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January 25, 2019

Updated Loan Agreement – Simpler and Streamlined Transfer Provisions

A new form Loan Agreement with updated transfer provisions will be required to be used for all loans for which a Commitment/ERLA is issued on or after February 25. Additionally, we are retiring eight form Transfer Riders to the Loan Agreement because they will be folded into our new form Loan Agreement.

Making it Easier

We have simplified the transfer requirements to improve the clarity, consistency, and flexibility for Borrowers. With almost all transfer options now in one place and the addition of new options, Borrowers can confidently plan for future transfers.

The Who – Effective with New Loan Agreement

Prohibitions on transfers apply only to owners of direct interests in:

  • Borrowers
  • Guarantors
  • Designated Entities for Transfers (DETs)

DET vs. Required Equity Owner – Making it Clearer

DETs are only in the control path of the Borrower (or entities that can become part of the control path through a buy-sell or a preferred equity or other take-over right).

With the roll-out of the updated Loan Agreement, we are introducing the concept of a “Required Equity Owner” which will apply only to equity/non-controlling parties in the Borrower and Guarantor structures. If there is a Required Equity Owner, transfers in the non-controlling path of Borrower or Guarantor will still be permitted so long as the Required Equity Owner maintains a certain minimum percentage interest in the Borrower. This required equity percentage is stated in the new Summary of Loan Terms found at the beginning of the new Loan Agreement form.

Transfers that Do Not Require Fees or Lender Consent – Effective with New Loan Agreement

Transfers that do not require fees or Lender consent

Transfer Type

Noteworthy

Transfers of Interests in entities that are not DETs

Transfers of interests in entities that are not DETs, whether controlling or non-controlling interests*, continue to be permitted without fees or lender consent.

Transfers of Non-Controlling Interests in DETs

Transfers of non-controlling interests in DETs* no longer require Lender consent or fees, even if more than a 50% ownership interest is transferred.

*other than certain transfers of interests held by a Guarantor or a Required Equity Owner

Transfers with Fees – Effective with New Loan Agreement

Category 1 - $15,000 Transfer Processing Fee

Transfer Type

Noteworthy

Affiliate Transfer

Now expanded to permit transfers of controlling interests by any transferor to its Affiliate, rather than just pre-approved transferors.

Intrafamily Transfer

Now expanded to permit transfers of controlling interests to a trust or a family partnership, so long as the transferor retains control of the trust or partnership.

Transfer to Previously Underwritten Person

Continues to permit transfers of controlling interests to a pre-approved transferee upon the death or legal incapacity of the transferor, but now expanded to permit such transfers upon the retirement of the transferor.

Co-Owner Transfer

Now permits transfers of interests in the property among TIC co-owners for all tenancy-in-common Borrowers, even if not specifically requested by Borrower before origination.

TIC Roll-up Transfer

Transfer of interests in the property by TIC co-owners to a single entity for all tenancy-in-common Borrowers, even if not specifically requested by Borrower before origination.

Category 2 - $25,000 Transfer Processing Fee

Transfer Type

Noteworthy

Transfer Due to Death; Death of Guarantor

Continues to permit transfers of controlling interests to immediate family members upon the death of transferor by devise, descent or operation of law. Now expanded to permit a subsequent transfer to a second immediate family member of transferor. The time periods to notify Lender, identify the transferee, and effectuate the transfer have also been extended. If there is a death of a guarantor, the time periods for the estate to ratify the guaranty and to provide a replacement guarantor have also been extended.

Preferred Equity Control Take-Over Transfer

Provisions allowing a Preferred Equity Control Take-Over Transfer are now incorporated into the Loan Agreement rather than being in a separate rider. However, the provisions will apply only if Lender’s requirements are satisfied at origination.

The requirements for a Preferred Equity Control Take-Over Transfer remain unchanged, including receipt and approval by Lender of the Preferred Equity Analysis.

Buy-Sell Transfer

Provisions allowing a Buy-Sell Transfer are now incorporated into the Loan Agreement rather than being in a separate rider. However, the provisions will apply only if Lender’s requirements are satisfied at origination.

The requirements for Buy-Sell Transfers remain unchanged, including receipt and approval by Lender of the Buy-Sell Analysis. However, since transfers of non-controlling interests no longer require a fee or Lender consent, the requirements only apply to a transfer of the Manager’s controlling interest to the Equity.

Category 3 - $15,000 Processing Fee + $25,000 Conditional Transfer Fee + DCH Consent

Transfer Type

Noteworthy

Manager Transfer

A new transfer right that allows persons or entities with non-controlling interests in Borrower at origination to acquire controlling interests in Borrower without incurring a 1%/$250,000 Transfer Fee.

Required Equity Owner Transfer

A new transfer right that allows a Required Equity Owner (if applicable) to transfer all or part of its ownership percentage in Borrower below the stated minimum requirement.

Release of Guarantor Transfer

A new transfer right that allows a guarantor to be released from a portion of its liability under the guaranty if, after the release, the remaining guarantors satisfy stated net worth and liquidity requirements and are otherwise acceptable to Lender.

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