Consider a single-loan CMBS deal of size $1bn, with a B-piece of $100m. The loan has become delinquent and been transferred to special servicing. Expected losses are $150m if the property is foreclosed on. If the loan is restructured, there is a 30% chance the borrower will start performing, reducing losses to zero, but a 70% chance that final losses will rise to $300m.

a. What should the CMBS investors do to maximize total expected return?

b. If the special servicer wants to maximize their own short-term interests, what should they do? Why? [a couple of sentences]

c. Thinking about the longer run, are there any reasons why the special servicer might not want to undertake the actions you suggest in part (b) above? [a couple of sentences]

d. Why do you think the CMBS market features a key role for B-piece investors, but the RMBS market does not? [a couple of sentences]