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A recent CMS client, a 25-member Tenants-In-Common (TIC) group, owned a 250-unit multi-family facility in the Southeast. With a mortgage balance of $14 million in the form of a CMBS loan, an interest rate of 5.75%, interest-only payments and a maturity date of June 2012, the property was experiencing negative cash flow as it attempted to weather this difficult economy.
Owner Objectives:
1. Eliminate the need to continue to infuse cash into the property.
2. Obtain a long-term solution that would allow the TIC to weather the current economic environment.
3. Obtain a solution that would require a minimum of cash outlay.
4. Maintain control of the property to be in position to experience the upturn in value as the marketplace improves.
Potential Alternatives:
1. Sale: Since the property value approximated the outstanding mortgage amount, the owners would lose their investment.
2. Refinance: A new lender would require 75% LTV, resulting in a 25% shortfall to be funded by ownership.
3. Modification: This would require significantly less capital and create a longer time frame to weather the economic environment and correct current financial / operational issues.
Results:
1. Modification was determined to be the best choice.
2. No capital infusions were required during the modification process.
3. Long term solution: The maturity date was extended to June 2014 (with 4.75% interest-only payments), and
4. The special servicer provided two, 1-year options to extend beyond the June 2014 maturity (with 5.75% interest-only payments).
5. In addition, $1.1 million in past due payments, late fees, and default interest were deferred or waived.
6. The total solution cost ownership less than 5% of the mortgage balance to effectuate, which included all lender, legal, and third party fees.
7. As a result, both the Sale and Refinance alternatives will be more viable in the future.
Lesson:
The key was to obtain consensus on objectives and commitment at the outset. While always important, it is particularly so in a TIC environment as widespread consensus must be achieved.