At the peak of the market in 2006, €64.75 billion of commercial mortgage-backed securities (CMBS) backed by European commercial property loans were issued in a single year. It is estimated that there remains over €135 billion of European CMBS outstanding in the market, most of which was issued between 2003 and 2007. Many of the commercial properties that secure the loans backing these bonds are highly leveraged and the related borrowers are often thinly capitalised. A combination of tenant defaults, declining property values and lack of refinancing options is already giving rise to loan defaults. Given the economic forecast, such defaults will escalate.

Uniquely among the various classes of securitisations, CMBS typically engage a special servicer at their outset. The special servicer is charged with the responsibility of taking all significant actions relating to any defaulted loan that secures the CMBS. Such actions would include managing a...