Real Estate Finance: Structuring Earnout, Release Parcel, and Partial Prepayment/Defeasance Provisions

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

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Wednesday, July 6, 2022 (in 6 days)

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

(Alert: Event date has changed from 6/28/2022!)

or call 1-800-926-7926

This CLE webinar will discuss holdbacks and earnout provisions under which mortgage proceeds are retained by the lender but made available to the borrower upon satisfaction of certain conditions. The panel will also analyze provisions that allow for the release of a parcel post-closing, including the subdivision, easement rights, and entity issues to address. The panel will discuss the prepayment and partial defeasance options with either scenario.

Description

Commercial mortgage loans often include a holdback of proceeds at closing, with certain conditions to be satisfied before the funds are released. Earnout requirements for retail or office properties may consist of execution of new leases, completion of buildout, and occupancy by the new tenants. Multifamily or hotel loans may require increased occupancy for a given period to meet the debt service requirements of the fully funded loan. Counsel must draft these provisions to include detailed and thorough release conditions.

For properties that are being developed in phases or with an outparcel that the borrower wants to develop later, the documents may include a provision to release such collateral from the mortgage at an agreed-upon release price. These provisions can be highly complex, including conveying the property to a separate entity, proper subdivision (if applicable) and execution or a reciprocal easement defining parking, access and utility rights, permitted uses and non-compete provisions relating to the released and unreleased parcel.

In connection with the above scenarios, partial prepayment or defeasance of the loan may be required. Typically a deadline is placed on the ability of the borrower to achieve an earnout, after which the reserve funds can be applied to pay down or partially defease the principal balance. The release of a parcel may be conditioned on prepayment or defeasance of a portion of the loan in the amount of the release price.

Listen as our authoritative panel discusses the nuances of holdbacks, earnout reserves and partial release provisions and the prepayment and defeasance provisions to consider in each instance.

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Outline

  1. Holdback/earnout reserves
    1. Retail and office
    2. Multifamily
  2. Release parcels
    1. Subdivision/zoning considerations
    2. Determining easement rights between the properties
  3. Partial repayment/partial defeasance of the loan

Benefits

The panel will review these and other key issues:

  • When might a borrower prefer a holdback of loan proceeds instead of a future advance clause in its loan documents?
  • How should DSCR be defined in the loan documents, and how long should the target DSCR be maintained to achieve an earnout?
  • What are the components of a new lease provision?
  • When is partial prepayment preferable to partial defeasance, and vice versa?

Faculty

Kostman, David
David B. Kostman

Partner
Loeb & Loeb

Mr. Kostman’s practice focuses primarily on real estate finance, with a concentration on the origination, sale,...  |  Read More

Maguire, Andrew
Andrew Maguire

Shareholder
McCausland Keen + Buckman

Mr. Maguire counsels REITs and other publicly-traded companies, as well as privately held entities and family office...  |  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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