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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

    Wednesday, July 6, 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 webinar will discuss holdbacks and earnout provisions under which mortgage proceeds are retained by the lender but made available to the borrower upon satisfaction of certain conditions. The panel will also analyze provisions that allow for the release of a parcel post-closing, including the subdivision, easement rights, and entity issues to address. The panel will discuss the prepayment and partial defeasance options with either scenario.

Faculty

Andrew Maguire
Shareholder
McCausland Keen & Buckman

Mr. Maguire counsels REITs and other publicly-traded companies, as well as privately held entities and family office clients. He negotiates, documents, and closes acquisitions, dispositions and financings across the spectrum of commercial real estate sectors, including apartment properties, self-storage facilities, retail centers, office buildings, medical facilities, hotels, and industrial properties. Mr. Maguire also has significant experience representing national and regional landlords and tenants in a wide range of leasing matters.

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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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David B. Kostman
Partner
Loeb & Loeb LLP

Mr. Kostman’s practice focuses primarily on real estate finance, with a concentration on the origination, sale, securitization, and servicing of commercial mortgage loans. He represents local, regional and national lending institutions as well as real estate developers and investors. Mr. Kostman also has experience in office and retail leasing, construction and development, and purchases and sales of real estate.

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Description

Commercial mortgage loans often include a holdback of proceeds at closing, with certain conditions to be satisfied before the funds are released. Earnout requirements for retail or office properties may consist of execution of new leases, completion of buildout, and occupancy by the new tenants. Multifamily or hotel loans may require increased occupancy for a given period to meet the debt service requirements of the fully funded loan. Counsel must draft these provisions to include detailed and thorough release conditions.

For properties that are being developed in phases or with an outparcel that the borrower wants to develop later, the documents may include a provision to release such collateral from the mortgage at an agreed-upon release price. These provisions can be highly complex, including conveying the property to a separate entity, proper subdivision (if applicable) and execution or a reciprocal easement defining parking, access and utility rights, permitted uses and non-compete provisions relating to the released and unreleased parcel.

In connection with the above scenarios, partial prepayment or defeasance of the loan may be required. Typically a deadline is placed on the ability of the borrower to achieve an earnout, after which the reserve funds can be applied to pay down or partially defease the principal balance. The release of a parcel may be conditioned on prepayment or defeasance of a portion of the loan in the amount of the release price.

Listen as our authoritative panel discusses the nuances of holdbacks, earnout reserves and partial release provisions and the prepayment and defeasance provisions to consider in each instance.

Outline

  1. Holdback/earnout reserves
    1. Retail and office
    2. Multifamily
  2. Release parcels
    1. Subdivision/zoning considerations
    2. Determining easement rights between the properties
  3. Partial repayment/partial defeasance of the loan

Benefits

The panel will review these and other key issues:

  • When might a borrower prefer a holdback of loan proceeds instead of a future advance clause in its loan documents?
  • How should DSCR be defined in the loan documents, and how long should the target DSCR be maintained to achieve an earnout?
  • What are the components of a new lease provision?
  • When is partial prepayment preferable to partial defeasance, and vice versa?