TAMPA, Fla. – Bluett & Associates has procured $47 million in non-recourse financing from a CMBS lender for the million-square-foot Netpark office center – the largest new post-Recession loan in the nation for a property with Tenant in Common (TIC) ownership. The commercial real estate services firm also will handle ongoing asset and property management, leasing and construction management for Netpark, the Tampa Bay region’s largest single office building.
Loans on TIC-owned properties account for much of the wave of $350 billion in commercial mortgage backed securities (CMBS) debt incurred before 2008 and maturing now through 2017. When property values dropped, most lenders stopped refinancing TIC loans, whose complex underwriting can demand re-qualifying dozens of individual investors.
“The CMBS market is making an aggressive comeback, and non-recourse loans are again becoming available,even on complex deals,” said Lori Bluett, principal with Bluett & Associates. “Lenders are taking a fresh look at distressed TIC loans on quality properties that have strong equity.
“Netpark’s refinancing is a welcome signal for thousands of retirees and other individuals nationwide who face the loss of tax advantages or losing their entire investment if maturing TIC loans are not refinanced,” she added. “Owners of some foreclosed TIC properties find they’re responsible for taxes on ‘phantom income’ that they’ve never received.”
Netpark’s new loan, which closed in July, spotlights the complexity of TIC refinancing – and a clear path to help owners and lenders streamline the process. Netpark is 85 percent leased, with a highly amenitized campus that has drawn tenants including Humana Medical Plan, Sodexo, Corinthian Colleges and the School Board of Hillsborough County.
Despite strong equity, excellent credit and a reasonable 65 percent loan-to-value refinancing goal, Netpark’s owners faced financial crisis this spring. The former lender had decided not to renew TIC loans of this size, and the loan was maturing in 60 days. Under Netpark’s former operator Daymark Realty Advisors, the building was headed for foreclosure, Bluett said. A steering committee of five of Netpark’s investors contacted her, and the asset was transferred and preserved.
With the clock ticking and a 60-day deadline, Bluett tapped her deep lender network to link the owners with a New York-based CMBS lender. Based on Netpark’s financial outlook, Bluett was able to negotiate a ten-year, non-recourse loanwhile keeping the TIC structure in place to avoid additional costs of a roll up and/or dilution of interests.
Every Netpark investor had to agree to the loan to comply with tax codes, and the Bluett & Associates national team handled the time-intensive contacts. Each tenant in common may include multiple investors. Requalifying Netpark’s 34 tenants in common meant contacting a total of 130 investors, which Bluett & Associates achieved through phone interviews and extensive documentation. Owner outreach extended across the U.S. and as far away as Croatia and the Bahamas.
“With billions of dollars in TIC loans maturing throughout U.S. markets in the next three years, it’s crucial for TIC investors to come together,” said Bluett. “Typically the owners do not know of each other, although decisions about the properties require all owners to agree. They rely on a third-party operator to manage the asset, but in many cases, operator agreements incentivize selling a property at loan maturity, even if it’s overleveraged.”
In addition to those challenges, there have been numerous reports of many TICs burdened by absentee or self-interested operators. Before 2008, thousands of individual investors gained tax benefits through TIC securities, which gave a maximum of 35 tenants in common equal interests in a commercial property. Many TIC-owned properties have been foreclosed. Others are rolled into single-owner limited liability corporations (LLC) or Delaware Statutory Trusts (DST), which changes the investment’s tax benefits and flexibility.
As more lenders begin reentering the TIC refinancing market, Bluett heads one of the nation’s few firms that has procured and coordinated a TIC refinancing transaction of this size. Bluett & Associates, Inc. is a fully integrated commercial real estate services firm that focuses on optimizing real estate assets for landlords, tenants and investors across the U.S. The firm provides strategic guidance to real estate, banking and investment clients through core services including asset repositioning and management, leasing and sale transactions, and development and construction services. Bluett & Associates is based in Sacramento, Calif., with offices in New York City, Chicago, Dallas, Fort Lauderdale, Denver, Orange County, Calif. and Bellevue, Wash. For information visit www.bluettjuno.com.