Commercial Loans Blog

Subordination, Non-Disturbance and Attornment Agreements

Posted by George Blackburne on Mon, May 25, 2009

What on Earth Does Attornment Mean?

Suppose ABC Rent-a-Car wants to build a commercial building on a specific, high-traffic-count lot in the City.  ABC Rent-a-Car offers to buy the land from the property owner, but the commercial property owner wants to leave this valuable commercial lot to his grandchildren and great-grandchildren. He refuses to sell.

The commercial property owner, however, is willing to lease the land to ABC Rent-a-Car on a long term basis. ABC Rent-a-Car tries to negotiate a lease of the land for 99 years, the longest term allowed by law. Had the commercial property owner unwisely leased the land to the car rental company for 100 years, the courts would have ruled that this lease was in fact an installment sale! Title to the property would pass to the car rental company. The maximum term of a land lease is 99 years.

The old man, however, refuses to lease the bare commercial land for longer than 75 years, which the car rental company decides is sufficient. The parties execute a land lease for 75 years at an amount that pays the old man a return of about 8% annually on the value of the land, with a cost of living escalator every five years. This would be a very typical deal.

The rental car company, however, insists on a land lease clause requiring any future lender to sign a Subordination, Non-Disturbance and Attornment Agreement. After all, it's only fair. The rental car company is going to spend $800,000 constructing a building on the property at the rental car company's own expense.

What a deal! The property owner gets $40,000 a year triple-net rent on his land lease AND when the lease expires, both the land and the building revert back to his heirs. (I recently ran across a wealthy family trust that has the land lease on an entire city block on Michigan Avenue - the hottest shopping strip - in Chicago. The land lessees built skyscrapers all along that block, and these skyscapers are poised to revert back to the grandchildren of the trust settlor after 99 years. Holy Smackeral! We're talking about a billion dollars worth of buildings!)

Okay, let's scroll forward about ten years. Suddenly the old man is in need of some dough. Maybe he just got a young, new wife. He takes his land lease to the bank and pledges it to the bank for a $500,000 loan. When the bank pulls a title commitment (preliminary report), they find out that ABC Rent-a-Car has recorded their land lease against the title. The bank contacts the attorney for the rental car company and says, "Hey, we want to record our mortgage against the property, and we have to be in first position. We please need for you to subordinate your land lease to our mortgage."

Counsel for the car rental company then responds, "Okay, we'll agree to subordinate, as long as you sign our Subordination, Non-Disturbance and Attornment Agreement." The attorney exchange documents and cut a deal. The new first mortgage is recorded, and the car rental company subordinates it's land lease.

The old man's new wife ends up being a spendthrift and drives him into bankruptcy. The bank forecloses on the property, which is now improved with a gleaming, modern automotive center. The REO property manager for the bank contacts ABC Rent-a-Car and tells them, "Hey, our foreclosure just cut off your lease. You were paying only $40,000 per year for this beautiful facility, but the fair market rent for the property is now at least $100,000 per year. You'll have to start paying us $100,000 per year if you want to continue to rent the property."

"Not so fast, Bucko," replies the attorney for the car rental company. Please check the Subordination, Non-Disturbance and Attornment Agreement that your bank executed. Under the terms of that agreement, your bank promised not to disturb our existing lease if you foreclosed. Now that you have completed the foreclosure, we certainly agree to attorn. Attornment is a word from feudal times that means acknowledging a new lord. In this case, the rental car company acknowledges that all future rent is owned to the new landlord, in this case the bank.


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Topics: commercial real estate loan, commercial loan, commercial real estate lenders, commercial property loan, attornment agreement, non-disturbance agreement

Free Software to Make Commercial Loan Packages

Posted by George Blackburne on Mon, May 18, 2009

Make a PDF of Your Commercial Loan Package and Email It to Scores of Commercial Lenders

If you are a commercial mortgage broker, you just have to use the new PDF-creator software on C-Loans to make your commercial loan packages. It's free!

Just input your commercial loan into C-Loans.com as usual. Go ahead and submit your commercial loan to six commercial lenders.

After you have submitted your commercial loan to six commercial lenders, an option will appear that allows you to create a PDF with just one click. After your commercial loan package has been converted to a PDF, simply save it to your desktop.

Once the commercial loan PDF is on your desktop, you can then create an email addressed to 40 or so commercial lenders and attach the PDF.

You can even attach color photo's to your commercial loan package, making it look very, very professional. And remember, both C-Loans.com and this software are free.

Topics: commercial loan, commercial real estate financing, commercial loan packaging software, commercial mortgage software, commercial financing, commercial mortgage

Housing Meltdown is Only Half Over

Posted by George Blackburne on Sun, May 17, 2009

Pretty Scary Report from 60 Minutes

The television show, 60 Minutes, recently aired a terrifying report that suggests that the housing meltdown is less than 50% completed. The problem is that 2.5 trillion in Alt-A and Option ARM's are coming up for rate readjustments in late 2009 and 2010.

Here's a link to the report:
http://www.youtube.com/watch?v=iUuROWEMjm0&eurl=http%3A%2F%2Fwww.silverbearcafe.com%2Fprivate%2F05.09%2Fmeltdown.html&feature=player_embedded

Topics: 60 Minutes, Alt-A, ARM's

Financing Broken Condo's

Posted by George Blackburne on Tue, May 12, 2009

A Broken Condo is a Project That Didn't Sell Out

Commercial loan brokers should be on the look-out for broken condo projects. There is a good chance to make a nice commercial loan brokerage commission.

A broken condo project is a residential condominium project that didn't sell out. The unsold units are usually converted back to multifamily rental housing.

I spoke with a major commercial loan officer at a large bank today. This bank makes portfolio apartment loans. I asked him if it is possible to finance broken condo's.

His reply surprised me. He indicated that, of course, that if none of the condo units were sold, that a normal apartment loan is a no-brainer.

But he also indicated that if only a handful of the units were sold that a portfolio loan on the rental units would be possible.

However, he stressed that if too many of the units were sold as condo's that such a deal would be impossible. How many is too many? Certainly if 25% of the condo units had been sold, the deal would be difficult to finance. I was left with the clear impression that if only 10% to 15% of the condo's had been sold that his bank would definitely consider financing the apartments.


Need a commercial or multifamily loan? You can apply to hundreds of commercial lenders in just four minutes using C-Loans.  And C-Loans.com is free!

Topics: commercial real estate loan, commercial loan, broken condo, commercial mortgage lenders, commercial mortgage rates, commercial mortgage

Hard Money Commercial Loans Are Getting Smaller

Posted by George Blackburne on Mon, May 11, 2009

It's Getting More Difficult for Hard Money Lenders to Raise Lending Capital

If you are commercial mortgage broker, you should not be trying to place large, hard money, commercial loans. Large commercial loans just aren't closing these days.

One of the reasons why is because hard money commercial lenders are having a difficult time raising money. Before the real estate crash of 2007, most hard money commercial loan brokers raised their money using mortgage funds. When the markets crashed, all of their depositors try to pull their money out of these funds. The situation has not improved since October of 2007.

Free List of 3,159 Commercial Lenders  Sort By Your Own Criteria

Therefore very few hard money commercial lenders still have mortgage funds with which to make large commercial loans. Instead, if a hard money commercial lender wants to fund a commercial loan today, he has to syndicate a fresh group of private mortgage investors. This is a whole lot of work.

Therefore very few hard money commercial lenders are making commercial loans larger than $3 million today.


Need a commercial loan? You can apply to 750 different banks and hard money commercial lenders in just four minutes using C-Loans.

Topics: commercial real estate loan, commercial loan, commercial mortgage rates, commercial lender, commercial financing, commercial mortgage