David Kirkpatrick

September 16, 2009

Averting a blow to the economy

Maybe. It’s rarely discussed, but there is a major economic crisis coming down the pipe in 2012 or so in the form of commercial real estate paper.

Essentially in the years right before last year’s meltdown most everyone in large-scale commercial real estate was doing what I’ve heard described by a player in the field as “bad deals.” That person said everyone knew the deals were bad (as in not economically feasible unless conditions remained optimal — we all know that’s no longer the case), but did them anyway because that was the only way to continue doing business in the mid- to late-2000s.

Looks like the IRS is making proactive moves to try and take some of the brunt out of this looming economic event.

From the link:

The IRS issued new rules Tuesday designed to make it easier to refinance somecommercial real estate loans in an effort to curb the number of defaults.

The rules would allow commercial loans that are part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors.

The investment pools were designed to encourage mortgage-backed securities by offering tax benefits not typically available through other investment vehicles. However, under the old rules, investors could have lost those benefits if loans in the portfolio were restructured.

The new regulations come as Wall Street braces for a wave of defaults on commercial real estate loans. More than 90 U.S. banks have already failed this year. Hundreds more banks are expected to fail in the next few years largely because of souring loans for commercial real estate.

“These changes will affect lenders, borrowers, servicers, and sponsors of securitizations of mortgages in REMICs,” the new regulation says.