Occasionally, we hear of a tragedy where a bomb explodes in a former war zone. Likewise, in commercial real estate where most markets have recovered from the recession, there is a time bomb of building ownership that can be disastrous for office tenants. That ownership structure is a TIC (Tenancy-In-Common). In this post, I outline what is a TIC, the challenges they present and how tenants can safeguard their interests.
Question: “What is a landlord with a troubled CMBS loan?”
Then smart money came along and structured a secondary market for the trading of commercial mortgage backed securities (CMBS).
Now, mortgage bankers could transfer loans to a tax-advantaged trust. The trustee, with promissory notes in hand and an expectation of receiving regular interest payments on the pool of loans, could issue a series of bonds varying in yield and risk. Rating agencies could come in and assign ratings to the various bond classes: from the most secure AAA down through the below-investment grade and unrated bonds. Bankers could underwrite and sell the securities to investors. Bond investors could select from the tranche matching their credit risk, yield, and term preferences. Meanwhile, down in the boiler-room, a master servicer, engaged by the trustee to service the loans, would collect mortgage payments, release disbursements from escrow, and handle other routine loan matters, all so long as a loan performs as expected.
However, a wheel or two came off the truck during the last few years and some loans have not performed as expected.
And rating agencies expect more troubled CMBS loans to surface, despite the gradual improvement in the economy.