A new rule from the Internal Revenue Service (IRS), Revenue Procedure 2009-45, allows commercial real estate borrowers to proactively discuss possible modifications to securitized loans that are at risk of default without triggering tax penalties.
Previously, administrative tax rules applicable to Real Estate Mortgage Investment Conduits (REMICs) and investment trusts imposed severe penalties for changes made to commercial mortgage pools or investment interests after the startup date of the securitization vehicle. As a result, borrowers were unable to begin discussions with their loan servicers until they had already defaulted or were within weeks or months of defaulting, according to the Real Estate Roundtable, which welcomed the new rule.
‘Amidst a massive wave of maturing commercial real estate debt – and still virtually no credit available for refinancing – borrowers need to be able to talk with their loan servicers about restructurings in a timely manner, before the point of default," says Roundtable President and CEO Jeffrey D. DeBoer. "By easing the tax penalties on changes to securitized 'conduit debt' (i.e., loans held within a REMIC), IRS has taken a very positive step toward easing today's crushing liquidity crisis in commercial real estate."
In July 9 testimony before Congress' Joint Economic Committee (JEC), DeBoer said an estimated $300 billion to $500 billion in commercial real estate loans are coming due this year, to be followed by, on average, $400 billion in maturing loans each year for the next decade.
Securitized conduit debt accounted for over 60% of the commercial real estate mortgage market during the first half of 2007, the Roundtable says.
SOURCE: Real Estate Roundtable