More On CMBS
The Wall Street Journal had an article this week on General Growth's bankruptcy filing and how it took 168 of its mall properties with in into bankruptcy. All these properties have loans that are in CMBS. This is no small issue because the article states General Growth is the largest CMBS borrower in the United States. Here are a few excerpts:

General Growth's action has rattled investors throughout the $700 billion market for securities backed by commercial mortgages, or CMBS. Investors in other deals had also figured their investment was insulated from a parent company's bankruptcy. Now they're worried that General Growth's move will set a precedent that could affect them.

For tenant in common investors this is interesting:

In past years, to get the malls' mortgages, General Growth had set up 166 "special purpose entities" whose sole purpose was to borrow money. SPEs are attractive to lenders because, according to legal experts, they are "bankruptcy remote," meaning their cash flows are dedicated to paying debt service. The lenders issued securities backed by the SPEs. Holders of securities expect the structure would ensure they'd be paid even if the parent company went bust.

This should give tenant in common investors pause:

A major issue in the bankruptcy case is General Growth's request to draw cash flow from its malls and use it at the corporate level or in other areas of the company. Such transfers of money within the corporate structure used to be routine at General Growth, as they are at other similarly structured real-estate companies. But, now that General Growth is in Chapter 11, its CMBS lenders want to enforce the malls' status as separate entities and keep the malls' extra cash flow from being siphoned away to pay other creditors, namely unsecured lenders.

I think DBSI, the failed tenant in common syndicator, tried this same maneuver. I don't think that General Growth is going to get away with this move, and I think it would be even harder for a TIC sponsor to try and take investor money. The Special Purpose Entities (SPEs) that the CMBS lenders required to protect them from a single investor bankruptcy (TICs had up to thirty-five investors, each that was required to form a SPE) may eventually help the TIC investors. General Growth's bankruptcy will give a good indication of what's ahead for investors in TIC deals with poorly capitalized sponsors.