October 2014

DEAL OF THE MONTH

Office Building in Virginia

The largest tenant had a lease expiration a year before the maturity date of 2/2015.  The tenant did not renew.  Current rental rates were significantly less than they were at origination, so even if the borrower could find a replacement tenant and the building was 100% occupied, the property value would still be less than the loan. The borrower was a Tenant In Common (“TIC”) structure Result:  Note Sale


October Deal of the Month

Loan
$38 million

Originated
2/2005

Modification
Note Sale

 


Challenge

There were many significant challenges with this deal: (1) the timing of the lease expiration relative to the maturity date, (2) the fact that the building was worth less than the loan even at 100% occupancy, (3) the TIC structure and the need for additional tenant improvement and leasing commissions with no lender held reserves, and (4) the TICs were facing significant tax consequences in the event of a foreclosure.

Solution

1st Service Solutions joined with a third party capital provider to buy the note at a discount from the Special Servicer in a structure that gave each TIC the opportunity to defer their tax cost. This resulted in the highest recovery for the Trust and the best outcome possible for the TICs.