Why would I want a split loan?
If the value of the real estate is less than the debt today, but it is foreseeable that the value will be greater than the debt by the maturity of the loan, splitting the loan into an A and a B note may be a good answer for the borrower. With economic trends and falling property values, sometimes it is the only answer that makes sense for both the borrower and the CMBS Trust. This allows the borrower to have a loan that the property income can support, referred to as the A note and it also allows the CMBS Trust to avoid any current losses as the remainder of the original note amount is still due, but not until maturity. This note held until maturity is called the B note. Plus any new money that the current borrower has to bring to the property, in the form of tenant improvements, leasing commissions, etc has a higher priority than the B note.
How is the B loan paid off?
At maturity of the loan, the property is either refinanced or sold. The proceeds from the sale or refinance are first used to pay off the A note. Then, the borrower gets to recoup all new money that he has contributed and then finally, the remaining proceeds are split between the borrower and the B note.
Who would I talk to further about a split loan?
You will want to talk to someone with the experience and expertise to be your advocate in loan workouts. At 1st Service Solutions, we were the first firm dedicated to serving as a borrower advocate in loan restructuring and assumptions. We can show you the case studies of businesses who have benefited from this kind of loan restructuring. We will work with your CMBS special servicer to arrive at a solution which will benefit your business and your investors.
For more information on A/B split loans and other commercial loan modification options, contact 1st Service Solutions.