EVOQ Properties Alameda Square – From Warehouse to Creative Office Space…

The Urban Observer had a chance to tour Alameda Square in downtown LA this week, which EVOQ Properties has been transforming from warehouse to state-of-the-art creative office properties.  Read EVOQ’s latest press release for detailed information!

EVOQ Properties Press Release 06/06/2013

Splendid® and Ella Moss® Officially Open New Corporate Headquarters at Alameda Square in Downtown Los Angeles

 L.A. fashion brands latest to call area home, join other fashion labels in building creative enclave 

 LOS ANGELES, June 6, 2013 – Contemporary lifestyle fashion labels Splendid® and Ella Moss® today officially celebrated the opening of their corporate headquarters at Alameda Square in Downtown Los Angeles. The move comes as other creative and fashion companies are building on the area’s growing reputation as a center for fashion on the West Coast.

Los Angeles Councilmember José Huizer; Los Angeles Deputy Mayor Brian Currey; Jonathan Saven, President of Splendid® and Ella Moss®; and Martin Caverly, CEO of EVOQ Properties, as well as other government officials and business and community leaders were on hand for the ribbon-cutting ceremony and offered remarks about the company’s move and the impact to the area.

“Splendid and Ella Moss’ long-term investment and commitment to Downtown set an important example for other companies,” said Councilmember Huizar. “Downtown has long appealed to visionaries who can see its potential. We are pleased that such a dynamic local company will put its roots down here, bringing jobs and an economic boost to the region.”

Alameda Square is owned by EVOQ Properties, Inc. (OTC BB – EVOQ.PK), one of the largest property owners in Downtown Los Angeles. The campus’ location at the cross-section of the popular Arts District and the Fashion District puts it at the center of the Downtown creative community. Other fashion brands that call the area home include American Apparel, Groceries Apparel, J Brand Jeans and Lucky Brand.

“We are excited to enter into a new phase in our company’s history,” said Saven. “The new space – with its rich history, openness and wonderful natural light – will help us further expand the brands. As a Los Angeles-born company, we are pleased that we can stay, grow jobs here and contribute to the community.”

Caverly said, “The completion of the Splendid and Ella Moss space is just the beginning of the revitalization of Alameda Square. In the coming months, we are looking to bring new tenants that not only will bring new amenities, services and new jobs to the campus, but new life to a growing community.”

Splendid® and Ella Moss® announced in October that they signed a 10-year lease with EVOQ to occupy 82,000 square feet of Building 1 at Alameda Square (located at 777 Alameda). The new corporate headquarters, which covers two full floors, houses approximately 225 employees in product development, design, marketing and sales, finance, retail operations, customer service as well as other administrative functions. An additional 100 employees still remain at its finished goods & fabric warehouse, located at 3751 South Hill Street in Los Angeles.

To meet the specific needs of Splendid® and Ella Moss®, EVOQ spent eight months making multi-million dollar improvements to Building 1 and the overall campus. Renovations started early fall of 2012, and included:

Converting the historic warehouse building to a state-of-the-art creative office with large industrial windows, exposed concrete floors / ceiling and open floor plan;

Redeveloping the ground floor and loading dock into retail, restaurant and outdoor public space;

Adding a 6000-square-foot roof deck and kitchen with dramatic views of the Downtown skyline;

Expanding and reconfiguring parking facilities resulting in an increase of 450 spots; and

Adding new landscaping and seating areas to serve a rotating mix of food trucks, coffee vendors and other amenities for tenants and visitors.

“EVOQ made a significant investment in redeveloping the space because we believe Alameda Square and its location are unique,” added Caverly. “There is no other space like this with the expansive views, natural light and open space that creative companies desire. Like Splendid® and Ella Moss®, we are an L.A. company and we’re committed to the continued renaissance of Downtown.”

Built in 1917, Alameda Square includes four buildings covering 1.4 million square feet with American Apparel’s headquarters occupying half of the space. The property has historically played a role in serving as a commercial hub in the region. The warehouse complex and adjacent product market was designed for the Los Angeles Union Terminal Company. Southern Pacific Railroad completed the construction in 1923 and operated the property as a major intermodal produce market and distribution center connecting Downtown to the rest of the L.A. region.

Splendid® is a complete lifestyle brand offering collections for women, men and children with an unmatched approach to casual dressing. Known for its signature stripes and vibrant color, the brand delivers comfortable, classic, effortless style. Ella Moss® offers contemporary fashion for women and girls and is noted for its bold patterns, dramatic dresses and modern styling.

About EVOQ Properties Inc.
EVOQ is one of the largest property owners in downtown Los Angeles, with holdings in industrial, office, retail, residential, and mixed-use real estate. For additional information on EVOQ and its properties, please visit the Company’s website at EvoqProperties.com.

About Ella Moss®

Ella Moss® is a contemporary fashion brand featuring feminine, flirty, whimsical designs inspired by travel, art and music. The collection captures the laid-back sophistication of its Los Angeles roots while offering coveted must-haves for the modern girl’s dream closet. The brand’s unique prints, daring styling and modern twists on vintage finds allows for creating distinctive personal style. Founded in 2001 by designer Pamella Protzel Scott, the Ella Moss® assortment includes ready-to-wear, footwear and swim and can be found at the Ella Moss boutique in Newport Beach, CA as well as at better department and specialty stores domestically, abroad and online. For further brand information or to shop online visit EllaMoss.com.  

About Splendid®

The Splendid® brand is the culmination of a ten year quest to create the ultimate t-shirt. The success in designing an extraordinarily soft material cut into perfectly chic silhouettes was the platform for what is now a complete lifestyle collection of ultra-comfortable, effortlessly stylish collections for women, men, kids and babies. Known for its vibrant palette and bold stripes, Splendid® offers classic, colorful styles across multiple product categories including apparel, outerwear, footwear and swim. Splendid® can be found at its twelve retail locations in the US and Canada as well as at high-end department and specialty stores domestically, internationally and online. For a full listing of stores, to shop online or for additional brand information visit Splendid.com.    

Forward Looking Statements
This release contains forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are generally accompanied by words such as “anticipate,” “continues,” “expect,” “forecast,” “outlook,” “believe,” “estimate,” “should” and “will” and words of similar effect that convey future meaning, concerning the Company’s operations, economic performance and management’s best judgment as to what may occur in the future. Future events involve risks and uncertainties that may cause actual results to differ materially from those we currently anticipate. The actual results for the current and future periods and other corporate developments will depend upon a number of economic, competitive and other influences. Many of these risks and uncertainties are beyond the control of the Company, and any one of which, or a combination of which, could materially and adversely affect the results of the Company’s operations and its financial condition. We undertake no obligation to update information contained in this release.

EVOQ Press Release – EVOQ Properties Announces Sale of Desmond Building in Downtown Los Angeles

From EVOQ Properties Press Release:

“EVOQ Properties Announces Sale of Desmond Building in Downtown Los Angeles

LOS ANGELES, APRIL 4, 2013 – EVOQ Properties, Inc. (OTC – EVOQ.PK), a publicly owned real estate firm headquartered in Downtown Los Angeles, today announced the disposition of the Desmond Building, located at 425 West 11th Street in Los Angeles.

Total gross proceeds from the sale were $16.25 million. A portion of the net proceeds was used for general corporate purposes and additional leasing costs at other company properties.

 

“Capital from this sale will enable us to continue focusing on our core assets, including Alameda Square, in Downtown Los Angeles. Investing in improvements to those properties will attract creative companies that are looking for a unique space at the cross-section of the burgeoning arts and fashion hubs in Los Angeles,” said Martin Caverly, CEO of EVOQ Properties

About EVOQ Properties Inc. 
EVOQ is one of the largest property owners in downtown Los Angeles, with holdings in industrial, office, retail, residential, and mixed-use real estate. For additional information on EVOQ and its properties, please visit the Company’s website atEvoqProperties.com.

 

Forward Looking Statements
This release contains forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are generally accompanied by words such as “anticipate,” “continues,” “expect,” “forecast,” “outlook,” “believe,” “estimate,” “should” and “will” and words of similar effect that convey future meaning, concerning the Company’s operations, economic performance and management’s best judgment as to what may occur in the future. Future events involve risks and uncertainties that may cause actual results to differ materially from those we currently anticipate. The actual results for the current and future periods and other corporate developments will depend upon a number of economic, competitive and other influences. Many of these risks and uncertainties are beyond the control of the Company, and any one of which, or a combination of which, could materially and adversely affect the results of the Company’s operations and its financial condition. We undertake no obligation to update information contained in this release.”

EVOQ Properties Announces Sale of Three Properties in Los Angeles…

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According to a Press Release which we received this morning from EVOQ Properties (Former Meruelo Maddux), they have disposed of three of their non-core assets in the Downtown market, including 915-949 S. Hill, a series of vacant lots and industrial buildings, and industrial buildings located at 759 Ceres Avenue and 643 Gladys Avenue, as part of their strategy to pay off debt and recapitalize into higher growth opportunities.

Press Release shown below:

 

“”EVOQ Properties Announces Sale of Three Properties in Los Angeles

LOS ANGELES, JANUARY 30, 2013 – EVOQ Properties, Inc. (OTC – EVOQ.PK), a publicly owned real estate firm headquartered in Downtown Los Angeles, today announced the disposition of three non-core assets located in Los Angeles. The sales occurred in December and January.

 

The sales included 915-949 S. Hill, a series of vacant lots and industrial buildings, and industrial buildings located at 759 Ceres Avenue and 643 Gladys Avenue. All of the properties are in Los Angeles.

Total gross proceeds from the sales were $19.5 million. A portion of the net proceeds was used to retire approximately $15.3 million of secured principal debt and $1.7 million of contingent deferred interest.

 

“We continue to actively pursue our plan to strategically dispose of non-core assets, which allows us to re-invest the capital into opportunities that have the strongest potential for growth and return on investment,” said Martin Caverly, CEO of EVOQ Properties. “We believe our focus on our core assets in Downtown Los Angeles will bring long-term value not only to our company, but to the development of those neighborhoods into a stronger community.”

About EVOQ Properties Inc. 
EVOQ is one of the largest property owners in downtown Los Angeles, with holdings in industrial, office, retail, residential, and mixed-use real estate. For additional information on EVOQ and its properties, please visit the Company’s website at EvoqProperties.com.

Forward Looking Statements
This release contains forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are generally accompanied by words such as “anticipate,” “continues,” “expect,” “forecast,” “outlook,” “believe,” “estimate,” “should” and “will” and words of similar effect that convey future meaning, concerning the Company’s operations, economic performance and management’s best judgment as to what may occur in the future. Future events involve risks and uncertainties that may cause actual results to differ materially from those we currently anticipate. The actual results for the current and future periods and other corporate developments will depend upon a number of economic, competitive and other influences. Many of these risks and uncertainties are beyond the control of the Company, and any one of which, or a combination of which, could materially and adversely affect the results of the Company’s operations and its financial condition. We undertake no obligation to update information contained in this release.””

Great Article on Guarantees, By Susan C. Tarnower…

Trends in Commercial Real Estate Loan Guarantees
 
 
 
I.  Introduction
 
In general terms, a guarantee is a legally enforceable promise made by one party (the guarantor) to answer for the payment of debt or performance of the obligations of another party (the principal obligor or borrower) if the principal obligor fails to make payments or perform its obligations.  A guarantee may be required if a lender determines that the credit strength of the principal obligor needs to be enhanced and that the guarantor can provide meaningful support.
 
Recently, we have seen high profile cases involving the enforcement of commercial real estate guarantees against individual guarantors.  As described in a Wall Street Journal article dated September 29, 2010 (Robbie Whelan, Real Estate Stings a Backer), Harry Macklowe, a New York developer, has been forced to liquidate or turn over to creditors much of his real estate empire in efforts to resolve the indebtedness he incurred through a personal guarantee.  Similarly, Bruce Elieff, chief executive of SunCal Cos., a closely held development and residential building company, may be liable for up to $230 million in personal guarantees he signed in connection with loans made by Lehman Brothers Holdings to SunCal Cos. on twenty large residential property developments.  The plight of both men should alarm anyone who ever signed a personal guarantee backing commercial real estate loans.
 
With the increasing default rate on loans secured by commercial real estate, both CMBS loans and loans held on the balance sheets of various lending institutions, guarantors who signed a personal guarantee for this type of loan should be reviewing those loan documents and closely examining the terms in the related guarantees.
 
In this article, I will look at some of the different types of guarantees individuals may be asked to sign in connection with commercial real estate loans.  I will examine recent cases dealing with the enforcement of commercial loan guarantees.  I will focus on language to look for in those guarantees and suggest some areas for negotiation.  Finally, I will look at trends in future lending requirements for guarantees.
 
II.  Types of Guarantees
 
Whether commercial real estate loans are originated through a conduit lending program or by a bank, most of these loans are secured by a guarantee of some sort.  The guarantors for these loans are typically, but not always, individuals who provide some value other than having an interest in the property or an equity interest in the borrower. 
 
Payment Guarantees.  The most basic guarantee is a payment guarantee in which the guarantor provides a full recourse guarantee to pay the entire amount owed by the principal obligor.  The guarantor typically waives notice, presentment, demand for payment and any requirement that the lender proceed against the principal obligor or the collateral before making a claim against the guarantor.  If there are multiple guarantors, they will be jointly and severally liable.  In addition, this type of guarantee will likely include language that allows the lender to make changes to the loan and its documentation without notice to the guarantor.  As we will see in the cases below, courts generally find such waivers to be enforceable. Recourse Loan Documents.pdf.
 
Limited Guarantees.  Another common guarantee is a limited guarantee.  The scope of this type of guarantee may be limited in many ways.  Most frequently, a limit is placed on the amount for which the guarantor is liable.  For example, the guarantor can be liable for a specific amount set forth in the guarantee or reference can be made to a specific loan amount for which the guarantor is liable.  The limitation can also be expressed as a cap or as a percentage of the principal amount of indebtedness of the borrower for which the guarantor is providing a guarantee.  The guarantee may be limited to certain specific agreements signed by the borrower.  Whatever the method used, there is some limitation on the liability of the guarantor in this type of guarantee.  
 
Non-recourse Guarantees.  As conduit loans became more popular in commercial real estate lending over the last fifteen years, one of the strongest selling points for this type of loan has been that it is a non-recourse loan.  This means the lender agrees to take action against the property to recover for losses suffered on the loan rather than taking action against the borrower or guarantor, with a few exceptions.  The guarantor will typically sign a non-recourse guarantee outlining the circumstances under which this non-recourse loan becomes a limited or full recourse loan.  The list of triggers for guarantor’s liability, sometimes called “bad boy carve-outs”, increased as this type of lending became more popular.  Whether the events triggered full or partial recourse evolved over time as well. Non-Recourse Loan Documents.pdf.
 
A guarantor’s liability is outlined in the exceptions, or carve-outs, in a non-recourse guarantee.  The carve-outs generally fall into two categories-limited recourse or full recourse.  The types of activities which may trigger limited recourse to a guarantor, meaning the guarantor is only liable for losses suffered by the lender attributable to a specific event or activity, may include misapplication of casualty or condemnation proceeds or security deposits, failure to pay taxes or assessments, commission of waste to the property; failure to provide environmental indemnification, failure to maintain insurance or allowing liens to be placed against the property.
 
The triggers which make a guarantee full recourse are more serious violations, such as a voluntary or involuntary bankruptcy filing, fraud or intentional misrepresentation in connection with the property or the loan, or violation of the separateness covenants set forth in the single purpose entity (SPE) requirements established to keep the borrowing entity separate from any other business entity or debt.
 
More exotic types of guarantees, such as various types of construction loan guarantees, LTV maintenance guarantees or remargin guarantees are beyond the scope of this article.
 
III.  Enforcement of Non-recourse Guarantees
 
Courts tend to strictly enforce the obligations under these non-recourse guarantees against guarantors.  Most of the decisions focus on the specific terms in the applicable guarantee and the borrower’s sophistication in the marketplace, as well as borrower’s representation by knowledgeable counsel, as the basis for enforcing the guarantees.
 
The most recent significant case in this area is the March 8, 2011 New York Supreme Court, New York County, decision granting summary judgment for the plaintiff in UBS vs Garrison.pdf (www.practicelaw.com/2-505-3426).  The court held that the non-recourse guarantee, in that case called a “bad boy guaranty”, was an instrument for the payment of money only and not an unenforceable penalty or a violation of public policy relating to bankruptcy.  In that case, the lender’s claim under the guarantee was triggered by a bankruptcy filing by the borrowers during a forbearance period after the loan was in default.  This case seems to trump the ING case mentioned below.
 
The court in 111 Debt Acquisition LLC v. Six Ventures, LTD, 2009 U.S. Dist. LEXIS 11851 (S.D. OH 2009), reached a similar decision based on another borrower’s bankruptcy filing.  In that case, the borrower filed for bankruptcy, a violation of one of the carve-out provisions contained in the loan guarantees.  The guarantors argued that since the bankruptcy petition was eventually dismissed, the guarantor’s liability under the carve-out provision had not been triggered.  The Court found it was irrelevant that the bankruptcy petition was dismissed. The debtor’s act of filing for bankruptcy triggered the carve-out provision and made the guarantors fully liable for the debt.  Other courts have also found recourse provisions prohibiting the filing of a bankruptcy petition enforceable.  See First Nationwide Bank v. Brookhaven Realty Assocs., 223 A.D.2d 618 (N.Y. App. Div. 1996); FDIC v. Prince George Corp., 58 F.3d 1041 (4th Cir. 1995).
 
In CSFB 2001-CP-4 Princeton Park Corporate Center, LLC v. SB Rental I, LLC 980 A.2d 1 (N.J. Super. 2009), the court strictly construed a carve-out provision requiring the borrower to obtain lender approval of any subordinate financing.  The borrower secured subordinate financing without bank approval but paid the subordinate loan off eighteen months prior to  defaulting on the primary loan.  The guarantors and the borrower argued that their liability under the carve-out provision should not be enforced because the default was cured and the lender was not harmed.  The court held it did not matter that the lender had suffered no damages as a result of the borrower’s violation of the carve-out provision.  “Having freely and knowingly negotiated for the benefit of avoiding recourse liability generally, and agreeing to the burden of full recourse liability in certain specified circumstances, defendants may not now escape the consequences of their bargain.”  
 
In Blue Hills Office Park, LLC v. JP Morgan, 477 F. Supp. 2d 366 (D. Mass. 2007), the borrower settled a zoning dispute with an adjoining property owner and received a cash payment without obtaining bank approval.  The borrower subsequently transferred those funds to a different entity.  The court found the zoning rights to be a part of the mortgaged property pledged to the bank based upon the definition of mortgaged property in the loan agreement. Therefore, the settlement of the zoning issue, without prior bank approval, and transfer of those funds resulted in a violation of the carve-out provision relating to misuse of funds relating to the mortgaged property and pledged to the bank.  As the Court stated: “[W]here sophisticated parties choose to embody their agreement in a carefully crafted document, they are entitled to and should be held to the language they chose.”
 
Even an amendment of the borrower’s articles of organization can trigger full recourse liability because this may be viewed a violation of the SPE covenants.  In LaSalle v. Mobile, 367 F. Supp. 2d 1022 (E.D. La. 2004), the borrower amended its original articles of organization to change its name to modify its stated purpose from “solely … the acquisition, ownership, operation and management of a hotel…and such activities as are necessary, incidental or appropriate in connection therewith” to the broader language of “any lawful activity for which limited liability companies may be formed under the Act.”  The mortgage clearly stated that the loan would become full recourse if the borrower failed to maintain its status as a single purpose entity.  The borrower and the guarantor argued that the amendment of the articles did not harm the bank because the borrower never engaged any activity other than the management of the hotel.  The court found these arguments irrelevant and held the recourse provision had been triggered based solely on these changes to the articles of organization.
 
The one case that goes against this trend is ING Real Estate Finance (USA) LLC v. Park Avenue Hotel Acquisition LLC, 2010 Westlaw 653972 (02/24/10) (Unpublished).  In that case, the court narrowly construed the full recourse language in the guarantee in favor of the guarantors.  The court focused on an inconsistency between language found in the cure provisions of the loan agreement and language found in the carve-out provisions.  The non-recourse carve-out language included incurring any additional debt or permitting a lien to obtain priority over the secured lien as a carve-out provision.  The default language in the loan agreement similarly prohibited additional debt and liens obtaining priority, but that section of the loan agreement also provided the borrower with for a thirty (3) day period to cure this type of default.  After defaulting on the mortgage, the borrowers then failed to make a tax payment.  The lenders argued this triggered full recourse liability under the carve-out provisions.  However, the borrowers paid the taxes, with accrued interest, in less than the thirty (30) day cure period.  The court held it was necessary to reconcile the cure period provided in the default clause with the lack of a cure period in the “bad boy” carve-out provisions.  The court also noted that New York would not attempt to collect on a tax lien for at least a year, so the lender’s lien position was never in jeopardy, ultimately ruling that the guarantee was not triggered.  As mentioned above, however, the recent decision in Garrison appears to have put lenders back in their position of strength in regard to the enforcement of commercial real estate loan guarantees against guarantors.
 
These cases show how even a temporary violation of a carve-out provision can result in the entire debt becoming a full recourse obligation for a guarantor.   Guarantors need to know and abide by all the carve-out provisions in the loan documents.  They also need to know if the principal obligors are similarly abiding by all terms of the loan documents.  
 
IV. Language in Guarantees
 
Because of the potential liability facing a guarantor, any reviewer of an existing guarantee or negotiator of a future guarantee should be sensitive to certain key words and phrases found in guarantees.
 
Collateral.
 
Clearly identify the collateral pledged in any guarantee.  If the loan is being made by a local bank, the guarantee form provided by that bank may specify that the guarantor grants the bank a security interest in all of the guarantor’s property that is in the bank’s control or custody.  This creates a problem if the guarantor has several different accounts or deposits at the bank because the bank can and will draw on those accounts or deposits should the guarantor’s liability under the guarantee be triggered.  If there is no specific reference limiting the security for the guarantee, be sure that the guarantor knows the full extent of guarantor’s property the lender can attach should it seek to enforce the guarantee.
 
Trigger Language.
 
A guarantor needs to be aware of all the events of default, or triggers, in any guarantee.  These could include obvious ones such as payment default, bankruptcy, or failure to perform required obligations; but less obvious and more subjective ones might also be included, such as the death or dissolution of the guarantor or the lender’s determination that a material adverse change has occurred in the financial condition of the guarantor or borrower.
 
Waivers.
 
Note all the waivers specified in guarantee.  These may include guarantor’s waiver of any limitation of liability or recourse arising under any law; waiver of certain defenses, such as lack of consideration; waiver of a homestead exemption or any other exemption under applicable law; waiver of the argument based on unenforceability of the borrower’s obligations; waiver of bankruptcy ruling; or waiver of jury trial.  It is important to know if any of these waivers are unenforceable under the state laws governing the guarantee.
 
Venue and Governing Law.
 
The guarantor needs to know where litigation on the guarantee will take place and what laws will govern interpretation of the documents.  It is important to determine the convenience of such a location for the guarantor prior to guarantor’s having to appear in that court.
 
Term.
 
A guarantor needs to determine the length of the term of any guarantee.  A guarantee may be specifically tied to one loan as the term of that loan may be extended or renewed.  If a guarantee is construction-related, the term may be for a specific period of time beyond payment in full of the related indebtedness, such as one or two years.  Be sensitive to any attempts to extend the term of a guarantee, such as language including the institution and pursuit of any action on the guarantee as part of the term of the guarantee.  Some guarantees are continual and on-going; for example, a guarantee may cover all future indebtedness of the borrower or a continuing guarantee may remain in force as long as any of the borrower’s liabilities are outstanding.  Be sure the guarantor knows how long this liability will be in place.
 
Financial Reports.
 
A guarantor must know what kind of financial information he is to provide to the lender and how frequently he is obligated to provide this information.  These requirements can range from the guarantor providing certain financial statements upon the lender’s request to the guarantor’s having to provide quarterly financials and audited annual reports.  Note if failure to provide any required financial information triggers a default under the guarantee or carries financial penalties.
 
Negotiating points.
 
There are some areas of negotiation in guarantees.  
 
●  Try to limit the waiver language to items that are legally enforceable under the applicable law.
 
●  Limit the liability of the estate after the death of a guarantor.  
 
●  Avoid having the spouse of the guarantor sign a guarantee.  
 
●  Ask for a specific revocation as to future transactions.  
 
●  Limit the collateral affected by the guarantee.  
 
●  Limit the representations and warranties for which the guarantor is responsible.  
 
●  Make the time frame for which the guarantor is responsible as narrow as possible.  
 
●  If there are multiple guarantors, try to cap liability to a specific amount for each guarantor.  
 
●  Try to cap the overall liability.  
 
●  Be aware of applicable legal constraints on suretyship, waiver language, notice requirements and dispute resolution provisions.
 
The key focus of any review, or negotiation, of a guarantee is the language in that document. Read every word carefully.  Any guarantor must be fully aware of all his responsibilities and liabilities.
 
V.  Looking ahead to new lending programs
 
We are seeing the return of capital to the commercial real estate market through a variety of lending sources.  As borrowers and guarantors enter the marketplace, it is helpful to have some idea of what may be considered standard or minimal requirements for guarantees in these new programs.  We have two sources of information that provide some insight into what may be ahead for guarantors in the commercial real estate markets.
 
Conduit Lending Programs.  Conduit lending is gradually returning to the marketplace.  The volume of conduit loans is higher this year than last.  More conduit lenders are opening shop.  At that same time, securitized lending industry groups are working to develop standardized representations and warranties, underwriting, and other documentation to be utilized in connection with conduit loans in order to comply with proposed rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The proposed representations and warranties are of interest to potential guarantors because guarantor is defined and because a baseline for limited and full recourse obligations is outlined in the proposed section setting forth Recourse Obligations.  
 
In these proposed representations and warranties, a guarantor is defined as a natural person or persons, or an entity distinct from the borrower (but may be affiliated with the borrower), that has assets, other than equity in the related mortgaged property, that are not de minimus.  In other words, the guarantor must have an independent source of net worth.  This is a change from the past practice of sometimes allowing SPEs with no net worth to sign guarantees.
 
In the draft representation to be given by issues relating to the recourse obligations for loans to be securitized, a loan will become full recourse: (i) if the borrower should file, consent to, or acquiesce in bankruptcy or (ii) if the borrower or guarantor colludes with other creditors to cause an involuntary bankruptcy filing with respect to the borrower or (iii) if the borrower allows or engages in unpermitted transfers of the property or equity interests.  The limited recourse provisions include: (i) misappropriation of rents, security deposits, insurance proceeds or condemnation awards; (ii) borrower’s fraud or willful misrepresentation; (iii) willful misconduct by borrower or guarantor; (iv) breaches of the environmental covenants or (v) commission of material physical waste at the property.  These proposed recourse provisions give us some idea of the minimum recourse provisions that are likely to be required in conduit lending programs.
 
Fannie Mae Loans.
 
Fannie Mae has issued new loan documents to be used beginning in April 2011.  These documents can be found on the efanniemae.com website.  Fannie Mae has promulgated a new payment guarantee and a guarantee of non-recourse payment obligations, as well related loan agreements which set forth the terms of the obligations under those guarantees.  In non-recourse loan agreement, the triggers for limited recourse liability are: (i) failure to pay rents and security deposits to lender after an event of default; (ii) failure to maintain insurance; (iii) failure to apply insurance or casualty proceeds as required under loan documents; (iv) failure to provide books and records as required; (v) failure to apply rents as required; or (vi) waste or abandonment of the property.  Full recourse is triggered by (i) failure to abide by SPE requirements; (ii) an unauthorized transfer; (iii) bankruptcy or consented-to involuntary bankruptcy or (iv) fraud or material misrepresentation by any party in connection with the loan.  Again, these recourse provisions give us an idea of the obligations of a guarantor of any loan made through a Fannie Mae lending program.
 
Both Fannie Mae guarantees have been updated to address several issues, including the effect of a claim made pursuant to a guarantee on community property.  The guarantee is now cross-defaulted with the loan documents in the sense that a default under the guarantee is a default under the loan documents.  Waiver language includes notices, presentment, demand for payment and a requirement that lender proceed against the borrower and collateral prior to proceeding against the guarantor.  Changes can be made to the loan and the loan documents without notice to the guarantor.  The lender can pull a credit report on the guarantor once a year or get a credit score at any time for the guarantor.  In addition, Schedule 1 to each of these guarantees contains all the state-specific language to be incorporated into a specific guarantee.  This schedule provides a quick reference to the applicable statutes impacting guarantees in the various states.
 
Becoming familiar with these new Fannie Mae documents and keeping up with the representations and warranties as finally adopted in conduit lending programs will better prepare a guarantor for more realistic negotiations of guarantees in connection with future loans.
 
VI.  Conclusion.
 
All guarantors must know the potential liabilities they are assuming by signing a guarantee.  Guarantors also need to be cognizant of the impact borrower’s actions have on them as individuals, as they may have the most to lose.

South Park Car Wash Site May Go Hotel…

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According to the LA Business Journal, the car wash site at the corner of Figueroa & Olympic, across from LA Live, is being looked at by three different developers who are each considering the site for mixed-use hotel development.  The owner, Robert Bush, is reportedly asking for $25,000,000 for the site, which equates to $682 per square foot. 

The mixed-use project would most likely include a hotel, retail and condominium component.  Several new hotels have been announced in South Park, in anticipation of a new Farmers Field NFL stadium and Convention Center, proposed for the south western portion of LA Live.  New hotels include the double Marriott  which is located just east of the car wash site… along with the Wilshire Grand redevelopment, and the ACE hotel, located off Broadway.  There is also word that Chetrit Group may be reopening their Hotel Clark property as a boutique hotel, as well as the Trinity Auditorium site.

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Downtown Streetcar Update: Residents Will Vote on Tax…

So far the Downtown Streetcar project has secured $11 million and is seeking $50 million from the federal government.  The remaining $64 million will be voted on in an upcoming November mail-in ballot, that will determine if tax payers are going to be picking up the tab.

If the voters pass the assessment, business owners would be taxed based on their properties proximity to the streetcar line, as well as their parcel size.  Taxes are expected to be $.45 cents a square foot for properties located along the streetcar route, $.32 cents for properties one to two blocks away, and $.16 cents for 3 blocks away.  Curbed LA shows an example of the tax,  “…At the likely bond rate of 5 percent, a 10,000 square foot parcel directly on the streetcar line would pay $4,940 a year. That size property one to two blocks away would pay $3,460 and $1,730 if located three blocks away.”  Condo owners would be taxed based on a different schedule.

The streetcar route will travel from LA Live, up Figueroa, across Seventh, north on Hill, east on First, south on Broadway; then west on Eleventh and back to LA Live. Due to the fact that public properties can’t be taxed, along with other budget issues, officials have decided to cut out the portion of the streetcar route that would bring riders to Walt Disney Concert Hall and the Music Center.

By establishing a Streetcar in other cities such as Portland and Seattle, locals communities have seen an increase in development and investment around the streetcars path. Many downtown investors and developers have been eyeing parcels that may benefit from the proposed streetcar, however, we will have to wait to see what the voters say in November to get any sort of confirmation.

New South Park Luxury Apartment Development To Break Ground May 22nd…

A joint venture between Chicago based Fifield Company and LA based Cypress Equity Investments called Century West Partners, is scheduled to break ground on a new South Park luxury apartment development called Avant, on May 22nd.  The first phase will include 247 apartments split between two 7-story buildings, and above 11,000 square feet of restaurant and retail space.  The address of the two towers will be 1340 S Figueroa and 1355 S Flower.  These two structures will be joined by an elevated walkway and will share a 252 unit parking garage.  Phase one is expected to be complete by November 2013.

The 2nd phase of Avant will be located at 1500 S Figueroa and will include 194 luxury apartments; expected to break ground in early 2013.