Future Advance Obligations in Commercial Mortgage Finance: Structuring, Co-Lender and Securitization Issues

A live 90-minute premium CLE video webinar with interactive Q&A


Tuesday, April 20, 2021 (in 2 days)

1:00pm-2:30pm EDT, 10:00am-11:30am PDT

or call 1-800-926-7926

This CLE webinar will discuss the mechanics of future advance clauses in commercial real estate lending. The panel will analyze the types of events future advance clauses typically address, the draw conditions which must be negotiated between the parties, and the complex dynamics of making additional loan disbursements where the loan has been syndicated or securitized.

Description

Future advance obligations may be included in commercial real estate loans to address various post-closing scenarios, including capital expenditures, acquisition of new collateral, or leasing or other "earn-out" conditions. They allow the borrower to determine the timing of the advances without paying interest until the lender actually funds the additional proceeds. Future advance provisions might be particularly useful in addressing leasing and other issues that have arisen during the current pandemic.

A future advance component can result in complexities that must be addressed in the loan documents. Conditions for disbursement must be carefully drafted and adequately describe the documentation required of the borrower, including any leases (and SNDAs), financial statements, lien releases, certificates of occupancy or conveyance instruments, and any applicable title policy updates or title endorsements.

Additional issues must be considered if the loan is to be securitized. The initially funded portion of the loan and the future advanced portion of the loan should be evidenced by separate promissory notes held by the initial and future advance lenders. While the initial lender will usually remain the controlling lender concerning the loan administration, the advance lender should have the right to approve the future advance. The lenders must also determine how prepayments will be applied.

Listen as our authoritative panel discusses these and other concerns with future advance provisions.

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Outline

  1. Future advance clauses in the current lending environment
  2. Conditions for future advances
    1. Tenant buildout and other capital expenditures
    2. Leasing
    3. Additional collateral
    4. Earnout based on financial parameters: occupancy, DSCR
  3. Approval and disbursement of the future advance
    1. Documentation
    2. Title issues
    3. Consent from other lenders
  4. Securitization issues
    1. Bifurcating the initial and future advance with separate notes
    2. Servicing issues in the event of default
    3. Applying prepayments

Benefits

The panel will review these and other important questions:

  • What are the advantages and disadvantages of a future advance clause vs. an earnout reserve funded at closing?
  • What are the different types of conditions attached to future advances, and what are the key drafting points?
  • How should approval and disbursement of a future advance be documented in the loan structure with multiple lenders?
  • Why should the initial advance and future advance be bifurcated for securitization purposes, and what other issues need to be addressed?

Faculty

Escobar, Jeffrey
Jeffrey R. Escobar

Partner
Dorsey & Whitney

Mr. Escobar advises horizontal and vertical project owners, real estate companies, joint ventures, institutional...  |  Read More

Rolfes, Virginia
Virginia (Ginger) Rolfes

Partner
Nelson Mullins Riley & Scarborough

Ms. Rolfes is a real estate and finance attorney with more than 15 years of experience. She is experienced in...  |  Read More

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