Real Estate Finance Loan & Security Documents

Course Overview:

The commercial property market has of course flourished over the last few decades and even after the recent credit crunch continues to be attractive to investors. As in many markets, the availability of debt finance is key to enabling investors to maximise returns.Yet lenders need to be more careful than ever to ensure that all risks are properly covered, and well-drafted legal documents are vital.

This Real Estate Finance course focuses on the loan and security documents for real estate finance.

It starts with an examination of the main property-related provisions of the Loan Market Association (LMA) model forms of property investment facility agreement and facility agreement for property development projects. That will be followed by a review of key provisions of the security documents. Finally it will explain the restrictions imposed to subordinate the equity funding.

This is a more advanced, document-focused course. An introductory course for those with little or no familiarity with real estate finance, ‘Introduction to Real Estate Finance legal aspects’, is also available.

Course Content:

Real estate finance: structure and parties

• Structure for investment finance
• Lenders
• Borrower
• Equity investors

The facility agreement

• Forms
  • Loan Market Association (LMA) model forms
• Facility
• Repayment
  • Scheduled repayment
  • Mandatory prepayment
    • Change of control
    • Disposal proceeds, insurance proceeds, tenant premiums, vendor recoveries, etc
• Conditions precedent
  • Leases (rental income; other key terms)
  • Tenant creditworthiness
  • Valuation
  • Title investigation
  • Searches
  • Property documents review
  • Structural survey
  • Environmental report
  • Insurance
  • Security
  • Others
• Representations and warranties
• Bank account provisions
• Financial ratio covenants
  • Loan to value ratio
  • Interest cover
• Undertakings
  • Management of property
  • Amendment of occupational leases; grant of new leases
  • Insurance
  • Environmental matters
  • Information supply
  • Other undertakings
• Events of Default

Additional specialised provisions of a development finance facility agreement

• Structure and parties in a development facility
• Repayment; sources of funds?
• Interest
• Additional drawdown pre-conditions
  • Review of development documents (building contract, consultant appointments, agreement for lease/development agreement)
  • Review of development specifications
  • Budgeted costs
  • Planning consents
  • Insurance
  • Invoices
  • No unfunded cost overruns
• Loan to cost ratio
• Bank accounts
• Practical completion
• Undertakings
  • Development undertakings
  • Information supply; site meetings
  • Project Monitor’s role
  • Other undertakings

Hedging

• Interest rate swap or cap
• ISDA Master Agreement

Security documents

• Security interests created over property/assets
  • Mortgage of land
  • Assignment of rental income
  • Assignment/charge of insurances
  • Charges over bank accounts
  • Other assets
  • Floating charge
  • Charge over borrower shares
• Registration of security
• Notices of assignment/charge
• Deposit of title documents
• Secured liabilities
• Negative pledge and disposal restrictions
• Other undertakings
• Enforcement of security
• Parent guarantee?
• Duty of care agreement
• Additional security for development facility
  • Cost overrun guarantee
  • Assignment of project contracts
  • Collateral warranties; step-in rights

Subordination/intercreditor agreement

• Subordination restrictions on equity funding
• Hedging liabilities