DALLAS-Tonti Properties and Kodiak Capital Partners LLC have joined forces to form New Start Capital LLC. The new company was created to provide solutions to tenant-in-common ownership groups that face refinancing or foreclosure of their performing or non-performing properties.
As more and more TIC-owned properties approach loan maturity dates, they face two significant roadblocks: first, most lenders refuse to refinance a TIC investment under its current fractional ownership structure; and second, many of these investments, as a result of the economic downturn, are worth less today than their original loan amount and face foreclosure unless TIC investors can make additional cash contributions to cover the value gap.
The solutions that New Start Capital provides include: fresh capital to bridge the financing gap, as well as asset management expertise and intensive property management services. The company also advises TIC investors of the necessary steps needed to preserve some of their equity.
Founded in 1960, Tonti Properties owns, develops and manages multifamily properties. Kodiak Capital Partners LLC, led by Denny Landers and Robert Schults, formerly syndicated TIC deals. It stopped syndicating in 2008 as the economy crashed.
“TIC deals have pressure with debt mortgages coming due in 2010 and 2011,” Landers tells GlobeSt.com. “They’re becoming stressed and going into foreclosure because of their inability to bring in rescue capital – the gap between the equity and the new mortgage. We saw a need for our expertise in TIC asset management and understanding the needs of individual TIC investors, but we were short on the capital side.”
Landers says Kodiak had a relationship with Tonti, which has a large source of capital. “Tonti married up very well with Kodiak,” he says. “We see the future in the next five years of billions of CMBS mortgages in this particular fairway.”
New Start Capital can: provide immediate cash for a quick close; help defer the tax consequences of a foreclosure; preserve a portion of the TIC members’ original equity; and allow investors to share in back-end profits.
Even with New Start Capital’s solutions, Landers acknowledges that most TIC investors facing refinancing or foreclosure likely will not be made whole. But he points out that the alternative is to lose everything.
“The real challenge is the preponderance of these TIC investors are in latter stages of life, and they don’t have the cash to re-invest in these TIC deals,” Landers explains. “New Start Capital can give these investors an opportunity to recover some portion of their original equity and relieve them of the possibility of incurring phantom income through foreclosure.”
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