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381 Park Avenue South-Floor 4
New York, New York 10016
April 2, 2007
Mr. Andrew Eisenstein and William Isenberg
c/o Matthew Pestronk
The Ackman-Ziff Real Estate Group LLC
110 East 42nd Street, 10th Floor
New York,N.Y. 10017
Re: Medical College of Pennsylvania Hospital (a 13 acre medical office complex improved with 8 buildings totaling approximately 630,000 sq. ft.) – Philadelphia, PA (the “Property”)
Gentlemen:
The purpose of this letter is to set forth the terms and conditions to be submitted to the investment committee of Hudson Realty Capital LLC (“HRC”; HRC, its affiliates and their respective successors and assigns are hereinafter collectively referred to as the “Lender”) in connection with the proposed interim financing (the “Interim Financing”) which ______(the “Borrower”) has requested to be provided by Lender. The terms and conditions of the Interim Financing to be considered shall be those set forth herein, as supplemented by the terms and conditions set forth in the term sheet attached hereto as Exhibit A, which term sheet [and exhibits] [is/are] incorporated into, and made a part of, this letter. Borrower acknowledges that it has paid to HRC, simultaneously with the transmittal of this letter, a good faith deposit of $25,000.00 (the “Good Faith Deposit”). Borrower hereby agrees that the Good Faith Deposit will be held by HRC and applied as hereinafter provided. Borrower further agrees to pay all out-of-pocket expenses actually incurred by HRC in any way relating to the Interim Financing (including, without limitation, HRC’s due diligence in connection therewith) and to indemnify, defend and hold Lender harmless against all costs, expenses and damages incurred by such party as a result of or arising out of the Interim Financing. Borrower hereby agrees that HRC’s out-of-pocket expenses will include the fees and disbursements of HRC’s external legal counsel and auditors, HRC’s expenses and the fees of all third parties relating to the due diligence review and the costs of an appraisal, an environmental report and a structural engineering report for the Property. Borrower hereby agrees that the Good Faith Deposit will be used to reimburse HRC or otherwise pay for these out-of-pocket expenses. If the Interim Financingis not made as a result of Lender’s willful or negligent failure to perform as herein provided or, alternatively, upon the consummation of the Interim Financing, the unapplied portion of the Good Faith Deposit will be promptly returned to Borrower. The obligations in this paragraph will survive in the event the Interim Financing is terminated for any reason.
It is anticipated that upon our receipt of the full amount of the Good Faith Deposit and your acceptance of this letter (which acceptance shall be evidence by your countersigning a copy of this letter and returning the same to the undersigned), we will promptly begin our due diligence investigation of the Borrower and the Property. The Borrower agrees to use its good faith efforts to cooperate with HRC, and its counsel, agents and representatives, and provide HRC, and its counsel, agents and representatives, with all reasonably requested information in order that HRC may conduct its due diligence investigation and consummate the InterimFinancing.
Borrower hereby acknowledges and represents that it is working solely with Lender to procure the Interim Financing for the Property and agrees not to, and will cause its principals and affiliates to not, obtain or attempt to arrange a financing for the Property (whether in the form of a permanent mortgage, bridge financing or otherwise) with any party other than Lender. Should Borrower or any principal or affiliate breach or violate the preceding sentence, HRC will be entitled to retain the unapplied balance of the Good Faith Deposit and receive immediate payment, upon demand, of a break-up fee equal to 2.0% of the Interim Financing amount which break up fee shall constitute liquidated damages; it being expressly acknowledged and agreed that Lender’s actual damages in such instance will be impossible to calculate.
If, following HRC’s acceptance of this letter as hereinabove provided, the Mortgage Financing does not close on or prior to May 3, 2007, HRC will have the option of terminating this letter and not proceeding with the Interim Financing, in which event Lender shall be entitled to retain the unapplied portion of the Good Faith Deposit.
Borrower understands and acknowledges that HRC has not obtained internal investment committee approval for the Interim Financing and that its agreement to make the Interim Financing is subject to investment committee approval and the following conditions:
a)HRC’s satisfactory completion of due diligence and underwriting on the Property;
b)the absence of any development occurring with respect to the Borrower or the Property prior to the date on which the Interim Financing closing occurs which could, in HRC’s opinion, materially and adversely affect the net operating income or value of the Property or the ability of Borrower to service the Interim Financing;
c)the execution and delivery of definitive agreements and other documentation relating to the Interim Financing satisfactory to HRC and its counsel;
d)the receipt of estoppels and subordination agreements from all tenants and from any ground lessor satisfactory to HRC and its counsel;
e)the receipt of financial statements from Borrower and each of the indemnitors and guarantors identified on the attached term sheet for both the last concluded financial year and last concluded financial quarter preceding the date hereof, which financial statements shall be audited by an accounting firm acceptable to HRC;
f)the receipt of valid certificates of occupancy and zoning confirmation letters with respect to all of the improvements constructed upon the Property, and;
g)the satisfaction of loan closing conditions customary for loans of this type, including, without limitation, receipt of an updated certified survey(s) and a “clean” policy or policies of mortgagee title insurance from a title company acceptable to Lender in its sole discretion.
The Borrower represents that no other person or entity other than The Ackman-Ziff Real Estate Group LLC is entitled to any advisory or brokerage fee in connection with the Interim Financing, and agrees to indemnify and hold HRC and its affiliates harmless from and against any claims for a commission, finder’s fee and other payments no matter how described, and against any and all costs and expenses, including attorneys’ fees, relating to any such claim.
Borrower acknowledges and agrees that this letter and the attached term sheet do not set forth all of the terms and conditions of the Interim Financing, but is intended as an outline of the major points of understanding between the parties that will be set forth in the final loan documentation, which must be acceptable to HRC in all respects.
This letter shall be governed by and construed and interpreted in accordance with the internal laws of the State of New York.
Please acknowledge your acceptance of the terms and conditions relating to the Interim Financing described herein by executing a copy of this letter. This letter must be executed and submitted by the Borrower by April 5, 2007 or this letter shall automatically terminate and be considered null and void.
Sincerely,
Hudson Realty Capital LLC
By:______
Name: Spencer Garfield
Title: Managing Director
Acknowledged and Agreed to
as of this day of ______, 200__:
______
By:______
Name:
Title:
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EXHIBIT A
TERM SHEET
This Term Sheet is attached to, and forms a part of, that certain letter dated April 2, 2007 from Hudson Realty Capital LLC to Andrew Eisenstein and William Isenbergthe “Cover Letter”). All capitalized terms used but not otherwise defined in this Term Sheet shall have the meanings given to such terms in the Cover Letter.
Property:Property Type:Medical Office
Property Address:3300 Henry Avenue – Philadelphia, PA
Interest of Borrower:Fee Simple
Borrower:A single-purpose, bankruptcy-remote corporation, limited liability company or limited partnership meeting the requirements of S&P and acceptable to Lender.
Sponsor:Andrew Eisenstein and William Isenberg
Sponsor Equity:Sponsor shall evidence a minimum cash equity investment of $6,000,000.00 at or prior to closing
Loan Amount:The amount of the Interim Financing will be no greater than $25,000,000.00 of which approximately $101,000,000.00 will be advanced at closing and approximately $2,000,000.00 will be available to be drawn down for base building work / developer fees,and another $110,000,000.00 will be available to be drawn down for tenant improvements and leasing commissions, and another $3,000,000 will be available for loan interest and carrying costs. The exact amount of the Interim Financing will be based upon a maximum loan-to-value ratio of no greater than 65.00% of the “as is” value based on advanced funds.
Term:24 months
Spread:550 425 basis points
Interest Rate:The sum of the Spread plus the 30 Day LIBOR yield as determined by Lender (with a LIBOR yield floor of 5.35%). Interest is payable monthly in arrears and will be payable on the Loan Amount outstanding on an actual/360 basis.
Additional Interest:2.001.50% of the total Loan Amount, which Additional Interest shall be non-refundable, earned and payable upon the Closing
Further Additional Interest:1.00.050% of the total Loan Amount, which Further Additional Interest shall be non-refundable, earned upon Closing and payable upon the earlier of Maturity or Repayment
Closing Date:The funding of the Interim Financing (the “Closing”) will occur only after, among other things, Lender and its counsel are fully satisfied with the terms of the loan documents, the results of HRC’s due diligence investigation and the investment committee of HRC has approved the making of the Interim Financing.
Maturity Date:The Maturity Date for the Interim Financing will be the date that is the 24 month anniversary of the first Payment Date after the Closing.
Prepayment:No prepayment of the loan shall be permitted without Lender, or its assigns, having received at least 12 months interest.
Reserves:The Borrower will establish and maintain reserves for, existing deferred maintenance, environmental remediation, ongoing taxes and insurance premiums and replacement reserves. The deferred maintenance reserve and environmental remediation reserve will be funded at Closing and will be 125% of the amount specified in the property condition reports obtained by the Lender during its due diligence review. The tax and insurance reserve will be funded up front and from monthly cash flow and will be 1/12th of the annual amount payable. In addition, the Lender may require an interest and operating reserve equal to up to 6 months of interest payments on the Interim Financing.
Collateral:The Interim Financing will be secured by (i) a first mortgage lien on the Property, (ii) an assignment of all cash flows received by or on behalf of Borrower, (iii) an assignment of all management agreements, rental and other operating agreements, ground leases and licenses pertaining to the Property; (iv) a first priority pledge of the equity in Borrower; and (v) a first priority security interest in any reserves and escrows required by HRC, including any deferred maintenance, environmental remediation, tenant improvement and leasing commissions and ongoing replacement reserves.
The Property shall not be encumbered by any mortgage, lien, claim or encumbrance other than those that are acceptable to HRC in its sole and absolute discretion
Insurance:The Property will be covered by fire and casualty, machine and boiler, and liability insurance, all in form and substance satisfactory to HRC. Additional insurance, such as flood, windstorm and earthquake, may be required. In general, the amount of the coverage relating to damage to the Property shall be in an amount not less than the full replacement cost of the Property, shall contain deductibles not in excess of the lessor of $25,000, 5% of such replacement cost and 5% of annual net operating income and shall be written by carriers with an S&P (or equivalent) rating of at least “A”.
No Other Debt:Borrower will not be permitted to have any indebtedness (secured or unsecured) other than (i) the Interim Financing, (ii) short term unsecured indebtedness incurred in the ordinary course of business, and (iii) such other debt as may be specifically approved by Lender in its sole discretion. If Borrower is not a corporation, the general partner or managing member of Borrower will not be permitted to have any indebtedness or make any loans.
Financial Reports:Detailed monthly and quarterly financial statements shall be sent to the Servicer within 20 days following the end of each relevant period outlining financial results for the Property during the then ended relevant period and on a year-to-date basis, with comparisons to the comparable period of the previous fiscal year and the then approved budget, all of which shall be certified as true and correct. Annual audited financial statements shall be sent to the Servicer not later than 75 days after the expiration of Borrower’s fiscal year.
Guarantee:100% of the Loan, plus all accrued interest, plus all costs of enforcement of the Loan, shall be guaranteed by Andrew Eisenstein, the principal(s) of the Borrower, its Manager or General Partner, as the case shall be and any other person or member controlling more than 10% of the Borrower (collectively, “Guarantor(s)”). In addition, Guarantor(s) shall be required to execute an environmental indemnity agreement and standard carveouts in form and substance satisfactory to Lender.
The loan shall be “non-recourse”. Since the Borrower will be a single-asset entity, the Loan shall be fully recourse to the Borrower, but not to The Iron Stone Real Estate Fund, LP (“The Fund”) or the principal(s). Recourse against The Fund shall be limited to standard carve-outs and environmental indemnity. There shall be no recourse or guarantee of the principals.
Documentation:The Loan will be evidenced by financing documentation customary for similar transactions and in any event in form and substance satisfactory to HRC. The law of the state where the Property is located shall apply to the exercise of remedies by Lender under the loan documentation that pertain to or concern the Property, including, without limitation, the appointment of a receiver and the foreclosure of the security interests and liens granted therein. In all other respects, the rights and obligations of Lender and Borrower under the loan documentation shall be governed by and construed and interpreted in accordance with the internal substantive laws of the State of New York without giving effect to the conflicts of law rules and principles of such state.
The Borrower will be required to furnish such legal opinions as HRC may require, including without limitation, the following, all of which must be from reputable counsel and in form and content acceptable to HRC: (i) an opinion of Borrower’s New York counsel as to the enforceability of the Interim Financing under New York law, usury, and choice of law, and (ii) an opinion of Borrower’s counsel as to the enforceability of the Interim Financing under the law of the state where the Property is located, usury and choice of law.
Confidentiality:This term sheet and the letter to which it is attached is being delivered with the understanding that neither it nor its substance will be disclosed to any third person, except those who are in confidential relationships to Borrower (i.e., Borrower’s principals, counsel, accountants and other retained business advisors) or as may be required by law.