Presenting an encore presentation featuring live Q&A Structuring Financeable Ground Leases and Leasehold Mortgages Balancing Competing Interests Among Owners, Lessees and Lenders THURSDAY, NOVEMBER 30, 2017 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: 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 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.
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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 5
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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 7
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 8
General (Credit Tenants) Chain Stores Department or Big Box Stores Banks Fast Food and Other Chain Restaurants 9
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 10
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 11
Pure Ground Leases Pad Leases Lease of a Condominium Unit 12
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Reversionary Estate (definition and difference from traditional fee estate) Leasehold Estate 14
Minimum Term Relation to Term of Leasehold Mortgage Initial Term Option Terms (Failsafe) Transfer Tax Concerns Right of Leasehold Mortgagee to Exercise Term 15
Tenant Finances Construction Obligation to Construct Nature and Limitation on Improvements Time Limitations on Construction 16
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 17
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 18
Must have a broad use clause (affects financeability and Rating Agency Approval) Rights to Change Use Shopping Center Restrictions (Interface with Exclusive Uses, etc.) 19
No Continuous Operations Go Dark (only with extensive predicate dark and re-opening periods - may not be financeable) 20
Must have free and unfettered right to assign or sublet without landlord's consent Relationship to the use clause No recapture rights 21
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 22
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 23
Alteration Rights a) Interior b) Exterior c) Free Rights or Parameters Demolition Rights/ Obligation to Rebuild Signage 24
Obligation to Leave Improvements Condition of Improvements Obligation/Option to Demolish Improvements Deed or Bill of Sale for Improvements 25
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 26
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 27
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 28
Monetary Defaults Non-Monetary Defaults Non-Curable Defaults Additional Time for Leasehold Mortgagee to Cure Rights to cure in Sale/Leasebacks 29
Limitation on Acceleration Remedies Self-Help 30
Leasehold Mortgagees insist on being Exculpated Application to an Entity that owns the Leasehold Estate after Foreclosure 31
Obligation for a Memorandum of the Lease to be Recorded Landlord Estoppel Obligations Tenant Estoppel Obligations 32
Language to Insure that Landlord s and Tenant s estates will never merge Protection of the Lender 33
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) 34
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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 36
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 37
David M. Alin Mintz Levin Cohn Ferris Glovsky and Popeo dalin@mintz.com Stephen E. Friedberg Mintz Levin Cohn Ferris Glovsky and Popeo sefriedberg@mintz.com 38