Property: Industrial Building in Nevada
Loan Balance: $17 million
Problem: The loan on this property was originated in 2007. The current value of the property was approximately $7MM and there was significant TI, LC required to stabilize the property. The special servicer (Midland) agreed to an AB structure as follows:
- A Note = $8MM
- B Note = difference between A note and loan balance
- New capital contribution from borrower = $3MM
- Waterfall at maturity: (1) A note, (2) borrower new capital plus preferred rate of return at note rate, (3) remaining proceeds split 50/50
The AB structure was approved and documentation of the deal was in process (the fifth round of modification documents had been negotiated). Then, there was silence! We determined that Midland had been replaced as special servicer and LNR was the new special servicer. LNR decided to place the note in their upcoming note auction.
Solution: Ultimately, through intense negotiation with LNR, the borrower got approval to pay the loan off for $9MM; which was a better outcome for the borrower than his previously approved AB structure