Commercial Real Estate Loan Guaranty Enforcement y Maximizing - - PowerPoint PPT Presentation

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Commercial Real Estate Loan Guaranty Enforcement y Maximizing - - PowerPoint PPT Presentation

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presents presents Commercial Real Estate Loan Guaranty Enforcement y Maximizing Lender Recovery Upon Borrower Default A Live 90-Minute Teleconference/Webinar with Interactive Q&A Today's panel features: Henry P. Lorber, Managing Director,

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presents

Commercial Real Estate Loan Guaranty Enforcement

presents

y

Maximizing Lender Recovery Upon Borrower Default

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features: Henry P. Lorber, Managing Director, Hays Financial Consulting, Atlanta Susan C. Tarnower, Counsel, Thompson Hine, Atlanta Stephen D. Peterson, Partner, McGuireWoods, Atlanta Kevin C Watters McGuireWoods Atlanta Kevin C. Watters, McGuireWoods, Atlanta

Wednesday, August 18, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific 10 am Pacific

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I th W t Y t

Real Estate Finance:

Is the Worst Yet to Come?

a ce

Henry P. Lorber

hlorber@haysconsulting.net

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Mortgage Backed Securities Mortgage Backed Securities (CMBS) (CMBS)

WWW.HAYSCONSULTING.NET

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Estimated maturity profile of commercial mortgages in CMBS, bank and life company tf li portfolios

$350 CMBS - Fixed Rate CMBS - Floating Rate Insurance Company Bank/Thrift $250 $300 $350

Billions)

$150 $200

al Maturities ($

$50 $100

Annua

$0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Deutsche Bank, Intex, Trepp Mortgage Bankers Association, Federal Reserve

WWW.HAYSCONSULTING.NET

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Why Special Servicers Look so Tired?

WWW.HAYSCONSULTING.NET

Source: Trepp LLC

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Short term fixed rate CMBS loans maturing through 2013

Amortizing Full IO Partial IO $25 $30

ns ($bn)

$15 $20

Maturing Loan

$5 $10

Balance of

$0 2009 2010 2011 2012 2013

WWW.HAYSCONSULTING.NET

Source: Deutsche Bank, Intex, Trepp

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Estimated percentage of loans that do not qualify for refinancing: NOI Scenario 1 g

Loans Maturing 2009-2012 Refinancing Requirement: LTV < 70 & DCSR > 1.3

Property Type # Loans Balance ($BB) Loans Not Qualifying (#) Loans Not Qualifying ($BB) % Not Qualifying (Loan Count) % Not Qualifying (Balance)

Hotel 475 7.3 182 4.1 38.3 55.5 Industrial 1 189 5 8 330 2 2 27 8 37 9 Industrial 1,189 5.8 330 2.2 27.8 37.9 Multi-family 3,793 24.4 2,220 18.9 58.5 77.3 Office 2,629 40.9 1,433 30.8 54.5 75.3 Retail 4,156 44.6 1,727 24.6 41.6 55.1 Multi Property 672 29.6 339 21.1 50.4 71.3 Other 1,545 12.0 639 8.7 41.4 71.9

* Maturity timing is estimated

Other 1,545 12.0 639 8.7 41.4 71.9 Aggregate 14,459 164.7 6,870 110.3 47.5 66.9

WWW.HAYSCONSULTING.NET

Source: Deutsche Bank, Intex, Trepp Mortgage Bankers Association, Federal Reserve

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The Banks The Banks

WWW.HAYSCONSULTING.NET

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Money Center Banks Concentration Ratios 8-26-09

Tot Lns & Lses (Incl Lns HFS) ($000) Dom RE: Constr & Land Dev ($000) Dom RE: Other Property Loans ($000) Total Capital ($000) Const + Non- Owner CRE / Total R-B Cap

Over 300% is a problem

2010 Q1 2010 Q1 2010 Q1 2010 Q1 2010 Q1 Bank of America Corp. 1,024,966,633 34,134,100 36,151,906 219,907,662 32% BB&T Corp. 104,400,506 14,358,329 9,705,564 18,657,798 129% Bank of New York Mellon 45,503,000 246,000 653,000 17,399,000 5% Citigroup, Inc. 751,017,000 2,173,000 10,520,000 158,292,000 8% Comerica Incorporated 40,874,314 3,885,305 2,861,479 9,062,104 74% Capital One Financial Corp. 130,818,581 3,127,976 8,475,900 20,335,426 57% JPMorgan Chase & Co. 731,436,000 6,733,000 11,470,000 173,332,000 11% KeyCorp. 62,737,026 4,136,546 5,123,823 14,230,058 65% Marshall & Ilsley Corp 42,648,807 5,141,201 5,805,437 6,750,222 162% M&T Bank Corp. 51,444,041 4,788,091 8,644,787 7,982,167 168% PNC Financial Services Group 159,999,293 7,944,077 14,106,002 31,008,468 71% Regions Financial Corp 89,268,129 7,098,004 9,478,975 15,811,380 105% Synovus Financial Corp. 24,608,230 5,958,373 4,254,761 3,357,637 304% US Bancorp 191,140,000 12,257,000 17,227,000 30,858,000 96% Wells Fargo & Company 821,307,000 33,579,000 42,918,000 137,600,000 56%

WWW.HAYSCONSULTING.NET

Average 90%

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Concentration Ratios by Banks over $1 Billion

Above $500 Million Assets Average: 329% 329%* Median: 281% 281%*

Over 300% is a problem

Ban Bank Cha Charter Cit ity TO TOTAL ASSE ASSETS ($000 ($000) 2Q-2010

  • 2010 CRE Conc

ncen entr tration ation as as a a % of capita % of capital SunTrust Bank Atlanta 160,508,913 64% Synovus Bank Columbus 31,990,604 285% United Community Bank Blairsville 7,640,739 270% State Bank and Trust Company Macon 2,597,324 157% Ameris Bank Moultrie 2,420,096 163% Community & Southern Bank Carrollton 1,881,660 139% Fidelity Bank Atlanta 1,880,785 133% Georgia Bank & Trust Company of Augusta Augusta 1,404,460 283% Brand Banking Company Lawrenceville 1,254,914 337% Colony Bank Fitzgerald 1,249,351 332% Park Avenue Bank Valdosta 1,111,667 685%

WWW.HAYSCONSULTING.NET

* Without SunTrust

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Concentration Ratios by Asset Size - Continued

Above $500 Million Assets Average: 329%* 329%* Median: 281%* 281%*

Over 300% is a problem

Bank Charte Bank Charter City City Total Assets Total Assets ($00 ($000) 2Q-2010

  • 2010 CRE Concentr

tration ion f l f l Bank Charte Bank Charter City City Total Assets Total Assets ($00 ($000) as a % as a % of capita capital Atlantic Southern Bank Macon 911,771 936% First Georgia Banking Company Franklin 801,670 551% Atlantic Capital Bank Atlanta 800,233 157% Darby Bank & Trust Company Vidalia 696 625 457% Darby Bank & Trust Company Vidalia 696,625 457% Farmers & Merchants Bank Lakeland 632,767 360% First Chatham Bank Savannah 596,244 443% Pinnacle Bank Elberton 591,323 152% First State Bank Stockbridge 580,161 658% Northwest Georgia Bank Ringgold 574,777 342% PeoplesSouth Bank Colquitt 540,771 172% First Bank of Georgia Augusta 490,689 381% Gwinnett Community Bank Duluth 489,014 636% Coastal Bank Savannah 482,420 363% First American Bank and Trust Company Athens 473,309 176% Peoples Bank Winder 447,185 1056% Southeastern Bank Darien 435,843 231% PrimeSouth Bank Blackshear 430,370 289%

WWW.HAYSCONSULTING.NET

PrimeSouth Bank Blackshear 430,370 289%

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Concentration Ratios by Asset Size - Continued

2Q-2010

  • 2010 CRE Conc

ncen entr tration ation Below $500 Million Assets Average: 329%* Median: 281%*

Over 300% is a problem

Bank C nk Char arter ter City TOTAL OTAL A ASSETS TS ($000) $000) as a % of capital tal Northeast Georgia Bank Lavonia 425,459 168% Heritage Bank Jonesboro 410,316 501% Habersham Bank Clarkesville 409,927 899% Thomasville National Bank Thomasville 407,362 54% Citizens Trust Bank Atlanta 393,980 232% Bank of Georgia Peachtree City 380,002 611% Bartow County Bank Cartersville 379,911 521% McIntosh State Bank Jackson 378,866 651% Community Bank of the South Smyrna 376,319 363% Bank of Upson Thomaston 373,330 300% Peoples Bank & Trust Buford 372,400 472% M t Cit B k D ill 357 087 253% Metro City Bank Doraville 357,087 253% Piedmont Bank Lawrenceville 356,409 400% Douglas County Bank Douglasville 354,855 613% Atlanta Business Bank Atlanta 353,704 230% Quantum National Bank Suwanee 351 168 192%

WWW.HAYSCONSULTING.NET

Quantum National Bank Suwanee 351,168 192%

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Contact Us

Hays Financial Consulting, LLC Henry P. Lorber Director of Real Estate Practice E mail: E-mail: hlorber@haysconsulting.net Phone: (404) 926-0056 Address: Hays Financial Consulting LLC Hays Financial Consulting, LLC Atlanta Financial Center 3343 Peachtree Road NE Suite 200 Atl t GA 30326 1420

WWW.HAYSCONSULTING.NET

Atlanta, GA 30326-1420

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Section I – Overview of Commercial Real Estate Loan i d h i li i i Guaranties and Their Peculiarities

Please print and follow the PDF handout, “Tarnower – Guaranty Enforcement,” during this portion of the presentation. The handout is accessible under the “Handouts” tab in the “Conference Materials” section on the left panel of your screen and also at the following link: http://www.straffordpub.com/products/commercial‐real‐estate‐loan‐ guaranty‐enforcement‐2010‐08‐18.

Presented by: Susan C. Tarnower Thompson Hine LLP 1201 West Peachtree Street 1201 West Peachtree Street Suite 2200 Atlanta, Georgia 30309-3449 T: 404.407.3651 F 404 541 2905 F: 404.541.2905 susan.tarnower@thompsonhine.com

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NON-RECOURSE CARVE OUT GUARANTIES

Presented by: Stephen D. Peterson, Partner www mcguirewoods com

CONFIDENTIAL

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www.mcguirewoods.com

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Types of Loans in Which Non-Recourse Types of Loans in Which Non Recourse Carve Outs Appear

  • CMBS Loans
  • Life Company Loans
  • Any Non-Recourse Loan

CONFIDENTIAL

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CMBS S C CMBS Separateness Covenants

  • Separate borrower from other related party

activities

  • Entity subject to separateness covenants is called

an “SPE”

CONFIDENTIAL

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Separateness Covenants Prohibit SPE Separateness Covenants Prohibit SPE Borrowers from:

  • Engaging in business other than ownership,
  • peration and maintenance of collateral property;

A i i t th th th ll t l t

  • Acquiring assets other than the collateral property;
  • Merging with another entity;
  • Incurring debt other than the subject loan; and
  • Incurring debt other than the subject loan; and
  • Commingling borrower’s assets with assets of any
  • ther person

CONFIDENTIAL

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  • ther person
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Theoretical Benefit of Separateness Theoretical Benefit of Separateness

I l t b th th l d ’ ll t l d k th

  • Isolates both the lender’s collateral and makes the

SPE “bankrupt remote”

CONFIDENTIAL

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R T i Recourse Triggers

  • Partial Recourse Triggers
  • Full Recourse Triggers

CONFIDENTIAL

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P i l R T i Partial Recourse Triggers

  • Misapplication of insurance proceeds,

condemnation proceeds or security deposits

  • Waste
  • Failure to pay taxes or assessments
  • Environmental liability
  • Fraud or failure to disclose a material fact

CONFIDENTIAL

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F ll R T i Full Recourse Triggers

  • Violation of the Separateness Covenants
  • Breach of Due-on-Sale or Due-on-Transfer clause
  • Filing of voluntary of involuntary bankruptcy

CONFIDENTIAL

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Separateness and Non-Recourse Separateness and Non Recourse Guaranties Put to the Test - GGP

  • Bankruptcy filed April 16, 2009
  • Approximately 80 SPE entities included in

bankruptcy

  • Non-Recourse Guarantors Filed for Bankruptcy
  • Bad faith arguments rejected

CONFIDENTIAL

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Outcome

  • Bankruptcy Court asserted jurisdiction to modify

loans

  • Plan confirmed December 15, 2009
  • Maturity Dates Extended
  • Interest Rates Adjusted

CONFIDENTIAL

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GGP I f P i i GGP Issues for Practitioners

  • New tools for distressed borrowers
  • Consider whether to issue non-consolidation or

REMIC opinions

CONFIDENTIAL

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EMERGEING TRENDS AND RECENT LEGAL DEVELOPMENTS

Presented by: Kevin C. Watters www mcguirewoods com

CONFIDENTIAL

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www.mcguirewoods.com

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G i Non-Recourse Guaranties Two recent decisions may Two recent decisions may indicate the future direction of th f t f the enforcement of non-recourse carve-out provisions

CONFIDENTIAL

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CSFB 2001-CP-4 Princeton Park Corporate Center, LLC v. SB Rental I, LLC –980 A.2d 1 (N.J. Super. , ( p 2009).

  • Loan documents and guaranties contained carve
  • ut provision requiring lender approval of

subordinate financing subordinate financing

  • Borrower secured subordinate financing without

lender approval pp

  • Borrower paid off subordinate financing, but

defaulted on primary loan 18 months later

CONFIDENTIAL

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CSFB 2001-CP-4 Princeton Park Corporate Center, LLC v SB Rental I LLC –980 A 2d 1 (N J Super LLC v. SB Rental I, LLC 980 A.2d 1 (N.J. Super. 2009).

  • Borrower triggered non-recourse carve out

provision by failing to obtain Lender approval of b di fi i subordinate financing

  • Did not matter that the Lender did not suffer

d lt f th b di t d bt damages as a result of the subordinate debt

CONFIDENTIAL

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CSFB 2001-CP-4 Princeton Park Corporate Center, LLC v SB Rental I LLC –980 A 2d 1 (N J Super LLC v. SB Rental I, LLC 980 A.2d 1 (N.J. Super. 2009).

“Having freely and knowingly negotiated for the benefit of avoiding recourse liability generally, and agreeing to the burden of full recourse liability and agreeing to the burden of full recourse liability in certain specified circumstances, defendants may not now escape the consequences

  • f

their bargain.” bargain.

CONFIDENTIAL

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111 Debt Acquisition LLC v. Six Ventures, LTD, 2009 U.S. Dist. LEXIS 11851 (S.D. OH 2009)

  • Borrower filed bankruptcy in violation of non-

recourse carve out clause

  • Bankruptcy filing was subsequently dismissed
  • Court found filing constituted violation of

“Springing Recourse Event”

CONFIDENTIAL

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111 Debt Acquisition LLC v. Six Ventures, LTD, 2009 U.S. Dist. LEXIS 11851 (S.D. OH 2009)

  • One of the owner-guarantors argued he did not

violate the carve-out provision, since he did not h b k fili consent to the bankruptcy filing

  • Court found guarantor could be held liable even

th h h did t f b k t fili though he did not approve of bankruptcy filing which triggered the springing recourse event

CONFIDENTIAL

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Other Decisions Finding Non-Recourse Other Decisions Finding Non Recourse Carve-Out Provisions Enforceable

  • Blue Hills Office Park, LLC v. JP Morgan, 477 F.
  • Supp. 2d 366 (D. Mass. 2007) (transfer of

d i h l d l) mortgaged property without lender approval)

  • LaSalle v. Mobile, 367 F. Supp. 2d 1022 (E.D. La.

2004) ( d t f ti l f i ti ) 2004) (amendment of articles of organization)

CONFIDENTIAL

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Other Decisions Finding Non-Recourse Other Decisions Finding Non Recourse Carve-Out Provisions Enforceable

  • Heller Financial v. Lee, 2002 U.S. Dist. LEXIS

15183 (N.D. Ill. August 12, 2002.) (filing of liens )

  • n property)
  • First Nationwide Bank v. Brookhaven Realty

A 223 A D 2d 618 (N Y A Di 1996) Assocs., 223 A.D.2d 618 (N.Y. App. Div. 1996) (filing of bankruptcy petition)

CONFIDENTIAL

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Other Decisions Finding Non-Recourse Other Decisions Finding Non Recourse Carve-Out Provisions Enforceable

  • FDIC v. Prince George Corp., 58 F.3d 1041 (4th
  • Cir. 1995) (filing of bankruptcy petition)

CONFIDENTIAL

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