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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 20, 2021

  • 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 discuss the mechanics of future advance clauses in commercial real estate lending. The panel will analyze the types of events future advance clauses typically address, the draw conditions which must be negotiated between the parties, and the complex dynamics of making additional loan disbursements where the loan has been syndicated or securitized.

Faculty

Jeffrey R. Escobar
Partner
Troutman Pepper Locke LLP

Mr. Escobar advises lenders, sponsors, investors, project companies, public and private utility companies, private equity funds, joint ventures, institutional owners, and developers across the U.S. and the Americas. He assists clients in deploying capital for debt and tax-equity project financing, M&A, development, and sale-leaseback of large-scale renewable energy and energy transition projects. This includes solar, wind, geothermal, green hydrogen, and alternative energy, as well as battery energy storage, infrastructure, and transportation projects. Mr. Escobar leads complex project financed infrastructure, renewable energy, and energy transition-related projects; guides large commercial real estate development and construction finance, design, engineering, and construction transactions; manages real estate development and construction concerns of energy, infrastructure, transportation, commercial, energy transition, and renewable energy projects; navigates real estate and construction concerns in public-private partnerships; provides project support and claims dispute avoidance; and mitigates real estate and environmental risks.

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Virginia Rolfes
Partner
Nelson Mullins Riley & Scarborough LLP

Ms. Rolfes is a real estate and finance attorney with more than 15 years of experience. She is experienced in commercial lending, asset management, finance, leasing, and general real estate matters. She has experience in originating commercial real estate loans that are securitized and sold on the bond market (also known as commercial mortgage backed securities or CMBS). Ms. Rolfes represents banks and other lending institutions making loans on commercial properties such as office developments, retail centers, hotels, and manufactured housing complexes, among others. Ginger also works with tenants in the negotiation of a variety of leases and related issues and regional developers in the purchase and sale of commercial properties.

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Description

Future advance obligations may be included in commercial real estate loans to address various post-closing scenarios, including capital expenditures, acquisition of new collateral, or leasing or other "earn-out" conditions. They allow the borrower to determine the timing of the advances without paying interest until the lender actually funds the additional proceeds. Future advance provisions might be particularly useful in addressing leasing and other issues that have arisen during the current pandemic.

A future advance component can result in complexities that must be addressed in the loan documents. Conditions for disbursement must be carefully drafted and adequately describe the documentation required of the borrower, including any leases (and SNDAs), financial statements, lien releases, certificates of occupancy or conveyance instruments, and any applicable title policy updates or title endorsements.

Additional issues must be considered if the loan is to be securitized. The initially funded portion of the loan and the future advanced portion of the loan should be evidenced by separate promissory notes held by the initial and future advance lenders. While the initial lender will usually remain the controlling lender concerning the loan administration, the advance lender should have the right to approve the future advance. The lenders must also determine how prepayments will be applied.

Listen as our authoritative panel discusses these and other concerns with future advance provisions.

Outline

  1. Future advance clauses in the current lending environment
  2. Conditions for future advances
    1. Tenant buildout and other capital expenditures
    2. Leasing
    3. Additional collateral
    4. Earnout based on financial parameters: occupancy, DSCR
  3. Approval and disbursement of the future advance
    1. Documentation
    2. Title issues
    3. Consent from other lenders
  4. Securitization issues
    1. Bifurcating the initial and future advance with separate notes
    2. Servicing issues in the event of default
    3. Applying prepayments

Benefits

The panel will review these and other important questions:

  • What are the advantages and disadvantages of a future advance clause vs. an earnout reserve funded at closing?
  • What are the different types of conditions attached to future advances, and what are the key drafting points?
  • How should approval and disbursement of a future advance be documented in the loan structure with multiple lenders?
  • Why should the initial advance and future advance be bifurcated for securitization purposes, and what other issues need to be addressed?