UCC FORECLOSURE
Kushner Companies’ Times Square retail condo headed to auction https://therealdeal.com/2020/06/25/kushner-compan…
relating to the link above - how does a foreclosure typically work in terms of the priorities of who gets paid back? I understand the order of repayment from senior debt to equity but I want specifics of a deal like the above
Kushner refinanced the building for 370m. do they walk away with this money? why does it matter that they get foreclosured on if they already get to use the money to buy another building as a hypothetical.
also does the mezzanine lender get priority after the senior lender?
if anyone can shed light
It's all negotiable. It's unclear (at least to me) from the article how much (if any) Kushner Cos cashed out. Yes, there were more funds provided by the mezz, but unclear what they went to, ie interest reserve, tenant improvements/commissions, Cap-Ex, operating deficits, etc. Also, some of the additional funds could be in escrow accounts or unfunded loans.
If I read correctly the lead mezz lender, Paramount, has not yet undergone a UCC foreclosure, in which they would takeover the borrowing entity and become the owner of the property. It looks like they are trying to force an auction. So, they are probably either trying to force Kushner Cos to arrive at an agreement or they will sell and hopefully be able to pay everyone off. Deutche Bank gets paid first in event of a sale, Kushner gets nothing.
Thanks.
Kushner already took some money home I’m assuming so they seem fine if there is no PG on the loan.
Also- why would you suppose the mezz lender is putting property at auction? Do they not want to own the property through a UCC?
once they cashed out at the refi the money is gone unless there was recourse on part of the loan or if they triggered the recourse carveouts. it's a risk of refis where if the borrower cashes out most or all of the cash equity they had in a property they have far less incentive to stay in the deal and try to save it.
Got it. So I’m assuming lenders who refinance obviously look at default risk. Wonder why they borrowed to this entity then...
it's all a risk reward game. there may have been a higher rate, a ti/lc holdback, etc. as some mitigation against the cash out risk. credit standards have fallen the last few years as lenders competed for the borrowers more and more. as to why they’d lend though, look at his father in law. after defaulting on obligations enough no bank besides deutsche banks would touch him but deutsche still gave him a ton of money. I have several deals now where borrowers are asking for COVID related help after taking significant cash outs which they used to pay investors, buy new property or crap for themselves and now can’t support the debt they took out.
Mezz Lender takes over the borrowing entity and assumes all of the responsibilities for the borrower including paying interest on the senior loan . Typically the mezz lender will place a credit bid in the auction and take the asset over at no costs to them ( other then there principle balance ). I would assume that the Kushner took out some Cush but no where close to all of it.
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