QIs as Mezz Lenders
I heard yesterday from an industry player that QIs are acting as mezzanine lenders for TIC deals. (QIs make loans with escrowed, exchange funds to a TIC sponsor so that the sponsor can close on a property. The TIC sponsor than repays the loan proceeds when it completes its equity raise.) There are so many bad outcomes and conflicts of interest in this scenario I don't know where to begin. QIs are not qualified to make mezz loans. There are reasons mezz lenders charge rates two to three times current mortgage rates - they are risky loans with variable repayment horizons! QIs are not banks, they are escrow companies. Banks run on the premise that when people make deposits they don't withdraw the entire amount and close the account in less than 180 days, which is the case with money at QIs. (This is why so many checking accounts pay no interest - it's short-term, transitory money.) If mezz lending by QIs is widespread then the TIC industry better address it fast. It may be time for TIC sponsors to start looking for more seasoned, reliable equity partners to supplement the equity from the vagrancies of broker/dealer raised capital.