world?

Leslie Hayton:

Well, so, this is such a cliche, but people always say that you don't pick servicing, servicing picks you, which is so true. So I actually, I started at what was Wachovia before Wells, and I did finance for structured products. So it was really back in the early 2000s where things were starting to boom and just go crazy. And I did that financial supporting them for a couple of years. And then the heads of the commercial word servicing business at the time convinced me that I needed to move over and be in front office. And I fought it tooth and nail for probably six months, but haven't looked back, and it was best career decision I ever made.

Jon Gaynor:

You give front office vibes, if it makes it any better. Speaking as a strictly back office worker, you know, I get it.

Cindy Barreda:

Yeah, so for me, servicing didn't pick me, surprisingly enough, I picked servicing. I actually started, I had a job offer at LNR, and I was hired as an accountant. I had done accounting prior to and Treasury work prior to coming on board with LNR, did not know anything about servicing or commercial real estate. And six weeks into the job, realized that my accounting career was over, I had an epiphany and decided that I had too much personality to be an accountant, quite frankly, and kind of liked the business that I found myself in, even though I didn't know much about it, and resigned. And they said, "No, you can't leave." And they said, "You know, why don't you take a look at our open job openings and see if there's anything you're interested in?" And there was a servicing position. And I said,"Well, I don't have any of this experience that you're looking for but I know how to crunch numbers. I know what a mortgage looks like. I have one. And I'm willing to give it a shot, if you're willing to give me a shot." And they said yes, and the rest is history, and I haven't looked back, and it also was the right decision for me. And commercial real estate finance is rewarding and exciting. I really enjoy it, and it was definitely the best move for me as well.

Ella Smith:

That's so great to hear about both of you. Made it to the servicing world, whether it picked you or you picked it. So, let's go ahead now and talk about the big news. We know that in March, Trimont acquired Wells Fargo's third-party servicing platform. But we want to dig a little deeper here and ask you what that means for the commercial real estate industry in general.

Cindy Barreda:

Yeah, I think it means a lot. I think it, while it's exciting for Trimont, I think it is more exciting, even, for our industry as a whole, right? We know that, you know, historically, master servicing is done predominantly in banking. It's not something that's done through a private company or organization. And I think that there needs to be optionality out there for our industry, and there isn't a lot of that. And so I think by Trimont coming in and taking over and being a non- conflicted organization, we are not a lender, we are a servicer, and that's at the heart of who we are, and the CMS business as well, right? That's what we both do. There are synergies there between the two organizations. And by concentrating on what we do best, I think we have a lot to offer the market, and we're really excited about it and looking forward to working together for many years to come and becoming the best master servicer, loan servicer, you know, asset management firm that we can be.

Leslie Hayton:

Yeah, I think one of the things that Cindy hit on that's really key here is that we're a third-party servicer. You know, we are independent, and we've always prided ourselves, from a historical legacy platform standpoint on the amount of service and how, you know, we treat these loans as our own. We're always looking at everything as what's in the best interest of the ultimate investors in these bonds, like we're stepping in. So this enables us to really continue that focus and enhance the amount of service that we're providing to our customers. So, I'm ecstatic about this, and I can't wait to see where we go. Yeah,

Cindy Barreda:

Yeah, I would also add between what was Wells Fargo CMS business and what we're calling the Trimont 1.0 business, when we merged them together, we realized that we were able to give 24-hour-a-day service with offices all around the globe. You know, the CMS business brings an India operation to us. We currently have a London office. We have a Sydney office, and then we're throughout the U.S. on the east coast, midwest and west coast. So, I think that that will make us an even better servicer than we already were.

Ella Smith:

Yeah, loan servicing does not stop at 5 p.m.

Cindy Barreda:

it does not.

Leslie Hayton:

Yeah.

Jon Gaynor:

I like to get into the weeds on, like, kind of technical stuff. So I'm curious, like, what kinds of things, if you could share any war stories about how you're actually combining the platforms, or any kind of, like, lessons learned, growing pains. Like, I imagine your technology systems don't necessarily talk to each other innately, and that you're having to, like, revamp processes and make things smooth over.

Cindy Barreda:

So, as part of the acquisition, we were able to also acquire their in-house servicing platform, which is about eight or nine different applications, and it's a really robust application, and we knew that it needed to be part of the acquisition, along with the employee base, and that both were pivotal to the success of this acquisition. And yes, it is accurate. We right now are running parallel, but the plan is to migrate together into one platform. But, the good news is we don't have to go out and search for it. It's here. We have it. It's being used, it's tested, it's proven, and we're looking forward to enhancing it and making it an even better solution than it already is for us today.

Leslie Hayton:

Yeah, so one of the very first meetings I was in, and we were talking about the different technology, I got really excited, and I was like,"Oh, I can't wait till we do this, and I can't wait till we do this, and why don't we structure it this way?" And the chief technology officer from Trimont said, "Whoa, whoa, whoa, let's think about this. Let's think about how we take a very risk-based approach to this." And that is 100% what we did. And he was right. And, you know, I think we all kind of had to take a beat because we were so excited about what was about to happen. And we've very much focused on consistency and a very slow and methodical approach, because we are the largest servicer, if we make a mistake, if we made a mistake in that first 30 days, and payments didn't go out, and reports didn't go out, and, you know, remittances didn't happen, it would be pretty altering for the entire market.

Cindy Barreda:

And money didn't move.

Leslie Hayton:

Yes. And we can, without a doubt, say that that didn't happen, and it was because of that very focused and prudent approach that the team has taken towards migrating this. I mean, we're all looking forward to when we can get to that next step and where the growth is going to happen, but we've got to be cautious in that.

Jon Gaynor:

Well, it's not like you guys are shying away from new technology. It was you, I think you're you were on a CREFC panel this year, and you mentioned, and it gave me chills, because I was like"wow." You mentioned how your former shop was starting to use AI to do things like aggregate the monthly reporting, and that you were able to actually get AI to successful. I can barely get AI to make, like, a credible looking picture of me in a Studio Ghibli format, and like, you guys were using it to, like, speed up reporting. How's that going?

Leslie Hayton:

Yeah, it's great. I mean, we started this years ago. And really the, you know, the opportunities are boundless on this. We've started with, you know, our very first steps were to take all the different financial reports that come in from all the different borrowers in different formats, and basically work with the technology to have it learn how to map everything into the CREFC OSAR format, and how to map things into a consistent process every month. So what it really enables us to do is get through just large amounts of data and focus us on what the problems are, you know, and really do that overall review. And I will tell you that we're not at a point where, you know, we immediately take it and then it's done and nobody looks at it. We do have reviews, but it's a very focused review on what it is that we're doing. The other thing that I think has been really interesting, that we've we've started to do in the last year or two, is we use machine-based learning to read emails that are coming in, synthesize what needs to happen with it and move it to the right group.

Jon Gaynor:

Whoa, I want that.

Leslie Hayton:

Yeah, it is amazing. I mean, and I think that's where we'll continue to go is that workflow, and helping us prioritize what needs to be prioritized, getting it to the right people. I mean we've got, you know, tens of thousands of loans that we're handling, so we need ways to very efficiently move things that are a priority to the top of the list, and this helps us do that.

Jon Gaynor:

That's amazing.

Cindy Barreda:

Yeah, and a few other things that we're also looking at is extracting data from loan documents and utilizing that information to automatically transfer that into our servicing system. And we've got another application that we lovingly call Tribot, which is our own little version of ChatGPT. And lots of the employees have really enjoyed that, and it's been helpful in aggregating information that is Trimont centric. And so we're really excited about a lot of different things and looking forward to the opportunities to dig a little deeper into AI and automation and other technologies that are out there in the market that we're interested in all of them.

Ella Smith:

Sounds like you guys are really taking a very consistent approach, but still looking to the future and still looking to innovation on how you can improve. So, sounds very exciting. A great, exciting place to be.

Leslie Hayton:

Who would have ever thought that was service?

Ella Smith:

Yeah, you know? No.

Sam Gilbert:

I like the idea, John mentioned it, I like the idea of someone sorting through my emails and getting rid of the ones I don't need to deal with, having the robots deal with those, but the ones you do need to deal with, I would ask you guys, I mean, from my perspective, I'm on the loan origination side of things, and we've got this wall of maturities coming up, right? The robot can't handle that right? At some point, the borrower's going to come and say, "We've got a maturity coming up. We can't quite refinance yet." What's your process when you look at that request? What do you guys go through and what do you look for?

Leslie Hayton:

So, that's my team that's kind of doing that initial kind of scrub. And most of the current PSAs that we're working on fully in servicing agreements allow the master servicer to usually have a little bit of discretion around 30 to 60 days, which I think is really important, because especially in markets right now, things just can delay a couple of days, couple of weeks. So what we do is we take that initial package that's coming in from the borrower. We want to know what are the loan terms? Is it in line with what current markets say? Are you, you know, at a current interest rate, are the LTVs right? Is the debt yields requirements, does it look like a loan that we see currently on our books? And by loan terms, you mean the loan taking out whatever's in the CMBS trust. Correct? Absolutely. Yeah, does it look like it's going to be a refi? And if that is the case, you know, it's a decent lender, we think it's going to happen. We will do that forbearance to basically extend it for, you know, usually 30 with a 30 day extension. Some of the PSAs require us to go back to the special or the DCH, but in general, they're going to give us that option because, again, they know that we've done the initial due diligence to make sure that it's not just someone just fishing for something and prolonging where something's going to get because it's in everyone's best interest if that loan pays off. So if it's just a 30-day delay, we've been extremely successful in that, say, 87% to 90% of our forbearances that we issue end up repaying within that forbearance period. So it's great. And I will tell you with what's happening in the market right now, the numbers have gone up significantly just in the last two weeks.

Jon Gaynor:

Oh, sure. I think everybody is sitting on their hands right now while things settle down.

Leslie Hayton:

You know, it's amazing. I was listening to your podcast from the CREFC wrap-up this morning, and everybody was cautiously optimistic. I think now what we've seen in the last week or so is that we're just cautiously afraid. Things have changed so much in that time. I think we were all very excited about where the market was moving just a couple of months ago, and now things seem to be drying up a little and stagnating, but I think once we start to see some stability in the economy and stability related to tariffs, hopefully we'll get that optimism back.

Ella Smith:

Yeah, and if you guys are listeners out there, mom, whomever, if you're listening to this in the future, this is April of 2025, that we're having this interview. So, considering the current economic climate and the increasing volatility in the markets, are you seeing a lot more requests for forbearances, extensions, modifications, and how are you approaching each of these requests?

Leslie Hayton:

Well, so, we absolutely are seeing more. And one of my favorite stories to tell, and this literally happened about a week ago, we had a borrower email us and say,"Hey, go ahead and extend my loan for 10 years." I was like,"Sure, no problem." No, that does not happen. Let me be very, very clear, that does not happen. We cannot do that and stay in the REMIC. We can't do it as a master servicer, and no special servicer is just going to flat out say, "Here you go. 10 years. No problem."

Jon Gaynor:

Ten years, exact-same-terms-as-10-years-ago coupon. Got it.

Leslie Hayton:

Exactly. So we very much try and paint a realistic picture for the borrower of what's going to happen if they don't pay off. We talk about default interest. We talk about it moving to the special servicer, about having to pay special servicing fees, about the fact that, you know, today, especially, you are not seeing modifications where things are just pushed out. Like, every modification that we're seeing is going to require cash in, which is really what we're seeing, too, on just pure refinancings. You know, if you think about it, the loans that we're looking at right now that are coming out from maturity are 10 years old. Ten years ago, insurance was not even close to the expense that it is today. Just regular operating costs aren't the same. And more importantly, like, depending on the property type, the values aren't even there, and interest rates are up. So, the loan that you could do 10 years ago with no money in is not happening anymore. You know, there's the expectation that there's either an equity partner coming in, the borrower is putting in some cash because they have to de-leverthat loan. That's a very realistic expectation of what's happening today in the market. So it's really, you know, buyers need to come in having a realistic expectation and knowing that it's not going to be this panacea, because, you know, extend pretend, extend and hope isn't happening.

Cindy Barreda:

Yeah, I would agree. Yeah, skin in the game is the name of the game. And if you don't have it, I think you need to rethink the direction that you want to take your debt in and figure out how you are going to make it work, how you are going to get to a payoff or impress upon your service, or how you will be able to manage an extension or a forbearance or a modification. And, you know, DPOs are, I don't want to say they're the thing of the past, but they are not a thing of the present, and they are not the direction that we're looking to go in as a servicer. I think servicers in general want to work with borrowers who are in distress, but we also have to be realistic and look out for the benefit of the securitization itself and the investors within the securitization.

Leslie Hayton:

No, that's that's a great point, because having a plan is key. Every special wants to see what's going to change in a year that's going to allow you and enable you to refinance. And sometimes it's great. You know, you have a very large tenant that's due to rollover in three months, and you want to get that renewed. And you think it's going to renew, something like that. It makes sense to wait those couple of months if the borrower doesn't have the money up front to cash out and get the refinancing package.

Cindy Barreda:

Yeah. Absolutely.

Jon Gaynor:

What else are you seeing right now that is affecting the performance of CRE loans and what other modifications are happening right now that might be a bit out of the box, or could help a struggling property owner or a borrower?

Cindy Barreda:

I think offices continue to struggle for obvious reasons. You know, we're post COVID now. What, COVID was five years ago, and I don't know if COVID is over, but for all intents and purposes, it's over, but offices are still struggling. Everyone's not back in the office, and so those rents dried up back then and and they're slowly coming back, but they're not coming back in the same way that they were back in 2018 and I think a lot of borrowers are trying to figure out, as I'm sure you've heard on many panels before, you can't turn all of them into multifamily, right? And that was the magic bullet years ago."We're just going to turn them all into a multifamily," and you can't do that.

Jon Gaynor:

Oh yeah.

Cindy Barreda:

And the B buildings that are not the trophy buildings struggle and suffer and continue to do so, and I think they're going to be slow to come back. So, I think that we're still seeing that, it's old news, but it's still current news.

Leslie Hayton:

I think that the key, too, is you can't just have a one-size-fits-all. Like, moreso than I think in my entire history here, it's more about the individual asset and what works for that asset. There are loans that I do not expect to pay off, and they pay off in full, and it's amazing. And then there's other loans that you're like, "Why isn't this paying off? This looks good. You know, the property financials look good." We think it'll pay off, and it doesn't pay off, and a borrower may walk away because there's something that we're not aware of happening there. So, it's really about the quality of the asset, what is the plan, what is the sponsor doing with it and what is going to be that outcome? So, you have to look at the merits of each property instead of just painting a broad brush, because it's not time. Time isn't our friend during this market right now.

Cindy Barreda:

Yeah, absolutely.

Leslie Hayton:

First loss is best loss, right?

Cindy Barreda:

Yeah.

Sam Gilbert:

Seems to me, if I'm borrower's counsel, my advice to them is to come to you guys with a plan, right? For something.

Leslie Hayton:

Absolutely, for something

Sam Gilbert:

You mentioned earlier, conversions, right? Have you guys seen any of those conversions from office to resi? I know that was the hot topic for six months.

Leslie Hayton:

I think there was one that happened. We weren't a part of it. There was another one that they had a great plan. And I want to say that maybe there were some REMIC issues with doing that, because they're redoing the use of it. So, you really can't do that within the securitization structure, and the building has to be so perfectly aligned in order to transition it to a residential it's just not feasible for most of those properties. I mean, if it was, I think College Street in Charlotte would be all multifamily. Seems like

Sam Gilbert:

Seems like a good idea, but like when you actually think about it and apply it to one property, it just doesn't work.

Jon Gaynor:

Oh, who needs windows and natural light?

Cindy Barreda:

Come on, you can camp.

Jon Gaynor:

Hopefully we don't get to that point.

Ella Smith:

So, our final question, it's a big one, but in your role at Trimont as servicer, you see issues from loans with many different borrowers that have many different lenders. So, can you tell us, based on your bird's eye view of the commercial real estate market, what are some of the primary challenges and opportunities that you foresee for 2025 and beyond?

Leslie Hayton:

I think just getting consistent financing sources will continue to be a challenge. There's different expectations right now. People's realities are not the same when it comes to originations and then borrowers. Everyone thinks their property is worth more than the originator thinks and thinks that the term should be better. So, there's just such a disparity in those thoughts that that I think it's going to continue to be a problem. There's a lot of dry powder, so people want to do deals, but if you can't get to something that makes economic sense, nobody's doing it. I think that's been a big change. You talk back to, you know, when things really went bad in the GFC, it was, there's just so much money, and people are like, "Everything's going to be good, the world's going to be great. There's not gonna be any problems." So, you know, money was just chasing deals. I don't see that anymore. I mean, it's really a much more disciplined underwriting. And, you know, does this make sense for the borrower? Does this make sense for the investor? Does it make sense for the originator? Does it make sense for the rating agency? You know, you've really got to package together something that is going to work for everybody. And I think, you know, getting to those balances is going to take time, and it has, I mean, we're seeing deals more and more, and I think structures have changed a lot, which is helpful, certainly from a master servicer standpoint. You know, back in mid-2000s it was all about, you know, these big, giant loans that they would carve up into five different securitizations and then partially a SASB, they were awful to service. I mean, they were really challenging to understand all the different pieces. I think investors had significant issues with pulling together all the pieces to really understand the full exposure on that property. And now you don't see that. You know, there's a handful that I've seen where there's a SASB in maybe it's in a couple, one or two conduits, but you're just not seeing that structure anymore. It's much more focused, so that you really can look at that full asset picture and that risk together in a consolidated package. And I, for one, think that that's a great outcome for the market.

Cindy Barreda:

There is a lot of dry powder. I agree with Leslie. Lenders are more conservative than they were historically, but they are still looking for those opportunities. They are still willing. There is opportunity out there for borrowers to get financing, which is a good thing. I think that's really positive. If there's any hesitation on the part of lenders, I would say it's more than likely tied to, are the interest rates fluctuating? Have they stabilized? Or we're all waiting for everything to calm down. We're waiting for final decisions to be had. There is so much global - not stress, but uncertainty, I would say - and I think just that uncertainty makes everyone nervous and they're not really sure, is it time to move forward now? Do I wait a little? They're all hedging their bets. But as the eternal optimist that I am, and I will clearly call myself the official cheerleader of Trimont, if not a cheerleader for anywhere else, I would say that for Trimont, this is good news, because our lenders are loaning money out there. There is lots of servicing to do, and it's a good time to really get out there and, you know, be able to be the kind of servicer that we know we are and can be. And I'm looking forward to it. I think we all are. And yeah.

Leslie Hayton:

There's a trillion dollars worth of loans that need to get refinanced in the next year. It's gonna have to happen, you know. So, to Cindy's point, it is a great time to be a servicer, and we're looking forward to being able to really dig in, work with our borrowers, work with the lenders, work with the investors, to really maximize the outcome for everybody.

Cindy Barreda:

Absolutely.

Jon Gaynor:

Well, thank you so much, Leslie and Cindy. This has been really interesting, and we're just so thankful that you were able to come out to the Charlotte office today to record with us.

Cindy Barreda:

Our pleasure.

Leslie Hayton:

I think I need to start doing this more often. This is a lot of fun!

Ella Smith:

Anytime. You guys are always welcome on the pod.

Jon Gaynor:

Or, and if you guys launch a Trimont pod, don't like, you know, it's not, it's not a competition. People can listen to more than one.

Leslie Hayton:

Don't put any ideas into our communications team. We've got enough to focus on right now.

Cindy Barreda:

I think there could be a very REAL possibility.

Jon Gaynor:

Well, as long as you don't try to make it a 4 Real pod, like, we have to keep our name, you know?

Sam Gilbert:

Yeah, we're trademarking that. We've got lawyers,

Jon Gaynor:

All right. So that brings us to our 4 Real High Fives. I'm gonna flip the script on this a little bit and say, Sam, how did your hockey game for coaches go? We said we'd follow up with you about that.

Sam Gilbert:

It went well. The great team that I was on, we won seven to four, maybe

Jon Gaynor:

Wow.

Sam Gilbert:

Scored twice.

Jon Gaynor:

Wow. No hat tricks though, sorry. So, no High Five there, but good job winning the game, at least.

Sam Gilbert:

My strategy was to find the two other guys that were good and fast and get on their line and just get in front of the net.

Leslie Hayton:

But did you beat Wayne Gretzky's number of goals?

Sam Gilbert:

I did not, no.

Jon Gaynor:

He said goals are made to be broken. So, there you go. Or records are made to be broken. Thank you to our audience for joining us for another episode of the Dechert 4 Real podcast. If you have any thoughts, please share them with us at our email inbox, realpodcast@dechert.com. And if you liked what you heard, or if you have any brushes with fame you want to share, give us a five-star rating on whatever platform that you found this on and tell us about it. This episode was hosted by Sam Gilbert, Ella Smith and me, Jon Gaynor,Stewart McQueen, Matt Armstrong and Kate Mylod produced it. Production support is by Kara Ray, Mallory Gorham, Alyssa Norton, Peggy Heffner, James Wortman and Jacob Kimmel. Our editor is Andy Robbins of AudioFile Solutions. Thanks for listening, and we'll see you next time on the Dechert 4 Real podcast.

Sam Gilbert:

We're not done yet. Someone has to tell a dad joke. All right, I've got

Jon Gaynor:

All right, I've got a bad one to get us started.

Ella Smith:

OK, go for it.

Jon Gaynor:

So, why do we have Pop-Tarts and not Mom-Tarts?

Ella Smith:

Why?

Jon Gaynor:

Because of the pastriarchy.

Leslie Hayton:

So, mine is from my 19-year-old son, who is a freshman at Chapel Hill, he said, "So a Spanish magician said, 'I can make myself disappear.' So he said, 'Uno, dos' and left without a trace."

Jon Gaynor:

That's great.

Ella Smith:

That's awesome. I love it. I think we have to end there. You can't top that. Adios!

Jon Gaynor:

All right! There we go!