structuring financeable ground leases and leasehold...

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The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. Presenting an encore presentation featuring live Q&A Structuring Financeable Ground Leases and Leasehold Mortgages Balancing Competing Interests Among Owners, Lessees and Lenders Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, NOVEMBER 30, 2017 David M. Alin, Member, Mintz Levin Cohn Ferris Glovsky and Popeo, New York Stephen E. Friedberg, Member, Mintz Levin Cohn Ferris Glovsky and Popeo, New York

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Page 1: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

The audio portion of the conference may be accessed via the telephone or by using your computer's

speakers. Please refer to the instructions emailed to registrants for additional information. If you

have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

Presenting an encore presentation featuring live Q&A

Structuring Financeable Ground

Leases and Leasehold Mortgages Balancing Competing Interests Among Owners, Lessees and Lenders

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, NOVEMBER 30, 2017

David M. Alin, Member, Mintz Levin Cohn Ferris Glovsky and Popeo, New York

Stephen E. Friedberg, Member, Mintz Levin Cohn Ferris Glovsky and Popeo, New York

Page 2: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Page 3: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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For additional information about continuing education, call us at 1-800-926-7926

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Page 4: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Page 5: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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I. Uses of Financeable Ground Leases

II. Terms of Financeable Ground Leases

III. Rating Agency Concerns in Leasehold Mortgage Financing

IV. Questions and Answers

Page 6: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Page 7: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Control over Construction

Control over Property and its Maintenance

Financial Status and Ability to Construct at a Cheaper Cost

Impact on Rent

Ownership of Improvements and Ability to Finance Them

Page 8: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Decreased Risk of Construction Issues (e.g. cost overruns, issues meeting tenant criteria)

No need to expend resources or obtain financing

Triple Net Lease (no maintenance obligations)

Ability to finance the fee (reversionary) estate

Page 9: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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General (Credit Tenants)

Chain Stores

Department or Big Box Stores

Banks

Fast Food and Other Chain Restaurants

Page 10: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Essential to Negotiate a Letter of Intent ("LOI") or Term Sheet

The LOI or Term Sheet should have both business and other essential terms of the proposed transaction

Terms should include rights of assignment, leasehold financing, use and other rating agency requirements

Page 11: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Frees up Landlord’s Capital Provides Tenant with Control over

Construction and its Cost Provided ability of both the Landlord and

Tenant to Finance their Respective Estates

Less Control for Landlords Financing is more Limited due to

Tenant's Ownership of Improvements

Page 12: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Pure Ground Leases

Pad Leases

Lease of a Condominium Unit

Page 13: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Page 14: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Reversionary Estate (definition and difference from traditional fee estate)

Leasehold Estate

Page 15: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Minimum Term

Relation to Term of Leasehold Mortgage

Initial Term

Option Terms (Failsafe)

Transfer Tax Concerns

Right of Leasehold Mortgagee to Exercise Term

Page 16: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Tenant Finances Construction

Obligation to Construct

Nature and Limitation on Improvements

Time Limitations on Construction

Page 17: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Due Diligence and Inspection Period

Obligations of Parties to Address Environmental, Title or other Conditions

Site Plan, Zoning, Permitting Approvals and Time Periods and Responsibility

Page 18: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Leases are Always True Triple Net

Obligation to Repair and Replace Exterior and Parking Areas

Common Area Maintenance Contribution in a Building Complex or Shopping Center Setting

Page 19: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Must have a broad use clause (affects financeability and Rating Agency Approval)

Rights to Change Use

Shopping Center Restrictions (Interface with Exclusive Uses, etc.)

Page 20: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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No Continuous Operations

Go Dark (only with extensive predicate dark and re-opening periods - may not be financeable)

Page 21: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Must have free and unfettered right to assign or sublet without landlord's consent

Relationship to the use clause

No recapture rights

Page 22: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Rights to Cure

a) Monetary

b) Non-Monetary

c) Non-Curable

d) Additional Cure Rights

Right to a New Lease

Coordination of Rights of Fee and Leasehold Mortgagees

Page 23: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Tenant to own improvements

Right to Depreciate

Landlord’s Rights to Improvements at the end of the Term

Maintenance of Improvements

Impact on other terms of the Lease

Page 24: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Alteration Rights

a) Interior

b) Exterior

c) Free Rights or Parameters

Demolition Rights/ Obligation to Rebuild

Signage

Page 25: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Obligation to Leave Improvements

Condition of Improvements

Obligation/Option to Demolish Improvements

Deed or Bill of Sale for Improvements

Page 26: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Obligation to Rebuild or to Demolish and Raze

Time Period before end of Term in which Tenant does not have to restore

Tenant’s (and Leasehold Mortgagee’s) Rights to Insurance Proceeds

Page 27: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Tenant’s Right to Proceeds for Improvements and Leasehold Estate

Landlord’s Right to Award for the Land

Tenant’s Rights to Terminate for Partial Condemnation

Tenant’s Rights to Terminate for Taking of Parking Areas, Roadways or Curbcuts

Page 28: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Differences between Standard Tenant SNDA because of Tenant’s Ownership of the Improvements (and Leasehold Mortgagee’s Rights)

◦ Tenant’s absolute Right to Insurance Proceeds

◦ Tenant’s Right to Condemnation Awards

Fee Mortgage SNDA and the more Limited Rights of the Fee Mortgagee

Underlying Lease Recognition Agreements

Page 29: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Monetary Defaults

Non-Monetary Defaults

Non-Curable Defaults

Additional Time for Leasehold Mortgagee to Cure

Rights to cure in Sale/Leasebacks

Page 30: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Limitation on Acceleration Remedies

Self-Help

Page 31: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Leasehold Mortgagees insist on being Exculpated

Application to an Entity that owns the Leasehold Estate after Foreclosure

Page 32: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Obligation for a Memorandum of the Lease to be Recorded

Landlord Estoppel Obligations

Tenant Estoppel Obligations

Page 33: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Language to Insure that Landlord’s and Tenant’s estates will never merge

Protection of the Lender

Page 34: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Rights of First Refusal (Landlord’s, Tenant’s and Leasehold Mortgagee’s Perspectives)

Rights of First Offer (Landlord’s, Tenant’s and Leasehold Mortgagee’s Perspectives)

Page 35: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Page 36: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Ground Lease Recording – ground lease or memorandum of leases must be of record

Financeability – must permit tenant's leasehold interest to be mortgaged by tenant

Term of Lease – must be sufficiently in excess of the term of leasehold mortgage facility

Ground Lease Assignable – must permit assignments of tenant's interest without consent of landlord

Estoppel – confirms ground lease is in full force and effect, has not been modified and there are no defaults under lease

Page 37: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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Notice and Opportunity to Cure – affords leasehold

mortgagee opportunity to cure defaults and keep collateral in place

New Lease – ground lease must provide leasehold mortgagee with right to new lease in event mortgaged lease is terminated (including by virtue of rejection in bankruptcy case)

Insurance/Condemnation Proceeds – lease must call for proceeds applied to property restoration or to pay down leasehold mortgage indebtedness

Liens – ground lease must be free of superior liens and encumbrances

Page 38: Structuring Financeable Ground Leases and Leasehold Mortgagesmedia.straffordpub.com/.../presentation.pdf · 11/30/2017  · Presenting an encore presentation featuring live Q&A Structuring

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David M. Alin

Mintz Levin Cohn Ferris Glovsky and Popeo

[email protected]

Stephen E. Friedberg

Mintz Levin Cohn Ferris Glovsky and Popeo

[email protected]