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Course Details

Course Information
  • smart_display Format

    On-Demand

  • signal_cellular_alt Difficulty Level

  • work Practice Area

    Real Property - Finance

Date & Time
  • event Date

    Tuesday, April 26, 2022

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.

$347.00
CLE
ALL

This CLE course will examine casualty and condemnation provisions in real estate finance documents and how best to balance the interests of lenders, landlords, and tenants concerning disbursement of proceeds and the right or obligation to rebuild. The panel will discuss lease scenarios that can impact casualty and condemnation provisions and issues about the allocation of proceeds that can arise with ground leases.

Faculty

Lisa M. Zana
Partner
Shipman & Goodwin LLP

Ms. Zana’s commercial real estate clients are situated throughout the U.S. with a focus on New York’s tri-state area, and include private developers, public companies, institutional owners, banks, and lessees of millions of square feet of real estate across the country in the luxury residential, mixed-use, retail, commercial office, data centers and colocation facilities, hotel and hospitality, healthcare and higher education industries. Her specific experience and areas of focus include: representing public and private companies that use millions of square feet of real estate, in negotiating build-to-suit and credit-tenant office leases, development agreements and state tax incentive agreements; acquiring, selling, financing and leasing data centers and colocation facilities; negotiating ground leases; negotiating retail leases on behalf of developers and the end retail users; arranging for and negotiating debt and equity financing; and negotiating corporate- and property-level acquisitions and sales.

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Jason T. Polevoy
Counsel
Patterson Belknap Webb & Tyler LLP

Mr. Polevoy has extensive experience in all aspects of complex commercial real estate, including office and retail leasing, development, sales and acquisitions, joint ventures, financing, restructurings and workouts. He also has significant experience in connection with hotel management agreements, architect agreements and construction agreements. Mr. Polevoy has represented owners, investors and developers of office, hotel, multi-family residential and industrial properties in connection with the acquisition, disposition and financing of commercial real property, and represented landlords and tenants in connection with office, retail and restaurant leases, in New York City and nationally. He is the current Chair of the Real Property Law Committee of the New York City Bar Association.

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Description

Casualty and condemnation provisions in mortgage loan documents typically give the lender some degree of control over the proceeds and how to apply the proceeds toward repair or restoration of improvements. But such provisions require negotiation between the parties, and underlying leases or ground leases may contain conflicting rights to address in the loan documents or an accompanying SNDA.

Existing leases often require the landlord to rebuild the leased premises within a specific time frame or tenants are entitled to terminate. Anchor or big-box leases may even give the tenant control of the proceeds and the rebuilding process. Counsel will need to balance the borrower's desire to comply with existing leases against the lender's preference to protect its collateral.

Materiality is a primary concern. Documents may include a percentage threshold below which the lender will permit the borrower to control the proceeds, a second threshold where the lender holds the proceeds but agrees to make them available for a rebuild of the premises, and the third threshold above which the lender can accelerate the loan and apply the proceeds to pay down the loan. The appropriate limits may vary between portfolio and CMBS lenders.

Ground leases present the risk of lease termination and the loan wiped out in the event of condemnation and, in some instances, casualty. The ground lease may contain a formula for allocating proceeds with which the lender will need to abide.

Listen as our authoritative panel discusses the current thinking on casualty and condemnation provisions in commercial mortgages and how different lease and ground lease scenarios can impact these provisions.

Outline

  1. Casualty and condemnation generally
    1. Concerns of lender: protect the security, control proceeds, continued performance of a loan
    2. Concerns of the borrower: the ability to repair, rebuild improvements, keep tenants
  2. Materiality thresholds for making proceeds available, allowing/requiring a rebuild, accelerating the loan
  3. Treatment of casualty and condemnation in leases
    1. Borrower/landlord required to rebuild
    2. Tenant allowed to rebuild, given control over proceeds
    3. Other variations
  4. Addressing conflicting provisions in the SNDA
  5. Special issues with ground leases

Benefits

The panel will review these and other essential questions:

  • When might the interests of the lender and borrower be aligned when there is casualty or condemnation?
  • What is the "market" for materiality thresholds, particularly the lender's ability to accelerate the loan?
  • How do leases typically approach rebuild obligations when there is a casualty, and how might that conflict with loan provisions?
  • How do ground leases address allocation of condemnation proceeds, and what should leasehold loan documents say in response?