1. real estate

How to Successfully Originate
CMBS Conduit Loans
Contact:
Mike Sneden - 212-883-6447 - [email protected]
Jim Brett - 212 - 883-6492 - [email protected]
November 2013
Confidential – Not For Distribution
WHAT ARE CMBS CONDUIT LOANS?
•
The market for pooling of residential home loans and selling securities backed by the mortgage payments received from
homeowners was created by Fannie Mae in 1981. However, there was no need or attempt to create a similar product
for commercial loans as an ample supply of commercial loans was available from banks and other finance companies.
•
In the early 1990s commercial loans were unavailable because of the Savings and Loan (S&L) crisis. Wall Street firms
created a loan product for income-producing commercial properties in 1992 following the success of the Resolution Trust
Corporation’s (RTC) mortgage trust program. The RTC mortgage trust program, created in 1989-1990, disposed of
performing and non-performing loans from failed S&Ls. The RTC placed the loans in “pools” and sold securities backed
by the pool of loans. The structure was highly successful.
•
Using the RTC mortgage trust program as a model, Wall Street firms and the rating agencies (S&P, Fitch and Moody’s)
developed criteria for underwriting and structuring commercial loans in a standardized way. All loans have 5-, 7- or 10year terms; all are non-recourse; all are underwritten with capital reserves; all have to meet specific debt-service
coverage tests and all are among six asset classes – multifamily, retail, office, industrial, hospitality and self-storage.
These standardized loans are known as “conduit,” “CMBS,” or “securitized” loans. Originators of CMBS conduit loans
benefit from standardization. Once you have completed one CMBS conduit loan, each subsequent loan is similar.
•
In 1992, $13.4 billion of Commercial Mortgage Backed Securities (CMBS) were issued, created from over 1,300 incomeproducing commercial loans. Issuance grew every year, peaking at $75 billion in 1998. However, the market experienced
a “meltdown” in August 1998 when hedge fund Long-Term Capital Management failed and Russia defaulted on its debt;
the combination created a credit crisis that lasted 6 months and crushed CMBS prices. Many CMBS firms closed amid
substantial losses on unsold CMBS.
•
The CMBS market recovered by 2000 and issuance grew to $314 billion by 2007. Total CMBS outstanding at the end of
2007 was about $850 billion, representing 25% of all commercial loans outstanding, a staggering amount. But again,
the market experienced a “meltdown” of epic proportions in late 2008. The CMBS market effectively shut down for over
2 years as the 2008-2010 credit crisis and recession seized the credit markets and the prices of existing CMBS collapsed.
•
The CMBS market restarted in 2011 and is extremely active once again. A projected $75 billion of CMBS conduit loans
will be originated in 2013. ORIGINATORS NEED TO TAKE ADVANTAGE OF THE CMBS CONDUIT LOAN MARKET WHILE
THE MARKET IS ACTIVE!
November 2013
1
HOW ARE CMBS CONDUIT LOANS STRUCTURED?
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All CMBS conduit loans are similarly structured and can be used for the purchase or refinancing of income-producing
commercial properties. By learning the basic structure, the CMBS conduit loan originator can become an “expert” in the
origination of CMBS conduit loans among all asset types, showing knowledge and ability to the client, paramount in
building a trust element between the CMBS conduit loan originator and the client that the transaction will close!
•
CMBS Loan Structure:
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Eligible Assets: Tenanted and stabilized (>85% occupied+/-) income-producing multifamily apartment complexes (including student and age restricted),
manufactured housing communities (sometimes called mobile home parks), anchored and unanchored retail shopping centers, multitenant office
buildings, multitenant industrial parks, franchised hotels (no budget franchises) and self-storage facilities. NO CONSTRUCTION, NO REHABILITATION
AND NO HEALTHCARE is eligible for CMBS conduit loans.
•
All CMBS conduit loans will have either a 5-, 7-, or 10-year fixed-rate term. All CMBS conduit loans are balloon loans. All CMBS loans will have an
amortization term of 15-30 years, with 25-30 being most prevalent. Low leverage loans can have an interest-only period followed by amortization, if
requested by the client.
•
All CMBS loans are secured by a first mortgage or a first leasehold mortgage on a Class A or Class B property located anywhere in the United States or
Puerto Rico. Classifying commercial property is subjective, but some general criteria: less than 20 years old or recently renovated; limited or no deferred
maintenance; competitive within its market.
•
All CMBS conduit loans are non-recourse, with no personal guarantees by any of the property owners (except “carve-outs”).
•
All CMBS conduit loan amounts will be limited by the lower of a maximum Loan-to-Value (LTV) test based on a full-narrative MAI appraisal ordered by the
CMBS conduit Lender from a nationally recognized appraisal firm (i.e., CB Commercial, Cushman & Wakefield, Collier’s) or a minimum Debt Service
Coverage Ratio (DSCR) test on trailing 12-month property cash flow including a vacancy factor, management fee and reserves (known as Underwriting
Net Cash Flow, or NCF). The methodology for calculating NCF has been standardized and it is imperative that the CMBS conduit loan originator become
familiar with the computation of NCF and NCF DSCR. LTV and DSCR limits are found in ValueXpress’ weekly rate sheet sent to CCTG graduates.
•
All CMBS conduit loans will have escrows for real estate taxes, insurance, capital replacement reserves, tenant improvement/leasing commission reserves
(office/retail/industrial) and may further have upfront reserves to mitigate vacancy for immediately maturing leases.
•
All CMBS conduit loans will have Cash Management accounts in which cash flow from the property is directed to a Lender account triggered by declines in
cash flow below prescribed levels for 2 consecutive quarters. The Lender collects for upcoming mortgage payment and escrows, and releases balance of
property cash flow to owner to pay operating expenses. When performance improves, Cash Management ends.
•
All CMBS conduit loans have Treasury Defeasance or Yield Maintenance prepayment restrictions. THIS IS A NEGATIVE THAT NEEDS TO BE MITIGATED
IN SELLING THE CLIENT ON A CMBS CONDUIT LOAN!
November 2013
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CMBS CONDUIT LOAN ORIGINATION PROCESS
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Since all CMBS conduit loans are similarly structured, the process of qualifying, originating, underwriting and closing CMBS
conduit loans has been standardized:
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Step 1: Does the Property Qualify for a CMBS Conduit Loan? Contact your ValueXpress representative to
discuss any potential income-producing property that is an asset type that may be eligible for a CMBS conduit loan.
Information required to have an intelligent conversation include address/photos of asset (to determine Class A or
Class B), is it a purchase or refinance, the potential loan amount, summary annual cash flow, rent roll, property
owner (“sponsor”) information and disclosure of any issues.
•
Step 2: Initial Property/Sponsor Diligence and Loan Sizing. Once a property qualifies for a CMBS conduit
loan, a Short-Form Diligence Checklist is emailed to the sponsor (see addendum – Exhibit 1). The checklist will
request property rent roll, income and expense statements, ownership structure, property cost, existing debt
information, prior third-party reports and any sponsor credit issues. The property rent roll and income and expense
statements are utilized to “size” the loan in accordance with standardized CMBS conduit loan underwriting standards
to determine the maximum potential loan amount and property valuation.
•
Step 3: Sponsor Education. Should the loan “size” at a level that meets the sponsor’s needs and the balance of
the property and sponsor diligence checks out, a Form Loan Application is provided to the sponsor (see addendum –
Exhibit 2). The purpose is to determine up front if there are any CMBS conduit loan structure elements that are
unacceptable to the sponsor (like prepayment penalty, cash management, or transaction costs) that kill the deal.
This saves wasting valuable credit approval resources.
•
Step 4: Loan Approval and Application. Should the loan “size,” diligence checks out and the sponsor agrees to
the terms in the Application, the loan is submitted for “credit approval” and a Loan Application issued with the
specific terms of the loan.
•
Property/Legal Diligence. Once the Loan Application is executed a final Property/Sponsor Diligence and a
Legal/Closing checklist is issued. Third-party vendors are also engaged. There is a kick-off conference call among
the sponsor, ValueXpress, CCTG grad (voluntary), Lender, Borrower’s counsel and Lender’s counsel that continues
weekly to monitor the progress of documentation deliveries. Once the checklists are complete, the loan closes.
The entire process from loan application acceptance to loan closing should take 45 days, if the sponsor is organized
and attentive.
November 2013
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CMBS CONDUIT LOAN SELLING POINTS
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Unrestricted Cash-Out Refinancing. CMBS conduit loans allow for unrestricted cash-out up to the maximum
LTV/DSCR thresholds. Competing loan products are restrictive on cash-out. A CMBS conduit loan sells extremely well
for underleveraged properties in which the sponsor wishes to extract cash for other purposes.
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Sponsor’s Need/Desire for a Non-Recourse Loan. CMBS conduit loans are non-recourse (except for certain “badperson” carve-outs), which means the sponsor does not personally guarantee repayment of the loan. The lender’s
recovery of loan principal in the event of a default and foreclosure is limited to the proceeds from the asset disposition.
•
Other Selling Points:
•
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Longer Loan Term (up to 10 years) and Longer Amortization (interest only, 25-/30-year schedules) often superior to community
bank terms.
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Fast Execution in as little as 35 days if the sponsor is well organized and responsive.
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Discounted Payoffs and Personal Credit Blemishes okay as long as property being financed has always performed well.
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Nationwide program; no geographic restrictions.
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Can Be Paired with Mezzanine Financing to Achieve Higher LTV. In instances where the CMBS conduit loan proceeds are
insufficient to pay off existing debt in a refinance or the sponsor desires 5%-10% more leverage, a mezzanine loan can be seamlessly
added to achieve the desired loan proceeds.
•
Can Add Value to the Asset! A low-rate assumable CMBS conduit loan can increase a buyer’s leveraged return on equity, allowing the
buyer to pay a higher price for the asset and the seller does not have to worry about the buyer qualifying for a purchase loan; they simply
assume the existing CMBS conduit loan!
•
No Ongoing Property Performance Test That Triggers Non-Monetary Default.
No Sponsor Loan Limits. There is no effective limit to the amount of money a sponsor can borrower. An effective
selling point is to refinance loans out of a community bank portfolio in which the sponsor has reached the legal lending
limit, making room for the bank to make additional loans to the sponsor.
November 2013
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CMBS CONDUIT LOAN NEGATIVES AND MITIGATING ARGUMENTS
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CMBS Conduit Loans Have Restrictive Prepayment Terms. All CMBS conduit loans provide for a prohibition of
prepayment during the first 24-48 months of the loan term. Prepayment thereafter is subject to a prepayment premium
from Treasury Defeasance (TD) or Yield Maintenance (YM), both of which are complicated and burdensome. For an
explanation go to valuexpress.com – FAQs.
In addition, for an example of Treasury Defeasance, go to
defeasewithease.com and use the Quick Quote Defeasance Calculator.
•
•
Mitigating Arguments:
1.
ALL CMBS conduit loans are assumable, so the loan is never forced to pay off in the event of a property sale. (But this can be an
issue if the sale price is much higher than the CMBS conduit loan, requiring substantial equity investment to assume the loan).
2.
If the loan is closed at an historically low interest rate level, the argument is that rates are likely to go up, and the amount of
penalty decreases when rates are higher than the rate on the loan.
3.
The TD or YM prepayment protection for the lender allows the lender to offer a lower rate, knowing its return is protected for the
life of the loan.
All CMBS Conduit Loans Have a Cash Management Account (CMA). All property income must pass through a
lender-controlled bank account (see Addendum – Cash Management Flow Chart). In the event the property is
performing above a pre-determined DSCR, property income passes through the CMA into the sponsor’s operating
account. If the property is performing below the DSCR level for 2 consecutive quarters, the income is escrowed in an
amount to pay monthly P&I and fund reserve accounts – taxes, insurance and capital reserves -- after which the balance
of the property income is remitted to sponsor. The process repeats monthly until the property performs above the DSCR
level for 2 consecutive quarters. Can be waived for multifamily/MHC loans and low-leverage loans.
•
Mitigating Arguments:
November 2013
1.
Simply keep the property performance above the pre-determined DSCR and the effects of the CMA never trigger, the money
always passes through to the operating account. (Some headaches remain, though; the CMA has monthly fees and it is a pain to
have tenants route payments through the CMA account. The process requires paperwork to set up and Wells Fargo has a
monopoly on CMA accounts.)
2.
The financial data utilized to determine DSCR for the CMA trigger test is provided by and controlled by the sponsor. Accounting
adjustments can be made by the sponsor should property performance near the trigger point.
5
CMBS CONDUIT LOAN NEGATIVES AND MITIGATING ARGUMENTS (Cont’d)
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CMBS Conduit Loans Are Expensive! CMBS conduit loan diligence expenses are higher than those for community
banks. Full-narrative appraisal reports are $7,500-$12,500, while Property Condition Assessments and Environmental
Site Assessments are $5,000 (these are often waived by community banks that also utilize less-expensive local appraisal
firms). Lender’s legal fees are often in excess of $20,000 due to the intensive legal documentation required to protect
the lender since the loans are non-recourse. Expense deposits to ensure vendors are paid range from $35,000 to
75,000, shocking sponsors.
•
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Mitigating Arguments :
1.
The sponsor can consider the costs to be spread over 10 years versus paying twice if closing a community bank loan with a 5-year
term that would need to be refinanced again in 5 years.
2.
Sponsors that are receiving large cash-out proceeds are less sensitive to transaction costs.
CMBS Conduit Loan Due Diligence Is Too Burdensome.
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Mitigating Arguments :
1.
•
The CCTG graduate and ValueXpress will make the process as painless as possible for the sponsor. As a result, the sponsor will
generally not dispute the origination fees paid for the high level of service. This service generally results in subsequent
transactions with the sponsor and experience-sharing through word-of-month with other potential clients.
CMBS Conduit Loans Require Reserves.
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Mitigating Arguments :
November 2013
1.
Reserves provide immediate capital to keep taxes and insurance current and provide capital to attract and/or retain tenants and to
make capital improvements to the asset to keep it competitive in its market.
2.
The reserves are available for use as needed. They just don’t “sit there” for the term of the loan.
3.
Some sponsors appreciate reserves as a “forced” savings plan and are thankful that reserves are available when a large capital
investment is required.
6
VALUEXPRESS: OUR ROLE IN CMBS CONDUIT LOAN ORIGINATION WITH CCTG GRADS
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ValueXpress Is CCTG Graduates’ “Back Office.” In consultation with the CCTG graduate, ValueXpress will handle
the following:
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Property Qualification – Does the property qualify for a CMBS Conduit Loan?
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Initial Property/Sponsor Diligence and Loan Sizing.
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Sponsor Education – ValueXpress will arrange a conference call between the sponsor and CCTG grad to explain the
structure of the CMBS conduit loan to be sure the sponsor understands the loan before proceeding.
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Loan Approval and Application – After the sponsor has agreed to the CMBS conduit loan structure, ValueXpress will
obtain credit approval and a Loan Application for the sponsor to execute to proceed with final property/sponsor
diligence and legal diligence to close the loan.
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Weekly Conference Calls – Once the Application is accepted, ValueXpress will arrange weekly conference calls
among the CMBS conduit lender, its counsel, the sponsor and sponsor’s counsel to discuss progress on the loan
closing. The CCTG graduate is welcome to participate in the call.
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WHAT IS EXPECTED OF THE CCTG GRADUATE? FIND THE CLIENTS!
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NO AGREEMENT REQUIRED WORK WITH VALUEXPRESS, ALL CCTG GRADUATES ARE
WELCOME UNDER A SPECIALIZED PROGRAM EXCLUSIVE TO CCTG GRADUATES!
November 2013
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CCTG GRADUATE EARNINGS FROM ORIGINATING CMBS CONDUIT LOANS
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The typical CMBS Conduit Loan is $5-$10 million; the average is $7 million. CMBS conduit
loans range from $2 million to over $100 million. However, the target market for CCTG grads ought to
be the $2- to $15-million range, as larger loans are usually handled by national loan origination firms
(HFF, Eastdil, LJ Melody, etc.) or the sponsor goes directly to the CMBS conduit lender.
•
The typical Origination Fee is 1% of the Loan Amount. There is no set fee charged for the
origination of a CMBS conduit loan. Loans under $5 million may see a fee of more than 1% (say 1.5%2.0%) and loans over $20 million may see a fee of less that 1%. The fee is negotiable between the
sponsor and the mortgage broker.
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The CMBS Conduit Lender Charges No Origination Fee or Points.
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That Means All Origination Fees Go to the Mortgage Broker!
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CCTG Graduates should expect to close approximately 6 CMBS conduit loans/year.
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ValueXpress, in a special arrangement with CCTG graduates, will charge a 0.25% fee.
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CCTG graduates can expect a 0.75% fee from each CMBS conduit loan transaction with ValueXpress.
• Based on the numbers a CCTG graduate can expect to earn
• $315,000/year*
• from CMBS conduit loan origination with ValueXpress!
• *Based on an Average Loan of $7 million x 6 transactions x 0.75%.
November 2013
8
REPRESENTATIVE TRANSACTIONS
ValueXpress Obtains $4-Million CMBS Conduit Loan for Hastings Self-Storage in Westchester County, NY
ValueXpress obtained a $4-million CMBS conduit loan to refinance a $3-million CMBS conduit loan that ValueXpress provided to
the sponsor ten years ago. The property, Hastings Self-Storage, is located on the west side of Saw Mill River Road, just south of
Farragut Avenue in the village of Hastings-on-Hudson, New York. The building, built in 2001, is a five-story, elevator and climate
controlled self-storage facility containing 52,000 square feet of gross building area; the net rentable area is 35,515 square feet of
storage space. There are 435 rentable units total that range in sizes from 4.5’ x 4.5’ to 10’ x 25’ bins. The transaction was
structured with a 10-year term and a 25-year amortization schedule.
“The sponsor initially selected an insurance company to refinance the property, but the transaction was turned down,”
commented Michael D. Sneden, Executive Vice President at ValueXpress. “This consumed precious time, and I was engaged
three weeks before the existing CMBS loan matured. We went to work quickly and obtained a 15-day extension and closed the
loan. Most important, we locked the rate in advance of the Fed report on June 19 and secured an attractive rate.” The rate was
substantially less than the prior coupon such that loan payments are nearly the same despite borrowing an additional $1 million.
ValueXpress Arranges $20.5-Million CMBS Conduit Loan on a Portfolio of 3 Limited-Service Hotels in Corpus
Christi, TX
ValueXpress arranged a large CMBS conduit financing for a portfolio of 3 limited-service hotels, the Staybridge Suites –
Corpus Christi, Holiday Inn Express – Corpus Christi and Comfort Suites – Corpus Christi. The borrower was an affiliate
of ZJZ Hospitality, Inc., which is controlled by local Corpus Christi hotel owner, developer and manager Deven Bhakta.
“The transaction was a great experience for me and I anticipate using the capital markets for debt financing on
subsequent projects that are either in the development or stabilization phase,” said Deven. “Using non-recourse debt
frees up my capacity to use community bank debt for construction of new properties or repositioning/renovation of existing
properties that I can then bring into the capital markets when stabilized.”
ValueXpress Closes $9-Million CMBS Conduit Loan
ValueXpress closed a $9-million CMBS conduit first-mortgage loan on a 353-unit apartment complex with 61 two-story
apartment buildings constructed in 1980-1989. The property was approximately 87% occupied at closing. The 10-year,
fixed-rate loan was provided to Peppertree I LLC.
The property is located on Dorchester Road in northwestern metropolitan Charleston, North Carolina. The neighborhood
consists of a mixture of commercial and residential development with retail stores along Dorchester Road. A major link
between the Summerville area and Charleston, Dorchester Road also provides access to a U.S. Air Force base and
Charleston International Airport.
“The transaction was challenging in that the property was a matured CMBS conduit loan and the special servicer was
putting substantial pressure on the borrower to close,” commented Jim Brett, the ValueXpress underwriter on the
transaction. “We had to process the loan quickly, and when the special servicer demanded $500,000 in late fees and
default interest right before closing, we stepped in and helped with negotiations.”
November 2013
10
THE VALUEXPRESS MANAGEMENT TEAM – ALWAYS AVAILABLE TO CCTG GRADS
•
ValueXpress LLC was formed in 1995 to originate CMBS conduit loans. ValueXpress executives have originated,
underwritten and closed thousands of commercial loans, most of which are included in CMBS. ValueXpress is an expert in
credit underwriting commercial real estate loans. The company is staffed with executives and specialists skilled in property
cash flow analyses, market analyses, stress testing and debt-service coverage analysis for all types of commercial
properties included in CMBS.
•
Michael Sneden, Executive Vice President and owner of ValueXpress, is responsible for the management and
operation of ValueXpress LLC. Mike has been involved in the origination and underwriting of loans for CMBS since
1993. He has originated over $1.5 billion of CMBS conduit loans since formation of the company. In addition, Mike
has traded over $300 million of CMBS securities, resulting is significant profits from the CMBS market recovery in
2009-2010. Mike can be reached at [email protected].
•
Jim Brett, Head of CMBS Conduit Underwriting and Head of CMBS Securities Analytics at ValueXpress, is responsible
for the CMBS conduit underwriting process for ValueXpress. In addition, Jim utilized his analytic skills to review all
205 CMBS issues in 2005-2007 to recommend a purchase program that resulted in over $10 million of profits from
CMBS trades. Jim joined ValueXpress in 2007 from Countrywide Capital Markets, the CMBS conduit loan origination
platform for Countrywide Securities. Jim was responsible for underwriting CMBS conduit loans for all eligible CMBS
conduit loan classes, including multifamily apartment complexes (including student and age restricted),
manufactured housing communities (sometimes called mobile home parks), anchored and unanchored retail
shopping centers, multitenant office buildings, multitenant industrial parks, franchised hotels and self-storage
facilities. Jim can be reached at [email protected].
•
ValueXpress Origination Offices:
November 2013
•
New York: Gary Unkel [email protected]
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Northeast: Leon Elliott [email protected]
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New England: Steve Lombardi [email protected]
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Southeast: Jay Bhakta [email protected]
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Midwest:
Dan Carbeck [email protected]
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Exhibit 1 – Short Form Diligence Checklist
Multifamily/Manufactured Housing
Community
Retail/Office Industrial
Self-Storage
Hotel
Borrower Organization Chart
Schedule of Existing Debt
Sponsor Credit Certification
Sources and Uses of Funds
Exhibit 1 - Short Form Diligence Checklist (Also Provided on Your Flash Drive)
Send this checklist to sponsors that wish to move through the credit process to receive a Loan Application. Sponsors should have already provided data to size the loan, reviewed the form Loan Application to determine that there are no CMBS conduit loan structure items that are objectionable and have received a “soft” loan quote with terms that are acceptable to the sponsor. Office/Retail Diligence for Analysis and Application ‐ CMBS Conduit Loan (Bold/Red for a “Soft” Quote Only) ‐ Year‐end 2010, 2011 and 2012 property income and expense statements for the property and real estate holding company (if any). The statements should be from an internal accounting system in QuickBooks or similar accounting format. Do not submit tax returns unless there is no accounting system for the property. Provide in excel if available so we can download into our loan sizing model. ‐ A trailing 12 months income and expense statement BY MONTH through most recently available month. Best if on one sheet; QuickBooks can print out a monthly report on one sheet. If not, print out the income and expense statement for each month separately. Provide in excel so we can download into our loan sizing model. ‐ Please provide the most recently available balance sheet for the property. ‐ If there are any capital improvements or large non‐recurring expenses in the 2011 or trailing 12 months, please provide a general ledger printout of the capex items or non‐recurring items. ‐ Annual average occupancy statistics for 2010, 2011, 2012 and Trailing 12 months. ‐ Current Rent Roll, including tenant name, square footage, monthly base rent, annual base rent, rent/sf, lease start date, lease end date, type of lease (gross, net, modified gross). Initial date of occupancy, options, monthly expense recoveries by type (RET, INS, CAM), termination rights (if any), percentage rent, tenant sales (retail). ‐ Copy of most recent expense recovery reconciliations (for net and modified gross leases). ‐ Copy of the most recent tax bill. ‐ Copy of any old appraisal, property condition assessment or Phase I Environmental assessment. If none, provide site plan with size of property and layout of tenant spaces. Sponsors estimate of property value and sponsors cost estimate to buy land parcel and build asset today. Year of construction and year of subsequent renovation/cost. ‐ Please complete attached Debt Schedule. ‐ Please complete attached Organization Chart. ‐ Please complete attached Sponsor‐Borrower Certification. ‐ Please provide a Personal Financial Statement for any owner > 20%, resume for sponsor. Please provide a resume for the sponsor indicating experience in the ownership and operation of similar properties. ‐ Provide a resume/brochure/website for the management company (if third‐party managed. ‐ Amount of loan request/Sales Contract. Complete attached Sources and Uses of Funds. ‐ Market study: market occupancy, market rents by class (A, B, C), absorption. ‐ Exterior photographs/website. Preferred method of delivery is to scan the documents and e‐mail. Second best is overnight of hard copy, we will scan and return the hard copy. Multifamily/MHC Diligence for Analysis and Application ‐ CMBS Conduit Loan (Bold/Red for a “Soft” Quote Only) ‐ Year‐end 2010, 2011 and 2012 property income and expense statements for the property and real estate holding company (if any). The statements should be from an internal accounting system in QuickBooks or similar accounting format. Do not submit tax returns unless there is no accounting system for the property. Provide in excel if available so we can download into our loan sizing model. ‐ A trailing 12 months income and expense statement BY MONTH through most recently available month. Best if on one sheet; QuickBooks can print out a monthly report on one sheet. If not, print out the income and expense statement for each month separately. Provide in excel so we can download into our loan sizing model if available. ‐ Please provide the most recently available balance sheet for the property ‐ If there are any capital improvements or large non‐recurring expenses in the 2011 or trailing 12 months, please provide a general ledger printout of the capex items or non‐recurring items ‐ Annual average occupancy statistics for 2010, 2011, 2012 and Trailing 12 months. ‐ Current Rent Roll, including tenant name, square footage, monthly base rent, annual base rent, rent/sf, lease start date, lease end date, initial date of occupancy, occupancy percent ‐ based on a) economic and b) physical occupancy. ‐ Copy of most recent expense recovery reconciliations (for net and modified gross leases). ‐ Copy of the most recent tax bill. ‐ Copy of any old appraisal, property condition assessment or Phase I Environmental assessment. If none, provide site plan with size of property and layout of tenant spaces. Sponsors estimate of property value and sponsors cost estimate to buy land parcel and build asset today. Year of construction and year of subsequent renovation and cost. ‐ Please complete attached Debt Schedule. ‐ Please complete attached Organization Chart. ‐ Please complete attached Sponsor‐Borrower Certification. ‐ Please provide a Personal Financial Statement for any owner > 20%, resume for sponsor. Please provide a resume for the sponsor indicating experience in the ownership and operation of similar properties. Provide a resume/brochure/website for the management company (if third‐party managed. ‐ Amount of loan request/Sales Contract. Complete attached Sources and Uses of Funds. ‐ Market study: market occupancy, market rents by class (A, B, C), absorption. ‐ Exterior photographs/website. Preferred method of delivery is to scan the documents and e‐mail. Second best is overnight of hard copy, we will scan and return the hard copy. Self‐Storage Diligence for Analysis and Application ‐ CMBS Conduit Loan (Bold/Red for a “Soft” Quote Only) ‐ Year‐end 2010, 2011 and 2012 property income and expense statements for the property and real estate holding company (if any). The statements should be from an internal accounting system in QuickBooks or similar accounting format. Do not submit tax returns unless there is no accounting system for the property. Provide in excel if available so we can download into our loan sizing model. ‐ A trailing 12 months income and expense statement BY MONTH through most recently available month. Best if on one sheet; QuickBooks can print out a monthly report on one sheet. If not, print out the income and expense statement for each month separately. Provide in excel so we can download into our loan sizing model if available. ‐ Please provide the most recently available balance sheet for the property ‐ If there are any capital improvements or large non‐recurring expenses in the 2011 or trailing 12 months, please provide a general ledger printout of the capex items or non‐recurring items ‐ Annual average occupancy statistics for 2010, 2011, 2012 and Trailing 12 months. ‐ Current Rent Roll, including tenant name, square footage, monthly base rent, annual base rent, rent/sf, lease start date, lease end date, initial date of occupancy, occupancy percent ‐ based on a) economic and b) physical occupancy. ‐ Copy of most recent expense recovery reconciliations (for net and modified gross leases). ‐ Copy of the most recent tax bill. ‐ Copy of any old appraisal, property condition assessment or Phase I Environmental assessment. If none, provide site plan with size of property and layout of tenant spaces and Unit Summary Report, with unit sizes and number of units of each size. Sponsors estimate of property value and sponsors cost estimate to buy land parcel and build asset today. Year of construction and year of subsequent renovation and cost. ‐ Please complete attached Debt Schedule. ‐ Please complete attached Organization Chart. ‐ Please complete attached Sponsor‐Borrower Certification. ‐ Please provide a Personal Financial Statement for any owner > 20%, resume for sponsor. Please provide a resume for the sponsor indicating experience in the ownership and operation of similar properties. Provide a resume/brochure/website for the management company (if third‐party managed. ‐ Amount of loan request/Sales Contract. Complete attached Sources and Uses of Funds. ‐ Market study: market occupancy, market rents by class (A, B, C), absorption. ‐ Exterior photographs/website. Preferred method of delivery is to scan the documents and e‐mail. Second best is overnight of hard copy, we will scan and return the hard copy. Hotel Diligence for Analysis and Application ‐ CMBS Conduit Loan (Bold/Red for a “Soft” Quote Only) ‐ Year‐end 2010, 2011 and 2012 property income and expense statements for the property and real estate holding company (if any). The statements should be from an internal accounting system in QuickBooks or similar accounting format. Do not submit tax returns unless there is no accounting system for the property. Provide in excel if available so we can download into our loan sizing model. ‐ A trailing 12 months income and expense statement BY MONTH through most recently available month. Best if on one sheet; QuickBooks can print out a monthly report on one sheet. If not, print out the income and expense statement for each month separately. Provide in excel so we can download into our loan sizing model if available. ‐ Please provide the most recently available balance sheet for the property ‐ If there are any capital improvements or large non‐recurring expenses in the 2011 or trailing 12 months, please provide a general ledger printout of the capex items or non‐recurring items ‐ ADR and occupancy statistics for 2010, 2011, 2012 and Trailing 12 months. ‐ Current Rent Roll, including tenant name, square footage, monthly base rent, annual base rent, rent/sf, lease start date, lease end date, initial date of occupancy, occupancy percent ‐ based on a) economic and b) physical occupancy. ‐ Most recent monthly STAR report for last month that was issued on the 20th of this month. ‐ Copy of the most recent tax bill. ‐ Copy of the franchise agreement. Is the property current on brand standards or refresh requirements? Any upcoming PIP or refresh planned by the franchisor? ‐ Copy of any old appraisal, property condition assessment or Phase I Environmental assessment. If none, provide site plan with size of property and room mix, meeting room amount and size and any restaurant information. Sponsors estimate of property value and sponsors cost estimate to buy land parcel and build asset today. Year of construction and year of subsequent renovation and cost. ‐ Please complete attached Debt Schedule. ‐ Please complete attached Organization Chart. ‐ Please complete attached Sponsor‐Borrower Certification. ‐ Please provide a Personal Financial Statement for any owner > 20%, resume for sponsor. Please provide a resume for the sponsor indicating experience in the ownership and operation of similar properties. Provide a resume/brochure/website for the management company (if third‐party managed. ‐ Amount of loan request/Sales Contract. Complete attached Sources and Uses of Funds. ‐ Market: What is the demand segmentation for the Property (corporate vs. group vs. leisure, etc…) by percentage totaling 100%? What are the top five corporate accounts and estimated trailing 12 months room nights sold to each account and approximate room revenue? What are the top leisure attractions? What are other demand generators for the property? Are there any competing hotels under construction or in advanced planning that would compete with the subject hotel? ‐ Exterior photographs/website. Preferred method of delivery is to scan the documents and e‐mail. Second best is overnight of hard copy, we will scan and return the hard copy. Loan Application – Borrower Organization Chart
1.
Borrower Organizational Chart
PLEASE COMPLETE ALL INFORMATION
BORROWER
Name: _________________________
Entity Type: __________________________
GENERAL PARTNER, MANAGER OR
MANAGING MEMBER
Name: _________________________
Entity Type: __________________________
Percentage: _______%
Please Diagram Ownership at Bottom of
Page
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
PLEASE LIST GENERAL PARTNER, MANAGER OR
MANAGING MEMBER OWNERSHIP BELOW
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
Name: ____________________________
Percent: ______%
SOP 50 50 4
Loan Assumption Guidelines
(Other than subject loan)
Proposed Debt
Payable To
Borrower Name:
Original
Date
Total Debt:
(Must match balance sheet)
Original
Amount
$0
$0
$0
$0
$0
$0
$0
Present
Balance
Rate of
Interest
$0
Total Annual:
Date
Name:
Signature
$0
Address:
$0
Address:
$0
Address:
$0
Address:
$0
Address:
$0
Address:
$0
Monthly
Payment
Total Month:
Maturity
Date
Address, City, State, Zip
(Show FVE Address)
Security
Schedule of Indebtedness
Current/
Past Due
Original
Purpose
November 13, 2013
EXHIBIT C
PROPERTY AND PRINCIPAL CERTIFICATION
Complete a separate sheet for each general partner, managing member, control party, guarantor, member,
limited partner, shareholder or spouse owning equal to or more than 10%, significant shareholder and
corporate officer (each, a “Significant Principal”). For all questions not specifically related to the
Property, please answer for ALL ENTITIES AND ALL PROPERTIES in which each Significant
Principal has or has had an ownership interest.
YES
1. Is there any pending or current litigation directly related to the Property or the owner(s) of
the Property? If yes, please attach a detailed explanation.
2. Has the existing loan on the Property ever been in default (whether or not cured) or
forbearance (whether permanent or temporary)? If yes, please attach a detailed
explanation.
3. Has there ever been any legal action commenced or lis pendens or other litigation filed
against the Property or the owner(s) of the Property during your ownership of the Property?
If yes, please attach a detailed explanation.
4. Have you ever been declared bankrupt or filed a petition or action under any bankruptcy or
insolvency laws or had a judgment against you or any of your assets (including the
Property)? If yes, please attach a detailed explanation.
5. Have you ever had a judgment against you or any of your assets (including the Property)?
If yes, please attach a detailed explanation.
6. Have you ever been a principal, partner, shareholder or member with any direct or indirect
ownership interests in an entity (including the owner of the Property) that has declared
bankruptcy or filed a petition or action under any bankruptcy or insolvency laws? If yes,
please attach a detailed explanation.
7. Have you ever been a guarantor of an entity (including the owner of the Property) that has
declared bankruptcy? If yes, please attach a detailed explanation.
8. Have you ever had any claim made against you under a guaranty? If yes, please attach a
detailed explanation.
9. Have you ever had property (including the Property) foreclosed upon or given title or deed
in lieu thereof? If yes, please attach a detailed explanation.
10. Have you ever been a principal, partner, shareholder or member of an entity (including the
owner of the Property) that had a property foreclosed upon or given title or deed in lieu
thereof? If yes, please attach a detailed explanation.
11. Have you ever had a repossession (including of the Property)? If yes, please attach a
detailed explanation.
12. Have you ever requested or received modification (whether permanent or temporary) of the
terms of any mortgage or any other loan (including the loan on the Property)? Please
include, without limitation, reference to any discounted purchase offer (DPO), any
NO
Page | 2
modification in principal or interest payments or any other terms, any waiver or deferral of
any other obligation, etc., whether or not pursuant to a written agreement? If yes, please
attach a detailed explanation.
13. Have you ever been a principal, partner, shareholder or member of an entity (including the
owner of the Property) that requested or received modification (whether permanent or
temporary) of the terms of any mortgage or any other loan (including the loan on the
Property)? Please include, without limitation, reference to any discounted purchase offer
(DPO), any modification in principal or interest payments or any other terms, any waiver or
deferral of any other obligation, etc., whether or not pursuant to a written agreement? If
yes, please attach a detailed explanation.
14. Have you ever been in default on or received forbearance (whether or not pursuant to a
written agreement) on any mortgage (including on the Property) or any other loan? If yes,
please attach a detailed explanation.
15. Have you ever been a principal, partner, shareholder or member of an entity that has ever
been in default on or received forbearance on any mortgage (including on the Property) or
any other loan? If yes, please attach a detailed explanation.
16. Have you ever been involved inlitigation with parties with whom you have partnered, joint
ventured, or otherwise collaborated and/or is any such litigation currently being threatened
against you?
17. Have you ever been arrested or convicted of or plead guilty or no contest to a felony or a
misdemeanor or are you presently the subject of an arrest, complaint or indictment
charging a felony or a misdemeanor? If yes, please attach a detailed explanation.
18. Are you a co-maker, guarantor, or endorser on any note?
19. Are you or have you ever been a party to any claim or lawsuit?
20. Are any of your assets pledged as collateral?
21. Do you owe any real estate taxes (on the Property or otherwise) that are delinquent or any
income or other taxes for the years prior to the current year? Are you currently contesting
any real estate taxes (on the Property or otherwise) or any income or other taxes?
22. Have you been the subject of an IRS audit in the past three years?
23. Are you a U.S. citizen?
24. Are you a resident alien?
25. Have you ever obtained credit under any other name or have been known by any other
name in the last 10 years? If yes, list other names or aliases:
_________________________
The information contained in this certificate and any explanation(s) attached hereto is true, accurate and
complete.
By:
________________________
Name
Applicant’s Initials _____
DEAL NAME: __________________________________
Sources:
Proposed Loan Amount:
Mezzanine Loan:
Equity:
Other Sources:
Other Sources:
Other Sources:
Other Sources:
Other Sources:
Other Sources:
Other Sources:
Total Sources of Funds:
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Sources & Uses of Funds
Uses:
Acquisition Price:
Existing 1st Mortgage:
Existing 2nd Mortgage (1):
Up-Front Reserves:
Distributions to Principals (1):
Mortgage Broker Fees:
Estimated Closing Costs:
Other Uses:
Other Uses:
Other Uses:
Total Uses of Funds:
Statement of Original Project Cost - If Refinancing
If Constructed:
If Acquired:
Date of Acquisition:
1/0/1900
Date of Completed Construction:
Acquisition Price:
$0
Cost of Land:
Additional Capital Expenditures:
$0
Hard Construction Costs:
Additional Tenant Improvements:
$0
Soft Construction Costs:
Additional Leasing Commissions:
$0
Development Fee (1):
Financing Costs (Existing Mortgage):
$0
Project Management Fee (1):
Financing Costs (New Mortgage):
$0
Additional Capital Expenditures:
Up-Front Reserves:
$0
Additional Tenant Improvements:
Other Costs:
$0
Additional Leasing Commissions:
Other Costs:
$0
Financing Costs (Existing Mortgage):
Other Costs:
$0
Financing Costs (New Mortgage):
Other Costs:
$0
Up-Front Reserves:
Other Costs:
$0
Other Costs:
Other Costs:
$0
Other Costs:
Other Costs:
$0
Other Costs:
Total Acquisition Costs:
$0
Total Project Costs:
Proposed Loan Amount:
$0
Proposed Loan Amount:
Equity in Deal At Closing
$0
Equity in Deal At Closing
(1) Please indicate party paid.
Existing Loan Balance:
Existing Loan Interest Rate:
Existing Loan Maturity Date:
$0
0.00%
1/0/1900
The information contained on this form is true, accurate and complete.
Name of Borrowing Entity:
By:
Name:
Title:
Date:
EXHIBIT I
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
1/0/1900
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Exhibit 2 – Form CMBS Conduit Loan
Application
FORM OF CMBS LOAN APPLICATION
[ITEMS in RED VARY ACCORDING TO DEAL and ASSET TYPE]
Date:
CMBS Conduit Lender
Street Address
City, State, Zip
Attention: Deal Manager
Re: Proposed [Loan Amount] Financing of the [Asset Type] comprised of [Number of
Keys, Square Feet] and located at [Address], [City], [State] [Zip Code] (the “Property”)
Dear [Deal Manager]:
The purpose of this letter is to set forth the terms and conditions intended to be submitted to the
investment committee of Lender (together with its affiliates and their respective successors and assigns
hereinafter collectively being referred to as “Lender”) in connection with the proposed loan (the “Loan”)
requested by the undersigned (“Applicant”). The terms and conditions of the Loan to be considered shall
be those set forth in this letter (the “Cover Letter”) and the term sheet attached hereto (the “Term Sheet”;
together with the Cover Letter, collectively, the “Application”). All capitalized terms used but not
defined in this Cover Letter shall have the meaning given to such terms in the Term Sheet.
Applicant will, contemporaneously with the execution of this Application, pay to Lender a good
faith deposit of [$35,000-$75,000] (the “Good Faith Deposit”), of which [$5,000-$7,500] shall be a nonrefundable underwriting fee, to be applied by Lender to cover fees and expenses incurred by Lender in
connection with this Application and/or the Loan (the “Expenses”). Applicant shall remit to Lender
promptly upon demand any additional amounts required by Lender, which amounts shall be deemed a
part of the Good Faith Deposit and absent which Lender may elect not to proceed with diligence and/or
underwriting of the Loan. The Good Faith Deposit and any such additional amounts shall be delivered to
Lender pursuant to the instructions set forth on Exhibit B hereto or as otherwise directed by Lender.
Applicant agrees to indemnify, defend and hold Lender harmless against any Expenses. Expenses will
include, without limitation, external legal counsel; audit services; travel; background and credit checks;
lease reviews and underwriting and due diligence costs including third party fees incurred for insurance,
zoning, appraisal, environmental and structural engineering reviews and reports. The unapplied portion
of the Good Faith Deposit, if any, will be credited to Borrower at Closing. Subject to the other provisions
of this Application, in the event of a termination of this Application without a closing of the Loan, the
unapplied portion of the Good Faith Deposit, if any, will be promptly returned to Applicant upon receipt
of a written release from Applicant. The obligations in this paragraph will survive in the event this
Application is terminated for any reason.
Applicant agrees to cooperate with Lender and its counsel, agents and representatives, and
provide Lender and its counsel, agents and representatives with all requested information in order that
Lender may conduct its due diligence investigation. Applicant acknowledges that Lender will be relying
on information supplied by Applicant in evaluating this Application and Applicant agrees to provide any
updates to information previously provided on a timely basis and to disclose all material information
concerning Applicant, Borrower or any of its principals, the Property or any of the tenants of the Property.
Applicant further agrees that, except as specifically set forth herein, any reviews, decisions, approvals or
acceptance to be made by Lender under this Application may be made by Lender in its sole and absolute
discretion.
Applicant’s Initials _____
November 12, 2013
Page | 2
Applicant hereby acknowledges and represents that it is working solely with Lender to procure
financing for the Property. If (i) the conditions set forth in the Term Sheet are not met and the Loan does
not close on or prior to [Date] or (ii) Applicant or any principal or affiliate of Applicant obtain financing
for the Property from another lender (unless Lender has previously terminated this Application), then, in
each case, Lender shall be entitled to terminate the Application and retain the unapplied balance of the
Good Faith Deposit (and, in the case of (ii) only, receive an immediate payment, upon demand, of a
break-up fee equal to 1.0% of the Loan Amount) as liquidated damages for the time and effort expended
by Lender in connection with this Application, it being expressly acknowledged and agreed that Lender’s
actual damages in such instance will be impossible to calculate. This paragraph shall survive any
termination of this Application.
Applicant understands and acknowledges that Lender’s agreement to make the Loan is subject to
receipt of approval from Lender’s internal investment committee and Borrower’s fulfillment of the
Closing Conditions, each in form and substance satisfactory to Lender. Applicant acknowledges and
agrees that this Application does not set forth all of the terms and conditions of the proposed Loan, but is
merely intended to serve as an outline of the major points of understanding between the parties that will
be set forth in the final Loan Documents. Accordingly, this Application is subject to revision or
termination by Lender and cannot be construed for any purpose as a commitment by Lender to fund any
loan under these or any other terms. Further, no such offer or commitment may be made orally by any
employee, officer, agent or representative of Lender, and none should be implied based on any statements
by, or conduct of, any such persons.
This Application shall be governed by, construed and interpreted in accordance with the internal
laws of the State of New York, without regard to principles of conflicts of laws. Applicant submits to the
exclusive jurisdiction of the courts of the State of New York for the resolution of any dispute in
connection with this Application. Both parties waive any right to a jury trial.
Applicant acknowledges its acceptance of the terms and conditions relating to the Loan described
in this Application by (i) executing a copy of this Cover Letter, (ii) initialing each page of the Term Sheet
where indicated, (iii) completing the certification attached hereto as Exhibit C for each Key Principal and
each borrower and (iv) submitting each of the same to Lender along with the Good Faith Deposit.
Applicant understands that failure to do so within five (5) days after the date hereof shall, at Lender’s
option, render this Application null and void.
Sincerely,
[BORROWER]
By:
-2-
_____________________________
Name:
Title:
TERM SHEET
FORM OF CMBS LOAN
APPLICATION
[ITEMS in RED VARY ACCORDING TO DEAL and ASSET TYPE]
November 12, 2013
This Term Sheet, together with the Cover Letter dated November 12, 2013 forms the Application for the
Loan to Borrower (as defined below) to be considered by Lender. All capitalized terms used and not
otherwise defined in this Term Sheet shall have the meanings given to such terms in the Cover Letter.
Property Address:
[Address], [City], [State] [Zip Code].
Property Type:
[Limited, Full Service Hotel, Retail, Office, Industrial, Multifamily,
Manufactured Housing Community, Self-Storage].
Interest of Borrower:
[Fee Simple, Leasehold].
Purpose of Financing:
[Acquisition, Refinancing].
Lender:
Lender (or an affiliate thereof), and its successors and/or assigns.
Borrower:
To be a newly formed single-purpose limited liability company or limited
partnership acceptable to Lender, [with one independent director – loans
over $10mm, with two independent directors – loans over $20mm]
Key Principal:
Individual(s) or entity(ies) acceptable to Lender, with net worth and
liquidity requirements to be determined by Lender during diligence and
underwriting.
Manager:
An entity acceptable to Lender entitled to receive a fee of no more than
[three, four] percent [(3.0%, 4.0%)] of effective gross revenue. Manager
will be required to subordinate its rights under the management agreement
to the Loan. The loan documents will provide that upon the occurrence of
certain events Borrower may be required to terminate and replace Manager
with an independent third party manager acceptable to Lender.
Loan Amount:
Up to [Loan Amount], subject to the terms and conditions set forth in this
Application.
Limitations on
Loan Amount:
On the date of Closing, the Loan shall have: (i) a loan-to-value ratio (the
“LTVR”) of no greater than [0-75.0%], and (ii) (a) a minimum debt service
coverage ratio (“DSCR”) of [1.30-3.00x], based on the greater of the actual
debt service constant and [percent]% (representing the constant on the date
of this Application) and (b) a minimum debt yield of [8.50-11.50%] based
on Lender’s underwritten net cashflow, and (c) a minimum trailing twelve
month net cash flow, [for hotel- assuming a 4% FF&E reserve, of [$
Applicant’s Initials _____
Page | 2
amount], for commercial - as notated by the cash flow and rent roll
presentation attached hereto as Schedule I].
Collateral:
Lender shall have a first priority lien on the Property, including a first
priority assignment of all leases, rents, issues and profits and a first priority
and perfected security interest in all personal property, licenses, permits,
contract rights, general intangibles and other assets of Borrower used in
connection with the operation, maintenance and management of the
Property, to be evidenced and secured by Lender’s standard loan documents
(the “Loan Documents”).
Origination Fee:
None.
Maturity Date:
[5,7,10] years after the first payment date after the Closing.
Interest Rate:
A fixed rate to be determined as follows:
The greater of (i) the sum of (a) the 10-year offered side swap rate and (b)
[xxx] basis points and (ii) [rate floor]%, with interest payable monthly in
arrears, calculated on an actual/360 basis.
Amortization:
[xx months of interest-only payments followed by a] [Twenty-five,
Thirty] ([25, 30]) year schedule.
Cash Management:
[Post Trigger Cash Management – Low Leverage and
Multifamily/MHC Only]
Within thirty (30) days after a Sweep Event (as defined below), (i)
Borrower will be required, with reasonable efforts, to establish a Lender
controlled deposit account (the “Clearing Account”) at a bank acceptable to
Lender (the Clearing Bank”) and execute a deposit account control
agreement in form and substance acceptable to Lender (the “DACA”) and
(ii) Borrower and any Property Manager shall be required, for the remainder
of the term of the Loan (whether or not the Sweep Event has been cured), to
remit all amounts received with respect to the Property directly to the
Clearing Account during the term of the Loan within one (1) day of receipt.
Borrower shall not be responsible for delays caused solely by the lending
institution regarding the establishment of the Clearing Account.
[In-place Cash Management, Sweep Event Trigger]
Borrower will be required to establish an account (the “Clearing Account”)
at a bank acceptable to Lender (the “Clearing Bank”). Prior to Closing,
Borrower shall be required to notify each tenant at the Property, if any, each
account debtor, and each credit card clearing bank to remit all amounts due
with respect to the Property directly to the Clearing Account during the term
of the Loan.
The Clearing Account shall be under the sole control of the Lender.
Provided no Sweep Event (as defined below) has occurred, funds deposited
into the Clearing Account will be transferred to an account of Borrower.
Upon the occurrence of a Sweep Event, all funds deposited into the Clearing
Applicant’s Initials _____
Page | 3
Account will be transferred to an account of Lender (the “Collection
Account”), to be applied by Lender in accordance with the terms of the
Loan Documents.
A “Sweep Event” will occur: (i) if an event of default occurs under the Loan
or the property or hotel management agreements or (ii) if the DSCR for the
Property falls below [1.20-1.35x], [Commercial] (iii) if any Major Tenant
ceases to conduct its normal business operations at substantially all of its
leased premises, defaults under its lease(s), goes dark, (iv) if any Major
Tenant or such tenant’s parent, if applicable, becomes insolvent, files for
bankruptcy or has its senior unsecured debt rating fall below "BBB-" by
Standard & Poor's ratings services (or the equivalent of such rating by
Moody's), and/or (v) twelve(12) months prior to any Major Tenant’s lease
expiration. A “Major Tenant” shall mean any tenant occupying [10,00030,000] sf or more, in aggregate, at the Properties or any tenant whose
leases when taken in the aggregate equal or exceed [10,000- 30,000] sf at
the Properties. [Hotels] (c) the date that is 18 months prior to expiration of
the franchise agreement (the “Franchise Trigger Event”).
If the Sweep Event is caused solely by the occurrence of a DSCR Trigger
and provided that no other default has occurred or is continuing, the Sweep
Event period shall cease upon the occurrence of the Property achieving a
DSCR of [1.30-1.45x] or greater for two (2) consecutive quarters, based
upon the trailing 12 month operating history. The foregoing cure shall only
be permitted twice during the term of the Loan.
“Franchise Trigger Event Cure” shall mean: (a) Borrower enters into a
satisfactory replacement franchise agreement with a replacement franchisor
satisfactory to Lender and (b) Borrower delivers to Lender a satisfactory
“comfort letter” from the replacement franchisor in form and substance
satisfactory to Lender.
Notwithstanding the foregoing, upon an event of default, all funds in the
Clearing Account will be transferred to the Collection Account and Lender
may apply any such funds in such order, proportion and priority as Lender
may determine.
Reserves:
[Hotel] Borrower will be required to establish at Closing and fund and
maintain during the term of the Loan ongoing reserves for existing deferred
maintenance, real estate taxes, property and liability insurance premiums,
seasonal fluctuations in Property income, FF&E, interest to be paid during
the term of the Loan, and such other purposes as Lender shall determine to
be necessary as a result of its due diligence review and underwriting. Such
reserves will be held by Lender as additional collateral for the Loan and
applied as determined by Lender.
[Hotel – Franchise Expires During Loan Term]
[Commercial] Borrower will be required to establish at Closing and fund
and maintain during the term of the Loan ongoing reserves for existing
Applicant’s Initials _____
Page | 4
deferred maintenance, real estate taxes and property and liability insurance
premiums, capital expenditures estimated to be [$0.15-$0.20] psf per year
ongoing collected monthly, subject to Lender’s underwriting and due
diligence, tenant improvement and leasing reserves estimated to be [$0.50$1.00] psf per year ongoing collected monthly, subject to Lender’s
underwriting and due diligence, and such other purposes as Lender shall
determine to be necessary as a result of its due diligence review and
underwriting. Such reserves will be held by Lender as additional collateral
for the Loan and applied as determined by Lender. All outstanding tenant
improvements allowances, leasing commissions, and free/abated rent shall
be reserved at Loan closing. Subject to Lender’s underwriting and due
diligence, the upfront reserve at close, including but not limited to the items
mentioned in the foregoing sentence, is estimated to be [$0-$xxx.]
[Multifamily/MHC] Borrower will be required to establish at Closing and
fund and maintain during the term of the Loan ongoing reserves for existing
deferred maintenance, real estate taxes and property and liability insurance
premiums, capital expenditures estimated to be [$250-$300] per unit per
year, and such other purposes as Lender shall determine to be necessary as a
result of its due diligence review and underwriting. Such reserves will be
held by Lender as additional collateral for the Loan and applied as
determined by Lender.
Closing:
The closing of the Loan shall occur no earlier than the first business day
after Applicant and/or Borrower have satisfied all of Lender’s requirements,
including the Closing Conditions and any other terms and conditions set
forth in this Application.
Closing Conditions:
Lender’s conditions to closing the Loan shall include the following:
(a)
review and approval of Borrower’s organizational documents and
structure, and the credit history of Applicant, Manager, Key
Principal and each of their principals;
(b)
review and approval of the franchise agreement with [franchisor].
with respect to the Property, as well as receipt of a comfort letter
from [franchisor] acceptable to Lender;
(c)
review and approval of any property improvement program required
by [franchisor] to be completed in connection with the Property;
(d)
delivery of a FIRREA appraisal from an MAI appraiser to be
ordered by Lender at Borrower’s expense;
(e)
delivery of a Phase I environmental report to be ordered by Lender
at Borrower’s expense addressing all environmental risks pursuant
to Lender’s scope of work, including, without limitation, asbestos,
mold, radon and lead-based paint and, if required by Lender, a
Phase II report and/or the implementation of an Operations and
Maintenance Plan for any necessary remediation;
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(f)
delivery of a structural engineering report to be ordered by Lender
at Borrower’s expense and, if the Property is located in a seismic
zone of 3 or 4, a seismic report including a probable maximum loss
analysis;
(g)
the absence of any event or development occurring or any
information being received with respect to the Property, Applicant,
Borrower, Manager, any Key Principal or any of their respective
principals, or any tenants at the Property, prior to the date on which
the Loan closing occurs which could, in Lender’s opinion,
materially and adversely affect the management, the net operating
income or value of the Property or the Loan or the ability of
Borrower to make any payments that would be required under the
Loan;
(h)
execution and delivery of the Loan Documents and any related
settlement statement(s) and other closing documentation;
(i)
delivery from Applicant’s counsel of all legal opinions required by
Lender;
(j)
delivery of copies of all commercial leases, if applicable;
(k)
delivery of original tenant estoppels and subordination agreements
acceptable to Lender from all commercial tenants and from any
ground lessor, if applicable;
(l)
delivery of financial statements (including tax returns) from
Applicant and each Key Principal or as otherwise requested by
Lender for both the last concluded financial year and last concluded
financial quarter preceding the date of this Application, which
financial statements of Applicant shall be prepared and reviewed by
an independent accounting firm acceptable to Lender;
(m)
delivery of valid permanent certificates of occupancy and zoning
confirmation letters or zoning reports from all applicable authorities
with respect to all of the improvements constructed upon the
Property;
(n)
delivery of evidence of insurance as more specifically set forth in
“Insurance” below;
(o)
receipt of a policy of mortgagee title insurance and an updated
certified survey, each in compliance with the terms and conditions
listed on Exhibit A attached hereto;
(p)
no material adverse change in market conditions having occurred
after the date of this Application and prior to Closing;
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Prepayment:
(q)
delivery of any other information requested by Lender and Lender’s
completion of due diligence and underwriting on Borrower, the
Property and Key Principal; and
(r)
satisfaction of any other closing conditions customary for loans
similar to the Loan.
[Treasury Defeasance] Borrower may not voluntarily prepay the Loan
from the Closing through the date that is the earlier of (i) four (4) years
following the full funding of the Loan or (ii) two (2) years after the
securitization of the Loan (the “Prepayment Lockout Date”).
From and after the Prepayment Lockout Date, Borrower may obtain a
release from its obligations under the Loan by economically defeasing the
entire Loan on any Payment Date. Borrower may prepay the Loan on any
Payment Date in whole only without penalty or premium during the thirty
[(30-90)] days prior to the Maturity Date.
[Yield Maintenance] None permitted prior to the first (1) anniversary of
the first payment date under the loan documents. Thereafter, Borrower may
prepay the Loan on a payment date, in whole, but not in part, subject to (i)
the payment of a yield maintenance charge based upon the greater of (a) a
treasury-flat make-whole formula to be set forth in the loan documents
(assuming that the outstanding principal balance is due and payable on the
second (2nd) payment date preceding the maturity date of the Loan (the
“Open Prepayment Commencement Date”)) or (b) 1.0% of the principal
amount prepaid and (ii) customary terms and conditions to be set forth in
the loan documents. From and after the Open repayment Commencement
Date, Borrower shall have the right to prepay the Loan, in whole, but not in
part, without the payment of any prepayment fee or premium. As additional
consideration associated with any prepayment, Borrower shall pay all
interest scheduled to accrue on the prepaid amount through the end of the
applicable interest period (or, in connection with a prepayment not made on
a payment date, all interest scheduled to accrue on the prepaid amount
through the end of the interest period relating to the payment date
immediately following such prepayment).
Servicer:
To be appointed by Lender.
Loan Sale Cooperation:
Lender reserves the right to transfer the Loan to a trust or other similar
securitization vehicle in a public or private offering or otherwise effectuate a
public or private sale of the Loan (any of the foregoing, a “Sale”).
Borrower agrees to cooperate with Lender to effectuate a Sale by, without
limitation, making amendments and/or modifications to the Loan
Documents and/or Borrower’s organizational documents that do not have a
material adverse effect on Borrower’s rights and obligations thereunder
including, without limitation, creating a mezzanine loan, severing
Borrower’s promissory note and creating one or more senior and/or
subordinate notes (i.e., an A/B or A/B/C structure), creating additional
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components of the Loan, reducing the number of components of the Loan,
revising the interest rate of any components, reallocating the principal
balances of the components, or eliminating the component structure and/or
the multiple note structure of the Loan (including the elimination of the
related allocations of principal and interest payments). Notwithstanding the
foregoing, at Closing the weighted average of the interest rates on all
components, notes and/or mezzanine loans comprising the Loan shall not
exceed the Interest Rate; provided, however, that the effective weighted
average interest rate of all such components, notes and/or mezzanine loans
may change after closing due to the effect of, among other things,
amortization or application of casualty or condemnation proceeds.
Other Debt:
None permitted.
Reporting:
Borrower will provide Lender with, among other things, annual income
statements and balance sheets (collectively, the “Financial Statements”);
provided that until the Loan is included in a Sale, the Financial Statements
shall also be provided monthly. The annual Financial Statements will be
required to be prepared and reviewed by an independent accounting firm
acceptable to Lender.
Recourse Liability:
The Loan will be non-recourse, other than for certain exceptions for
environmental liability and certain customary non-recourse carveouts for
which Lender will have recourse to Borrower and Key Principal.
Assignment:
Subject to Lender’s consent, which will not be withheld provided certain
criteria set forth in the Loan Documentation are met and Borrower pays to
Lender an assumption fee equal to one percent (1%) of the then outstanding
principal balance of the Loan and any out-of-pocket costs in connection
with such assignment and assumption.
Insurance:
The Property will be required to be covered by fire and casualty, machine
and boiler, business interruption, terrorism, liability and any additional
insurance as may be required, all in form and substance satisfactory to
Lender.
Brokers:
Borrower shall (i) represent to Lender the identity of all brokers, finders or
correspondents engaged by Borrower in connection with the Loan, initially
represented to be solely Mike Sneden and Jim Brett of ValueXpress, (ii) pay
any and all commissions and other similar fees owing in connection with the
parties identified in (i), and (iii) indemnify and defend Lender from and
against all costs and expenses incurred by Lender as a result of a breach of
the foregoing or otherwise in connection with any claim for a brokerage
commission or fee made against Lender with respect to the Loan.
Confidentiality:
This Application is being delivered with the understanding that neither it
nor the substance thereof shall be disclosed by Borrower or any Key
Principal or any of their respective affiliates to any third person, except
those who are in confidential relationships to any of them (i.e., Borrower’s
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counsel, accountants and other retained business advisors) or as may be
required by law.
Special Conditions:
As relating to the unimproved parcel of land adjacent to the Property (the
“adjacent parcel”), as further defined in the loan documents, Borrower, any
of its principals or agents, and/or its successors and assigns shall not directly
or indirectly engage in or permit any action resulting in the adjacent parcel
being improved with a hospitality property or facilitate or permit the
engagement of any action that would result in the adjacent parcel being
improved with a hospitality property so long as the Loan Amount remains
outstanding, for which failure to do so shall result in a full recourse event to
the Borrower and Key Principal.
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EXHIBIT A
TITLE AND SURVEY REQUIREMENTS
I.
TITLE REQUIREMENTS:
A title insurance policy with a liability limit not less than the final Loan Amount, insuring the Mortgage
as a first lien on the title to the Property and issued by a nationally recognized title insurance company
acceptable to Lender, provided that 50% of the policy will be co-insured by the New York office of a
nationally recognized title insurance company selected by Lender and through which the Loan will be
funded. The title insurance policy shall be subject only to such exceptions as shall be approved by, and
shall contain such endorsements as may be required by, Lender.
II. SURVEY REQUIREMENTS:
A current title survey of the Property by a licensed or registered land surveyor acceptable to Lender,
certified to Lender, its successors and/or assigns and the appropriate title insurance company, which
survey and certification shall be in form, scope and substance acceptable to Lender. The title survey shall
be prepared in accordance with the Minimum Standard Detail Requirements and Classifications for
ALTA/ACSM Land Title Surveys, as adopted in 2011.
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EXHIBIT B
GOOD FAITH DEPOSIT DELIVERY INSTRUCTIONS
IF BY WIRE:
Bank: Bank Name
Account No: xxxxxxxxx
ABA No.: xxxxxxxxxx
Account Name: Lender
Reference: [Deal Name]
Contact: Deal Manager, Lender
Email: [email protected]
Phone: xxx-xxx-xxxx
IF BY CHECK:
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EXHIBIT C
PROPERTY AND PRINCIPAL CERTIFICATION
Complete a separate sheet for each general partner, managing member, control party, guarantor, member,
limited partner, shareholder or spouse owning equal to or more than 10%, significant shareholder and
corporate officer (each, a “Significant Principal”). For all questions not specifically related to the
Property, please answer for ALL ENTITIES AND ALL PROPERTIES in which each Significant
Principal has or has had an ownership interest.
YES
NO
1. Is there any pending or current litigation directly related to the Property or the owner(s) of
the Property? If yes, please attach a detailed explanation.
2. Has the existing loan on the Property ever been in default (whether or not cured) or
forbearance (whether permanent or temporary)? If yes, please attach a detailed
explanation.
3. Has there ever been any legal action commenced or lis pendens or other litigation filed
against the Property or the owner(s) of the Property during your ownership of the Property?
If yes, please attach a detailed explanation.
4. Have you ever been declared bankrupt or filed a petition or action under any bankruptcy or
insolvency laws or had a judgment against you or any of your assets (including the
Property)? If yes, please attach a detailed explanation.
5. Have you ever had a judgment against you or any of your assets (including the Property)?
If yes, please attach a detailed explanation.
6. Have you ever been a principal, partner, shareholder or member with any direct or indirect
ownership interests in an entity (including the owner of the Property) that has declared
bankruptcy or filed a petition or action under any bankruptcy or insolvency laws? If yes,
please attach a detailed explanation.
7. Have you ever been a guarantor of an entity (including the owner of the Property) that has
declared bankruptcy? If yes, please attach a detailed explanation.
8. Have you ever had any claim made against you under a guaranty? If yes, please attach a
detailed explanation.
9. Have you ever had property (including the Property) foreclosed upon or given title or deed
in lieu thereof? If yes, please attach a detailed explanation.
10. Have you ever been a principal, partner, shareholder or member of an entity (including the
owner of the Property) that had a property foreclosed upon or given title or deed in lieu
thereof? If yes, please attach a detailed explanation.
11. Have you ever had a repossession (including of the Property)? If yes, please attach a
detailed explanation.
12. Have you ever requested or received modification (whether permanent or temporary) of the
terms of any mortgage or any other loan (including the loan on the Property)? Please
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include, without limitation, reference to any discounted purchase offer (DPO), any
modification in principal or interest payments or any other terms, any waiver or deferral of
any other obligation, etc., whether or not pursuant to a written agreement? If yes, please
attach a detailed explanation.
13. Have you ever been a principal, partner, shareholder or member of an entity (including the
owner of the Property) that requested or received modification (whether permanent or
temporary) of the terms of any mortgage or any other loan (including the loan on the
Property)? Please include, without limitation, reference to any discounted purchase offer
(DPO), any modification in principal or interest payments or any other terms, any waiver or
deferral of any other obligation, etc., whether or not pursuant to a written agreement? If
yes, please attach a detailed explanation.
14. Have you ever been in default on or received forbearance (whether or not pursuant to a
written agreement) on any mortgage (including on the Property) or any other loan? If yes,
please attach a detailed explanation.
15. Have you ever been a principal, partner, shareholder or member of an entity that has ever
been in default on or received forbearance on any mortgage (including on the Property) or
any other loan? If yes, please attach a detailed explanation.
16. Have you ever been involved in litigation with parties with whom you have partnered, joint
ventured or otherwise collaborated and/or is any such litigation currently being threatened
against you?
17. Have you ever been arrested or convicted of or plead guilty or no contest to a felony or a
misdemeanor or are you presently the subject of an arrest, complaint or indictment
charging a felony or a misdemeanor? If yes, please attach a detailed explanation.
18. Are you a co-maker, guarantor, or endorser on any note?
19. Are you or have you ever been a party to any claim or lawsuit?
20. Are any of your assets pledged as collateral?
21. Do you owe any real estate taxes (on the Property or otherwise) that are delinquent or any
income or other taxes for the years prior to the current year? Are you currently contesting
any real estate taxes (on the Property or otherwise) or any income or other taxes?
22. Have you been the subject of an IRS audit in the past three years?
23. Are you a U.S. citizen?
24. Are you a resident alien?
25. Have you ever obtained credit under any other name or have been known by any other
name in the last 10 years? If yes, list other names or aliases:
_________________________
The information contained in this certificate and any explanation(s) attached hereto is true, accurate and
complete.
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[NAME]
By:
________________________
Name:
Title:
[NAME]
By:
________________________
Name:
Title:
Applicant’s Initials _____
Exhibit 3 – Cash Management Flow Chart