Expect the Best, Prepare for the Worst:

CRE Loan Workouts 101

August 14, 2019

Presented by
Brian Hanson, Managing Director, CWCapital
Adam Fox, Senior Director, Fitch Ratings
Abeer Ghazaleh, Director, PGIM Real Estate Finance
Amber Sefert, Managing Director, Trimont Real Estate Advisors
Adam Singer, Managing Director, Rialto Management Group
Presenter
Brian Hanson
Brian Hanson joined CWCapital in February 2006. His responsibilities are focused on maximizing strategic
relationships with clients and business partners of the firm and its affiliates RealINSIGHT and RealINSIGHT
Marketplace as well as industry constituents.
From 1996 to 2003, before joining CWCapital, Mr. Hanson managed the primary and special servicing and
asset management functions for CRIIMI MAE’s $19 billion commercial mortgage portfolio. Prior to CRIIMI,
Mr. Hanson served as Chief Operating Officer and Portfolio Director for JCF Partners in Lanham, MD,
overseeing their $1 billion real estate portfolio. Prior to joining JCF in 1991, Mr. Hanson was Vice President
of secondary marketing and syndications for a financial institution and its wholly-owned mortgage banking
subsidiary.

Mr. Hanson has lectured at various universities, including Harvard, Columbia, NYU, Wharton, Maryland and
Johns Hopkins, and has had speaking engagements for the Mortgage Bankers Association, Commercial Real
Estate Finance Council (CREFC), Fitch Ratings, Standard & Poor’s, the Appraisal Institute and various other
trade associations.

Mr. Hanson holds a B.A. in mathematics from Washington and Lee University.
Presenter
Adam Fox
Adam Fox is a senior director in Fitch Ratings’ U.S. CMBS group. His primary areas of expertise are
commercial mortgage servicing and U.S. CMBS. Adam is currently responsible for Fitch’s North American
commercial mortgage servicing group and leads a team of three analysts covering approximately 45
commercial mortgage servicers. In addition, he maintains an active role in new issuance and surveillance
CMBS rating reviews as well as European servicer evaluations. Prior to his current position, Adam led a team
of five associates who perform CMBS surveillance and authored a variety of research and criteria reports.
Adam was previously director of data management at CRIIMI MAE where he spent seven years. During his
tenure at CRIIMI MAE, he worked with the investor reporting, master/primary and special servicing groups
before moving to information technology where he was responsible for the development of servicing and
reporting software as well as data management for the company.

Adam earned his BBA in finance and international business from Marymount University. He is also an active
member of the Commercial Real Estate Finance Council and Mortgage Bankers Association.
Presenter
Abeer Ghazaleh
Abeer joined PGIM Real Estate Finance in September 2016 as Director of the Transaction Group, Asset
Management which includes General Account, CMBS, and Third-Party loans. Prudential Asset Resources
(“PAR”) is a subsidiary of PGIM Real Estate Finance (“PGIM REF”) and one of the largest commercial and
multifamily mortgage servicing firms in the nation with over $90 billion of assets under management
including CMBS, Fannie Mae, Freddie Mac, FHA, and insurance company general account loans. The
Company is a rated Primary, Master and Special Servicer. PGIM Real Estate Finance is a diversified mortgage
lender with a 125-year commitment to the commercial real estate market and an expanding global reach.

Abeer oversees a team which manages over 2,100 active loans with original principal balances exceeding
$55 Billion. The Asset Managers are responsible for managing the Borrower relationships and credit quality
for the loans. Asset Managers routinely analyze and review an array of Borrower requests with the goal of
ensuring that any associated risk is mitigated. Abeer has 20 plus years of experience in commercial loan
servicing including asset management, due diligence, primary servicing, master servicing, special servicing,
surveillance, product development, and personnel management.

Abeer is a member of both CREFC and the MBA, she has participated on various committees, panels, and
authored a 2017 CRE Finance World Article, titled Market Disruptors Are Here To Stay. Abeer received her
bachelor’s degree in Political Science with a minor in Journalism from the University of Texas at Dallas.
Presenter
Amber Sefert
Amber Sefert serves as Managing Director, Asset Management for Trimont Real Estate Advisors. Based in
Dallas, she oversees performing and non-performing asset management teams. Combined, her teams
manage approximately $4 billion in UPB. Over the course of her career, she has managed distressed and
performing portfolios for various servicers. She has restructured defaulted debt, worked on receiver
appointments, completed foreclosures/DILs, confirmed bankruptcy plans, and managed/sold REO assets. In
addition to the above, she has overseen large mezzanine positions, underwritten new debt (senior housing),
and serviced performing debt.

Ms. Sefert has worked in various asset management positions for the past 15 years. Before joining Trimont,
she worked for C-III Asset Management and J.E. Robert Company in their Special Servicing departments.
While there, she resolved $380 million of defaulted CMBS loans through various exit strategies. She has
underwritten more than $800 million in Healthcare/Senior Living mortgages for Prudential Mortgage Capital
Company. She also worked for Prudential Asset Management, servicing a $650 million performing debt
portfolio. Prior to Prudential, she worked for Washington Mutual, as a financial analyst.
Presenter
Adam Singer
Mr. Singer currently serves as Managing Director, Head of Asset Management and Servicing for Rialto Capital
Advisors, LLC. Mr. Singer joined Rialto Capital in 2009 and oversees Rialto Capital’s CMBS Special Servicing
platform, real estate group, distressed bank loan investments, floating rate whole loans, mezzanine loans
and the primary servicing operation. Prior to Rialto Capital, Mr. Singer was a co-founder and CFO of Alterra
Capital Group, LLC, a real estate investment firm that specialized in the acquisition, redevelopment and
repositioning of over 3,100 distressed work force/affordable housing projects.

From 2000 to 2004, Mr. Singer also served as Managing Director for a private equity investment firm
specializing in the acquisition, turnaround and sale of distressed and/or undercapitalized manufacturing
companies. Mr. Singer was with KPMG, LLP from 1993 to 1998, and served as supervising senior auditor at
the time of his departure, specializing in real estate and financial service industries.

Mr. Singer became a Certified Public Accountant in 1996 and received a B.A. from the University of Florida.
Agenda

1. Introductions

2. Background

3. Laying the Groundwork for a Good Workout

4. Problem Loans Identified

5. Defaults Happen

6. Workout Strategies

7. Case Studies

8. How Do You Measure Success?

9. Q&A and Wrap Up

Background – Why Discuss Workouts?

• $3.46 trillion in Commercial/Multifamily debt outstanding at the end of Q1 2019 (source: MBA)

• Real Estate is historically cyclical

• Delinquency rates and loss severities reached significant levels in the last downturn (see following charts)

• A good workout approach/strategy can help maximize recovery on problem loans

Background
Background
Securitized CRE Loan Defaults

Source: Fitch Ratings Source: Fitch Ratings

Securitized CRE Loss Severity

Source: Fitch Ratings

Securitized CRE Loss Severity

Source: Fitch Ratings

Laying the Groundwork for a Good Workout

A. Good Workouts Start at Loan Origination

1. Strong Loan Documents with Lender Protections
2. Loan Boarding – comprehensive and accurate

B. Surveillance is a Must From the Beginning

1. Proactive
2. Comprehensive
3. Timely
4. Reporting and Information Distribution

C. Infrastructure
1. Necessary Skills/Knowledge/Experience
2. Technology
3. Procedures and Processes
Surveillance: Problem Loans Identified

A. What Could Possibly Go Wrong?

1. Warning Signs
2. Risk Rankings and Watchlists

B. Initial Response
1. Communication and Reporting – Internal and External
2. Are Protection Devices Triggered?

C. Heading to Default?
1. Preparation and Marshalling Resources
2. Increased Tracking and Surveillance
3. Reporting and Communication
Uh Oh! – Default Happens

A. Hand-Off from Surveillance

1. Debrief on Current Status
2. Did We See This Coming?

B. Time is Money! Immediate Workout Steps

1. Protect the Collateral
2. Receivership/Cash Sweep/Lockbox/Assignment of Rents
3. Borrower Communication
4. Property Inspection
5. Pre-Negotiation Letter
6. Other
Workout Strategies – Maximizing Recovery

A. Options
1. What Strategies are Available?
a. Restructure/Workout
b. Bankruptcy
c. Foreclosure
d. Other
B. What Determines Which Strategy(s) to Pursue?
a. Jurisdiction
b. Property Type, Location and Condition
c. Market Conditions
d. Borrower Cooperation/Participation
e. Other
C. Dual Track
Workout Strategies – Maximizing Recovery

D. What Resources Are Available – Internal and External

1. Legal Counsel
2. Accountants/Auditors
3. Engineers and Environmental Experts

E. Are Things Going to Be Different in the Next Downturn?

F. Other Considerations
2018 & 2017 CRE Resolutions
2018 Average 2017 Average 2018 Average 2017 Average
Resolution 2018 Loan 2017 Loan
Loss Severity Loss Severity Resolution Resolution
Type Count Count
(%) (%) Time (Mos.) Time (Mos.)
REO Liquidation 189 150 52.6 53.6 45.6 44.7

Note Sale 46 55 39.8 46.5 23.5 12.5

Repaid Modified
8 12 29.6 11.3 40.1 77.4
Loan*

DPO 25 27 25.1 23.8 47.5 5.8

Sold at
5 — 34.5 — 29.4 —
Foreclosure

Total 273 255 42.1 35.6 40.2 38.9

Success?

A. Case Studies
1. What Strategies Have Worked?
2. What Hasn’t Worked?
3. Why?

B. How Do You Measure Success?

Questions?
Thank You!

Brian Hanson
Managing Director
Picture CWCapital
bhanson@cwcapital.com

Adam Fox
Senior Director
Fitch Ratings
adam.fox@fitchratings.com
Thank You!

Abeer Ghazaleh
Director
PGIM Real Estate Finance
abeer.ghazaleh@pgim.com

Amber Sefert
Managing Director
Trimont Real Estate Advisors
asefert@trimontrea.com
Thank You!

Adam Singer
Managing Director
Rialto Management Group
adam.singer@rialtocapital.com