Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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19 July | August | 2015 CCIM.com rower from a negotiating perspective. It is also cost-saving for both sides in the long term: T ese provisions have resulted in a great deal of litigation over the years. Escrows. A lender's escrow requirement is a signif cant busi- ness issue typically discussed early in t he process. The waiver of tax and insurance escrows is com monplace, but lenders may require escrows for tenant improvement costs, projected vacancies, or anticipated capital repairs and improvements. How- ever, the commitment letter of en does not provide suf cient information on how these escrowed monies will be released. In fact, it is not unusual for escrows to remain dormant because the release requirements are imprac- tical to achieve. Borrowers should conf rm that the release requirements are adequately addressed so they can operate in a custom- ary fashion. Prepayment. A loan commitment with no mention of prepayment is not necessarily ben- ef cial to a borrower. Courts have held that, without such a pro- vision, a commercial lender is entitled to the benefit of its bargain and thus the borrower will be liable for the lender's loss. The practical, prudent solution is to negotiate the ability to prepay early in the loan commitment process. Lenders may impose a lockout period, a yield maintenance provision, or some other prepay- ment penalty, but borrowers should negotiate these provisions carefully. Too of en borrow- ers f nd that an opportunity to sell an asset at a favorable price is hindered by a poorly negotiated — or non-negotiated — prepay- ment penalty. Opinion letters. While rarely negotiated in a loan commitment, legal opinion letters can drive up a borrower's costs if lef unat- tended. Borrowers should require that the loan commitment list the opinions its local counsel will be required to provide, and the custom is that each law f rm issuing an opin- ion would provide the opinion letter on that f rm's form with its various assumptions, qualif cations, and limitations. Some opin- ion requests can be problematic, which can result in an unproductive and unnecessarily expensive argument between lawyers. Involving legal counsel early in the loan commitment process and considering these foregoing matters will help a borrower with a successful loan transaction. Brooks R. Smith is a real estate attorney at Bradley Arant Boult Cummings LLP in Nash- ville, Tenn. Contact him at bsmith@babc.com. The views expressed in this article do not con- stitute legal advice. GET CONNECTED CCIM Connect is the new members-only communication platform that allows you to: Log on at CCIMconnect.com Request and share industry insights that build your business Strengthen the relationships that lead to closed deals Collaborate on documents to ensure best practices Loan commitments are one-sided in favor of the lender.