Saturday, March 08, 2008

I was on a conference call Friday held by a prominent Chicago-based TIC sponsor. It has a mish-mash of TIC-owned properties (office, industrial, multi-family and retail) that are mostly master leased and mostly underwater. Apparently many of the properties are not generating the cash to make the master lease payments and the sponsor is reaching the point where it cannot meet its obligations under the master leases. Plus, some of the properties are in technical default on their debt by not meeting their required coverage ratios.

I am unclear on how the sponsor will effect the roll-up. The sponsor wants to somehow roll the deals into a public entity, but each property is owned by tenant in common investors, not a fund, and any sale will require approval from all investors, not just a majority. Plus, on the call it was stated that the public company (unnamed on the call) that would acquire the properties is not a REIT. The sponsor said that the roll-up would not be an immediate taxable event. I called an executive at a public company that seemed to match the description on the call, but was told that it was not the purchaser. The person I called knew details of the troubled sponsor and the contemplated roll-up, which was surprising coming from this executive, especially since news of the roll-up was released on the call. I am not sure I believe this executive's denials.

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