It is almost a foregone conclusion that the CMBS market is headed for some real pain over the next couple of years. The problem is so glaring that even the Treasury is aware of it and looking for ways to avoid a complete meltdown. A major issue confronting the market is the reluctance of CMBS servicers to even talk to investors or property owners before the underlying loans become delinquent due to tax considerations.
When CMBS offerings are created, the underlying mortgages are legally held by tax-free trusts. The trusts can be forced to pay taxes if the underlying loans are modified before they become delinquent, according to current CMBS rules.
The solution seems pretty clear- allow for loan modification while avoiding any negative tax consequences. But time is ticking and the Treasury's record of avoiding major market meltdowns is disconcerting at best. Your move Timmy.
Relief for Commercial Real-Estate Debt? It Seems Possible [WSJ]