Here’s a pretty good description of a problem “conduit loan” which has a lot of significant facts, all of which are bad. I apologize for the small type, but it gets it on one page.
1. It’s a TIC like a syndication, so no one investor has control, 27 investors, some from 1031 exchanges.
2. 1/3 equity on a $21.1 M income property, loan of $14 M, but equity of $7.1 M.
3. Income covers the debt service, but tenant has moved out and leases expire in 2012 and 2017, SO “the property’s value had declined.” According to the “servicer,” “The property is worth significantly less than the debt on it.”
4. KeyCorp as “Master Servicer” had “no power.” Nothing done until loan came due and went into default, then transferred to “a specialist in troubled loans.” But ING Clarion would not modify. “ . . . extend the loan if the investors would contribute another $2 million in equity.” This was not recommended.
5. A bank might have modified, because owners were current on their payments.
6. 40 banks were contacted without success