Now these small investors are stuck with big losses that parallel to TIC Investments.
IMH is a Phoenix based “hard money” lender that expanded dramatically during the real estate bubble. Its current travails, as illustrated in the following article from the Wall Street Journal, are representative of the problems facing lenders that concentrated their lending portfolios in commercial real estate. IMH was actually one of the most conservative of the hard money lenders in the Southwest. Many of its competitors, including Mortgages Limited and Landmark, have already gone out of business. During the long real estate boom many investment advisors and broker dealers were hungry for the hefty fees that they generated from the sale of the IMH securities. This is very similar to what happened with the sale of Tenant in Common (TIC) interests to unsophisticated investors. In both cases, investment advisors pushed investors to purchase unsuitable securities, without explaining the risks. They hyped these financial products because of the big fees, pulling in a large group of investors. Unfortunately, these investors are left holding the bag, while the investment advisors, promoters, broker dealers and sponsors get to keep their eye popping fees. Somehow it doesn’t seem right.
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commercial loan workout, IMH Financial Corp, Tenant, TIC Investors
Lack of growth often leads to deflation. We experienced a similar trend – yet for different reasons – 80 years ago. The stock market initially crashed in 1929, but 1930-1932 was a time of a turbulent stock market that managed to stay afloat. It wasn’t until late 1932-1938 that deflation set in and the stock market set new lows. Could we be experiencing something similar right now? The banking sector is signaling a strong response to that question. And the answer is yes.
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Breakwater Equity Partners, Commercial Loan Modification, Commercial Loan Workouts, Failing Banks, Troubled Commercial Properties
A tenant in common, or TIC, offers investors the ability to acquire a percentage of ownership in a real estate property. When the market was strong, particularly in the past few years, many “baby boomers” (and others) repositioned their portfolios, seeking investments that would not require so much time and attention. The TICs appeared to be safe investments that would generate a predictable return on their investments.
Problems arose as the market cooled. Some areas saw an increase in vacancies and a decrease in rents. The restricted cash flow has meant that some investors find the income is not sufficient to make their mortgage payments.
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Commercial Loan Modification, TIC Investment, Troubled Commercial Properties
Unlike traditional mortgages, defaulting on a commercial property does not carry the same stigma, either in financial terms or in how the company is perceived by future lenders. In fact, for some companies defaulting on so-called “underwater” properties, or commercial property that has fallen in value so that the debt owed is greater than the property’s current worth, actually brings them rewards from their shareholders. This is because shareholders prefer to see the funds that could be spent on paying down an underwater loan utilized in other areas of the company.
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Commercial Loan Workouts, Defaulting on Commercial Property
Commercial mortgage-backed securities (CMBS) capitalize on the non-residential real estate market. In light of an uncertain economic environment, the default rate on these mortgages has led to a sharp rise in CMBS defaults. The Internal Revenue Service (IRS) has since introduced a way of easing the investor pain associated with defaults by actually offering an attractive option: instrument modification.
Known by the IRS as Revenue Procedure 2009-45, this ruling enables loan servicers to choose securitized loan restructure and modification prior to the fiscal instruments’ actually arriving at a default state. Best of all, there are no tax penalties associated with the process. This empowerment places servicers on par with so-called balance-sheet lenders – like pension funds and regional banks — which have all along made frequent use of the practice to navigate through the credit crunch relatively unscathed.
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CMBS Loans, Commercial Loan Modification
