- James I. Clark III
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Treasury Rolls Out Tax Code Change That Favors CMBS Borrowers
The Treasury Department has issued new tax rules that make it easier for commercial real estate owners to restructure loans on distressed properties that were package by Wall Street and sold as CMBS. The real estate industry, which lobbied hard for the changed rules, were generally happy but wary that it could open a can of worms for securities servicers who might feel pressured by borrowers and competing investor classes.
This is the initial phase of “additional guidance” the Treasury is considering to prevent what could be a commercial real estate crisis as more than $150 billion of loans bundled into CMBS come due between now and 2012. With financing still limited and as the values of commercial properties decline, some owners will find it tricky to refinance maturing debt.
Tax rules previously made it difficult for borrowers who are up-to-date on their payments to talk with bond servicers about restructuring their loans. The new guidance from Treasury clearly allows discussions about reducing the interest rate or extending the loan term, stating that such talks “may occur at any time” without tax consequences. Additionally, the guidance lets servicers modify loans no matter when they mature. The servicer only has to believe that there is “a significant risk of default”, even if the loan is currently performing.
“A stalemate now exists on CMBS loans that are not currently in default but need modification,” said Jeffrey DeBoer, chief executive of the Real Estate Roundtable. “Today’s announcement should help break the stalemate.”