For those who hold commercial mortgage backed security loans maturing or in distress the recent IRS rule change (proc 2009-45) came will come as a huge relief. Prior to this change servicing companies were not as agreeable to restructuring securitized commercial real estate loans and in need of modification. The reason for this was primarily that the investors would incur tax liability. The IRS change eliminated the tax liability and softened the language as relates to what can and cannot be modified under the REMICS rules.
Previously a CMBS (Commercial Mortgage Backed Security) loan would need to be “in default” or default was “immanent”. The change added language to account for “foreseeable defaults” which opened the floodgates and caused investors, servicers and banks to be willing to restructure these loan types.
It is extremely important to note that nearly a trillion dollars in commercial loans are coming due in the next year or so, 80% or more of all commercial RE loans are held by local and regional banks and CMBS loans done between 2002 and 2006 make up a large percentage of loans maturing soon and destined for default due to rising CAP rates and decreasing values across the U.S. and around the world.
There are law firms and commercial professionals now offering commercial loan modification services. We maintain a pretty large network of such individuals and firms as well. Commercial property owners with maturing portfolio (bank held) or CMBS loans who cannot refinance now and have tried should seek professional assistance in this regard before it’s too late. Extensions run on average 2 – 3 years out with costs well below a typical closing for refinance or sale.
For Commercial Realtors who don’t know what to advise clients calling for help, this rule change may help resolve their current issue and open the door for new opportunities with clients who held up other property purchases because of a need to resolve current loan issues.
The bottom line is commercial modification or debt re-structuring is now possible due to this change. The faster property owners and advisors of same get out in front of the problem, defaults and REO scenarios are less likely to occur.