presents Commercial Real Estate Loan Guaranty...

presents

Commercial Real Estate Loan Guaranty Enforcement

presents

yMaximizing 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, AtlantaStephen D. Peterson, Partner, McGuireWoods, Atlanta

Kevin C Watters McGuireWoods AtlantaKevin C. Watters, McGuireWoods, Atlanta

Wednesday, August 18, 2010

The conference begins at:The conference begins at:1 pm Eastern12 pm Central

11 am Mountain10 am Pacific10 am Pacific

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I th W t Y tReal Estate Finance:Is the Worst Yet to Come?

a ce

Henry P. Lorber

[email protected]

4

Mortgage Backed SecuritiesMortgage Backed Securities(CMBS)(CMBS)

WWW.HAYSCONSULTING.NET 5

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

tf liportfolios

$350

CMBS - Fixed Rate CMBS - Floating Rate Insurance Company Bank/Thrift

$250

$300

$350

Bill

ions

)

$150

$200

al M

atur

ities

($

$50

$100Ann

ua

$0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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


Why Special Servicers Look so Tired?

WWW.HAYSCONSULTING.NET

Source: Trepp LLC

7

Short term fixed rate CMBS loans maturing through 2013

Amortizing Full IO Partial IO

$25

$30

ns ($

bn)

$15

$20

Mat

urin

g Lo

an

$5

$10

Bala

nce

of

$0

2009 2010 2011 2012 2013


Source: Deutsche Bank, Intex, Trepp

8

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

Loans Maturing 2009-2012

Refinancing Requirement: LTV < 70 & DCSR > 1.3

Property Type # LoansBalance

($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 9Industrial 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


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

9

The BanksThe Banks


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 CapOver 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%


Average 90%

11

Concentration Ratios by Banks over $1 Billion

Above $500 Million Assets Average: 329%*

Median: 281%*

Over 300% is a problem

Bank Charter City TOTAL ASSETS ($000)

2Q-2010 CRE Concentration as a % 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%


* Without SunTrust

12

Concentration Ratios by Asset Size - Continued

Above $500 Million Assets Average: 329%*

Median: 281%*Over 300% is a problem

Bank Charter City Total Assets ($000) 2Q-2010 CRE Concentration f lBank Charter City Total Assets ($000) as a % of 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%


PrimeSouth Bank Blackshear 430,370 289%

13

Concentration Ratios by Asset Size - Continued

2Q-2010 CRE Concentration

Below $500 Million Assets Average: 329%*

Median: 281%*

Over 300% is a problem

Bank Charter City TOTAL ASSETS ($000) as a % of capital

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%


Quantum National Bank Suwanee 351,168 192%

14

Contact Us

Hays Financial Consulting, LLC

Henry P. LorberDirector of Real Estate Practice

E mail:E-mail:[email protected]

Phone: (404) 926-0056

Address:Hays Financial Consulting LLCHays Financial Consulting, LLC Atlanta Financial Center3343 Peachtree Road NESuite 200Atl t GA 30326 1420


Atlanta, GA 30326-1420

15

Section I – Overview of Commercial Real Estate Loan i d h i li i iGuaranties 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. TarnowerThompson Hine LLP

1201 West Peachtree Street1201 West Peachtree StreetSuite 2200

Atlanta, Georgia 30309-3449T: 404.407.3651F 404 541 2905F: 404.541.2905

[email protected]

NON-RECOURSE CARVE OUT GUARANTIES

Presented by:Stephen D. Peterson, Partner

www mcguirewoods com

CONFIDENTIAL17

www.mcguirewoods.com

Types of Loans in Which Non-RecourseTypes of Loans in Which Non Recourse Carve Outs Appear• CMBS Loans• Life Company Loans• Any Non-Recourse Loan

CONFIDENTIAL18

CMBS S CCMBS Separateness Covenants

• Separate borrower from other related party activities

• Entity subject to separateness covenants is called an “SPE”

CONFIDENTIAL19

Separateness Covenants Prohibit SPESeparateness Covenants Prohibit SPE Borrowers from:• Engaging in business other than ownership,

operation 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

other person

CONFIDENTIAL20

other person

Theoretical Benefit of SeparatenessTheoretical 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”

CONFIDENTIAL21

R T iRecourse Triggers

• Partial Recourse Triggers• Full Recourse Triggers

CONFIDENTIAL22

P i l R T iPartial 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

CONFIDENTIAL23

F ll R T iFull Recourse Triggers

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

CONFIDENTIAL24

Separateness and Non-RecourseSeparateness 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

CONFIDENTIAL25

OOutcome

• Bankruptcy Court asserted jurisdiction to modify loans

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

CONFIDENTIAL26

GGP I f P i iGGP Issues for Practitioners

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

REMIC opinions

CONFIDENTIAL27

EMERGEING TRENDS AND RECENT LEGAL DEVELOPMENTS

Presented by:Kevin C. Watters

www mcguirewoods com

CONFIDENTIAL28

www.mcguirewoods.com

G iNon-Recourse Guaranties

Two recent decisions mayTwo recent decisions may indicate the future direction of th f t fthe enforcement of non-recourse carve-out provisions

CONFIDENTIAL29

CSFB 2001-CP-4 Princeton Park Corporate Center, LLC v. SB Rental I, LLC –980 A.2d 1 (N.J. Super. , ( p2009).

• Loan documents and guaranties contained carve out provision requiring lender approval of subordinate financingsubordinate financing

• Borrower secured subordinate financing without lender approvalpp

• Borrower paid off subordinate financing, but defaulted on primary loan 18 months later

CONFIDENTIAL30

CSFB 2001-CP-4 Princeton Park Corporate Center, LLC v SB Rental I LLC –980 A 2d 1 (N J SuperLLC 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 isubordinate financing• Did not matter that the Lender did not suffer

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

CONFIDENTIAL31

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

“Having freely and knowingly negotiated for thebenefit of avoiding recourse liability generally,and agreeing to the burden of full recourse liabilityand agreeing to the burden of full recourse liabilityin certain specified circumstances, defendants maynot now escape the consequences of theirbargain.”bargain.

CONFIDENTIAL32

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”

CONFIDENTIAL33

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 filiconsent to the bankruptcy filing• Court found guarantor could be held liable even

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

CONFIDENTIAL34

Other Decisions Finding Non-RecourseOther 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)

CONFIDENTIAL35


• Heller Financial v. Lee, 2002 U.S. Dist. LEXIS 15183 (N.D. Ill. August 12, 2002.) (filing of liens

)on 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)

CONFIDENTIAL36


• FDIC v. Prince George Corp., 58 F.3d 1041 (4th

Cir. 1995) (filing of bankruptcy petition)

CONFIDENTIAL37

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