Legal & Structural Framework
This page is designed for those prospective investors who prefer to scrutinize the legal and structural frameworks of an investment before other components. The link to the master Contract can be found at the bottom of this page under the Document Structure section.
For those prospective investors who prefer to evaluate the viability of an investment through quantitative and factual data, please visit the Project & Economic Context and Capital Risk Profile page of this website.
Captial Structure:
The total aggregate investment amount required for this Project is $850,000.00, divided into two funding Tranches, with a minimum commitment amount of 50,000.00. (Article I, 1.3)
The Senior of these two funding Tranches is known as Tranche A, aggregating $400,000.00, the Lenders of which shall hold a first priority (Senior) lien against the collateral in question (Article IV, 4.9(e)), to be recorded upon successful Closing. (Article VII, 7.2.4)
The Junior of these two funding Tranches is known as Tranche B, aggregating $450,000.00, the Lenders of which shall hold a second priority (Junior) lien against the collateral in question (Article IV, 4.9(e)), to be recorded upon the release of Stage 3 Funds (Article VII, 7.3.3).
A Borrower funded, $25,000.00 reserve shall be kept in escrow under Agent control, serving as additional collateral, to be withdrawn only upon Stage 6 Funds release, when ample collateral value has already been created (Article IV, 4.7).
Agent Mediated Contract
This project is anchored to a Contract of binary and mechanical nature, the execution of which is largely carried out by a dedicated, licensed Massachusetts real estate attorney, who shall serve as:
- the document and funds escrow agent, controlling all funding calls, escrow accounts (attorney trust accounts), evidence reviews, fund releases, and payment distributions,
- the closing and recording attorney, handling property acquisition and lien recording,
- the Collateral Agent for the Lenders, handling default unwind procedures and proceed distribution,
- and the Mortgagee of record for the benefit of the Lenders, as well as default title holder of Deed in Lieu.
The cost of service for this dedicated Attorney is entirely borne by the Borrower, except under default conditions (due to potential conflict of interest) in which case the cost is pre-negotiated and capped. (Article I)
Mechanical Controls
This project is divided into one pre-deployment stage and nine funding stages, each with unique funding conditions, release conditions, a deadline anchored to the inspection based release conditions, and a default trigger anchored to said deadline(s). as such, the capital management of this investment is entirely mechanical, and rely upon a number of pre-defined, stage and progress specific trigger or conditions for actual execution.
Mechanical Execution
In order to maintain maximal clarity and predictability for all Parties involved, all Agent duties are triggered either by Borrower request or Lender request as specified under the Contract, the Agent is thus required to honor all such requests and carry out any associated duties as defined under the Contract. Such duties include without limitation:
- Escrow accounts creation and maintenance required for the two project funding Tranches, Early Funding account if applicable, and Collateral Reserve account. (Article V)
- Funding calls upon borrower request and administrative review of requisite conditions when applicable. As well as confirmation of defaulting Lender(s) should a committed Lender fail to honor its funding obligations within pre-defined deadline. (Article VI)
- Fund releases upon satisfactory Administrative Review of official municipal progress evidence or Independent Inspector Reports as defined for each project stage. (Article VII)
- Administrative Review of default evidence and issuance of Confirmed Default Notice, which officially starts the unwind process. (Article XIII)
- Validation of the Loan Schedule Rider, which is a document attached to the master Contract containing all necessary Lender related funding and economic information, necessary for the issuance of funding calls and lender specific interest calculations. (Article IX)
Minimal Agent Discretion
In keeping with the mechanical and predictable nature of the investment Contract, this aspect is specifically designed to minimize Agent discretion, as such, except for a few narrowly defined circumstances, the Agent’s duty is limited to mechanical and administrative execution of the contract terms (Article I Agent Duty Scope). The limited Agent discretion under this Contract include:
- Administrative Review of official municipal evidence of progress or Independent Inspector progress reports against pre-defined conditions, necessary for determining if release conditions are met. (Article II Definitions, Article VII funding and release conditions)
- Professional due diligence in connection with the Closing process, necessary for carrying out all customary closing related duties and recording duties. (Article I Agent Duties, Article VII Closing Procedures)
- Limited discretion to investigate and validate Lender initiated default assertions, as to determine if project default conditions have been met and unwind procedures justified. (Article XII, XIII Default Conditions and Confirmation)
- Limited discretion in connection with default procedures under the Contract, to engage professionals of pre-defined class in order to obtain fair market value of the collateral for the purpose of market sale under default conditions, unless the Lenders approved foreclosure instead. (Article XIII, XIV Default Enforcement and Recovery Procedure)
Non-Recourse
Due to the heavily de-risked nature of this investment offering (please visit Project & Economic Context and Capital Risk Profile for further details), this investment is designed to be strictly Non-Recourse, as such, recovery is only possible through the collateral itself, and the collateral reserve when applicable.
Deferred Payment
Let’s face it, periodic interest payments on a construction based investment imposes a heavy burden upon the project and significantly increases project default risk, such an arrangement is understandable if the investment has a high-tier risk profile so that investors can actively hedge against their potential loss by keeping the principal LTV/LTC stable, but at the cost of risking project default due to cost overrun (still doesn’t make sense), but for an investment that has a low-tier risk profile like the one being offered here, a periodic interest payment arrangement is hardly prudent.
As such, all interest payment accrued on applicable funds (deposit, released principal, and early funded principal when applicable) under the master Contract, are deferred until either successful exit of the project, or until project unwind.
To compensate the investors for the additional risk associated with the deferred payment arrangement, both Tranche A and Tranche B investors of this project enjoy higher than average risk-adjusted returns compared to other investments of similar risk profile (please visit Project and Economic Context and Capital Risk Profile for further details).
Document Structure
Only two Documents needs to be signed for a prospective investor to commit to and part take in this investment:
- The Loan Commitment and Escrow Agreement, which is referred to elsewhere on this website as the master Contract, or just Contract. Every single operative mechanism required to execute this project as described throughout this website are exhaustively detailed within this master Contract, and it is to be signed by me the Borrower, you the Lender via electronic signature, and the Collateral Agent who is the sole attorney engaged for this project.
- The Collateral Agency Agreement, while the master Contract creates the authority for every required duty concerning the Agent, the Collateral Agency Agreement is the organized enumeration of all such duties collected into a centralized list, together with Breach conditions, that is to say, the Collateral Agency Agreement does not create any new duties or govern the mechanics of the project in any way or form, by signing it however, the Lenders are agreeing to the liability and breach standards imposed by the Collateral Agency Agreement, as such, this document is to be signed by me the Borrower, the Collateral Agent, and the Lender(s).
The Promissory Note which evidences the debt, as well as the Tranche A and B mortgages which secures the Tranche A and Tranche B portion of the said debt, will be executed by me the Borrower in advance, in favor of the Collateral Agent (meaning that the Collateral Agent is the mortgagee of record), for the benefit of the applicable Lenders.
The Loan Schedule Rider is a document that is designed to receive periodic update as required, it is attached to and incorporated into the Loan Commitment and Escrow Agreement, and details all Lender specific factual data, economic data, and stage specific funding obligations. This document does not require signature due to its secondary nature, however, all updates of this document must be validated by the Collateral Agent before final circulation among the Lender(s).
A Deed in Lieu will be executed right after Closing and to be held by the Collateral Agent, as to ensure speedy title transfer under default conditions.