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  • Commercial Mortgages, Security Deeds and Deeds of Trust Securing Favorable Terms in a Conservative Underwriting Climate

    Today’s faculty features:

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    WEDNESDAY, APRIL 11, 2012

    Presenting a live 90-minute webinar with interactive Q&A

    M. Christine Graff, Partner, Winston & Strawn, Chicago

    Thomas C. Homburger, Of Counsel, K&L Gates, Chicago

    David H. Gunning, II, Partner, Roetzel & Andress, Cleveland

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  • ©2012 Winston & Strawn LLP

    Commercial Mortgages, Security Deeds and Deeds of Trust Securing Favorable Terms in a Conservative Underwriting Climate

    • Perspectives and Negotiation Strategies • Strategies, Techniques, and Tactics for Borrowers

    • Negotiating the Key Provisions of Mortgages, Security Deeds, and Deeds of Trust • Financial Terms and Impact of Loan Commitment • Prepayment and Defeasance Rights • Escrows • Due on Sale Clauses • Change of Control • Recourse Debt and Carve outs • Personal Guaranties • Cross-Collateralization and Cross-Default • Other Debts or Encumbrances

    • Post-Default and Workout Considerations

    5

  • Copyright © 2011 by K&L Gates LLP. All rights reserved.

    LENDER’S APPROACH TO CURRENT ISSUES AND PRACTICE IN COMMERCIAL

    MORTGAGE SECURITY DEEDS AND DEEDS OF TRUST TRANSACTIONS

    Thomas C. Homburger K&L Gates, LLP Thomas.Homburger@klgates.com (312) 807-4267

    mailto:Thomas.Homburger@klgates.com� mailto:Thomas.Homburger@klgates.com�

  • 7

    A. Perspective and Negotiation Approaches 1. Times are changing – for the right borrower and the

    right project, credit is available. a. There is actually competition for certain categories

    of loans which lenders are interested in making. b. Beginning in 2011, life insurance companies began

    competing to make loans on certain Class A properties – especially multi-family loans.

    c. In 2012, even banks are competing to make certain types of loans.  Areas where there is competition among bank

    lenders include multi-family loans and healthcare loans.

  • 8

    d. Other categories of loans are still more difficult to finance if the borrower is not the most credit worthy borrower.  Retail and industrial loans are examples.

    e. Even slightly less credit worthy borrowers with good commercial projects are able to access a revitalized CMBS market.

    f. Lenders’ negotiation stances reflect stricter underwriting standards of today, even for most sought after types of loans and credit worthy borrowers.

  • 9

     Higher equity requirements are imposed and  Guaranty of payment is required except for

    CMBS loans. g. Nevertheless, in the case of most sought after

    categories of loans and more credit worthy borrowers, lenders are becoming more flexible and willing to take more risk.  CMBS lenders are less willing to negotiate loan

    document terms because of standardized loan documents requirements.

  • © 2012 Winston & Strawn LLP

    Commercial Mortgages, Security Deeds and Deeds of Trust Securing Favorable Terms in a Conservative Underwriting Climate By Christi Graff

    MGraff@winston.com

    (312) 558-8073

    April 11, 2012

  • ©2012 Winston & Strawn LLP

    Perspectives and Negotiation Strategies

    • Perspectives and Negotiation Strategies • Strategies, Techniques, and Tactics for Borrowers

    • In General – The credit markets are beginning to open up, but Lender’s have much

    stricter underwriting standards today than ever before – Loan documents for CMBS, Freddie Mac and similar type loans, for

    example, are now generally presented as “non-negotiable” unless changes are required because of the Borrower’s structure (buy-out options, for example) or to address specific property issues (legal non- compliance, access issues, etc).

    – Smaller, less institutionalized lenders are beginning to appear, and these loans tends to be more negotiable

    – Opinions are more heavily negotiated, and Lender’s frequently insist on starting with their form of opinion

    – Even in the case of more competitive loans, in today’s client more equity is generally required higher guaranties are frequently required, and the debt service coverage ratios are more strictly monitored.

    11

  • ©2012 Winston & Strawn LLP

    Perspectives and Negotiation Strategies

    • Going into the negotiations – Review and understand the commitment letter for the loan

    » If anything is not correct, or any of the covenants cannot reasonably be met, flag these immediately.

    » Frequently Lender’s will need to seek approval for any divergence from the terms of the commitment letter.

    – Understand your client’s history with this lender » Have any other loans been recently negotiated with this Lender?

    » Have any modifications to the loan documents been approved for this client?

    – Understand your Borrower's organizational structure » Are there any Buy-out options or similar rights

    » Is it a single purpose or multi-purpose entity

    » Is it a newly formed or existing entity

    » Is Guarantor the parent entity of Borrower?

    12

  • ©2012 Winston & Strawn LLP

    Perspectives and Negotiation Strategies

    – Understand any issues with respect to the property being acquired or financed » Is it a non-conforming use?

    » Are there any compliance issues? Access issues?

    » Are there any tenants which would require estoppels and/or SNDAs?

    – Understand the timing on the deal » Is existing debt maturing?

    » Is this an acquisition with a set closing date?

    » What are Seller’s obligations to provide SNDAs, estoppels, etc. that your Lender will require?

    – Understand any issues particular to your client » Administratively, do they have issues with short time frames?

    » What issues do they feel strongly about?

    » How closely will they read the documents?

    13

  • 14

    B. Negotiating the Key Provisions of Mortgages, Security Deeds, and Deeds of Trust.

    1. Financial terms and impact of loan commitment. a. Loan commitments, applications or credit

    memoranda are important to set the basic economic terms of the loan transaction.  Loan commitments are binding contracts to

    make a loan subject to fulfillment of the conditions contained with loan commitment, including agreement upon, and execution of, loan document.

     Once business terms are stated in loan commitments, these terms are usually “set in stone”.

  • 15

     Loan commitments spell out basic terms of loan transaction – including special covenants - in some detail.  Special covenants stated in loan

    commitments often find their way almost verbatim into loan documents.

    b. All loan commitments are subject to agreement on, and execution of, loan documents.  Lenders have more flexibility in negotiating loan

    documents as long as the documents do not conflict with the business terms contained in the commitment.

  • 16

    c. Lately applications or credit memoranda become more common.  Applications or credit memoranda are like loan

    commitment b

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