Caffrey & Company Blog
Tenants In Common Loans
Loans for Tenants In Common structures. In the early 2000’s Tenant In Common (“TIC”) were often utilized in 1031 Exchange transactions. TIC’s could be structured with certain restrictions that would allow CMBS lenders to originate and securitize these loans. These loans, as most CMBS (Conduit) loans were referred to as Non-Recourse loans. Having said most lenders then and today require a warm-body to sign a limited guaranty for fraud, waste, misappropriation of proceeds, environmental and bankruptcy (known as “Bad-Boy Carve-outs”). Nearly all of the TIC loans originated in the early 2000’s the Syndicator or Organizer or Manager would step forward and sign this limited guaranty.
What we see today is many of the Syndicators and Organizers of these TIC structures have been removed from the daily activities of the underlying asset. When the existing loan comes due the investors have the option of either liquidating the asset or seek to refinance the property. When trying to refinance the property most lenders today frown on the TIC structure due to a number of risk issues this type of structure brings to the table. The lenders will ask that the TIC ownership consider conveying ownership into a Limited Liability Structure. Once this is completed the issue is who will sign for the Bad-Boy Carve-outs remains? Since many of the investors do not know the fellow investors, and no one investor holds a controlling interest none of the investors are willing to step up and sign for this limited guaranty as described above. This is especially true when the investors did not initially intend on becoming actively involved in the actual management of the real estate behind the investment.
Caffrey & Company LLC has a nationwide lender that will provide financing to these TIC structures once converted to an LLC ownership and not require any warm-bodies to execute the limited guaranty (Bad-Boy Carve-outs). Loan amounts for this lender range from $1,000,000 to $65,000,000. The preferred property types are Industrial, Office, Retail and to a lesser extent Multifamily. If you are considering refinancing a property with an existing TIC structure please contact Mike Caffrey (913) 402-7077 or email: Mike@CaffreyLoans.com with the details of the loan. We can work quickly to see if your property would be a good fit for this lender’s loan program.
In summary, the first step is to see if the lender would be interested in the loan. Assuming the lender is interested they will provide specific loan terms. If the investors wish to move forward the ownership would have to retain competent (legal and tax) counsel to help with the restructuring of the TIC structure.
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