Presented by 1stServiceSolutions.

Rated CMBSBorrower Advocate.

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Cash Management

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AnnHamblyFounder &CEO

KevinDutyManagingDirector,

Restructures

Meet today’s

Speakers

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03

CashManagement

Cash Management 101

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04 TheBorrower does nothave control overthe cash

flow.Hard

Borrower hascontrol untila trigger event occurs.Springing

TheBorrower hassome control overthe property

cash flow.Soft

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02

03

3 Types

• 70%of new CMBSloans have one formof cashmanagement

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LockBox PropertyAccount

Expenses

SoftLockbox

Tenants

Lender Controlled

Borrower Controlled

Debt Service

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LockBox CashMgmtAccount

1. Debt Service 2. Reserve Account3. Borrower = Operating Expenses

HardLockbox

Tenants

Lender Controlled

Lender Controlled

• Borrower has no control of cash

Waterfall

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LockBox CashMgmtAccount

1. Debt Service 2. Reserve Account3. Borrower = Operating Expenses

SpringingLockbox

Tenants

Lender Controlled Lender Controlled

PropertyAccount

BorrowerControlled

Expenses

Debt Service

Waterfall

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SpringingReasons

• DSCR

• Loss of major / specific tenant

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Random Sampling

• Based on a random sampling of 50 pools originated between 2015 – 2017:

• 4% had a hard lockbox at origination

• 1% had a soft lockbox at origination

• 65% had a springing lockbox

• 30% had no cash management at all

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Devil is in the Details

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• Debt Service Coverage Ratio DEFINITION• “shall mean, as of any date of determination, the ratio, as determined by Lender, of (i) Underwritten

Net Cash Flow …….”

• Underwritten Net Cash Flow DEFINITION• “ shall mean, as of the end of any calendar quarter and calculated with respect to the preceding 12

month period, the amount determined by Lender as the excess of:• In place base rents under ‘bona-fide’ leases open for business and paying full rent• Actual amounts received as other income

• OVER• Operating expenses adjusted to include:

• Market vacancy (not actual) as determined by Lender• Management fees = XX%• Capital expenses equal to XX• Tenant improvements equal to XX

• Lenders calculation of Underwritten Net Cash Flow shall be final absent manifest error

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Waterfall

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• Priority is problem• Typical priority

1. Tax insurance2. Debt service payment3. Reserves4. Operating expenses

• If there is not enough cashflow to cover all – operating expenses suffer• Could equal WASTE

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Carve out Guarantee

• Material physical waste of property

• Failure to pay taxes or other changes thatcan create liens on the property

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CashManagement

Case Study

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Contact Information

1st Service Solutionswww.1stsss.com(817) 756-7227

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