Wit Solberg founded Mission Peak Capital in 2008 to snap up messy commercial real-estate assets after the last big crisis.

A dozen years later, he’s looking to untangle another kind of property mess, but this time on behalf of others.

As the pandemic upended the way we work, shop and gather, Solberg invested in European loan servicer Mount Street Group to help borrowers and international stakeholders in U.S. commercial real-estate figure out, for a fee, where they might stand as buildings start to reopen.

“What I feel will happen,” said Solberg, is that COVID will make already complex discussions between real-estate borrowers and lenders “more complicated over the next five to seven years.”

“We don’t know where people are going to be in offices. We don’t know what the malls are going to do,” he told MarketWatch, adding that “hotels are complicated” and that it’s still unclear when big convention centers will be filling again. “That is why we bought into this company.”

Read: Lockdowns ease in New York City and other major cities, but commercial real estate still tied in knots

Mound Street oversees about $12 billion in assets in the U.S., but closer to $95 billion globally, with a focus on debt investments. Before 2008, Solberg ran Deutsche Bank’s commercial real-estate debt products syndicate desk in Asia.

Now Solberg looks to build on his experiences abroad in his new venture, particularly after the global hunt for yield in recent years saw Asian and international investors flock to riskier commercial real-estate investments, including on trophy New York City buildings, since swept up by the pandemic.

“Korean investors have been devastated, and are the most aggrieved party in the U.S. during COVID,” Solberg told MarketWatch. “And it’s because they don’t know what they’ve gotten themselves into and they have no service provider to help.”

This chart breaks down by asset class the nearly $20 billion of U.S. commercial property loans in “conduit” mortgage-bond deals that have piled into “special servicing” since the pandemic first forced business to shutter in March 2020.

Rise of specially serviced loans

KBRA, Trepp

The chart does not include large loans or single, trophy properties financed in stand-alone bond deals. But it does provide a snapshot of the potential distress yet to come in U.S. commercial properties.

Unlike loans held by banks, property owners financed in the $600 billion commercial mortgage-backed securities (CMBS) market have their monthly mortgage payments or debt-relief requests handled by servicers, working on behalf of bondholders to maximize their return.

As Solberg put it, loan servicing “is the engine that keeps everything going.”

While not all loans in special servicing have missed monthly payments, it often signals a higher risk of default. However, debt-relief talks often can begin in earnest once a loan transfers to special servicing, where discussions about forbearance, interest-rate reductions, foreclosures or other workouts happen.

Special servicers often are paid a fee of 0.25% per annum based on the loan balance, for each month they oversee a loan, according to loan workout specialist Ann Hambly, who wrote a blog post in January about backlogs at special servicers due to COVID. Some servicers also offer flat-fee arrangements.

Solberg said his firm will offer “bespoke” servicing, where they review each situation and provide a quote based on a plan to tackle the problem.

Those plans may become more clear as New York City works to fully reopen bars, restaurants, theaters, sporting arenas and more by July 1, as COVID-19 cases fall and vaccination rates rise.

See: Bond traders betting on hotels or shopping malls now have Big Data at hand

Commercial real estate has lagged the recovery seen in other assets, with office towers, hotels and retail centers in many key U.S. cities only recently laying out plans to roll back occupancy restrictions, some 14 months after many office workers were ordered home as the COVID-19 crisis started to unfold.

The S&P 500 index SPX, +0.68% closed at a fresh record high Thursday, while the benchmark 10-year Treasury yield TMUBMUSD10Y, 1.653% edged up as fresh data pointed to the U.S. economy surging in the first quarter.

“I know that everyone around the world that has money to spend, to invest, needs to invest in dollars,” Solberg said, adding that “one of the easiest places to invest a lot of money” in recent years has been U.S. commercial real-estate assets.

“It is a scarier business, now, to understand than it was two years ago.”

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