It’s not universal to have servicers double as investors. Midland, for instance, is only a third-party special servicer. So is Berkadia. Those two companies also happen to be the only two special servicers that agreed to speak with Multifamily Executive for this story. “Some groups own the B piece and that’s how they get the special servicing,” Johnson says.
That said, Carp says he has been affiliated with investors before, but that there is a separation of church and state between the servicer and the investor. “All the asset managers are thinking about is resolving the asset,” he says. “They’re not thinking about who owns it. They’re just working the asset. They’re handed a file and told there’s a distressed asset in Detroit—go resolve it. As much as people would like to think that there’s collusion going on, there’s really not.”
But Berger is more skeptical. He believes that a lot of assets will end up with the parent companies of servicers—those folks like Farkas and Fortress who went on a buying spree in the past year. “Can you imagine the conflicts and potential liability around being responsible for valuing an asset and then buying it out of the trust discounted at what’s claimed to be fair market value?” he says. “We think the liabilities are great. If it is fair market value, you’re not getting a bargain. You may have better knowledge than others, but you’re not getting a bargain.”
Despite these hurdles, a number of people in the industry feel that Farkas—via Island, through its subsidiary C-III—and others are mobilizing to make a move to buy the assets they are servicing. And if there’s legal wrangling over this attempt, all eyes will again be focused on Farkas to see if he can once again stockpile distressed assets. Because if he can, there’s little doubt that others will follow.
“Everyone is excited to see Andy Farkas try to do it and to test the waters and see how many lawsuits are generated,” says one apartment management executive, who preferred to remain anonymous.
The Ramifications
Regardless of the motivation and what conspiracy theories are at play, there are a lot of properties either with special servicers or with troubled borrowers that are en route to special servicing. And a lot of people think this is bad for the industry.
