<PAGE>
Filed Pursuant to Rule 424(b)3
Registration File No.: 333-45467-01
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME A FINAL PROSPECTUS
IS DELIVERED. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 22, 1998
PROSPECTUS SUPPLEMENT [LOGO] XL1 1998
(TO PROSPECTUS DATED MAY 22, 1998) LARGE LOAN
$ (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
AS DEPOSITOR
STATE STREET BANK AND TRUST COMPANY
AS TRUSTEE
MIDLAND LOAN SERVICES, INC.
AS MASTER SERVICER
CLARION PARTNERS, LLC
AS SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-XL1
-------------
The Series 1998-XL1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will consist of fourteen classes (each a "Class"), designated
as the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates,
Class X Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates, Class F Certificates, Class G Certificates,
Class H Certificates, Class Q Certificates, Class R Certificates and Class LR
Certificates. Only the Class A-1, Class A-2, Class A-3, Class X, Class B, Class
C and Class D Certificates (collectively, the "Offered Certificates") are
offered hereby; the Class E, Class F, Class G, Class H, Class Q, Class R and
Class LR Certificates (collectively, the "Private Certificates") are not
offered hereby. It is a condition to their issuance that the respective Classes
of Offered Certificates be assigned ratings by Fitch IBCA, Inc. ("Fitch") and
Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies,
Inc. ("S&P" and, together with Fitch, the "Rating Agencies") as set forth in
the table below.
The Certificates will represent beneficial ownership interests in a trust
fund (the "Trust Fund") to be created by Morgan Stanley Capital I Inc. (the
"Depositor"). The Trust Fund will consist primarily of a pool (the "Mortgage
Pool") of 11 mortgage loans, with original terms to maturity of not more than
30 years (the "Mortgage Loans"), secured by first liens on 83 commercial
properties (the "Mortgaged Properties"). The Mortgaged Properties include
retail properties, office properties, multifamily properties, industrial
properties and hotel properties. The Mortgage Loans were originated or acquired
by Morgan Stanley Mortgage Capital Inc. ("MSMC"). See "Mortgage Pool
Characteristics--General" herein. The characteristics of the Mortgage Loans and
the Mortgaged Properties are more fully described under "Mortgage Pool
Characteristics" and "Description of the Mortgaged Properties and the Mortgage
Loans" herein.
SEE "RISK FACTORS" BEGINNING ON PAGE S-31 HEREIN AND "RISK FACTORS" BEGINNING
ON PAGE 13 IN THE PROSPECTUS FOR CERTAIN FACTORS TO BE CONSIDERED IN PURCHASING
THE OFFERED CERTIFICATES.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, MSMC, THE MASTER SERVICER, THE SPECIAL SERVICER, THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR
THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------
(cover continued on page S-2)
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CERTIFICATE INITIAL RATED FINAL
PRINCIPAL OR PASS-THROUGH EXPECTED RATINGS DISTRIBUTION
CLASS NOTIONAL AMOUNT (1) RATE DESCRIPTION (2) (FITCH/S&P) DATE
- -------------------- --------------------- -------------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Class A-1 .......... $ % Fixed
Class A-2 .......... $ % Fixed(3)
Class A-3 .......... $ % Fixed(3)
Class X(4) ......... $ % WAC/IO
Class B ............ $ % WAC
Class C ............ $ % WAC
Class D ............ $ % WAC
</TABLE>
(Footnotes on page S-2)
-------------
The Offered Certificates will be purchased by Morgan Stanley & Co.
Incorporated (the "Underwriter") from the Depositor and will be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Offered Certificates will be approximately
% of the initial aggregate Certificate Principal Amount of the Offered
Certificates, plus accrued interest, if any, from , 1998 before deducting
expenses payable by the Depositor.
The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if issued, delivered to and accepted by the Underwriter. It
is expected that delivery of the Offered Certificates will be made in
book-entry form through the facilities of The Depository Trust Company ("DTC")
in the United States and Cedel Bank, S.A. ("CEDEL") and The Euroclear System
("Euroclear") in Europe, on or about , 1998 against payment therefor in
immediately available funds.
-------------
MORGAN STANLEY DEAN WITTER
The date of this Prospectus Supplement is May , 1998.
.
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[LOGO] [LOGO] [LOGO]
CENTERAMERICA SMITH EQUITY RESIDENTIAL
PROPERTY TRUST PROPERTIES TRUST
[LOGO] [LOGO] [LOGO]
GENERAL GROWTH GLENBOROUGH LOWE ENTERPRISES
PROPERTIES INC. REALTY TRUST INCORPORATED INC.
[LOGO]
XL1 1998
LARGE LOAN
[MAP OF UNITED STATES DEPICTING LOCATIONS OF
Single Asset Loans
Magellan Apartment Pool
Glenborough Pool
CenterAmerica Pool
EQR Apartment Pool
Ramco-Gershenson Pool]
Courthouse Plaza I
Charlestowne Mall
West Town Mall
Quail Springs Mall
Wells Fargo Tower
Hotel Del Coronado
[LOGO] [LOGO] [LOGO]
MAGELLAN MAQUIRE PARTNERS RAMCO-GERSHENSON, INC.
CORPORATIONS
[LOGO] [LOGO]
SIMON WILMORITE, INC.
DEBARTOLO
GROUP
<PAGE>
A. The inside front cover of the paper version of the prospectus
supplement contains pictures of the following properties:
(clockwise from right)
Hotel Del Coronado: Coronado, CA. Photograph shows a view of the
hotel.
Magellan Apartment Pool:
a) Canterbury Hills, Phoenix, AZ. Photograph shows a portion
of the apartment complex.
b) Rancho Las Brisas, Murietta, CA. Photograph shows a
portion of the apartment complex.
c) El Royale, Rialto, CA. Photograph shows a portion of the
apartment complex.
West Town Mall: Knoxville TN (3 pictures). Photographs show the
interior and exterior of the mall complex.
Wells Fargo Tower: Los Angeles, CA (2 pictures). 1 photograph shows
the office building and 1 photograph shows a portion of the interior of the
building.
CenterAmerica Pool:
a) Moore Plaza West, Houston, TX. Photograph shows an
external view of the shopping center.
b) Cedar Bellaire, Houston, TX. Photograph shows an external
view of the shopping center.
c) Texas City Bay Center, Texas City, TX. Photograph shows an
external view of the shopping center.
<PAGE>
(continuation of cover page)
- --------
(1) Approximate, subject to adjustment as described herein.
(2) "WAC" means weighted average coupon as described herein and "Fixed" means
fixed rate coupon. "WAC" and "Fixed" are descriptions of the type of
Pass-Through Rates borne by the related Classes and "IO" designates that
the related Class is entitled only to distributions of interest.
(3) In no event shall the Pass-Through Rate on the Class A-2 or Class A-3
Certificates exceed the WAC Rate (as defined herein).
(4) The Class X Certificates will not have a Certificate Principal Amount and
will not be entitled to receive distributions of principal. Interest will
accrue on such Class of Certificates at the Pass-Through Rate thereof on
the Notional Amount thereof. The Notional Amount of the Class X
Certificates is initially $ , which is equal to the aggregate
initial Certificate Principal Amount of the Class A-1, Class A-2, Class
A-3, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates. See "Description of the Offered Certificates--General"
herein.
The master servicer of the Mortgage Loans will be Midland Loan Services,
Inc. (in such capacity, the "Master Servicer"). The obligations of the Master
Servicer with respect to the Certificates will be limited to its contractual
servicing obligations and the obligation under certain circumstances to make
Advances (as defined herein) in respect of the Mortgage Loans. See "The Pooling
Agreement--Advances" herein. The Master Servicer will not act as an insurer or
credit enhancer of the Mortgage Pool. If the Master Servicer fails to make a
required Advance, State Street Bank and Trust Company (the "Trustee"), as
acting or successor Master Servicer, acting in accordance with the servicing
standard set forth in the Pooling Agreement, will be required to make such
Advance.
Distributions on the Offered Certificates will be made, to the extent of
Available Funds (as defined herein), on the third Business Day of each month,
beginning in July 1998 (each, a "Distribution Date"). As more fully described
herein, distributions allocable to interest on the Certificates on each
Distribution Date will be based on the pass-through rate for the respective
Class (the "Pass-Through Rate") and the aggregate principal balance (the
"Certificate Principal Amount") or notional balance (the "Notional Amount"), as
applicable, of such Class outstanding immediately prior to such Distribution
Date. Distributions in respect of principal of the Offered Certificates will be
made as described herein under "Description of the Offered
Certificates--Distributions--Payment Priorities."
The yield to maturity on each Class of the Offered Certificates will be
sensitive to, and the yield to maturity on the Class X Certificates will be
extremely sensitive to, the rate and timing of principal payments (including
both voluntary and involuntary prepayments, delinquencies, defaults and
liquidations) on the Mortgage Loans and payments with respect to repurchases
thereof that have the effect of reducing the Certificate Principal Amount or
Notional Amount, as the case may be, of such Class. The yield to investors, in
particular the investors in subordinate Classes, will be sensitive to the
timing and magnitude of delinquencies and losses on the Mortgage Loans. The
rights of the holders of the Class B, Class C and Class D Certificates to
receive distributions of principal and interest will be subordinated to such
rights of the holders of Certificates with an earlier sequential designation
(and the Class X Certificates with respect to payments of interest). In
addition, with respect to any Class of Certificates entitled to principal
distributions, to the extent losses on the Mortgage Loans exceed the principal
amount of all Classes of Certificates subordinate to such Class, such Class
will bear a loss equal to the amount of such excess up to an amount equal to
the remaining principal amount thereof. No representation is made as to the
rate, timing or magnitude of any such event with respect to any of the Mortgage
Loans or as to the anticipated yield to maturity of any Offered Certificate.
See "Yield, Prepayment and Maturity Considerations" herein.
Elections will be made to treat designated portions of the Trust Fund
(such portions of the Trust Fund, the "Trust REMICs"), exclusive of the
Deferred Interest, the Default Interest, the Deferred Interest Distribution
Account and the Class Q Distribution Account (each as defined herein), and the
Trust REMICs, in the opinion of counsel, will qualify, as two separate "real
estate mortgage investment conduits" (each, a "REMIC" or, alternatively, the
"Upper-Tier REMIC" and the "Lower-Tier REMIC", respectively) for federal income
tax purposes. The Class A-1, Class A-2, Class A-3, Class X, Class B, Class C,
Class D, Class E, Class F, Class G and Class H Certificates will represent
"regular interests" in the Upper-Tier REMIC. The Class R and Class LR
Certificates will constitute the sole Classes of "residual interests" in the
Upper-Tier REMIC and the Lower-Tier REMIC, respectively. In addition, the Class
B, Class C, Class D, Class E, Class F, Class G and Class H Certificates will
also represent undivided beneficial interests in designated portions of the
Deferred Interest, which portion of the Trust Fund will be treated as part of a
grantor trust for federal income tax purposes. The Offered Certificates,
together with the Class E, Class F, Class G and Class H Certificates, are
sometimes collectively referred to herein as the "Regular Certificates". See
"Certain Federal Income Tax Consequences" herein and "Certain Federal Income
Tax Consequences" in the Prospectus.
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF THE DEPOSITOR'S CERTIFICATES AND ARE BEING OFFERED
PURSUANT TO ITS PROSPECTUS DATED MAY 22, 1998, OF WHICH THIS PROSPECTUS
SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE
PROSPECTUS CONTAINS IMPORTANT INFORMA-
S-2
<PAGE>
TION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE
INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN
FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES, INCLUDING
SHORT-COVERING TRANSACTIONS IN SUCH CERTIFICATES, AND THE IMPOSITION OF A
PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION" HEREIN AND "PLAN OF DISTRIBUTION" IN THE
PROSPECTUS.
There is currently no secondary market for the Offered Certificates. The
Underwriter currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so. There can be no assurance that
such a market will develop or, if it does develop, that it will continue. See
"Plan of Distribution" herein.
The distribution of this Prospectus Supplement dated , 1998 and the
Prospectus dated May 22, 1998, and the offer or sale of Certificates may be
restricted by law in certain jurisdictions. Persons into whose possession this
Prospectus Supplement and the Prospectus or any Certificates come must inform
themselves about, and observe, any such restrictions. In particular, there are
restrictions on the distribution of this Prospectus Supplement and the
Prospectus and the offer or sale of Certificates in the United Kingdom. See
"Plan of Distribution" herein.
-----------------
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR IN DOCUMENTS INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE
WORDS "EXPECTS," "INTENDS," "ANTICIPATES," "ESTIMATES," "PROJECTS" AND
ANALOGOUS EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ANY
SUCH STATEMENTS, WHICH MAY INCLUDE STATEMENTS CONTAINED IN "RISK FACTORS,"
INHERENTLY ARE SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
COMPETITION, CHANGES IN FOREIGN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS,
REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER
PREFERENCES AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE DEPOSITOR'S
CONTROL. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS
PROSPECTUS SUPPLEMENT. THE DEPOSITOR EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING
STATEMENT CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE DEPOSITOR'S
EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR
CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriter. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that the information herein or
therein is correct as of any time subsequent to the date hereof or that there
has been no change in the affairs of the Depositor since such date.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
EXECUTIVE SUMMARY ....................................................... S-7
SUMMARY OF PROSPECTUS SUPPLEMENT ........................................ S-10
RISK FACTORS ............................................................ S-31
The Mortgage Loans ..................................................... S-31
Conflicts of Interest .................................................. S-52
The Offered Certificates ............................................... S-53
MORTGAGE POOL CHARACTERISTICS ........................................... S-57
General ................................................................ S-57
Security for the Mortgage Loans ........................................ S-57
Certain Mortgage Loan Definitions ...................................... S-58
Certain Characteristics of the Mortgage Loans .......................... S-67
Underwriting Standards ................................................. S-73
Additional Information ................................................. S-74
DESCRIPTION OF THE MORTGAGED PROPERTIES AND THE MORTGAGE LOANS .......... S-75
1. Hotel Del Coronado ................................................. S-75
2. CenterAmerica Pool ................................................. S-83
3. Wells Fargo Office Tower ........................................... S-96
4. West Town Mall ..................................................... S-105
5. Magellan Apartment Pool ............................................ S-116
6. Glenborough Pool ................................................... S-123
7. EQR Apartment Pool ................................................. S-135
8. Charlestowne Mall .................................................. S-145
9. Ramco-Gershenson Pool .............................................. S-158
10. Courthouse Plaza I ................................................. S-168
11. Quail Springs Mall ................................................. S-177
DESCRIPTION OF THE OFFERED CERTIFICATES ................................. S-186
General ................................................................ S-186
Distributions .......................................................... S-187
Subordination .......................................................... S-194
Appraisal Reductions ................................................... S-194
Delivery, Form and Denomination ........................................ S-195
Book-Entry Registration ................................................ S-196
Definitive Certificates ................................................ S-197
Transfer Restrictions .................................................. S-198
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS ........................... S-199
Yield .................................................................. S-199
Yield on the Offered Certificates ...................................... S-200
Rated Final Distribution Date .......................................... S-204
Weighted Average Life of Offered Certificates .......................... S-204
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
THE POOLING AGREEMENT .................................................................... S-208
General ................................................................................. S-208
Assignment of the Mortgage Loans ........................................................ S-208
Representations and Warranties; Repurchase .............................................. S-208
Servicing of the Mortgage Loans; Collection of Payments ................................. S-209
Advances ................................................................................ S-211
Accounts ................................................................................ S-212
Withdrawals From the Collection Account ................................................. S-213
Successor Manager ....................................................................... S-213
Enforcement of "Due-on-Sale" and "Due-on-Encumbrance" Clauses ........................... S-214
Inspections ............................................................................. S-214
Evidence as to Compliance ............................................................... S-215
Certain Matters Regarding the Depositor, the Master Servicer and the Special Servicer ... S-215
Events of Default ....................................................................... S-216
Rights Upon Event of Default ............................................................ S-216
Amendment ............................................................................... S-217
Realization Upon Mortgage Loans; Modifications .......................................... S-218
Optional Termination .................................................................... S-222
The Trustee ............................................................................. S-223
Duties of the Trustee ................................................................... S-223
The Master Servicer ..................................................................... S-224
Servicing Compensation and Payment of Expenses .......................................... S-224
Special Servicer ........................................................................ S-225
Master Servicer and Special Servicer Permitted to Buy Certificates ...................... S-226
Reports to Certificateholders ........................................................... S-226
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS .............................................. S-227
USE OF PROCEEDS .......................................................................... S-228
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .................................................. S-228
CERTAIN ERISA CONSIDERATIONS ............................................................. S-230
LEGAL INVESTMENT ......................................................................... S-231
PLAN OF DISTRIBUTION ..................................................................... S-232
EXPERTS .................................................................................. S-233
VALIDITY OF OFFERED CERTIFICATES ......................................................... S-233
RATINGS .................................................................................. S-233
INDEX OF SIGNIFICANT DEFINITIONS ......................................................... S-234
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Financial Information
Hotel Del Coronado .......................... Exhibit A-1
CenterAmerica Pool .......................... Exhibit A-2
Wells Fargo Office Tower .................... Exhibit A-3
Representations and Warranties ............... Exhibit B
Form of Report to Certificateholders ......... Exhibit C
Term Sheet ................................... Exhibit D
Mortgaged Properties Characteristics ......... Annex A
</TABLE>
S-6
<PAGE>
EXECUTIVE SUMMARY
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus relating to the Offered Certificates in making
their investment decision. The following Executive Summary does not include all
relevant information relating to the securities and collateral described
herein, particularly with respect to the risks and special considerations
involved with an investment in such securities and is qualified in its entirety
by reference to the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus. Prior to making any investment decision, a
prospective investor should carefully review this Prospectus Supplement and the
Prospectus. Capitalized terms used and not otherwise defined herein have the
respective meanings assigned to them in this Prospectus Supplement and the
Prospectus.
CERTIFICATE SUMMARY
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT OF
APPROXIMATE TOTAL
CREDIT SUPPORT CERTIFICATES
INITIAL
CERTIFICATE
PRINCIPAL RATINGS
CLASS AMOUNT (FITCH/S&P)
<S> <C> <C> <C> <C> <C>
CLASS X CLASS A-1 $ %
$
(Approximate Notional
Amount)
CLASS A-2 $ %
%(1) CLASS A-3 $
% CLASS B $
% CLASS C $
% CLASS D $ %
% CLASS E(2) $ %
% CLASS F(2) $ %
% CLASS G(2) $ %
n/a CLASS H(2) $ %
</TABLE>
(1) Represents the approximate credit support for the Class A-1,
Class A-2 and Class A-3 Certificates in the aggregate.
(2) Not offered hereby.
The Class Q, Class R and Class LR Certificates are not
represented in this table.
S-7
<PAGE>
CERTIFICATE SUMMARY
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE
PRINCIPAL OR INITIAL
RATINGS(1) NOTIONAL % OF PASS-THROUGH WTD. AVG. PRINCIPAL
CLASS FITCH/S&P AMOUNT(2) TOTAL DESCRIPTION(3) RATE LIFE(4) (YRS.) WINDOW(4)
<S> <C> <C> <C> <C> <C> <C> <C>
Offered Certificates
A-1 $ % Fixed Rate %
A-2 $ % Fixed Rate(5) %
A-3 $ % Fixed Rate(5) %
X(6) $ n/a Interest Only: % n/a n/a
Weighted Average Coupon
B $ % Weighted Average Coupon %
C $ % Weighted Average Coupon %
D $ % Weighted Average Coupon %
Non-Offered Certificates
E $ % Weighted Average Coupon %
F $ % Weighted Average Coupon %
G $ % Weighted Average Coupon %
H $ % Fixed Rate %
</TABLE>
The Class Q, Class R and Class LR Certificates are not represented in
this table.
(1) The Rated Final Distribution Date for each Class of rated Certificates is
the Distribution Date in .
(2) Approximate, subject to adjustment as described herein.
(3) "WAC" means weighted average coupon as described herein and "Fixed" means
fixed rate coupon. "WAC" and "Fixed" are descriptions of the type of
Pass-Through Rates borne by the related Classes and "IO" designates that
the related Class is entitled only to distributions of interest.
(4) The weighted average life ("Weighted Average Life") and period during
which distributions of principal would be received (the "Principal
Window") set forth in the foregoing table with respect to each Class of
Certificates are based on the assumptions that there are no losses on the
Mortgage Loans, prepayment in full of the Mortgage Loans on the first
date prepayment is permitted, and otherwise on the basis of the
assumptions for Scenario 1 set forth under "Yield, Prepayment and
Maturity Considerations--Weighted Average Life of Offered Certificates".
The Principal Window is expressed in months following the Closing Date,
commencing with the first Distribution Date.
(5) In no event shall the Pass-Through Rate on the Class A-2 or Class A-3
Certificates exceed the WAC Rate (as defined herein).
(6) The Class X Certificates will not have a Certificate Principal Amount and
will not be entitled to receive distributions of principal. Interest will
accrue on such Class of Certificates at the Pass-Through Rate thereof on
the Notional Amount thereof. The Notional Amount of the Class X
Certificates is initially $ , which is equal to the aggregate
initial Certificate Principal Amount of the Class A-1, Class A-2, Class
A-3, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates. See "Description of the Offered Certificates--General"
herein.
S-8
<PAGE>
MORTGAGE LOAN SUMMARY
<TABLE>
<CAPTION>
CUT-OFF
DATE EFFECTIVE
MORTGAGE NO. PRINCIPAL MATURITY MATURITY
LOAN PROPERTIES BALANCE DATE DATE
<S> <C> <C> <C> <C>
Hotel Del
Coronado 1 $164,947,035 1/1/08 1/1/23
CenterAmerica
Pool 44 $163,000,000 6/1/08 6/1/28
Wells Fargo
Office Tower 1 $143,855,648 4/30/05 4/30/23
West Town Mall 1 $ 76,000,000 5/1/08 5/1/28
Magellan
Apartment
Pool 11 $ 75,113,551 11/1/07 11/1/27
Glenborough
Pool 10 $ 59,465,982 10/1/07 10/1/22
EQR
Apartment
Pool 5 $ 50,000,000 4/1/08 4/1/28
Charlestowne
Mall 1 $ 50,000,000 3/1/05 3/1/28
Ramco-
Gershenson
Pool 7 $ 49,761,281 12/1/07 12/1/27
Courthouse
Plaza I 1 $ 48,704,653 1/1/08 1/1/28
Quail Springs
Mall 1 $ 45,000,000 6/1/08 6/1/28
Total/Weighted
Average 83 $925,848,151 N/A N/A
<CAPTION>
ORIGINAL CUT-OFF
MORTGAGE AMORTIZATION MORTGAGE DATE EMD
LOAN TERM (MONTHS) RATE DSCR(1) LTV LTV
- ------------------ ---------------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Hotel Del
Coronado 300 6.90% 2.06x 50.0% 39.4%
CenterAmerica
Pool 360 6.67% 1.86x 61.3% 53.0%
Wells Fargo
Office Tower 300 7.17% 1.64x 61.2% 53.8%
West Town Mall Interest Only EMD(2) 6.90% 2.71x 47.5% 47.5%
Magellan
Apartment
Pool 360 7.28% 1.34x 79.3% 70.0%
Glenborough
Pool 300 7.50% 1.93x 51.3% 42.0%
EQR
Apartment
Pool Interest Only EMD(2) 6.79% 2.28x 49.7% 49.7%
Charlestowne
Mall 360 7.73% 1.70x 57.7% 53.8%
Ramco-
Gershenson
Pool 360 6.83% 2.00x 64.6% 56.4%
Courthouse
Plaza I 360 7.19% 1.49x 70.5% 61.0%
Quail Springs
Mall 360 6.82% 1.95x 52.7% 45.7%
Total/Weighted
Average 332 7.02% 1.90x 58.4% 51.0%
</TABLE>
- --------
The terms "Effective Maturity Date", "DSCR", "EMD LTV" and "Cut-Off Date LTV"
are defined in this Prospectus Supplement in the definitions set forth under
"Mortgage Pool Characteristics--Certain Mortgage Loan Definitions."
(1) Based on Underwritable Cash Flow.
(2) Interest-only loan from origination to the related Effective Maturity
Date; thereafter principal payments are based on an amortization term of
240 months.
S-9
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary are
defined under "Mortgage Pool Characteristics--Certain Mortgage Loan
Definitions" or are defined elsewhere in this Prospectus Supplement or in the
Prospectus. An Index of Significant Definitions included at the end of this
Prospectus Supplement sets forth the pages on which the definitions of certain
principal terms appear.
TITLE OF CERTIFICATES... Morgan Stanley Capital I Inc., Commercial Mortgage
Pass-Through Certificates, Series 1998-XL1 (the
"Certificates").
CERTIFICATE PRINCIPAL
AMOUNT AND NOTIONAL
AMOUNT................. Each Class of Offered Certificates has the
approximate aggregate initial Certificate Principal
Amount or Notional Amount set forth on the cover page
of this Prospectus Supplement, subject to a variance
of plus or minus 5%. The Offered Certificates,
together with the Private Certificates, will be issued
pursuant to a Pooling and Servicing Agreement to be
dated as of the Cut-Off Date (the "Pooling Agreement")
among the Depositor, the Master Servicer, the Special
Servicer and the Trustee.
DEPOSITOR.............. Morgan Stanley Capital I Inc., a Delaware
corporation (the "Depositor"), an affiliate of Morgan
Stanley Mortgage Capital Inc., a New York corporation
("MSMC"), and Morgan Stanley & Co. Incorporated (the
"Underwriter"). See "The Depositor" in the Prospectus.
MASTER SERVICER........ Midland Loan Services, Inc., a Delaware corporation
(in such capacity, the "Master Servicer"), will serve
as the master servicer of the Mortgage Loans. The
Master Servicer will appoint Wells Fargo Bank,
National Association ("Wells Fargo"), as subservicer
for the Wells Fargo Office Tower Loan and the
Glenborough Pool Loan and will appoint AMRESCO
Services, L.P. ("AMRESCO"), as subservicer for the
Hotel Del Coronado Loan and the Ramco-Gershenson Pool
Loan. Notwithstanding the existence of any
subservicing agreement, the Master Servicer shall
remain primarily liable for the servicing of the
Mortgage Loans. See "The Pooling Agreement--The Master
Servicer" herein and "Description of the Agreements--
Certain Matters Regarding a Master Servicer and the
Depositor" in the Prospectus.
SPECIAL SERVICER....... Clarion Partners LLC will be appointed special
servicer (in such capacity, the "Special Servicer").
See "The Pooling Agreement--Special Servicer" herein.
TRUSTEE................ State Street Bank and Trust Company, a trust company
chartered under the laws of the Commonwealth of
Massachusetts (the "Trustee"). See "The Pooling
Agreement--The Trustee" herein.
CUT-OFF DATE........... June 1, 1998.
CLOSING DATE........... On or about June , 1998.
DISTRIBUTION DATE...... The third Business Day of each month, commencing in
July 1998. "Business Day" means any day other than a
Saturday, a Sunday or any day on which banking
institutions in the City of New York, New York, the
cities in which the principal servicing offices of the
Master Servicer or the Special Servicer are located,
or the city in which the corporate trust office of the
Trustee is located, are authorized or obligated by
law, executive order or governmental decree to be
closed.
S-10
<PAGE>
RECORD DATE............ With respect to each Distribution Date and each
Class of Offered Certificates, the close of business
on the last day of the month immediately preceding the
month in which such Distribution Date occurs, or if
such day is not a Business Day, the immediately
preceding Business Day.
INTEREST ACCRUAL
PERIOD................. With respect to any Distribution Date and with respect
to each Class of Certificates, the calendar month
immediately preceding the month in which such
Distribution Date occurs.
RATED FINAL
DISTRIBUTION DATE...... As to each Class of Offered Certificates, the
Distribution Date in , which is the Distribution
Date occurring 3 years after the latest maturity date
of any Mortgage Loan.
DUE DATE............... With respect to any Mortgage Loan, the first day of
each month and with respect to any Distribution Date,
the Due Date occurring in the month in which such
Distribution Date occurs.
COLLECTION PERIOD...... With respect to a Distribution Date and each
Mortgage Loan, the period beginning on the day after
the Due Date in the month preceding the month in which
such Distribution Date occurs (or, with respect to the
first Distribution Date, the day after the Cut-Off
Date) and ending at the close of business on the Due
Date in the month in which such Distribution Date
occurs.
DENOMINATIONS.......... The Offered Certificates (other than the Class X
Certificates) will be issuable in registered form, in
minimum denominations of $10,000 initial Certificate
Principal Amount and multiples of $1 in excess thereof
and the Class X Certificates will be issuable in
registered form, in minimum denominations of $100,000
initial Notional Amount and multiples of $1 in excess
thereof.
CLEARANCE AND
SETTLEMENT............. Holders of Offered Certificates may hold their
Certificates through any of The Depository Trust
Company ("DTC") (in the United States) and Cedel Bank,
S.A. ("CEDEL") and The Euroclear System ("Euroclear")
(in Europe). Transfers within DTC, CEDEL or Euroclear,
as the case may be, will be in accordance with the
usual rules and operating procedures of the relevant
system. Transfers between persons holding directly or
indirectly through DTC, CEDEL or Euroclear will be
effected in DTC through the relevant Depositories of
CEDEL or Euroclear. The Depositor may elect to
terminate the book-entry system through DTC with
respect to all or any portion of any Class of the
Offered Certificates. See "Description of the Offered
Certificates--Delivery, Form and Denomination",
"--Book-Entry Registration" and "--Definitive
Certificates" herein and "Description of the
Certificates--General" in the Prospectus.
THE MORTGAGE POOL...... The "Mortgage Pool" will consist of 11 Mortgage
Loans, each evidenced by 1 or more promissory notes
(each, a "Note") secured by first mortgages, deeds of
trust or similar security instruments (each, a
"Mortgage") on one or more commercial properties (the
"Mortgaged Properties"). See "Description of the
Mortgaged Properties and the Mortgage Loans" herein.
The Mortgage Loans will be acquired by the Depositor
on or before the Closing Date. In connection with its
acquisition of the Mortgage Loans, the Depositor will
be the beneficiary of or will be assigned (and will in
turn assign to the Trustee for the benefit of the
holders of the Certificates) certain rights in respect
of certain representations and warranties described
herein. See "Description of the Mortgage Pool
Characteristics--General" and "The Pooling
Agreement--Representations and Warranties;
Repurchase".
S-11
<PAGE>
As of the Cut-Off Date, the Mortgage Loans will have
the following approximate characteristics:
<TABLE>
<S> <C>
Aggregate Principal Balance ................................. $925,848,151
Lowest Mortgage Loan Principal Balance ...................... $ 45,000,000
Highest Mortgage Loan Principal Balance ..................... $164,947,035
Average Mortgage Loan Principal Balance ..................... $ 84,168,014
Range of Remaining Terms to Effective Maturity Date ......... 81 to 120 months
Weighted Average Remaining Term to Effective
Maturity Date ............................................... 109 months
Range of Mortgage Rates ..................................... 6.67% to 7.73%
Weighted Average Mortgage Rate .............................. 7.02%
Range of Cut-Off Date LTV Ratios ............................ 47.5% to 79.3%
Weighted Average Cut-Off Date LTV Ratio ..................... 58.4%
Range of Debt Service Coverage Ratios ....................... 1.34x to 2.71x
Weighted Average Debt Service Coverage Ratio ................ 1.90x
</TABLE>
DESCRIPTION OF THE MORTGAGE
LOANS AND MORTGAGED
PROPERTIES..............
A. HOTEL DEL CORONADO... The "Hotel Del Coronado Loan" has a principal
balance as of the Cut-Off Date of approximately
$164,947,035 and is evidenced by a Note issued by L-O
Coronado Holding II, Inc., a Delaware corporation (the
"Hotel Del Coronado Borrower"). The Hotel Del Coronado
Loan is secured by a first priority mortgage lien
encumbering a first-class luxury destination hotel
located in Coronado, California (the "Hotel Del
Coronado Property"). The Hotel Del Coronado Borrower
is indirectly owned by a trust for the benefit of the
Public Employee's Retirement System of Ohio.
The Hotel Del Coronado Property is a 692 room
beach-front resort hotel with 7 restaurants and
lounges, an on-site bakery and butcher shop, 6 tennis
courts, 2 heated pools, a health club and spa, an
historical gallery and over 30 specialty shops
located in Coronado, California. In addition, the
Hotel Del Coronado Property contains approximately
73,034 square feet of banquet and meeting space, and
has 978 parking spaces. The average occupancy rate
for the Hotel Del Coronado Property for the 12 months
ended February 28, 1998 was approximately 85%. The
average daily room rate and the revenue per available
room for the 12 months ended February 28, 1998 were
$202.80 and $173.15 respectively. An appraisal
completed in October 1997 determined a value of
$330,000,000 for the Hotel Del Coronado Property,
resulting in a Cut-Off Date LTV of approximately
50.0%. The DSCR based on Underwritable Cash Flow for
the Hotel Del Coronado Property as of the Cut-Off
Date is approximately 2.06x.
The Hotel Del Coronado Loan is an EMD Loan. Its
Effective Maturity Date is January 1, 2008 and its
Maturity Date is January 1, 2023. It bears interest
at its Initial Interest Rate of 6.90% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 8.90%. The Monthly
Payment of the Hotel Del Coronado Loan is
$1,162,685.15, based on a 300 month amortization
schedule, and its Effective Maturity Date Balance is
expected to be $130,163,932.
Voluntary prepayment is prohibited under the Hotel
Del Coronado Loan prior to the Effective Maturity
Date. From and after such date the Hotel Del Coronado
S-12
<PAGE>
Loan may be voluntarily prepaid, in whole or in part,
without payment of a Prepayment Charge, on any Due
Date.
From and after the date that is 2 years after the
Closing Date until the Effective Maturity Date, the
Hotel Del Coronado Borrower may deposit U.S.
Obligations as substitute collateral for the Hotel
Del Coronado Property provided that certain
conditions are satisfied, as more fully described
herein.
B. CENTERAMERICA POOL... The "CenterAmerica Pool Loan" has a principal
balance as of the Cut-Off Date of approximately
$163,000,000 and is evidenced by a Note issued by
CenterAmerica Capital Partnership, L.P., a Delaware
limited partnership (the "CenterAmerica Pool
Borrower"). The CenterAmerica Pool Loan is secured by
first priority mortgage liens encumbering 44 shopping
centers located in Texas (the "CenterAmerica Pool
Properties"). The CenterAmerica Pool Borrower is
indirectly owned by HHC Holdings REIT, the
beneficiaries of which are Morgan Stanley Real Estate
Fund II, L.P. and affiliated funds, which are
sponsored and asset managed by Morgan Stanley Dean
Witter & Co., which owns approximately 10% of such
funds.
The CenterAmerica Pool Properties contain
approximately 4,761,994 square feet of gross leasable
area ("GLA"). As of December 31, 1997, the average
occupancy rate of the CenterAmerica Pool Properties
was approximately 92%. The aggregate calculated value
of the CenterAmerica Pool Properties based on
Underwritable NOI of $25,277,026 and a 9.5%
capitalization rate was $266,073,957, resulting in a
Cut-Off Date LTV of approximately 61.3%. The DSCR
based on Underwritable Cash Flow for the
CenterAmerica Pool Properties as of the Cut-Off Date
is approximately 1.86x.
The CenterAmerica Pool Loan is an EMD Loan. Its
Effective Maturity Date is June 1, 2008 and its
Maturity Date is June 1, 2028. It bears interest at
its Initial Interest Rate of 6.67% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 8.67%. The Monthly
Payment of the CenterAmerica Pool Loan is
$1,048,561.51, based on a 360 month amortization
schedule, and its Effective Maturity Date Balance is
expected to be $140,921,222.
Voluntary prepayment is prohibited under the
CenterAmerica Pool Loan prior to the Effective
Maturity Date. From and after such date the
CenterAmerica Pool Loan may be voluntarily prepaid,
in whole or in part, without payment of a Prepayment
Charge, on any Due Date.
From and after the date that is 2 years after the
Closing Date until the Effective Maturity Date, the
CenterAmerica Pool Borrower may deposit U.S.
Obligations as substitute collateral for one or more
of the CenterAmerica Pool Properties provided that
certain conditions are satisfied, as more fully
described herein.
The CenterAmerica Pool Loan permits the CenterAmerica
Pool Borrower to substitute other properties for any
1 or more of the CenterAmerica Pool Properties
provided that certain conditions are satisfied, as
more fully described herein.
C. WELLS FARGO
OFFICE TOWER........... The "Wells Fargo Office Tower Loan" has a principal
balance as of the Cut-Off Date of approximately
$143,855,648 and is evidenced by a Note issued by
North Tower LLC, a Delaware limited liability company
(the "Wells Fargo Office Tower Borrower"). The Wells
Fargo Office Tower Loan is secured by a first priority
mortgage lien encumbering a "Class A" office building
located in Los Angeles, California (the "Wells Fargo
Office Tower Property"). The Wells Fargo Office Tower
Borrower is indirectly owned by Wells Fargo Bank,
National Association
S-13
<PAGE>
("Wells Fargo") (42%), MAC-WFT, Inc. (31%), Maguire
Partners Bunker Hill, Ltd., (12%) and Gibson, Dunn &
Crutcher Retirement Trust (15%).
The Wells Fargo Office Tower Property contains
approximately 1,336,248 square feet of GLA and 2,014
on-site parking spaces. As of January 31, 1998, the
economic occupancy rate of the Wells Fargo Office
Tower Property was approximately 92%. The physical
occupancy of the Wells Fargo Office Tower Property as
of such date was approximately 87%, and based on
newly signed leases and assuming no tenants vacate
their premises, will increase to approximately 93% in
April 1999. Major tenants include Wells Fargo,
Gibson, Dunn & Crutcher, Salomon Smith Barney and
Thelen Marrin Johnson & Bridges LLP. An appraisal
completed in February, 1998 determined a value of
$235,000,000 for the Wells Fargo Office Tower
Property, resulting in a Cut-Off Date LTV of 61.2%.
The DSCR based on Underwritable Cash Flow for the
Wells Fargo Office Tower Property as of the Cut-Off
Date is approximately 1.64x.
The Wells Fargo Office Tower Loan is an EMD Loan. Its
Effective Maturity Date is April 30, 2005 and its
Maturity Date is April 30, 2023. It bears interest at
its Initial Interest Rate of 7.17% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 9.17%. The Monthly
Payment of the Wells Fargo Office Tower Loan is
$1,033,431.56, based on a 300 month amortization
schedule, and its Effective Maturity Date Balance is
expected to be $126,516,032.
Voluntary prepayment is prohibited under the Wells
Fargo Office Tower Loan prior to the Effective
Maturity Date. From and after such date the Wells
Fargo Office Tower Loan may be voluntarily prepaid,
in whole or in part, without payment of a Prepayment
Charge, on any Due Date.
From and after the date that is 2 years after the
Closing Date until the Effective Maturity Date, the
Wells Fargo Office Tower Borrower may deposit U.S.
Obligations as substitute collateral for the Wells
Fargo Office Tower Property provided that certain
conditions are satisfied, as more fully described
herein.
D. WEST TOWN MALL...... The "West Town Mall Loan" has a principal balance as
of the Cut-Off Date of approximately $76,000,000 and
is evidenced by a Note issued by West Town Mall Joint
Venture, a Tennessee joint venture (the "West Town
Mall Borrower"). The West Town Mall Loan is secured by
a first priority mortgage lien encumbering a portion
of a regional shopping mall located in Knoxville,
Tennessee (the "West Town Mall Property"). Each of
Simon DeBartolo Group, L.P. (the operating entity for
Simon DeBartolo Group, Inc.) and RODAMCO N.V.
ultimately own a 50% interest in the West Town
Borrower.
The West Town Mall Property consists of a portion of
the West Town Mall, an enclosed single-level,
5-anchor, super-regional mall located in Knoxville,
Tennessee, containing approximately 1,336,901 square
feet (including 306,163 square feet of leased anchor
stores, 572,532 square feet of self-owned anchor
stores, 381,626 square feet of mall stores and 76,580
square feet of theater GLA under construction). The
occupancy rate of the West Town Mall Property as of
February 12, 1998 was approximately 92%. Anchor
stores at the West Town Mall Property include
Proffitt's, Parisian, Dillard's, Sears and JC Penney
and significant mall store tenants include The
Limited, The Gap, Eddie Bauer, Ann Taylor and
Abercrombie and Fitch. An appraisal completed in
September 1997 determined a value of $160,000,000 for
the West Town Mall Property, resulting in a Cut-Off
Date LTV of approximately 47.5%. The DSCR based on
Underwritable Cash Flow for the West Town Mall
Property as of the Cut-Off Date is approximately
2.71x.
S-14
<PAGE>
The West Town Mall Loan is an Interest Only EMD Loan.
Its Effective Maturity Date is May 1, 2008 and its
Maturity Date is May 1, 2028. It bears interest at
its Initial Interest Rate of 6.90% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 8.90%. Until the
Effective Maturity Date, its Monthly Payment, which
consists of interest only, is $437,000, and on and
after the Effective Maturity Date its Monthly Payment
of principal and interest is $584,674, based on a 240
month amortization schedule. Its Effective Maturity
Date Balance is expected to be $76,000,000.
Voluntary prepayment is prohibited under the West
Town Mall Loan prior to the date that is 180 days
prior to the Effective Maturity Date. From and after
such date the West Town Mall Loan may be voluntarily
prepaid, in whole or in part, without payment of a
Prepayment Charge, on any Due Date.
From and after the date that is 3 years after the
Closing Date until 6 months prior to the Effective
Maturity Date, the West Town Mall Borrower may
deposit U.S. Obligations as substitute collateral for
the West Town Mall Property provided that certain
conditions are satisfied, as more fully described
herein.
E. MAGELLAN APARTMENT
POOL................... The "Magellan Apartment Pool Loan" has a principal
balance as of the Cut-Off Date of approximately
$75,113,551 and is evidenced by a Note issued by 11
separate Arizona limited partnerships (each a
"Magellan Apartment Pool Borrower" and collectively,
the "Magellan Apartment Pool Borrowers"). The Magellan
Apartment Pool Loan is secured by first priority
mortgage liens encumbering 11 residential apartment
complexes located in California and Arizona (the
"Magellan Apartment Pool Properties"). The Magellan
Apartment Pool Borrowers are indirectly owned by
Magellan Real Estate Investment Trust, a Maryland real
estate investment trust.
The Magellan Apartment Pool Properties consist of 11
multifamily apartment projects with 159 multifamily
apartment buildings containing 2,270 residential
units. As of February 25, 1998, the average occupancy
rate of the Magellan Apartment Pool Properties was
approximately 94%. Appraisals completed in September,
1997 determined an aggregate value of $94,775,000 for
the Magellan Pool Properties, resulting in a Cut-Off
Date LTV of approximately 79.3%. The DSCR based on
Underwritable Cash Flow for the Magellan Apartment
Pool Properties as of the Cut-Off Date is
approximately 1.34x.
The Magellan Apartment Pool Loan is an EMD Loan. Its
Effective Maturity Date is November 1, 2007 and its
Maturity Date is November 1, 2027. It bears interest
at its Initial Interest Rate of 7.28% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 9.28%. Its Monthly
Payment is $516,580.27, based on a 360 month
amortization schedule, and its Effective Maturity
Date Balance is expected to be $66,308,919.
Voluntary prepayment is prohibited under the Magellan
Apartment Pool Loan prior to the date that is 3
months prior to the Effective Maturity Date. From and
after such date the Magellan Apartment Pool Loan may
be voluntarily prepaid, in whole or in part, without
payment of a Prepayment Charge, on any Due Date.
S-15
<PAGE>
From and after the date that is 2 years after the
Closing Date until the Effective Maturity Date, the
Magellan Apartment Pool Borrower may deposit U.S.
Obligations as substitute collateral for one or more
of the Magellan Apartment Pool Properties provided
that certain conditions are satisfied, as more fully
described herein.
F. GLENBOROUGH POOL.... The "Glenborough Pool Loan" has a principal balance
as of the Cut-Off Date of approximately $59,465,982
and is evidenced by a Note issued by Glenborough Fund
V, Limited Partnership, a Delaware limited partnership
(the "Glenborough Pool Borrower"). The Glenborough
Pool Loan is secured by first priority mortgage liens
encumbering 10 properties located in Arizona,
California, Florida, Massachusetts, Minnesota,
Missouri, and Virginia (the "Glenborough Pool
Properties"). The Glenborough Pool Borrower is
indirectly owned by Glenborough Pool Incorporated, a
Maryland real estate investment trust (91%), and by
various individuals (9%).
The Glenborough Pool Properties consist of 5 office
buildings, 4 industrial/flex buildings and 1
multifamily apartment property. The Glenborough Pool
Properties contain 1,136,505 square feet of net
rentable area in the office and industrial/flex
buildings and 224 apartment units in the multifamily
apartment property. As of December 31, 1997, the
average occupancy rate was approximately 98%.
Appraisals completed in May and June 1997 determined
an aggregate value of $115,900,000 for the
Glenborough Pool Properties, resulting in a Cut-Off
Date LTV of approximately 51.3%. The DSCR based on
Underwritable Cash Flow for the Glenborough Pool
Properties as of the Cut-Off Date is approximately
1.93x.
The Glenborough Pool Loan is an EMD Loan. Its
Effective Maturity Date is October 1, 2007 and its
Maturity Date is October 1, 2022. It bears interest
at its Initial Interest Rate of 7.50% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 9.50%. The Monthly
Payment of the Glenborough Pool Loan is $443,394.71,
based on a 300 month amortization schedule, and its
Effective Maturity Date Balance is expected to be
$48,701,064.
Voluntary prepayment is prohibited under the
Glenborough Pool Loan prior to September 12, 2000.
From and after such date through the Effective
Maturity Date the Glenborough Pool Loan may be
voluntarily prepaid upon payment of a Prepayment
Charge (based on yield maintenance at the applicable
U.S. Treasury rate from the prepayment date to the
Effective Maturity Date). From and after the
Effective Maturity Date, the Glenborough Pool Loan
may be voluntarily prepaid, in whole or in part,
without payment of a Prepayment Charge, on any date.
From and after September 12, 2000, the Glenborough
Pool Borrower may obtain a release of 1 or more
Glenborough Pool Properties provided that certain
conditions are satisfied, generally including,
without limitation, payment of 125% of the Allocated
Loan Amount for the applicable Glenborough Pool
Property and payment of the Prepayment Charge.
G. EQR APARTMENT POOL... The "EQR Apartment Pool Loan" has a principal
balance as of the Cut-Off Date of approximately
$50,000,000 and is evidenced by a Note issued by
EQR-Flatlands, L.L.C., a Delaware limited liability
company (the "EQR Apartment Pool Borrower"). The EQR
Apartment Pool Loan is secured by first priority
mortgage liens encumbering 5 multifamily apartment
complexes located in Minnesota, Illinois and Wisconsin
(the "EQR Apartment Pool Properties"). The EQR
Apartment Pool Borrower is indirectly owned by Equity
Residential Properties Trust, a publicly
S-16
<PAGE>
traded Maryland real estate investment trust (90.1%)
and by various individuals and entities (9.9%).
The EQR Apartment Pool Properties consist of 5
multifamily apartment buildings with 1,371
residential units. As of December 25, 1997, the
average occupancy rate of the EQR Apartment Pool
Properties was approximately 94%. Appraisals
completed in February 1998 determined an aggregate
value of $100,650,000 for the EQR Apartment Pool
Properties, resulting in a Cut-Off Date LTV of
approximately 49.7%. The DSCR based on Underwritable
Cash Flow for the EQR Apartment Pool Properties as of
the Cut-Off Date is approximately 2.28x.
The EQR Apartment Pool Loan is an Interest Only EMD
Loan. Its Effective Maturity Date is April 1, 2008
and its Maturity Date is April 1, 2028. It bears
interest at its Initial Interest Rate of 6.79% until
its Effective Maturity Date and thereafter bears
interest at its Revised Interest Rate of 8.79%. Until
the Effective Maturity Date, its Monthly Payment,
which consists only of interest, is $292,347.22
(assuming a 31 day month), and, on and after the
Effective Maturity Date, its Monthly Payment of
principal and interest is $379,226.20, based on a 240
month amortization schedule. Its Effective Maturity
Date Balance is expected to be $50,000,000.
Voluntary prepayment is prohibited under the EQR
Apartment Pool Loan prior to the date that is 3
months prior to the Effective Maturity Date. From and
after such date the EQR Apartment Pool Loan may be
voluntarily prepaid, in whole or in part, without
payment of a Prepayment Charge, on any Due Date.
From and after the date that is 2 years after the
Closing Date until the Effective Maturity Date, the
EQR Apartment Pool Borrower may deposit U.S.
Obligations as substitute collateral for 1 or more of
the EQR Apartment Pool Properties provided that
certain conditions are satisfied, as more fully
described herein.
The EQR Apartment Pool Loan permits the EQR Apartment
Pool Borrower to substitute other properties for any
1 or more of the EQR Apartment Pool Properties
provided that certain conditions are satisfied, as
more fully described herein.
H. CHARLESTOWNE MALL... The "Charlestowne Mall Loan" has a principal balance
as of the Cut-Off Date of approximately $50,000,000
and is evidenced by a Note issued by Charlestowne
Mall, L.L.C., a New York limited liability company
(the "Charlestowne Mall Borrower"). The Charlestowne
Mall Loan is secured by a first priority mortgage lien
encumbering a portion of a regional shopping center
located in St. Charles, Illinois (the "Charlestowne
Mall Property"). The Charlestowne Mall Borrower is
indirectly owned by various persons and entities
affiliated with Wilmorite Inc. (50.5%) and by Fox
Properties, Inc. (49.5%). Fox Properties, Inc. is
owned 1% by affiliates and employees of Wilmorite,
Inc., 50% by Renard Properties, Inc. and 49% by
Ivanhoe Equities, L.P., an affiliate of the Canadian
pension fund Caisse de Depot et Placement du Quebec.
The Charlestowne Mall Property consists of a portion
of the Charlestowne Mall, an enclosed 2-level,
4-anchor, regional mall located in St. Charles,
Illinois, containing approximately 822,318 square
feet (including 339,603 square feet of leased anchor
stores, 80,000 square feet of self-owned anchor
stores, 331,215 square feet of mall stores, and
71,500 square feet of theater GLA planned for
construction). The occupancy rate for the
Charlestowne Mall Property as of March 19, 1998 was
approximately 78%. Anchor stores at the Charlestowne
Mall Property include Carson Pirie Scott, Sears, JC
Penney (which may be replaced by a self-owned Von
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<PAGE>
Maur store if certain conditions under the
Charlestowne Mall Loan are met) and Kohl's.
Significant mall store tenants include The Gap, Gap
Kids, The Limited, Victoria's Secret and Foot Locker.
An appraisal completed in April, 1998 determined a
value of approximately $86,600,000 for the
Charlestowne Mall Property (including the value of
the theater being constructed, which is projected to
be completed in April 1999), resulting in a Cut-Off
Date LTV of approximately 57.7%. The DSCR based on
Underwritable Cash Flow for the Charlestowne Mall
Property as of the Cut-Off Date is approximately
1.70x.
The Charlestowne Mall Loan is an EMD Loan. Its
Effective Maturity Date is March 1, 2005 and its
Maturity Date is March 1, 2028. It bears interest at
its Initial Interest Rate of 7.73% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 9.73%. The Monthly
Payment of the Charlestowne Mall Loan is $357,515.34,
based on a 360 month amortization schedule, and its
Effective Maturity Date Balance is expected to be
$46,730,265.
Voluntary prepayment is prohibited under the
Charlestowne Mall Loan prior to the date that is 3
months prior to the Effective Maturity Date. From and
after such date the Charlestowne Mall Loan may be
voluntarily prepaid, in whole or in part, without
payment of a Prepayment Charge, on any Due Date.
From and after the date that is 2 years after the
Closing Date until the Effective Maturity Date, the
Charlestowne Mall Borrower may deposit U.S.
Obligations as substitute collateral for the
Charlestowne Mall Property provided that certain
conditions are satisfied, as more fully described
herein.
I. RAMCO-GERSHENSON
POOL................... The "Ramco-Gershenson Pool Loan" has a principal
balance as of the Cut-Off Date of approximately
$49,761,281 and is evidenced by a Note issued by Ramco
Properties Associates Limited Partnership, a Michigan
limited partnership (the "Ramco-Gershenson Pool
Borrower"). The Ramco-Gershenson Pool Loan is secured
by first priority mortgage liens encumbering 7
shopping centers located in Michigan, North Carolina,
Ohio, South Carolina, Tennessee and Wisconsin (the
"Ramco-Gershenson Pool Properties"). The
Ramco-Gershenson Pool Borrower is indirectly owned by
Ramco-Gershenson Properties Trust, a Massachusetts
real estate investment trust (63.7%) and various
limited partnerships (36.3%).
The Ramco-Gershenson Pool Properties contain
approximately 1,414,633 square feet of GLA. As of
February 18, 1998, the average occupancy rate of the
Ramco-Gershenson Pool Properties was approximately
98.6%. Appraisals completed from August through
October, 1997 determined an aggregate value of
$77,000,000 for the Ramco-Gershenson Pool Properties,
resulting in a Cut-Off Date LTV of approximately
64.6%. The DSCR based on Underwritable Cash Flow for
the Ramco-Gershenson Pool Properties as of the
Cut-Off Date is approximately 2.00x.
The Ramco-Gershenson Pool Loan is an EMD Loan. Its
Effective Maturity Date is December 1, 2007 and its
Maturity Date is December 1, 2027. It bears interest
at its Initial Interest Rate of 6.83% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 8.83%. The Monthly
Payment of the Ramco-Gershenson Pool Loan is
$326,962.39, based on a 360 month amortization
schedule, and its Effective Maturity Date Balance is
expected to be $43,401,346.
Voluntary prepayment is prohibited under the
Ramco-Gershenson Pool Loan prior to the date that is
3 months prior to the Effective Maturity Date. From
and after such date the Ramco-Gershenson Pool Loan
may be voluntarily prepaid, in whole or in part,
without payment of a Prepayment Charge, on any Due
Date.
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<PAGE>
From and after the date that is 2 years after the
Closing Date until the Effective Maturity Date, the
Ramco-Gershenson Pool Borrower may deposit U.S.
Obligations as substitute collateral for 1 or more of
the Ramco-Gershenson Pool Properties provided that
certain conditions are satisfied, as more fully
described herein.
The Ramco-Gershenson Pool Loan permits the
Ramco-Gershenson Pool Borrower to substitute other
properties for any 1 or more of the Ramco-Gershenson
Pool Properties provided that certain conditions are
satisfied, as more fully described herein.
J. COURTHOUSE PLAZA I... The "Courthouse Plaza I Loan" has a principal
balance as of the Cut-Off Date of approximately
$48,704,653 and is evidenced by a Note issued by
Courthouse Plaza I Associates Limited Partnership, a
Virginia limited partnership (the "Courthouse Plaza I
Borrower"). The Courthouse Plaza I Loan is secured by
a first priority mortgage lien encumbering the
Courthouse Plaza I Borrower's ground leasehold
interest in an office building located in Arlington,
Virginia (the "Courthouse Plaza I Property"). The
general partnership interest in the Courthouse Plaza I
Borrower is indirectly owned by Robert H. Smith and
Robert P. Kogod and the limited partnership interest
therein is owned by Robert H. Smith (24.26%), Robert
P. Kogod (10.85%), Henry Goldberg (37.05%) and Alan
Geller (8.53%).
The Courthouse Plaza I Property consists of a
multi-tenanted office building with 306,306 square
feet of office GLA, 6,677 square feet of ground floor
retail space, a free standing 8-screen movie theater
with 36,795 square feet and a 4-level parking
structure with 711 parking spaces, located in
Arlington, Virginia. The occupancy rate of the
Courthouse Plaza I Property as of January 30, 1998
was approximately 97.1%. Major tenants include the
Arlington County Government, AMC Theatres, ANADAC
Inc. and Ceridian. An appraisal completed in
November, 1997 determined a value of $69,100,000 for
the Courthouse Plaza I Property, resulting in a
Cut-Off Date LTV of approximately 70.5%. The DSCR
based on Underwritable Cash Flow for the Courthouse
Plaza I Property as of the Cut-Off Date is
approximately 1.49x.
The Courthouse Plaza I Loan is an EMD Loan. Its
Effective Maturity Date is January 1, 2008 and its
Maturity Date is January 1, 2028. It bears interest
at its Initial Interest Rate of 7.19% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 9.19%. The Monthly
Payment of the Courthouse Plaza I Loan is
$331,596.47, based on a 360 month amortization
schedule, and its Effective Maturity Date Balance is
expected to be $42,147,916.
Voluntary prepayment is prohibited under the
Courthouse Plaza I Loan prior to the date that is 3
months prior to the Effective Maturity Date. From and
after such date the Courthouse Plaza I Loan may be
voluntarily prepaid, in whole or in part, without
payment of a Prepayment Charge, on any Due Date.
From and after the date that is 3 years after the
Closing Date until the Effective Maturity Date, the
Courthouse Plaza I Borrower may deposit U.S.
Obligations as substitute collateral for the
Courthouse Plaza I Property provided that certain
conditions are satisfied, as more fully described
herein.
K. QUAIL SPRINGS MALL... The "Quail Springs Mall Loan" has a principal
balance as of the Cut-Off Date of approximately
$45,000,000 and is evidenced by a Note issued by
Dayjay Associates, an Oklahoma general partnership
(the "Quail Springs Mall Borrower"). The Quail Springs
Mall Loan is secured by a first priority mortgage lien
encumbering a portion
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<PAGE>
of a regional shopping mall located in Oklahoma City,
Oklahoma (the "Quail Springs Mall Property"). The
Quail Springs Mall Borrower is indirectly owned by
General Growth Properties, Inc. (33.17%), certain
family trusts of the founding stockholders of General
Growth Properties, Inc. (16.83%), and JC Penney
Company Inc. (50%).
The Quail Springs Mall Property consists of a portion
of the Quail Springs Mall, an enclosed 3-level,
4-anchor, super-regional mall located in northern
Oklahoma City, Oklahoma, containing approximately
1,112,036 square feet (including 687,853 square feet
of self-owned anchor stores, 329,183 square feet of
mall stores and 95,000 square feet of theater GLA
under construction). The occupancy rate of the Quail
Springs Mall Property as of December 31, 1997 was
approximately 78%. Anchor stores at the Quail Springs
Mall are Dillard's, Sears, JC Penney and Foley's and
significant mall store tenants include The Gap, Gap
Kids, The Disney Store, Champs Sports, and The
Limited. Recently signed leases include Eddie Bauer,
Abercrombie and Fitch and Zales Jewelers. The
calculated value of the Quail Springs Mall Property
based on Underwritable NOI of $7,263,889 and an 8.5%
capitalization rate was $85,457,518, resulting in a
Cut-Off Date LTV of approximately 52.7%. The DSCR
based on Underwritable Cash Flow for the Quail
Springs Mall Property as of the Cut-Off Date is
approximately 1.95x.
The Quail Springs Mall Loan is an EMD Loan. Its
Effective Maturity Date is June 1, 2008 and its
Maturity Date is June 1, 2028. It bears interest at
its Initial Interest Rate of 6.82% until its
Effective Maturity Date and thereafter bears interest
at its Revised Interest Rate of 8.82%. The Monthly
Payment of the Quail Springs Mall Loan is
$293,966.09, based on a 360 month amortization
schedule, and its Effective Maturity Date Balance is
$39,064,080.
Voluntary prepayment is prohibited under the Quail
Springs Mall Loan prior to the date that is 120 days
prior to the Effective Maturity Date. From and after
such date the Quail Springs Mall Loan may be
voluntarily prepaid, in whole or in part, without
payment of a Prepayment Charge, on any Due Date.
From and after the date that is 2 years after the
Closing Date until the Effective Maturity Date, the
Quail Springs Mall Borrower may deposit U.S.
Obligations as substitute collateral for the Quail
Springs Mall Property provided that certain
conditions are satisfied, as more fully described
herein.
L. ORIGINATORS......... To facilitate loan closings, MSMC engaged Secore
Financial Corporation, a Pennsylvania corporation
("Secore") to originate all of the Mortgage Loans
other than the Glenborough Pool Loan and the Wells
Fargo Office Tower Loan. Wells Fargo originated the
Glenborough Pool Loan and the Wells Fargo Office Tower
Loan. Secore and Wells Fargo are collectively referred
to herein as the "Originators". MSMC will make certain
representations and warranties with respect to the
Mortgage Loans.
M. GENERAL............. For a further description of the Mortgage Loans and
Mortgaged Properties, see "Description of the
Mortgaged Properties and the Mortgage Loans" and
"Mortgage Pool Characteristics" herein.
N. PREPAYMENT AND
DEFEASANCE
PROVISIONS.......... The following table sets forth certain general
information regarding the prepayment and defeasance
provisions of the Mortgage Loans.
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<PAGE>
PREPAYMENT AND DEFEASANCE TERMS
<TABLE>
<CAPTION>
MORTGAGE LOAN LOAN TYPE LOCKOUT PERIOD TO
- ------------------------------ ----------- --------------------------
<S> <C> <C>
Hotel Del Coronado ........... EMD January 1, 2008, its
EMD
CenterAmerica Pool ........... EMD June 1, 2008,
its EMD
Wells Fargo Office Tower ..... EMD April 30, 2005,
its EMD
West Town Mall ............... Interest November 1, 2007 (180
only EMD days prior to its EMD)
Magellan Apartment Pool ...... EMD August 1, 2007; 3 months
prior to its EMD
Glenborough Pool ............. EMD September 11, 2000
EQR Apartment Pool ........... Interest January 1, 2008, 3
Only EMD months prior to its EMD
Charlestowne Mall ............ EMD December 1, 2004, 3
months prior to its EMD
Ramco-Gershenson Pool ........ EMD September 1, 2007, 3
months prior to its EMD
Courthouse Plaza I ........... EMD October 1, 2007, 3
months prior to its EMD
Quail Springs Mall ........... EMD February 1, 2008 (120
days prior to June 1,
2008, its EMD)
<CAPTION>
PREPAYMENT PREPAYMENT
FEE/YIELD FEE/YIELD
DEFEASANCE MAINTENANCE MAINTENANCE
MORTGAGE LOAN TERM TERM(1) PREMIUM(2)
- ------------------------------ --------------------------- ------------------------ ------------
<S> <C> <C> <C>
Hotel Del Coronado ........... From 2 yrs. after N/A (3)
Closing Date to EMD
CenterAmerica Pool ........... From 2 yrs. after N/A (3)
Closing Date to EMD
Wells Fargo Office Tower ..... From 2 yrs. after Closing N/A (4)
Date to EMD
West Town Mall ............... From October 17, 2000 N/A (5)
to November 1, 2007
Magellan Apartment Pool ...... From 2 yrs. after Closing N/A (3)
Date to EMD
Glenborough Pool ............. N/A September 12, 2000 (6)
to October 1, 2007, its
EMD
EQR Apartment Pool ........... From 2 yrs. after Closing N/A (3)
Date to EMD
Charlestowne Mall ............ From 2 yrs. after Closing N/A (3)
Date to EMD
Ramco-Gershenson Pool ........ From 2 yrs. after Closing N/A (3)
Date to EMD
Courthouse Plaza I ........... From 3 yrs. after Closing N/A (3)
Date to EMD
Quail Springs Mall ........... From 2 yrs. after Closing N/A (3)
Date to EMD
</TABLE>
- --------
(1) All Mortgage Loans require payment of a Prepayment Charge if paid prior
to the end of their Lockout Period as a result of a Loan Default.
(2) A more complete description of the prepayment fee or yield maintenance
premium provisions for each Mortgage Loan is contained in the
descriptions of each Mortgage Loan set forth under "Description of the
Mortgaged Properties and Mortgage Loans" herein. A definition of the term
"Yield Maintenance Premium" is set forth under "Mortgage Pool
Characteristics--Certain Mortgage Loan Definitions."
(3) Prepayment Charge payable, if prepayment due to a Loan Default, is
greater of 1% of outstanding principal and Yield Maintenance Premium.
(4) Prepayment Charge payable, if prepayment due to a Loan Default, is the
amount which, when added to the amount accelerated, would be sufficient
to purchase U.S. Obligations to defease loan to EMD.
(5) Prepayment Charge payable, if prepayment due to a Loan Default, is Yield
Maintenance Premium, calculated to date 6 months prior to EMD.
(6) Prepayment Charge payable is greater of 1% of outstanding principal and
Yield Maintenance Premium.
THE OFFERED
CERTIFICATES........... The Class A-1 Certificates will have an initial
Certificate Principal Amount of $ .
The Class A-2 Certificates will have an initial
Certificate Principal Amount of $ .
The Class A-3 Certificates will have an initial
Certificate Principal Amount of $ .
The Class A-1, Class A-2 and Class A-3 Certificates
are collectively referred to herein as the "Class A
Certificates". The Class A-1, Class A-2, Class A-3,
Class B, Class C, Class D, Class E, Class F, Class G
and Class H Certificates are collectively referred to
herein as the "Principal Balance Certificates".
The Class X Certificates will have an initial
Notional Amount of approximately $ . The Notional
Amount of the Class X Certificates will generally be
equal to the sum of the Certificate Principal Amounts
of the Class A-1, Class A-2,
S-21
<PAGE>
Class A-3, Class B, Class C, Class D, Class E, Class
F, Class G and Class H Certificates, plus the amount
of any unpaid Interest Shortfall on such Classes.
The Class B Certificates will have an initial
Certificate Principal Amount of $ .
The Class C Certificates will have an initial
Certificate Principal Amount of $ .
The Class D Certificates will have an initial
Certificate Principal Amount of $ .
THE PRIVATE
CERTIFICATES........... The Class E Certificates will have an initial
Certificate Principal Amount of $ .
The Class F Certificates will have an initial
Certificate Principal Amount of $ .
The Class G Certificates will have an initial
Certificate Principal Amount of $ .
The Class H Certificates will have an initial
Certificate Principal Amount of $ .
The Class Q, Class R and Class LR Certificates will
not have Certificate Principal Amounts or Notional
Amounts.
The Class E, Class F, Class G, Class H, Class Q,
Class R and Class LR Certificates are not offered
hereby.
PASS-THROUGH RATES..... The per annum rate at which interest accrues (the
"Pass-Through Rate") on each Class of Offered
Certificates during any Interest Accrual Period will
be as follows:
The Pass-Through Rate on the Class A-1 Certificates
will be % per annum.
The Pass-Through Rate on the Class A-2 Certificates
will be % per annum, provided, however, in no event
will the Class A-2 Pass-Through Rate exceed the WAC
Rate.
The Pass-Through Rate on the Class A-3 Certificates
will be % per annum, provided, however, in no event
will the Class A-3 Pass-Through Rate exceed the WAC
Rate.
The Pass-Through Rate on the Class X Certificates
will be a per annum rate equal to the weighted
average of the Pass-Through Rates on the Class A-1
Component, the Class A-2 Component, the Class A-3
Component, the Class B Component, the Class C
Component, the Class D Component, the Class E
Component, the Class F Component, the Class G
Component, and the Class H Component, weighted on the
basis of their respective Component Notional Amounts.
The Pass-Through Rate on the Class A-1 Component is a
per annum rate equal to the WAC Rate minus the
Pass-Through Rate on the Class A-1 Certificates. The
Pass-Through Rate on the Class A-2 Component is a per
annum rate equal to the WAC Rate minus the
Pass-Through Rate on the Class A-2 Certificates. The
Pass-Through Rate on the Class A-3 Component is a per
annum rate equal to the WAC Rate minus the
Pass-Through Rate on the Class A-3 Certificates. The
Pass-Through Rate on the Class B Component is a per
annum rate equal to %. The Pass-Through Rate on the
Class C Component is a per annum rate equal to %.
The Pass-Through Rate on the Class D Component is a
per annum rate equal to %. The Pass-Through Rate on
the Class E Component is a per annum rate equal to
%. The
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<PAGE>
Pass-Through Rate on the Class F Component is a per
annum rate equal to %. The Pass-Through Rate on the
Class G Component is a per annum rate equal to %.
The Pass-Through Rate on the Class H Component is a
per annum rate equal to the WAC Rate minus the
Pass-Through Rate on the Class H Certificates.
The Pass-Through Rate on the Class B Certificates is
a per annum rate equal to the WAC Rate minus %.
The Pass-Through Rate on the Class C Certificates is
a per annum rate equal to the WAC Rate minus %.
The Pass-Through Rate on the Class D Certificates is
a per annum rate equal to the WAC Rate minus %.
The Pass-Through Rate on the Class E Certificates is
a per annum rate equal to the WAC Rate minus %.
The Pass-Through Rate on the Class F Certificates is
a per annum rate equal to the WAC Rate minus %.
The Pass-Through Rate on the Class G Certificates is
a per annum rate equal to the WAC Rate minus %.
The Pass-Through Rate on the Class H Certificates
will be % per annum.
Calculations of interest on the Offered Certificates
will be made on the basis of a 360-day year
consisting of twelve 30-day months.
The "WAC Rate" for any Distribution Date is the
weighted average of the Net Mortgage Rates in effect
for the Mortgage Loans as of their Due Date in the
month preceding the month in which such Distribution
Date occurs weighted on the basis of their respective
Stated Principal Balances on such Due Date.
The "Net Mortgage Rate" with respect to any Mortgage
Loan is a per annum rate equal to the related
Mortgage Rate in effect from time to time minus the
Servicing Fee Rate. However, for purposes of
calculating Pass-Through Rates, the Net Mortgage Rate
for any Mortgage Loan shall be determined without
regard to any modification, waiver or amendment of
the terms of such Mortgage Loan, whether agreed to by
the Special Servicer or resulting from a bankruptcy,
insolvency or similar proceeding involving the
related borrower.
The "Mortgage Rate" with respect to any Mortgage Loan
is the per annum rate in effect from time to time at
which interest accrues on such Mortgage Loan as
stated in the related Note, in each case without
giving effect to the Revised Rate or the Default
Rate. Notwithstanding the foregoing, if any Mortgage
Loan does not accrue interest on the basis of a
360-day year consisting of 12 30-day months, then,
for purposes of calculating Pass-Through Rates, the
Mortgage Rate of such Mortgage Loan for any 1-month
period preceding a related Due Date will be the
annualized rate at which interest would have to
accrue in respect of such Mortgage Loan on the basis
of a 360-day year consisting of 12 30-day months in
order to produce the aggregate amount of interest
actually accrued in respect of such Mortgage Loan
during such one-month period at the related Mortgage
Rate.
DISTRIBUTIONS.......... On each Distribution Date prior to the Cross-over
Date (as defined below), the Available Funds for such
Distribution Date, as further described under
"Description of the Offered
Certificates--Distributions" herein, will be
distributed in the following amounts and order of
priority:
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<PAGE>
First, pro rata, in respect of interest, to the Class
A-1, Class A-2, Class A-3 and Class X Certificates,
up to an amount equal to, and pro rata as among such
Classes in accordance with, the Interest Distribution
Amounts of such Classes;
Second, to the Class A Certificates, in reduction of
their respective Certificate Principal Amounts in the
following order: first, to the Class A-1
Certificates, second, to the Class A-2 Certificates
and third, to the Class A-3 Certificates, in each
case up to an amount equal to the lesser of (i) the
Certificate Principal Amount thereof and (ii) the
Principal Distribution Amount for such Distribution
Date;
Third, to the Class B Certificates, in respect of
interest, up to an amount equal to the aggregate
Interest Distribution Amount of such Class;
Fourth, to the Class B Certificates, in reduction of
the Certificate Principal Amount thereof, up to an
amount equal to the Principal Distribution Amount
less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the
Certificate Principal Amount thereof is reduced to
zero;
Fifth, to the Class B Certificates, an amount equal
to the aggregate of unreimbursed Realized Losses
previously allocated to such Class, plus interest
thereon at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized
Loss was allocated to such Class;
Sixth, to the Class C Certificates, in respect of
interest, up to an amount equal to the aggregate
Interest Distribution Amount of such Class;
Seventh, to the Class C Certificates, in reduction of
the Certificate Principal Amount thereof, up to an
amount equal to the Principal Distribution Amount
less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the
Certificate Principal Amount thereof is reduced to
zero;
Eighth, to the Class C Certificates, an amount equal
to the aggregate of unreimbursed Realized Losses
previously allocated to such Class, plus interest
thereon at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized
Loss was allocated to such Class;
Ninth, to the Class D Certificates in respect of
interest, up to an amount equal to the aggregate
Interest Distribution Amount of such Class;
Tenth, to the Class D Certificates, in reduction of
the Certificate Principal Amount thereof, up to an
amount equal to the Principal Distribution Amount
less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the
Certificate Principal Amount thereof is reduced to
zero;
Eleventh, to the Class D Certificates, an amount
equal to the aggregate of unreimbursed Realized
Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such
Class compounded monthly from the date the related
Realized Loss was allocated to such Class; and
Twelfth, to the Private Certificates in the amounts
and order of priority described under "Description of
the Certificates--Distributions--Payment Priorities"
herein.
On each Distribution Date occurring on and after the
Cross-over Date, regardless of the allocation of
principal payments described in priority second in
the preceding sentence, an amount equal to the
aggregate of the Principal Distribution Amounts will
be distributed, first, to the Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates,
pro rata, based on their respective Certificate
Principal Amounts, in reduction of their respective
Certificate Principal Amounts until the Certificate
Principal Amount of each such Class is reduced to
zero; and second, to
S-24
<PAGE>
the Class A-1 Certificates, Class A-2 Certificates
and Class A-3 Certificates, for unreimbursed amounts
of Realized Losses previously allocated to such
Classes, pro rata, in accordance with the amount of
such unreimbursed Realized Losses previously
allocated to each such Class, plus interest thereon
at the Pass-Through Rate for such Class compounded
monthly from the date the Realized Loss was allocated
to such Class. The "Cross-over Date" is the
Distribution Date on which the Certificate Principal
Amount of each of the Principal Balance Certificates
other than the Class A Certificates has been reduced
to zero. The Class X Certificates will not be
entitled to any distributions of principal.
The "Interest Distribution Amount" with respect to
any Distribution Date and each Class of Offered
Certificates will equal (A) the sum of (i) the
Interest Accrual Amount for such Distribution Date
and (ii) the Interest Shortfall, if any, for such
Distribution Date, less (B) the amount of any Excess
Prepayment Interest Shortfall allocated to such Class
as described under "--Subordination" below. The
"Interest Accrual Amount", with respect to any
Distribution Date and any Class of Principal Balance
Certificates, is equal to interest for the related
Interest Accrual Period at the Pass-Through Rate for
such Class on the related Certificate Principal
Amount of such Class, and with respect to any
Distribution Date and the Class X Certificates is
equal to interest for the related Interest Accrual
Period at the Pass-Through Rate for such Class for
such Interest Accrual Period on the applicable
Notional Amount of such Class.
An "Interest Shortfall" with respect to any
Distribution Date for any Class of Offered
Certificates is the sum of (a) the excess, if any, of
(i) the Interest Distribution Amount for such Class
for the immediately preceding Distribution Date, over
(ii) all distributions of interest (other than any
Deferred Interest) made with respect to such Class of
Certificates on the immediately preceding
Distribution Date, and (b) to the extent permitted by
applicable law, (i) other than in case of the Class X
Certificates, one month's interest on any such excess
at the Pass-Through Rate applicable to such Class of
Certificates for the current Distribution Date, and
(ii) in the case of the Class X Certificates, one
month's interest on any such excess at the WAC Rate
for such Distribution Date.
For purposes of calculating the Interest Accrual
Amount for any Class of Offered Certificates and any
Distribution Date, any reduction of Certificate
Principal Amount or Notional Amount, as applicable,
as a result of distributions to such Class or any
related Class, respectively, and reductions in
Certificate Principal Amount or Notional Amount, as
applicable, as a result of the occurrence and
allocations of Realized Losses on the Distribution
Date occurring in the related Interest Accrual Period
shall be deemed to have been made on the first day of
such Interest Accrual Period.
The "Principal Distribution Amount" for any
Distribution Date is equal to the sum for all
Mortgage Loans, without duplication of (i) the
principal component of all Monthly Payments (other
than Balloon Payments) due on the Due Date
immediately preceding such Distribution Date (if
received, or advanced by the Master Servicer or
Trustee in respect of such Distribution Date) with
respect to the Mortgage Loans, (ii) the principal
component of all Extended Monthly Payments due on the
related Due Date (if received, or advanced by the
Master Servicer or Trustee, in respect of such
Distribution Date) with respect to the Mortgage
Loans, (iii) the principal component of any payment
(including any Balloon Payment) on any Mortgage Loan
received or applied on or after the maturity date
thereof in the related Collection Period, (iv) the
portion of Unscheduled Payments allocable to
principal of any Mortgage Loan received or applied
during the related Collection
S-25
<PAGE>
Period, net of the principal portion of any
unreimbursed P&I Advances related to such Mortgage
Loan, and (v) the principal portion of the Repurchase
Price with respect to each Mortgage Loan received or
applied during the related Collection Period from the
Trust Fund.
Any Prepayment Premiums received will be distributed
to the holders of the Class X, Class A-1, Class A-2,
Class A-3, Class B, Class C and Class D Certificates
in the manner and priority described in "Description
of the Offered Certificates--Distributions--Prepayment
Premiums".
Any Deferred Interest received with respect to the
Mortgage Loans will be distributed in the following
percentages to holders of the following Classes: %
to the Class B Certificates, % to the Class C
Certificates, % to the Class D Certificates, % to
the Class E Certificates, % to the Class F
Certificates, % to the Class G Certificates and %
to the Class H Certificates.
Except as described in this paragraph, the holders of
the Class Q, Class R and Class LR Certificates will
not be entitled to distributions of interest or
principal. The holders of the Class Q Certificates
will be entitled to distributions of Net Default
Interest to the extent set forth in the Pooling
Agreement. The holders of the Class R Certificates
will be entitled to receive any Available Funds
remaining in the Upper-Tier Distribution Account on
any Distribution Date after all distributions with
respect to the Regular Certificates on such
Distribution Date have been made. The Class LR
Certificateholders will be entitled to receive any
funds remaining in the Lower-Tier Distribution
Account on any Distribution Date after all
distributions with respect to the regular interests
in the Lower-Tier REMIC on such Distribution Date
have been made. The Class LR Certificateholders will
also be entitled to receive the proceeds of the
remaining assets in the Lower-Tier REMIC, if any,
after the Certificate Principal Amounts of the
Regular Certificates have been reduced to zero and
the holders of the Regular Certificates have received
all other distributions to which they are entitled.
It is not anticipated that there will be any assets
remaining in the Lower-Tier REMIC on such date.
See "Description of the Offered
Certificates--Distributions".
P&I ADVANCES........... The Master Servicer is required to make an advance
(each, a "P&I Advance") in respect of delinquent
Monthly Payments on the Mortgage Loans, subject to the
limitations described herein. P&I Advances will
generally equal the delinquent portion of the Monthly
Payment as specified in the related Note (with
interest calculated at the Net Mortgage Rate plus the
Trustee Fee Rate). The Master Servicer will not be
required to advance Default Interest, Deferred
Interest, Prepayment Premiums or Balloon Payments. The
amount required to be advanced in respect of any
Distribution Date and any delinquent Monthly Payments
on a Mortgage Loan that has been subject to an
Appraisal Reduction Event (as defined herein) will
equal (i) the amount required to be advanced by the
Master Servicer without giving effect to the related
Appraisal Reduction Amount, less (ii) the product of
(a) the amount required to be advanced by the Master
Servicer in respect of delinquent payments of interest
without giving effect to the related Appraisal
Reduction Amount and (b) a fraction, the numerator of
which is the Appraisal Reduction Amount and the
denominator of which is the Stated Principal Balance
of such Mortgage Loan as of the last day of the
related Collection Period. If the Master Servicer
fails to make a required P&I Advance, the Trustee, as
acting or successor Master Servicer, acting in
accordance with the Servicing Standard, will be
required to make the P&I Advance. See "The Pooling
Agreement--Advances" herein.
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SUBORDINATION.......... Except as described below, as a means of providing a
certain amount of protection to the holders of the
Class A and Class X Certificates against losses
associated with delinquent and defaulted Mortgage
Loans, the rights of the holders of the Class B, Class
C, Class D, Class E, Class F, Class G and Class H
Certificates to receive distributions of interest
(other than Deferred Interest) and principal, as
applicable, will be subordinated to such rights of the
holders of the Classes of the Class A and Class X
Certificates. The Class B Certificates will likewise
be protected by the subordination of the Class C,
Class D, Class E, Class F, Class G and Class H
Certificates. The Class C Certificates will be
likewise protected by the subordination of the Class
D, Class E, Class F, Class G and Class H Certificates.
The Class D Certificates will be likewise protected by
the subordination of the Class E, Class F, Class G and
Class H Certificates. The Class E Certificates will
likewise be protected by the subordination of the
Class F, Class G and Class H Certificates. The Class F
Certificates will likewise be protected by the
subordination of the Class G and Class H Certificates.
The Class G Certificates will likewise be protected by
the subordination of the Class H Certificates. This
subordination will be effected in two ways: (i) by the
preferential right of holders of a Class of
Certificates to receive on any Distribution Date the
amounts of interest (other than Deferred Interest) and
principal distributable in respect of such
Certificates on such date prior to any distribution
being made on such Distribution Date in respect of any
Classes of Certificates subordinate thereto and (ii)
by the allocation of Realized Losses, first, to the
Class H Certificates; second, to the Class G
Certificates; third, to the Class F Certificates;
fourth, to the Class E Certificates; fifth, to the
Class D Certificates; sixth, to the Class C
Certificates; seventh, to the Class B Certificates;
and finally, to the Class A-1, Class A-2 and Class A-3
Certificates, pro rata, based on their respective
outstanding Certificate Principal Amounts. No other
form of credit enhancement will be available for the
benefit of the holders of the Offered Certificates.
See "Description of the Offered Certificates" herein.
Shortfalls in Available Funds resulting from
Servicing Compensation other than the Servicing Fee,
interest on Advances (to the extent not covered by
Default Interest), Excess Prepayment Interest
Shortfalls, extraordinary expenses of the Trust Fund,
a reduction of the interest rate of a Mortgage Loan
by a bankruptcy court or other unanticipated or
default-related expenses of the Trust Fund for which
there is no corresponding collection from the
borrower will be allocated in the same manner as
Realized Losses. See "Description of the Offered
Certificates--Distributions--Payment Priorities"
herein.
OPTIONAL TERMINATION... The Depositor, and if the Depositor does not
exercise the option, the Master Servicer and, if
neither the Master Servicer nor the Depositor
exercises the option, the holders of the Class LR
Certificates representing greater than a 50%
Percentage Interest of the Class LR Certificates, will
have the option to purchase, at the purchase price
specified herein, all of the Mortgage Loans, and all
property acquired through exercise of remedies in
respect of any Mortgage Loan, remaining in the Trust
Fund, and thereby effect the termination of the Trust
Fund and early retirement of the then outstanding
Certificates, on any Distribution Date on which the
aggregate Stated Principal Balance of the Mortgage
Loans remaining in the Trust Fund is less than 1% of
the aggregate Stated Principal Balance of the Mortgage
Loans as of the Cut-Off Date.
See "The Pooling Agreement--Optional Termination"
herein.
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<PAGE>
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES....... The Trust Fund will include two separate real estate
mortgage investment conduits (each, a "REMIC"). One
REMIC (the "Lower-Tier REMIC") will hold the Mortgage
Loans and any related property. Collections in the
Lower-Tier REMIC will be used to make payments of
principal and interest on regular interests in the
Lower-Tier REMIC held by the second REMIC (the
"Upper-Tier REMIC"), and which in turn are used to
make distributions on the Certificates (other than the
Class LR and Class Q Certificates), which represent
interests in the Upper-Tier REMIC. For ease of
presentation, distributions will generally be
described herein as if made directly from collections
on the Mortgage Loans to the holders of the
Certificates.
Elections will be made to treat each of the
Lower-Tier REMIC and the Upper-Tier REMIC as REMICs
and in the opinion of counsel, each will qualify as a
REMIC for federal income tax purposes. The Class A-1,
Class A-2, Class A-3, Class X, Class B, Class C,
Class D, Class E, Class F, Class G and Class H
Certificates (collectively, the "Regular
Certificates") will represent "regular interests" in
the Upper-Tier REMIC, and the Class R and Class LR
Certificates (collectively, the "Residual
Certificates") will be designated as the sole Classes
of "residual interests" in the Upper-Tier REMIC and
Lower-Tier REMIC, respectively. In addition, the
Class B, Class C, Class D, Class E, Class F, Class G
and Class H Certificates also represent undivided
beneficial interests in portions of the Deferred
Interest, which portions of the Trust Fund will be
treated as part of a grantor trust for federal income
tax purposes. Furthermore, the Class Q Certificates
will represent the right to receive Net Default
Interest, which portion of the Trust Fund will be
treated as part of the grantor trust for federal
income tax purposes.
The regular interests represented by the Offered
Certificates will be treated as newly originated debt
instruments for federal income tax purposes.
Beneficial owners will be required to report income
thereon in accordance with the accrual method of
accounting. Although not free from doubt, it is
anticipated that the Class X Certificates will be
treated as issued with original issue discount for
income tax purposes in an amount equal to the excess
of all distributions of interest expected to be
received thereon over their issue price, including
accrued interest. [It is anticipated that the regular
interests represented by the Class A-1, Class A-2,
Class A-3, Class B, Class C and Class D Certificates
will be issued at a premium for federal income tax
purposes.] See "Certain Federal Income Tax
Consequences" herein and "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC
Regular Certificates" in the Prospectus. Although not
free from doubt, it is anticipated that any
Prepayment Premiums allocable to the Offered
Certificates will be ordinary income to a
Certificateholder as such amounts accrue. See
"Certain Federal Income Tax Consequences" herein.
CERTAIN ERISA
CONSIDERATIONS......... The United States Department of Labor has issued to
the Underwriter an individual prohibited transaction
exemption, Prohibited Transaction Exemption 90-24 (the
"Exemption"), which generally exempts from the
application of certain of the prohibited transaction
provisions of Sections 406 and 407 of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), and the excise taxes imposed by Sections
4975(a) and (b) of the Internal Revenue Code of 1986,
as amended (the "Code"), and the civil penalties
imposed by 502(i) of ERISA, transactions relating to
the purchase, sale and holding of pass-through
certificates, such as the Offered Certificates, by
employee benefit plans and certain other retirement
arrangements, including individual retirement accounts
and Keogh plans, which are subject to Title I of ERISA
and/or Section 4975 of the Code (each
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<PAGE>
of which is hereinafter referred to as a "Plan"),
collective investment funds in which such Plans are
invested, and insurance companies using assets of
separate accounts or general accounts which include
assets of Plans (or which are deemed pursuant to
ERISA to include assets of Plans) and the servicing
and operation of mortgage pools such as the Mortgage
Pool, provided that certain conditions are satisfied.
See "Certain ERISA Considerations" herein and in the
Prospectus.
The Underwriter believes that the conditions to the
applicability of the Exemption will generally be met
with respect to the Class A-1, Class A-2, Class A-3
and Class X Certificates (the "Senior Offered
Certificates"), other than possibly those conditions
which are dependent on facts unknown to the
Underwriter or which it cannot control, such as those
relating to the circumstances of the Plan purchaser
or the Plan fiduciary making the decision to purchase
any such Class of Certificates. However, before
purchasing an Offered Certificate, a fiduciary of a
Plan should make its own determination as to the
availability of the exemptive relief provided by the
Exemption or the availability of any other exemption
and whether the conditions of any such exemption will
be applicable to the Offered Certificates.
The Exemption does not apply to the purchase or
holding of Certificates by Plans sponsored by the
Depositor, the Underwriter, the Trustee, the Master
Servicer, any obligor with respect to Mortgage Loans
included in the Trust Fund constituting more than
five percent of the aggregate unamortized principal
balance of the assets in the Trust Fund, or any
affiliate of such parties (the "Restricted Group").
THE CLASS B, CLASS C AND CLASS D CERTIFICATES ARE
SUBORDINATE TO ONE OR MORE OTHER CLASSES OF
CERTIFICATES, AND, ACCORDINGLY, SUCH CERTIFICATES MAY
NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN OR ANY
PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF
ANY SUCH PLAN, UNLESS SUCH PERSON IS AN INSURANCE
COMPANY INVESTING THE ASSETS OF ITS GENERAL ACCOUNT
UNDER CIRCUMSTANCES WHEREBY THE PURCHASE AND HOLDING
OF ANY SUCH CERTIFICATE WOULD BE EXEMPT FROM THE
PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE
CODE UNDER PROHIBITED TRANSACTION CLASS EXEMPTION
95-60.
RATINGS................ It is a condition to the issuance of the Offered
Certificates that (i) each of the Class A-1, Class A-2
and Class A-3 Certificates be rated " " by Fitch
IBCA, Inc. ("Fitch") and " " by Standard & Poor's
Ratings Services, a division of the McGraw-Hill
Companies, Inc. ("S&P", and collectively with Fitch,
the "Rating Agencies"); (ii) the Class B Certificates
be rated " " by Fitch and " " by S&P; (iii) the
Class C Certificates be rated " " by Fitch and " "
by S&P; (iv) the Class D Certificates be rated " "
by Fitch and " " by S&P; and (v) the Class X
Certificates be rated " " by Fitch and " " by S&P.
The ratings on the Offered Certificates address the
likelihood of the timely receipt by holders thereof of
all distributions of interest to which they are
entitled and, except in the case of the Class X
Certificates, the ultimate distribution of principal
by the Rated Final Distribution Date. A security
rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning Rating Agency.
A security rating does not address the frequency of
prepayments (both voluntary and involuntary) or the
possibility that Certificateholders might receive a
lower than anticipated yield, nor does a security
rating address the likelihood of receipt of Prepayment
Premiums, Deferred Interest or Default Interest or the
tax treatment of the Certificates. A security rating
does not
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<PAGE>
represent any assessment of the yield to maturity
that investors may experience or the possibility that
the holders of the Class X Certificates might not
fully recover their initial investment in the event
of delinquencies or defaults, rapid prepayments (both
voluntary and involuntary), or the application of
Realized Losses. As described herein, the amounts
payable with respect to the Class X Certificates
consist only of interest. If all of the Mortgage
Loans were to prepay in the initial month, with the
result that the Class X Certificateholders receive
only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts
"due" to such holders will nevertheless have been
paid, and such result is consistent with the rating
received on the Class X Certificates. See "Ratings"
herein and "Yield Considerations" in the Prospectus.
LEGAL INVESTMENT....... The Class A-1, Class A-2, Class A-3, Class X and
Class B Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended ("SMMEA"),
so long as such Certificates are rated in one of the
two highest rating categories by one or more Rating
Agencies and the Mortgage Loans are secured by real
estate. The other Classes of Offered Certificates will
not constitute "mortgage related securities" within
the meaning of SMMEA. As a result, the appropriate
characterization of the Offered Certificates under
various legal investment restrictions, and thus the
ability of investors subject to these restrictions to
purchase the Offered Certificates of any Class, may be
subject to significant interpretative uncertainties.
In addition, institutions whose investment activities
are subject to review by federal or state regulatory
authorities may be or may become subject to
restrictions on the investment by such institutions in
certain forms of mortgage backed securities. Investors
should consult their own legal advisors to determine
the extent to which the Offered Certificates may be
purchased by such investors. See "Legal Investment"
herein and in the Prospectus.
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<PAGE>
RISK FACTORS
Prospective holders of Offered Certificates should consider, among other
things, the following factors in connection with the purchase of the Offered
Certificates.
THE MORTGAGE LOANS
Borrower Default; Nonrecourse Mortgage Loans. The Mortgage Loans are not
insured or guaranteed, in whole or in part, by any governmental entity, by any
private mortgage or other insurer, or by the Depositor, MSMC, the Master
Servicer, the Special Servicer, the Trustee, the Underwriter or any of their
respective subsidiaries, shareholders, partners, directors, officers, employees
or other affiliates.
Each Mortgage Loan is a nonrecourse loan as to which, in the event of a
default under such Mortgage Loan, recourse generally may be had only against
the specific properties and other assets that have been pledged to secure the
Mortgage Loan. See "Description of the Mortgaged Properties and the Mortgage
Loans" herein. Consequently, payment on each Mortgage Loan prior to maturity is
dependent primarily on the sufficiency of the net operating income of the
related Mortgaged Property, and at maturity (whether at scheduled maturity, if
applicable, or, in the event of a default under the related Mortgage Loan, upon
the acceleration of such maturity) upon the then market value of the related
Mortgaged Property or the ability of the related borrower to refinance the
Mortgaged Property.
Limitations with Respect to Representations and Warranties. MSMC will make
certain limited representations and warranties regarding the Mortgage Loans,
and such representations and warranties will be assigned by the Depositor to
the Trustee for the benefit of the Certificateholders. See "The Pooling
Agreement--Representations and Warranties; Repurchase" herein and Exhibit B
hereto for a summary of such representations and warranties. A material breach
of such representations and warranties that is not cured within a specified
time period may, under certain circumstances described herein, obligate MSMC to
repurchase the defective Mortgage Loan.
It is possible that one or more Mortgage Loans may contain defects without
giving rise to an obligation to repurchase on the part of MSMC. If MSMC is
required to but does not cure or remedy a breach of a representation or
warranty, payments on the Offered Certificates may be substantially less than
such payments would be if MSMC had cured or remedied such a breach. In
addition, in the event that MSMC repurchases a Mortgage Loan, the Repurchase
Price will be passed through to the holders of certain Classes of Certificates
with the same effect as if such Mortgage Loan had been prepaid in full (but
without any prepayment premium or yield maintenance charge), which may
adversely affect the yield to maturity on such Certificates. See "The Offered
Certificates--Special Prepayment, Yield and Loss Considerations" below.
The obligation of MSMC to repurchase a Mortgage Loan may constitute the
sole remedy available to holders of Certificates or the Trustee for a breach of
a representation or warranty by MSMC. None of the Depositor, the Master
Servicer, the Special Servicer, the Trustee or the Underwriter will be
obligated to purchase a Mortgage Loan if MSMC defaults on its obligation to
repurchase or cure, and no assurance can be given that MSMC will fulfill such
obligations. If such obligation is not met with respect to a breach that would
cause a Mortgage Loan not to be a "qualified mortgage" under the REMIC
provisions of the Code, the Upper-Tier REMIC and Lower-Tier REMIC may be
disqualified as REMICs. See "The Pooling Agreement--Representations and
Warranties; Repurchase" herein.
Commercial Lending Generally. The Mortgage Loans are secured by regional
mall properties, other retail properties, office properties, multifamily
properties, industrial properties and hotel properties. Commercial lending is
generally viewed as exposing a lender to a greater risk of loss than
residential one-to-four family lending since it typically involves larger loans
to a single borrower than residential one-to-four family lending. Lenders
typically look to the debt service coverage ratio of a loan secured by
income-producing property as an important measure of the risk of default on
such a loan. See "Concentration of Mortgage Loans and Mortgaged Property
Types".
Commercial property values and net operating income are subject to
volatility, and net operating income may be sufficient or insufficient to cover
debt service on the related Mortgage Loan at any given time. The repayment of
loans secured by income-producing properties is typically dependent upon the
successful operation of the related real estate project, the business operated
by the tenants and the creditworthiness of such tenants (i.e., the ability of
the applicable property to produce net operating income) rather than upon the
liquidation value of the underlying real estate. The volatility of property
values and net operating income depends upon a number of factors, including (i)
the volatility of property revenue, determined primarily by (a) the length of
tenant lease commitments, (b) the creditworthiness of tenants, (c) in the case
of retail properties characterized by rentals based all or in part on tenant
sales, the volume of those sales, (d) in the case
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<PAGE>
of hotel properties, the continued existence, reputation and financial strength
of the franchisor or hotel manager and the public perception of the franchise
or chain service mark, and (e) the variability of other property revenue
sources; and (ii) the property's "operating leverage," which generally refers
to (a) the percentage of total property operating expenses in relation to
property revenue, (b) the breakdown of property operating expenses between
those that are fixed and those that vary with revenue and (c) the level of
capital expenditures required to maintain the property and retain or replace
tenants. Even when the current net operating income is sufficient to cover debt
service, there can be no assurance that this will continue to be the case in
the future. The net operating income and value of the Mortgaged Properties may
be adversely affected by a number of factors, including, but not limited to,
national, regional and local economic conditions (which may be adversely
impacted by plant closings, industry slowdowns and other factors); local real
estate conditions (such as an oversupply of retail space, office space or
housing); changes or continued weakness in specific industry segments;
perceptions by prospective tenants and, in the case of retail properties,
retailers and shoppers, of the safety, convenience, condition, services and
attractiveness of the property; the proximity and availability of competing
alternatives to the Mortgaged Property; the willingness and ability of the
property's owner to provide capable management and adequate maintenance;
demographic factors; consumer confidence, unemployment rates, customer tastes
and preferences; retroactive changes to building or similar codes; and
increases in operating expenses (such as energy costs).
Net operating income from a real estate project may be reduced, and the
borrower's ability to repay the loan impaired, as a result of, among other
things, an increase in vacancy rates for the project, a decline in rental rates
as leases are renewed or entered into with new tenants, an increase in
operating expenses of the project and/or an increase in capital expenditures
needed to maintain the project and make improvements required by tenants. In
the case of Mortgage Loans that are secured by Mortgaged Properties leased to a
single tenant, or with high tenant concentrations, a deterioration in the
financial condition of such tenant, resulting in a failure to pay rent, may
have a disproportionately greater effect on the net operating income from such
Mortgaged Properties than would be the case with respect to Mortgaged
Properties with multiple tenants. Mortgage Loans secured by Mortgaged
Properties leased to a single tenant or to a small number of tenants are also
more susceptible to interruptions of cash flow if such tenants decide not to
renew their leases, since the impact of such a decision is proportionately
greater, the time required to re-lease the space may be longer and greater
capital costs may be incurred in making the space appropriate for replacement
tenants than would be the case with Mortgaged Properties having a larger number
of relatively smaller tenants. For example, Wal-Mart, in the aggregate, leases
approximately 34.3% of the Ramco-Gershenson Pool Property GLA and represents
28.0% of the Annualized Base Rent thereof. The Arlington County Government and
AMC Theatres represent approximately 52.0% and 10.5%, respectively, of the GLA
and approximately 54.2% and 6.0%, respectively, of the Annualized Base Rent of
the Courthouse Plaza I Property. Wells Fargo, Gibson, Dunn & Crutcher, Thelen
Marrin Johnson & Bridges LLP and Salomon Smith Barney represent approximately
19.0%, 16.8%, 4.0% and 3.8% respectively, of the net rentable area and
approximately 19.6%, 21.1%, 5.3% and 8.4% respectively, of the Annualized Base
Rent of the Wells Fargo Office Tower Property. In addition, several of the
other Mortgaged Properties have significant tenant concentrations. See "--Risks
of Concentration of Tenants" below. 2 of the 10 Glenborough Pool Properties are
leased to a single tenant and, in addition, 1 other Glenborough Pool Property
consists of 2 buildings, each of which is leased to a single tenant. In the
case of the Mortgage Loans secured by Mortgaged Properties having multiple
tenants, expenditures for re-leasing may be more frequent than would be the
case with respect to Mortgaged Properties with single tenants, thereby reducing
cash flow available for debt service payments. In addition, multi-tenanted
Mortgaged Properties may experience higher continuing vacancy rates and greater
volatility in rental income and expenses than single-tenanted Mortgaged
Properties.
The age, construction quality and design of a particular property may
affect the occupancy level as well as the rents that may be charged for
individual leases. The effects of poor construction quality will increase over
time in the form of increased maintenance and capital improvements needed to
maintain the property. Even good construction will deteriorate over time if the
property managers do not schedule and perform adequate maintenance in a timely
fashion. If, during the terms of the Mortgage Loans, competing properties of a
similar type are built in the areas where the Mortgaged Properties are located
or similar properties in the vicinity of the Mortgaged Properties are
substantially updated and refurbished, the value and net operating income of
such Mortgaged Properties could be reduced.
Additionally, some of the Mortgaged Properties may not readily be
convertible to alternative uses if such Mortgaged Properties were to become
unprofitable due to competition, age of the improvements, decreased demand,
regulatory changes or other factors. The conversion of commercial properties to
alternate uses generally requires substantial capital expenditures. Thus, if
the operation of any such Mortgaged Properties becomes unprofitable such that
the borrower becomes unable to meet its obligations on the related Mortgage
Loan, the liquidation value of any such Mortgaged Property may be
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<PAGE>
substantially less, relative to the amount owing on the related Mortgage Loan,
than would be the case if such Mortgaged Property were readily adaptable to
other uses. Zoning or other restrictions may also prevent alternate use; for
example, the Hotel Del Coronado, the sole property securing the Hotel Del
Coronado Loan, has been designated as an historical landmark and accordingly is
subject to certain limitations on alteration, expansion, demolition and
reconstruction of such property.
A decline in the real estate market, in the financial condition of a major
tenant or a general decline in the local, regional or national economy will
tend to have a more immediate effect on the net operating income of properties
with short-term revenue sources and may lead to higher rates of delinquency or
defaults. Historical operating results of the Mortgaged Properties may not be
comparable to future operating results. In addition, other factors may
adversely affect the Mortgaged Properties' value without affecting their
current net operating income, including changes in governmental regulations,
fiscal policy and zoning or tax laws; potential environmental legislation or
liabilities or other legal liabilities; the availability of refinancing; and
changes in interest rate levels. There is no assurance that the value of any
Mortgaged Property during the term of the related Mortgage Loan will equal or
exceed the appraised value or calculated value used in connection with the
origination of such Mortgage Loan.
Other retail, office, multifamily, industrial and hotel properties located
in the areas of the Mortgaged Properties compete with the Mortgaged Properties
of the same types to attract retailers, customers and tenants. Increased
competition could adversely affect income from and the market value of the
Mortgaged Properties.
The availability of credit for borrowers to refinance the Mortgage Loans
or sell Mortgaged Properties will be significantly dependent upon economic
conditions in the markets where the Mortgaged Properties are located, as well
as the willingness and ability of lenders to make such loans. Such lenders
typically include banks, insurance companies, finance companies and real estate
investment trusts. The availability of funds in the credit markets changes over
time and there can be no assurance that the availability of such funds will
increase above, or will not contract below, current levels. In addition, the
availability of assets similar to the Mortgaged Properties and the competition
for available credit may affect the ability of potential purchasers to obtain
financing for the acquisition of the Mortgaged Properties. The ability of the
Trust Fund to make distributions to the Certificateholders will depend
significantly on the ability of the borrowers to refinance the Mortgage Loans
or sell the Mortgaged Properties.
Concentration of Mortgage Loans and Mortgaged Property Types. The Hotel
Del Coronado Loan, the CenterAmerica Pool Loan and the Wells Fargo Office Tower
Loan represent approximately 17.8%, 17.6% and 15.5%, respectively, of the
aggregate principal balance of the Mortgage Loans as of the Cut-Off Date. Each
of the other Mortgage Loans represents less than 10% of the Cut-Off Date
aggregate principal balance. Regional mall properties, other retail properties,
office properties, multifamily properties, industrial properties and hotel
properties represent approximately 18.5%, 23.0%, 25.0%, 14.2%, 1.6% and 17.8%,
respectively, of the aggregate principal balance of the Mortgage Pool as of the
Cut-Off Date (based on the primary property type for combined properties).
A mortgage pool consisting of fewer loans, each having a relatively higher
outstanding principal balance, may result in losses that are more severe,
relative to the size of the pool, than would be the case if the pool consisted
of a greater number of mortgage loans each having a relatively smaller
outstanding principal balance. In addition, the concentration of any mortgage
pool in 1 or more loans that have outstanding principal balances that are
substantially larger than the other mortgage loans in such pool can result in
losses that are substantially more severe, relative to the size of the pool,
than would be the case if the aggregate balance of the pool were more evenly
distributed among the mortgage loans in such pool. Because there are only 11
Mortgage Loans, losses on any 1 Mortgage Loan may have a substantial negative
effect on the Offered Certificates.
Geographic Concentration. Repayments by borrowers and the market value of
the Mortgaged Properties could be adversely affected by economic conditions
generally or in regions where the Mortgaged Properties are located, conditions
in the real estate markets where the Mortgaged Properties are located, changes
in governmental rules and fiscal policies, acts of nature, including
earthquakes, floods and hurricanes (which may result in uninsured losses), and
other factors which are beyond the control of the borrowers. The Mortgaged
Properties are located in 16 states. The economy of any state or region in
which a Mortgaged Property is located may be adversely affected to a greater
degree than that of other areas of the country by certain developments
affecting industries concentrated in such state or region. Moreover, in recent
periods, several regions of the United States have experienced significant
downturns in the market value of real estate. For example, improvements on
Mortgaged Properties located in California may be more susceptible to certain
types of special hazards not fully covered by insurance (such as earthquakes)
than properties located in other parts of the country. In addition, the economy
of the State of California would be adversely affected to a greater degree than
that of other areas of the country by certain developments
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affecting industries concentrated in that state. A decline in the general
economic condition in regions in which Mortgaged Properties securing a
significant portion of the Mortgage Loans are located could result in a
decrease in commercial property, housing or consumer demand in the region and
the income from and market value of the Mortgaged Properties may be adversely
affected. See the table entitled "Mortgaged Properties by Location" under
"Mortgage Pool Characteristics--Certain Characteristics of the Mortgage Loans,"
for a description of the geographic location of the Mortgaged Properties. The
Hotel Del Coronado Property, the Wells Fargo Office Tower Property, 6 of the
Magellan Pool Properties and 1 Glenborough Pool Property are located in
California. The CenterAmerica Pool Properties are all located in Texas. The
table below sets forth the states in which a significant percentage of the
Mortgaged Properties are located and, except as set forth in the table below,
no state contains more than 5% (by Cut-Off Date Allocated Loan Amount) of the
Mortgaged Properties.
SIGNIFICANT GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
NUMBER OF ALLOCATED ALLOCATED WEIGHTED AVERAGE
STATE PROPERTIES LOAN AMOUNT LOAN AMOUNT DSCR
- -------------------- ------------ -------------- -------------- -----------------
<S> <C> <C> <C> <C>
California ......... 9 $365,433,925 39.5% 1.81x
Texas .............. 44 163,000,000 17.6 1.86
Tennessee .......... 3 88,115,877 9.5 2.61
Illinois ........... 2 58,568,677 6.3 1.79
Virginia ........... 2 53,759,262 5.8 1.53
</TABLE>
The aggregate principal balance of the Mortgage Loans secured by Mortgaged
Properties in each state was calculated based on the Cut-Off Date Allocated
Loan Amount of each Mortgaged Property, as described below under "Mortgage Pool
Characteristics--Certain Characteristics of the Mortgage Loans".
Risks Associated With Retail Properties. The CenterAmerica Pool
Properties, the West Town Mall Property, the Ramco-Gershenson Pool Properties,
the Charlestowne Mall Property and the Quail Springs Mall Property are retail
properties. The value of retail properties is significantly affected by the
quality of the tenants as well as fundamental aspects of real estate, such as
location and market demographics. The correlation between the success of tenant
businesses and property value may be more direct with respect to retail
properties than other types of commercial property because a significant
component of the total rent paid by retail tenants is often tied to a
percentage of gross sales. Whether a retail property is "anchored" or
"unanchored" is also an important distinction. Anchor tenants in shopping
centers play an important part in generating customer traffic and making a
center a desirable location for other tenants. Certain of the anchor store
premises in the West Town Mall Property, the Charlestowne Mall Property and the
Quail Springs Mall Property are owned by the anchor stores and not by the owner
of such Mortgaged Property. Accordingly, the property on which such stores are
located is not included in the Mortgaged Property securing the Mortgage Loan,
and the borrower under such Mortgage Loan does not receive rental income from
such anchor stores. The Charlestowne Mall Loan provides that 1 of the anchor
store premises and a portion of a second anchor store in the Charlestowne Mall
Property may be released from the lien of the Charlestowne Mall Mortgage,
subject to certain conditions as specified under "Description of the Mortgaged
Properties and the Mortgage Loans--Charlestowne Mall: The Borrower; The
Property--Release of Certain Anchor Parcels," and sold to, with respect to 1
such parcel, a prospective anchor, and with respect to a portion of the other
parcel, an affiliate of the existing anchor tenant. Upon such release, such
property would no longer be security for the Charlestowne Mall Loan, and the
Charlestowne Mall Borrower would not receive rental income from such anchor
stores. Malls which have self-owned anchor stores typically have operating
agreements between the mall owner and the anchor stores containing operating
covenants requiring the anchors to operate at the mall for a certain period of
time. Anchor tenant leases typically also have such operating covenants. At the
Quail Springs Mall Property, the operating covenants for all of the self-owned
anchors (Dillard's, Sears, JC Penney and Foley's) have expired, and accordingly
such anchors are not contractually obligated to operate at such property. At
the West Town Mall Property, the operating covenants for Sears and Proffitt's
expire in July 2004, prior to the May 1, 2008 Effective Maturity Date of the
West Town Mall Loan. The operating covenants of all other anchors at the West
Town Mall Property and the Charlestowne Mall Property expire within 3 years
after the Effective Maturity Date of the related Mortgage Loan and prior to the
Maturity Date of the related Mortgage Loan.
The failure of an anchor tenant to renew its lease, the termination of an
anchor tenant's lease, the bankruptcy or economic decline of an anchor tenant,
or the cessation of the business of a self-owned anchor or an anchor tenant
(notwithstanding its continued payment of rent) can have a material negative
effect on the economic performance of a retail
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property. At the Wynnewood Village Property (which represents approximately 9%
of the Allocated Loan Amount of the CenterAmerica Pool Loan), one of the
anchors, Montgomery Ward, is bankrupt and has rejected its lease and vacated
its space; however, the land parcel on which Montgomery Ward was located has
been ground leased to CenterAmerica, the parent company of the CenterAmerica
Pool Borrower, for a rent equivalent to that previously paid by Montgomery
Ward. There can be no assurance that if anchor stores in the Mortgaged
Properties were to close the related borrower would be able to replace such
anchors in a timely manner or without incurring additional costs and adverse
economic effects. See "Description of the Mortgaged Properties and the Mortgage
Loans" herein. See also "--Risks Relating to Tenants; Reserves" below. All of
the anchor stores at the Charlestowne Mall Property and West Town Mall Property
have co-tenancy clauses which permit such stores to cease operating if certain
other anchor stores at the related property are not open. For example, at the
West Town Mall Property, Dillard's can cease operating if the operating
covenant of any other department store expires, the department store is
released therefrom or there are not at least 3 department stores connected by
the enclosed mall; JC Penney may cease operating if Parisian and at least 2
other department stores are not operating; Proffitt's may cease operating if
Parisian and JC Penney are not operating; Parisian may cease operating if
Dillard's or Proffitt's is not operating or if less than 2 of Dillard's,
Proffitt's, JC Penney and Sears are operating; and Sears may cease operating if
there are not at least 3 other department stores operating. At the Charlestowne
Mall Property, Kohl's may cease operating if less than 2 of Sears, Carson Pirie
Scott and JC Penney are operating, and Carson Pirie Scott and Sears may each
cease operating if there are not at least 2 other department stores operating.
In addition, at each of the Charlestowne Mall Property and West Town Mall
Property, most of the anchor stores have co-tenancy clauses that require a
certain minimum percentage of mall stores (generally ranging from 60% to 75%)
to be operating and permit such anchor stores to cease operating if such
minimum percentage is not met. Anchor store leases and operating agreements
contain various other covenants regarding usage of the applicable property, the
breach of which may permit the store to cease operating.
In addition, certain tenant leases for non-anchor stores at retail
properties may permit the affected tenants to terminate their leases if certain
other stores are not operated at such properties or if such tenants fail to
meet certain business objectives.
Unlike office properties, retail properties also face competition from
sources outside a given real estate market. Factory outlet centers, discount
shopping centers and clubs, video shopping networks, catalogue retailers, home
shopping networks, direct mail and telemarketing all compete with more
traditional retail properties for consumer dollars. Continued growth of these
alternative retail outlets (which are often characterized by lower operating
costs) could adversely affect the rents collectible at the retail properties
included in the Mortgage Pool. Increased competition could adversely affect
income from and market value of the Mortgaged Properties.
Additional competing retail properties may be built in the areas where the
retail properties are located.
Risks Associated With Multifamily Properties. The Magellan Apartment Pool
Loan is secured by 11 multifamily properties located in California and Arizona.
The EQR Apartment Pool Loan is secured by 5 multifamily properties located in
Minnesota, Illinois and Wisconsin. The Glenborough Pool Properties include a
multifamily property located in Arizona. Significant factors determining the
value and successful operation of a multifamily property include the location
of the property, the rental rate in relation to the size of the apartment, the
physical attributes of the apartment building (such as its age and appearance)
and state and local regulations affecting such property. In addition, the
successful operation of an apartment building will depend upon other factors,
such as its reputation, the ability of management to provide adequate
maintenance and insurance and the types of services it provides.
Adverse economic conditions, either local or national, may limit the
amount of rent that can be charged and may result in a reduction in timely rent
payments or a reduction in occupancy levels. Occupancy and rent levels may also
be affected by construction of additional housing units and national and local
politics, including current or future rent stabilization and rent control laws
and agreements. In addition, the level of mortgage interest rates may encourage
tenants to purchase rather than lease housing. The location and construction
quality of a particular building may affect the occupancy level as well as the
rents that may be charged for individual units. The characteristics of a
neighborhood may change over time or in relation to newer developments.
Risks Associated With Hotels. The Hotel Del Coronado Loan is secured by a
hotel. Various factors, including location, quality and franchise or hotel
management company affiliation affect the economic performance of a hotel.
Adverse economic and social conditions, either local, regional or national, may
limit the amount that can be charged for a room and may result in a reduction
in occupancy levels. The construction of competing hotels or resorts can have
similar effects. To meet competition in the industry and to maintain economic
values, continuing expenditures must be made for modernizing, refurbishing, and
maintaining existing facilities prior to the expiration of their anticipated
useful lives. Because hotel rooms
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generally are rented for short periods of time, hotels tend to respond more
quickly to adverse economic conditions and competition than do other commercial
properties. Furthermore, the financial strength and capabilities of the owner
and operator of a hotel may have an impact on such hotel's quality of service
and economic performance. Additionally, the hotel and lodging industry is
generally seasonal in nature and this seasonality can be expected to cause
periodic fluctuations in a hotel property's room and other hotel revenues,
occupancy levels, room rates and operating expenses. The demand for particular
accommodations may also be affected by changes in travel patterns caused by
changes in access, energy prices, strikes, relocation of highways, the
construction of additional highways and other factors.
In the event of a foreclosure on a Mortgaged Property, it is unlikely that
the Trustee on behalf of the Trust Fund or a purchaser of such Mortgaged
Property would be entitled to the rights under any liquor license or other
license for such Mortgaged Property and such party would be required to apply
in its own right for such license or licenses. There can be no assurance that a
new license could be obtained. See "--Liquor License Considerations" herein.
Risks of Concentration of Tenants. Retail and office properties may be
adversely affected if there is an economic decline in the business operated by
their tenants. The risk of such an adverse effect is increased if there is a
significant concentration of tenants or concentration of tenants in a
particular business or industry. At the Ramco-Gershenson Pool Properties,
Wal-Mart operates 4 stores representing approximately 28.0% of Annualized Base
Rent and approximately 34.3% of GLA. The Arlington County Government and AMC
Theatres represent approximately 52.0% and 10.5%, respectively, of the GLA and
approximately 54.2% and 6.0%, respectively, of the Annualized Base Rent of the
Courthouse Plaza I Property. Wells Fargo, Gibson, Dunn & Crutcher, Thelen
Marrin Johnson & Bridges LLP and Salomon Smith Barney represent approximately
19.0%, 16.8%, 4.0% and 3.8% respectively, of the net rentable area and
approximately 19.6%, 21.1%, 5.3% and 8.4% respectively, of the Annualized Base
Rent of the Wells Fargo Office Tower Property. In addition, a large number of
tenants at the Wells Fargo Office Tower Property are concentrated in the
financial services and law firm businesses. At the Glenborough Pool Properties,
St. Joseph's Hospital, Health Systems Integration, Southworth-Milton, Inc. (the
sole tenant of the building occupied by it) and Sentry Insurance represent
approximately 8.0%, 7.4%, 7.2% and 6.9%, respectively, of the aggregate
Annualized Base Rent of the Glenborough Pool Properties. Kroger represents
approximately 5.5% of the GLA and 5.5% of the Annualized Base Rent at the
CenterAmerica Pool Properties. In addition, at the Charlestowne Mall Property
and the Quail Springs Mall Property, The Limited and its affiliated stores
represent approximately 12.1% and 17.3%, respectively, of Annualized Base Rent
and approximately 12.5% and 15.2% respectively of GLA, with respect to each
such Mortgaged Property.
Risks Associated With Office Properties. The Wells Fargo Office Tower Loan
and the Courthouse Plaza I Loan are each secured by a single office property.
The Glenborough Pool Properties include 5 office properties. Significant
factors determining the value of office properties are the quality of the
tenants in the building, the physical attributes of the building in relation to
competing buildings and the strength and stability of the market area as a
desirable business location. Office properties may be adversely affected if
there is an economic decline in the business operated by the tenants. The risk
of such an adverse effect is increased if revenue is dependent on a single
tenant or if there is a significant concentration of tenants in a particular
business or industry. See "--Commercial Lending Generally" herein. For example,
Wells Fargo and the law firm of Gibson Dunn & Crutcher lease approximately
19.0% and 16.8%, respectively, of the net rentable area at the Wells Fargo
Office Tower Property and the County Board of Arlington County leases
approximately 52.0% of the Courthouse Plaza I Property GLA.
Office properties are also subject to competition with other office
properties in the same market. Competition is affected by a property's age,
condition, design (e.g., floor sizes and layout), access to transportation and
ability to offer certain amenities to its tenants, including sophisticated
building systems (such as fiber-optic cables, satellite communications or other
base building technological features). The success of an office property also
depends on the local economy. A company's decision to locate office
headquarters in a given area, for example, may be affected by such factors as
labor cost and quality, tax environment and quality of life issues such as
schools and cultural amenities. The local economy will impact on an office
property's ability to attract stable tenants on a consistent basis. In
addition, the cost of refitting office space for a new tenant is often more
costly than for other property types.
Risks Associated with Industrial Properties. The Glenborough Pool Loan
includes 4 industrial properties located in Massachusetts, Missouri and
Florida. Significant factors determining the value of industrial properties are
the quality of the tenants, the characteristics and terms of the lease,
building design, and adaptability and the location of the property. Concerns
about the quality of tenants, particularly major tenants, are similar in both
office properties and industrial properties, although industrial properties are
more frequently dependent on a single tenant.
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Risks Relating to Tenants; Reserves. Income from, and the market value of,
the Mortgaged Properties would be adversely affected if space in the Mortgaged
Properties could not be leased or re-leased, if tenants were unable to meet
their lease obligations, if a significant tenant were to become a debtor in a
bankruptcy case under Title 11 of the United States Code (the "Bankruptcy
Code"), or if for any other reason rental payments could not be collected. Any
tenant may, from time to time, experience a downturn in its business, which may
weaken its financial condition and result in a reduction or failure to make
rental payments when due. For example, with respect to Mortgaged Properties
that contain retail space, if tenants' sales were to decline, percentage rents
may decline and tenants may be unable to pay their rent or other occupancy
costs. If a tenant defaults in its obligations to a borrower, the borrower may
experience delays in enforcing its rights as lessor and may incur substantial
costs and experience significant delays associated with protecting its
investment, including costs incurred in renovating and reletting the property.
Repayment of the Mortgage Loans secured by retail and office properties
will be affected by the expiration of space leases and the ability of the
respective borrowers to renew the leases or relet the space on comparable
terms. For example, a significant number of the leases with respect to the
CenterAmerica Pool Loan expire in the next 5 years. Approximately 50% of such
leases expire prior to 2002. Leases representing 33% of the GLA at the
Glenborough Pool Properties expire in 1999; leases representing 22% of the mall
store GLA at the Charlestowne Mall Property expire in 2001; the lease with the
County Board of Arlington County, representing 52% of the GLA at the Courthouse
Plaza I Property, expires in 2003; and leases representing 29% of the GLA at
the Ramco-Gershenson Pool Properties expire in 2009. Tables containing
information regarding the expiration dates of certain leases are set forth
under "Description of the Mortgaged Properties and the Mortgage Loans" herein.
Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements and leasing commissions, could be
substantial and could reduce cash flow from the Mortgaged Properties.
The CenterAmerica Pool Loan and Wells Fargo Office Tower Loan each
required a Capital Expenditures Account and Rollover Account to be funded at
origination. The EQR Apartment Pool Loan required a Capital Expenditures
Account to be funded at origination. The Charlestowne Mall Loan required a
Rollover Account to be funded at origination. The CenterAmerica Pool Loan,
Courthouse Plaza I Loan and Charlestowne Mall Loan also require that the
respective Capital Expenditures Account and Rollover Account be funded on a
monthly basis from cash flow from the applicable Mortgaged Properties. The
Hotel Del Coronado Loan, Magellan Apartment Pool Loan, EQR Apartment Pool Loan,
Ramco-Gershenson Pool Loan and Quail Springs Mall Loan each requires monthly
funding of its respective Capital Expenditures Account (or alternatively, with
respect to the EQR Apartment Pool Loan, a letter of credit). The Glenborough
Pool Loan requires monthly funding of a Capital Expenditures Account only upon
a Loan Default and after its Effective Maturity Date. The West Town Mall Loan
does not require the establishment of any reserves. There can be no assurance
that the reserve amounts established at the closing of a loan will be
sufficient to offset the actual costs of the items for which the reserves were
established, or that cash flow from the properties will be sufficient in the
future to fully fund the ongoing monthly reserve requirements or that such
ongoing monthly reserves will be sufficient to offset the future capital
expenditure and leasing costs of the properties. See "Description of the
Mortgaged Properties and the Mortgage Loans" herein for a discussion of the
reserve accounts for each Mortgage Loan.
The bankruptcy or insolvency of a major tenant or a number of smaller
tenants in retail and office properties may have an adverse impact on the
Mortgaged Properties affected and the income produced by such Mortgaged
Properties. Under the Bankruptcy Code, a tenant has the option of assuming or
rejecting or, subject to certain conditions, assuming and assigning to a third
party, any unexpired lease. If the tenant assumes its lease, the tenant must
cure all defaults under the lease and provide the landlord with adequate
assurance of its future performance under the lease. If the tenant rejects the
lease, the landlord's claim for breach of the lease would (absent collateral
securing the claim) be treated as a general unsecured claim against the tenant.
The amount of the claim would be limited to the amount owed for the unpaid rent
reserved under the lease for the periods prior to the bankruptcy petition (or
earlier surrender of the leased premises) which are unrelated to the rejection,
plus the greater of 1 year's rent or 15% of the remaining rent reserved under
the lease (but not to exceed 3 years' rent), except that with respect to any
tenant that is a banking institution, the amount of the claim would be limited
to the amount owed for unpaid rent for periods prior to the rejection of the
lease. If the tenant assigns its lease, the tenant must cure all defaults under
the lease and the proposed assignee must demonstrate adequate assurance of
future performance under the lease.
No assurance can be given that tenants in the Mortgaged Properties will
continue making payments under their leases or that other tenants will not file
for bankruptcy protection in the future or, if any tenants so file, that they
will continue to make rental payments in a timely manner.
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Risk Associated With Lack of Bankruptcy Remoteness. The West Town Mall
Borrower, which is a Tennessee joint venture, is owned equally by two
unaffiliated entities, through their ownership of the three venturers. Although
such equal division of the ownership interests of the West Town Mall Borrower
reduces the risk that the West Town Mall Borrower would be consolidated with
the bankruptcy estate of one of the members of the venture if such member were
to become a debtor under the Bankruptcy Code, the organizational documents of
the members of West Town Mall Borrower lack certain provisions intended to
reduce the risk that a borrower would become a debtor in a case under the
Bankruptcy Code or dissolve as a result of adverse economic circumstances of a
member of the venture. Under Tennessee law, a joint venture is generally
treated as a general partnership. The Tennessee law governing joint ventures
provides that the bankruptcy or dissolution of one or more of the members of
the venture would result in the dissolution of the joint venture, although such
provisions are not commonly enforced by the Bankruptcy Courts. Further, the
trustee in bankruptcy of a bankrupt member of the venture could control and/or
sell a member of the venture, even if such action is prohibited by the
organizational documents of the venture.
Certain Legal Issues Relating to the Hotel Del Coronado Loan and Magellan
Apartment Pool Loan. Section 145.56 of the Ohio Revised Code (the "OPERS Law")
provides that investments of a benefit plan of the Public Employee's Retirement
System of Ohio ("OPERS"), which is the indirect owner of the Hotel Del Coronado
Borrower, may not be subject to execution, garnishment, attachment, or
bankruptcy or insolvency laws. In connection with the origination of the Hotel
Del Coronado Loan, the following were obtained: (a) a reasoned opinion from
special Ohio counsel to OPERS, indicating that Section 145.11 of the Ohio
Revised Code adopts the "prudent person" investment rule and concluding that
this rule permits OPERS to execute mortgages, and further concluding that the
OPERS Law does not prohibit or limit mortgagee's rights to exercise and pursue
the remedies afforded to it under the loan documents for the Hotel Del Coronado
Loan, (b) a letter from the Assistant Director--Legal and Legislation of OPERS
agreeing with the opinions and analysis contained in the opinion referred to in
(a) above, (c) review of available legislative history relating to the
authorization of OPERS in connection with the transaction (to the extent such
legislative history was made available by the Ohio Legislative Services
Commission, the statutory branch of the Ohio legislature responsible for
disseminating such information), and (d) title insurance affirmatively insuring
mortgagee against any loss or costs by reason of the insured Hotel Del Coronado
Mortgage being unenforceable by reason of the OPERS Law. Such title insurance
was provided in the amount of $93,500,000 by Chicago Title Insurance Company,
$51,000,000 by First American Title Insurance Company and $21,500,000 by
Lawyers Title Insurance Company.
Under certain circumstances the interest rate applicable to the Hotel Del
Coronado Loan or the Magellan Apartment Pool Loan might violate California
usury law. The loan documents for the Hotel Del Coronado Loan and the Magellan
Apartment Pool Loan contain choice of law provisions stipulating that New York
law shall apply. Mortgagee obtained an opinion letter from California counsel
indicating that courts applying California law should honor the choice of law
provisions and apply New York law, except where application of New York law
would contravene a fundamental policy of California. The opinion concludes that
the application of such choice of law provisions to this transaction should not
violate the fundamental policy of California with respect thereto. Neither the
Hotel Del Coronado Loan nor the Magellan Apartment Pool Loan is usurious under
New York law. Under California law, a lender under a loan that is usurious
loses its right to collect interest on such loan, but retains its right to
collect the principal of such loan. The title insurance policies obtained in
connection with the Hotel Del Coronado Loan (described above) and the Magellan
Apartment Pool Loan each affirmatively insure mortgagee against loss or costs
by reason of the Hotel Del Coronado Mortgage or the Magellan Apartment Pool
Mortgage, respectively, being unenforceable by reason of the California usury
law. See "Risks Relating to Title Insurance."
Environmental Law Considerations. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under, adjacent to, or in such property.
Such laws often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances. The
cost of any required remediation and the owner's liability therefor generally
is not limited under such circumstances and could exceed the value of the
property and/or the aggregate assets of the owner. In addition, the presence of
hazardous or toxic substances, or the failure to properly remediate such
property, may adversely affect the owner's or operator's ability to refinance
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment
facility. Certain laws impose liability for release of asbestos-containing
materials ("ACMs") into the air or require the removal or containment of ACMs,
and third parties may seek recovery from owners or operators of real properties
for property damage or personal injury
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associated with ACMs or other exposure to chemicals or other hazardous
substances. For all of these reasons, the presence of, or strong potential for
contamination by, hazardous substances at, on, under, adjacent to, or in a
property can materially adversely affect the value of the property and a
borrower's ability to repay its Mortgage Loan.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the Trust
Fund) may be liable, as an "owner" or "operator," for the costs of responding
to a release or threat of a release of hazardous substances on or from a
borrower's property if (i) agents or employees of a lender are deemed to have
participated in the management of the borrower or (ii) the lender actually
takes possession of a borrower's property or control of its operations as, for
example, through the appointment of a receiver. If a lender is or becomes
liable for clean-up costs, it may bring an action for contribution against the
current owners or operators, the owners or operators at the time of on-site
disposal activity or any other party who contributed to the environmental
hazard, but such persons or entities may be bankrupt or otherwise judgment
proof.
Although recently enacted legislation clarifies the activities in which a
lender may engage without becoming subject to liability under CERCLA and
similar federal laws, such legislation has no applicability to state
environmental law. See "Certain Legal Aspects of Mortgage Loans and the
Leases--Environmental Legislation" in the Prospectus. Similarly, certain states
(including California) may have anti-deficiency legislation and other statutes
requiring the lender to exhaust its security before bringing a personal action
against the borrower and may curtail the lender's ability to recover from its
borrower the environmental clean-up and other related costs and liabilities
incurred by the lender. Notwithstanding the anti-deficiency laws, however, some
states, such as California, have exceptions for environmentally impaired real
property. Moreover, any such action against a borrower may be adversely
affected by the limitations on recourse in the loan documents. See "Certain
Legal Aspects of the Mortgage Loans," below.
All of the Mortgaged Properties have been subject to recent environmental
site assessments, including Phase I site assessments or updates of previously
performed Phase I site assessments, and in several cases, Phase II site
assessments (together, the "Environmental Site Assessments"). Such assessments
were intended to evaluate the environmental condition of and potential
environmental liabilities associated with the Mortgaged Properties and included
a visual observation of the Mortgaged Properties during a site visit, a review
of certain records concerning the Mortgaged Properties and publicly available
information concerning known conditions at the Mortgaged Properties or in the
vicinity of the Mortgaged Properties, consideration of the likely presence of
friable ACMs or radon gas in the buildings on the Mortgaged Properties and of
polychlorinated biphenyls ("PCBs") in the electrical transformers, a discussion
of the presence of underground or above-ground storage tanks, and the
preparation of a written report. Some of the Environmental Site Assessments
included sampling or analysis of soil, groundwater or other environmental media
or subsurface investigations. There can be no assurance that all environmental
conditions and risks have been identified in such environmental assessments,
including environmental conditions or risks caused by tenants.
Certain of the Environmental Site Assessments identified environmental
conditions which have impacted or may impact some of the Mortgaged Properties,
including the presence of ACMs, leaks from chemical storage tanks and on-site
spills. Certain Mortgaged Properties presently have or formerly had landfills,
waste disposal areas, factories, oil wells, gasoline stations and/or dry
cleaning businesses located on or near the premises. Corrective action, as
required by regulatory agencies, has been undertaken, and in some cases, the
related borrowers have made deposits into environmental reserve accounts for
such corrective actions. However, there can be no assurance that the reserve
amounts in such reserve accounts will be sufficient to remediate such
environmental conditions or that all such environmental conditions have been
identified.
Certain of the Mortgaged Properties are in areas of known groundwater
contamination or in the vicinity of sites containing "leaking underground
storage tanks" ("LUSTs") or other potential sources of groundwater
contamination. The Environmental Site Assessments generally do not anticipate
that the borrower will have to undertake remedial investigations or actions at
these sites. Further, CERCLA and many state environmental laws provide for a
third-party defense that generally would preclude liability for a party whose
property is contaminated by off-site sources. In addition, in its final "Policy
Toward Owners of Property Containing Contaminated Aquifers," dated May 24,
1995, the United States Environmental Protection Agency (the "EPA") stated its
position that, with respect to federal enforcement actions and subject to
certain conditions specified therein, where hazardous substances have come to
be located on or in a property solely as a result of subsurface migration in an
aquifer from a source or sources outside the property, the EPA will not take
enforcement actions against the owner of such property to require the
performance of remediation actions or the payment of remediation costs.
However, though the owners of such Mortgaged Properties and the Trust Fund may
not be liable for
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such contamination, enforcement of the related borrower's or the Trust Fund's
rights against third parties may result in additional transaction costs and the
presence of such contamination or potential contamination may affect the
related borrower's ability to refinance using such property as collateral or to
sell the property to a third party.
ACMs have been detected through sampling by environmental consultants at
several of the Mortgaged Properties and suspected at others. ACMs found or
suspected at these Mortgaged Properties are not expected to present a
significant risk as long as it is properly managed. Nonetheless, the value of a
Mortgaged Property as collateral for the Mortgage Loan could be adversely
affected by the presence of ACMs.
For several Mortgaged Properties, the Environmental Site Assessments also
recommend limited further investigations or minor repairs; however, based on
the information currently available to the Depositor and reviews performed by
the Depositor's environmental consultants, the Depositor does not believe any
of such other issues would have a material adverse effect on the related
Mortgaged Properties.
The Pooling Agreement requires that the Special Servicer obtain an
Environmental Site Assessment of a Mortgaged Property prior to acquiring title
thereto on behalf of the Trust Fund or assuming its operation. Such requirement
may effectively preclude enforcement of the security for the related Note until
a satisfactory Environmental Site Assessment is obtained (or until any required
remedial action is thereafter taken), but will decrease the likelihood that the
Trust Fund will become liable under any environmental law. However, there can
be no assurance that the requirements of the Pooling Agreement will effectively
insulate the Trust Fund from potential liability under environmental laws. See
"The Pooling Agreement--Realization Upon Mortgage Loans;
Modifications--Standards for Conduct Generally in Effecting Foreclosure or the
Sale of Defaulted Loans" herein and "Certain Legal Aspects of the Mortgage
Loans and the Leases--Environmental Legislation" in the Prospectus.
The Environmental Site Assessments of the Mortgaged Properties have not
revealed any environmental liability that the Depositor believes would have a
material adverse effect on the borrowers' businesses, assets or results of
operations taken as a whole. Nevertheless, it is possible that the
Environmental Site Assessments do not reveal all environmental liabilities or
that there are material environmental liabilities of which the Depositor is
unaware. Moreover, there can be no assurance that (i) future laws, ordinances
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Mortgaged Properties will not be
affected by tenants, by the condition of land or operations in the vicinity of
the Mortgaged Properties (such as the presence of underground storage tanks),
or by other parties.
Limitations or Lack of Appraisals. Appraisals were obtained with respect
to each of the Mortgaged Properties (other than the Quail Springs Mall Property
and CenterAmerica Pool Properties) prior to the origination of the applicable
Mortgage Loan. A market study was obtained with respect to the Quail Springs
Mall Property and CenterAmerica Pool Properties. In general, appraisals
represent the analysis and opinion of qualified appraisers and are not
guarantees of present or future value. One appraiser may reach a different
conclusion than the conclusion that would be reached if a different appraiser
were appraising such property. Moreover, appraisals seek to establish the
amount a typically motivated buyer would pay a typically motivated seller and,
in certain cases, may have taken into consideration the purchase price paid by
the borrower. Such amount could be significantly higher than the amount
obtained from the sale of a Mortgaged Property under a distress or liquidation
sale. Information regarding the appraised values of the Mortgaged Properties
presented under "Mortgage Pool Characteristics" herein is not intended to be a
representation as to the past, present or future market values of the Mortgaged
Properties. With respect to Quail Springs Mall Property, the calculated value
of $85,457,518 was determined by MSMC using Underwritable NOI of $7,263,889 and
an 8.5% capitalization rate. With respect to the CenterAmerica Pool Properties,
the calculated value of $266,073,957 was determined by MSMC based on
Underwritable NOI of $25,277,026 and a 9.5% capitalization rate.
Risk of Different Timing of Mortgage Loan Amortization. If and as
principal payments or prepayments are made on a Mortgage Loan, the remaining
Mortgage Pool will be subject to more concentrated risk with respect to the
diversity of Mortgaged Properties, types of Mortgaged Properties and Mortgaged
Property characteristics and with respect to the number of borrowers. Because
principal on the Offered Certificates is generally payable in sequential order,
and generally no Class entitled to distributions of principal receives
principal until the Certificate Principal Amount of the preceding Class or
Classes so entitled has been reduced to zero, Classes that have a later
sequential designation (other than the Class A-1 Certificates as described
under "Description of the Offered Certificates--Distributions" herein) are more
likely to be exposed to the risk of concentration discussed in the preceding
sentence than Classes with higher priority.
Effective Maturity Date and Stated Maturity Date Principal Balances. All
of the Mortgage Loans are expected to have substantial remaining principal
balances as of their respective Effective Maturity Dates or as to Non-EMD
Loans, Maturity
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Dates, as applicable. See "Mortgage Pool Characteristics--Certain
Characteristics of the Mortgage Loans" and "Description of the Mortgaged
Properties and the Mortgage Loans" herein. No representation or warranty is
made by the Depositor as to the ability of any of the related borrowers to make
required Mortgage Loan payments on a full and timely basis or as to whether the
borrowers will repay or have the ability to repay the remaining principal at
the Effective Maturity Dates or Maturity Dates of these Mortgage Loans. The
ability of a borrower to repay a loan on its respective Effective Maturity Date
or Maturity Date, as applicable, typically will depend upon its ability either
to refinance the loan or to sell the related Mortgaged Property at a price
sufficient to permit the borrower to repay the loan on the Effective Maturity
Date or Maturity Date, as the case may be. The ability of a borrower to
accomplish either of these goals will be affected by a number of factors at the
time of attempted refinancing or sale, including the level of available
mortgage credit, the prevailing interest rates, the fair market value of the
related properties, the borrower's equity in the related properties, the
financial condition of the borrower and operating history and occupancy level
of the Mortgaged Property, tax laws, prevailing general and regional economic
conditions and the availability of credit for commercial real estate projects.
Other Financing. The limited partner of the CenterAmerica Pool Borrower is
the borrower under a loan (the "CenterAmerica Mezzanine Loan") originated by
Secore and purchased on its origination date and currently held by MSMC secured
by such limited partner's partnership interest in the CenterAmerica Pool
Borrower and the stock of the general partner of the CenterAmerica Pool
Borrower. The non-managing member of the Charlestowne Mall Borrower is the
borrower under a loan (the "Charlestowne Mall Mezzanine Loan" and, together
with the CenterAmerica Mezzanine Loan, the "Mezzanine Loans") originated by
Secore and purchased on its origination date and currently held by MSMC secured
by the membership interest of both the managing member and the non-managing
member of the Charlestowne Mall Borrower. The Mezzanine Loans require that the
CenterAmerica Pool Borrower and the Charlestowne Mall Borrower, respectively,
distribute to their limited partner or non-managing member, as applicable, for
payment of their Mezzanine Loan, all property cash flow in excess of amounts
due on the related Mortgage Loan, reserves and property expenses. In the event
that there is a default under a Mezzanine Loan, the lender thereunder is
entitled to foreclose on the ownership interests in the related Mortgage Loan
borrower and its managing member or general partner, as applicable, pledged to
it, subject to the requirement that the Rating Agencies shall have confirmed in
writing that such foreclosure will not result in the qualification, downgrade
or withdrawal of the ratings then assigned to the Certificates. Upon any such
foreclosure, the lender under the Mezzanine Loan or its transferee in a sale
pursuant to the Uniform Commercial Code will become the new owner of the
applicable Mortgage Loan borrower. Each Mezzanine Loan is transferable to
certain institutional buyers, including affiliates of the related Mortgage Loan
borrower, in each case without mortgagee or Rating Agency consent. See
"Description of the Mortgaged Properties and the Mortgage Loans--CenterAmerica
Pool; The Loan; Mezzanine Debt" and "Description of the Mortgaged Properties
and the Mortgage Loans--Charlestowne Mall; The Loan; Mezzanine Debt."
The West Town Mall Loan, the EQR Apartment Pool Loan and the Courthouse
Plaza I Loan each permit the related Borrower to incur subordinated unsecured
debt to affiliates, in amounts up to $5,000,000, $1,500,000 and $1,607,312 (or
if less, 5% of the Courthouse Plaza I loan amount), respectively, subject to
certain conditions. See "Description of the Mortgaged Properties and the
Mortgage Loans--West Town Mall: The Loan--Transfer of Properties and Interest
in Borrower; Encumbrance; Other Debt;" "Description of the Mortgaged Properties
and the Mortgage Loans--EQR Apartment Pool: The Loan--Transfer of Properties
and Interest in Borrower; Encumbrance; Other Debt" and "Description of the
Mortgaged Properties and the Mortgage Loans--Courthouse Plaza I: The
Loan--Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt."
Where the borrower under a Mortgage Loan or its constituent members also
has one or more other loans (even if subordinated or mezzanine loans), the
Trust Fund is subjected to additional risk. The borrower may have difficulty
servicing and repaying multiple loans. The existence of another loan (even if a
subordinated loan or a mezzanine loan) generally will also make it more
difficult for the borrower to obtain refinancing of the Mortgage Loan, and
thereby may jeopardize repayment of the Mortgage Loan. Further, the need to
service additional debt may reduce the cash flow available to the borrower to
operate and maintain the Mortgaged Property, and may create an incentive to the
borrower to reduce expenditures at the property below the level it would
otherwise determine to be advisable, in order to increase funds available to
service such debt. The existence of such additional debt may also create an
incentive for the borrower or its affiliates to enter into voluntary bankruptcy
proceedings to avoid enforcement of such debt.
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If the borrower or its constituent members defaults on the Mortgage Loan
and/or any other loan or loans, the existence of such other loans and actions
taken by other lenders could impair the security available to the Trust Fund
and could interfere with or delay the taking of action by the Trust Fund. If a
junior lender files an involuntary petition for bankruptcy against the borrower
or the borrower files a voluntary petition to stay enforcement by a junior
lender, the ability of the Trust Fund to take certain actions such as
foreclosure would be automatically stayed and principal and interest payments
might not be made during the course of a bankruptcy case. The bankruptcy of
another lender may also operate to stay foreclosure or similar proceedings by
the Trust Fund.
With respect to each Mezzanine Loan, the related mezzanine lender may
foreclose on the ownership interests in the related borrower rather than on the
related Mortgaged Property. Such a foreclosure, however, will result in a
change in control of the borrower and ownership of the borrower by an entity
which may have interests in conflict with the Trust Fund. While such risk is
mitigated by the requirement of Rating Agency approval of such foreclosure,
there can be no assurance that such foreclosure would not have an adverse
effect on the related Mortgage Loan.
Further, the lender under each Mezzanine Loan (except at any time that the
Mezzanine Loan is held by an affiliate of the borrower) has the right to cure a
default by the borrower under the related Mortgage Loan. Prior to the lapse of
the mezzanine lender's cure period (2 business days, for payment defaults), the
mortgagee may not accelerate the related Mortgage Loan or foreclose the related
Mortgaged Loan Property. Further, with respect to each Mezzanine Loan, the
mezzanine lender is permitted to cure payment defaults under the related
Mortgage Loan on an ongoing basis until the Effective Maturity Date.
Accordingly, the risk exists that the Mortgaged Property will decline in value
during the time that the lender under the related Mezzanine Loan is exercising
its cure rights, thereby lessening the recovery on any ultimate foreclosure on
the related Mortgage Loan.
The Wells Fargo Office Tower Borrower is permitted to issue preferred
equity, subject to Rating Agency confirmation that such issuance will not
result in the downgrade, qualification or withdrawal of the then current
ratings of the Certificates.
Additionally, substantially all of the Mortgage Loans generally permit the
related borrower to incur limited indebtedness incurred in the ordinary course
of business. The existence of such other indebtedness could adversely affect
the financial viability of the related borrowers. See also "Certain Legal
Aspects of the Mortgage Loans and the Leases--Subordinate Financing" in the
Prospectus.
Limitations on Lockboxes. The Magellan Apartment Pool Loan and EQR
Apartment Pool Loan do not require the related borrower to cause rent and other
payments to be made into a Lockbox account maintained on behalf of the
mortgagee. Instead, Soft Lockboxes are maintained with respect to each such
Mortgage Loan. With respect to such Soft Lockboxes, rent checks and other
payments are permitted to be sent first to the applicable property manager who
is then required to deposit such payments into the Soft Lockbox account. The
Courthouse Plaza I Loan permits the Courthouse Plaza I Borrower to retain
control of its Lockbox until (i) a Loan Default, (ii) the Effective Maturity
Date or (iii) its Loan DSCR declines below 1.20x; provided that the Courthouse
Plaza I Borrower may regain such control if it maintains a Loan DSCR equal to
or greater than 1.20x for a 12 month period. The Quail Springs Mall Loan
permits the Quail Springs Mall Borrower to retain control of its Lockbox until
(i) a Loan Default, (ii) 60 days prior to the Effective Maturity Date or (iii)
its Loan DSCR declines below 1.20x; provided that the Quail Springs Mall
Borrower may regain such control if the Loan Default is cured or it if
maintains a Loan DSCR of 1.20x or greater for 6 consecutive months. Under the
West Town Mall Loan, the West Town Mall Borrower is not required to establish a
Lockbox until the Effective Maturity Date for such Mortgage Loan, even if there
is a Loan Default prior to such date. Under the Glenborough Pool Loan, the
Glenborough Pool Borrower is required to establish a Lockbox only upon the
following events: (i) a Loan Default, (ii) within 3 months of the Effective
Maturity Date or (iii) the Loan DSCR declines to 1.50x or less. Moreover, if a
Lockbox is established due to a decline in Loan DSCR, the requirement to
utilize the Lockbox will be suspended if for any period of 2 consecutive
calendar months Loan DSCR exceeds 1.50x. A bankruptcy of a borrower may also
result in the mortgagee being unable to enforce lockbox requirements. See
"--Bankruptcy Limitations on Lenders," "Description of the Mortgaged Properties
and the Mortgage Loans--Hotel Del Coronado: The Loan--Lockbox and Reserves,"
"--CenterAmerica: The Loan--Lockbox and Reserves," "--Wells Fargo Office Tower;
The Loan--Lockbox and Reserves" "--West Town Mall: The Loan--Lockbox and
Reserves," "--Magellan Apartment Pool: The Loan--Lockbox and Reserves,"
"--Glenborough Pool: The Loan--Lockbox and Reserves," "--EQR Apartment Pool:
The Loan--Lockbox and Reserves," "--Ramco-Gershenson Pool: The Loan--Lockbox
and Reserves," "--Courthouse Plaza I: The Loan--Lockbox and Reserves,"
"--Charlestowne Mall: The Loan--Lockbox and Reserves" and "--Quail Springs
Mall: The Loan--Lockbox and Reserves" herein.
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Bankruptcy Limitations on Lenders. Under the Bankruptcy Code, the filing
of a petition in bankruptcy by or against a borrower will stay the exercise of
a power of sale and the commencement or continuation of a foreclosure action
against the real property owned by that borrower. The resulting delay may be
significant. In addition, a court which determines the value of a mortgaged
property to be less than the principal balance of the loan it secures may
(subject to certain protections available to the lender) stop a lender from
foreclosing on the mortgaged property and, as a part of a restructuring plan,
reduce the amount of secured indebtedness to the value of the mortgaged
property as it exists at the time of the proceeding (leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of its outstanding mortgage indebtedness). A bankruptcy court may also grant a
debtor a reasonable time to cure a payment default, reduce monthly payments due
under a mortgage loan, change the rate of interest due on a mortgage loan or
otherwise alter the mortgage loan's repayment schedule.
Creditors of borrowers in bankruptcy are also generally prohibited from
taking any action to obtain repayment of a loan while the bankruptcy case is
pending. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienholder may stay the senior
lienholder from taking action to foreclose on such junior lien. In addition,
the borrower's trustee or the borrower, as debtor-in-possession, has certain
special powers to avoid, subordinate or disallow debts. Even if a claim against
a debtor is not avoided or subordinated, the Trustee's recovery with respect to
borrowers in bankruptcy proceedings may be significantly delayed, and the
aggregate amount ultimately collected on such Mortgage Loans may be
substantially less than the amount owed. In certain circumstances, the claims
of the Trustee may be subordinated to financing obtained by a
debtor-in-possession subsequent to its bankruptcy.
The Bankruptcy Code may also interfere with or affect the ability of the
Trustee to enforce an assignment by a borrower of rents and leases related to
the mortgaged property and to collect rents in a lockbox if the related
borrower is in a bankruptcy proceeding. Under Section 362 of the Bankruptcy
Code, the mortgagee will be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue can be time consuming and may result
in significant delays in the receipt of the rents. Rents may also escape an
assignment thereof (i) to the extent such rents are used by the borrower to
maintain the mortgaged property or for other court authorized expenses or (ii)
to the extent other collateral may be substituted for the rents.
The ability of the borrowers to repay the Mortgage Loans is, in many
cases, dependent on leases of the Mortgaged Properties. To the extent a
borrower's ability to make payment on a Mortgage Loan is dependent upon a lease
of the related Mortgaged Property, such ability may be impaired by the
commencement of a bankruptcy proceeding relating to a lessee under such lease.
See "--Risks Relating to Tenants; Reserves."
As a result of the foregoing factors, the amount and timing of receipts
with respect to the Mortgage Loans may be materially adversely affected.
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed in lieu of foreclosure, the Special
Servicer would be required to retain an independent contractor to operate and
manage the Mortgaged Property. Any net income from such operation and
management, other than qualifying "rents from real property," or any rental
income based on the net profits of a tenant or sub-tenant or allocable to a
service that is non-customary in the area and for the type of property
involved, will subject the Lower-Tier REMIC to federal (and possibly state or
local) tax on such income at the highest marginal corporate tax rate (currently
35%), thereby reducing net proceeds available for distribution to
Certificateholders. It is likely that a hotel property, such as the Hotel Del
Coronado Property, that would be operated on behalf of the Trust Fund by an
independent contractor would generate taxable "net income from foreclosure
property." The Pooling Agreement provides that the Special Servicer will be
permitted to cause the Lower-Tier REMIC to earn "net income from foreclosure
property" that is subject to tax if it determines that the net after-tax
benefit to Certificateholders is greater than another method of operating or
net leasing the Mortgaged Property. See "Certain Federal Income Tax
Consequences--REMICs--Prohibited Transactions and Other Taxes" in the
Prospectus. See "Certain Federal Income Tax Consequences" herein.
Management. The successful operation of a real estate project is dependent
on the performance and viability of the property manager of such project.
Different property types vary as to the extent a property manager is involved
in property marketing and operations on a daily basis. Properties deriving
revenues primarily from short-term sources are generally more management
intensive than properties leased to creditworthy tenants under long-term
leases. The property manager is responsible for responding to changes in the
local market, planning and implementing the rental structure, including
establishing levels of rent payments, and advising the borrower so that
maintenance and capital improvements can be carried out in a timely fashion.
There is no assurance regarding the performance of any operators or managers or
persons who may
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become operators or managers upon the expiration or termination of management
agreements or following any default or foreclosure under a Mortgage Loan. In
addition, third party property managers are typically operating companies and,
unlike limited-purpose entities, may not be restricted from incurring debt and
other liabilities in the ordinary course of business or otherwise.
Consequently, there can be no assurance that the property managers will at all
times be in a financial condition to continue to fulfill their management
responsibilities under the related management agreements throughout the terms
thereof. See "--Conflicts of Interest--Conflicts Between Managers and the
Borrowers".
Certain of the management agreements for the Mortgaged Properties
terminate prior to the Effective Maturity Dates of the related Mortgage Loans
or are only for yearly periods. However, because the managers thereunder are
generally affiliated with the related borrowers, such managers have an
incentive to renew such agreements.
Enforceability. All of the Mortgages include debt-acceleration clauses,
which permit the mortgagee to accelerate the debt upon a monetary or
nonmonetary default of the borrower. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment default
after the giving of appropriate notices. The equity courts of any jurisdiction,
however, may refuse to permit the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
All of the Mortgage Loans on Mortgaged Properties that have tenants are
secured by an assignment of leases and rents pursuant to which the borrower
typically assigns its right, title and interest as landlord under the leases on
the related Mortgaged Property and the income derived therefrom to the
mortgagee as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
borrower defaults, upon the election of and (in certain cases) notice by the
mortgagee, the license terminates and the mortgagee is entitled to collect
rents. In certain jurisdictions, such assignments may not be enforceable unless
the mortgagee complies with applicable state law for taking actual possession
of the property or the cash by the mortgagee until the mortgagee secures the
appointment of a receiver before achieving a priority relative to other persons
with interests in the rents related to the Mortgaged Property. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
borrower, the mortgagee's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of the Mortgage Loans and the Leases" in
the Prospectus.
Limitations on Remedies. Several jurisdictions (including California) have
laws that prohibit more than one "judicial action" to enforce a mortgage
obligation, and some courts have construed the term "judicial action" broadly.
Accordingly, the Pooling Agreement will require the Master Servicer or Special
Servicer, as applicable, to obtain advice of counsel prior to enforcing any of
the Trust Fund's rights under any of the Mortgage Loans that include properties
where the rule could be applicable. In addition, with respect to any Mortgage
Loan, the Special Servicer may be required to foreclose first on the Mortgaged
Properties securing such Mortgage Loan located in states where such "one
action" rules apply (and where non-judicial foreclosure is permitted) before
foreclosing on properties located in states where judicial foreclosure is the
only permitted method of foreclosure. See "Certain Legal Aspects of Mortgage
Loans and the Leases--Foreclosure" in the Prospectus.
As a result of the foregoing considerations, among others, the ability of
the Special Servicer to realize upon the Mortgage Loans, may be limited by the
application of state laws. Such actions may also, in certain circumstances,
subject the Trust Fund to liability as a "mortgagee-in-possession" or result in
the equitable subordination of the claims of the Trustee to the claims of other
creditors of the borrower. Under the terms of the Pooling Agreement, the Master
Servicer or the Special Servicer, as applicable, may take these state laws into
consideration in deciding which remedy to choose following a default by a
borrower.
Risks Relating to the Leasehold Interest Securing the Courthouse Plaza I
Loan. The Courthouse Plaza I Loan is secured by a ground lease (the
"Courthouse Plaza I Ground Lease") on the Courthouse Plaza I Property between
the Courthouse Plaza I Borrower and The County Board of Arlington County,
Virginia (the "Courthouse Plaza I Ground Lessor"), which is scheduled to expire
in January 2062. See "Description of the Mortgaged Properties and the Mortgage
Loans--Courthouse Plaza I Property: The Loan--Security" and "--Courthouse Plaza
I Property: The Property--Ground Lease" herein. In addition, the Courthouse
Plaza I Loan is secured by a subordination and estoppel agreement executed by
the Court Plaza Ground Lessor (the "Courthouse Plaza I Ground Lease
Subordination Agreement"), wherein the Courthouse Plaza I Ground Lessor has
agreed that its fee interest, is subject and subordinate to the Courthouse
Plaza I Mortgage other than its right to reversion of such fee interest upon
the expiration or earlier termination of the Courthouse Plaza I Ground Lease.
In addition, the Courthouse Plaza I Ground Lessor has agreed that
mortgagee may obtain a new ground lease if the Courthouse Plaza I Ground Lease
is terminated due to bankruptcy or other defaults that cannot be readily cured
by mortgagee.
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On the bankruptcy of a lessor or a lessee under a ground lease, the debtor
entity has the right to assume or reject the lease. Pursuant to Section 365(h)
of the Bankruptcy Code, a lessee whose lease is rejected by a debtor lessor has
the right to remain in possession of its leased premises under the rent
reserved in the lease for the term of the lease (including renewals). In the
event of a lessee/borrower bankruptcy in which such debtor rejects its ground
lease, the leasehold mortgagee would have the right to succeed to the
lessee/borrower's position under the lease only if the lessor had specifically
granted the mortgagee such right. In the event of concurrent bankruptcy
proceedings involving the ground lessor and the ground lessee/borrower, the
Trustee may be unable to enforce the bankrupt lessee/borrower's obligation to
refuse to treat a ground lease rejected by a bankrupt lessor as terminated. In
such circumstances, a lease could be terminated notwithstanding lender
protection provisions contained therein or in the mortgage.
Under the principles set forth above, if the Courthouse Plaza I Ground
Lessor were to become a debtor in a bankruptcy case, the Courthouse Plaza I
Borrower would have the right to remain in possession of the Courthouse Plaza I
Property.
Under the principles set forth above, if the Courthouse Plaza I Ground
Lessor were to become a debtor in a bankruptcy case, the Courthouse Plaza I
Borrower ("Plaza Borrower") would have the right to remain in possession of the
Courthouse Plaza I Property. However, the Courthouse Plaza I Ground Lessor may
not have such right if a court were to determine in a bankruptcy proceeding of
the Courthouse Plaza I Ground Lessor that the Courthouse Plaza I Ground Lease
was not a "true lease" for purposes of Section 365(h). If the Courthouse Plaza
I Ground Lessor were to become a debtor and reject the Courthouse Plaza I
Ground Lease in bankruptcy and a court were to determine that the Courthouse
Plaza I Ground Lease is not a lease for purposes of Section 365, neither the
Plaza Borrower nor the mortgagee would have the right to remain in possession
of the Courthouse Plaza I Property pursuant to Section 365(h). If that were to
occur, the court should re-define the rights and remedies of the various
parties in accordance with their economic interests. Although there is no
judicial precedent which considers the facts and circumstances present with
respect to the Courthouse Plaza I Ground Lease, a court could conclude that the
Courthouse Plaza I Borrower and the Courthouse Plaza I Ground Lessor have
formed a joint venture with respect to the Courthouse Plaza I Property or that
some other arrangement exists between them. If this were to occur, such a court
could also conclude that the Courthouse Plaza I Ground Lease and the Courthouse
Plaza I Ground Lease Subordination Agreement evidence that the Courthouse Plaza
I Ground Lessor and the Courthouse Plaza I Property Plaza I Borrower intended
mortgagee to have a security interest in the Courthouse Plaza I Property. While
such a conclusion would ultimately result in the Courthouse Plaza I Borrower
retaining its right to possession of the Courthouse Plaza I Property and the
Courthouse Plaza I Loan being secured by the fee (subject to termination at the
stated expiration of the Courthouse Plaza I Ground Lease, there could be
substantial delays and uncertainties in resolving the matter. Such delays could
result in delayed payments and additional costs charged to the Trust Fund and
could result in losses on the Certificates. Further, in view of the lack of
judicial precedent, it is not impossible that there could be a complete loss of
the security for the Courthouse Plaza I Loan if a court were to allow the
Courthouse Plaza I Ground Lessor to reject the Courthouse Plaza I Lease but not
provide any protection to the Courthouse Plaza I Borrower or the mortgagee,
which would result in losses on the Certificates.
In addition, in the event there is a bankruptcy of the Courthouse Plaza I
Ground Lessor, it is possible that an argument could be made that the
Courthouse Plaza I Ground Lease Subordination Agreement should be treated as a
guaranty of the Courthouse Plaza I Loan. If such argument were successful, the
Courthouse Plaza I Ground Lease Subordination Agreement could be discharged in
such bankruptcy proceeding, leaving the mortgagee without any right to
foreclose on the fee interest in the Courthouse Plaza I Property if there were
a default by the Courthouse Plaza I Borrower and without any security for the
Courthouse Plaza I Loan if the Courthouse Plaza I Ground Lessor were to again
become the subject of a bankruptcy proceeding in which the Courthouse Plaza I
Ground Lease is rejected and thereafter determined not to be a lease for
purposes of Section 365(h).
The risks described above for the Courthouse Plaza I Loan would exist only
if the Courthouse Plaza I Ground Lessor becomes subject to a bankruptcy
proceeding. The credit rating of the Courthouse Plaza I Ground Lessor is Aaa by
Moody's and AAA by S&P. In addition, the title insurance for the Courthouse
Plaza I Loan insures mortgagee that the Courthouse Plaza I Mortgage is an
enforceable leasehold mortgage, and does not contain an exception for
bankruptcy of the Courthouse Plaza I Ground Lessor. Such title insurance is
provided by First American Title Insurance Company. See "Risks Relating to
Title Insurance" below.
Pursuant to the Courthouse Plaza I Ground Lease Subordination Agreement,
mortgagee has given the Courthouse Plaza I Ground Lessor certain rights to cure
defaults under the Courthouse Plaza I Loan, and agreed to notify it of defaults
simultaneously with the Courthouse Plaza I Borrower. For monetary defaults, the
Courthouse Plaza I Ground Lessor has 30
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days after notice to either (i) cure the default or (ii) notify mortgagee that
it will hold a referendum to sell bonds to raise funds to cure the default. If
the Courthouse Plaza I Ground Lessor elects to hold the referendum, mortgagee
may commence foreclosure proceedings and pursue other remedies but cannot hold
a foreclosure sale. The Courthouse Plaza I Ground Lessor has 90 days to hold
its referendum, and if it passes, an additional 90 days to sell bonds and repay
the Courthouse Plaza I Loan or make such other payment as will cure the
default. If the referendum fails, but the Courthouse Plaza I Ground Lessor has
pursued alternative methods to cure, the Courthouse Plaza I Ground Lessor has
an additional 30 days to cure the default. If the foregoing time periods elapse
without a cure, mortgagee may hold a foreclosure sale. The Courthouse Plaza I
Ground Lessor is required to pay current interest as a condition to the
continuation of its cure rights during the foregoing periods.
With respect to non-monetary defaults, the Courthouse Plaza I Ground
Lessor has a cure period equal to the cure period given to the Courthouse Plaza
I Borrower, plus 30 days, subject to extension for an additional 30 days if the
default is not capable of cure within 30 days. The cure period may also be
extended, for the minimum required statutory period, if a statute requires the
Courthouse Plaza I Ground Lessor to take an additional period to procure items
necessary for such cure (for example, by reason of bidding procedures);
provided that the cure period may not extend beyond 6 months after the date
notice of default was given. After the cure period of the Courthouse Plaza I
Borrower has expired, mortgagee may commence foreclosure proceedings and pursue
other remedies but it may not hold a foreclosure sale until the cure period
given to the Courthouse Plaza I Ground Lessor has expired.
The existence of the foregoing cure rights of the Courthouse Plaza I
Ground Lessor may negatively impact a realization upon the Courthouse Plaza I
Property following a Loan Default under the Courthouse Plaza I Loan.
Risks Related to Tax Assessment on Wells Fargo Office Tower Property. As a
result of certain transfers within the ownership structure of the entities
owning the Wells Fargo Office Tower Property, the Wells Fargo Office Tower
Property has been reassessed for additional real estate property taxes of
approximately $1.9 million. This assessment is in the process of being
appealed. A reserve for this additional tax liability has not been established,
however under the terms of the Wells Fargo Office Tower Loan mortgagee has the
right to require the Wells Fargo Office Tower Borrower to increase deposits to
its Tax Account to provide for payment of such liability when due.
Risks Relating to Title Insurance. Title insurance for a Mortgaged
Property generally insures a mortgagee against risks relating to a borrower not
having good title to a Mortgaged Property, and in certain cases can insure a
mortgagee against certain other risks. See "Certain Legal Issues Relating to
the Hotel Del Coronado Loan and Magellan Apartment Pool Loan" and "Risks
Relating to the Leasehold Interest Securing the Courthouse Plaza I Loan" above.
The protection afforded by title insurance depends on the ability of the title
insurer to pay claims made upon it. There can be no assurance that a title
insurer will have the ability to pay title insurance claims made upon it, and,
even if at the present time a title insurer has a high credit rating, there can
be no assurance that the title insurer will maintain its present financial
strength. To mitigate such risk, co-insurance was obtained for the Hotel Del
Coronado and Wells Fargo Mortgage Loans. Further, there can be no assurance
that a title insurer will not contest claims made upon it.
The full amount of the Glenborough Pool Loan is secured by each of the
Glenborough Pool Properties. However, the title insurance policy for the
Lakeside property only insures an amount equal to 125% of the Allocated Loan
Amount for such property. Upon the occurrence of an event requiring payment
under such title insurance policy, mortgagee would be limited in recovery to
the policy amount.
Zoning Compliance; Inspections. The fire protection systems at the Hotel
Del Coronado Property, if such property were built today, would not comply with
current building code requirements. For example, there is no sprinkler system
at the hotel. Because the Hotel Del Coronado was originally constructed in 1888
(and renovated during 1963 through 1988), such nonconformity is not in
violation of the building code.
Inspections of the Mortgaged Properties were conducted in connection with
the origination of the Mortgage Loans by licensed engineers to assess the
structure, exterior walls, roofing, interior construction, mechanical and
electrical systems and general condition of the site, buildings and other
improvements located on the Mortgaged Properties. There can be no assurance
that all conditions requiring repair or replacement were identified in such
inspections. See "Mortgage Pool Characteristics--Underwriting
Standards--Property Condition Assessments" herein for further information
regarding the inspections on the Mortgaged Properties.
Availability of Earthquake, Flood and Other Insurance. Although the
Mortgaged Properties are required to be insured against certain risks, there is
a possibility of casualty loss with respect to each Mortgaged Property for
which insurance
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proceeds may not be adequate (such as floods or earthquakes) or which may
result from risks not covered by insurance (such as supplemental hurricane
insurance). In addition, certain of the Mortgaged Properties are located in
California and Texas, which are states that have been historically at greater
risk to acts of nature (such as hurricanes, floods and earthquakes) than
properties located in other states. There can be no assurance borrowers have
complied or will in the future be able to comply with requirements to maintain
adequate insurance with respect to the Mortgaged Properties. As with all real
estate, if reconstruction (for example, following fire or other casualty) or
any major repair or improvement is required to the property, changes in laws
and governmental regulations may be applicable and may materially affect the
cost to, or ability of, the borrower to effect such reconstruction, major
repair or improvement. As a result of the occurrence of any of these events,
the amount realized with respect to the Mortgage Loans, and the amount
available to make distributions on the Certificates, could be reduced.
The Hotel Del Coronado Property is located in Coronado, California in a
Zone 4 seismic activity zone. The probable maximum loss for the Hotel Del
Coronado Property has been estimated to be 36% or $79,000,000. The Hotel Del
Coronado Borrower is required to maintain earthquake insurance in the amount of
$120,000,000. Such insurance may consist of blanket insurance that covers other
properties; provided that such blanket insurance must have coverage at least
equal to that aggregate probable maximum losses of all covered properties
located in San Diego County, California and shall be in amount at least equal
to 20% of the aggregate full replacement cost of all covered properties located
in California. Earthquake insurance has been obtained for the Hotel Del
Coronado Property in the amount of $120,000,000, subject to a deductible of 5%
of the insured value of the Del Coronado Property.
Flood and earthquake damage insurance is provided by primary insurers St.
Paul Fire & Marine, which has a claims paying ability rating of "AAA" by S&P
and "A+ (FSC XV)" by Best's, Lexington Insurance Co., which has a claims paying
ability rating of "AAA" by S&P and "A++ (FSC XII)" by Best's. If a flood and/or
earthquake occurs and losses are less than $10,000,000 these primary insurers
shall each contribute respectively $5,000,000. If a flood and/or earthquake
occurs and losses are incurred, coverage is provided up to $120,000,000 by
various insurance companies which have claims paying ability ratings that range
from "BBB" to "AA" by S&P and "A" to "A+" by Best's.
The Wells Fargo Office Tower Property is located in Los Angeles,
California, in a seismic activity zone. The Wells Fargo Tower Borrower is
required to maintain earthquake insurance in an amount equal to the maximum
probable loss for the Wells Fargo Office Tower Property. The probable maximum
loss for the Wells Fargo Office Tower Property has been estimated to be between
24% and 26%. The probable maximum loss for the parking garage at the Wells
Fargo Tower Property has been estimated to be 12%. However, the premiums for
such earthquake insurance may not exceed 150% of the annual premium for such
insurance as of the origination date of the Wells Fargo Tower Loan (as adjusted
by increases in the consumer price index--all urban consumers). If the premiums
for insurance covering the probable maximum loss were more than such amount,
the Wells Fargo Office Tower Borrower would be permitted to buy only such
earthquake insurance as could be purchased by the maximum premium set forth
above, which would be less than the amount necessary to cover the maximum
probable loss. The Wells Fargo Office Tower Borrower has obtained earthquake
insurance for the Wells Fargo Office Tower Property in the amount of
$152,500,000, subject to a deductible of 5%. Earthquake insurance is provided
under a blanket policy by Allendale Mutual Insurance Company, which provides
the primary $12,500,000 in earthquake coverage, and is rated "A++ (FSC XI)" by
Best's. The remaining insurance is provided by numerous insurance companies
whose claims paying ability rating ranging from "A--" to "A++" by Best's and
"A--" to "AAA" by S&P.
6 of the Magellan Apartment Pool Properties are located in California in
seismic activity zones. The Magellan Apartment Pool Borrowers are required to
maintain, in the event any of the Magellan Apartment Pool Properties is located
in an area with a high degree of seismic activity, earthquake insurance in
amount, form and substance satisfactory to mortgagee. The Magellan Apartment
Pool Borrowers have obtained flood and earthquake insurance for the Magellan
Apartment Pool Properties in the amount of $15,000,000, subject to a deductible
of $100,000. Earthquake and flood insurance is provided by RLI, which provides
the primary $5,000,000 in flood and earthquake damage, and has a claims paying
ability rating of "BBB" by S&P. If a flood and/or earthquake occurs and losses
exceed $5,000,000, an additional $10,000,000 in coverage will be provided,
$6,666,667 part of $10,000,000 will be provided by Associated International,
which has a claims paying ability rating of "BBB" by S&P and $3,333,333 part of
$10,000,000 will be provided by Frontier Pacific, which has a claims paying
ability rating of "A+" by S&P.
1 of the Glenborough Pool Properties is located in Irvine, California in
an earthquake disclosure zone, but not in an Alquist-Priolo seismic activity
zone. In addition, 2 of the Glenborough Pool Properties, located in Missouri,
are also located in earthquake disclaimer zones. The Glenborough Pool Borrower
is required to maintain earthquake insurance (if available
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at commercially reasonable rates) in amounts reasonably satisfactory to
mortgagee, in the event it is determined by mortgagee to be necessary based on
engineering reports, surveys or other, earthquake maps. To date, the
Glenborough Pool Borrower has not been required to obtain, and has not obtained
earthquake insurance for such property.
There can be no assurance that the amount of earthquake or flood insurance
currently required or provided would be sufficient to cover damages caused by
an earthquake or flood, or that such insurance will be commercially available
in the future. In addition, earthquake insurance coverage is often not
obtainable from "AA" or higher-rated insurers and the loan documents permit
such insurance to be obtained from such lower rated insurance companies.
Certain Mortgage Loans have insurance requirements, or the borrowers are
maintaining insurance policies that vary from those typically required for
loans originated for securitization. For example, the EQR Apartment Pool
Borrower is permitted to retain its current insurers, even if such ratings do
not meet the Insurance Requirements, for so long as the claims paying ability
rating of such insurers at the origination date of the EQR Apartment Pool Loan
is not downgraded by more than one rating level, and may replace such insurers
with other insurers having the same ratings as the insurers being replaced had
on the origination date of the EQR Apartment Pool Loan. The current insurers
for the EQR Apartment Pool Properties have ratings ranging from "AAA" to "BBB,"
with the majority having ratings of "A" or "AA". The Hotel Del Coronado Loan
and CenterAmerica Pool Loan require all insurance, and the Wells Fargo Office
Tower Loan requires earthquake insurance, to be rated "A" rather than "AA." The
Glenborough Pool Loan requires insurance to be rated any of "AA" by S&P, "A-XV"
by Best's or "Aa1" by Moody's rather than "AA" by each Rating Agency, and the
Quail Springs Mall Loan requires insurance to be rated "AA" by at least one
Rating Agency (and no lower by any other Rating Agency), in each case rather
than requiring a "AA" rating from both Rating Agencies. In addition, although
the Loan documents for the Wells Fargo Office Tower Loan require insurers with
an "AA" claims paying rating, the actual coverage obtained by the Wells Fargo
Office Tower Borrower is with an insurer with an "A" rating.
The Quail Springs Mall Property's property damage insurance is provided by
Allendale Mutual Insurance Co., which has a claims paying ability rating of "A"
by S&P and "A++(FSC XI)" by Best's; the general liability insurance is provided
by Continental, which has a claims paying ability rating of "A+" by S&P and
"A(FSC XV)" by Best's; and the excess liability insurance is provided by
Federal Insurance Company, which has a claims paying ability rating of "AAA" by
S&P and "A++(FSC XV)" by Best's.
The West Town Mall Property's property damage insurance is provided by
Protection Mutual, which has a claims paying ability rating of "A" by S&P. A
cut-through binder has been provided by Sorema North America Reinsurance
Company, which has a claims paying ability rating of "AA--" by S&P.
The Ramco-Gershenson Pool Properties' property damage insurance is
provided by American Protection Insurance Company, which has a claims paying
ability rating of "A+" by S&P and "A(FSC XIV)" by Best's; and the general
liability and a portion of the excess liability insurance is provided by United
States Fire Insurance Company, which has a claims paying ability rating of "A"
by S&P and "A(FSC XI)" by Best's.
The Courthouse Plaza Property's boiler and machinery insurance is provided
by American Motorist Insurance Company, which has a claims paying ability
rating of "A+" by S&P; and all other insurance is provided by Traveler's
Indemnity Company of Illinois, which has a claims paying ability rating of "A+"
by S&P.
The Glenborough Pool Properties' property damage insurance and a portion
of the general and excess liability insurance is provided by the American
Insurance Company, which has a claims paying ability rating of "BBB" by S&P;
and "A(FSC XV)" by Best's.
The Charlestowne Mall Property's excess liability insurance is provided by
Traveler's Indemnity Co., which has a claims paying ability rating of "A" by
S&P.
Risks Associated with Construction at Quail Springs Mall Property,
Charlestowne Mall Property, West Town Mall Property and Wynnewood Village
Property. An AMC Theatres is currently being constructed at the Quail Springs
Mall Property, presently projected to be completed in December 1998 and a Regal
Cinema is currently being constructed at each of the Charlestowne Mall Property
and the West Town Mall Property, presently projected to be completed in April,
1999 and in September, 1998, respectively. In addition, the Charlestowne Mall
Loan provides for the release of a parcel currently leased by JC Penney in
order to deed such parcel to Von Maur, Inc. for construction of a Von Maur
store, provided that certain conditions to such release are met. The
CenterAmerica Pool Loan provides for construction of certain improvements on a
portion of the Wynnewood Village Property, one of the CenterAmerica Pool
Properties, which represents approximately 10% of the Allocated Loan Amounts of
the CenterAmerica Pool Properties.
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The reciprocal easement agreement among the Quail Springs Mall Borrower
and the self-owned anchor stores at the Quail Springs Mall Property (JC Penney,
Sears, Dillard's and The May Department Stores Company, which operates a
Foley's store ("May")), requires the approval of the anchor stores to the
construction of the AMC Theatre. The Quail Springs Mall Borrower has
represented and warranted in the Quail Springs Mall Loan that it has obtained
the consent of each such anchor store to such construction. However, the Quail
Springs Mall Borrower has only provided copies of a written consent to such
construction from Sears and JC Penney and has informed mortgagee that it has
obtained verbal consent from Dillard's and May. Additionally, Dillard's has
delivered an estoppel certificate to mortgagee following commencement of
construction of the AMC Theatre which states that there are no defaults under
the reciprocal easement agreement, thereby implying their consent.
Notwithstanding the Quail Springs Mall Borrower's representation that it has
obtained all required approvals, May has given notice to the Quail Springs Mall
Borrower and an estoppel certificate to MSMC claiming that it has not consented
to the construction of the AMC Theatre and that the Quail Springs Mall Borrower
is in violation of the reciprocal easement agreement due to the commencement of
such construction without the consent of May. In underwriting the Quail Springs
Mall Loan, $1,995,000 of projected base rent from the AMC Theatre was included
in revenues. Accordingly, if May were to bring a lawsuit seeking to prevent the
construction of the AMC Theatre and such lawsuit were to be successful, it is
likely that there would be a material adverse effect on the ability of the
Quail Springs Mall Borrower to pay the Quail Springs Mall Loan. Even if such
lawsuit were not successful, it could delay such construction and could create
significant expense for the Quail Springs Mall Borrower. Further, even if May
did not bring a lawsuit seeking to prevent construction, it could attempt to
sue the Quail Springs Mall Borrower for alleged damages relating to the
construction. Such a lawsuit, if successful, could result in the award of
damages and, whether or not successful, could create significant expense for
the Quail Springs Mall Borrower.
In order to mitigate the risks created by any lack of consent to
construction of the AMC Theatre, Oklahoma Mall LLC, one of the Quail Springs
Borrower, and GGP Limited Partnership, one of the indirect owners of the Quail
Springs Mall Borrower, has executed an indemnification agreement pursuant to
which it has agreed to indemnify mortgagee and hold it harmless from and
against all loss (including, without limitation, Reduction in Value, as defined
below), reasonable out-of-pocket cost, damage or reasonable out-of-pocket
expense actually suffered or incurred by the indemnified parties (including,
without limitation attorneys fees and court costs) by reason of matters alleged
as defaults by the Quail Springs Mall Borrower of its obligations with respect
to the AMC Theatre under the reciprocal easement agreement, as and to the
extent assigned by May in the estoppel delivered by May. Attorneys fees and
court costs shall include, without limitation, those incurred at any hearing,
trial or appellate level, and those incurred in the prosecution of any claim
(including, without limitation, any claim under the indemnification agreement),
and in the defense of any claim. The term "Reduction in Value" shall mean the
amount, if more than zero, determined by subtracting (a) the fair market value
of any property plus the amount of cash, in each case actually received by the
indemnified parties in connection with their realization against any security
for the Quail Springs Mall Loan from (b) all amounts now or hereafter due under
the Quail Springs Mall Loan documents, but solely to the extent such Reduction
in Value is caused by the alleged defaults by the Quail Springs Mall Borrower
under the reciprocal easement agreement, as described below. The
indemnification agreement and all liability of Oklahoma Mall LLC and GGP
Limited Partnership terminates upon receipt by mortgagee of (i) a revised
estoppel from May that does not assert the alleged defaults by the Quail
Springs Mall Borrower with respect to the reciprocal operating agreement or
(ii) other written evidence reasonably satisfactory to mortgagee that May has
withdrawn or waived such allegations or that the Quail Springs Mall Borrower
did not default under the reciprocal operating agreement or has cured any such
defaults. GGP Limited Partnership has executed a construction guarantee
agreement in favor of mortgagee which guarantees to mortgagee the payment of
all costs, expenses and fees payable by the Quail Springs Mall Borrower arising
out of the construction of the AMC Theatre. Such agreement also guarantees the
timely completion of the AMC Theatre in accordance with all plans and
specifications by October 1, 2000. The GGP Limited Partnership has also
executed a guaranty of payment which provides that in the event the AMC Theatre
is not complete by October 1, 2000, the GGP Limited Partnership agrees to
guaranty the Quail Springs Mall Borrower's obligation to pay the Quail Springs
Mall Loan by the amount of $5,000,000.
With respect to the Charlestowne Mall Property and the Wynnewood Village
Property, the portion of the property on which the construction will occur
consists of land that will be groundleased to an affiliate of the related
borrower under a financeable ground lease. The ground lease tenant on such
portion of the property has the right to obtain financing secured by its
leasehold interest which, in the case of the Charlestowne Mall Property, is
limited to construction financing only. With respect to the Charlestowne Mall
Loan, such ground lease is required to be terminated at such time as the
construction is completed and a satisfactory tenant lease is entered into with
Regal Cinema.
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With regard to all the Mortgaged Properties on which construction is
planned or ongoing, there is no assurance that the construction will be
completed, that there will not be delays in construction, or that construction,
when and if completed, will be successful. Any such event could have a negative
effect, which could be material, on the related borrower's ability to pay its
Mortgage Loan. The Underwritable NOI and Underwritable Cash Flow for the Quail
Springs Mall Property, West Town Mall Property and Charlestowne Mall Property
includes projected rents of $1,995,000 and $1,263,570 and $1,144,000,
respectively, from the new improvements being constructed on such properties.
Such projected income is also reflected in the DSCR and LTV of the related
Mortgage Loans. With respect to the construction of the AMC Theatre, $5,720,000
of such loan has been escrowed and will be released only upon completion of the
new improvements and the entering into of a satisfactory lease with AMC
Theatre. Further, Wilmorite, Inc., an affiliate of the Charlestowne Mall
Borrower, has delivered a completion guaranty of the AMC Theatre construction.
The delivery of a completion guaranty by Wilmorite, Inc. is also required as a
condition to release of the JC Penney parcel for construction at the Von Maur
store. With respect to the Quail Springs Mall Loan, GGP Limited Partnership has
delivered a guaranty of principal and interest in the amount of $5,000,000
(which is required to be applied to defease the Quail Springs Mall Loan in such
amount) in the event construction of the theatre is not completed, as well as a
completion guaranty.
With respect to all Mortgaged Properties as to which there is
construction, such construction, while ongoing, could be unsightly and
inconvenient to customers. Although each such Mortgaged Property will be
operating during such construction and the existing tenant leases will remain
in effect and are therefore expected to produce sufficient cash flow to pay
debt service, the disruption during this period could cause temporary downward
pressure on net operating income.
If the related borrower or ground tenant fails to pay the costs for work
completed or material delivered, the portion of the Mortgaged Property on which
there is construction could be subject to mechanic's and a materialmen's liens
that would be senior to the lien of such Mortgage Loans.
Furthermore, the REMIC provisions of the Code prohibit construction on an
REO Property, subject to certain exceptions, which include, among others,
construction that was at least 10% completed before default became imminent and
construction of tenant improvements. If a Mortgaged Property became an REO
Property at a time when construction was ongoing and such construction did not
fall into one of the categories described above, the Special Servicer would be
unable to take any action to complete such construction, and the value of the
REO Property might diminish as a result.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. To the extent the Mortgaged Properties do not comply with the
ADA, the borrowers are likely to incur costs of complying with the ADA. In
addition, noncompliance could result in the imposition of fines by the federal
government or an award of damages to private litigants. In connection with the
origination of the related loan, property inspection reports were obtained
which included limited information regarding compliance with the ADA. There can
be no assurance that the related Mortgaged Properties will comply with the ADA
in all respects once the related conditions are remedied, that such
property-inspection reports identified all risks or conditions relating to the
ADA or that amounts reserved (if any) are sufficient to pay such costs.
Limited Cross-Collateralization; Limitations on Enforceability of
Cross-Collateralization. The Magellan Apartment Pool Loan is comprised of the
obligations of the several borrowers thereunder, each of which owns at least
one of the related Mortgaged Properties. Each of the Magellan Apartment Pool
Borrowers has executed a Mortgage pursuant to which the lien on each of the
Mortgaged Properties owned by the Magellan Apartment Pool Borrowers secures the
entire indebtedness under the Magellan Apartment Pool Loan (including both the
amount of indebtedness allocated to such Mortgaged Property and the amount of
indebtedness allocated to each other Mortgaged Property).
The Depositor makes no representation that the foregoing
cross-collateralization arrangements are enforceable. Such arrangements could
be challenged as fraudulent conveyances by creditors of the related borrower in
an action brought outside a bankruptcy case, or, if such borrower were to
become a debtor in a bankruptcy case, by such borrower. Generally, under
federal and most state fraudulent conveyance statutes, the incurring of an
obligation or the transfer of property or an interest in property (including
the granting of a lien) by a person will be subject to avoidance under certain
circumstances if the person did not receive fair consideration or reasonably
equivalent value in exchange for such obligation or transfer and (a) was
insolvent or was rendered insolvent by such obligation or transfer, (b) was
engaged in business or a transaction, or was about to engage in business or a
transaction, for which any property remaining with the person was an
unreasonably small capital, or (c) intended to, or believed that it would
incur, debts that would be beyond the person's ability to pay as such debts
matured. Accordingly, a lien granted by a Magellan Apartment Pool Borrower to
secure a repayment of the Magellan
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Apartment Pool Loan could be avoided if a court were to determine that (a) such
borrower was insolvent at the time of granting the lien, was rendered insolvent
by the granting of the lien or was left with inadequate capital, or was not
able to pay its debts as they matured and (b) such borrower did not, when it
allowed its Mortgaged Property to be encumbered by a lien securing the entire
indebtedness represented by the Magellan Apartment Pool Loan, receive fair
consideration or reasonably equivalent value for pledging its Mortgaged
Property or Properties for the benefit of the other Magellan Apartment Pool
Borrowers. Among other things, a legal challenge to the granting of the lien by
a Magellan Apartment Pool Borrower Entity may focus on the benefits realized by
such Magellan Apartment Pool Borrower form the respective Mortgage Loan
proceeds, as well as the overall cross-collateralization. If a court were to
find or conclude the granting of the liens associated with the Magellan
Apartment Pool Loan was an avoidable fraudulent conveyance with respect to a
particular borrower, the court could subordinate all or part of the Magellan
Apartment Pool, to existing or future indebtedness of that borrower, recover
payments made under the Magellan Apartment Pool Loan, or take other actions
detrimental to the holders of the Certificates, including under certain
circumstances, invalidating the Loan or the Mortgages securing such cross-
collateralization.
Risks Associated with Blanket Insurance Policies. Certain of the Mortgaged
Properties are covered by blanket insurance policies which also cover other
properties of the related borrower or its affiliates. In the event that such
policies are drawn on to cover losses on such other properties, the amount of
insurance coverage available under such policies would thereby be reduced and
could be insufficient to cover each Mortgaged Property's insurable risks.
Attornment Considerations. Some of the tenant leases, including the anchor
tenant leases, and reciprocal easement or operating agreements with self-owned
anchors ("REAs") contain provisions that require the tenant to attorn to (that
is, recognize as landlord under the lease or owner under the REA) a successor
owner of the Mortgaged Property following foreclosure. Some of the leases and
REAs may be either subordinate to the liens created by the Mortgages or contain
a provision that requires the tenant or other party to subordinate the lease if
the mortgagee agrees to enter into a non-disturbance agreement. Not all leases
were reviewed to ascertain the existence of attornment or subordination
provisions. In some jurisdictions, if tenant leases are subordinate to the
liens created by the mortgage and such leases do not contain attornment
provisions, such leases may terminate upon the transfer of the property to a
foreclosing lender or purchaser at foreclosure. Accordingly, in the case of the
foreclosure of a Mortgaged Property located in such a jurisdiction and leased
to one or more desirable tenants under leases that do not contain attornment
provisions, such Mortgaged Property could experience a further decline in value
if such tenants' leases were terminated (e.g., particularly if such tenants
were paying above-market rents or could not be replaced). If a lease or REA is
not subordinate to the Mortgage, the Trust Fund will not (unless it has
otherwise agreed with the tenant) possess the right to dispossess the tenant
upon foreclosure of the Mortgaged Property, and if the lease or REA contains
provisions inconsistent with the Mortgage (e.g., provisions relating to
application of insurance proceeds or condemnation awards) or which could affect
the enforcement of mortgagee's rights (e.g., a right of first refusal to
purchase the property), the provisions of the lease will take precedence over
the provisions of the Mortgage. Certain of the anchor leases and other leases
and some of the REAs at the retail properties included in the Trust Fund are
not subordinate to the related Mortgage. For example, the Charlestowne Mall REA
is not subordinate to the Charlestowne Mall Mortgage and the West Town Mall
Loan contains provisions whereby the provisions of anchor tenant leases may
override certain loan document provisions that would otherwise apply regarding
casualty and condemnation.
Liquor License Considerations. The Hotel Del Coronado Property is a hotel
property and has a liquor license. The liquor license for such Mortgaged
Property is held by the property manager or operator, rather than by the
related borrower. Furthermore, the applicable laws and regulations relating to
such licenses generally prohibit the transfer of such licenses to any person.
In the event of a foreclosure of the Hotel Del Coronado Property, it is
unlikely that the Trustee (or Special Servicer) or purchaser in any such sale
would be entitled to the rights under the liquor license for such hotel
property and such party would be required to apply in its own right for such a
license. There can be no assurance that a new liquor license could be obtained.
Condemnation Proceeding. A suit by the City of Knoxville is pending for a
condemnation at the West Town Mall Property in order to widen Gleason Road on
the southern border of the West Town Mall Property. In connection with the
origination of the West Town Mall Loan, it was determined, based on the
description in the condemnation suit, that the portion of the West Town Mall
Property which is the subject of the condemnation proceedings consists only of
a small strip of land located along the road which does not contain any
improvements and is immaterial to the property.
Litigation. There may be pending or threatened legal proceedings against
the borrowers and managers of the Mortgaged Properties and their respective
affiliates arising out of the ordinary business of the borrowers, managers and
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affiliates. There can be no assurance that such litigation may not have a
material adverse effect on distribution to Certificateholders. Ramco-Gershenson
Properties Trust (the "Ramco-Gershenson REIT") is involved in two disputes
related to possible violations of tax laws. In the first situation, the IRS
informed the Ramco-Gershenson REIT of the possibility of losing its status as a
REIT it or a predecessor holding held more than 25% of the value of its gross
assets in overnight Treasury Bill reverse repurchase transactions which the
United States Internal Revenue Service (the "IRS") may view as non-qualifying
assets for the purposes of satisfying an asset qualification test applicable to
REITs. Based on developments in the law which have occurred since 1977, the
Ramco-Gershenson REIT's Tax Counsel has tendered an opinion that the investment
in Treasury Bill repurchase obligations would not adversely affect its REIT
status. However, such opinion is not binding upon the IRS. The second issue
relates to issues raised by an IRS tax examination. According to notes to the
financial statements of the Ramco-Gershenson REIT a preliminary report issued
by an IRS agent indicated possible substantial liability. Such liability has
been estimated by the Ramco-Gershenson REIT to be $30 to 46 million. A spinoff
of an entity which was involved in the tax controversy has agreed to indemnify
the Ramco-Gershenson REIT for all liability related to such tax issues. Such
entity is a liquidating trust and is required to maintain a net worth of $52
million. The Ramco-Gershenson REIT has stated in notes to its financial
statements that it does not believe that the ultimate resolution of the tax
dispute will have a material adverse effect on the financial position of the
Ramco-Gershenson REIT.
In November 1996, Wilmorite, an affiliate of the Charlestowne Mall
Borrower, and certain entities affiliated with Wilmorite, were named as
defendants in a civil action in which the plaintiffs generally allege breach of
contract and fiduciary duty and certain civil claims under federal racketeering
laws. The complaint includes allegations that excessive fees were paid to such
entities by certain real estate owning partnerships (other than the
Charlestowne Mall Borrower). The notes to the financial statements of Wilmorite
for the year ended April 30, 1997 contained the following discussion of such
litigation:
In November 1996, various related entities including the Company were
named as defendants in a civil action filed in the U.S. District Court. The
litigants, who are related to some of the shareholders, generally allege
breach of contract and fiduciary duty, and other actions, seeking $300
million in damages collectively from all defendants under federal
Racketeering laws. The Company and other named entities believed the claims
to be without merit and filed a motion which was successful in dismissing
the entire complaint in September 1997. However, in October 1997, the civil
action was refiled.
The Company and other named entities continue to believe the claims to be
without merit and in November 1997 filed a motion to dismiss the entire
complaint. Management believes that final resolution will not have a
material effect, if any, on the Company's financial position. Accordingly no
amounts have been recorded in these financial statements.
May, one of the anchor stores at the Quail Springs Mall Property has
notified the Quail Springs Mall Borrower that it believes such borrower is in
default under its reciprocal easement agreement. See "Risks Associated with
Construction at Quail Springs Mall Property, Charlestowne Mall Property, West
Town Mall Property and Wynnewood Village Property" above.
CONFLICTS OF INTEREST
General. The potential for various conflicts of interest exists with
respect to the offering of the Certificates, including conflicts of interests
among certain of the borrowers, the property or asset managers, the Depositor
and Morgan Stanley & Co. Incorporated, in its capacity as the Underwriter.
Conflicts Between Affiliates of MSMC and the Trust Fund. Conflicts of
interest between affiliates of MSMC, Morgan Stanley & Co. Incorporated and the
Depositor that engage in the acquisition, development, operation, financing and
disposition of real estate, on the one hand, and the Trust Fund, on the other
hand, may arise because such affiliates will not be prohibited in any way from
engaging in business activities similar to or competitive with those of the
borrowers.
Affiliates of MSMC, Morgan Stanley & Co. Incorporated and the Depositor
intend to continue to actively acquire, develop, operate, finance and dispose
of real estate-related assets in the ordinary course of their business. During
the course of their business activities, affiliates of the Depositor may
acquire, own or sell properties or finance mortgage loans secured by properties
which are in the same markets as the Mortgaged Properties. In such a case, the
interests of such affiliates may differ from and compete with the interests of
the Trust Fund, and decisions made with respect to such assets may adversely
affect the amount and timing of distributions with respect to the Certificates.
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In addition, MSMC is currently the owner of the Mezzanine Loans. In its
capacity as owner of a Mezzanine Loan, MSMC's interests may conflict with those
of the Trust Fund.
The CenterAmerica Pool Borrower is beneficially owned by Morgan Stanley
Real Estate Fund II, L.P., an entity sponsored and asset managed by Morgan
Stanley, Dean Witter & Co., which is also a 10% investor in such fund. MSMC's
interests in its initial acquisition of the CenterAmerica Portfolio Loan and
the subsequent acquisition by the Depositor, as affiliates of the CenterAmerica
Pool Borrower, may conflict with those of the Trust Fund.
Approximately 9% of the Ramco-Gershenson REIT is beneficially owned by a
fund managed by the Asset Management group at Morgan Stanley, Dean Witter &
Co., which has a 10% interest in such fund.
Conflicts Between Managers and the Borrowers. Substantially all of the
third party and borrower affiliated property managers for the Mortgaged
Properties (or their affiliates) manage additional properties, including
properties that may compete with the Mortgaged Properties. Moreover, affiliates
of the managers, and certain of the managers themselves, may also own or manage
other properties, including competing properties. Accordingly, the managers of
the Mortgaged Properties may experience conflicts of interest in the management
of such Mortgaged Properties.
Other Conflicts. Wells Fargo, which originated the Wells Fargo Office
Tower Loan and sold such Mortgage Loan to MSMC, is an indirect owner of the
Wells Fargo Office Tower Borrower, a substantial tenant at the Wells Fargo
Office Tower Property. Wells Fargo is also the subservicer and the Lockbox Bank
for the Lockbox for the Wells Fargo Office Tower Loan. The County Board of
Arlington County, Virginia is the ground lessor under the Courthouse Plaza I
Ground Lease and a substantial tenant at the Courthouse Plaza I Property. JC
Penney is the 50% owner of the Quail Springs Mall Borrower, and also operates a
self-owned anchor store at the Quail Springs Mall Property. Such parties may
experience conflicts of interest in their different roles with regard to such
properties.
THE OFFERED CERTIFICATES
Special Prepayment, Yield and Loss Considerations. The yield to maturity
on the Offered Certificates will depend, among other things, on the rate and
timing of principal payments (including both voluntary prepayments, in the case
of the Mortgage Loans that permit voluntary prepayment, and involuntary
prepayments, such as prepayments resulting from casualty or condemnation,
defaults and liquidations) on the Mortgage Loans and the allocation thereof to
reduce the Certificate Principal Amounts of the Principal Balance Certificates.
In addition, in the event of any repurchase of a Mortgage Loan by MSMC from the
Trust Fund under the circumstances described under "The Pooling
Agreement--Representations and Warranties; Repurchase" herein, the Repurchase
Price paid would be passed through to the holders of the Certificates with the
same effect as if such Mortgage Loan had been prepaid in part or in full
(except that no prepayment premium or yield maintenance charge would be payable
with respect to any such repurchase). In addition, with respect to any Class of
Offered Certificates, to the extent losses on the Mortgage Loans exceed the
aggregate Certificate Principal Amount of the Classes of Certificates
subordinated to such Class, such Class will bear a loss equal to the amount of
such excess up to an amount equal to the outstanding Certificate Principal
Amount thereof. No representation is made as to the anticipated rate of
prepayments (voluntary or involuntary) or rate or amount of liquidations or
losses on the Mortgage Loans or as to the anticipated yield to maturity of any
Offered Certificate. See "Yield, Prepayment and Maturity Considerations--Yield"
herein.
The Notional Amount of the Class X Certificates is based upon the
Certificate Principal Amounts of the Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E, Class F, Class G and Class H Certificates.
Therefore, the yield to maturity on the Class X Certificates will be extremely
sensitive to the rate and timing of prepayments of principal (including both
voluntary and involuntary prepayments, delinquencies, defaults and
liquidations) on the Mortgage Loans and any repurchase with respect to breaches
of representations and warranties with respect to the Mortgage Loans to the
extent such payments of principal are allocated to each such Class in reduction
of the Certificate Principal Amount thereof. Although the payment of a
Prepayment Charge is required in connection with a voluntary prepayment of
certain of the Mortgage Loans, there can be no assurance that the related
borrowers would refrain from prepaying such Mortgage Loans due to the existence
of such a Prepayment Charge, or that such Prepayment Charge would be held to be
enforceable if challenged. The rate at which voluntary prepayments occur on the
Mortgage Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans, the length of any Prepayment
Charge Lockout Period, the level of prevailing interest rates, the availability
of mortgage credit, the occurrence of casualties or natural disasters and
economic, demographic, tax, legal and other factors, and no representation is
made as to the anticipated rate of prepayments on the Mortgage Loans.
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No Mortgage Loan (other than the Quail Springs Mall Loan, which permits
voluntary prepayment without payment of a Prepayment Charge during the period
commencing 120 days prior to its Effective Maturity Date, and the West Town
Mall Loan, which permits voluntary prepayment without payment of a Prepayment
Charge commencing 180 days prior to its Effective Maturity Date) permits
voluntary prepayment without payment of a Prepayment Charge earlier than 3
months prior to its related Effective Maturity Date. See "Description of the
Mortgaged Properties and the Mortgage Loans". However, there is no assurance
that involuntary prepayments will not occur or that the restrictions contained
in the related Mortgage Loans would ultimately be enforceable in legal
proceedings. The rate at which voluntary prepayments occur on the Mortgage
Loans will be affected by a variety of factors, including, without limitation,
the terms of the Mortgage Loans (including the length of time during which the
Mortgage Loans may not be voluntarily prepaid (each a "Lockout Period"), and
yield maintenance charges and/or prepayment premiums applicable to the Mortgage
Loans and by the extent to which the Master Servicer or Special Servicer, as
the case may be, is able to enforce such provisions), the level of prevailing
interest rates, the availability of mortgage credit, the occurrence of
casualties or natural disasters and economic, demographic, tax, legal and other
factors.
Each of the Mortgage Loans may be prepaid in certain circumstances in
connection with a casualty or condemnation. No yield maintenance charge or
prepayment premium will be required under the Mortgage Loans for prepayments in
connection with a casualty or condemnation unless, in the case of most of the
Mortgage Loans, an event of default has occurred and is continuing.
In connection with any casualty or condemnation, the EQR Apartment Pool
Loan provides that the EQR Apartment Pool Borrower may, in the exercise of its
reasonable business judgment and with the reasonable consent of mortgagee and
the Rating Agencies, elect not to rebuild any portion of the EQR Apartment Pool
Property that is not deemed integral to the regular use or marketing thereof,
provided no Loan Default has occurred and is continuing. In such event, any net
proceeds of the related casualty or condemnation remaining after restoration of
any portion of the EQR Apartment Pool Property that is required to be restored
shall be applied to prepay the EQR Apartment Pool Loan without payment of a
Prepayment Charge. In addition, to the extent that the mortgagee elects to
apply proceeds of a casualty or condemnation to a prepayment of the EQR
Apartment Pool Loan, the EQR Apartment Pool Borrower shall be entitled to
prepay the EQR Apartment Pool Loan in an amount equal to the remaining
Allocated Loan Amount of the related EQR Apartment Pool Property, without
payment of a Prepayment Charge, and, upon such prepayment shall be entitled to
obtain the release of such property. See "Description of the Mortgaged
Properties and the Mortgage Loans--EQR Apartment Pool Loan: The
Loan--Condemnation and Casualty."
Provisions requiring yield maintenance charges or prepayment premiums may
not be enforceable in some states and under federal bankruptcy law, and may
constitute interest for usury purposes. Accordingly, no assurance can be given
that the obligation to pay a yield maintenance charge or prepayment premium
will be enforceable under applicable state or federal law or, if enforceable,
that the foreclosure process will be sufficient to pay such yield maintenance
charge or prepayment premium. Additionally, although the collateral
substitution provisions related to defeasance are not intended to be, and do
not have the same effect on the Certificateholders as prepayment there can be
no assurance that a court would not interpret such provisions as requiring a
yield maintenance charge or prepayment premium and thus not enforceable under
applicable law or as being usurious. See "Certain Legal Aspects of the Mortgage
Loans and the Leases--Applicability of Usury Laws" in the Prospectus.
In general, if an Offered Certificate is purchased by an investor at a
premium and principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, to the extent that the required yield
maintenance charge and/or prepayment premium, if any, are not received by such
investor, such investor's actual yield to maturity may be lower than that
assumed at the time of purchase. Conversely, if an Offered Certificate is
purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield
to maturity may be lower than that assumed at the time of purchase.
Each Mortgage Loan requires that commencing on the first Due Date after
the related Effective Maturity Date, Excess Cash Flow will be applied towards
the payment of principal until the principal balance of the related Mortgage
Loan has been reduced to zero. Each Mortgage Loan also provides that principal
outstanding after the related Effective Maturity Date will bear interest at its
Revised Rate which will be 2% higher than the Initial Interest Rate previously
in effect. While interest at the Initial Interest Rate accrues and is payable
on a current basis on such loans, interest at the excess of the Revised
Interest Rate over the Initial Interest Rate for such loans will be deferred
and will be paid only after the outstanding principal balance
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of the related loan has been paid in full. The foregoing features, to the
extent applicable, are designed to increase the likelihood that such Mortgage
Loans will be prepaid by the borrower on the applicable Effective Maturity
Date; however no assurance can be given that any Mortgage Loan will be repaid
on its applicable Effective Maturity Date.
See "Yield, Prepayment and Maturity Considerations" and "Certain Federal
Income Tax Consequences" herein and "Yield Considerations" and "Certain Federal
Income Tax Consequences" in the Prospectus.
Effect of Borrower Defaults. The aggregate amount of distributions on the
Offered Certificates, the yield to maturity of the Offered Certificates, the
rate of principal payments on the Offered Certificates and the weighted average
life of the Offered Certificates will be affected by the rate and the timing of
delinquencies and defaults on the Mortgage Loans. If a purchaser of an Offered
Certificate of any Class calculates its anticipated yield based on an assumed
rate of default and amount of losses on the Mortgage Loans that is lower than
the default rate and amount of losses actually experienced and such losses are
allocable to such Class of Certificates, such purchaser's actual yield to
maturity will be lower than that so calculated and could, under certain extreme
scenarios, be negative. The timing of any loss on a liquidated Mortgage Loan
will also affect the actual yield to maturity of the Offered Certificates to
which all or a portion of such loss is allocable, even if the rate of defaults
and severity of losses are consistent with an investor's expectations. In
general, the earlier a loss borne by an investor occurs, the greater is the
effect on such investor's yield to maturity.
As and to the extent described herein, the Master Servicer, the Special
Servicer or the Trustee, as applicable, will be entitled to receive interest on
unreimbursed Advances. Such interest will generally accrue from (and including)
the date on which the related Advance is made or the related expense incurred
through the date of reimbursement, less any amount of interest previously paid
in respect thereof. The Master Servicer's, the Special Servicer's or the
Trustee's right, as applicable, to receive such payments of interest is prior
to the rights of Certificateholders to receive distributions on the Offered
Certificates and, consequently, may result in losses being allocated to the
Offered Certificates that would not otherwise have resulted absent the accrual
of such interest. In addition, certain circumstances, including delinquencies
in the payment of principal and interest, will result in a Mortgage Loan being
specially serviced. The Special Servicer is entitled to compensation for
special servicing activities which may result in losses being allocated to the
Offered Certificates that would not otherwise have resulted. See "The Pooling
Agreement--Special Servicer" herein.
Even if losses on the Mortgage Loans are not borne by an investor in a
particular Class of Offered Certificates, such losses may affect the weighted
average life and yield to maturity of such Certificates. Losses on the Mortgage
Loans, to the extent not allocated to such Class of Offered Certificates, may
result in a higher percentage ownership interest evidenced by such Certificates
than would otherwise have resulted absent such loss. The consequent effect on
the weighted average life and yield to maturity of the Offered Certificates
will depend upon the characteristics of the remaining Mortgage Loans.
Delinquencies and defaults on the Mortgage Loans may significantly delay
the receipt of payments by the holder of an Offered Certificate, to the extent
that Advances or the subordination of another Class of Certificates does not
fully offset the effects of any such delinquency or default.
Related Parties May Purchase Certificates. Related parties, including the
Master Servicer, the Special Servicer or affiliates of the borrowers may
purchase all or part of one or more Classes of Certificates. A purchase by the
Master Servicer or Special Servicer, as the case may be, could cause a conflict
between such entity's duties pursuant to the Pooling Agreement and its interest
as a holder of a Certificate, especially to the extent that certain actions or
events have a disproportionate effect on one or more Classes of Certificates.
The Pooling Agreement provides that the Mortgage Loans shall be administered in
accordance with the Servicing Standard without regard to ownership of any
Certificate by the Master Servicer, the Special Servicer or any affiliate
thereof.
Book-Entry Registration. Each Class of Offered Certificates will be
initially represented by one or more certificates registered in the name of
Cede & Co., as the nominee for DTC, and will not be registered in the names of
the related holders of Certificates or their nominees. As a result, holders of
Offered Certificates will not be recognized as "Certificateholders" for certain
purposes. Hence, those beneficial owners will be able to exercise the rights of
holders of Certificates only indirectly through DTC, Cedel Bank, S.A. ("CEDEL")
and The Euroclear System ("Euroclear") and their participating organizations.
See "Description of the Offered Certificates--Delivery, Form and Denomination"
and "--Book-Entry Registration" herein. A beneficial owner holding a
Certificate through the book-entry system will be entitled to receive the
reports and notices described under the Pooling Agreement (to the extent that
its name and address has been provided to the Certificate Registrar) only
through the facilities of DTC, CEDEL and Euroclear and their respective
participants (except that the reports will be made available directly from the
Trustee upon request).
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If the Depositor so directs the Trustee, and on terms acceptable to the
Trustee, the Trustee will make available the monthly Reports to
Certificateholders and all associated reporting information via its Corporate
Trust home page on the world wide web and/or via facsimile through its Street
Fax automated fax-back system. The web page is located at
"corporatetrust.statestreet.com." CMBS information is available by clicking the
"Investor Information & Reporting" button, and selecting the appropriate
transaction. Interested parties can register for Street Fax by calling (617)
664-5600 and requesting an account application by following the instructions
provided by the system.
For those who have obtained an account number and PIN on the Trustee's
Street Fax system, the foregoing report may be obtained from the Trustee via
automated facsimile by calling (617) 664-5600 and requesting the report code
associated with Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through
Certificates, Series 1998-XL1. Report codes can be obtained by calling the same
telephone number and requesting a report listing. In addition, if the Depositor
so directs the Trustee and on terms acceptable to the Trustee, the Trustee will
make certain information related to the mortgage loans available through its
Corporate Trust web site.
Limited Liquidity and Market Value. There is currently no secondary market
for the Offered Certificates. While the Underwriter has advised the Depositor
that it currently intends to make a secondary market in the Offered
Certificates, it is under no obligation to do so. Accordingly, there can be no
assurance that a secondary market for the Offered Certificates will develop.
Moreover, if a secondary market does develop, there can be no assurance that it
will provide holders of Offered Certificates with liquidity of investment or
that it will continue for the life of the Offered Certificates. The Offered
Certificates will not be listed on any securities exchange. Lack of liquidity
could result in a substantial decrease in the market value of the Offered
Certificates. In addition, the market value of the Offered Certificates at any
time may be affected by many factors, including then prevailing interest rates,
and no representation is made by any person or entity as to the market value of
any Offered Certificate at any time.
Pass-Through Rate Considerations. The Pass-Through Rates on the Class B,
Class C and Class D Certificates are based on the WAC Rate of the Mortgage
Loans and the Pass-Through Rate on the Class A-2, Class A-3 and Class X
Certificates will be partially based upon the WAC Rate of the Mortgage Loans,
and all of such Classes will be affected by disproportionate principal
payments, prepayments, defaults and other unscheduled payments on the Mortgage
Loans. Because certain Mortgage Loans will amortize their principal more
quickly than others, such rate will fluctuate over the life of such Classes of
Certificates. See "Yield, Prepayment and Maturity Considerations--Yield"
herein.
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MORTGAGE POOL CHARACTERISTICS
GENERAL
The Trust Fund will consist primarily of 11 Mortgage Loans with an
aggregate principal balance as of the Cut-Off Date, after deducting payments of
principal due on such date, of $925,848,151. All of the numerical information
provided herein with respect to the Mortgage Loans is provided on an
approximate basis. The Mortgage Loans are evidenced by 1 or more promissory
notes (each, a "Note") and secured by one or more mortgages, deeds of trust or
other similar security instruments (each, a "Mortgage") creating a first lien
on the related borrower's fee and/or leasehold estate in one or more commercial
or properties (each, a "Mortgaged Property") as set forth on the following
table:
<TABLE>
<CAPTION>
INTEREST IN PROPERTY ENCUMBERED NUMBER OF MORTGAGED PROPERTIES
- --------------------------------- -------------------------------
<S> <C>
Fee Estate ...................... 82
Leasehold Estate ................ 1
</TABLE>
The Mortgaged Properties consist of retail properties, office properties,
multifamily properties, industrial properties and hotel properties. All of the
Mortgage Loans are non-recourse loans so that, in the event of a borrower
default on any Mortgage Loan, recourse is limited to the Mortgaged Property or
Mortgaged Properties securing such Mortgage Loan, as well as such limited other
assets as may have been specifically pledged to secure such Mortgage Loan, and
not against the borrower's other assets or any assets of the borrower's
affiliates. To facilitate loan closings, MSMC engaged Secore Financial
Corporation, a Pennsylvania corporation ("Secore"), to originate all of the
Mortgage Loans other than the Glenborough Pool Loan and the Wells Fargo Office
Tower Loan. Wells Fargo Bank, National Association, a national banking
association ("Wells Fargo"), originated the Glenborough Pool Loan and the Wells
Fargo Office Tower Loan. Secore and Wells Fargo are collectively referred to
herein as the "Originators". The Depositor will purchase the Mortgage Loans on
or before the Closing Date from MSMC pursuant to the Loan Sale Agreement (the
"Loan Sale Agreement") between MSMC and the Depositor. The Depositor will cause
the Mortgage Loans in the Mortgage Pool to be assigned to State Street Bank and
Trust Company, as Trustee (the "Trustee"), pursuant to the Pooling Agreement.
Midland Loan Services, Inc., in its capacity as Master Servicer, will service
the Mortgage Loans pursuant to the Pooling Agreement.
Pursuant to the Loan Sale Agreement, MSMC will make certain
representations and warranties to the Depositor with respect to the Mortgage
Loans and MSMC may be obligated to repurchase a Mortgage Loan in the event of a
material breach of a representation or warranty with respect to such Mortgage
Loan. See "The Pooling Agreement--Representations and Warranties; Repurchase"
herein and Exhibit B hereto. Under the Pooling Agreement, the Depositor will
assign its rights with respect to the representations, warranties and remedies
in the Loan Sale Agreement to the Trustee for the benefit of the Trust Fund.
The Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute for
Mortgage Loans with deficient documentation or which are otherwise defective.
MSMC will have no obligations with respect to the Certificates other than
pursuant to the limited representations, warranties and covenants made by them
pursuant to the Loan Sale Agreement, to the extent assigned by the Depositor to
the Trustee. See "The Pooling Agreement--Representations and Warranties;
Repurchase" herein and "Description of the Agreements--Representations and
Warranties; Repurchases" in the Prospectus.
SECURITY FOR THE MORTGAGE LOANS
Each Mortgage Loan is generally non-recourse and is secured by a Mortgage
or Mortgages encumbering the related borrower's or borrowers' interest in the
related Mortgaged Property or Properties. Each Mortgage Loan is also secured by
an assignment of the related borrower's or borrowers' interest in the leases,
rents and profits of the related Mortgaged Properties. In certain instances,
additional collateral exists in the nature of partial indemnities, construction
guaranties and the establishment and pledge of one or more reserve or escrow
accounts or letters of credit for necessary repairs, replacements and
environmental remediation, real estate taxes and insurance premiums, tenant
improvements, leasing commissions, deferred maintenance and/or scheduled
capital improvements.
Each Mortgage constitutes a first lien on the related Mortgaged
Properties, subject generally only to (i) liens for real estate and other taxes
and special assessments and (ii) covenants, conditions, restrictions, rights of
way, easements and other encumbrances, whether or not of public record as of
the date of recording of the related Mortgage, all of which were determined to
have been acceptable to the related Originator or MSMC in connection with the
origination of the related Mortgage Loan.
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CERTAIN MORTGAGE LOAN DEFINITIONS
For purposes of the descriptions of the Mortgage Loans herein, and for
purposes of the tables set forth in Annex A, the defined terms have the
meanings described below:
"30/360 Basis" means the calculation of interest on the basis of a 360
day year comprised of 12 30-day months.
"Actual DSCR" means for any Mortgage Loan (i) as of the Cut-Off Date, (A)
Underwritable Cash Flow divided by (B) actual debt service for the 12 months
following the Cut-Off Date and (ii) as of the Effective Maturity Date (in
the case of an EMD Loan) or the Maturity Date (in the case of a Non-EMD
Loan) (A) Underwritable Cash Flow divided by (B) 12 months of debt service
assuming a balance equal to the Effective Maturity Date Balance or Maturity
Date Balance, as applicable, an interest rate equal to the Initial Interest
Rate (in the case of an EMD Loan) or the Interest Rate (in the case of a
Non-EMD Loan) and an amortization period equal to the amortization period of
such Mortgage Loan (or in the case of a Mortgage Loan that is interest only,
such amortization period as is specified in the related Loan Description).
"Actual/360 Basis" means the calculation of interest on the basis of the
actual number of days elapsed and a 360 day year.
"Allocated Loan Amount" means for each Mortgaged Property, the portion of
the principal amount of the related Mortgage Loan allocated to such
Mortgaged Property for certain purposes (including, without limitation,
determining the release prices of properties, if the Mortgage Loan permits
such releases) under such Mortgage Loan. The Allocated Loan Amount for each
Mortgaged Property securing a Mortgage Loan was determined generally based
on the ratio of the Underwritable Cash Flow or net operating income
(calculated as provided in the related Mortgage Loan) or appraised value, or
some combination thereof, of such Mortgaged Property to the aggregate
Underwritable Cash Flow, net operating income, appraised value, or some
combination thereof, of all the Mortgaged Properties securing such Mortgage
Loan. The Allocated Loan Amount for each Mortgaged Property may be adjusted
upon the payment of principal of the related Mortgage Loan, whether upon
amortization, prepayment, defeasance or otherwise. "Cut-Off Date Allocated
Loan Amount" means for each Mortgaged Property the Allocated Loan Amount of
such Mortgaged Property as of the Cut-Off Date.
"Alteration Approval Threshold" means the dollar cost of alterations above
which the loan documents require mortgagee approval.
"Alteration Escrow Threshold" means the dollar cost of alterations above
which the loan documents require the borrower to provide security to the
mortgagee for such excess cost.
"Annual Debt Service" means on any Mortgage Loan, the annual debt service
(interest, including interest allocable to payment of the Servicing Fee and,
if applicable, principal) on such Mortgage Loan for the 12 month period
commencing on the Cut-Off Date.
"Annualized Base Rent" is calculated by multiplying the contractual
monthly base rent by 12 as of the point in time for which "Occupancy" was
calculated for the related property, as reflected in the rent rolls provided
by the related borrower.
"Anticipated Term" means the term of the Mortgage Loan in months from the
date of the first full monthly principal payment thereon to the related
Effective Maturity Date or Maturity Date, as applicable.
"Approved Bank" shall mean, with respect to a Letter of Credit, a bank or
other financial institution which has a minimum long-term unsecured debt
rating of at least "AA" by each of the Rating Agencies, or if any such bank
or other financial institution is not rated by all the Rating Agencies, then
a minimum long-term rating of at least "AA" or its equivalent by 2 of the
Rating Agencies (at least one of which shall be S&P).
"Average Base Rent Per Square Foot" is calculated by dividing the
Annualized Base Rent or annual base rent by total GLA as of the same date
for which the NOI of the subject property was calculated.
"Best" means A.M. Best Company, Inc.
"Capital Expenditures Account" means a Reserve Account established for a
Mortgage Loan to fund capital improvements to the related Mortgaged
Properties. Unless otherwise specified in the related Loan Description,
funds in a Capital Expenditures Account are disbursed by the mortgagee only
(i) for items set forth in a capital budget approved by the mortgagee and
(ii) on receipt of evidence that such items are complete and have been paid
for or will be paid for when such disbursement is made.
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"Comparable Store" means, with respect to each regional mall for which
mall store sales are shown, mall stores for which sales information was
available for all annual periods considered in the occupancy cost and sales
analysis.
"Cut-Off Date Allocated Loan Amount" means for each Mortgaged Property the
Allocated Loan Amount of such Mortgaged Property as of the Cut-Off Date.
"Debt Service Account" means for any Mortgage Loan a Reserve Account for
the payment of principal and interest, the funds in which are disbursed to
mortgagee on each Due Date to pay the related Monthly Payment.
"Default Rate" means for any Mortgage Loan, the interest rate set forth in
such Mortgage Loan as being applicable after a Loan Default.
"Defeasance" as defined under "Defeasance Conditions."
"Defeasance Conditions" means for any Mortgage Loan as to which U.S.
Obligations are proposed to be substituted for one or more of the Mortgaged
Properties (a "Defeasance"), the following conditions: (i) no Loan Default,
(ii) delivery of a security agreement creating a first priority perfected
security interest in the U.S. Obligations, (iii) written confirmation from
the Rating Agencies that Defeasance will not result in a qualification,
downgrade or withdrawal of the then-current ratings of the Certificates,
(iv) delivery of legal opinions regarding perfected security interest and
other matters, (v) delivery of an accountant's certificate as to the
sufficiency of the U.S. Obligations to make the payments that they are
intended to defease and (vi) in the case of a Defeasance as to less than all
the Mortgaged Properties, confirmation that the Loan DSCR of the remaining
Mortgaged Properties is not less than the greater of (A) such ratio prior to
Defeasance and (B) such ratio at origination of the Mortgage Loan.
"Deferred Interest" as defined under "EMD Loan."
"Disbursement Procedures" means for any Mortgage Loan the procedures set
forth in the loan documents for disbursing casualty and condemnation
proceeds. Unless otherwise specified in the related Loan Description, such
procedures include (i) evidence of lack of liens (or satisfactory bonding or
insurance of any liens) on the related Mortgaged Property, (ii) architect's
certificates as to costs, (iii) a retainage of 10% until final completion,
and (iv) title endorsements ensuring the continued priority of the lien of
the related Mortgage.
"DSCR" or "Debt Service Coverage Ratio" means with respect to any Mortgage
Loan (i) the aggregate Underwritable Cash Flow for all of the related
Mortgaged Properties divided by (ii) Annual Debt Service.
The DSCRs set forth herein for the Mortgage Loans and Mortgaged Properties
vary (and may vary substantially) from the Loan DSCRs for such Mortgage
Loans and Mortgaged Properties as calculated pursuant to the definition of
debt service coverage ratio set forth in the related loan documents.
"Economic occupancy" means the percentage of actual rental income
collected from tenants which lease space in the subject property as of the
date indicated in the column with the heading "As of Date", as compared with
the Total (Gross) Potential Rent for the subject property were it fully
occupied with all tenants paying base rent.
"Effective Gross Income" means with respect to any Mortgaged Property or
group of related Mortgage Properties means Total Gross Income or Revenues,
which includes Base Rents, Percentage Rents, Recoveries, and other Recurring
Income generated by such Mortgaged Property or Mortgaged Properties net of
vacancy and credit losses.
"Effective Maturity Date" or "EMD" means for any EMD Loan the date
specified therein on and after which the interest rate under such EMD Loan
is increased from the Initial Interest Rate to the Revised Interest Rate and
all Excess Cash Flow is applied to prepay principal.
"Effective Maturity Date Balance" means for any EMD Loan the principal
balance that would be outstanding on its Effective Maturity Date based on
scheduled amortization, assuming that there are no prepayments or defaults.
"Effective Maturity Date LTV" or "EMD LTV" means with respect to any EMD
Loan, the Effective Maturity Date Balance, and with respect to any other
Mortgage Loan, the Maturity Date Balance, for such Mortgage Loan divided by
the aggregate Value of the Mortgaged Properties securing such Mortgage Loan
as of the Cut-Off Date. Such calculation thus assumes that the appraised
values of the Mortgaged Properties securing a Mortgage Loan on the Effective
Maturity Date or Maturity Date, as applicable, is the same as the Values
thereof as of the Cut-Off Date. There can be no assurance that the value of
any particular Mortgaged Property will not have declined or increased from
its value as of the Cut-Off Date.
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"EMD Loan" means a Mortgage Loan with the following characteristics:
(i) it is fully amortizing to its Maturity Date (except that, if interest
on such loan is calculated on an Actual/360 Basis and its Monthly Payment is
calculated on a 30/360 Basis, there may be a remaining principal balance at
maturity due solely to such difference, and except as otherwise provided in
the definition of Interest Only EMD Loan);
(ii) it bears interest until its Effective Maturity Date at its Initial
Interest Rate;
(iii) it bears interest on and after its Effective Maturity Date at its
Revised Interest Rate, provided that payment of interest accrued at the
excess of the Revised Interest Rate over the Initial Interest Rate shall be
deferred until the Maturity Date or such earlier date as principal is paid
in full and such deferred interest shall bear interest at the Revised Rate
(such accrued and deferred interest, and interest thereon, "Deferred
Interest"); and
(iv) on and after its Effective Maturity Date requires, in addition to its
Monthly Payment, monthly prepayments of principal on each Due Date in an
amount equal to all Excess Cash Flow for the preceding calendar month
without payment of any Prepayment Charge.
"Environmental Reserve Account" means for any Mortgage Loan a Reserve
Account established to fund environmental remediation required by the loan
documents.
"Excess Cash Flow" means for any Mortgage Loan gross income less debt
service, deposits to reserves, and capital and operating expenses approved
by mortgagee.
"Fee simple" means the owner of a subject property has entitlement to the
entire interest in such property, with unconditional power of disposition.
"FFE Account" means for any Mortgage Loan secured by a hotel property, a
Reserve Account established to fund repair and replacement of furniture,
fixtures and equipment. Unless otherwise specified in the related Loan
Description, funds in an FFE Account are disbursed by mortgagee only (i) for
repairs and replacements set forth in a capital budget approved by mortgagee
and (ii) on receipt of evidence that such repairs and replacements are
complete and have been paid for or will be paid for when such disbursement
is made.
"Financial Statements" means for any Mortgage Loan, unless otherwise
specified in the related Loan Description, the following financial
statements: (i) within 90 days after each fiscal year, annual financial
statements audited by a "Big Five" accounting firm or other independent
certified public accountant acceptable to mortgagee, and (ii) within 20 days
after each calendar month, the following items, certified by the chief
financial officer or general partner of borrower to be accurate; (a) a
report of occupancy or rent roll, including for hotel properties average
daily room rate and franchise inspection reports, (b) monthly and year to
date operating statements and (c) a calculation of Loan DSCR for the
immediately preceding 12 month period.
"First P&I Date" means the first Due Date on which the borrower is
required to pay both principal and interest.
"First Tier Lockbox" as defined under "Two-Tier Lockbox."
"GLA" (Gross Leasable Area) means the total floor area of the subject
property that is available for use by all tenants. This may include hallway,
elevator bank and lobby areas.
"Hard Lockbox" means for any Mortgage Loan not secured by hotel
properties, a Lockbox as to which the related lockbox agreement requires the
borrower to instruct tenants to deposit rents directly therein. For any
Mortgage Loan secured by hotel properties, "Hard Lockbox" means a Lockbox as
to which the related lockbox agreement requires the borrower to instruct all
credit card companies and their related banks processing credit card
receipts, and all commercial tenants, to deposit rents directly therein, but
as to which other receipts from hotel guests are deposited in the same
manner as for a Soft Lockbox.
"Initial Interest Rate" means for any EMD Loan the rate at which such EMD
Loan accrues interest from its origination until its Effective Maturity
Date.
"Initial Reserve Deposit" means for any Reserve Account, the amount
deposited in such Reserve Account on the date such Reserve Account was
established.
"Insurance Account" means a Reserve Account established to fund insurance
premiums for insurance policies required under the related loan documents.
Unless otherwise specified in the related Loan Description, funds in an
Insurance Account are disbursed directly by mortgagee to pay insurance
premiums.
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"Insurance Requirements" means for any Mortgage Loan, unless otherwise
specified in the related Loan Description, the following requirements
applicable to the insurance policies maintained for the related Mortgaged
Properties: (i) the claims paying ability of the insurer shall be rated at
least "AA" or its equivalent by each Rating Agency, (ii) if the policy is a
blanket policy it shall provide the same protection as would a separate
policy, (iii) the policy shall name borrower as the insured and mortgagee as
the additional insured, and in the case of property, boiler and machinery,
flood and earthquake insurance, shall contain a standard New York
non-contributing mortgagee clause providing that the loss thereunder shall
be payable to mortgagee and (iv) the policy shall contain endorsements
providing that (a) no act or negligence of borrower or of a tenant or other
occupant shall affect the validity or enforceability of the insurance
insofar as mortgagee is concerned and (b) the policy shall not be materially
changed or canceled without at least 30 days written notice to mortgagee.
"Interest Only EMD Loan" means an EMD Loan as to which until the Effective
Maturity Date the Monthly Payment consists only of interest and no principal
payment is due thereon, and on and after the Effective Maturity Date the
Monthly Payment includes principal in an amount sufficient to fully amortize
the loan by its Maturity Date.
"Interest Rate" means for any Non-EMD Loan the rate at which such
Mortgage Loan accrues interest.
"Late Payment Fee" means for any Mortgage Loan the fee imposed on late
payments of principal or interest.
"Lease Approval Threshold" means for any Mortgage Loan, the size (in
square feet) of the leased space above which a lease requires mortgagee
approval.
"Leasehold" means the interest in the subject property is a lease which
defines the conditions and area for which the lease holder has rights to the
subject property.
"Letter of Credit" means an irrevocable, transferable, clean sight draft
letter of credit conditioned only upon items approved by mortgagee in its
sole discretion in favor of mortgagee issued by a domestic Approved Bank or
the U.S. agency or branch of a foreign Approved Bank, or if none of the
foregoing are then issuing letters of credit, then issued by a domestic
bank, the long term unsecured debt rating of which is the highest such
rating then given by the Rating Agencies to a domestic commercial bank. If
at any time the issuing bank shall cease to be an Approved Bank or shall
cause the letter of credit not to renew when renewal is required by the
related Mortgage Loan, mortgagee may draw the same and hold the proceeds in
accordance with the provisions of the related Mortgage Loan unless borrower
shall deliver a replacement Letter of Credit within 30 days after mortgagee
delivers written notice to it that such bank shall have ceased to be an
Approved Bank or by a date which is at least 15 days prior to the scheduled
expiration date.
"LIBOR" means the London Interbank Offered Rate for One Month U.S.
Dollar Deposits.
"Loan Default" means for any Mortgage Loan an event which constitutes an
"Event of Default" under the loan documents for such Mortgage Loan.
"Loan DSCR" means for any Mortgage Loan the debt service coverage ratio
for such Mortgage Loan, calculated as provided in such Mortgage Loan.
"Loan Description" means for any Mortgage Loan the description of such
Mortgage Loan set forth in this Prospectus Supplement under the heading
"Description of the Mortgaged Properties and Mortgage Loans--The [Name of
Mortgage Loan]--The Loan."
"Loan Per Square Foot/Unit" means for any Mortgage Loan (i) as of the
Cut-Off Date, the Cut-Off Date principal balance of such Mortgage Loan
divided by the number of square feet in the related Mortgaged Property or
Properties (or in the case of hotel or multifamily properties the number of
units (i.e., hotel rooms or apartments, regardless of the size of the unit))
and (ii) as of the Effective Maturity Date (in the case of an EMD Loan) or
the Maturity Date (in the case of a Non-EMD Loan), the Effective Maturity
Date Balance (in the case of an EMD Loan) or Maturity Date Balance (in the
case of a Non-EMD Loan) divided by the number of square feet in the related
Mortgaged Property or Properties (or in the case of hotel or multifamily
properties by the number of units).
"Loan to Value Ratio" or "LTV" means for any Mortgage Loan (i) as of the
Cut-Off Date, the Cut-Off Date principal balance of such Mortgage Loan
divided by the aggregate Value (based on the appraisal delivered or
calculated value determined at origination) of the Mortgaged Property or
related Mortgaged Properties and (ii) as of the Effective Maturity Date (in
the case of an EMD Loan) or the Maturity Date (in the case of a Non-EMD
Loan), the Effective Maturity Date Balance (in the case of an EMD Loan) or
Maturity Date Balance (in the case of a Non-EMD Loan)
S-61
<PAGE>
divided by the aggregate Value (based on the appraisal delivered or
calculated value determined at origination) of the Mortgaged Property or
related Mortgaged Properties. There can be no assurance that the Value of
any Mortgaged Property at the Effective Maturity Date or Maturity Date will
not have changed from its Value at origination.
"Lockbox" means for any Mortgage Loan a bank account established in the
name of mortgagee as secured party of the borrower for the receipt of rents
and other income from the related Mortgaged Properties.
"Lockbox Bank" means for any Lockbox, the financial institution at which
the Lockbox is established.
"Lockbox Waterfall" means the priority in which the funds contained in a
Lockbox (or in the case of a Two-Tier Lockbox, in the second tier lockbox)
are applied in the absence of a Loan Default. Unless otherwise specified in
the related Loan Description, the Lockbox Waterfall is as follows: (i) to
the Tax Account, if any and Insurance Account, if any, (ii) to fund payment
of the Monthly Payment, (iii) to fund the Required Repair Account, if any,
(iv) to fund the Capital Expenditures Account, and/or FFE Account, if any,
(v) to fund the Rollover Account, if any, (vi) for any EMD Loan that has
reached its Effective Maturity Date, and any other Mortgage Loan that
requires budget approval by mortgagee, to the payment of budgeted expenses
and any other expenses approved by mortgagee, (vii) for any EMD Loan that
has reached its Effective Maturity Date, to apply Excess Cash Flow to prepay
such loan until paid in full, (viii) for any EMD Loan that has reached its
Effective Maturity Date, to pay Deferred Interest, (ix) to pay any other
amounts due under the Mortgage Loan, (x) for any Mortgage Loan with
Mezzanine Debt, to pay such Mezzanine Debt, and (xi) provided no trade
payables or other obligations are more than 60 days past due (unless
contested in good faith in accordance with the terms of such Mortgage Loan),
to the borrower.
"Lockout Period" means for any Mortgage Loan the period, if any, set forth
in such Mortgage Loan during which prepayment is prohibited.
"LTM" means, with respect to any date, the last 12 months preceding such
date.
"Maturity Date" means for any Mortgage Loan the date set forth therein on
which the entire remaining principal balance thereof and all other amounts
due thereunder are due.
"Maturity Date Balance" means for any Mortgage Loan, the principal balance
that would be outstanding on its Maturity Date based on scheduled
amortization, assuming that there are no prepayments or defaults.
"Mezzanine Debt" means for any Mortgage Loan, debt of one or more direct
or indirect owner(s) of the borrower thereunder which is secured by the
direct or indirect ownership interests of such owner(s) in such borrower.
"Monthly Insurance Deposit Amount" means for any Mortgage Loan, an amount
equal to 1/12 of the insurance premiums that mortgagee estimates will be due
for the renewal of the insurance policies required by the Mortgage Loan upon
the expiration thereof in order to accumulate sufficient funds to pay all
such insurance premiums at least 30 days prior to such expiration.
"Monthly Payment" means for any Mortgage Loan the scheduled monthly
payment of interest and, if applicable, principal, due under such Mortgage
Loan.
"Monthly Reserve Deposit" means for any Reserve Account, the monthly
deposit, if any, that is required to be made therein under the terms of the
related Mortgage Loan.
"Monthly Tax Deposit Amount" means for any Mortgage Loan, an amount equal
to 1/12 of the real estate taxes that mortgagee estimates will be due in the
next ensuing 12 months in order to accumulate sufficient funds to pay all
such taxes at least 10 days prior to their due dates.
"Net Rentable Area" or "NRA" means the square footage (floor area) of the
subject property that can be occupied by tenants, and upon which tenant
rental income is based. This generally excludes common building areas as
well as space devoted to heating and cooling systems and other equipment.
"NOI" or "Net Operating Income" means, with respect to any Mortgaged
Property or group of related Mortgaged Properties, for the year stated, the
excess of the total revenue for such Mortgaged Property or Properties during
the 12 calendar months ending at the indicated date less the total operating
expenses of such Mortgaged Property or Properties incurred during such
period.
NOI and the revenues and expenses used to determine the NOI for each
Mortgaged Property or group of Mortgaged Properties are derived from
information furnished by the related borrowers. There can be no assurance
that
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the components of net operating income for any Mortgaged Property or group
of Mortgaged Properties (i.e., revenues and expenses) as determined under
GAAP would be the same as those used in computing the stated NOI for such
Mortgaged Property or group of related Mortgaged Properties. Moreover, NOI
is not a substitute for net income as determined in accordance with GAAP as
a measure of the results of a Mortgaged Property's operations or a
substitute for cash flows from operating activities determined in accordance
with GAAP as a measure of liquidity.
"Non-Comparable Store" means, with respect to each regional mall for which
mall store sales are shown, mall stores that are not "Comparable Stores"
(sales information was not submitted by the related borrower for all annual
periods considered).
"Non-EMD Loan" means any Mortgage Loan that is not an EMD Loan.
"Occupancy" or "OCC" means the percentage of SF/Units of the property that
are leased as of the date indicated in the column with the heading "As of
Date". Such percentage includes month to month tenants and tenants which
have vacated their space but continue to make rental payments.
"Occupancy Costs" means the sum of minimum rent, percentage rent, and
tenant reimbursements divided by sales.
"One-Tier Lockbox" means a Lockbox arrangement where a single Lockbox is
used for both receipt of funds and application of such funds in the Lockbox
Waterfall.
"Original Principal Balance" means the principal balance of the Mortgage
Loan at origination.
"Prepayment Charge" means for any Mortgage Loan, a payment required to be
made solely as a condition to the making of a prepayment, such as a
prepayment premium or yield maintenance premium, including without
limitation any Yield Maintenance Premium.
"Prepayment Charge Period" means for any Mortgage Loan, the period during
which the loan documents require payment of a Prepayment Charge.
"psf" means per square foot.
"Required Repair Account" means for any Mortgage Loan a Reserve Account
established to fund specified repairs and replacements required by the loan
documents. Unless otherwise specified in the related Loan Description, funds
in a Required Repair Account are disbursed by mortgagee only (i) to pay for
such specified repairs and replacements and (ii) upon receipt of evidence
that such repairs and replacements are complete and have been paid for or
will be paid for when such disbursement is made.
"Reserve Account" means for any Mortgage Loan a reserve account
established under the related loan documents and held by the mortgagee or
its agent as security for the Mortgage Loan. Each Reserve Account is
required to be applied (i) for the purposes for which such account was
established and (ii) following a Loan Default, at mortgagee's option, either
for such purposes or to make payments due under the Mortgage Loan.
"Revised Interest Rate" means for any EMD Loan the increased rate at which
such EMD Loan bears interest on and after its Effective Maturity Date, which
is equal to its Initial Interest Rate plus 2%.
"Rollover Account" means for any Mortgage Loan a Reserve Account
established to fund tenant improvements and leasing commissions for the
related Mortgaged Property or Mortgaged Properties. Unless otherwise
specified in the related Loan Description, funds in a Rollover Account are
disbursed by mortgagee only (i) to pay tenant improvements and leasing
commissions set forth in a budget approved by mortgagee and (ii) upon
receipt of evidence that any such tenant improvements are complete and have
been paid for or will be paid for when such disbursement is made.
"Sales per SF" means sales, based on the most recent sales data provided
by the borrower to MSMC, for the previous applicable 12 month period, or if
12 months of sales data was not available, such sales data as was available,
annualized.
"Second Tier Lockbox" as defined in the definition of Two-Tier Lockbox.
"SF/Units" means, in the case of office or retail properties, total square
footage or GLA (as provided by the borrower), and in the case of multifamily
properties and hotel properties, the number of apartment units and hotel
rooms, respectively.
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"Soft Lockbox" means a Lockbox as to which rents and other income are not
directly deposited therein by the payors, but are instead first collected by
the related borrower or property manager, and are required to be deposited
therein by such borrower or manager within a specified period generally 1-3
Business Days after collection.
"Standard Approval Rights" means for any Mortgage Loan, the following
approval rights:
(i) as to leases, the right to approve the entering into and/or
termination of all leases above the Lease Approval Threshold;
(ii) as to alterations to the improvements on the Mortgaged Properties,
either (i) for any Mortgage Loan as to which no Alteration Approval
Threshold is specified in the related Loan Description, the right to approve
any such alterations that may have a material adverse effect on borrower's
financial condition, the value of the Mortgaged Properties or the net
operating income thereof or (ii) in the case of any Mortgage Loan for which
an Alteration Approval Threshold is specified in the related Loan
Description, the right to approve any such alterations that are in excess of
the Alteration Approval Threshold; provided, however, that, in the case of
both of (i) and (ii), if the cost of such alterations is in excess of the
Alteration Escrow Threshold, security for the amount of such excess must be
provided to mortgagee; and
(iii) as to budgets, for any EMD Loan, the right to approve each annual
budget of the borrower commencing with the annual period in which the
Effective Maturity Date occurs, for any Mortgage Loan as to which there is
Mezzanine Debt, the right to approve each annual budget of the borrower as
to which the lender under the Mezzanine Debt has approval rights (and to
override any such approval or disapproval of the Mezzanine Lender), and in
either case the right to approve any expense that is not budgeted for.
"Substitution Conditions" means for any Mortgage Loan that permits
substitution of another property for one or more Mortgaged Properties, the
following conditions, among others: (i) no Loan Default, (ii) written
confirmation from the Rating Agencies that the substitution will not result
in a qualification, downgrade or withdrawal of the then current ratings of
the Certificates, (iii) the appraised value of the substitute property shall
be not less than the greater of (x) the value, as determined by mortgagee,
of the property being replaced as of the origination date of such Mortgage
Loan and (y) such value immediately prior to substitution, (iv) the net
operating income and Loan DSCR for the substitute property shall be greater
than 125% of the net operating income and Loan DSCR of the property being
replaced, (v) the net operating income of the substitute property for the 3
most recent years (or such shorter period for which borrower, acting
diligently, can obtain information) must not show a downward trend, (vi)
certification by borrower that the representations and warranties set forth
in the loan documents are true as to the substitute property on the date of
substitution, (vii) delivery and recordation of security documents, title
insurance and evidence of property insurance for the substitute property,
(viii) delivery of satisfactory environmental and engineering reports (and
escrowing of funds equal to 125% of the cost of completing any remediation
or repair required by such reports), (ix) delivery of certain legal opinions
and certain tenant estoppels and (x) conveyance of the property being
replaced to an entity other than the borrower.
"Substitution Period" means for any Mortgage Loan that permits
substitution of Mortgaged Properties, the period during which substitution
is permitted.
"Successor Borrower" means in connection with a Defeasance, a single
purpose bankruptcy remote entity reasonably approved by mortgagee.
"Tax Account" means a Reserve Account established to fund real estate
taxes. Unless otherwise specified in the related Loan Description, funds in
a Tax Account are disbursed directly by mortgagee to pay real estate taxes.
"Total (or Gross) Potential Rent" means the sum of the base rents
collectible by the owner of the subject property, as stated in the lease
agreements of the tenants which have a lease obligation to the owner on the
"As of Date", in addition to the rental income which may have been
collectible for the vacant space of the subject property were it to have
leased. The Potential Rent of the vacant space is calculated as the product
of the unleased square footage, and either the average rent paid by tenants
currently under lease, or average market rent for comparable space in the
vicinity of the subject.
"Total Revenue" as used herein with respect to any Mortgaged Property or
group of Mortgaged Properties generally means, for the historical year
stated, total revenue generated at such Mortgaged Property or Properties
during the 12 calendar months ending at the indicated date.
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"Treasury Rate" means for any EMD Loan the yield calculated by linear
interpolation of the yields of noncallable U.S. Treasury obligations with
terms (one longer and one shorter) most nearly approximating the period from
the Effective Maturity Date to the Maturity Date, as determined by mortgagee
on the basis of Federal Reserve Statistical Release H.15-Selected Interest
Rates, or other recognized source.
"Two-Tier Lockbox" means a 2 Lockbox arrangement where one Lockbox (the
"First-Tier Lockbox") is used for receipt of funds, and all funds therein
are swept within a specified period after receipt therein into a second
lockbox (the "Second-Tier Lockbox") where such funds are applied in the
Lockbox Waterfall.
"Underwritable Cash Flow" as used herein with respect to any Mortgaged
Property or group of Mortgaged Properties generally means NOI (as determined
by MSMC) for a 12 month period based upon the following assumptions:
(a) Revenue: In calculating Underwritable Cash Flow, revenue was generally
determined by using the annual rental income as reflected in the most recent
rent rolls (January or February 1998 rent rolls for the majority of
Mortgaged Properties) provided by the related borrower, or, in the case of
hotels, revenue for the prior 12-month period ended January 31, 1998. In the
case of the Charlestowne Mall Property, Underwritable Cash Flow includes
rental income from the Regal Cinema planned for construction, and also
includes rental income from the JC Penney and Carson Pirie Scott leases. The
JC Penney lease may be terminated by the Charlestowne Mall Borrower in order
to deed the related premises to Van Maur, Inc., and the Carson Pirie Scott
lease may be terminated by Carson Pirie Scott which has an option to
purchase a portion of its premises. The Underwritable Cash Flow for the West
Town Mall Property and the Quail Springs Mall Property includes rental
income from the Regal Cinema and the AMC Theatre being constructed at the
West Town Mall Property and Quail Springs Mall Property, respectively.
(b) Management Fees: Management fees used in the calculation of
Underwritable Cash Flow are generally as follows, except as listed on the
chart below: 2.5% of total departmental revenues for hotels; 3.5% of
effective gross income for multifamily properties; 5.0% of base rent plus
percentage rent for retail properties; and 3.0% of effective gross income
for office and industrial properties.
(c) Capital Reserves: Annual reserves assumed in calculating Underwritable
Cash Flow are as follows, except as listed on the chart below: 4.5% of total
departmental revenues for the Hotel Del Coronado Property; $250/unit for
multifamily properties $0.15/sf for retail properties; $0.15/sf for office
and industrial properties.
(d) Rollover Expenses: Annual expenses of tenant rollover (i.e., tenant
improvements ("TI") and leasing commissions ("LC")) assumptions used in
calculating Underwritable Cash Flow are generally as follows:
<TABLE>
<CAPTION>
TENANT
IMPROVEMENTS
--------------------
BASE RENT
PER AVG. LEASE RENEWAL NEW RENEWAL
SQUARE FOOT TERM (YRS) PROBABILITY TENANT TENANT
------------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
CenterAmerica Pool ............ $ 6.39 5 65% $ 5.00 $ 0.00
Wells Fargo Tower ............. $ 18.55 10 75% $ 30.00 $ 10.00
West Town Mall ................ $ 26.32 10 65% $ 15.00 $ 5.00
Glenborough Pool .............. $ 12.16 5-10 65% $ 5-$10 $ 0-$5
Charlestowne Mall ............. $ 23.01 10 65% $ 15.00 $ 5.00
Ramco-Gershenson Pool ......... $ 6.23 5 65% $ 3.50 $ 0.00
Courthouse Plaza .............. $ 24.67 7 70% $ 15.00 $ 5.00
Quail Springs Mall ............ $ 18.39 10 65% $ 15.00 $ 5.00
<CAPTION>
LEASING
COMMISSIONS
---------------------
NEW RENEWAL MANAGEMENT CAPITAL
TENANT TENANT FEES RESERVES
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
CenterAmerica Pool ............ $ 2.00 $ 0.00 4% $ 0.15
Wells Fargo Tower ............. 4% 2% 3% $ 0.15
West Town Mall ................ $ 2.50 $ 1.25 4% $ 0.15
Glenborough Pool .............. 4% 2% 3.0-3.5% $ 0.15
Charlestowne Mall ............. $ 2.50 $ 1.50 4% $ 0.15
Ramco-Gershenson Pool ......... $ 1.50 $ 1.20 4% $ 0.15
Courthouse Plaza .............. 4% 2% 3% $ 0.15
Quail Springs Mall ............ $ 2.50 $ 1.50 5% $ 0.15
</TABLE>
(e) Occupancy: In calculating Underwritable Cash Flow, adjustments were
made to total base rents to reflect maximum occupancies generally as the
lower of actual or 95% for retail, office, industrial, and multifamily
properties and 85% for hotel properties.
(f) Real Estate Taxes: In calculating Underwritable Cash Flow, historical
1997 real estate tax expense as provided by the borrower was generally used,
unless the historical 1996 expenses exceeded the historical 1997 expenses,
in which case the average of the 1996 and 1997 real estate tax expenses was
used.
(g) Expenses: In calculating expenses, historical 1997 expenses based on
operating statements provided by the related borrower were generally subject
to the adjustments described above, and to the following exceptions:
interest expense and non-recurring extraordinary expenses, to the extent
determinable, were excluded; depreciation and amortization were removed from
operating expense categories.
S-65
<PAGE>
Underwritable Cash Flow for the Courthouse Plaza I Property does not
deduct ground rent payable by the Courthouse Plaza I Borrower as an expense.
Minimum ground rent of $50,000 is payable annually under the Courthouse
Plaza I Ground Lease.
The management fees and reserves used in calculating Underwritable Cash
Flow differ in many cases from the management fees and reserves provided for
under the loan documents for the Mortgage Loans. Further, actual conditions
at the Mortgaged Properties will differ, and may differ substantially, from
the assumed conditions used in calculating Underwritable Cash Flow. In
particular, the assumptions regarding tenant vacancies, renewal rates,
tenant improvements and leasing commissions and other conditions used in
calculating Underwritable Cash Flow for the retail and office properties may
differ substantially from actual conditions. Such assumptions may also
differ from those used by the Rating Agencies or by investors. Each investor
should make its own determination of the appropriate assumptions to be used
in determining Underwritable Cash Flow.
Underwritable Cash Flow reflects the calculations and assumptions used by
MSMC and may or may not reflect the amounts calculated and used by the
Rating Agencies for their own analysis. Underwritable Cash Flow and the Debt
Service Coverage Ratios derived therefrom are not a substitute for cash flow
as determined in accordance with GAAP as a measure of the results of the
Mortgaged Property's operations or a substitute for cash flows from
operating activities determined in accordance with GAAP as a measure of
liquidity.
Leasing costs and capital expenditures are crucial to the operation of
commercial properties. Each investor should make its own assessment of the
level of leasing costs and capital expenditures of the Mortgaged Properties,
and the consequent effect of such costs and expenditures on the actual net
operating income and debt service coverage ratios of the Mortgage Loans.
No representation is made as to the future net cash flows of the
properties, nor is Underwritable Cash Flow set forth herein intended to
represent such future net cash flow.
"Underwritable NOI" means the Net Operating Income (as defined by MSMC)
for a twelve month period, generally LTM (last twelve months), with respect
to a Mortgaged Property, or group of related Mortgaged Properties, and is
defined as the excess of the Total Gross Income or Revenue less the
Operating Expenses incurred for such period. No effect is given to
deductions for debt service, depreciation, amortization, capital
expenditures, tenant improvements, leasing commissions, reserves or interest
income in the calculation of Underwritable NOI. In the case of the
Charlestowne Mall Property, Underwritable NOI includes rental income from
the Regal Cinema planned for construction, and also includes rental income
from the JC Penney and Carson Pirie Scott leases. The JC Penney lease may be
terminated by the Charlestowne Mall Borrower in order to deed the related
premises to Van Maur, Inc., and the Carson Pirie Scott lease may be
terminated by Carson Pirie Scott, which has an option to purchase an portion
of its premises. The Underwritable NOI for the West Town Mall Property and
the Quail Springs Mall Property includes rental income from the Regal Cinema
and the AMC Theatre being constructed at the West Town Mall Property and
Quail Springs Mall Property, respectively.
Underwritable NOI for the Courthouse Plaza I Property does not deduct
ground rent payable by the Courthouse Plaza I Borrower as an expense.
Minimum ground rent of $50,000 is payable annually under the Courthouse
Plaza I Ground Lease.
"U.S. Obligations" means direct, noncallable, obligations of the United
States or of an instrumentality of the United States, so long as such
obligations are backed by the full faith and credit of the United States.
"Value" means, for each of the Mortgaged Properties, the appraised value
of such Mortgaged Property as determined by the appraisal thereof reviewed
in connection with the origination or purchase of the related Mortgage Loan
or in the case of the Quail Springs Mall Property, based on Underwritable
NOI of $6,873,808 and an 8.5% capitalization rate, and in the case of the
CenterAmerica Pool Properties, based on Underwritable NOI of $25,277,026 and
a 9.5% capitalization rate. "Total Value" is the aggregate value for all of
the Mortgaged Properties.
"Yield Maintenance Premium" means for any Mortgage Loan, a Prepayment
Charge equal to the present value of the Calculated Payments to the
Effective Maturity Date (in the case of an EMD Loan) or the Maturity Date
(in the case of a Non-EMD Loan), determined by discounting such payments at
the Discount Rate. "Calculated Payments" are the monthly payments of
interest only that would be due on the principal being prepaid at a rate
equal to the positive excess of (i) the Initial Interest Rate (in the case
of an EMD Loan) or the Interest Rate (in the case of a Non-EMD Loan) over
S-66
<PAGE>
(ii) the Yield Maintenance Treasury Rate. "Yield Maintenance Treasury Rate"
means the yield calculated by linear interpolation of the yields, as
reported in Federal Reserve Statistical Release H.15-Selected Interest
Rates, for the week ending prior to the date of prepayment, of U.S. Treasury
constant maturities with maturity dates (1 longer and 1 shorter) most nearly
approximating the Effective Maturity Date (in the case of an EMD Loan) or
the Maturity Date (in the case of a Non-EMD Loan). "Discount Rate" means the
rate which, when compounded monthly, is equivalent to the Yield Maintenance
Treasury Rate, when compounded semi-annually.
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day of
each month; provided that, if such day is not a business day, payment may be
made on the next business day. The Magellan Apartment Pool Loan has a grace
period of 5 calendar days from the due date for payment of principal and
interest. The Charlestowne Mall Loan and CenterAmerica Pool Loan provide the
lender under the related Mezzanine Loan a 2 business day period after notice to
cure any payment default. The Courthouse Plaza I Loan provides the ground
lessor of the Courthouse Plaza I Property a cure period of up to 8 months to
cure payment defaults under the Courthouse Plaza I Loan. As of the Cut-Off
Date, the Mortgage Loans had the following characteristics:
<TABLE>
<S> <C>
Aggregate Principal Balance .............................................. $925,848,151
Lowest Mortgage Loan Principal Balance ................................... $45,000,000
Highest Mortgage Loan Principal Balance .................................. $164,947,035
Average Mortgage Loan Principal Balance .................................. $84,168,014
Range of Remaining Terms to Effective Maturity Date/Maturity ............. 81 to 120 months
Weighted Average Remaining Term to Effective Maturity Date/Maturity ...... 109 months
Range of Mortgage Rates per annum ........................................ 6.67% to 7.73%
Weighted Average Mortgage Rate ........................................... 7.02%
Range of Cut-Off Date Loan-to-Appraised Value ("LTV") Ratios ............. 47.5% to 79.3%
Weighted Average Cut-Off Date LTV Ratios ................................. 58.4%
Range of Debt Service Coverage Ratios .................................... 1.34x to 2.71x
Weighted Average Debt Service Coverage Ratio ............................. 1.90x
</TABLE>
The following table sets forth certain general information regarding the
prepayment terms of the Mortgage Loans.
PREPAYMENT AND DEFEASANCE TERMS
<TABLE>
<CAPTION>
PREPAYMENT FEE/
DEFEASANCE YIELD MAINTENANCE
MORTGAGE LOAN LOAN TYPE LOCKOUT PERIOD TO TERM TERM(1)
- ---------------------------- ----------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Hotel Del Coronado ......... EMD January 1, 2008, From 2 years N/A
its EMD after Closing
Date to EMD
CenterAmerica Pool ......... EMD June 1, 2008, From 2 years N/A
its EMD after Closing
Date to EMD
Wells Fargo Office
Tower ..................... EMD April 30, 2005, From 2 years N/A
its EMD after Closing
Date to EMD
West Town Mall ............. Interest November 1, From October 17, N/A
only 2007; 180 days 2000 to
EMD prior to its November 1,
EMD 2007
Magellan Apartment
Pool ...................... EMD August 1, 2007; From 2 years N/A
3 months prior after Closing
to its EMD Date to
EMD
</TABLE>
S-67
<PAGE>
<TABLE>
<CAPTION>
PREPAYMENT FEE/
DEFEASANCE YIELD MAINTENANCE
MORTGAGE LOAN LOAN TYPE LOCKOUT PERIOD TO TERM TERM(1)
- ---------------------------- ----------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Glenborough Pool ........... EMD September 11, N/A September 12,
2000 2000 to October 1,
2007, its EMD
EQR Apartment Pool ......... Interest January 1, 2008, From 2 years N/A
Only 3 months prior after Closing
EMD to its EMD Date to EMD
Charlestowne Mall .......... EMD December 1, From 2 years N/A
2004, 3 months after Closing
prior to its Date to EMD
EMD
Ramco-Gershenson
Pool ...................... EMD September 1, From 2 years N/A
2007, after Closing
3 months prior Date to EMD
to its EMD
Courthouse Plaza I ......... EMD October 1, 2007, From 3 years N/A
3 months prior after Closing
to its EMD Date to EMD
Quail Springs Mall ......... EMD February 1, From 2 years N/A
2008, 120 days after Closing
prior to its EMD Date to EMD
</TABLE>
- --------
(1) All Mortgage Loans require payment of a Prepayment Charge if paid prior
to the end of their Lockout Period as a result of a Loan Default.
(2) A more complete description of the prepayment or yield maintenance
premium provisions for each Mortgage Loan is contained in the
descriptions of each Mortgage Loan set forth under "Description of the
Mortgaged Properties and Mortgage Loans" herein. A definition of the term
11 Yield Maintenance Premium ii is set forth under "Mortgage Pool
Characteristics--Certain Mortgage Loan Definitions."
All of the Mortgage Loans provide for prepayment thereof in certain
circumstances following the occurrence of a casualty or condemnation. No yield
maintenance premium will be required under the Mortgage Loans for prepayments
in connection with a casualty or condemnation unless, in the case of most of
the Mortgage Loans, an event of default has occurred and is continuing. The
Glenborough Pool Loan does not expressly require that prepayments be made on a
Due Date. Other Mortgage Loans permit prepayments in connection with a casualty
or condemnation. Accordingly, if such loans are prepaid on a date other than a
regularly scheduled due date, prepayment interest shortfalls may result.
The following tables set forth certain information with respect to the
Mortgage Loans and Mortgaged Properties. The statistics in the following tables
were primarily derived from information provided to the Originators or MSMC by
the respective borrowers, other than assumptions or projections used in
calculating such statistics, which were determined by the Depositor. Some of
the calculations of the statistics in the tables were not made with adjustments
which would be required under generally accepted accounting principles
("GAAP").
S-68
<PAGE>
MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
ORIGINAL
TERM TO
ORIGINAL ORIGINAL EFFECTIVE
NUMBER OF PRINCIPAL MORTGAGE AMORTIZATION MATURITY
LOAN NAME PROPERTIES BALANCE RATE TERM DATE (MOS.)
- --------------------- ------------ ------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Hotel Del
Coronado ........... 1 166,000,000 6.900% 300 120
CenterAmerica
Portfolio .......... 44 163,000,000 6.670% 360 120
Wells Fargo Tower.... 1 144,000,000 7.170% 300 84
West Town Mall ...... 1 76,000,000 6.900% (2) 126
Magellan
Apartment
Portfolio .......... 11 75,500,000 7.280% 360 120
Glenborough Realty
Trust .............. 10 60,000,000 7.500% 300 120
EQR Apartment
Portfolio .......... 5 50,000,000 6.790% (2) 120
Charlestowne Mall.... 1 50,000,000 7.730% 360 84
Ramco Portfolio ..... 7 50,000,000 6.830% 360 120
Courthouse Plaza I... 1 48,900,000 7.190% 360 120
Quail Springs Mall... 1 45,000,000 6.820% 360 120
-- ----------- ----- ---- ---
TOTAL/WEIGHTED
AVERAGE ............ 83 928,400,000 7.017% 332 113
== =========== ===== ==== ===
<CAPTION>
PRINCIPAL
BALANCE AT
REMAINING PERCENT OF EFFECTIVE
TERM TO CUT-OFF CUT-OFF MATURITY
EFFECTIVE EFFECTIVE DATE DATE DATE OR ANNUAL
MATURITY MATURITY STATED PRINCIPAL PRINCIPAL MATURITY APPRAISED DEBT
LOAN NAME DATE (MOS.) DATE MATURITY BALANCE ($) BALANCE DATE VALUE (3) SERVICE
- --------------------- ------------- ----------- ---------- ------------- ------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hotel Del
Coronado ........... 115 01/01/08 01/01/23 164,947,035 17.8% 130,163,932 330,000,000 13,952,222
CenterAmerica
Portfolio .......... 120 06/01/08 06/01/28 163,000,000 17.6% 140,921,222 266,073,957 12,582,738
Wells Fargo Tower.... 83 04/30/05 04/30/23 143,855,648 15.5% 126,516,032 235,000,000 12,401,179
West Town Mall ...... 119 05/01/08 05/01/28 76,000,000 8.2% 76,000,000 160,000,000 5,244,000
Magellan
Apartment
Portfolio .......... 113 11/01/07 11/01/27 75,113,551 8.1% 66,308,919 94,775,000 6,198,963
Glenborough Realty
Trust .............. 112 10/01/07 10/01/22 59,465,982 6.4% 48,701,064 115,900,000 5,320,736
EQR Apartment
Portfolio .......... 118 04/01/08 04/01/28 50,000,000 5.4% 50,000,000 100,650,000 3,442,153
Charlestowne Mall.... 81 03/01/05 03/01/28 50,000,000 5.4% 46,730,265 86,600,000 4,290,184
Ramco Portfolio ..... 114 12/01/07 12/01/27 49,761,281 5.4% 43,401,346 77,000,000 3,923,549
Courthouse Plaza I... 115 01/01/08 01/01/28 48,704,653 5.3% 42,147,916 69,100,000 3,979,158
Quail Springs Mall... 120 06/01/08 06/01/28 45,000,000 4.9% 39,064,080 85,457,518 3,527,593
--- -------- -------- ----------- ----- ----------- ----------- ----------
TOTAL/WEIGHTED
AVERAGE ............ 109 925,848,151 100.0% 809,954,776 1,620,556,475 74,862,475
=== =========== ===== =========== ============= ==========
<CAPTION>
EFFECTIVE
UNDERWRITABLE CUT-OFF MATURITY
CASH DATE DATE
LOAN NAME FLOW DSCR LTV LTV
- --------------------- --------------- --------- --------- ----------
<S> <C> <C> <C> <C>
Hotel Del
Coronado ........... 28,728,037 2.06 50.0% 39.4%
CenterAmerica
Portfolio .......... 23,348,985 1.86 61.3% 53.0%
Wells Fargo Tower.... 20,276,676 1.64 61.2% 53.8%
West Town Mall ...... 14,192,113 2.71 47.5% 47.5%
Magellan
Apartment
Portfolio .......... 8,332,513 1.34 79.3% 70.0%
Glenborough Realty
Trust .............. 10,254,024 1.93 51.3% 42.0%
EQR Apartment
Portfolio .......... 7,855,798 2.28 49.7% 49.7%
Charlestowne Mall.... 7,306,601 1.70 57.7% 54.0%
Ramco Portfolio ..... 7,846,323 2.00 64.6% 56.4%
Courthouse Plaza I... 5,910,161 1.49 70.5% 61.0%
Quail Springs Mall... 6,873,808 1.95 52.7% 45.7%
---------- ---- ---- ----
TOTAL/WEIGHTED
AVERAGE ............ 140,925,038 1.90 58.4% 51.0%
=========== ==== ==== ====
</TABLE>
- -------
(1) Cut-Off Date is June 1, 1998.
(2) Interest only to Effective Maturity Date; 240 month amortization schedule
thereafter.
(3) "Appraised Value" for the CenterAmerica Pool Properties was determined by
applying a 9.5% capitalization rate to Underwritable NOI and "Appraised
Value" for the Quail Springs Mall Property was determined by applying an
8.5% capitalization rate to Underwritable NOI.
S-69
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PIE CHART]
LOAN AMOUNT ALLOCATION (IN $MM)
PERCENT OF
CUT-OFF CUT-OFF
DATE DATE
PRINCIPAL PRINCIPAL
LOAN NAME BALANCE BALANCE
- ------------------- ------------- -------------
Hotel Del Coronado .. 17.8% $164.9
CenterAmerica Pool... 17.6% $163.0
Wells Fargo Tower.... 15.5% $143.9
West Town Mall ...... 8.2% $76.0
Magellan Apartment
Pool................ 8.1% $75.1
Glenborough Pool..... 6.4% $59.5
Ramco-Gershenson Pool 5.4% $49.8
EQR Apartment Pool... 5.4% $50.0
Charlestowne Mall.... 5.4% $50.0
Courthouse Plaza I... 5.3% $48.7
Quail Springs Mall... 4.9% $45.0
MORTGAGED PROPERTIES BY LOCATION
<TABLE>
<CAPTION>
CUT-OFF PERCENTAGE OF
DATE CUT-OFF DATE
NUMBER OF ALLOCATED ALLOCATED UNDERWRITTEN
STATE PROPERTIES LOAN AMOUNT LOAN AMOUNT CASH FLOW
- ------------------- ------------ ------------- --------------- --------------
<S> <C> <C> <C> <C>
California ........ 9 365,433,925 39.5% 55,896,061
Texas ............. 44 163,000,000 17.6% 23,348,985
Tennessee ......... 3 88,115,877 9.5% 16,108,610
Illinois .......... 2 58,568,677 6.3% 8,658,671
Virginia .......... 2 53,759,262 5.8% 6,962,169
Oklahoma .......... 1 45,000,000 4.9% 6,873,808
Wisconsin ......... 4 40,897,591 4.4% 6,417,096
Arizona ........... 6 39,493,623 4.3% 4,734,947
Minnesota ......... 2 24,333,783 2.6% 4,146,813
Massachusetts ..... 3 13,280,736 1.4% 2,228,560
South Carolina .... 1 8,476,337 0.9% 1,330,935
Ohio .............. 1 7,314,908 0.8% 1,172,694
North Carolina .... 1 6,116,657 0.7% 950,023
Missouri .......... 2 5,153,718 0.6% 914,882
Florida ........... 1 4,261,729 0.5% 764,302
Michigan .......... 1 2,641,329 0.3% 416,481
-- ----------- ----- ----------
Total/Weighted
Average .......... 83 925,848,151 100.0% 140,925,038
== =========== ===== ===========
<CAPTION>
PERCENTAGE PERCENTAGE WEIGHTED
OF TOTAL OF TOTAL AVERAGE WEIGHTED
UNDERWRITTEN APPRAISED APPRAISED CUT-OFF AVERAGE
STATE CASH FLOW VALUE VALUE DATE LTV DSCR
- ------------------- -------------- ---------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
California ........ 39.7% 648,050,000 40.0% 57.8% 1.81
Texas ............. 16.6% 266,073,957 16.4% 61.3% 1.86
Tennessee ......... 11.4% 180,400,000 11.1% 49.9% 2.61
Illinois .......... 6.1% 105,200,000 6.5% 56.6% 1.79
Virginia .......... 4.9% 78,850,000 4.9% 68.7% 1.53
Oklahoma .......... 4.9% 85,457,518 5.3% 52.7% 1.95
Wisconsin ......... 4.6% 72,050,000 4.4% 54.5% 2.19
Arizona ........... 3.4% 52,425,000 3.2% 75.0% 1.43
Minnesota ......... 2.9% 50,100,000 3.1% 50.4% 2.13
Massachusetts ..... 1.6% 25,900,000 1.6% 51.3% 1.93
South Carolina .... 0.9% 13,000,000 0.8% 64.6% 2.00
Ohio .............. 0.8% 11,200,000 0.7% 64.6% 2.00
North Carolina .... 0.7% 9,700,000 0.6% 64.6% 2.00
Missouri .......... 0.6% 10,050,000 0.6% 51.3% 1.93
Florida ........... 0.5% 8,700,000 0.5% 51.3% 1.93
Michigan .......... 0.3% 3,400,000 0.2% 64.6% 2.00
----- ----------- ----- ---- ----
Total/Weighted
Average .......... 100.0% 1,620,556,475 100.0% 58.4% 1.90
===== ============= ===== ==== ====
</TABLE>
S-70
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[MAP OF UNITED STATES]
<TABLE>
<CAPTION>
CUT-OFF PERCENTAGE OF
DATE CUT-OFF DATE
NUMBER OF ALLOCATED ALLOCATED
STATE PROPERTIES LOAN AMOUNT LOAN AMOUNT
- ------------------- ------------ ------------- ---------------
<S> <C> <C> <C>
California ........ 9 $365,433,925 39.5%
Texas ............. 44 163,000,000 17.6%
Tennessee ......... 3 88,115,877 9.5%
Illinois .......... 2 58,568,677 6.3%
Virginia .......... 2 53,759,262 5.8%
Oklahoma .......... 1 45,000,000 4.9%
Wisconsin ......... 4 40,897,591 4.4%
Arizona ........... 6 39,493,623 4.3%
Minnesota ......... 2 24,333,783 2.6%
Massachusetts ..... 3 13,280,736 1.4%
South Carolina 1 8,476,337 0.9%
Ohio .............. 1 7,314,908 0.8%
North Carolina 1 6,116,657 0.7%
Missouri .......... 2 5,153,718 0.6%
Florida ........... 1 4,261,729 0.5%
Michigan .......... 1 2,641,329 0.3%
</TABLE>
S-71
<PAGE>
RANGE OF LOAN-TO-VALUE RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF WEIGHTED WEIGHTED
CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE AVERAGE CUT-OFF DATE
LOAN TO VALUE RATIO LOANS BALANCE BALANCE RATE DSCR LTV
- -------------------------------- ----------- -------------- --------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
40%-50% ........................ 3 290,947,035 31.4% 6.881% 2.27 49.3%
50%-60% ........................ 3 154,465,982 16.7% 7.376% 1.86 53.8%
60%-70% ........................ 3 356,616,930 38.5% 6.894% 1.79 61.7%
70%-80% ........................ 2 123,818,204 13.4% 7.245% 1.40 75.8%
- ----------- ----- ----- ---- ----
Total/Weighted Average ......... 11 925,848,151 100.0% 7.017% 1.90 58.4%
== =========== ===== ===== ==== ====
</TABLE>
RANGE OF LOAN-TO-VALUE RATIOS AS OF THE EFFECTIVE MATURITY DATE
<TABLE>
<CAPTION>
WEIGHTED
PERCENTAGE OF WEIGHTED AVERAGE
CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED EFFECTIVE
NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE AVERAGE MATURITY DATE
LOAN TO VALUE RATIO LOANS BALANCE BALANCE RATE DSCR LTV
- -------------------------------- ----------- -------------- --------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
35%-50% ........................ 5 395,413,017 42.7% 6.967% 2.18 43.4%
50%-60% ........................ 4 406,616,930 43.9% 6.997% 1.78 53.8%
60%-70% ........................ 2 123,818,204 13.4% 7.245% 1.40 66.4%
- ----------- ----- ----- ---- ----
Total/Weighted Average ......... 11 925,848,151 100.0% 7.017% 1.90 51.0%
== =========== ===== ===== ==== ====
</TABLE>
MORTGAGED PROPERTIES BY PRIMARY PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENTAGE
CUT-OFF OF CUT-OFF
NUMBER PERCENTAGE DATE DATE
OF OF TOTAL ALLOCATED ALLOCATED APPRAISED
PROPERTY TYPE PROPERTIES PROPERTIES LOAN AMOUNT LOAN AMOUNT SF/UNITS VALUE
- -------------------------------- ------------ ------------ ------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Office ......................... 7 8.4% 231,411,410 25.0% 2,363,512 379,550,000
Retail ......................... 51 61.4% 212,761,281 23.0% 6,176,627 343,073,957
Regional Mall .................. 3 3.6% 171,000,000 18.5% 1,930,870 332,057,518
Hotel .......................... 1 1.2% 164,947,035 17.8% 692 330,000,000
Multifamily .................... 17 20.5% 131,159,259 14.2% 3,865 207,125,000
Flex/Industrial ................ 4 4.8% 14,569,166 1.6% 459,019 28,750,000
-- ----- ----------- ----- --------- -----------
Total/Weighted Average ......... 83 100.0% 925,848,151 100.0% 10,934,585 1,620,556,475
== ===== =========== ===== ========== =============
</TABLE>
<TABLE>
<CAPTION>
CUT-OFF
DATE PERCENTAGE
ALLOCATED 1997 OF TOTAL WEIGHTED WEIGHTED
LOAN AMOUNT TOTAL 1997 UNDERWRITABLE UNDERWRITABLE AVERAGE AVERAGE
PROPERTY TYPE PSF/UNIT REVENUE NOI CASH FLOW CASH FLOW LTV DSCR
- ---------------------------- ------------- ------------- ------------- --------------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Office ..................... 97.91 61,289,816 37,807,970 32,867,762 23.3% 61.5% 1.65
Retail ..................... 34.45 45,158,278 34,439,297 31,195,307 22.1% 62.0% 1.89
Regional Mall .............. 88.52 37,486,448 25,308,538 28,372,522 20.1% 51.9% 2.21
Hotel ...................... 238,362.77 89,489,392 33,818,866 28,728,037 20.4% 50.0% 2.06
Multifamily ................ 33,935.13 30,363,519 16,862,134 17,173,045 12.2% 66.7% 1.73
Flex/Industrial ............ 31.74 4,330,654 3,155,800 2,588,365 1.8% 51.3% 1.93
---------- ---------- ---------- ---------- ----- ---- ----
Total/Weighted Average ..... 268,118,107 151,392,605 140,925,038 100.0% 58.4% 1.90
=========== =========== =========== ===== ==== ====
</TABLE>
S-72
<PAGE>
UNDERWRITING STANDARDS
General. The underwriting standards utilized in connection with the
origination or purchase of the Mortgage Loans addressed, with respect to each
Mortgaged Property, property valuations and property financial performance,
environmental conditions and physical conditions, as described below.
Appraisals and Market Studies. An appraisal of each of the Mortgaged
Properties was performed except for the CenterAmerica Pool Properties and the
Quail Springs Mall Property. Market Studies were performed for each of the
CenterAmerica Pool Properties and the Quail Springs Mall Property. The
appraisals, which were performed by independent MAI appraisers determined that,
with respect to each Mortgage Loan, at the time of the appraisal the aggregate
value of the related Mortgaged Properties exceeded the original principal
amount of such Mortgage Loan. In general, appraisals represent the analysis and
opinion of qualified experts and are not guarantees of present or future value.
Moreover, appraisals seek to establish the amount a typically motivated buyer
would pay a typically motivated seller. Such amount could be significantly
higher than the amount obtained from the sale of a Mortgaged Property under a
distress or liquidation sale. The market studies were also performed by
independent MAI appraisers; however while a marketability study does give an
opinion of value, the market studies do not. LTV figures herein for the
CenterAmerica Pool Loan and the Quail Springs Mall Loan are based on a 9.5%
capitalization rate and an 8.5% capitalization rate, respectively, on
Underwritable NOI. See "Risk Factors--The Mortgage Loans--Limitations or Lack
of Appraisals" herein. Information regarding the value of each Mortgaged
Property as of the Cut-Off Date presented under "--Certain Characteristics of
the Mortgage Loans" above is not intended to be a representation as to the
past, present or future market values of the Mortgaged Properties.
Operating Statements, Financial Data, Occupancy Statements. In connection
with the origination of the Mortgage Loans, the related Originator or MSMC
reviewed historical operating statements, financial data, rent rolls and
related information or statements of occupancy rates provided by borrowers and,
with respect to the Mortgage Loans secured by office properties and retail
properties, certain major tenant leases.
Environmental Assessments. As part of the origination, all of the
Mortgaged Properties have been subject to either Phase I site assessments,
updates of previously performed Phase I site assessments, or other site
assessments which were updated and upgraded to comply with Phase I standards
through follow up investigations, within the last 2 years. Additionally, all
borrowers were required to provide certain environmental representations,
warranties, covenants and indemnities relating to the existence and use of
hazardous substances on the Mortgaged Properties. For a discussion of
environmental issues identified on the Mortgaged Properties, see "Risk
Factors--The Mortgage Loans--Environmental Law Considerations" herein.
Property Condition Assessments. Inspections of the Mortgaged Properties
were conducted by licensed engineers prior to origination of the Mortgage
Loans. Such inspections were generally commissioned to assess the structure,
exterior walls, roofing, interior construction, mechanical and electrical
systems and general conditions of the site, buildings and other improvements
located at each Mortgaged Property. The resulting reports of the inspecting
engineers (the "Property Condition Reports") indicated, where appropriate, a
variety of deferred maintenance items and recommended capital improvements with
respect to the related Mortgaged Property, as well as the estimated cost of
such items and improvements. In each instance, the related Originator or MSMC
either determined that such items and improvements were being addressed by the
related borrowers in a satisfactory manner, or required that they be addressed
post-closing and, in some instances, that reserves be established to cover the
related costs. See "Description of the Mortgaged Properties and the Mortgage
Loans" herein for descriptions of the reserves or other security provided for
deferred maintenance and capital improvements related to each Mortgaged
Property.
There are violations of the ADA at some of the Mortgaged Properties that
are not expected to have a material impact on the value of or earnings from
such properties. See "Risk Factors--The Mortgage Loans--Costs of Compliance
with Americans with Disabilities Act."
Zoning and Building Code Compliance. Each of the borrowers has, under its
related Mortgage or loan agreement, generally represented as of the date on
which the Mortgage Loan was originated and/or provided a legal opinion, a title
insurance policy endorsement and/or other evidence, to the effect that the use
and operation of the related Mortgaged Properties are in compliance in all
material respects with applicable zoning, land-use, environmental, building,
fire and health ordinances, rules, regulations and orders applicable to the
related Mortgaged Properties. See "Risk Factors--The Mortgage Loans--Zoning
Compliance; Inspections."
S-73
<PAGE>
Property Management. The manager for each Mortgaged Property was approved
by MSMC in connection with the origination or purchase of the related Mortgage
Loan. Generally, a manager is responsible for responding to changes in the
local market, planning and implementing the rental rate or operating structure,
which may include establishing levels of rent payments or rates, and insuring
that maintenance and capital improvements are carried out in a timely fashion.
Upon the occurrence of certain events specified in each Mortgage Loan, the
related management agreement is terminable by the Master Servicer or terminates
unless the Master Servicer otherwise elects. For a discussion of the management
contracts and the Master Servicer's rights thereunder, see "Description of the
Mortgaged Properties and the Mortgage Loans" herein. Neither the Master
Servicer nor the Special Servicer manages any of the Mortgaged Properties and
they are not expected to manage any REO Properties (as defined herein).
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the close of business on the Cut-Off Date, as adjusted for the
scheduled principal payments due on the Mortgage Loans on or before the Cut-Off
Date. The Depositor believes that the information set forth herein will be
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Certificates are issued.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Offered Certificates and will be filed by the Depositor,
together with the Pooling Agreement, with the Securities and Exchange
Commission within fifteen days after the initial issuance of the Offered
Certificates.
The insert between pages S-74 and S-75 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: Hotel Del Coronado
Photographs
1. Hotel Del Coronado
2. Lobby
3. The Ballroom
4. Hotel Del Coronado
Reverse of Page
Legend: Hotel Del Coronado
1. Site Plan of Hotel Del Coronado
2. Map of Western U.S. showing location of Hotel Del Coronado
S-74
<PAGE>
DESCRIPTION OF THE MORTGAGED PROPERTIES AND THE MORTGAGE LOANS
HOTEL DEL CORONADO: THE BORROWER; THE PROPERTY
The Loan. The Hotel Del Coronado Loan was originated by Secore and
acquired by MSMC on December 2, 1997. The Hotel Del Coronado Loan had an
original principal balance of $166,000,000 and has a Cut-Off Date Principal
Balance of approximately $164,947,035. It is secured by a Mortgage (the "Hotel
Del Coronado Mortgage") executed and delivered by the Hotel Del Coronado
Borrower encumbering a first-class luxury destination hotel known as Hotel Del
Coronado, located in Coronado, California (the "Hotel Del Coronado Property"),
and a security agreement (the "Hotel Del Coronado Security Agreement") executed
and delivered by the Hotel Del Coronado Operating Lessee (defined below)
pledging the personal property relating to the Hotel Del Coronado Property.
The Borrower, the Operating Lessee and the Licensor. L-O Coronado Holding
II, Inc. (the "Hotel Del Coronado Borrower") is a Delaware corporation whose
purpose is limited to owning the Hotel Del Coronado Property and related
activities. The Hotel Del Coronado Borrower owns no assets other than the Hotel
Del Coronado Property and related interests. All of the outstanding capital
stock of the Hotel Del Coronado Borrower is owned by L-O Coronado Holding,
Inc., a Delaware corporation (the "Hotel Del Coronado Stockholder"). All of the
outstanding capital stock of the Hotel Del Coronado Stockholder is owned by a
trust for the benefit of the Public Employee's Retirement System of Ohio ("Ohio
PERS"). See "Risk Factors--Certain Legal Issues Relating to the Hotel Del
Coronado Loan and Magellan Apartment Pool Loan".
The Hotel Del Coronado Borrower has leased all of its interests in the
Hotel Del Coronado Property to L-O Coronado Hotel, Inc. (the "Hotel Del
Coronado Operating Lessee"). The Hotel Del Coronado Operating Lessee owns all
of the personal property (including, without limitation, accounts, contract
rights, fixtures, equipment and inventory) relating to the Hotel Del Coronado
Property and is the licensee of certain trademarks and service marks relating
to the Hotel Del Coronado Property (the "Hotel Del Coronado Marks"). The Hotel
Del Coronado Operating Lessee is a California corporation formed for the
limited purpose of operating the Hotel Del Coronado Property, owning the
personal property relating thereto, and related purposes and is an affiliate of
the Hotel Del Coronado Borrower indirectly wholly owned by a trust for the
benefit of Ohio PERS (the "Second Ohio PERS Trust"). The owner and licensor of
the Hotel Del Coronado Marks is L-O Coronado IP, Inc. (the "Hotel Del Coronado
Licensor"), a Delaware corporation formed for the limited purpose of owning and
licensing the Hotel Del Coronado Marks and an affiliate of the Hotel Del
Coronado Borrower indirectly wholly owned by the Second Ohio PERS Trust.
The Property. The Hotel Del Coronado Property is comprised of
approximately 27 acres of land improved with a 692-room, 4-to-7-story resort
hotel known as the Hotel Del Coronado, located in Coronado, California. The
Hotel Del Coronado Property was purchased by the Hotel Del Coronado Borrower in
August, 1997. The Hotel Del Coronado Property was constructed in 1888 and
extensively renovated between 1963 and 1988. The Hotel Del Coronado Property is
currently comprised of 4 separate buildings: The Queen Anne Building (1888)
consisting of 380 rooms, the Ocean Towers (1977) with 215 rooms, the Poolside
(1979) with 96 rooms, and the 1 room Seaside Cottage for a total of 692 rooms.
The Hotel Del Coronado Property has 7 restaurants and lounges, an on-site
bakery and butcher shop, 6 tennis courts, 2 heated pools, a health club and
spa, an historical gallery and over 30 specialty shops. In addition, the Hotel
Del Coronado Property contains approximately 73,034 square feet of banquet and
meeting space in 15 different rooms and has 978 marked parking spaces. The
average occupancy rate for the 12 months ended February 28, 1998 for the Hotel
Del Coronado Property was 85%. The ADR and the RevPAR for the 12 months ended
February 28, 1998 were $202.80 and $173.15, respectively. An appraisal
completed on November 8, 1997 determined a value of $330,000,000 for the Hotel
Del Coronado Property.
Location/Access. The Hotel Del Coronado Property is located on Coronado
Island, adjacent to the downtown area of the City of Coronado. The City of
Coronado is located across the San Diego Bay and directly southwest of downtown
San Diego. The Hotel Del Coronado Property has street frontage along the
southern portion of Silver Strand Boulevard, the southern side of Orange Avenue
and the eastern side of RH Dana Place. Regional access comes primarily from
Interstate 5, which is a major north/south thoroughfare through San Diego.
Interstate 5 provides access to San Diego's well-developed freeway system,
including Interstates 805, 8 and 15, as well as other major highways.
Interstate 5 extends from the US/Mexico border, along the entire Pacific Coast
to the US/Canada border in the north and serves as the principal link for San
Diego to Orange County and Los Angeles. The Interstate also provides access
from Coronado Island to San Diego International Airport. The Hotel Del Coronado
Property is approximately 3 miles west of the San Diego International Airport.
S-75
<PAGE>
Market Overview. The Hotel Del Coronado Property shares Coronado Island
with the Naval Air Station and the Naval Amphibious Base. The City of Coronado
is primarily a bedroom community for business executives working in San Diego
and a retirement community for military officers, as well as being a workplace
for the military and a tourist attraction. The area surrounding the Hotel Del
Coronado Property consists of various retail and commercial shops, some
multifamily development, and the Pacific Ocean to the west.
The Hotel Del Coronado Property benefits from the group meeting and
leisure market segments because of the large amount of group meeting space
available; approximately 63% of its occupancy is in the group meeting market
segment. The Hotel Del Coronado Property has approximately 73,000 square feet
of meeting space and banquet facilities. It is also located near the San Diego
Convention Center.
Leisure stays account for approximately 27% of the Hotel Del Coronado
Property's overall occupancy. The tourist industry is ranked third in terms of
revenue contribution to the San Diego area behind the manufacturing and
government sectors. San Diego's Old State Park, Sea World and the San Diego Zoo
are all accessible from the Hotel Del Coronado Property by freeway, as are the
city's major sporting event facilities, Jack Murphy Stadium and the San Diego
Sports Arena.
Competition. The primary local competitors include the Loew's Coronado Bay
Resort, Le Meridien, the Sheraton Grande Torrey Pines, and the Hilton San Diego
Beach and Tennis Resort. All of these hotels derive the largest share of their
occupancy from the group meeting segment of the market. However, the Hotel Del
Coronado Property generates more revenue from the leisure segment than any of
its competition. The Hotel Del Coronado Property's close proximity to both the
Pacific Ocean and the area demand generators, historic significance,
international reputation and ample meeting space have allowed the property to
exceed the market averages of its local competitors in both occupancy and
average rate.
In addition to the current local competitors, the Four Seasons Aviara
Resort (331-units, 29,000 square foot conference center, 12,000 square foot
ballroom and golf course) opened on August 1, 1997 and competes directly with
the Hotel Del Coronado Property. A number of other competitive properties have
been proposed but are currently in their planning stages. See "Risk
Factors--Risks Associated With Hotels."
In the broader market, the Hotel Del Coronado Property competes with 3
distinct sets of resort hotels: the "Southern California resorts", including
the Surf & Sand Hotel in Laguna Beach, La Valencia Hotel in La Jolla, the Four
Seasons Biltmore in Santa Barbara and the Ritz Carlton, Laguna Niguel; the
"South Florida resorts", including the Boca Raton Hotel & Club, the Breakers in
Palm Beach, the Turnberry Isle Resort, Sonesta Beach Resort, Key Biscayne, the
Doral Resort de Spa, the Ritz-Carlton Naples and the Ritz-Carlton Palm Beach
and the "Desert Resorts", which include the Arizona Biltmore, Phoenix, La
Quinta Hotel & Resort, Boulders Resort in Carefree, Arizona, the Hyatt Grand
Champions Resort in Indian Wells, Arizona, the Hyatt Regency at Gainey Ranch in
Scottsdale, Arizona and the Scottsdale Princess Resort in Scottsdale, Arizona.
Operating History. The following table shows certain information regarding
the operating history of the Hotel Del Coronado Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
LTM UNDERWRITABLE
1995 1996 2/28/98 NOI
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues ....................... $ 69,820,360 $ 78,235,791 $ 89,489,392 $ 89,489,392
Expenses ....................... (51,054,932) (52,325,284) (55,670,526) (56,734,333)
------------- ------------- ------------- -------------
Net Operating Income ......... $ 18,765,428 $ 25,910,507 $ 33,818,866 $ 32,755,059
============= ============= ============= =============
</TABLE>
Occupancy History. The following table shows historical average occupancy,
ADR and RevPAR for the Hotel Del Coronado Property:
<TABLE>
<CAPTION>
OCCUPANCY PERIOD: AVERAGE OCCUPANCY ADR REVPAR
- ----------------------------- ------------------- ------------ ------------
<S> <C> <C> <C>
LTM ended 2/28/98 .......... 85% $ 202.80 $ 173.15
1996 ...................... 84% $ 179.76 $ 151.36
1995 ...................... 80% $ 165.31 $ 131.56
</TABLE>
Environmental Report. A Phase I site assessment dated August 26, 1997 was
performed on the Hotel Del Coronado Property. The Phase I site assessment did
not reveal any environmental liability that the Depositor believes would have a
material adverse effect on the borrower's business, assets or results on
operations taken as a whole. Nevertheless, there can
S-76
<PAGE>
be no assurance that all environmental conditions and risks were identified in
such environmental assessment. See "Risk Factors--The Mortgage
Loans--Environmental Law Considerations."
Engineering Report. A property condition report was completed on the Hotel
Del Coronado Property during January, 1998 by a third party due diligence firm.
The property condition report concluded that the Hotel Del Coronado Property
was generally in good physical condition and identified approximately
$2,258,065 in deferred maintenance. At origination of the Hotel Del Coronado
Loan, the Hotel Del Coronado Borrower established a deferred maintenance
reserve account and made an initial deposit of $2,637,025 to fund the cost of
addressing the identified items.
Property Management. The Hotel Del Coronado Property is managed by
Destination Coronado Hotel Inc., a California corporation (the "Hotel Del
Coronado Manager"), pursuant to an Amended and Restated Hotel Management
Agreement dated as of December 2, 1997 between the Hotel Del Coronado Manager
and the Hotel Del Coronado Operating Lessee (the "Hotel Del Coronado Management
Agreement"). The Hotel Del Coronado Manager receives a management fee equal to
the lesser of (i) 1.5% of the gross revenues, or (ii) the property management
allocation cost set forth in the annual budget of Destination Hotels and
Resorts, Inc., as reviewed and accepted by the Hotel Del Coronado Operating
Lessee. The Hotel Del Coronado Manager is indirectly owned by Lowe Enterprises,
Inc., which serves as an advisor to Ohio PERS.
The Hotel Del Coronado Management Agreement is for a term ending August
28, 2002, or upon the earlier termination, for any reason, of the Hotel Del
Coronado Operating Lease (defined below). The Hotel Del Coronado Operating
Lessee may terminate the Hotel Del Coronado Management Agreement at any time
without cause, upon at least 30 days' prior written notice. Under the terms of
the Hotel Del Coronado Loan, any termination or replacement of the Hotel Del
Coronado Manager or entering into a new management agreement requires the
consent of mortgagee. The Hotel Del Coronado Stockholder may extend the Hotel
Del Coronado Management Agreement for no more than 90 days after the
termination of the Hotel Del Coronado Operating Lease by giving the Hotel Del
Coronado Manager written notice of such extension on or before the termination
of the Hotel Del Coronado Operating Lease.
The Hotel Del Coronado Loan provides that the Hotel Del Coronado Borrower
shall terminate the Hotel Del Coronado Management Agreement and shall cause the
Hotel Del Coronado Operating Lessee to replace the Hotel Del Coronado Manager
with a new manager selected by mortgagee upon the request of mortgagee if: (i)
the amounts evidenced by the Note have been accelerated, (ii) the Hotel Del
Coronado Manager shall become insolvent, (iii) a Loan Default shall occur and
be continuing or (iv) at any time the Loan DSCR for the immediately preceding
12 month period is less than 1.25x, unless the Hotel Del Coronado Borrower
deposits with mortgagee additional collateral in the form of U.S. Obligations
such that the Loan DSCR of 1.25x can be maintained on the loan amount net of
the lower of the face amount or fair market value of such additional collateral
(as determined by mortgagee); provided, however, that additional collateral may
not be so deposited in lieu of termination unless the Rating Agencies confirm
that such action will not result in the qualification, downgrade or withdrawal
of the credit ratings of the Certificates. Additional collateral may not be
released until the Loan DSCR exceeds 1.35x, calculated without taking into
account the additional collateral.
Pursuant to an Assignment of Management Agreement and a Subordination of
Management Agreement among the Hotel Del Coronado Borrower, the Hotel Del
Coronado Operating Lessee, the Hotel Del Coronado Manager and mortgagee, the
Hotel Del Coronado Manager has agreed (i) that the Hotel Del Coronado
Management Agreement is subordinate to the Hotel Del Coronado Loan, (ii) to the
termination rights of mortgagee described above and (iii) that it will, at
mortgagee's request, remain as manager after a Loan Default (provided that it
shall not be required to remain for a period in excess of 10 days unless its
management fees are timely paid), (iv) it shall not terminate the Hotel Del
Coronado Management Agreement or otherwise cease to manage the Hotel Del
Coronado Property, without giving mortgagee at least 30 days notice and (v) in
the event of a termination due to its own insolvency or due to a Loan Default,
will, if mortgagee elects, co-operate fully in the transfer of responsibility
for the management of the Hotel Del Coronado Property to a new manager.
The Hotel Del Coronado Manager is owned by Destination Hotels and Resorts,
Inc., which is owned by Lowe Enterprises, Inc. Destination Hotels and Resorts,
Inc. has approximately 7,600 rooms of hotel and resort properties under its
management.
Operating Lease. The interests of the Hotel Del Coronado Borrower in the
Hotel Del Coronado Property have been leased to the Hotel Del Coronado
Operating Lessee pursuant to an Amended and Restated Lease and Assignment dated
as of December 2, 1997 (the "Hotel Del Coronado Operating Lease"). The initial
term of the Hotel Del Coronado Operating Lease expires on August 28, 2025, and
contains 2 extension options of 5 years each. Rent payable under the Hotel Del
S-77
<PAGE>
Coronado Operating Lease is the sum of Basic Rent and Additional Rent,
calculated as follows: Basic Rent is $2,700,000 per month from December 2, 1997
until June 30, 1998; thereafter, Basic Rent shall be adjusted to the fair
market rent every 5 years, but after July 1, 1998, it shall not be lower than
that for the immediately preceding period. Additional Rent is the product of
gross receipts over the threshold amount, multiplied by the additional rent
percentage; for the period December 2, 1997 through June 30, 1998, the
threshold amount is $75,000,000 and the additional rent percentage is 25%; on
July 1, 1998 the threshold amount will be increased to $95,000,000; thereafter,
the additional rent percentage shall be increased (but after July 1, 1998, may
never be decreased) so that the Additional Rent reflects fair market values.
Pursuant to a Subordination Agreement between the Hotel Del Coronado
Operating Lessee and mortgagee, the Hotel Del Coronado Operating Lessee has
agreed that the Hotel Del Coronado Operating Lease is subordinate to the Hotel
Del Coronado Mortgage. As a result, mortgagee will have the right to terminate
the Hotel Del Coronado Operating Lease upon a foreclosure on the Hotel Del
Coronado Property.
Hotel Del Coronado Marks. The Hotel Del Coronado Licensor has licensed
certain Hotel Del Coronado Marks, which include the names "Hotel Del Coronado",
"Del Coronado", and "Hotel Del Coronado 100th Anniversary" to the Hotel Del
Coronado Operating Lessee. The license agreement for the Hotel Del Coronado
Marks expires on August 28, 2025, subject to renewal for successive terms of 5
years each, unless either party elects to terminate the license agreement 1
year prior to the expiration of the then-current term. The license agreement
requires payment of a license fee of 3% of the gross revenues of the Hotel Del
Coronado Operating Lessee. The Hotel Del Coronado Licensor has executed a
comfort letter indicating that (i) there are no defaults under the license
agreement, (ii) the license agreement shall not be terminated without giving
prior notice to mortgagee, (iii) if the license agreement is terminated due to
bankruptcy, the receiver shall have the right to continue to use the Hotel Del
Coronado Marks and the Hotel Del Coronado Licensor shall enter into a new
interim license agreement on the same terms and conditions, except that the fee
shall be reduced to $25,000 per annum and (iv) in the event mortgagee
forecloses on the Hotel Del Coronado Property, the Hotel Del Coronado Licensor
shall enter into a new license agreement with the new owner on the same terms
and conditions, except the fee shall be reduced to $25,000 per annum.
S-78
<PAGE>
HOTEL DEL CORONADO: THE LOAN
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $166,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $164,947,035 INITIAL INTEREST RATE: 6.90%
ORIGINATION DATE: December 2, 1997 REVISED INTEREST RATE: 8.90%
EFFECTIVE MATURITY DATE: January 1, 2008 AMORTIZATION: 300 months
MATURITY DATE: January 1, 2023 MONTHLY PAYMENT: $1,162,685.15
EMD BALANCE: $130,163,932 CALL PROTECTION: Lockout to EMD
</TABLE>
CERTAIN HOTEL DEL CORONADO LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO ACTUAL
ROOM(1) VALUE RATIO(2) DSCR(3)
---------- ---------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $238,363 50.0% 2.06x
At Effective Maturity Date ......... $188,098 39.4% 2.63x
</TABLE>
- --------
(1) Based on 692 units securing the Hotel Del Coronado and the Cut-Off Date
Principal Balance or Effective Maturity Date Balance as applicable.
(2) Based on the HVS International appraised market value and the Cut-Off
Date Principal Balance or Effective Maturity Date Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $28,728,037 and (b) in the
Cut-Off Date Actual DSCR, actual debt service on the Hotel Del Coronado
Loan during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
Hotel Del Coronado Loan assuming a balance equal to the Effective
Maturity Date Balance, a coupon equal to the Hotel Del Coronado Loan
Initial Interest Rate and an amortization term equal to 300 months.
Security. The Hotel Del Coronado Loan is a nonrecourse loan secured by (i)
the fee estate of the Hotel Del Coronado Borrower in the Hotel Del Coronado
Property (together with all appurtenances thereto), (ii) an assignment of
leases, rents and income executed by the Hotel Del Coronado Borrower, (iii) an
assignment of leases and rents executed by the Hotel Del Coronado Operating
Lessee, (iv) the Hotel Del Coronado Security Agreement granting mortgagee a
security interest in all of the non-real estate equipment, fixtures and
personal property owned by the Hotel Del Coronado Operating Lessee which relate
to the Hotel Del Coronado Property and (v) a Memorandum of Security Interests
in Trademarks granting mortgagee a security interest in all of the Hotel Del
Coronado Operating Lessee's interests (as licensee) in the Hotel Del Coronado
Marks owned by the Hotel Del Coronado Licensor. Mortgagee is the insured under
title insurance policies issued simultaneously insuring that the Hotel Del
Coronado Mortgage constitutes a valid and enforceable first lien on the Hotel
Del Coronado Property, subject to certain exceptions set forth therein.
Payment Terms. Interest on the Hotel Del Coronado Loan is calculated on a
30/360 Basis. Its Due Date is the first day of each month with no grace period
(provided, that if the Due Date is not a business day, payment may be made on
the next business day). The Late Payment Fee on any principal or interest
payment not paid on its due date is 4% of such unpaid sum and the Default Rate
following a Loan Default is 5% above the then applicable interest rate, in each
case subject to applicable law. See "Risk Factors--Certain Legal Issues
Relating to the Hotel Del Coronado Loan and Magellan Apartment Pool Loan."
Prepayment. Voluntary prepayment is prohibited under the Hotel Del
Coronado Loan prior to the Effective Maturity Date. From and after such date
the Hotel Del Coronado Loan may be voluntarily prepaid, in whole or in part,
without payment of a Yield Maintenance Charge, on any Due Date.
Principal prepayments on the Hotel Del Coronado Loan may occur after the
Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the Hotel Del Coronado Loan following a Loan Default.
Prepayments following a Loan Default require payment of a Yield Maintenance
Charge which is equal to the greater of (a) 1% of the portion of the principal
amount being repaid, and (b) the Yield Maintenance Premium. As described below,
prepayments may also be made, without payment of a Yield Maintenance Charge,
from insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 2 years after the Closing Date and prior to the Effective Maturity
Date, the Hotel Del Coronado Loan permits the release of the Hotel Del Coronado
Property,
S-79
<PAGE>
upon delivery to mortgagee of U.S. Obligations which provide for payments on or
prior to, but as close as possible to, each Due Date up to the Effective
Maturity Date and in amounts equal to the principal and interest payments due
on the Hotel Del Coronado Loan on such dates, and provide for payment on the
Effective Maturity Date of the remaining principal balance of the Hotel Del
Coronado Loan. Upon any such Defeasance, at the option of either mortgagee or
the Hotel Del Coronado Borrower, the Hotel Del Coronado Borrower's obligations
under the Hotel Del Coronado Loan and the U.S. Obligations securing the Hotel
Del Coronado Loan will be transferred to a Successor Borrower. Following such
Defeasance, the U.S. Obligations will be the sole security for the Hotel Del
Coronado Loan.
Lockbox and Reserves. Pursuant to the Hotel Del Coronado Loan, the Hotel
Del Coronado Borrower, the Hotel Del Coronado Operating Lessee and the Hotel
Del Coronado Manager have established a Hard Lockbox, which is a Two-Tier
Lockbox. All credit card receipts are required to be deposited directly into
the Second Tier Lockbox. The First-Tier Lockbox is in the name of the Hotel Del
Coronado Operating Lessee; however, mortgagee has a security interest in such
account. The Lockbox Bank for the First Tier Lockbox is Bank of America, and
for the Second Tier Lockbox is LaSalle National Bank. Amounts in the Lockbox
are required to be applied in accordance with the Lockbox Waterfall, except
that funds remaining after all prior applications are not released to the Hotel
Del Coronado Borrower but instead are applied first to pay the Hotel Del
Coronado Borrower amounts due to it under the Hotel Del Coronado Operating
Lease (less the Monthly Payment and the amount to be deposited in the Capital
Expenditures Account for such month) and then any remainder is paid to the
Hotel Del Coronado Operating Lessee, or at its direction, to the Hotel Del
Coronado Manager.
The Hotel Del Coronado Borrower has established (a) a Debt Service
Account, which requires a Monthly Reserve Deposit equal to the Monthly Payment,
(b) a Tax Account, which had an Initial Reserve Deposit of $673,264 and
requires a Monthly Reserve Deposit equal to the Monthly Tax Deposit Amount, (c)
an Insurance Account, which had an Initial Reserve Deposit of $305,675 and
requires a Monthly Reserve Deposit equal to the Monthly Insurance Deposit
Amount, (d) a Required Repair Account, which had an Initial Reserve Deposit of
$2,637,025, (e) a Capital Expenditures Account, which requires a Monthly
Reserve Deposit equal to 2% of gross income from the Hotel Del Coronado
Property for the previous month, (f) an FFE Account, which requires a Monthly
Reserve Deposit equal to 3% of gross income from the Hotel Del Coronado
Property for the previous month and (g) an Environmental Reserve Account, which
had an Initial Reserve Deposit of $39,317 for the purpose of capping and
filling an underground oil storage tank.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Hotel Del Coronado Borrower is prohibited from transferring the Hotel
Del Coronado Property without the consent of mortgagee and the Rating Agencies
which consent shall be granted in their sole discretion after consideration of
all relevant factors (including without limitation those listed in the next
sentence). In addition, the Hotel Del Coronado Borrower may sell or transfer
all of the Hotel Del Coronado Property to an entity in which a majority of
equity interests are beneficially held by the same ultimate parent as the Hotel
Del Coronado Borrower, provided (i) the Hotel Del Coronado Borrower has
obtained confirmation by each Rating Agency that such transfer will not result
in the downgrade, qualification or withdrawal of the then current ratings of
the Certificates, (ii) the proposed transferee is a single purpose bankruptcy
remote entity with a net worth of at least $100,000,000 (iii) the Hotel Del
Coronado Borrower has obtained a new nonconsolidation opinion, (iv) no Loan
Default has occurred or remains uncured, (v) mortgagee receives a transfer fee
equal to 0.25% of the outstanding principal balance of the Hotel Del Coronado
Loan, (vi) the transferee executes an assumption agreement, (vii) adequate
provision is made for payment of any increased real estate taxes due to such
transfer and (viii) such transfer shall not cause an event of default under the
agreement pursuant to which the Hotel Del Coronado Marks are licensed. The
Hotel Del Coronado Borrower is also prohibited from further encumbering the
Hotel Del Coronado Property.
The Hotel Del Coronado Loan generally prohibits the transfer of any direct
or indirect interest in the Hotel Del Coronado Borrower without (i) the prior
written consent of mortgagee, (ii) confirmation by each Rating Agency that such
transfer will not result in the downgrade, qualification or withdrawal of the
then current ratings of the Certificates and (iii) delivery of a satisfactory
nonconsolidation opinion.
The Hotel Del Coronado Operating Lessee may not assign or sublease the
Hotel Del Coronado Operating Lease without the prior written consent of
mortgagee, and the Hotel Del Coronado Operating Lessee is not permitted to
allow a transfer of ownership or control (except among persons having an
ownership interest as of the origination date). The Hotel Del Coronado
Operating Lessee also may not transfer the personal property owned by it other
than certain ordinary course of business sales of inventory, or of property
that is not material to the conduct of its business or is being replaced with
items of at least equal value. The Hotel Del Coronado Operating Lessee may not
assign the Hotel Del Coronado Marks without mortgagee's consent, and may not
sub-license the Hotel Del Coronado Marks without the Hotel Del Coronado
Licensor's consent. The Hotel Del Coronado Licensor may not transfer the Hotel
Del Coronado Marks without mortgagee's consent.
S-80
<PAGE>
The Hotel Del Coronado Borrower is not permitted to incur any additional
indebtedness. The Hotel Del Coronado Operating Lessee and Hotel Del Coronado
Licensor are not permitted to incur any additional indebtedness other than
unsecured indebtedness for trade payables incurred in the ordinary course of
business which is paid within 60 days of the date incurred and which, in the
case of the Hotel Del Coronado Operating Lessee, does not exceed, at any time,
$5,282,132.
Insurance. The Hotel Del Coronado Borrower is required to maintain or
cause the Hotel Del Coronado Operating Lessee to maintain for the Hotel Del
Coronado Property (a) comprehensive all risk insurance with coverage in an
amount at all times sufficient to prevent the Hotel Del Coronado Borrower from
becoming a co-insurer, but in any event equal to the greater of the full
replacement value of the improvements and the outstanding principal amount of
the Hotel Del Coronado Loan, (b) general liability insurance with coverage of
$2,000,000 per occurrence and with an aggregate limit of not less than
$2,000,000, (c) statutory workers compensation insurance, (d) business
interruption insurance to cover the loss of at least 18 months income, (e)
during any period of construction or repair, "builder's all risk" insurance in
an amount not less than full replacement value, (f) comprehensive boiler and
machinery insurance in amounts reasonably required by mortgagee, (g) flood
insurance, covering the improvements in an amount equal to $120,000,000 (which
may consist of blanket insurance that covers other properties; however, if any
property is added to such coverage that was not covered by the insurance in
effect at origination, the coverage requirement will be increased by the same
proportion that the full replacement cost of the covered properties is
increased by such additional property), and if any portion of the improvement
is at any time in the future located in a federally designated "special flood
hazard area," flood hazard insurance in an amount equal to the lesser of the
outstanding principal amount of the Hotel Del Coronado Loan and the maximum
limit of coverage available under federal law, (h) earthquake insurance,
covering the improvements in an amount equal to $120,000,000 (which may consist
of blanket insurance that covers other properties; however, any such blanket
insurance will have coverage at least equal to the aggregate probable maximum
losses of all covered properties located in San Diego County, California and
shall be in an amount at least equal to 20% of the aggregate full replacement
cost of all covered properties located in California), (i) umbrella liability
insurance in an amount of not less than $250,000,000 per occurrence and (j) at
mortgagee's reasonable request, such other insurance in such amounts as are
generally required by institutional lenders for comparable properties.
Notwithstanding the foregoing, if a loss due to earthquake occurs with respect
to any improvements covered under a blanket basis earthquake policy, the Hotel
Del Coronado Borrower must as promptly as possible, but in no event later than
15 days from the date of such occurrence, (a) reinstate such policy so that the
limits required above are in place as to the other properties not damaged by
earthquake regardless of the loss in question or (b) provide earthquake
coverage for the improvements on a stand alone basis equal to at least
$79,400,000. See "Risk Factors--Availability of Earthquake, Flood and Other
Insurance."
All insurance policies are required to meet the Insurance Requirements,
except that the claims paying ability of the insurer shall have an overall
investment grade rating of only "A" or better by each of the Rating Agencies
and a general policy rating of "A" or better and a financial class of "X" or
better by Best (or if not available, from another or successor Rating Agency
selected by mortgagee).
Condemnation and Casualty. The Hotel Del Coronado Borrower is obligated to
commence and diligently prosecute to completion the restoration of the Hotel
Del Coronado Property promptly after (a) the occurrence of any damage or
destruction to all or any portion of the Hotel Del Coronado Property or (b) a
condemnation of less than 10% of the land constituting the Hotel Del Coronado
Property, provided that the condemned land is located along the perimeter or
periphery of the Hotel Del Coronado Property, and no material portion of the
improvements is taken. If both the net proceeds of the casualty or condemnation
and the costs of restoration are less than $1,000,000, the Hotel Del Coronado
Borrower may receive and apply such proceeds; otherwise such proceeds must be
delivered to mortgagee for disbursement as provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Hotel Del Coronado Borrower for restoration so
long as (i) there is no Loan Default, (ii) in the case of casualty, less than
40% of the total floor area of the improvements is damaged or destroyed, and in
the case of condemnation, less than 10% of the land constituting the Hotel Del
Coronado Property is taken, and such land is located along the perimeter or
periphery of the property and no material portion of the improvements are
taken, (iii) mortgagee shall be satisfied the work of restoration will be
completed on or before the earliest to occur of (a) the Effective Maturity
Date, (b) the earliest date required for completion under the terms of any
lease, (c) such time as may be required under applicable zoning law and (d) the
date on which the business interruption insurance expires, and (iv) mortgagee
shall be satisfied that any operating deficits and all payments of principal
and interest under the Note will be paid during the period required for such
restoration from (x) the net proceeds of such casualty or condemnation or (y)
by other funds of the Hotel Del Coronado Borrower. If such conditions are not
met, the net
S-81
<PAGE>
proceeds of a casualty or condemnation may at the option of mortgagee either
(i) be applied to prepay the Hotel Del Coronado Loan without payment of a Yield
Maintenance Charge or (ii) be disbursed to the Hotel Del Coronado Borrower for
restoration. All disbursements of net proceeds of a casualty or condemnation
shall be made in accordance with the Disbursement Procedures.
Approval Rights. The Hotel Del Coronado Loan provides mortgagee with the
Standard Approval Rights regarding budgets, leases and alterations. The Lease
Approval Threshold is 5,000 square feet, the Alteration Approval Threshold is
$5,000,000 and the Alteration Escrow Threshold is $5,000,000.
Financial Reporting. The Hotel Del Coronado Borrower is required to
furnish the Financial Statements to mortgagee, except that the Hotel Del
Coronado Borrower shall have 105 days after each fiscal year in which to
provide annual financial statements. However, through the Closing Date and for
such greater period during which mortgagee is reporting under the Exchange Act,
the Hotel Del Coronado Borrower shall provide annual financial statements
within 85 days after the end of the fiscal year.
Certain Legal Issues Relating to the Hotel Del Coronado Loan. Section
145.56 of the Ohio Revised Code (the "Ohio PERS Law") provides that proceeds of
a benefit plan of Ohio PERS may not be subject to execution, garnishment,
attachment, or bankruptcy or insolvency laws. In connection with the
origination of the Hotel Del Coronado Loan, the following were obtained: (a) a
reasoned opinion from special Ohio counsel to Ohio PERS, indicating that
Section 145.11 of the Ohio Revised Code adopts the "prudent person" investment
rule and concluding that this rule expressly permits Ohio PERS to execute
mortgages, and further concluding that the Ohio PERS Law does not prohibit or
limit mortgagee's rights to exercise and pursue the remedies afforded to it
under the loan documents for the Hotel Del Coronado Loan, (b) a letter from the
Assistant Director--Legal and Legislation of Ohio PERS agreeing with the
opinions and analysis contained in the opinion referred to in (a) above, (c)
review of available legislative history relating to the authorization of Ohio
PERS in connection with the transaction (to the extent such legislative history
was made available by the Ohio Legislative Services Commission, the statutory
branch of the Ohio legislature responsible for disseminating such information),
and (d) affirmative title insurance affirmatively insuring mortgagee against
any loss or costs by reason of the insured Hotel Del Coronado Mortgage being
unenforceable by reason of the Ohio PERS Law. Such title insurance was provided
in the amount of $93,500,000 by Chicago Title Insurance Company, $51,000,000 by
First American Title Insurance Company and $21,500,000 by Lawyers Title
Insurance Company.
Under certain circumstances the interest rate applicable to the Hotel Del
Coronado Loan might violate California usury law. The loan documents for the
Hotel Del Coronado Loan contain choice of law provisions stipulating that New
York law shall apply. Mortgagee obtained an opinion letter from California
counsel indicating that courts applying California law should honor the choice
of law provisions and apply New York law, except where application of New York
law would contravene a fundamental policy of California. The opinion concludes
that the application of such choice of law provisions to this transaction
should not be held to violate any fundamental policy of California with respect
to usury. The Hotel Del Coronado Loan is not usurious under New York law. The
title insurance policy endorsement insures the mortgagee against any losses it
may sustain as a result of the loan being found invalid or unenforceable
because it is usurious under California law.
The insert between pages S-82 and S-83 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: CenterAmerica Pool
Photographs
1. Moore Plaza West, Houston, TX
2. Cedar Ballaire, Houston, TX
3. Texas City Bay Center, Texas City, TX
Reverse of Page
Legend: CenterAmerica Pool
1. Map of Houston, TX showing locations of CenterAmerica Pool
Properties
2. Map of Dallas/Fort Worth, TX showing locations of CenterAmerica
Pool Properties
S-82
<PAGE>
CENTERAMERICA POOL: THE BORROWER, THE PROPERTY
The Loan. The CenterAmerica Pool Loan was originated by Secore and
acquired by MSMC on May 20, 1998. The CenterAmerica Pool Loan had an original
principal balance and Cut-Off Date Principal Balance of $163,000,000. It is
secured by a Mortgage (the "CenterAmerica Pool Mortgage") encumbering 44
shopping centers located in Texas (collectively, the "CenterAmerica Pool
Properties").
The Borrower. CenterAmerica Capital Partnership, L.P. (the "CenterAmerica
Pool Borrower") is a Delaware limited partnership whose purpose is limited to
owning and operating the CenterAmerica Pool Properties and related activities.
The CenterAmerica Pool Borrower owns no assets other than the CenterAmerica
Pool Properties and related interests. The sole general partner of the
CenterAmerica Pool Borrower is HHC Finance, Inc., a special purpose Delaware
corporation formed solely for the purpose of acting as general partner of the
CenterAmerica Pool Borrower (the "HHC SPE GP"). The limited partner of the
CenterAmerica Pool Borrower is HHC Finance, L.P., a Delaware limited
partnership (the "CenterAmerica Mezzanine Borrower"). The CenterAmerica
Mezzanine Borrower is owned by CenterAmerica Property Trust, L.P., a Delaware
limited partnership, which owns a 99.5% limited partnership interest
("CenterAmerica") and by Center Finance SPC, Inc., a Delaware corporation which
owns a 0.5% general partnership interest and which is wholly owned by HHC
Holdings REIT, a Texas real estate investment trust ("HHC REIT"). The HHC SPE
GP is wholly owned by HHC REIT, which also owns a 99.5% general partnership
interest in CenterAmerica. Moore Partnership, L.P., a Texas limited
partnership, owns a 0.5% limited partnership interest in CenterAmerica. The
sole beneficiary of HHC REIT is the Morgan Stanley Real Estate Fund II, L.P.
and affiliates ("MSREF II"). MSREF II is sponsored and asset managed by Morgan
Stanley Dean Witter & Co., which also owns a 10% interest therein. The
remaining investors in MSREF II are comprised primarily of pension funds.
The Properties. The CenterAmerica Pool Properties are primarily located in
and around Houston, Dallas/Ft. Worth and Corpus Christi, Texas. The
CenterAmerica Pool Properties contain approximately 4,761,994 square feet of
GLA and range in size from approximately 9,370 square feet to 632,229 square
feet of GLA, with an average size of approximately 108,227 square feet of GLA.
The CenterAmerica Pool Properties were constructed between 1950 and 1995, with
a substantial portion of such properties having been constructed in the 1960s
and 1970s. As of December 31, 1997, the average occupancy rate of the
CenterAmerica Pool Properties was approximately 92% and the aggregate
Annualized Base Rent was $27,925,845 or approximately $6.39 per square foot of
occupied GLA. The aggregate calculated value of the CenterAmerica Pool
Properties, based on Underwritable NOI of $25,277,026 and a 9.50%
capitalization rate, was approximately $266,073,957, with the calculated values
for the individual CenterAmerica Pool Properties ranging from approximately
$626,000 to approximately $25,445,000. As of December 31, 1997, no single
CenterAmerica Pool Property accounted for more than approximately (a) 13.3% of
the total GLA, (b) 10.9% of Annualized Base Rent or (c) 9.6% of the
Underwritable NOI.
Location. The following table summarizes the locations of the
CenterAmerica Pool Properties based on square footage of GLA:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
METROPOLITAN AREA TOTAL GLA GLA OCCUPANCY
- ------------------------------------ ----------- ----------------- ----------
<S> <C> <C> <C>
Corpus Christi .................. 363,336 7.6% 97.3%
Greater Houston ................. 2,996,911 63.0 90.6
Dallas/Ft. Worth ................ 1,401,747 29.4 92.6
--------- ----- ----
Total/ Weighted Average ......... 4,761,994 100.0% 91.7%
========= ===== ====
</TABLE>
S-83
<PAGE>
Operating History. The following table shows certain information regarding
the operating history of the CenterAmerica Pool Properties:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues ....................... $ 29,683,970 $ 30,980,195 $ 34,157,085 $ 35,067,288
Expenses ....................... (8,378,096) (8,023,418) (8,638,848) (9,790,262)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 21,305,874 $ 22,956,777 $ 25,518,237 $ 25,277,026
============ ============ ============ ============
</TABLE>
Occupancy History. The following table summarizes the occupancy history of
the CenterAmerica Pool Properties:
<TABLE>
<CAPTION>
OCCUPANCY AS OF: PERCENT LEASED
- ------------------------------ ---------------
<S> <C>
December 31, 1997 .......... 91.7%
December 31, 1996 .......... 88.9%
December 31, 1995 .......... 88.2%
</TABLE>
Description of Tenants. As of December 31, 1997, approximately 48.0% of
the GLA of the CenterAmerica Pool Properties is leased to anchor tenants with
an area greater than or equal to 15,000 square feet per lease. These tenants
include supermarket, drug store, and value-oriented department, furniture and
apparel store anchor tenants. Tenants in the CenterAmerica Pool Properties
offer a range of basic consumer necessities, such as food, health and beauty
aids, moderately priced clothing, furniture and home improvement supplies.
The largest single tenant of the CenterAmerica Pool Properties is The
Kroger Company, whose 5 leased stores (1 of which is subleased to Hobby Lobby)
as of December 31, 1997, contributed less than approximately 5.5% of the
Annualized Base Rent of the CenterAmerica Pool Properties. The 10 largest
tenants average approximately 25,230 square feet per lease. As of December 31,
1997, no single tenant contributed more than approximately 3.9% of the
Annualized Base Rent of the CenterAmerica Pool Properties other than The Kroger
Company.
The following table shows certain information regarding the 10 largest
tenants for the CenterAmerica Pool Properties:
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT
<TABLE>
<CAPTION>
% OF % OF TOTAL ANNUALIZED
TENANT OR TENANT NO. OF TENANT TOTAL ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY(1) STORE NAME STORES GLA GLA BASE RENT BASE RENT PER SF
- ------------------------------- ------------------- ---------- ------------ --------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Kroger Company Kroger 5(2) 261,934 5.5% $ 1,523,961 5.5% $ 5.82
Minyard Food Stores, Inc. Minyard's 4 168,153 3.5 1,081,370 3.9 6.43
Walgreen Company Walgreens 8 110,016 2.3 817,989 2.9 7.44
National Amusements, Inc. Blockbuster 11 90,387 1.9 816,482 2.9 9.03
H.E.B. Pantry Foods H.E.B. Pantry 5 159,394 3.3 682,281 2.4 4.28
Hobby Lobby Stores, Inc. Hobby Lobby 2(2) 97,130 2.0 611,616 2.2 6.30
JC Penney Company, Inc. Eckerd Drug Store 10 93,120 2.0 568,740 2.0 6.11
Kmart Corporation Kmart 2 187,277 3.9 565,979 2.0 3.02
Weiner's Stores, Inc. Weiner's 7 165,119 3.5 446,805 1.6 2.71
Gerland Corporation Gerland 3 105,598 2.2 377,321 1.4 3.57
---- ------- ----- ----------- ----- --------
Subtotal Ten Largest Tenants 57 1,438,128 30.2% $ 7,492,544 26.8% $ 5.21
Other Major Tenants (greater
than 5,000 SF) 2,014,905 42.3 11,135,005 39.9 5.53
Remaining Tenants 917,393 19.3 9,298,297 33.3 10.14
Vacant Space 391,568 8.2 0 0.0 0.00
--------- ----- ----------- ----- --------
Total/Weighted Average 4,761,994 100.0% $27,925,846 100.0% $ 6.39(3)
========= ===== =========== ===== ==========
</TABLE>
- --------
(1) The parent company may not be the obligor under the applicable lease.
(2) The figures for the store subleased by Kroger to Hobby Lobby are included
in the Kroger numbers.
(3) Excludes vacant space.
S-84
<PAGE>
Sales History. The following table shows certain information regarding the
available comparable store 1996 and 1997 sales history for certain tenants of
the CenterAmerica Pool Properties:
<TABLE>
<CAPTION>
ANNUAL 1996 SALES(1)
------------------------------------------------
1996 APPLICABLE AVG. PER
STORE NAME STORES SQ. FEET TOTAL SF
- -------------------------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Kroger ................... 4 207,574 60,854,967 $ 293.17
Minyard's ................ 2 77,867 13,806,911 171.31
Walgreens ................ 3 42,170 8,935,670 211.90
Blockbuster .............. 6 46,653 5,366,079 115.02
H.E.B. Pantry ............ 4 105,284 47,549,147 451.63
Hobby Lobby .............. 1 55,000 -- --
Eckerd Drug Store ........ 9 84,550 28,628,765 338.60
Kmart .................... 1 84,180 10,591,246 125.82
Weiner's ................. 7 165,119 17,078,038 103.43
Gerland .................. 3 105,598 27,823,571 263.49
- ------- ----------
40 973,995 220,634,394
== ======= ===========
<CAPTION>
ANNUAL 1997 SALES(1)
-------------------------------------------------------------
1997
STORE NAME STORES APPLICABLE SQUARE FEET TOTAL AVG. PER SF
- -------------------------- -------- ------------------------ -------------- ------------
<S> <C> <C> <C> <C>
Kroger ................... 4 207,574 $ 60,322,924 $ 290.61
Minyard's ................ 4 168,153 57,384,292 341.26
Walgreens ................ 2 30,670 5,266,796 171.72
Blockbuster .............. 4 28,623 3,447,234 120.44
H.E.B. Pantry ............ 5 159,394 65,663,101 411.95
Hobby Lobby .............. 2 97,130 5,159,787 53.12
Eckerd Drug Store ........ 10 93,120 32,179,234 345.57
Kmart .................... 1 84,180 10,647,719 126.49
Weiner's ................. 7 165,119 17,266,168 104.57
Gerland .................. 2 78,431 17,736,834 226.15
-- ------- ------------
41 1,112,394 $275,074,089
== ========= ============
</TABLE>
- --------
(1) Historical sales figures and square footage amounts are only listed for
tenants reporting sales for full years in both 1996 and 1997.
(2) Only for stores for which comparable sales for 1996 and 1997 were
available.
Lease Expirations. The following table shows scheduled lease expirations
at the CenterAmerica Pool Properties as of December 31, 1997, assuming none of
the tenants renews its lease, exercises renewal options or terminates its lease
prior to the scheduled expiration date:
LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
LEASES EXPIRING PERCENT OF PERCENT OF
YEAR OF EXPIRATION EXPIRING SF SF(1) SF
- ---------------------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Vacant ..................... 99 391,568 8.2% 8.2%
Month to Month ............. 16 20,468 0.4 8.7
1998 ....................... 131 372,531 7.8 16.5
1999 ....................... 146 627,422 13.2 29.7
2000 ....................... 150 626,282 13.2 42.8
2001 ....................... 101 482,500 10.1 52.9
2002 ....................... 117 540,188 11.3 64.3
2003 ....................... 31 210,634 4.4 68.7
2004 ....................... 14 186,485 3.9 72.6
2005 ....................... 15 114,536 2.4 75.0
2006 ....................... 15 233,601 4.9 79.9
2007 ....................... 16 194,574 4.1 84.0
2008 or later .............. 34 761,205 16.0 100.0
--- ------- -----
Total/Weighted Average ..... 885 4,761,994 100.0%
=== ========= =====
<CAPTION>
CUMULATIVE
ANNUALIZED PERCENT OF PERCENT OF
ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION BASE RENT PER SF BASE RENT BASE RENT
- ---------------------------- -------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Vacant ..................... $ 0 $ 0.00 0.0% 0.0%
Month to Month ............. 139,150 6.80 0.5 0.5
1998 ....................... 2,740,112 7.36 9.8 10.3
1999 ....................... 3,658,121 5.83 13.1 23.4
2000 ....................... 4,029,612 6.43 14.4 37.8
2001 ....................... 3,418,105 7.08 12.2 50.1
2002 ....................... 3,653,597 6.76 13.1 63.2
2003 ....................... 1,663,947 7.90 6.0 69.1
2004 ....................... 1,199,889 6.43 4.3 73.4
2005 ....................... 678,609 5.92 2.4 75.8
2006 ....................... 1,080,858 4.63 3.9 79.7
2007 ....................... 1,141,088 5.86 4.1 83.8
2008 or later .............. 4,522,758 5.94 16.2 100.0
----------- ------- -----
Total/Weighted Average ..... $27,925,845 $ 6.39(1) 100.0%
=========== ========== =====
</TABLE>
- --------
(1) Excludes vacant space.
S-85
<PAGE>
Property Summary. The following table sets forth certain information
regarding location, Cut-Off Date Allocated Loan Amount, GLA, occupancy history,
financial history, and the tenancy of the CenterAmerica Pool Properties:
<TABLE>
<CAPTION>
CUT-OFF
DATE YEAR
ALLOCATED BUILT/ OCCUPANCY
LOAN TOTAL RENO- --------------------------------
PROPERTY NAME LOCATION AMOUNT SF/UNITS VATED 1995 1996 1997
- ---------------------------- ------------------ -------------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Wynnewood Village .......... Dallas $15,196,700 632,229 1978 88.7% 91.0% 92.9%
Westheimer Commons ......... Houston 13,612,700 249,789 1981/1994 93.4 96.5 93.5
Five Points ................ Corpus Christi 12,625,600 276,657 1980/1996 95.7 96.8 99.1
Northtown Plaza ............ Houston 8,438,900 198,104 1960/1990 93.9 87.3 100.0
Texas City Bay ............. Texas City 7,649,100 233,984 1980/1993 99.5 98.2 97.2
Braes Heights .............. Houston 6,055,900 113,078 1959/1997 71.3 74.1 89.3
Highland Village Town Highland Village 5,828,100 88,841 1995/1998 100.0 100.0 100.0
Center ....................
Clearlake/ Camino South..... Houston 5,365,400 101,218 1964/1992 99.6 100.0 100.0
Park Plaza ................. Houston 5,140,300 211,923 1980/1993 91.7 87.9 89.8
Parktown Center & Deer Park 4,905,300 121,621 1970/1996 91.2 85.9 97.4
Parktown East .............
Moore Square ............... Houston 4,043,200 132,239 1975 82.9 89.1 81.0
Huntington Village ......... Houston 3,702,500 112,287 1980 88.8 92.7 89.1
Moore Village .............. Houston 3,828,500 108,094 1978/1997 n/a n/a 100.0
Williamstown ............... Houston 3,680,800 70,328 1978 98.2 84.8 87.0
Jefferson Park ............. Mount Pleasant 3,360,600 130,541 1985/1995 n/a n/a 92.6
Village Plaza .............. Garland 3,446,800 80,581 1960/1997 72.5 82.2 100.0
Webb Royal Plaza ........... Dallas 3,348,000 108,819 1961/1988 98.4 97.5 85.8
Carmel Village ............. Corpus Christi 3,093,000 86,678 1965/1994 81.3 86.7 91.4
Klein Square ............... Houston 3,058,600 80,857 1977/1992 97.5 100.0 83.1
Brenham Four Corners ....... Brenham 2,993,900 113,147 1975/1997 n/a n/a 98.3
Tanglewilde ................ Houston 2,823,600 86,590 1972/1994 100.0 100.0 87.6
Maplewood Mall ............. Houston 2,679,900 95,684 1962/1987 89.9 94.3 93.4
Jeff Davis ................. Dallas 2,674,100 69,563 1965/1975 100.0 100.0 100.0
League City ................ League City 2,556,000 100,030 1966/1994 78.5 78.5 89.4
Countryside Village ........ Houston 2,258,900 136,470 1977/1996 25.8 43.5 50.8
Lamar Plaza ................ Rosenberg 2,174,200 150,133 1972 73.8 65.6 68.8
Braes Oaks ................. Houston 2,384,100 46,720 1966/1992 100.0 100.0 100.0
Long Pointe Plaza .......... Houston 2,203,600 65,332 1957/1985 75.5 71.6 93.1
Stevens Park ............... Dallas 2,379,500 45,492 1974 100.0 100.0 100.0
Cedar Bellaire ............. Bellaire 2,312,700 50,997 1950/1998 100.0 89.4 100.0
Broadway ................... Houston 2,247,000 74,932 1977/1995 85.6 100.0 100.0
Highland Village ........... Dallas 2,069,800 66,942 1985 96.4 96.4 93.7
Tidwell Plaza .............. Houston 1,953,000 41,630 1983 81.5 100.0 100.0
Forest Hills ............... Fort Worth 1,872,800 70,390 1972 100.0 100.0 100.0
Washington Square .......... Kaufman 1,819,700 65,050 1985 97.7 97.7 96.7
Northgate .................. Houston 1,800,700 43,245 1978/1990 100.0 100.0 100.0
Parkview West .............. Pasadena 1,651,400 39,774 1966/1992 74.1 78.2 93.3
Parkview East .............. Pasadena 1,471,100 41,169 1968/1997 82.4 41.0 75.7
El Camino .................. Bellaire 1,457,100 59,575 1972 100.0 94.1 100.0
Palm Plaza ................. Aransas Pass 1,065,300 52,102 1978/1995 92.8 100.0 97.6
Bryan Square ............... Bryan 895,400 55,115 1965 100.0 100.0 100.0
Lazybrook .................. Houston 654,200 10,745 1965/1986 100.0 87.2 100.0
<CAPTION>
UNDER- ANNUALIZED
NOI WRITABLE ANNUALIZED BASE RENT
----------------------------------------- CASH BASE RENT PSF
PROPERTY NAME 1995 1996 1997 FLOW 12/31/97 12/31/97
- ---------------------------- ------------- ------------- ------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Wynnewood Village .......... $2,404,081 $2,274,011 $2,347,918 $2,176,914 $3,033,860 $ 4.80
Westheimer Commons ......... 2,000,338 2,021,873 2,129,400 1,949,953 2,208,883 8.84
Five Points ................ 1,874,427 2,367,397 2,100,687 1,808,562 1,938,651 7.01
Northtown Plaza ............ 986,162 1,086,813 1,308,448 1,208,832 1,427,241 7.20
Texas City Bay ............. 1,186,055 1,231,921 1,201,485 1,095,699 1,218,447 5.21
Braes Heights .............. 685,448 715,101 940,713 867,473 1,029,738 9.11
Highland Village Town n/a n/a 824,838 834,842 935,865 10.53
Center ....................
Clearlake/ Camino South..... 828,483 877,622 860,344 768,565 837,981 8.28
Park Plaza ................. 849,974 869,057 811,715 736,327 958,637 4.52
Parktown Center & 504,640 568,695 712,925 702,659(6) 692,373 5.69
Parktown East .............
Moore Square ............... 681,750 748,360 678,707 579,175 734,614 5.56
Huntington Village ......... 519,961 622,600 584,222 530,367 658,940 5.87
Moore Village .............. 256,586 141,319 410,683 548,410 650,268 6.02
Williamstown ............... 572,116 507,604 550,067 527,256 612,923 8.72
Jefferson Park ............. 360,458 664,807 556,262 481,383 568,574 4.36
Village Plaza .............. 417,070 508,111 505,252 493,737 602,508 7.48
Webb Royal Plaza ........... 553,387 593,163 535,127 479,588 615,647 5.66
Carmel Village ............. 400,171 458,942 464,766 443,061 508,541 5.87
Klein Square ............... 519,388 541,918 539,600 438,132 512,417 6.34
Brenham Four Corners ....... 215,848 244,254 529,910 428,855 468,873 4.14
Tanglewilde ................ 469,069 505,168 482,396 404,471 601,267 6.94
Maplewood Mall ............. 340,604 396,188 407,354 383,890 431,479 4.51
Jeff Davis ................. 331,410 359,486 440,494 383,053 366,086 5.26
League City ................ 291,415 345,610 336,904 366,138 451,550 4.51
Countryside Village ........ 179,208 237,538 370,258 323,570 451,848 3.31
Lamar Plaza ................ 492,645 411,309 355,915 311,442 507,333 3.38
Braes Oaks ................. 374,637 381,176 405,144 341,508 398,718 8.53
Long Pointe Plaza .......... 312,550 287,550 309,374 315,651 394,530 6.04
Stevens Park ............... n/a n/a 385,528 340,852 398,017 8.75
Cedar Bellaire ............. 318,811 321,593 339,884 331,288 377,354 7.40
Broadway ................... 267,089 325,647 377,225 321,867 370,602 4.95
Highland Village ........... n/a n/a 359,822 296,489 377,155 5.63
Tidwell Plaza .............. 253,315 354,513 310,938 279,751 327,768 7.87
Forest Hills ............... 281,443 303,326 325,896 268,265 346,038 4.92
Washington Square .......... 230,987 260,217 300,491 260,662 248,057 3.81
Northgate .................. 293,055 304,369 303,132 257,936 311,974 7.21
Parkview West .............. 177,343 215,690 226,742 236,558 284,831 7.16
Parkview East .............. 121,590 116,679 149,177 210,723 257,986 6.27
El Camino .................. 241,128 227,805 245,215 208,723 250,431 4.20
Palm Plaza ................. 149,193 205,673 177,418 152,598 181,632 3.49
Bryan Square ............... 131,586 157,431 156,949 128,259 178,616 3.24
Lazybrook .................. 100,478 103,338 98,289 93,706 108,948 10.14
<CAPTION>
PRIMARY TENANTS WITH
GREATER THAN 15,000 SF
PROPERTY NAME DECEMBER 31, 1997(1)
- ---------------------------- -------------------------------------------------------------
<S> <C>
Wynnewood Village .......... (2)
Westheimer Commons ......... (3)
Five Points ................ (4)
Northtown Plaza ............ Weiner's (2002), Mac Frugal's (2010), OfficeMax (2001)
Texas City Bay ............. Kroger (2014), Kmart (2019)
Braes Heights .............. CenterAmerica (2002), Weiner's (2006)
Highland Village Town Minyard's (2016)
Center ....................
Clearlake/ Camino South..... Hancock Fabrics (2006), H.E.B. Pantry (2007)
Park Plaza ................. Kmart (2004), Fiesta Mart (2000)
Parktown Center & (5)
Parktown East .............
Moore Square ............... Randall's (2010), Walgreen's (2017)
Huntington Village ......... Gerland (2005)
Moore Village .............. Hobby Lobby (2011), Hoffer Furniture (2007)
Williamstown ............... Michael's (1999)
Jefferson Park ............. Super 1 (2001), Beall's (2010)
Village Plaza .............. Troung Nguyen Supermarket (2007)
Webb Royal Plaza ........... Minyard's (2005)
Carmel Village ............. Beall's (2001)
Klein Square ............... Gerland (2002)
Brenham Four Corners ....... H.E.B. Pantry, (2012), Weiner's (2002)
Tanglewilde ................ Safeway (2014)
Maplewood Mall ............. Cox's Foodarama (2000), Weiner's (2000)
Jeff Davis ................. Carnival (2000)
League City ................ Cloth World (2007), Beall's (2000), H.E.B. Pantry (2007)
Countryside Village ........ (8)
Lamar Plaza ................ Kroger (2001), Weiner's (2000)
Braes Oaks ................. H.E.B. Pantry (2007)
Long Pointe Plaza .......... (8)
Stevens Park ............... Minyard's (2016)
Cedar Bellaire ............. H.E.B. Pantry (2009)
Broadway ................... Walgreens (2006), Rice Food Markets (2001)
Highland Village ........... Minyard's (2016)
Tidwell Plaza .............. Walgreens (2017)
Forest Hills ............... Winn-Dixie (2006)
Washington Square .......... Brookshire's (1998)
Northgate .................. OfficeMax (2005)
Parkview West .............. (8)
Parkview East .............. (8)
El Camino .................. Davis Food City (2002)
Palm Plaza ................. IGA (1999), Wilcox Furniture (1998)
Bryan Square ............... Kroger (2001)
Lazybrook .................. (8)
</TABLE>
S-86
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF
DATE YEAR
ALLOCATED BUILT/ OCCUPANCY
LOAN TOTAL RENO- -----------------------------
PROPERTY NAME LOCATION AMOUNT SF/UNITS VATED 1995 1996 1997
- ---------------------------- ------------- --------------- ------------ -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
North Hills Village ........ Haltom City 222,000 43,299 1972 77.7 44.4 44.4
------- ------ ---- ---- ----
Total/Weighted Average ..... $163,000,000 4,761,994 88.2% 88.9% 91.7%
============ ========= ==== ==== ====
<CAPTION>
UNDER- ANNUALIZED
NOI WRITABLE ANNUALIZED BASE RENT
-------------------------------------------- CASH BASE RENT PSF
PROPERTY NAME 1995 1996 1997 FLOW 12/31/97 12/31/97
- ---------------------------- -------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
North Hills Village ........ 131,975 92,903 60,623 31,794 88,644 2.05
------- ------ ------ ------ ------ ----
Total/Weighted Average ..... $21,305,874 $22,956,777 $25,518,237 $23,348,985 $27,925,845 6.39(7)
=========== =========== =========== =========== =========== ======
<CAPTION>
PRIMARY TENANTS WITH
GREATER THAN 15,000 SF
PROPERTY NAME DECEMBER 31, 1997(1)
- ---------------------------- -----------------------
<S> <C>
North Hills Village ........ (8)
---
Total/Weighted Average .....
</TABLE>
- -------
(1) Numbers in parentheses indicate lease expiration dates.
(2) Colbert's (2002), Weiner's (1999), BMA South Oak Cliff Dialysis, (1999),
Mac Frugal's (2003), Kroger (2000), Rhoton's Food For Less (2002) and
50-Off (2000).
(3) Kroger (2004), Michael's (2006) and Marshall's (2010).
(4) Solo Serve (2002), Sutherland Lumber (2006), Beall's (2003), Hobby Lobby
(2003).
(5) Walgreen's (2056), Gerland's Food Fair (2016), Weiner's (1999).
(6) The Underwritable Cash Flow for Parktown Center includes the
Underwritable Cash Flow for Parktown Center East.
(7) Excludes vacant space.
(8) No tenants with greater than 15,000 SF as of December 31, 1997.
S-87
<PAGE>
Environmental Reports. Environmental Site Assessments have been performed
on the CenterAmerica Pool Properties within the past two years. The
Environmental Site Assessments did not reveal any environmental liability that
the Depositor believes would have a material adverse effect on the
CenterAmerica Pool Borrower's business, assets or results of operations taken
as a whole. Nevertheless, there can be no assurance that all environmental
conditions and risks were identified in such environmental assessments. See
"Risk Factors--The Mortgage Loans--Environmental Law Considerations."
Engineering Reports. Property Condition Reports were completed on the
CenterAmerica Pool Properties between May, 1997 and July, 1997 by Associated
Environmental Consultants, a third party due diligence firm. The Property
Condition Reports concluded that the CenterAmerica Pool Properties were
generally in good physical condition and required no deferred maintenance. At
origination of the CenterAmerica Pool Loan, the CenterAmerica Pool Borrower did
not establish a deferred maintenance reserve account.
Property Management. The CenterAmerica Pool Loan is managed by
CenterAmerica (the "CenterAmerica Pool Manager"), which is an affiliate of the
CenterAmerica Pool Borrower, pursuant to a management agreement dated May 20,
1998 (the "CenterAmerica Pool Management Agreement"). The CenterAmerica Pool
Manager receives a monthly management fee of 3% of the gross receipts received
and leasing commissions of (a) 4% of the net rentals payable during the initial
noncancellable term (not to exceed 5 years) of an initial lease or an expansion
of an existing lease, if the CenterAmerica Pool Manager acts as the exclusive
broker and 2% of the net rentals payable during the initial noncancellable term
(not to exceed 5 years) of an initial lease or an expansion of an existing
lease if the CenterAmerica Pool Manager acts as a co-broker, (b) 2% of the net
rentals payable during the initial noncancellable term (not to exceed 5 years)
of the renewal of an existing lease if the CenterAmerica Pool Manager acts as
the exclusive broker and 1% of the net rentals payable during the initial
noncancellable term (not to exceed 5 years) of the renewal of an existing lease
if the CenterAmerica Pool Manager acts as a co-broker and (c) one month's rent
payable under a month-to-month lease. The leasing commissions payable for any
initial lease or any renewal of an existing lease with a term in excess of 5
years will be separately negotiated by the CenterAmerica Pool Manager and the
CenterAmerica Pool Borrower.
The CenterAmerica Pool Management Agreement is for a ten year term with
automatic extensions of 1 year each. Either the CenterAmerica Pool Borrower or
the CenterAmerica Pool Manager may terminate the CenterAmerica Pool Management
Agreement without cause upon 30 days prior written notice, or in the event of a
monetary default, upon 10 days prior written notice. Under the terms of the
CenterAmerica Pool Loan, any termination or replacement of the CenterAmerica
Pool Manager or entering into a new management agreement requires the consent
of mortgagee.
Pursuant to a management subordination agreement among the CenterAmerica
Pool Borrower, the CenterAmerica Pool Manager and mortgagee, the CenterAmerica
Pool Manager has agreed (i) that the CenterAmerica Pool Management Agreement is
subordinate to the CenterAmerica Pool Loan and (ii) that mortgagee has the
right to terminate the CenterAmerica Pool Manager and replace it with a manager
approved by mortgagee (a) in the event of a transfer of all of the properties
constituting the CenterAmerica Pool Properties or a transfer, directly or
indirectly, of all of the ownership interests in the CenterAmerica Pool
Borrower to a third party other than in accordance with the CenterAmerica Pool
Loan documents (b) at any time that the CenterAmerica Pool Manager has engaged
in gross negligence, fraud or willful misconduct, (c) at any time following the
occurrence of a monetary Loan Default with respect to any payment of Debt
Service or any payment to be deposited into any sub-account of the Lockbox or
(d) at any time following the acceleration of all or any portion of the
CenterAmerica Pool Loan.
The CenterAmerica Pool Manager has approximately 11.6 million square feet
of retail space under its management.
S-88
<PAGE>
<TABLE>
<S> <C>
CENTERAMERICA POOL: THE LOAN
ORIGINAL PRINCIPAL BALANCE: $163,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $163,000,000 INITIAL INTEREST RATE: 6.67%
ORIGINATION DATE: May 20, 1998 REVISED INTEREST RATE 8.67%
EFFECTIVE MATURITY DATE: June 1, 2008 AMORTIZATION: 360 months
MATURITY DATE: June 1, 2028 MONTHLY PAYMENT: $1,048,561.51
EMD BALANCE: $140,921,222 CALL PROTECTION: Lockout to EMD
</TABLE>
CERTAIN CENTERAMERICA POOL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER
SQUARE LOAN TO ACTUAL
FOOT (1) VALUE RATIO(2) DSCR(3)
---------- ---------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $34 61.3% 1.86x
At Effective Maturity Date ......... $30 53.0% 2.15x
</TABLE>
- --------
(1) Based on 4,761,994 square feet securing the CenterAmerica Pool Loan and
the Cut-Off Date Principal Balance or Effective Maturity Date Balance, as
applicable.
(2) Based on the calculated values and the Cut-Off Date Principal Balance or
Effective Maturity Date Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $23,348,985 and (b) in the
Cut-Off Date Actual DSCR, actual debt service on the CenterAmerica Pool
Loan during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
CenterAmerica Pool Portfolio Loan assuming a balance equal to the
Effective Maturity Date Balance, a coupon equal to the CenterAmerica Pool
Portfolio Loan Initial Interest Rate and an amortization term equal to
360 months.
Security. The CenterAmerica Pool Loan is a nonrecourse loan, secured only
by the fee estate of the CenterAmerica Pool Borrower in the CenterAmerica Pool
Properties and certain related collateral, including an assignment of leases
and rents. Mortgagee is the insured under title insurance policies insuring
that the CenterAmerica Pool Mortgage constitutes a valid and enforceable first
lien on the CenterAmerica Pool Properties, subject to certain exceptions set
forth therein.
Payment Terms. The CenterAmerica Pool Loan is an EMD Loan. Its Due Date is
the first day of each month with no grace period (provided, that if the Due
Date is not a business day, payment may be made on the next business day).
Interest on the CenterAmerica Pool Loan is calculated on an Actual/360 Basis.
The Late Payment Fee on any principal or interest payment not paid on its due
date is 3% of the unpaid amount and the Default Rate following a Loan Default
is 5% above the then applicable interest rate, in each case subject to
applicable law.
Prepayment. Voluntary prepayment is prohibited under the CenterAmerica
Pool Loan prior to the Effective Maturity Date. From and after such date the
CenterAmerica Pool Loan may be voluntarily prepaid on any Due Date, in whole or
in part, without payment of a Yield Maintenance Charge.
Principal prepayments on the CenterAmerica Pool Loan may occur after the
Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the CenterAmerica Pool Loan following a Loan Default.
Prepayments following a Loan Default require payment of a Yield Maintenance
Charge equal to the greater of (a) 1% of the portion of the principal amount
being repaid and (b) the Yield Maintenance Premium. As described below,
prepayments may also be made, without payment of a Yield Maintenance Charge,
from insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 2 years after the Closing Date, the CenterAmerica Pool Loan permits the
release of all of the CenterAmerica Pool Properties upon delivery to mortgagee
of U.S. Obligations which provide for payments on or prior to, but as close as
possible to, each Due Date up to the Effective Maturity Date and in amounts
equal to the principal and interest payments due on the CenterAmerica Pool Loan
on such dates, and provide for payment on the Effective Maturity Date of the
remaining principal balance of the CenterAmerica Pool Loan. Upon any such
Defeasance, at the option of either mortgagee or CenterAmerica Pool Borrower,
the CenterAmerica Pool Borrower's obligations under the CenterAmerica Pool Loan
and the U.S. Obligations securing the CenterAmerica Pool Loan will be
transferred to a Successor Borrower; provided that such Successor Borrower is
not required to be approved by mortgagee so long as it meets the Rating
Agencies' then current single purpose bankruptcy remoteness criteria.
S-89
<PAGE>
Subject to the Defeasance Conditions, commencing on the date that is 2
years after the Closing Date, the CenterAmerica Pool Loan also permits the
release of any individual CenterAmerica Pool Property in exchange for U.S.
Obligations which provide for payments on or prior to, but as close as possible
to, each Due Date up to the Effective Maturity Date and in amounts equal to the
principal and interest payments due on the CenterAmerica Defeased Loan Amount
on such dates and provide for payment on the Effective Maturity Date of the
remaining principal balance of the CenterAmerica Defeased Loan Amount. The
"CenterAmerica Defeased Loan Amount" is an amount equal to 125% of the
Allocated Loan Amount of each of the CenterAmerica Pool Properties proposed to
be released. Upon any such substitution, the CenterAmerica Pool Loan will be
divided into 2 Notes, 1 of which (the "CenterAmerica Defeased Note") will be in
a principal amount equal to the CenterAmerica Defeased Loan Amount, and, at the
option of either mortgagee or the CenterAmerica Pool Borrower; the
CenterAmerica Pool Borrower's obligations under the CenterAmerica Defeased Note
and the U.S. Obligations securing the CenterAmerica Defeased Note will be
transferred to a Successor Borrower, provided that such Successor Borrower is
not required to be approved by mortgagee so long as it meets the Rating
Agencies' then current single purpose bankruptcy remoteness criteria.
Substitution of Properties. The CenterAmerica Pool Loan permits
substitution of CenterAmerica Pool Properties, provided no more than 10
CenterAmerica Pool Properties in the aggregate may be substituted over the term
of the CenterAmerica Pool Loan subject to the Substitution Conditions, except
that (i) mortgagee shall have received an appraisal of the substitute property
indicating an appraised value of the substitute property that is not less than
150% of the Allocated Loan Amount of the CenterAmerica Pool Property being
replaced and (ii) confirmation from each Rating Agency that such expansion will
not result in a downgrade, withdrawal or qualification of the then current
ratings of the Certificates. Additionally, after giving effect to the
substitution, the Loan DSCR with respect to all of the CenterAmerica Pool
Properties shall not be less than the Loan DSCR with respect to all of the
CenterAmerica Pool Properties as of the origination date of the CenterAmerica
Pool Loan and prior to the substitution. The Substitution Period commences on
the origination date and ends on the Effective Maturity Date.
Expansion Parcels. The CenterAmerica Pool Loan provides that prior to the
Effective Maturity Date, the CenterAmerica Pool Borrower may acquire one or
more unimproved parcels of land adjacent to a CenterAmerica Pool Property for
purposes of expanding such CenterAmerica Pool Properties. The conditions for
acquiring such an adjacent parcel are, among other things (i) after giving
effect to such expansion the Loan DSCR for the CenterAmerica Pool Loan may not
be less than the DSCR for the CenterAmerica Pool Loan as of the date of
origination, (ii) the expansion parcels may not, in the aggregate, represent
more than 10% of the land of the CenterAmerica Pool Properties as of the date
of origination and (iii) confirmation from each Rating Agency that such
expansion will not result in a downgrade, withdrawal or qualification of the
then current ratings of the Certificates.
Lockbox and Reserves. Pursuant to the CenterAmerica Pool Loan, the
CenterAmerica Pool Borrower has established a Hard Lockbox, which is a One-Tier
Lockbox. The Lockbox Bank is Bank One Texas, N.A. Amounts in the Lockbox are
required to be applied in accordance with the Lockbox Waterfall.
The CenterAmerica Pool Borrower has established (a) a Debt Service
Account, which requires a Monthly Reserve Deposit equal to the Monthly Payment,
(b) a Tax Account, which had an Initial Reserve Deposit of $1,865,000, and
requires a Monthly Reserve Deposit equal to the Monthly Tax Deposit Amount, (c)
an Insurance Account, which had no Initial Reserve Deposit and requires a
Monthly Reserve Deposit equal to the Monthly Insurance Deposit Amount, (d) an
Environmental Remediation Account, which had an Initial Reserve Deposit of
$200,000, (e) a Capital Expenditures Account, which had no Initial Reserve
Deposit and requires a Monthly Reserve Deposit equal to $59,525 and (f) a
Rollover Account, which had no Initial Reserve Deposit and requires a Monthly
Reserve Deposit equal to $138,891.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The CenterAmerica Pool Borrower may convey all of the CenterAmerica Pool
Properties to a CenterAmerica Permitted Transferee provided that (a) no Loan
Default has occurred and remains uncured, (b) mortgagee receives an acceptable
assumption agreement executed by such assignee and (c) mortgagee receives a
transfer fee equal to $50,000. A "CenterAmerica Permitted Transferee" is a
corporation, partnership or limited liability company (i) that qualifies as a
single purpose, bankruptcy remote entity under criteria established by
applicable Rating Agencies and (ii) either (a) in which 51% or more of the
equity and voting interests are owned directly or indirectly by a real estate
opportunity fund sponsored by, and whose assets are managed by, Morgan Stanley,
Dean Witter & Co. (a "Morgan Stanley Real Estate Fund"), (b) in which 51% or
more of the equity and voting interests are owned directly or indirectly by a
CenterAmerica Sponsor, but only if, in connection with the transfer of the
CenterAmerica Pool Properties to a CenterAmerica Permitted Transferee described
in this clause (ii), the CenterAmerica
S-90
<PAGE>
Mezzanine Loan is repaid in full, or (c) acceptable to mortgagee in its
reasonable discretion and with respect to which mortgagee shall have received
(x) confirmation in writing from each Rating Agency that such transfer to the
proposed transferee will not result in a downgrading, withdrawal or
qualification of the respective rating in effect immediately prior to such
transfer for the Certificates and (y) a non-consolidation opinion from the
proposed transferee's counsel acceptable to mortgagee in its reasonable
discretion. A "CenterAmerica Sponsor" is (x) a pension fund that owns or
controls (exclusive of the CenterAmerica Pool Properties) assets valued at no
less than $1,000,000,000, which assets owned by such pension fund shall include
the CenterAmerica Required Assets (defined below), (y) an insurance company or
a major "money center" bank (or any wholly-owned subsidiary of either) that (i)
has a minimum net worth (exclusive of the value of the CenterAmerica Pool
Properties) of no less than $100,000,000 and (ii) owns assets (exclusive of the
CenterAmerica Pool Properties) valued at no less than $400,000,000, which
assets shall include the CenterAmerica Required Assets or (z) a real estate
investment trust or a publicly traded company whose majority of revenues are
derived from owning and operating retail properties in the United States that
(i) has a market capitalization (including debt but excluding the value of the
CenterAmerica Pool Properties) of no less than $600,000,000 and (ii) owns
assets (exclusive of the CenterAmerica Pool Properties) that include the
CenterAmerica Required Assets. The "CenterAmerica Required Assets" are,
properties consisting of no less than (a) 50 shopping centers or (b) 10
regional shopping centers, in either event (x) consisting of no less than
4,500,000 leaseable square feet and (y) exclusive of the CenterAmerica Pool
Properties. The CenterAmerica Pool Borrower is also prohibited from further
encumbering the CenterAmerica Pool Properties.
The CenterAmerica Pool Loan generally prohibits the transfer of any direct
or indirect interest in the CenterAmerica Pool Borrower unless (a) (i) no Loan
Default has occurred and remains uncured, (ii) the transferee is approved by
mortgagee in its reasonable discretion, (iii) if after giving effect to such
transfer and all prior transfers, one person and its affiliates hold more than
10% of the ownership interest in the CenterAmerica Pool Borrower, mortgagee
receives an acceptable non-consolidation opinion and (iv) mortgagee has
received a confirmation in writing from each Rating Agency that such transfer
will not result in a downgrade, withdrawal or qualification of the then current
ratings of the Certificates or (b) (i) no Loan Default has occurred and remains
uncured, (ii) such transfer results from an initial public offering of
ownership interests in an entity to which the CenterAmerica Pool Borrower has
been converted or which succeeds the CenterAmerica Pool Borrower, (iii) a
Morgan Stanley Real Estate Fund owns, directly or indirectly, no less than 15%
of the equity and voting interests in the resulting publicly-traded entity
immediately following the completion of the initial public offering (iv) such
Morgan Stanley Real Estate Fund retains, directly or indirectly, the right to
appoint no less than 15% of the members of the board of directors of the
resulting public-traded entity immediately following the completion of the
initial public offering, which 15% will be rounded up or down to the nearest
percentage that would permit the appointment of one or more members of such
board of directors without the vote of other shareholders and (v) if after
giving effect to the transfer, any one person or entity and its affiliates own
more than 49% of the ownership interests in the CenterAmerica Pool Borrower or
its general partner that did not own more than 49% of such ownership interests
on the closing date, mortgagee receives a non-consolidation opinion acceptable
to mortgagee in the reasonable exercise of its discretion (provided that the
mortgagee may not reject a non-consolidation opinion substantially in the form
of the non-consolidation opinion delivered in connection with the closing of
the CenterAmerica Pool Loan, as modified to reflect the applicable facts,
unless such form is not acceptable to the Rating Agencies) or (c) (i) no Loan
Default has occurred and remains uncured, (ii) the transferee is a
CenterAmerica Permitted Transferee and (iii) if after giving effect to the
transfer, any one person or entity and its affiliates own more than 49% of the
ownership interests in the CenterAmerica Pool Borrower or its general partner
that did not own more than 49% of such ownership interests on the closing date,
mortgagee receives a non-consolidation opinion acceptable to mortgagee in the
reasonable exercise of its discretion (provided that the mortgagee may not
reject a non-consolidation opinion substantially in the form of the
non-consolidation opinion delivered in connection with the closing of the
CenterAmerica Pool Loan, as modified to reflect the applicable facts, unless
such form is not acceptable to the Rating Agencies).
The CenterAmerica Pool Borrower is not permitted to incur any additional
indebtedness other than unsecured indebtedness for trade payables incurred in
the ordinary course of owning and operating the CenterAmerica Pool Properties
which do not exceed, at any time, $1,500,000 in the aggregate and are not more
than 60 days past due.
Insurance. The CenterAmerica Pool Borrower is required to maintain for
each of the CenterAmerica Pool Properties (a) comprehensive all risk insurance
with coverage in an amount at all times sufficient to prevent the CenterAmerica
Pool Borrower from becoming a co-insurer, but in any event equal to the greater
of the full replacement value of the improvements and the outstanding principal
amount of the CenterAmerica Pool Loan, (b) general liability insurance on the
"occurrence" form with a combined limit, including umbrella coverage, of not
less than $1,000,000, (c) statutory workers compensation
S-91
<PAGE>
insurance, (d) business interruption insurance to cover the loss of at least 12
months income following restoration, (e) during any period of construction or
repair, builder's risk insurance in an amount not less than full replacement
value, (f) comprehensive boiler and machinery insurance in amounts reasonably
required by mortgagee, (g) flood insurance, if available, with respect to any
CenterAmerica Pool Property located within a federally designated "special
flood hazard area," in an amount equal to the lesser of the outstanding
principal amount of the CenterAmerica Pool Loan and the maximum limit of
coverage available under federal law and (h) at mortgagee's reasonable request,
such other insurance against other insurable hazards which at the time are
commonly insured against for comparable properties.
All insurance policies are required to meet the Insurance Requirements,
except that the insurance providers are required to be rated only "A" or better
by each Rating Agency.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction, or a condemnation of to all or any portion of any of the
CenterAmerica Pool Properties, the CenterAmerica Pool Borrower is obligated to
commence and diligently prosecute to completion the restoration of the related
CenterAmerica Pool Property. If both the net proceeds of the casualty or
condemnation and the costs of restoration are less than $500,000, the
CenterAmerica Pool Borrower may receive and apply such proceeds; otherwise such
proceeds must be paid to mortgagee for disbursement as provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the CenterAmerica Pool Borrower for restoration (A)
so long as (i) there is no Loan Default, (ii) in the case of casualty, less
than 25% of the total floor area of the improvements is damaged or destroyed,
and in the case of condemnation, less than 10% of the land constituting the
affected property is taken, and such land is located along the perimeter or
periphery of the related CenterAmerica Pool Property, (iii) leases requiring
payment of annual rent equal to 80% of the gross revenue received by the
CenterAmerica Pool Borrower from the affected CenterAmerica Pool Property
during the 12-month period preceding the casualty or condemnation remain in
full force and effect during and after restoration without abatement of rent,
and (iv) mortgagee shall be satisfied that the work of restoration can be
completed before the earliest of (a) the date which is 6 months before the
Effective Maturity Date, (b) the date on which the business interruption
insurance expires, or (c) the time required under any lease or applicable
zoning law; (B) if the mortgagee has agreed to make the net proceeds available
for restoration pursuant to a subordination, nondisturbance and attornment
agreement between the mortgagee and a tenant under a lease subject to the Lease
Approval Threshold; or (C) if restoration is required pursuant to a lease
subject to the Lease Approval Threshold in effect as of the closing of the
CenterAmerica Pool Loan. If such conditions are not met, the net proceeds of a
casualty or condemnation may at the option of mortgagee either (i) be applied
to prepay the CenterAmerica Pool Loan without payment of a Yield Maintenance
Charge or (ii) be disbursed to the CenterAmerica Pool Borrower for such
purposes as mortgagee may designate and, in either event (if caused by clause
(ii) above) the CenterAmerica Pool Borrower will be permitted to repay the
remaining Allocated Loan Amount of such property without payment of a Yield
Maintenance Charge. If the mortgagee applies the net proceeds of a casualty or
condemnation to the prepayment of the CenterAmerica Pool Loan, then the
CenterAmerica Pool Borrower may, at its option and upon written notice to the
mortgagee within 10 business days following the mortgagee's notice of the
application of the net proceeds, prepay in full on the next Due Date the
Allocated Loan Amount for the individual property that was subject to the
condemnation or casualty still outstanding after application by the mortgagee
of the net proceeds to the payment of the CenterAmerica Pool Loan and upon such
payment by the CenterAmerica Pool Borrower the mortgagee will release its lien
on the individual property without premium or penalty, provided that (a) no
Loan Default has occurred and is continuing as of the date of the prepayment
and release; (b) the CenterAmerica Pool Borrower has paid all accrued interest
and any other amounts due and payable to mortgagee under the CenterAmerica Pool
Loan with respect to the individual property and (c) the mortgagee has received
a copy of a deed conveying the individual property to an entity other than the
CenterAmerica Pool Borrower. All disbursements of net proceeds of a casualty or
condemnation shall be made in accordance with the Disbursement Procedures.
Approval Rights. The CenterAmerica Pool Loan provides mortgagee with the
Standard Approval Rights regarding budgets, leases and alterations. The Lease
Approval Threshold is the greater of (i) 15,000 square feet or (ii) 5% or more
of the gross leaseable area at any CenterAmerica Pool Property, which threshold
calculation is to include the leaseable area at any other CenterAmerica Pool
Property leased by an affiliate of the tenant under the lease under
consideration. The Alteration Escrow Threshold is (a) with respect to an
individual property, the greater of (i) $500,000 or (ii) 5% of the Allocated
Loan Amount of such property and (b) with respect to all of the properties,
$7,500,000.
Financial Reporting. The CenterAmerica Pool Borrower is required to
furnish the Financial Statements to mortgagee, except that audits need to be
made by a nationally recognized accounting firm (as opposed to a "Big Five"
accounting firm) and must be delivered within 120 days of the end of the
CenterAmerica Pool Borrower's fiscal year and monthly financial
S-92
<PAGE>
information is not required to be delivered. In addition to the Financial
Statements, the CenterAmerica Pool Borrower must deliver to mortgagee (a)
within 120 days after each fiscal year, (i) a statement of annual sales for
each tenant provided that such information has been delivered to the
CenterAmerica Borrower by the tenant and (ii) a comparison of the budgeted and
actual income and expenses for each of the CenterAmerica Pool Properties (with
an explanation of any variance in excess of 10%) for the fiscal year (b) within
45 days after each fiscal quarter (i) quarterly and year-to-date operating
statements, (ii) a calculation of the Loan DSCR for such quarter and the
preceding 12-month period, (iii) a current rent roll for each of the
CenterAmerica Pool Properties, and (iv) a copy of any notice from a tenant
under a lease subject to the Lease Approval Threshold threatening non-payment
of rent or other default, alleging or acknowledging a default by the landlord,
requesting a termination or material modification of a lease or notifying the
CenterAmerica Pool Borrower of the exercise or non-exercise of any option under
the tenant's lease or any other similar correspondence received by the
CenterAmerica Pool Borrower from tenants during the month.
Development Rights. Borrower has the right to construct certain
improvements (the "Wynnewood Village Redevelopment Parcel Improvements") on a
parcel which is a portion of the individual CenterAmerica Pool Properties known
as Wynnewood Village (the "Wynnewood Village Redevelopment Parcel") subject to
satisfaction of the following conditions prior to the commencement of the
Wynnewood Village Redevelopment Parcel Improvements: (i) the CenterAmerica Pool
Borrower has entered into, and mortgagee has approved, a commercially
reasonable ground lease of the Wynnewood Village Redevelopment Parcel (the
"Wynnewood Ground Lease") with (a) CenterAmerica, (b) a single-purpose,
bankruptcy-remote entity that satisfies the criteria for such entities
established by the Rating Agencies or (c) such other person as shall be
acceptable to mortgagee (the ground lessee pursuant to clause (a), (b) or (c),
the "Wynnewood Ground Lessee"), (ii) mortgagee has approved the intended use of
the Wynnewood Village Redevelopment Parcel (provided that mortgagee has
preapproved use of a grocery store or multiplex cinema), and (iii) mortgagee
has received and approved evidence regarding proper subdivision and receipt of
permits an officer's certificate regarding no violation of REAs and no material
adverse effect on utilities, operations or use of the remainder of the
Wynnewood Village Property. The Wynnewood Ground Lessee or any sublessee of the
Wynnewood Village Expansion Parcel may obtain construction and/or permanent
financing for the development of the Wynnewood Redevelopment Parcel secured by
a leasehold or subleasehold deed of trust encumbering the Wynnewood Ground
Lessee's leasehold interest.
Upon completion of the Wynnewood Village Redevelopment Parcel
Improvements, mortgagee is entitled to receive the following: (i) a certificate
of an independent architect selected by mortgagee (the "CenterAmerica
Architect") certifying that the Wynnewood Village Redevelopment Parcel
Improvements have been completed in accordance with plans and specifications
approved by mortgagee and the CenterAmerica Architect, all legal requirements
and any applicable leases, (ii) one or more final, unconditional certificates
of occupancy and (iii) evidence that no mechanics or materialmen's liens in
connection with the development of the Wynnewood Village Redevelopment Parcel
exist and the CenterAmerica Pool Mortgage continues to have a first lien
position with respect to the Wynnewood Village Redevelopment Parcel.
Any sublease with respect to the Wynnewood Village Expansion Redevelopment
Parcel, must contain any provisions, and the CenterAmerica Pool Borrower, as
lessor under any sublease must enter into any recognition agreements, necessary
to ensure that the subleases become a direct lease with the CenterAmerica Pool
Borrower, as lessor, upon a termination of the Wynnewood Ground Lease.
Mezzanine Debt. The CenterAmerica Mezzanine Borrower is the borrower under
a mezzanine loan having an initial principal amount of $30,000,000 and
providing for subsequent advances in an aggregate principal amount of up to an
additional $17,000,000 (the "CenterAmerica Mezzanine Loan") originated by
Secore and purchased by MSMC (the "CenterAmerica Mezzanine Lender") on May 20,
1998. The CenterAmerica Mezzanine Loan is secured by the limited partnership
interest in the CenterAmerica Pool Borrower and by the stock of the general
partner of the CenterAmerica Pool Borrower (collectively, the "CenterAmerica
Pledged Interests"). Pursuant to an intercreditor agreement, the CenterAmerica
Mezzanine Lender has agreed with mortgagee to obtain confirmation from each
Rating Agency that the following actions will not result in the qualification,
downgrade or withdrawal of the ratings assigned to the Certificates: (i)
foreclosure on the CenterAmerica Pledged Interests, (ii) enforcement of its
rights described below regarding termination or replacement of the manager of
the CenterAmerica Pool Properties and (iii) transfer of the CenterAmerica
Mezzanine Loan, except to (a) an institutional investor with at least
$250,000,000 in capital/statutory surplus or shareholder's equity and at least
$12,000,000,000 in total assets, and experienced in making commercial real
estate loans or (b) any entity wholly owned by the foregoing; provided,
however, that Confirmation shall be obtained from each Rating Agency if the
CenterAmerica Mezzanine Loan is being transferred in part to more than one such
institutional investor. See "Risk Factors--Other Financing."
S-93
<PAGE>
Under the intercreditor agreement, mortgagee must notify the CenterAmerica
Mezzanine Lender of Loan Defaults and defaults under the CenterAmerica Pool
Loan, and may not accelerate the CenterAmerica Pool Loan or pursue any remedies
thereunder, unless the CenterAmerica Mezzanine Lender fails to cure such
default within the cure period, if any, under the CenterAmerica Pool Loan
documents, or within 2 business days for a payment default, following the
CenterAmerica Mezzanine Lender's receipt of written notice of such default.
Such cure rights terminate on the Effective Maturity Date, and do not apply at
any time that the CenterAmerica Pool Borrower or an affiliate thereof owns the
CenterAmerica Mezzanine Loan.
The CenterAmerica Mezzanine Loan matures on June 1, 2002, requires monthly
payments of interest only, and bears interest at a variable rate of LIBOR plus
5%. Upon an event of default and acceleration of the CenterAmerica Mezzanine
Loan, all amounts in the Lockbox remaining after payment of debt service,
reserves and expenses must be applied to prepay the CenterAmerica Mezzanine
Loan.
The CenterAmerica Mezzanine Loan may be prepaid voluntarily at any time,
and, subject to certain exceptions, is required to be prepaid from any net
proceeds of a casualty, condemnation, transfer or refinancing of any of the
CenterAmerica Pool Properties in excess of the portion required to be applied
under the CenterAmerica Pool Loan.
The limited partnership agreement of the CenterAmerica Pool Borrower
provides that it may not cause or permit the transfer or encumbrance of the
CenterAmerica Pool Properties, or prepay or refinance the CenterAmerica Pool
Loan without the consent of the CenterAmerica Mezzanine Borrower. The
CenterAmerica Mezzanine Borrower has agreed not to provide such consent without
the consent of the CenterAmerica Mezzanine Lender.
However, the CenterAmerica Mezzanine Lender has agreed with mortgagee not
to withhold consent to refinancing of the CenterAmerica Pool Loan if it
determines in its discretion that certain conditions are satisfied, including
among others that (i) in the event the aggregate amount of debt increases, all
net proceeds shall be used to reduce the CenterAmerica Mezzanine Loan, (ii) the
new loan would not provide for the payment of any additional interest, an
equity kicker or any similar equity feature and (iii) the new mortgage lender
assumes the obligations of mortgagee under the intercreditor agreement and such
lender and all parties to the CenterAmerica Mezzanine Loan documents enter into
amendments or replacements thereto satisfactory to the CenterAmerica Mezzanine
Lender, so as to preserve for it the benefits it had prior to refinancing.
The CenterAmerica Mezzanine Lender has agreed not to unreasonably withhold
consent to a transfer of the CenterAmerica Pool Properties if it determines in
its discretion that certain conditions are satisfied, including among others
that (i) no default has occurred under the CenterAmerica Mezzanine Loan, (ii)
the Rating Agencies confirm in writing that such transfer will not result in
the reduction, withdrawal or qualification of the then current ratings of the
Certificates, (iii) the ownership structure of the new property owner and
certain affiliates thereof is substantially the same as that of the
CenterAmerica Mezzanine Borrower, (iv) the new property owner assumes the
CenterAmerica Pool Loan documents and the owners of the new property owner
assume the CenterAmerica Mezzanine Loan documents, and each is approved as to
credit and reputation by the CenterAmerica Mezzanine Lender or the Rating
Agencies, (v) the CenterAmerica Mezzanine Lender receives such opinions of
counsel as it requests and (vi) the CenterAmerica Mezzanine Lender receives an
assumption fee from the CenterAmerica Mezzanine Borrower in an amount equal to
1% of the original principal balance of the CenterAmerica Mezzanine Loan.
Mortgagee has agreed to obtain the consent of the CenterAmerica Mezzanine
Lender before consenting to a transfer of the CenterAmerica Pool Properties
(subject to the agreement of the CenterAmerica Mezzanine Lender to consent to
certain transfers as described above).
Mortgagee may amend the CenterAmerica Pool Loan without the consent of,
but upon written notice to, the CenterAmerica Mezzanine Lender; provided that
mortgagee has agreed that it will not, without approval of the CenterAmerica
Mezzanine Lender, amend the CenterAmerica Pool Loan so as to (i) provide for
the payment of additional interest, an equity kicker or any similar equity
feature, (ii) spread the lien thereof to encumber additional collateral or
(iii) cross-default such loan with any other debt. The CenterAmerica Mezzanine
Lender has agreed that it will not, without approval of mortgagee, amend the
CenterAmerica Mezzanine Loan so as to (i) modify the maturity date, (ii) change
the amount of principal payments due, or (iii) provide additional control
rights over the activities of the CenterAmerica Pool Borrower.
The limited partnership agreement of the CenterAmerica Pool Borrower
requires that it obtain the approval of the CenterAmerica Mezzanine Borrower
(which in turn must obtain the approval of the CenterAmerica Mezzanine Lender)
for its annual budget and for any expenses above budget. However, under the
intercreditor agreement, mortgagee has the right to override any objection by
the CenterAmerica Mezzanine Lender to the budget or any excess expense.
S-94
<PAGE>
The CenterAmerica Mezzanine Lender's rights to approve a replacement
property manager and to terminate the manager are identical to the rights held
by mortgagee. The CenterAmerica Mezzanine Lender has agreed that such rights
are subject to any rights of mortgagee to take such actions pursuant to the
CenterAmerica Pool Loan.
The obligations of the CenterAmerica Mezzanine Borrower under the
CenterAmerica Mezzanine Loan are guaranteed in full by CenterAmerica, its 99.5%
limited partner, which guaranty is secured by a deed of trust encumbering 2
shopping center properties which do not secure the CenterAmerica Pool Loan.
The insert between pages S-95 and S-96 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: Wells Fargo Tower
Photographs (clockwise from top right)
1. Gibson, Dunn & Crutcher Reception
2. Lobby
3. Interior Atrium
4. Wells Fargo Tower
Reverse of page
Legend: Wells Fargo Tower
1. Plan of building showing tenants and available space on each floor
2. Map of Los Angeles, CA showing location of Wells Fargo Tower
S-95
<PAGE>
WELLS FARGO OFFICE TOWER: THE BORROWER; THE PROPERTY
The Loan. The Wells Fargo Office Tower Loan was originated by Wells Fargo
on April 30, 1998 and will be acquired by MSMC on or prior to the Closing Date.
The Wells Fargo Office Tower Loan had an original principal balance of
$144,000,000 and has a Cut-Off Date Principal Balance of approximately
$143,855,648. It is secured by a deed of trust (the "Wells Fargo Office Tower
Mortgage") encumbering a commercial office building and an adjacent parking
garage, located in downtown Los Angeles, California (the "Wells Fargo Office
Tower Property").
The Borrower. North Tower, LLC (the "Wells Fargo Office Tower Borrower")
is a Delaware limited liability company whose purpose is limited to owning and
operating the Wells Fargo Office Tower Property and engaging in related
activities. The Wells Fargo Office Tower Borrower owns no material assets other
than the Wells Fargo Office Tower Property and related interests. The Wells
Fargo Office Tower Borrower is indirectly owned 42% by Wells Fargo, 12% by
Maguire Partners-Bunker Hill, Ltd., 31% by MAC-WFT, Inc., and 15% by Gibson,
Dunn & Crutcher Retirement Trust. All of the members have ownership interests
which give them management rights similar to those generally given to a general
partners of a limited partnership except Gibson, Dunn & Crutcher Retirement
Trust.
The Property. The Wells Fargo Office Tower Property is a "Class-A" office
building constructed in 1982 and located in downtown Los Angeles, California.
The Wells Fargo Office Tower Property contains approximately 1,336,248 square
feet of GLA and 2,014 on-site parking spaces, which is shared with an adjacent
office tower of comparable size. As of January 31, 1998 the economic occupancy
of the building was approximately 92%. The physical occupancy of the Wells
Fargo Office Tower Property as of such date was approximately 87% and assuming
no tenants vacate their premises, will increase to approximately 92% in April,
1999 based on newly signed leases. The major tenants are Wells Fargo and Gibson
Dunn & Crutcher, which together lease approximately 36% of the total net
rentable area. An appraisal of the Wells Fargo Office Tower Property completed
by Cushman & Wakefield on February 27, 1998 determined a market value of
$235,000,000.
As a result of certain transfers within the ownership structure of the
entities owning the Wells Fargo Office Tower Property, the Wells Fargo Office
Tower Property has been reassessed for an additional approximately $1.9
million, which assessment is in the process of being appealed. Mortgagee has
the right to require the Wells Fargo Office Tower Borrower to increase its
deposits in the Tax Account to cover such liability when due. See "Risk
Factors--Risks Related to Tax Assessment on Wells Fargo Office Tower Property."
Major Tenant Information. Wells Fargo Bank leases 253,718 square feet of
GLA and controls an interest in the property. Gibson Dunn & Crutcher leases
224,958 square feet of GLA and also owns a limited interest in the Wells Fargo
Office Tower Borrower. Gibson Dunn & Crutcher is a national law firm which
specializes in antitrust and trade regulation, environmental law, securities
litigation, international trade and customs law. Both of these tenant's leases
include a clause pursuant to which the rent is adjusted to reflect "any
increase in the cost of living" on every fifth year starting from the beginning
of the eleventh year. In addition, Oaktree Capital has executed a lease
agreement for 73,473 square feet beginning in April, 1999.
Location/Access. The Wells Fargo Office Tower Property is located in the
downtown Los Angeles, California sub-market generally known as the Bunker Hill
area. The commercial business district ("CBD") contains 3 tiers of buildings;
"Class A", "Class B" and "Class C" with "Class A" buildings experiencing lower
vacancies than "Class B" and "Class C" buildings. The Bunker Hill area contains
the greatest concentration of "Class A" buildings within the CBD. Based on a
rental and occupancy survey of downtown Los Angeles, 23 other "Class A" office
properties comprising approximately 20,387,614 square feet of net rentable area
are located in this area.
Market Overview. According to the downtown Los Angeles market report
prepared by Cushman & Wakefield, the CBD's overall office real estate market
vacancy was approximately 22.9% as of year-end 1997. Vacancy rates for
comparable space in the office market of "Class A" buildings have fallen below
18.0% as of the first quarter of 1998.
S-96
<PAGE>
COMPETITIVE DOWNTOWN LOS ANGELES OFFICE BUILDINGS
RENTAL AND OCCUPANCY SURVEY AS OF FIRST QUARTER 1998(1)
<TABLE>
<CAPTION>
BUILDING INFORMATION AVAILABLE SPACE
----------------------------------------- -------------------------------------
NO. OF AREA AVG. FLR. YEAR
BUILDING NAME/LOCATION STORIES (SF) AREA BUILT FLOOR(S) DIRECT SUBLEASE
- --------------------------------- --------- ------------ ----------- ------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Subject Property
- ---------------------------------
Wells Fargo Center -- North(2) 54 1,336,248 24,745 1982 22-41 & 53 0 125,536
333 South Grand Avenue 4-42 93,640 0
-------- ------ -------
93,640 125,536
Competition
- ---------------------------------
The Gas Company Tower 52 1,200,000 23,077 1991 4-8 72,686 0
555 West 5th Street 30-50 96,555 0
-------- ------ -------
169,241 0
One Bunker Hill 13 224,000 17,231 1931 6 0 2,740
601 West 5th Street 2-10 40,641 0
-------- ------- -------
40,641 2,740
Library Tower / FIB World Ctr 73 1,360,086 18,631 1989 16, 64 & 72 0 68,309
633 West 5th Street 14-67 137,410 0
-------- ------- -------
137,410 68,309
444 Plaza 48 893,979 18,625 1982 Grnd.-47 0 161,779
444 South Flower Street 37 & 38 16,873 0
------------- ------- -------
16,873 161,779
One California Plaza 42 936,864 22,306 1985 12 & 26 0 32,401
300 South Grand Avenue Grnd. 10-38 96,351 0
------------- ------- -------
96,351 32,401
Two California Plaza 52 1,277,801 24,573 1992 22 0 20,013
350 South Grand Avenue 15-39 134,969 0
-------- ------- -------
134,969 20,013
Wells Fargo Center -- South 45 1,012,000 22,489 1983 Ground 0 0
355 South Grand Avenue 18-42 207,503 0
-------- ------- -------
207,503 0
Arco Center 55 1,359,934 24,726 1974 24-31 0 52,220
333 South Hope Street LL-28 140,523 0
-------- ------- -------
140,523 52,220
400 South Hope Street Building 26 661,756 25,452 1982 Ground 0 0
400 South Hope Street 3-26 85,051 0
-------- ------- -------
85,051 0
------- -------
MARKET TOTALS(3) 10,262,668 22,310 1,122,202 462,998
========== ====== ========= =======
<CAPTION>
OVERALL QUOTED ANNUAL RENT OVERALL
AVAILABILITY ------------------- OCCUPANCY
BUILDING NAME/LOCATION (SF) PSF RATIO
- --------------------------------- ------------- ------------------- ----------
<S> <C> <C> <C>
Subject Property
- ---------------------------------
Wells Fargo Center -- North(2) $11.00 -- $16.00 86.6%
333 South Grand Avenue Total $8.00 -- $12.00
219,176
Competition
- ---------------------------------
The Gas Company Tower $8.00 -- $12.00 85.9%
555 West 5th Street Total $8.00 -- $12.00
169,241
One Bunker Hill $10.80 -- $10.80 80.6%
601 West 5th Street Total $12.00 -- $18.00
43,381
Library Tower / FIB World Ctr $5.00 -- $22.00 84.9%
633 West 5th Street Total $8.00 -- $12.00
205,719
444 Plaza $15.00 -- $18.00 80.0%
444 South Flower Street Total $18.00 -- $18.00
178,652
One California Plaza $10.00 -- $10.00 86.3%
300 South Grand Avenue Total $8.00 -- $15.00
128,752
Two California Plaza $18.00 -- $18.00 87.9%
350 South Grand Avenue Total $13.00 -- $18.00
154,982
Wells Fargo Center -- South -- -- -- 79.5%
355 South Grand Avenue Total $8.00 -- $12.00
207,503
Arco Center $9.00 -- $22.00 85.8%
333 South Hope Street Total $15.00 -- $20.00
192,743
400 South Hope Street Building -- -- -- 87.1%
400 South Hope Street Total $22.00 -- $22.00
85,051
-------
MARKET TOTALS(3) 1,585,200 84.4%
========= ====
</TABLE>
- --------
(1) Figures for Competition are according to Cushman & Wakefield Appraisal.
(2) Availability and occupancy numbers do not include the recently signed
Oaktree Capital lease.
(3) (Includes Subject Property)
Operating History. The following table shows certain information regarding
the operating history of the Wells Fargo Office Tower Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues ....................... $ 39,438,030 $ 38,287,711 $ 39,003,365 $ 36,845,496
Expenses ....................... (14,881,572) (15,103,560) (15,127,342) (15,127,342)
------------- ------------- ------------- -------------
Net Operating Income ......... $ 24,556,458 $ 23,184,151 $ 23,876,023 $ 21,718,154
============= ============= ============= =============
</TABLE>
S-97
<PAGE>
Occupancy History. The following table shows certain historical
information regarding average occupancy of the Wells Fargo Office Tower
Property:
<TABLE>
<CAPTION>
OCCUPANCY AS OF: PERCENT LEASED
- ----------------------------- ---------------
<S> <C>
January 31, 1998 ........... 92%
January 31, 1997 ........... 94%
February 29, 1996 .......... 90%
January 31, 1995 ........... 94%
</TABLE>
Major Tenant Summary. The following table shows certain information
regarding certain major tenants of the Wells Fargo Office Tower Property:
<TABLE>
<CAPTION>
TENANT NET
RENTABLE
PARENT COMPANY(1) TENANT NAME AREA
- --------------------------- ------------------------------------- ------------
<S> <C> <C>
Gibson Dunn & Crutcher..... Gibson Dunn & Crutcher 224,958
Wells Fargo and Co. ....... Wells Fargo 253,718
Travelers Group Inc. ...... Salomon Smith Barney 50,648
Thelen Marrin Johnson &
Bridges LLP .............. Thelen Marrin Johnson & Bridges LLP 53,884
Oaktree Capital(2) ........ Oaktree Capital 73,473
PaineWebber Group ......... Kidder Peabody/Paine Webber 44,986
Sumitomo Bank Ltd. ........ Sumitomo Trust 25,324
Payden & Rygel ............ Payden & Rygel 48,982
Peterson Ross ............. Peterson Ross 24,145
Donovan Leisure Newton
and Irvine ............... Donovan Leisure Newton and Irvine 24,887
-------
Subtotal .................. 825,005
Other Tenants ............. 406,273
Vacant Tenants ............ 104,970
-------
Total ..................... 1,336,248
=========
<CAPTION>
% OF TOTAL % OF TOTAL ANNUALIZED
NET RENTABLE ANNUALIZED ANNUALIZED BASE
PARENT COMPANY(1) AREA BASE RENT BASE RENT RENT PER SF
- --------------------------- -------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Gibson Dunn & Crutcher..... 16.84% $ 4,818,402 21.09% $ 21.42
Wells Fargo and Co. ....... 18.99 4,473,755 19.58 17.63
Travelers Group Inc. ...... 3.79 1,924,632 8.42 38.00
Thelen Marrin Johnson &
Bridges LLP .............. 4.03 1,205,688 5.28 22.38
Oaktree Capital(2) ........ 5.50 1,138,832 4.98 15.50
PaineWebber Group ......... 3.37 1,027,934 4.50 22.85
Sumitomo Bank Ltd. ........ 1.90 886,344 3.88 35.00
Payden & Rygel ............ 3.67 704,728 3.08 14.39
Peterson Ross ............. 1.81 688,464 3.01 28.51
Donovan Leisure Newton
and Irvine ............... 1.86 622,175 2.72 25.00
------ ----------- ------ --------
Subtotal .................. 61.74% $17,490,953 76.56% $ 21.20
Other Tenants ............. 30.40 5,355,407 23.44 13.18
Vacant Tenants ............ 7.86 0 0.00 0.00
------ ----------- ------ --------
Total ..................... 100.0% $22,846,360 100.0% $ 18.55(3)
====== =========== ====== =========
</TABLE>
- --------
(1) The parent company may not be the obligor under the applicable lease.
(2) Occupancy and rent payment under lease commence in April 1999.
(3) Excludes vacant space.
S-98
<PAGE>
Lease Expiration Summary. The following table shows scheduled lease
expirations of the Wells Fargo Office Tower Property as of January 31, 1998,
assuming none of the tenants renew their leases, exercise renewal options or
terminate their leases prior to the scheduled expiration date. Over 46% of the
leased square footage that expires in 1999 is currently leased and occupied by
Donovan Leisure. Oaktree Capital is to occupy 73,473 square feet beginning in
April, 1999 Lease Expiration Summon(1).
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
LEASES EXPIRING PERCENT OF PERCENT OF
YEAR OF EXPIRATION EXPIRING SF SF SF
- -------------------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Vacant ................... 0 104,970 7.86% 7.86%
Month-to-Month ........... 15 21,174 1.58 9.44
1998 ..................... 33 74,723 5.59 15.03
1999 ..................... 7 53,391 4.00 19.03
2000 ..................... 10 33,834 2.53 21.56
2001 ..................... 16 133,818 10.01 31.57
2002 ..................... 13 164,389 12.30 43.88
2003 ..................... 9 57,227 4.28 48.16
2004 ..................... 5 77,827 5.82 53.98
2005 ..................... 0 0 0.00 53.98
2006 ..................... 3 19,017 1.42 55.41
2007 ..................... 4 40,779 3.05 58.46
2008 or later(2) ......... 30 555,099 41.54 100.00
-- ------- ------
Total/Weighted
Average ................. 145 1,336,248 100.00%
=== ========= ======
<CAPTION>
CUMULATIVE
ANNUALIZED PERCENT OF PERCENT OF
ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION BASE RENT PER SF BASE RENT BASE RENT
- -------------------------- -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Vacant ................... $ 0 $ 0.00 0.00% 0.00%
Month-to-Month ........... 161,536 7.63 0.71 0.71
1998 ..................... 1,064,838 14.25 4.66 5.37
1999 ..................... 1,408,028 26.37 6.16 11.53
2000 ..................... 401,318 11.86 1.76 13.29
2001 ..................... 2,429,842 18.16 10.64 23.92
2002 ..................... 4,401,616 26.78 19.27 43.19
2003 ..................... 502,753 8.79 2.20 45.39
2004 ..................... 972,093 12.49 4.25 49.64
2005 ..................... 0 0.00 0.00 49.64
2006 ..................... 345,494 18.17 1.51 51.16
2007 ..................... 682,281 16.73 2.99 54.14
2008 or later(2) ......... 10,476,561 18.87 45.86 100.00
----------- -------- ------
Total/Weighted
Average ................. $22,846,360 $ 18.55(3) 100.00%
=========== =========== ======
</TABLE>
- --------
(1) Based on 1/31/98 rent roll.
(2) Includes the Oaktree Capital Lease for floors 27-29 for a total of 73,473
square feet and $1,138,832 of Annualized Base Rent.
(3) Excludes vacant space.
Environmental Report. An Environmental Site Assessment was completed on
the Wells Fargo Office Tower Property in February, 1997. The Environmental Site
Assessment did not reveal any environmental liability that the Depositor
believes would have a material adverse effect on the borrower's business,
assets or results of operations taken as a whole. Nevertheless, there can be no
assurance that all environmental conditions and risks were identified in such
environmental assessments. See "Risk Factors--The Mortgage Loans--Environmental
Law Considerations."
Engineering Report. A Property Condition Report was completed on the Wells
Fargo Office Tower Property on February 7, 1997 by a third party due diligence
firm. The Property Condition Report concluded that the Wells Fargo Office Tower
Property was generally in good physical condition and identified approximately
$500 in deferred maintenance requirements.
Property Management. The Wells Fargo Office Tower Property is managed by
Maguire Partners--Development, Ltd. (the "Wells Fargo Office Tower Manager"),
which is an affiliate of the Wells Fargo Office Tower Borrower, pursuant to a
management agreement dated April 27, 1998 (the "Wells Fargo Office Tower
Management Agreement"). The Wells Fargo Office Tower Manager receives a monthly
management fee of 2.5% of gross rent received, a tenant improvement fee of 10%
of the cost of any tenant improvement work after the initial occupancy of a
tenant and leasing commissions of (a) 4% of the minimum base rent for the first
5 years of the term of each initial lease and 2% for years 6 through 15 of such
lease, (b) 4% of the minimum base rent for the first 5 years of the term of
each lease with an existing tenant and 2% for years 6 through 10 of such lease,
(c) 4% of the minimum base rent for the first 5 years of the term of each new
lease that is entered into pursuant to the exercise of an option to renew or
extend and 2% for years 6 through 10 of such lease and (d) 4% of the minimum
base rent for the first 5 years of the term of each lease that is entered into
pursuant to the exercise of a right of first refusal and 2% for years 6 through
10 of such lease, except that such 5 and 10 year period shall be deemed to have
begun at the same time as such tenant's initial lease but such compensation is
only payable to the Wells Fargo Office Tower Manager from the date of the lease
pursuant to the right of first refusal.
The Wells Fargo Office Tower Management Agreement is for a term of 7 years
ending in 2005 with automatic extensions of 1 year each. The Wells Fargo Office
Tower Manager may resign upon 90 days written notice to the Wells Fargo Office
S-99
<PAGE>
Tower Borrower or the Wells Fargo Office Tower Borrower may terminate the Wells
Fargo Office Tower Manager for cause upon 30 days prior written notice to the
Wells Fargo Office Tower Manager.
Pursuant to a management subordination agreement executed by the Wells
Fargo Office Tower Manager, mortgagee has the right to terminate the Wells
Fargo Office Tower Manager (i) on or after any Loan Default, (ii) on or after
any default by Wells Fargo Office Tower Manager under the Wells Fargo Office
Tower Management Agreement, or (iii) in the event that net operating income for
the Wells Fargo Office Tower Property for the prior 12 calendar months is less
than $19,000,000.
The Wells Fargo Office Tower Manager is an affiliate of Maguire Partners
Management Company, which has developed and manages over 25,000,000 square feet
of properties in the United States.
S-100
<PAGE>
WELLS FARGO OFFICE TOWER: THE LOAN.
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $144,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $143,855,648 INITIAL INTEREST RATE: 7.17%
ORIGINATION DATE: April 30, 1998 REVISED INTEREST RATE: 9.17%
EFFECTIVE MATURITY DATE: April 30, 2005 AMORTIZATION: 300 months
MATURITY DATE: April 30, 2023 MONTHLY PAYMENT: $1,033,431.56
EMD BALANCE: $126,516,032 CALL PROTECTION: Lockout to EMD
</TABLE>
CERTAIN WELLS FARGO OFFICE TOWER LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO ACTUAL
SQUARE FOOT(1) VALUE RATIO(2) DSCR(3)
---------------- ---------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $108 61.2% 1.64x
At Effective Maturity Date ......... $ 95 53.8% 1.86x
</TABLE>
- --------
(1) Based on 1,336,248 square feet securing the Wells Fargo Office Tower Loan
and the Cut-Off Date Principal Balance or Effective Maturity Date
Balance, as applicable.
(2) Based on the appraised market value and the Cut-Off Date Principal
Balance or Effective Maturity Date Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $20,276,676 and (b) in the
Cut-Off Date Actual DSCR, actual debt service on the Wells Fargo Office
Tower Loan during the 12 months following the Cut-Off Date, and in the
case of Effective Maturity Date Actual DSCR, 12 months of debt service on
the Wells Fargo Office Tower Loan assuming a balance equal to the
Effective Maturity Date Balance, a coupon equal to the Wells Fargo Office
Tower Loan Initial Interest Rate and an amortization term equal to 300
months.
Security. The Wells Fargo Office Tower Loan is a nonrecourse loan, secured
only by the fee estate of the Wells Fargo Office Tower Borrower in the Wells
Fargo Office Tower Property and certain related collateral, including an
assignment of leases and rents. Mortgagee is the insured under title insurance
policies issued simultaneously insuring that the Wells Fargo Office Tower
Mortgage constitutes a valid and enforceable first lien on the Wells Fargo
Office Tower Property, subject to certain exceptions set forth therein.
Payment Terms. The Wells Fargo Office Tower Loan is an EMD Loan. Its Due
Date is the first day of each month with no grace period (provided, that if the
Due Date is not a business day, payment may be made on the next business day).
Interest on the Wells Fargo Office Tower Loan is calculated on an Actual/360
Basis. The Late Payment Fee on any principal or interest payment not paid on
its Due Date is 2.5% of the unpaid amount and the Default Rate following a Loan
Default is the greater of (i) 4% over the applicable interest rate and (ii) the
prime rate then in effect plus 1%.
Prepayment. Voluntary prepayment is prohibited under the Wells Fargo
Office Tower Loan prior to the Effective Maturity Date. From and after such
date the Wells Fargo Office Tower Loan may be voluntarily prepaid, in whole or
in part, without payment of a Yield Maintenance Charge, on any Due Date.
Principal prepayments on the Wells Fargo Office Tower Loan may occur after
the Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the Wells Fargo Office Tower Loan following a Loan Default.
Prepayments following a Loan Default prior to the Effective Maturity Date
require payment of a Yield Maintenance Charge equal to the amount that, when
added to the amount otherwise due as a result of such acceleration, would be
sufficient to purchase U.S. Obligations (a) having maturity dates on or prior
to, but as close as possible to, successive scheduled Due Dates (after the date
of such acceleration of the Note) upon which Due Dates interest and principal
payments would be required under the Note as though the Maturity Date of the
Note were the Effective Maturity Date and (b) in amounts sufficient to pay all
scheduled principal and interest payments on the Note as if the Maturity Date
of the Note were the Effective Maturity Date (but without any adjustment of the
monthly amortization schedule). As described below, prepayments may also be
made, without payment of a Yield Maintenance Charge, from insurance or
condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions (other than the
requirement to convey the related property to an entity other than the related
borrower), commencing on the date that is 2 years after the Closing Date, the
Wells Fargo Office Tower Loan permits the release of the Wells Fargo Office
Tower Property upon delivery to mortgagee, at mortgagee's option,
S-101
<PAGE>
of either (i) U.S. Obligations which provide for payments on or prior to, but
as close as possible to, each Due Date up to the Effective Maturity Date and in
amounts equal to the principal and interest payments due on the Wells Fargo
Office Tower Loan on such dates, and provide for payment on the Effective
Maturity Date of the remaining principal balance of the Wells Fargo Office
Tower Loan or (ii) cash sufficient to purchase such U.S. Obligations (in which
case such U.S. Obligations will be purchased by the Master Servicer). Upon any
such Defeasance, the Wells Fargo Office Tower Borrower, with the consent of
mortgagee, may transfer the obligations under the Wells Fargo Office Tower Loan
and the U.S. Obligations securing the loan to a Successor Borrower. Following
such Defeasance, the U.S. Obligations will be the sole security for the Wells
Fargo Office Tower Loan.
Lockbox and Reserves. Pursuant to the Wells Fargo Office Tower Loan, the
Wells Fargo Office Tower Borrower has established a Hard Lockbox, which is a
One-Tier Lockbox. The Lockbox Bank is Wells Fargo Bank, National Association,
an affiliate of the Wells Fargo Office Tower Borrower and a tenant of the Wells
Fargo Office Tower Property. Amounts in the Lockbox are required to be applied
as follows: (i) to a joint Tax Account and Insurance Account, (ii) to fund
payment of the Monthly Payment and other amounts due and payable under the
Wells Fargo Office Tower Loan (excluding principal payments based on Excess
Cash Flow), (iii) to fund the Capital Expenditures Account (except that prior
to the Effective Maturity Date the release of funds in the Capital Expenditure
Account is not limited to expenses set forth in a capital budget approved by
mortgagee; however, all releases must be reasonably approved by mortgagee),
(iv) to fund an operating expense account in an amount equal to the monthly
operating expenses as set forth in the annual budget, such funds to be released
(a) prior to the Effective Maturity Date, to the Wells Fargo Office Tower
Borrower and (b) after the Effective Maturity Date, to the Wells Fargo Office
Tower Borrower in an amount equal to the expenses actually incurred up to the
amount of monthly operating expenses set forth in the approved annual budget,
(v) to fund the Rollover Account in the amount described below (except that the
release of funds in the Rollover Account is not limited to expenses set forth
in a budget approved by mortgagee; however, all releases must be reasonably
approved by mortgagee), (vi) after the Effective Maturity Date, to apply Excess
Cash Flow to prepay the Wells Fargo Office Tower Loan until paid in full, (vii)
after the Effective Maturity Date, to pay Deferred Interest and (viii) to the
Wells Fargo Office Tower Borrower.
The Wells Fargo Office Tower Borrower has established (a) a joint Tax
Account and Insurance Account, which had an Initial Reserve Deposit of
$567,138, and requires a Monthly Reserve Deposit equal to the Monthly Tax
Deposit Amount and the Monthly Insurance Deposit Amount (calculated to
accumulate sufficient funds to pay such taxes and insurance premiums on the
Payment Date prior to their respective delinquency dates), (b) a Debt Service
Account, which requires a Monthly Reserve Deposit equal to the Monthly Payment
and other amounts due and payable under the Wells Fargo Office Tower Loan
(excluding principal payments based on Excess Cash Flow), (c) a Capital
Expenditures Account, which requires a Monthly Reserve Deposit equal to $16,666
based on $.15 per square foot per year, (d) an operating expense reserve
account, which requires a Monthly Reserve Deposit equal to the amount set forth
in the annual budget, and (e) a Rollover Account, which had an Initial Reserve
Deposit of $9,000,000 and requires a Monthly Reserve Deposit of an amount
necessary to maintain a balance equal to the Wells Fargo Office Tower Minimum
Rollover Balance (as defined below).
The "Wells Fargo Office Tower Minimum Rollover Balance" is $9,000,000,
until such time that no less than 80% of the space on floors 25-29 of the Wells
Fargo Office Tower Property has been re-leased and such space (x) has all new
tenant improvements required by the replacement tenants of such space fully
completed and accepted by such tenants and (y) such replacement tenants are
paying rent on such space, at which time such $9,000,000 amount shall be
reduced to $6,000,000. All or a portion of such amounts may be funded with a
letter of credit or irrevocable line of credit acceptable to mortgagee and the
Rating Agencies.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Wells Fargo Office Tower Borrower is prohibited from transferring the
Wells Fargo Office Tower Property without consent of mortgagee other than
pursuant to a Wells Fargo Permitted Transfer (as defined below). The Wells
Fargo Office Tower Borrower is also prohibited from further encumbering the
Wells Fargo Office Tower Property, except for (i) liens in favor of mortgagee,
(ii) equipment, vehicle and fixture leases entered into in the ordinary course
of business and (iii) rights of mechanics or materialmen in connection with
capital improvements; provided that within 30 days of the creation of such lien
the Wells Fargo Office Tower Borrower is required to remove or satisfy such
liens.
The Wells Fargo Office Tower Loan generally prohibits the transfer of any
direct or indirect interest in the Wells Fargo Office Tower Borrower without
the prior written consent of mortgagee other than pursuant to a Wells Fargo
Permitted Transfer. A "Wells Fargo Permitted Transfer" means a transfer which
satisfies the following criteria:
S-102
<PAGE>
(i) any transfer to:
(a) an institutional investor financing such transfer through debt or
preferred equity, or to any holder of any direct or indirect interest in
the Wells Fargo Office Tower Borrower; or
(b) a Wells Fargo Qualified Transferee (as defined below). In all
events, the structure of the Wells Fargo Qualified Transferee shall be
subject to the reasonable approval of mortgagee;
(ii) any transfer to a newly formed, bankruptcy remote special purpose
entity that satisfies Rating Agency "SPE" requirements and is 51% owned and
controlled (directly or indirectly) by one or more of Wells Fargo Bank,
N.A., MAC-WFT, Inc. or their respective 100% beneficial owners or their 90%
affiliates;
(iii) any transfer of membership interests in the Wells Fargo Office Tower
Borrower (a) to Wells Fargo Bank, N.A., MAC-WFT, Inc. or their respective
100% beneficial owners or their 90% affiliates, or (b) to any other investor
if, after such transfer, one or more of the Wells Fargo Bank, N.A., MAC-WFT,
Inc. and their respective 100% beneficial owners and any Wells Fargo
Qualified Transferee are the 51% or more beneficial owners and controlling
parties of the Wells Fargo Office Tower Borrower;
(iv) the transfer of beneficial interests in the Gibson, Dunn & Crutcher
Revocable Retirement Trust; and
(v) the transfer of beneficial interests by individuals by reason of
death or for estate planning.
A "Wells Fargo Qualified Transferee" means a transferee that is a 90%
affiliate with a net worth of at least $500 million and who controls office
building real estate worth at least $1 billion or more or, if such person is a
pension fund advisor, one which controls $1 billion or more of office building
real estate equity assets, or (ii) a pension fund, pension trust or pension
account that has total assets of $500 million or more, managed by a person that
controls at least $1 billion or more in office building real estate equity
assets, and (b) any of the following: (i) a pension fund, pension trust or
pension account; (ii) an insurance company; (iii) a national money-center bank;
or (iv) a pension with an investment grade long-term unsecured debt rating from
the Rating Agencies.
Notwithstanding the foregoing, none of the foregoing transfers may be made
unless each Rating Agency has confirmed in writing that such transfer will not
result in the qualification, downgrade or withdrawal of the ratings of the
Certificates.
The Wells Fargo Office Tower Borrower is not permitted to incur any
additional indebtedness other than (i) unsecured indebtedness for trade
payables incurred in the ordinary course of owning and operating the Wells
Fargo Office Tower Property which is paid within 60 days of the date incurred
(unless contested in good faith in accordance with the requirements of the loan
documents, including the provision requiring the Wells Fargo Office Tower
Borrower to post security in an amount equal to the portion of the contested
amount that exceeds $500,000), except that $150,000 of such trade payables may
exceed 60 days before payment.
The Wells Fargo Office Tower Borrower is permitted to issue preferred
equity; provided that each of the Rating Agencies have confirmed in writing
that the terms of such preferred equity and the status of the holder thereof
will not, in and of itself, result in a downgrade, qualification or withdrawal
of the then current ratings of any Class of Certificates.
Insurance. The Wells Fargo Office Tower Borrower is required to maintain
for the Wells Fargo Office Tower Property (a) comprehensive all risk insurance
with coverage in an amount at all times sufficient to prevent the Wells Fargo
Office Tower Borrower from becoming a co-insurer, but in any event equal to the
full replacement value of the improvements, (b) general liability insurance
with coverage of $ 1,000,000 per occurrence and with an aggregate single limit
coverage for bodily injury or property damage and excess liability coverage of
not less than $20,000,000 per occurrence, (c) statutory workers compensation
insurance, (d) business interruption insurance to cover the loss of at least 18
months gross revenue, (e) during any period of construction or repair,
builder's "all risk" insurance in an amount not less than full replacement
value, (f) boiler and machinery insurance in amounts reasonably required by
mortgagee, (g) flood insurance, if available, in the event that the Wells Fargo
Office Tower Property is located within a federally designated "special flood
hazard area," in an amount equal to the lesser of the outstanding principal
amount of the Wells Fargo Office Tower Loan and the maximum limit of coverage
available under federal law, (h) earthquake insurance in an amount, equal to
the maximum probable loss; provided that the premiums for such earthquake
insurance shall not exceed 150% of the annual premium for such insurance as of
the date of the origination of the Wells Fargo Office Tower Loan (as adjusted
by increases in the consumer price index-all urban consumers), and (i) at
mortgagee's reasonable request, such other insurance against other insurable
hazards which are
S-103
<PAGE>
customarily insured against and in such amounts as are generally required by
institutional lenders for comparable properties. Although the Wells Fargo
Office Tower Property is required to be insured by an insurer with claims
paying rating of "AA" it is currently insured by an insurer with an "A" rating.
See "Risk Factors--Availability of Earthquake, Flood and Other Insurance."
All insurance policies are required to meet the Insurance Requirements,
except that with respect to earthquake insurance, the claims paying ability of
the insurer is only required to be at least "A" or its equivalent by each
Rating Agency or such other rating reasonably acceptable to mortgagee.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Wells Fargo Office Tower Property or a
condemnation of all or any part of the Wells Fargo Office Tower Property, upon
its receipt of the related casualty or condemnation proceeds, the Wells Fargo
Office Tower Borrower is obligated to commence and diligently prosecute to
completion the restoration of the Wells Fargo Office Tower Property. Any
casualty or condemnation proceeds are required to be paid to mortgagee for
disbursement as provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Wells Fargo Office Tower Borrower for restoration
so long as, among other things, (i) there is no Loan Default, (ii) in
mortgagee's reasonable judgment the improvements or equipment to which loss or
damage has resulted is capable of being restored to an economically viable
unit, (iii) the Wells Fargo Office Tower Borrower has demonstrated to mortgagee
that (a) income from the Wells Fargo Office Tower Property, business
interruption insurance and other monies irrevocably made available by the Wells
Fargo Office Tower Borrower for such purposes will equal at least 105% of the
sum of the obligations due under the Wells Fargo Office Tower Loan and
operating expenses that may become due during such period of restoration; (b)
the Wells Fargo Office Tower Property will generate monthly net operating
income equal to or greater than 125% of the related Monthly Payment; and (c)
the value of all the collateral pledged to secure the Wells Fargo Office Tower
Loan following restoration is sufficient to provide adequate security for all
of the Wells Fargo Office Tower Borrower's obligations under the Wells Fargo
Office Tower Loan, (iv) the Wells Fargo Office Tower Borrower commences such
restoration within 120 days after such loss or damage and diligently pursues
such restoration to completion and (v) mortgagee obtains a first lien and
security interest in all building materials and completed repair or restoration
work.
If the foregoing conditions are not met, the net proceeds of a casualty or
condemnation may at the option of mortgagee either (i) be applied to prepay the
Wells Fargo Office Tower Loan without payment of a Yield Maintenance Charge or
(ii) applied by mortgagee to restoration. All disbursements of net proceeds of
a casualty or condemnation shall be made once monthly upon receipt of a
disbursement request on a form approved by mortgagee, signed and certified by
the Wells Fargo Office Tower Borrower, its architect and general contractor
with appropriate invoices, lien waivers and other documents as may be required
by mortgagee. Notwithstanding the foregoing, the conditions of the preceding
sentence shall not be applicable if the loss or damage incurred in connection
with any casualty or condemnation is less than or equal to $350,000 and the
Wells Fargo Office Tower Borrower has satisfied the conditions set forth in
clause (i), (ii), (iv), and (v) of the preceding paragraph, and in such case
mortgagee will be required to disburse such proceeds directly to the Wells
Fargo Office Tower Borrower.
Approval Rights. The Wells Fargo Office Tower Loan provides mortgagee with
the Standard Approval Rights regarding budgets, leases and alterations. The
Lease Approval Threshold is (i) a lease for more than (a) 25,000 square feet or
(b) an entire floor of the Wells Fargo Office Tower Property or (ii) a lease
that is below market rents and terms (unless such lease is (a) to the managing
agent or leasing agent, (b) for space to be utilized in connection with the
management of the Wells Fargo Office Tower Property or (c) in consideration for
an existing below market lease). The Alteration Approval Threshold and the
Alteration Escrow Threshold are $750,000.
Financial Reporting. The Wells Fargo Office Tower Borrower is required to
furnish the Financial Statements to mortgagee, except that the monthly
financial statements are required to be delivered to mortgagee within 35 days
after each calendar month and unless requested by mortgagee such monthly
financial statements will not include year to date operating statements and
Loan DSCR for the preceding 12 month period.
The insert between pages S-104 and S-105 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: West Town Mall
Photographs
1. External view of mall
2. Internal view of mall
3. Internal view of mall
4. Internal view of mall
Reverse of Page
Legend: West Town Mall
1. Site Plan of West Town Mall
2. Area Map of Tennessee showing location of West Town Mall
S-104
<PAGE>
WEST TOWN MALL: THE BORROWER; THE PROPERTY
The Loan. The West Town Mall Loan was originated by Secore and acquired by
MSMC on October 17, 1997. The West Town Mall Loan had an original principal
balance of $76,000,000 and has a Cut-Off Date Principal Balance of
approximately $76,000,000. It is secured by a Mortgage (the "West Town Mall
Mortgage") encumbering a portion of a regional shopping center known as the
West Town Mall, located in Knoxville, Tennessee (the "West Town Mall
Property").
The Borrower. West Town Mall Joint Venture (the "West Town Mall Borrower")
is a Tennessee joint venture whose purpose is limited to owning and operating
the West Town Mall Property, and related activities. The West Town Mall
Borrower owns no assets other than the West Town Mall Property and related
interests. The West Town Mall Borrower is composed of three venture partners:
(a) Simon DeBartolo Group, L.P., a Delaware limited partnership ("SDG"), which
is the operating entity for Simon DeBartolo Group, Inc. (the "Simon DeBartolo
Group REIT") (47.4975%), (b) HRE West Town Associates, L.P., a Georgia limited
partnership ("HRE") (2.4525%), which is owned principally by Hexalon Real
Estate, Inc. ("Hexalon") and by Hexalon's owner, RODAMCO N.V. ("Rodamco") and
(c) the managing venturer, HDM Associates, L.P., a Georgia limited partnership
("HDM") (50.05%). HDM is owned by SDG, as 4% managing general partner and 1%
limited partner and HRE, as 95% general partner.
The Property. The West Town Mall Property is comprised of a portion of the
West Town Mall, an enclosed single-level, 5-anchor, super-regional mall located
in the City of Knoxville, Tennessee. The West Town Mall was originally built in
1972 and remodeled and expanded at various times, most recently in 1994 and
1996. The West Town Mall is anchored by Proffitt's, Dillard's, Sears, Parisian
and JC Penney and contains approximately 1,336,901 total square feet of which
approximately 381,626 square feet is mall store GLA. The portion of the West
Town Mall Property that secures the West Town Mall Loan will consist of 764,369
square feet of mall store, leased anchor and theater GLA upon the completion of
the new 76,580 square foot Regal Cinema which is projected to be completed by
Spring 1999. The West Town Mall Property is situated on approximately 64.13
acres and contains approximately 4,934 parking spaces. In conjunction with the
addition of the Regal Cinema, a parking deck is under construction, which will
expand the current ratio of parking spaces from 4 per 1,000 of total mall GLA
to 5 per 1,000 of total mall GLA. An appraisal completed by Cushman &
Wakefield, Inc. on September 4, 1997, determined a market value of $160,000,000
for the West Town Mall Property.
The table below summarizes the components of total square feet at the West
Town Mall as of February 12, 1997.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA
------------ ----------
<S> <C> <C>
Anchor Stores (Borrower-Owned)
- ----------------------------------------------------------
Proffitt's .............................................. 162,885 12.2%
Parisian ................................................ 143,278 10.7
------- -----
Total Anchor Stores (Borrower-Owned) ................... 306,163 22.9%
Anchor Stores (Anchor-Owned)
- -----------------------------------------------------------
Dillard's ............................................... 243,110 18.2%
Sears ................................................... 182,140 13.6
JC Penney ............................................... 147,282 11.0
------- -----
Total Anchor Stores (Anchor-Owned) ..................... 572,532 42.8%
Mall Store Space ......................................... 381,626 28.6%
Regal Cinema (projected completion: Spring 1999) ......... 76,580 5.7
------- -----
GLA Total .............................................. 1,336,901 100.0%
========= =====
</TABLE>
Location/Access. The West Town Mall is located within the city limits of
Knoxville, Tennessee. The West Town Mall is located on the south side of U.S.
Route 70 (Kingston Pike), between Morrell Road and Montvue Road.
S-105
<PAGE>
Operating History. The following table shows certain information regarding
the operating history of the West Town Mall Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI(1)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues ....................... $ 14,650,000 $ 15,796,000 $ 17,864,747 $19,011,423
Expenses ....................... (4,718,000) (4,301,000) (4,481,027) 4,315,396
------------ ------------ ------------ -----------
Net Operating Income ......... $ 9,932,000 $ 11,495,000 $ 13,383,720 $14,696,027
============ ============ ============ ===========
</TABLE>
- --------
(1) Includes rental income from the Regal Cinema which is currently under
construction.
Occupancy History. The occupancy history for the mall store space of the
West Town Mall Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
OCCUPANCY AS OF: PERCENT LEASED
- ---------------------------- ----------------
<S> <C>
February 12, 1998 ......... 91.9%
December 31, 1996 ......... 88.9%
</TABLE>
Occupancy Costs. The ratio of the average occupancy cost per square foot
(i.e., minimum rent, percentage rent, real estate taxes, and insurance and
common area maintenance charges) to the comparable sales per square foot for
mall store tenants was approximately 15.66% in 1997.
Tenant Sales. The West Town Mall's historical mall store sales and anchor
store sales are summarized in the following table:
<TABLE>
<CAPTION>
ANNUAL 1996 SALES(1) ANNUAL 1997 SALES(1)
------------------------- --------------------------
SQUARE TOTAL TOTAL
FOOTAGE (000S) PER SF (000S) PER SF
------------ ------------ ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Anchor Store Sales
- -------------------------------------------------
Dillard's ...................................... 243,110 $ 32,200 $132 N/A(2) N/A(2)
Sears .......................................... 182,140 26,500 145 N/A(2) N/A(2)
Proffitt's ..................................... 162,885 30,837 189 $ 34,365 $ 211
JC Penney ...................................... 147,282 23,600 160 N/A(2) N/A(2)
Parisian ....................................... 143,278 14,445 101 14,050 98
------- -------- ---- -------- -------
Total Anchor Store ............................ 878,695 $127,582 $145 $ 48,415 $ 158
==== =======
Mall Store Sales
- --------------------------------------------------
Comparable Store ............................... 287,892 $ 93,525 $325 97,276 $ 338
Non-Comparable Store ........................... 63,823 11,055 N/A 18,503 N/A
Vacant ......................................... 29,911 N/A N/A N/A N/A
------- -------- ---- -------- -------
Total Mall Store .............................. 381,626 $104,580 N/A $115,779 N/A
=======
Total Sales--Anchors and Mall Stores ......... 1,260,321 232,162 N/A 164,194 N/A
========= ======== ==== ======== =======
</TABLE>
- --------
(1) Based on the 1/31/98 sales report. Information is based solely upon the
sales figures provided by the West Town Mall Borrower and from data
provided by the tenants.
(2) Stores not required to report sales.
(3) Includes non-comparable, vacant, and non-reporting mall stores.
Mall Stores. The West Town Mall Property tenant base is primarily
comprised of national retailers such as The Limited, The Gap, Banana Republic,
Champs, Brooks Brothers, Eddie Bauer, Ann Taylor, Abercrombie and Fitch and
Warner Bros. Studio. The retail leases usually provide for minimum rents,
percentage rents based on gross sales and the recovery from tenants of a
portion of common area expenses, real estate taxes and other property related
costs.
S-106
<PAGE>
The following table shows certain information regarding the 10 largest
mall store tenants by Annualized Base Rent (percentage rent and tenant
reimbursement obligations are not included):
TEN LARGEST MALL STORE TENANTS BASED ON ANNUALIZED BASE RENT BY PARENT
COMPANY(1)(2)
<TABLE>
<CAPTION>
% OF TOTAL ANNUALIZED
TENANT % OF ANNUALIZED ANNUALIZED BASE RENT
TENANT OR TENANT PARENT COMPANY STORE NAME GLA TOTAL GLA BASE RENT BASE RENT PER SF
- ------------------------------------- ------------------------ ---------- ----------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
The Limited, Inc. ................... Lane Bryant 47,900 6.3% $ 975,228 6.9% $ 20.36
The Limited
Lerner New York
Victoria's Secret
Compagnie Int'l Express
The Gap, Inc. ....................... The Gap 18,663 2.4 460,494 3.2 24.67
Gap Kids
Banana Republic
Woolworth, Corp. .................... Champs Sports 11,255 1.5 314,610 2.2 27.95
Foot Locker
Abercrombie and Fitch, Inc. ......... Abercrombie and Fitch 10,804 1.4 216,080 1.5 20.00
Time/Warner ......................... Warner Bros. Studio 6,503 0.9 162,575 1.1 25.00
Musicland, Inc. ..................... Sam Goody 6,006 0.8 162,162 1.1 27.00
Sports Seasons, Inc. ................ Sports Seasons 5,735 0.8 154,845 1.1 27.00
Ann Taylor, Inc. .................... Ann Taylor 5,796 0.8 144,900 1.0 25.00
Spiegel Inc. ........................ Eddie Bauer 5,960 0.8 143,040 1.0 24.00
Store of Knowledge, Inc. ............ Store of Knowledge 4,647 0.6 139,410 1.0 30.00
------ ----- ----------- ----- --------
Total/Weighted Average
(10 Largest) ..................... 123,269 16.1% 2,873,347 20.2% $ 23.31
Remaining Mall Stores ............... 228,446 29.9 6,383,770 45.0 27.94
Vacant Space ........................ 29,911 3.9 0 0.00 0.00
------- ----- ----------- ------ --------
Total Mall Stores ................. 381,626 49.9% $ 9,257,117 65.2% $ 26.32(2)
Regal Cinema, Inc. .................. Regal Cinema 76,580 10.0 $ 1,263,570 8.9 16.50
Proffitt's Inc. ..................... Parisian 306,163 40.0 3,673,956 25.9 12.00
Proffitt's
Total (including anchor
leases) .......................... 764,369 100.0% $14,194,643 100.0% $ 19.33(2)
======= ===== =========== ====== ===========
</TABLE>
- --------
(1) Based on the February 12, 1998 rent roll.
(2) Does not include vacant and open expiration square footage.
S-107
<PAGE>
Mall Store Lease Expiration. The following table shows scheduled lease
expirations of mall store GLA at the West Town Mall Property as of February 12,
1998, assuming none of the tenants renew their leases, exercise renewal options
or terminate their leases prior to the scheduled expiration date. See "Anchor
Stores" below for anchor lease or REA expirations.
MALL STORE LEASE EXPIRATION SCHEDULE(1)(2)(3)
<TABLE>
<CAPTION>
NUMBER OF EXPIRING PERCENT OF CUMULATIVE
YEAR OF EXPIRATION LEASES SF SF PERCENT OF SF
- ------------------------ ----------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Vacant ................. 0 29,911 7.8 8.1
Month-to-Month ......... 1 1,050 0.3% 0.3%
1998 ................... 8 8,413 2.2 10.3
1999 ................... 9 18,529 4.9 15.2
2000 ................... 7 5,538 1.5 16.6
2001 ................... 5 3,960 1.0 17.7
2002 ................... 10 18,033 4.7 22.4
2003 ................... 8 36,768 9.6 32.0
2004 ................... 24 53,174 13.9 45.9
2005 ................... 27 73,617 19.3 65.2
2006 ................... 16 40,559 10.6 75.9
2007 ................... 9 36,033 9.4 85.3
2008 ................... 9 46,365 12.2 97.5
2009 ................... 2 9,676 2.5 100.0
-- ------ -----
Total ................. 135 381,626 100.0%
=== ======= =====
<CAPTION>
CUMULATIVE
ANNUALIZED PERCENT OF PERCENT OF
ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION BASE RENT PER SF BASE RENT BASE RENT
- ------------------------ ------------ --------------- ------------ -----------
<S> <C> <C> <C> <C>
Vacant ................. 0 0.00 0.0 0.0
Month-to-Month ......... $ 48,510 $ 46.20 0.5% 0.5%
1998 ................... 320,395 38.08 3.5 4.0
1999 ................... 495,544 26.74 5.4 9.3
2000 ................... 202,700 36.60 2.2 11.5
2001 ................... 146,131 36.90 1.6 13.1
2002 ................... 573,021 31.78 6.2 19.3
2003 ................... 579,825 15.77 6.3 25.6
2004 ................... 1,577,601 29.67 17.0 42.6
2005 ................... 2,053,996 27.90 22.2 64.8
2006 ................... 1,137,504 28.05 12.3 77.1
2007 ................... 880,653 24.44 9.5 86.6
2008 ................... 1,009,992 21.78 10.9 97.5
2009 ................... 231,240 23.90 2.5 100.0
---------- -------- -----
Total ................. $9,257,117 $ 26.32(4) 100.0%
========== =========== =====
</TABLE>
- --------
(1) Based on February 12, 1998 rent roll.
(2) Vacant square footage was obtained from the difference between total mall
store square feet of 381,626 and occupied square feet of 351,715.
(3) Excluding vacant.
Anchor Stores. The following table shows certain information for each of
West Town Mall's anchor tenants (and each respective corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING
OF PARENT OPERATING
COMPANY(1) ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) GLA COLLATERAL EXPIRATION(2) EXPIRATION(3) TERMINATION
- ------------------ ---------------------- --------------- --------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proffitt's ....... Proffitt's, Inc. BB+/Ba2 162,885 Collateral 6/30/06(4) 7/15/04(5) N/A
Parisian ......... Proffitt's, Inc. BB+/Ba2 143,278 Collateral 7/13/14(4) 7/13/09(6) N/A
Sears ............ Sears, Roebuck & Co. A-/A2 182,140 Anchor-Owned N/A 7/15/04(7) 7/15/44
Dillard's ........ Dillard's Inc. A+/A2 243,110 Anchor-Owned N/A 11/3/08(8) 7/15/44
JC Penney ........ JC Penney & Co. A/A2 147,282 Anchor-Owned N/A 7/16/09(9) 7/15/44
</TABLE>
- --------
(1) Unless otherwise stated, the parent company, if different from the anchor
store listed, is not a party to or guarantor of the anchor store's lease.
(2) Includes initial term only. The Proffitt's lease has 2 renewal options of
5 years each, the Parisian lease has 6 renewal options of 5 years each.
(3) Based on the latest required term commencement date of the lease. The
actual commencement date and expiration date may be later.
(4) Lease term is defined as 20 years after commencement. Commencement is
defined as 120 days following completion of expansion or date which
Proffitt's opens for business in expanded premises. The date of the lease
is June 30, 1986.
(5) Lease term is defined as 20 years from Lease Commencement. Lease
Commencement is defined as earliest of (a) date tenant actually opened
for business, (b) 14 months after delivery of tenant's building pad and
(c) date mutually agreed upon.
(6) Date of operating covenant expirations is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into account
co-tenancy and other operating requirements.
(7) Operating covenant is for first 15 lease years. See footnote 5.
(8) Operating covenant expires on the earlier of November 3, 2008 and the
date on which any other Department Store's (as defined below) operating
covenant expires.
S-108
<PAGE>
Market Overview and Competition. According to the September 4, 1997,
Cushman & Wakefield, Inc. appraisal, the West Town Mall Property trade area
(estimated by Cushman & Wakefield, MAI to be a 10-mile radius), is estimated to
have as of 1997 309,562 people in approximately 126,506 households with an
average household income of $56,054.
The following table shows an overview of the competition to the West Town
Mall:
<TABLE>
<CAPTION>
APPROXIMATE
DISTANCE FROM
YEAR BUILT/ OWNER/ THE PROPERTY
MALL/RETAIL PROPERTY RENOVATED MANAGEMENT (MILES) MALL STORES/ANCHORS (SF) SIZE
- ---------------------- ------------- ----------------------- -------------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
Subject Property
- ----------------------
West Town Mall 1972/1997 West Town Mall/ Parisian 143,278
Simon DeBartolo Group Proffitt's 162,885
Dillard's 243,110
Sears 182,140
JC Penney 147,282
-------
Total 878,695
Competition
- ----------------------
Oak Ridge Mall 1955/1991 Crown American 11 Proffitt's N/A
Proffitts for Her N/A
JC Penney N/A
Sears N/A
Wal-Mart N/A
-------
Total 392,336
Foothills Mall 1983/1997 CBL & Associates 11.5 Proffitt's N/A
Proffitt's for Her N/A
JC Penney N/A
Sears N/A
-------
Total 296,476
Knoxville Center 1984/1997 Simon DeBartolo 9 Proffitt's N/A
(formerly known as JC Penney N/A
East Town Mall) Sears N/A
Dillard's N/A
Service Merchandise N/A
-------
Total 595,679
</TABLE>
- --------
Source: Cushman & Wakefield, Inc.
Operating Agreement. The Reciprocal Operating Agreement dated May 24,
1995, as amended, by and among the West Town Mall Borrower, Dillard's
Department Stores, Inc. ("Dillard's"), JC Penney Properties, Inc. ("Penney"),
Sears, Roebuck and Co. ("Sears") and West Town Mall Joint Venture (the "West
Town ROA"), contains operating covenants affecting the operation of the anchor
stores in the West Town Mall Property. Under the West Town Mall ROA, Dillard
must operate a department store under the name "Dillard" or as otherwise known
in Tennessee until the earlier of November 3, 2008 and the date on which any
other Department Store's operating covenant expires. Dillard is released from
its operating covenants upon the earliest to occur of: (i) the West Town Mall
Borrower defaults in its operating covenants or is released from them in a
bankruptcy and such release continues for 6 months, (ii) any Department Store
or Profitt's, is released from its operating covenants or any Department Store
rejects such covenants in bankruptcy (if such rejection is not resolved by
injunction within 12 months), (iii) less than 3 Department Stores are connected
by the enclosed mall, (iv) the mall stores contain less than 340,000 square
feet of net floor area and (v) less than 65% of the net floor area of mall
stores is occupied by a traditional tenant mix for first class regional
enclosed malls. Penney must operate a department store under the trade name JC
Penney or such other name used by it in the southeast region of the United
States until July 16, 2009. Penney is released from its
S-109
<PAGE>
operating covenants upon the earliest to occur of: (i) the West Town Mall
Borrower defaults in its operating covenants beyond any cure periods, (ii) the
last expiring, canceled or released operating covenant of the other Department
Store operators, Parisian, Proffitt's or Sears, (iii) if Parisian and at least
2 other Department Stores are not open and operating under the Dillard,
Proffitt's or Sears names or such other names used by a majority of their
respective retail stores in the southeast region of the United States and such
default continues for 12 months and (iv) there are not open and operating mall
tenants occupying at least 75% of the net floor area of developer buildings
(excluding Department Stores) and such default continues for 12 months. The
West Town Mall ROA defines Department Stores as Penney, Dillard's and any other
department store of at least 80,000 square feet operating on a site conveyed to
it by the West Town Mall Borrower. The West Town Mall Borrower is required to
continuously operate the West Town Mall Property as a shopping center for a
term of 15 years after the opening of the West Town Mall Property.
Pursuant to the lease between the West Town Mall Borrower and Proffitt's,
Inc. ("Proffitt's"), Proffitt's must operate as Proffitt's or such other name
it is operating its stores in the region for a period of 15 years after the
opening of the expansion begun in 1994. Proffitt's is released from such
operating covenants if department stores are not being operated at the mall as
(i) Parisian or such other names as the company operates its stores as and (ii)
JC Penney or such other name as the company operates its stores as and such
default continues for 12 months. In addition, if Parisian or Penney has a
shorter operating covenant, the Proffitt's covenant will expire when such
shorter covenant expires.
Pursuant to the lease between the West Town Mall Borrower and Parisian,
Inc. ("Parisian"), Parisian must operate as Parisian or successor name for its
first 15 lease years, and thereafter, if it operates at all, as a retail
department store. Parisian is released from such operating covenants if (i)
less than 2 of Sears, Penney, Dillard and Proffitt's (1 of which must be
Dillard or Proffitt's) are open for business and such default continues for 12
months or (ii) less than 60% of the floor area in the retail stores (excluding
Department Stores) is being regularly and continuously operated or less than
60% of such floor area is occupied by tenants that are required to be open and
operating pursuant to their leases, and in either case such default is not
cured within 6 months.
The lease between the West Town Mall Borrower and Regal Cinemas, Inc.
("Regal"), requires rental payments to commence on the earlier of 270 days
after landlord notifies tenant that possession of the premises is available and
the date tenant opens for business, and terminates 15 years after the date rent
commences. Each of the West Town Mall ROA and the leases with Proffitt's,
Parisian and Regal impose certain obligations on the West Town Mall Borrower
with respect to casualty and condemnation, which may require the West Town Mall
Borrower to restore the West Town Mall Property (and which under the terms of
the West Town Mall Loan will override provisions that could otherwise permit
mortgagee to cause a prepayment rather than restoration). Such provisions may
also permit the anchor store to abate rent or to terminate the related lease or
its operating covenant upon certain events of casualty or condemnation.
Environmental Report. A Phase I site assessment, dated August 20, 1997,
was performed on the West Town Mall Property. The Phase I site assessment did
not reveal any environmental liability that the Depositor believes would have a
material adverse effect on the borrower's business, assets or results of
operations taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loan--Environmental Law
Considerations."
Engineering Report. A Property Condition Report was completed on the West
Town Mall Property on August 28, 1997 by a third party due diligence firm. The
Property Condition Report concluded that the West Town Mall Property was
generally in good physical condition and identified approximately $893,311 for
Replacement Reserves over the next 12 years in deferred maintenance
requirements.
Condemnation Proceedings. A suit by the City of Knoxville is pending for a
condemnation at the West Town Mall Property in order to widen Gleason Road on
the southern border of the West Town Mall Property. In connection with the
origination of the West Town Mall Loan, it was determined, based on the
description in the condemnation suit, that the portion of the West Town Mall
Property which is the subject of the condemnation proceeding consists only of a
small strip of land located along the road which does not contain any
improvements and is immaterial to the property.
Encumbrances. The West Town Mall Borrower has the right to grant
easements, dedications for public purposes, covenants and restrictions provided
(i) no Loan Default exists, (ii) such encumbrances are acceptable to prudent
institutional lenders making non-recourse commercial mortgage loans secured by
first-class regional shopping centers, and (iii) mortgagee is given 30 days
notice thereof. If mortgagee reasonably determines within such 30 day period
that a proposed encumbrance
S-110
<PAGE>
does not meet the foregoing conditions, it may disapprove such encumbrance in
writing; however, it does not have the right to disapprove any encumbrance
which by its terms is subordinate to the West Town Mall Mortgage or terminates
upon foreclosure thereof or delivery of a deed in lieu of foreclosure.
Property Management. The West Town Mall Loan is managed by SDG (the "West
Town Mall Manager"), which is an affiliate of the West Town Mall Borrower,
pursuant to a management agreement dated April 25, 1991 and amended July 1,
1997 (the "West Town Mall Management Agreement"). The West Town Mall Manager
receives an annual management fee of 4% of gross income from the West Town Mall
Property and leasing commissions of (a) for a new lease, 2.5% of (i) the amount
of fixed rent and (ii) the annual common area maintenance charge for the first
lease year multiplied by the number of years in the lease term ((i) and (ii)
hereinafter the "Yield"), (b) for a lease renewal, 1.25% of the Yield and (c)
for lease amendments, $500 for fees in connection with the negotiation and
preparation of the lease, the renewal or the amendment, unless fees are payable
by the tenant. The West Town Mall Manager is also compensated for actual
architectural and engineering fees and expenses, construction fees to be agreed
upon by the parties, supplemental services fees which are to be negotiated, and
in-house attorney's fees and expenses.
The West Town Mall Management Agreement is for a term ending April 30,
2002 with year-to-year extensions until terminated in accordance with its
terms. The West Town Mall Borrower has the right to terminate the West Town
Mall Management Agreement upon 30 days written notice upon (a) the sale of the
West Town Mall Borrower's assets or the transfer of control and ownership
interest in the West Town Mall Borrower to entities other than affiliates of
SDG or (b) a mortgagee of the West Town Mall Borrower taking possession of the
West Town Mall Property, unless otherwise agreed in writing by the West Town
Mall Manager and the mortgagee. Under the terms of the West Town Mall Loan, any
termination or replacement of the West Town Mall Manager or entering into a new
management agreement requires the consent of mortgagee; provided, however that
the West Town Mall Borrower may replace the West Town Mall Manager without such
consent if (i) the new manager is wholly owned by SDG, or (ii) it receives
confirmation from each Rating Agency that such action will not result in a
downgrade, qualification or withdrawal of the initial, or if higher, then
current, ratings of the Certificates. If the West Town Mall Management
Agreement is terminated other than for defaults by the West Town Mall Manager
under such agreement (i) if the West Town Mall Manager was negotiating a lease
and had sent a proposed lease or renewal within the 120 day period prior to the
termination, the West Town Mall Borrower will pay the West Town Mall Manager's
leasing commission fee if such lease or renewal is consummated within 120 days
after termination, and (ii) the West Town Mall Borrower is required to pay to
the West Town Mall Manager a termination fee of $50,000; provided that if a new
owner assumes the West Town Mall Management Agreement or enters into a
substantially similar agreement with the West Town Mall Manager within 2 years
after termination (or such shorter time equal to the remaining term at
termination), then the West Town Mall Manager is required to reimburse the West
Town Mall Borrower a portion of the termination fee.
Pursuant to an Assignment of Management Agreement and Subordination of
Management Fees among the West Town Mall Borrower, the West Town Mall Manager
and mortgagee, the West Town Mall Manager has agreed (i) that the West Town
Mall Management Agreement is subordinate to the West Town Mall Loan and (ii)
that mortgagee has the right to terminate the West Town Mall Manager and
replace it with a manager selected by mortgagee on or after any Loan Default.
The Simon De Bartolo REIT is a partner of the West Town Mall Manager. The
West Town Mall Manager and its affiliates manage over 111 million square feet
(including 164 projects) in 42 U.S. states. The West Town Mall Manager is the
largest retail property manager in the nation.
S-111
<PAGE>
WEST TOWN MALL: THE LOAN.
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $76,000,000
CUT-OFF DATE PRINCIPAL BALANCE: $76,000,000 LOAN TYPE: Interest Only EMD
ORIGINATION DATE: October 17, 1997 INITIAL INTEREST RATE: 6.90%
EFFECTIVE MATURITY DATE: May 1, 2008 REVISED INTEREST RATE: 8.90%
MATURITY DATE: May 1, 2028 AMORTIZATION: Interest only to EMD; thereafter
240 months
EMD BALANCE: $76,000,000
MONTHLY PAYMENT: $437,000.00 (interest only)
until EMD; $584,674.00 on and after EMD
CALL PROTECTION: Lockout to 180 days prior to
EMD
</TABLE>
CERTAIN WEST TOWN MALL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO VALUE ACTUAL
SQUARE FOOT(1) RATIO(2) DSCR(3)
---------------- --------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $99 47.5% 2.71x
At Effective Maturity Date ......... $99 47.5% 2.71x
</TABLE>
- --------
(1) Based on the 764,369 square feet securing the West Town Mall Loan and the
Cut-Off Date Principal Balance or Effective Maturity Date Balance as
applicable.
(2) Based on the Cushman & Wakefield appraised market value and the Cut-Off
Date Principal Balance or Effective Maturity Date Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $14,192,113 and (b) in the
Cut-Off Date Actual DSCR, actual debt service on the West Town Mall Loan
during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
West Town Mall Loan assuming a balance equal to the Effective Maturity
Date Balance, a coupon equal to the West Town Mall Initial Loan Interest
Rate and an amortization term equal to 240 months.
Security. The West Town Mall Loan is a nonrecourse loan, secured only by
the fee estate of the West Town Mall Borrower in the West Town Mall Property
and certain related collateral, including an assignment of leases and rents.
The assignment of leases does not cover leases in the West Town Mall Borrower's
Retail Development Program (short term leasing for commercial retail use of the
common areas of the West Town Mall Property or vacant inline store space, for
which the term and occupancy is typically less than 1 year). Mortgagee is the
insured under a title insurance policy insuring that the West Town Mall
Mortgage constitutes a valid and enforceable first lien on the West Town Mall
Property, subject to certain exceptions set forth therein.
A small portion of the internal driveway around the parking lot at the
West Town Mall Property exists upon land ground leased to the West Town Mall
Borrower, and is not subject to the West Town Mall Mortgage. In the event that
the West Town Mall Borrower were to lose the leasehold interest under the
ground lease, the West Town Mall Borrower would need to redirect such internal
driveway At origination of the West Town Mall Loan, mortgagee obtained an
architect's letter that states that (a) the mall would not lose parking spaces
by redirecting such driveway, (b) such redirecting would not materially disturb
traffic patterns, (c) no material or governmental approvals would be needed to
construct the redirected driveway, and (d) there will be no apparent zoning
violations (including parking ratio) as a result of redirecting the driveway.
Payment Terms. The West Town Mall Loan is an Interest Only EMD Loan.
Interest on the West Town Mall Loan is calculated on a 30/360 Basis. Its Due
Date is the first day of each month with no grace period (provided, that if the
Due Date is not a business day, payment may be made on the next business day).
The Late Payment Fee on any principal or interest payment not paid on its due
date is 3% of such unpaid sum and the Default Rate following a Loan Default is
3% above the then applicable interest rate, in each case subject to applicable
law.
Prepayment. Voluntary prepayment is prohibited under the West Town Mall
Loan prior to the date that is 180 days prior to its Effective Maturity Date.
From and after such date the West Town Mall Loan may be voluntarily prepaid, in
whole or in part, without payment of a Yield Maintenance Charge on any Due
Date.
Principal prepayments on the West Town Mall Loan may occur after the
Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the West Town Mall Loan following a Loan Default. Prepayments
following a Loan Default require payment of a Yield
S-112
<PAGE>
Maintenance Charge equal to the Yield Maintenance Premium, except that both the
Calculated Payments and the Yield Maintenance Treasury Rate are calculated to
the date that is 6 months prior to the Effective Maturity Date. As described
below, prepayments may also be made, without payment of a Yield Maintenance
Charge, from insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 3 years after the origination date and ending on November 1, 2007 (the
date that is 6 months prior to the Effective Maturity Date), the West Town Mall
Loan permits the release of the West Town Mall Property upon delivery to
mortgagee of U.S. Obligations which provide for payments on or prior to, but as
close as possible to, each Due Date up to November 1, 2007 and in amounts equal
to the principal and interest payments due on the West Town Mall Loan on such
dates, and provide for payment on November 1, 2007 of the remaining principal
balance of the West Town Mall Loan. Upon any such Defeasance, at the option of
mortgagee, the West Town Mall Borrower's obligations under the West Town Mall
Loan and the U.S. Obligations securing the West Town Mall Loan will be
transferred to a Successor Borrower. Following such Defeasance, the U.S.
Obligations will be the sole security for the West Town Mall Loan.
Lockbox and Reserves. Pursuant to the West Town Mall Loan, the West Town
Mall Borrower is required to establish a Hard Lockbox at the Effective Maturity
Date, which shall be, upon the mutual agreement of mortgagee and the West Town
Mall Borrower, either a One-Tier Lockbox or a Two-Tier Lockbox. Unless and
until any such event occurs, no Lockbox is required. Amounts in the Lockbox,
after the Effective Maturity Date, are required to be applied in accordance
with the Lockbox Waterfall.
The West Town Mall Borrower is not required to establish any Reserve
Accounts with mortgagee.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The West Town Mall Borrower is prohibited from transferring the West Town
Mall Property without consent of mortgagee, which consent may be conditioned
upon (i) confirmation by each Rating Agency that such transfer will not result
in the downgrade, qualification or withdrawal of the then current ratings of
the Certificates, (ii) delivery of a nonconsolidation opinion, (iii)
modification and assumption of the loan documents executed in connection with
the West Town Mall Loan, (iv) payment of mortgagee's expenses in connection
with such transfer, (v) the proposed transferee's continued compliance with the
covenants contained in the loan documents, and (vi) such other conditions as
mortgagee shall determine in its reasonable discretion. The West Town Mall
Borrower is also prohibited from further encumbering the West Town Mall
Property.
The West Town Mall Loan generally prohibits the transfer of any direct or
indirect interests in the West Town Mall Borrower without (i) prior written
notice to mortgagee and (ii) confirmation by each Rating Agency that such
transfer will not result in the downgrade, qualification or withdrawal of the
then current ratings of the Certificates. However, mortgagee's consent is not
required and (a) (i) SDG shall have the right to assign all or a part of its
interest in the West Town Mall Borrower to HRE or any wholly-owned affiliate of
Rodamco or Hexalon (together with HRE, a "Rodamco Entity"); (ii) HRE shall have
the right to assign its interest in the West Town Mall Borrower to SDG or any
wholly-owned subsidiary of SDG or the Simon DeBartolo Group REIT (together with
SDG, an "SDG Entity"); and (iii) HDM shall have the right to assign all or part
of its interest in the West Town Mall Borrower to a Rodamco Entity or an SDG
Entity; provided that (I) mortgagee receives 30 days written notice, (II) no
Loan Default has occurred and is continuing, and (III) in no event shall the
proposed assignment result in the dissolution, liquidation or unwinding of the
West Town Mall Borrower; and (b) transfers of interests in SDG, Hexalon and
Rodamco shall not be prohibited.
The West Town Mall Borrower is not permitted to incur any additional
indebtedness other than (i) unsecured indebtedness for trade payables incurred
in the ordinary course of owning and operating the West Town Mall Property
which is paid within 60 days of the date incurred and (ii) loans made by SDG or
HRE to the West Town Mall Borrower, the proceeds of which are invested in the
West Town Mall Property (satisfactory evidence of such investment in the West
Town Mall Property shall be provided to mortgagee by the West Town Mall
Borrower); which loans shall (1) together with all other West Town Mall
Approved Partner Loans (hereinafter defined) not exceed, in the aggregate,
$5,000,000, (2) be unsecured, (3) be repaid solely from excess cash flow, (4)
if made by SDG, (I) together with all other West Town Mall Approved Partner
Loans made by SDG, not exceed, in the aggregate, $4,000,000 and (II) require
the consent of mortgagee if such loan, together with all other West Town Mall
Approved Partner Loans made by SDG, will exceed, in the aggregate, $1,000,000,
and (5) if made by HRE, (I) together with all other West Town Mall Approved
Partner Loans made by HRE, not exceed, in the aggregate, $4,000,000 and (II)
require the consent of mortgagee if such loan, together with all other West
Town Mall Approved Partner Loans made by HRE, will exceed, in the aggregate,
$1,000,000 (collectively, "West Town Mall Approved Partner Loans").
Notwithstanding anything to the contrary contained herein, the West Town Mall
Borrower shall be
S-113
<PAGE>
permitted to incur additional loans from SDG or HRE with the prior written
consent of mortgagee. For purposes of the West Town Mall Approved Partner
Loans, the term "SDG" shall include SDG's successors and assigns pursuant to
permitted transfers described above and "HRE" shall include HRE's successors
and assigns pursuant to permitted transfers described above.
Insurance. The West Town Mall Borrower is required to maintain for the
West Town Mall Property (a) comprehensive all risk insurance with coverage in
an amount equal to the greater of the full replacement value of the
improvements and the outstanding principal amount of the West Town Mall Loan,
(b) general liability insurance with a combined limit, including umbrella
coverage, of not less than $10,000,000, (c) statutory workers compensation
insurance, (d) business interruption insurance to cover the loss of at least 12
months income, (e) during any period of construction or repair, builder's all
risk insurance, (f) comprehensive boiler and machinery insurance in amounts
reasonably required by mortgagee, and (g) at mortgagee's reasonable request,
such other insurance in such amounts as are generally required by institutional
lenders for comparable properties.
All insurance policies are required to meet the Insurance Requirements;
except that (i) the claims paying ability of the insurer is required to have a
rating of "AA" or better by at least 2 of the Rating Agencies (1 of which must
be S&P), rather than from all the Rating Agencies and (ii) the insurance policy
is not required to contain an endorsement that acts of tenants or other
occupants will not affect enforceability by mortgagee; however it must contain
such an endorsement as to acts of the West Town Mall Borrower.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the West Town Mall Property or a
condemnation affecting the West Town Mall Property, the West Town Mall Borrower
is obligated, subject to leases over the Lease Approval Threshold and Permitted
Encumbrances, to commence and diligently prosecute to completion the
restoration of the West Town Mall Property. So long as there is no default or
Loan Default, if proceeds for the condemnation are (a) equal to or less than
$250,000, such proceeds shall be disbursed to West Town Mall Borrower without
condition, or (b) greater than $250,000 but less than $500,000, such proceeds
shall be disbursed to West Town Mall Borrower provided that such funds be used
for the restoration or improvement of the West Town Mall Property. If both the
net proceeds of the casualty or condemnation and the costs of restoration are
less than $2,500,000, the West Town Mall Borrower may receive and apply such
proceeds provided that (i) the conditions to restoration set forth in the next
paragraph are met and (ii) the West Town Mall Borrower delivers to mortgagee a
written undertaking to expeditiously commence and complete with due diligence a
restoration of the West Town Mall Property; otherwise such proceeds must be
paid to mortgagee for disbursement as provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the West Town Mall Borrower for restoration so long
as (i) there is no Loan Default, (ii) (a) in the case of casualty, if (I) the
proceeds are less than 50% of the outstanding principal balance of the West
Town Mall Loan or (II) the West Town Mall Borrower is required to restore under
a lease exceeding the Lease Approval Threshold or under a Permitted Encumbrance
and (b) in the case of condemnation, if (I) less than 10% of the land
constituting the West Town Mall Property is taken, and such land is located
along the perimeter or periphery of the West Town Mall Property or (II) the
West Town Mall Borrower is required to restore under a lease exceeding the
Lease Approval Threshold or a Permitted Encumbrance, (iii) leases demising more
than 80% (or a lesser percentage if the West Town Mall Borrower is required to
restore pursuant to a lease exceeding the Lease Approval Threshold or a
Permitted Encumbrance) of rentable space remain in full force and effect during
and after restoration without abatement of rent, and (iv) mortgagee shall be
satisfied that the work of restoration can be completed before the earliest of
(a) the date which is 6 months before the Maturity Date, (b) the date on which
the business interruption insurance expires, or (c) the time required under any
lease or applicable zoning law. If such conditions are not met, the net
proceeds of a casualty or condemnation may at the option of mortgagee either
(i) be applied to prepay the West Town Mall Loan without payment of the Yield
Maintenance Premium or (ii) be disbursed to the West Town Mall Borrower for
restoration. All disbursements of net proceeds of a casualty or condemnation in
excess of $2,500,000 shall be made in accordance with the Disbursement
Procedures; except that the West Town Mall Borrower is not required to provide
architect's certificates but instead is required to provide evidence that all
materials installed and work and labor performed have been paid for in full.
Approval Rights. The West Town Mall Loan provides mortgagee with the
Standard Approval Rights regarding budgets, leases (except that mortgagee does
not have the right to approve lease amendments or terminations) and
alterations. The Lease Approval Threshold is 20,000 square feet and the
Alteration Escrow Threshold is $3,800,000.
The West Town Mall Borrower has the right to request mortgagee's consent
to (i) a reclassification or material variance of its zoning classification and
(ii) a purchase of property in connection with the expansion or operation of
the West Town Mall Property.
S-114
<PAGE>
Certain Approval Procedures. Approval of requests for West Town Mall
Approved Partner Loans or other partner loans, alterations, leases, zoning
reclassifications or expansion purchases will be deemed to have been granted by
mortgagee if (i) mortgagee fails to approve or disapprove the request within 20
business days (or in the case of leases, 15 business days) after approval is
requested, (ii) the West Town Mall Borrower sends a written notice of failure
to respond, and (iii) mortgagee does not approve or disapprove such request
within 10 business days (or in the case of leases, 5 business days) of such
notice.
Financial Reporting. The West Town Mall Borrower is required to furnish
the Financial Statements to mortgagee; except that (i) annual statements may be
certified by the chief financial officer or general partner of the West Town
Mall Borrower rather than audited and may be delivered within 105 days after
each fiscal year, (ii) in lieu of monthly statements the same statements are
required to be delivered quarterly within 45 days after the end of each
calendar quarter, and (iii) Loan DSCR is calculated based on the most recent 4
calendar quarters. The West Town Mall Borrower is also required to deliver
quarterly and annual tenant sales reports received by it and a quarterly net
cash flow schedule.
The insert between pages S-115 and S-116 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: Magellan Apartment Pool
Photographs
1. Rancho Las Brisas, Murietta, Ca
2. Canterbury Hills, Phoenix, AZ (2 pictures)
3. Maryland Meadows, Glendale, AZ
4. El Royale, Rialto, Ca
Reverse of Page
Legend: Magellan Apartment Pool
1. Area Map of Phoenix, AZ showing location of Magellan Apartment
Pool Properties.
2. Area Map of Southern California showing location of Magellan
Apartment Pool Properties.
S-115
<PAGE>
MAGELLAN APARTMENT POOL: THE BORROWER; THE PROPERTY
The Loan. The Magellan Apartment Pool Loan was originated by Secore and
acquired by MSMC on October 24, 1997. The Magellan Apartment Pool Loan had an
original principal balance of $75,500,000 and has a Cut-Off Date Principal
Balance of approximately $75,113,551. It is secured by 11 separate Mortgages
(collectively, the "Magellan Apartment Pool Mortgage") encumbering 11
residential apartment complexes, 6 of which are located in California and 5 of
which are located in Arizona, (each a "Magellan Apartment Pool Property" and
collectively, the "Magellan Apartment Pool Properties"). The proceeds of the
Magellan Apartment Pool Loan were made to refinance existing debt on the
Magellan Apartment Pool.
The Borrower. The borrowers under the Magellan Apartment Pool Loan (each a
"Magellan Apartment Pool Borrower" and collectively, the "Magellan Apartment
Pool Borrowers") are 11 separate Arizona limited partnerships, the purpose of
each of which is limited to owning and operating its respective Magellan Pool
Property and related activities. The Magellan Apartment Pool Borrowers own no
assets other than their respective Magellan Apartment Pool Properties and
related interests. The general partner of each Magellan Apartment Pool Borrower
is a corporation formed for the limited purpose of acting as such a general
partner (in each case, a "Magellan SPC General Partner") and is wholly owned by
Magellan Real Estate Investment Trust, a Maryland real estate investment trust
(the "Magellan REIT"). The sole limited partner of each Magellan Apartment Pool
Borrower is the Magellan REIT.
The Properties. The Magellan Apartment Pool Properties consist of 11
multifamily apartment projects with 159 multifamily apartment buildings with
2,270 residential units. The Magellan Apartment Pool Properties were purchased
by the Magellan Apartment Pool Borrowers in 1994 and 1995. Amenities at the
Magellan Apartment Pool Properties include swimming pools, tennis courts,
exercise rooms/fitness centers, and recreational buildings. All of the
buildings were constructed between 1980 and 1990. As of February 25, 1998, the
average occupancy rate of the Magellan Apartment Pool Properties was
approximately 94%. The aggregate appraised value of the Magellan Apartment Pool
Properties, based on the appraisals performed by CB Commercial Real Estate
Services Group, from September 8, 1997 to September 22, 1997, is $94,775,000,
with the values for the individual Magellan Apartment Pool Properties ranging
from $3,500,000 to $18,300,000.
The table below summarizes certain information relating to the residential
units at the Magellan Apartment Pool Properties:
<TABLE>
<CAPTION>
MORTGAGED METROPOLITAN YEAR NUMBER
PROPERTY AREA COMPLETED OF UNITS 1 BDR 2 BDR
- ----------------------------- ----------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Acacia Park ................. Los Angeles, CA 1989 320 128 192
Bradbury Place(1) ........... Los Angeles, CA 1987 136 34 94
Canterbury Hills ............ Phoenix, AZ 1986 348 140 208
Dobson Springs .............. Phoenix, AZ 1980 120 18 102
El Royale ................... Los Angeles, CA 1990 98 36 62
Harbor Grand ................ Los Angeles, CA 1988 192 171 21
Las Palmas .................. Phoenix, AZ 1982 106 52 54
Maryland Meadows ............ Phoenix, AZ 1987 364 192 172
Northwood Village ........... Phoenix, AZ 1981 202 130 72
Rancho Las Brisas ........... Los Angeles, CA 1989 200 48 152
Sea Bluffs .................. San Diego, CA 1989 184 88 96
--- --- ---
Total/Weighted Average ...... 2,270 1,037 1,225
===== ===== =====
<CAPTION>
AVERAGE AVERAGE
APPROX. MONTHLY ECONOMIC
RENTABLE AVERAGE RENT PER OCCUPANCY
MORTGAGED AREA UNIT SIZE UNIT AS OF AS OF APPRAISED
PROPERTY (SQ. FT.) (SQ. FT.) 2/25/98 2/25/98 VALUE
- ----------------------------- ----------- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Acacia Park ................. 290,880 909 713 96.2% $18,300,000
Bradbury Place(1) ........... 104,380 768 568 94.0 4,750,000
Canterbury Hills ............ 246,052 707 520 94.5 13,750,000
Dobson Springs .............. 102,600 855 573 96.7 5,200,000
El Royale ................... 83,664 854 617 91.9 3,500,000
Harbor Grand ................ 161,640 842 513 88.2 5,600,000
Las Palmas .................. 83,968 792 540 94.8 3,725,000
Maryland Meadows ............ 258,840 711 421 96.3 11,200,000
Northwood Village ........... 141,918 703 464 95.7 6,850,000
Rancho Las Brisas ........... 154,960 775 633 91.1 8,800,000
Sea Bluffs .................. 150,512 818 832 91.2 13,100,000
------- --- --- ---- -----------
Total/Weighted Average ...... 1,779,414 784 572 94.0% $94,775,000
========= === === ==== ===========
</TABLE>
- --------
(1) Bradbury Place Apartments contains 8 studios which are not listed, but
are reflected in the totals.
S-116
<PAGE>
Location/Access. The following table summarizes the location of the
Magellan Apartment Pool Properties based on the number of units:
<TABLE>
<CAPTION>
AVG
NUMBER UNIT RENTABLE AREA AVERAGE MONTHLY
STATE OF UNITS SIZE SQUARE FEET MONTHLY RENT RENT/PER SF TOTAL
- --------------------------------- ---------- ------ --------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Arizona ......................... 1,140 726 827,576 $486 $ 0.67
California ...................... 1,130 842 951,838 658 0.78
----- --- ------- ---- -------
Total/Weighted Average ......... 2,270 784 1,779,414 $572 $ 0.72
===== === ========= ==== =======
</TABLE>
Each of the Magellan Apartment Pool Properties is accessible to at least 1
of the major metropolitan areas of Phoenix, Los Angeles, and San Diego.
Market Overview. 5 of the Magellan Apartment Pool Properties are located
in Maricopa County, Arizona (Maryland Meadows, Canterbury Hills, Dobson
Springs, Las Palmas and Northwood Village), which is located in the central
portion of the state and surrounds the Phoenix Metropolitan Area ("PMA").
According to CB Commercial Real Estate Services Group's appraisals for these
properties, the estimated 1997 population of Maricopa County was 2,694,000. The
population of the PMA has increased every year over the past 4 decades and it
is now the 15th largest metropolitan area in the nation. The economy of
Maricopa County is primarily based on manufacturing, government, regional hub
activities, travel and tourism, service industries and construction.
The remaining Magellan Apartment Pool Properties are located in Southern
California. Sea Bluffs Apartments is located in San Diego County, El Royale
Apartments is located in San Bernardino County, and the remaining 4 properties
(Acacia Park, Bradbury Place, Harbor Grand and Rancho Las Brisas Apartments)
are located in Riverside County. According to CB Commercial Real Estate
Services Group's appraisals, the estimated 1997 population for Riverside County
is 1,380,000 which ranks sixth among California's 58 counties. The estimated
1997 population for San Bernardino County is 1,587,000 which ranks fifth. The
estimated 1997 population for San Diego County is 2,724,000 which ranks second
behind Los Angeles as California's most populated county.
The primary competitors of the Magellan Apartment Pool Properties are
apartment complexes which were generally built during the same time period as,
and provide similar amenities to, the Magellan Apartment Pool Properties.
S-117
<PAGE>
The following table summarizes the Magellan Apartment Pool Properties and
shows competitive market rents:
<TABLE>
<CAPTION>
NUMBER
OCCUPANCY YEAR OF
PROPERTY NAME (AS OF 2/25/98) BUILT TYPE OF UNIT UNITS
- ---------------------------------- ----------------- ------- -------------------- --------
<S> <C> <C> <C> <C>
Acacia Park Apartments ........... 96.2% 1989 1 BR/1 BA 64
1 BR/1 BA 64
2 BR/2 BA 96
2 BR/2 BA 96
--
Total/Weighted Average .......... 320
===
Bradbury Place Apartments ........ 94.0% 1987 1 BR/1 BA 32
1 BR/1 BA 2
2 BR/1 BA 24
2 BR/1.5 BA 24
2 BR/2 BA 8
2 BR/2 BA 7
2 BR/2 BA 31
Studio 8
---
Total/Weighted Average .......... 136
===
Canterbury Hills Apartments ...... 94.5% 1986 1 BR/1 BA 56
1 BR/1 BA 84
2 BR/1 BA 104
2 BR/2 BA 104
---
Total/Weighted Average .......... 348
===
Dobson Springs Apartments ........ 96.7% 1980 1 BR/1 BA 18
2 BR/2 BA 102
---
Total/Weighted Average .......... 120
===
El Royale Apartments ............. 91.9% 1990 1 BR/1 BA 24
1 BR/1 BA 4
1 BR/1 BA + 1 Loft 8
2 BR/2 BA 15
2 BR/2 BA 43
2 BR/2 BA + 1 Loft 4
---
Total/Weighted Average .......... 98
===
Harbor Grand Apartments .......... 88.2% 1988 1 BR/1 BA 48
2 BR/1.5 BA 123
3 BR/2 BA 21
---
Total/Weighted Average .......... 192
===
Las Palmas Apartments ............ 94.8% 1982 1 BR/1 BA 52
2 BR/2 BA 54
---
Total/Weighted Average .......... 106
===
Maryland Meadows Apartments....... 96.3% 1987 1 BR/1 BA 192
2 BR/2 BA 100
2 BR/2 BA 72
---
Total/Weighted Average .......... 364
===
Northwood Village Apartments ..... 95.7% 1981 1 BR/1 BA 80
1 BR/1 BA 50
2 BR/1 BA 40
2 BR/2 BA 32
---
Total/Weighted Average .......... 202
===
Rancho Las Brisas Apartments ..... 91.1% 1989 1 BR/1 BA 48
2 BR/1 BA 76
2 BR/1 BA 76
---
Total/Weighted Average .......... 200
===
Sea Bluffs Apartments ............ 91.2% 1989 1 BR/1 BA 88
1 BR/1 BA 32
2 BR/2 BA 64
---
Total/Weighted Average .......... 184
===
Pool Totals ...................... 94.0% 2,270
=====
<CAPTION>
AVERAGE TOTAL
AVERAGE MONTHLY POSSIBLE COMPETITIVE
SQ. FT. TOTAL RENT MONTHLY MARKET
PROPERTY NAME PER UNIT SQ. FT. PER UNIT(1) RENT RENT(1)
- ---------------------------------- ---------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Acacia Park Apartments ........... 720 46,080 $630 $ 40,320 $565 - $617
720 46,080 645 41,280 $565 - $617
1,035 99,360 740 71,040 $635 - $755
1,035 99,360 760 72,960 $635 - $755
------ ----------
Total/Weighted Average .......... 909 290,880 $705 $ 225,600
======= ==========
Bradbury Place Apartments ........ 643 20,576 $515 $ 16,480 $494 - $520
643 1,286 555 1,110 $494 - $520
812 19,488 575 13,800 $525 - $635
835 20,040 585 14,040 $525 - $635
867 6,936 620 4,960 $525 - $635
849 5,943 605 4,235 $525 - $635
849 26,319 615 19,065 $525 - $635
474 3,792 450 3,600 $494 - $525
------- ----------
Total/Weighted Average .......... 768 104,380 $568 $ 77,290
======= ==========
Canterbury Hills Apartments ...... 470 26,320 $440 $ 24,640 $419 - $587
625 52,500 480 40,320 $419 - $587
780 81,120 550 57,200 $575 - $609
828 86,112 590 61,360 $579 - $777
------- ----------
Total/Weighted Average .......... 707 246,052 $527 $ 183,520
======= ==========
Dobson Springs Apartments ........ 600 10,800 $525 $ 9,450 $510 - $592
900 91,800 600 61,200 $565 - $655
------- ----------
Total/Weighted Average .......... 855 102,600 $589 $ 70,650
======= ==========
El Royale Apartments ............. 653 15,672 $520 $ 12,480 $425 - $550
701 2,804 535 2,140 $425 - $550
844 6,752 621 4,968 $425 - $550
925 13,875 650 9,750 $495 - $715
935 40,205 650 27,950 $495 - $715
1,089 4,356 759 3,036 $495 - $715
------- ----------
Total/Weighted Average .......... 854 83,664 $616 $ 60,324
======= ==========
Harbor Grand Apartments .......... 670 32,160 $435 $ 20,880 $395 - $490
870 107,010 530 65,190 $395 - $490
1,070 22,470 690 14,490 $450 - $590
------- ----------
Total/Weighted Average .......... 842 161,640 $524 $ 100,560
======= ==========
Las Palmas Apartments ............ 649 33,748 $505 $ 26,260 $420 - $565
930 50,220 610 32,940 $530 - $808
------- ----------
Total/Weighted Average .......... 792 83,968 $558 $ 59,200
======= ==========
Maryland Meadows Apartments....... 583 111,936 $395 75,840 $390 - $460
834 83,400 525 52,500 $523 - $560
882 63,504 550 39,600 $523 - $560
------- ----------
Total/Weighted Average .......... 711 258,840 $461 $ 167,940
======= ==========
Northwood Village Apartments ..... 618 49,440 $445 35,600 $440 - $509
619 30,950 445 22,250 $440 - $509
819 32,760 540 21,600 $525 - $590
899 28,768 585 18,720 $550 - $639
------- ----------
Total/Weighted Average .......... 703 141,918 $486 $ 98,170
======= ==========
Rancho Las Brisas Apartments ..... 600 28,800 $570 $ 27,360 $535 - $788
810 61,560 650 49,400 $638 - $795
850 64,600 680 51,680 $638 - $795
------- ----------
Total/Weighted Average .......... 775 154,960 $642 $ 128,440
======= ==========
Sea Bluffs Apartments ............ 730 64,240 $785 $ 69,080 $600 - $915
808 25,856 875 28,000 $690 - $1150
944 60,416 960 61,440 $690 - $1150
------- ----------
Total/Weighted Average .......... 818 501,512 $862 $ 158,520
======= ==========
Pool Totals ...................... 784 1,779,414 $572 $1,330,214
========= ==========
</TABLE>
- --------
(1) According to September, 1997 CB Commercial appraisals.
S-118
<PAGE>
Operating History. The following table shows certain information regarding
the operating history of the Magellan Apartment Pool:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI
------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... N/A $ 14,171,383 $ 14,837,614 $ 15,654,396
Expenses ...................... N/A (6,591,351) (6,661,514) (6,754,383)
------------ ------------ ------------
Net Operating Income ......... N/A $ 7,580,032 $ 8,176,100 $ 8,900,013
============ ============ ============
</TABLE>
Occupancy History. The occupancy history of the Magellan Apartment Pool is
as follows:
<TABLE>
<CAPTION>
OCCUPANCY AS OF: PERCENT LEASED
- -------------------------- ---------------
<S> <C>
February, 1998 .......... 94%
December, 1997 .......... 92%
December, 1996 .......... 92%
December, 1995 .......... N/A
</TABLE>
Environmental Reports. Phase I site assessments dated September 1, 1997
were performed on the Magellan Apartment Pool. The Phase I site assessments did
not reveal any environmental liability that the Depositor believes would have a
material adverse effect on the Magellan Apartment Pool Borrowers' business,
assets or results of operations taken as a whole. Nevertheless, there can be no
assurance that all environmental conditions and risks were identified in such
environmental assessment. See Risk Factors--The Mortgage Loans--Environmental
Law Considerations."
Engineering Reports. Property Condition Reports were completed on the
Magellan Apartment Pool Properties between September 1, 1997 and October 24,
1997 by a third party due diligence firm. The Property Condition Reports
concluded that the Magellan Apartment Pool Properties were generally in good
physical condition and identified approximately $193,420 in deferred
maintenance. At origination of the Magellan Apartment Pool Loan, the Magellan
Apartment Pool Borrowers established a deferred maintenance reserve account and
made an initial deposit of $241,775 to fund the cost of addressing the
identified items.
Property Management. The Magellan Apartment Pool Properties are managed by
Magellan Residential LLC (the "Magellan Apartment Pool Manager"), which is an
affiliate of the Magellan Apartment Pool Borrowers, pursuant to a management
agreement dated as of October 24, 1997 (the "Magellan Management Agreement").
The Magellan Apartment Pool Manager receives a monthly management fee of 4% of
gross rental revenues from the Magellan Apartment Pool Properties for the
calendar month.
The Magellan Management Agreement is for a term ending October 15, 2002
and may be extended at the option of the Magellan Apartment Pool Manager for
successive 1 year terms upon notice to the Magellan Apartment Pool Borrowers.
Either party may terminate the Magellan Management Agreement with or without
cause upon 30 days notice. Under the terms of the Magellan Apartment Pool Loan,
any termination or replacement of the Magellan Apartment Pool Manager or
entering into a new management agreement requires (i) the consent of mortgagee
and (ii) confirmation from each Rating Agency that such action will not result
in a downgrade, qualification or withdrawal of the then current ratings of the
Certificates. Pursuant to a management subordination agreement among the
Magellan Apartment Pool Borrowers, the Magellan Apartment Pool Manager and
mortgagee, the Magellan Apartment Pool Manager has agreed (i) that the Magellan
Management Agreement is subordinate to the Magellan Apartment Pool Loan and
(ii) that mortgagee has the right to terminate the Magellan Apartment Pool
Manager and replace it with a manager selected by mortgagee (a) on or after any
monetary or property related non-monetary default beyond applicable grace
period or upon an acceleration of the Magellan Apartment Pool Loan, (b) if the
Magellan Apartment Pool Manager has engaged in gross negligence, willful
misconduct or fraud, or (c) if the Loan DSCR of the Magellan Apartment Pool
Loan falls below 1.10x unless the Magellan Apartment Pool Borrower deposits
with mortgagee additional collateral in the form of cash or a Letter of Credit
such that the Loan DSCR of 1.10x can be maintained on the loan amount net of
such additional collateral. The additional collateral is required to be
released if the Loan DSCR exceeds 1.10x for 2 successive calendar quarters.
The Magellan Apartment Pool Manager is owned by the Magellan REIT. The
Magellan Apartment Pool Manager has approximately 5,477 units of residential
properties under management.
S-119
<PAGE>
MAGELLAN APARTMENT POOL: THE LOAN.
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $75,500,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $75,113,551 INITIAL INTEREST RATE: 7.28%
ORIGINATION DATE: October 24, 1997 REVISED INTEREST RATE: 9.28%
EFFECTIVE MATURITY DATE: November 1, 2007 AMORTIZATION: 360 months
MATURITY DATE: November 1, 2027 MONTHLY PAYMENT: $516,580.27
EMD BALANCE: $66,308,919 CALL PROTECTION: Lockout to 3 months prior to EMD
</TABLE>
CERTAIN MAGELLAN APARTMENT POOL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN
LOAN PER TO VALUE
UNIT(1) RATIO(2) ACTUAL DSCR(3)
------------- ---------- ---------------
<S> <C> <C> <C>
Cut-Off Date ....................... $33,090 79.3% 1.34x
At Effective Maturity Date ......... $29,211 70.0% 1.53x
</TABLE>
- --------
(1) Based on the 2,270 residential apartment units securing the Magellan
Apartment Pool Loan and the Cut-Off Date Principal Balance or Effective
Maturity Date Balance, as applicable.
(2) Based on the CB Commercial appraised market values and the Cut-Off Date
Principal Balance or Effective Maturity Date Balance, as applicable
(3) Based on (a) Underwritable Cash Flow of $8,332,513 and (b) in the Cut-Off
Date Actual DSCR, actual debt service on the Magellan Apartment Pool Loan
during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
Magellan Apartment Pool Loan assuming a balance equal to the Effective
Maturity Date Balance, a coupon equal to the Magellan Apartment Pool Loan
Initial Interest Rate and an amortization term equal to 360 months.
Security. The Magellan Apartment Pool Loan is a nonrecourse loan, secured
only by the fee estate of the Magellan Apartment Pool Borrowers in the Magellan
Apartment Pool Properties and certain related collateral, including assignments
of leases and rents. Mortgagee is the insured under title insurance policies
issued simultaneously insuring that the Magellan Apartment Pool Mortgage
constitutes a valid and enforceable first lien on the Magellan Apartment Pool
Properties, subject to certain exceptions set forth therein.
Payment Terms. Interest on the Magellan Apartment Pool Loan is calculated
on an Actual/360 Basis. Its Due Date is the first day of each month (provided,
that if the Due Date is not a business day, payment may be made on the next
business day) with a grace period of 5 days. The Late Payment Fee on any
principal or interest payment not paid within 5 days of its due date is 5% of
such unpaid sum and the Default Rate following a Loan Default is 5% above the
Interest Rate, in each case subject to applicable law. See "Risk
Factors--Certain Legal Issues Relating to the Hotel Del Coronado Loan and
Magellan Apartment Pool Loan."
Prepayment. Voluntary prepayment is prohibited under the Magellan
Apartment Pool Loan prior to the date that is 3 months prior to the Effective
Maturity Date. From and after such date the Magellan Apartment Pool Loan may be
voluntarily prepaid, in whole or in part, without payment of a Yield
Maintenance Charge, on any Due Date.
Principal prepayments on the Magellan Apartment Pool Loan may occur after
the Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the Magellan Apartment Pool Loan following a Loan Default.
Prepayments following a Loan Default require payment of the Yield Maintenance
Charge which is equal to the greater of (a) 1% of the portion of the principal
amount being repaid and (b) the Yield Maintenance Premium. As described below,
prepayments may also be made, without payment of a Yield Maintenance Charge,
from insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 2 years after the Closing Date and ending on the Effective Maturity
Date, the Magellan Apartment Pool Loan permits the release of all of the
Magellan Apartment Pool Properties upon delivery to mortgagee of U.S.
Obligations which provide for payments on or prior to, but as close as possible
to, each Due Date up to the Effective Maturity Date and in amounts equal to
125% of the principal and interest payments due on the Magellan Apartment Pool
Loan on such dates, and provide for payment on the Effective
S-120
<PAGE>
Maturity Date of the remaining principal balance of the Magellan Apartment Pool
Loan. Upon any such Defeasance, at the option of mortgagee, the Magellan
Apartment Pool Borrowers' obligations under the Magellan Apartment Pool Loan
and the U.S. Obligations securing the Magellan Apartment Pool Loan will be
transferred to a Successor Borrower. Following such Defeasance, the U.S.
Obligations will be the sole security for the Magellan Apartment Pool Loan.
Subject to the Defeasance Conditions, commencing on the date that is 2
years after the Closing Date and ending on the Effective Maturity Date, the
Magellan Apartment Pool Loan also permits the release of any one of the
Magellan Apartment Pool Properties in exchange for U.S. Obligations which
provide for payments on or prior to, but as close as possible to, each Due Date
up to the Effective Maturity Date and in amounts equal to the principal and
interest payments due on the Magellan Defeased Loan Amount on such dates and
provide for payment on the Effective Maturity Date of the remaining principal
balance of the Magellan Defeased Loan Amount. The "Magellan Defeased Loan
Amount" is an amount equal to 125% of the Allocated Loan Amount of the Magellan
Apartment Pool Property proposed to be released. Upon any such substitution, at
the option of mortgagee, the Magellan Apartment Pool Loan will be divided into
2 Notes, 1 of which (the "Magellan Defeased Note") will be in a principal
amount equal to the Magellan Defeased Loan Amount, and the Magellan Apartment
Pool Borrower's obligations under the Magellan Defeased Note and the U.S.
Obligations securing the Magellan Defeased Note will be transferred to a
Successor Borrower. Following such substitution, the U.S. Obligations will be
the sole security for the Magellan Defeased Note.
Lockbox and Reserves. Pursuant to the Magellan Apartment Pool Loan, the
Magellan Apartment Pool Borrower has established a Soft Lockbox, which is a
Two-Tier Lockbox. The Lockbox Banks for the First Tier Lockbox are the Bank of
America NT & SA with respect to the Magellan Apartment Pool Properties located
in California and Bank One, Arizona, N.A. with respect to the Magellan
Apartment Pool Properties located in Arizona, and for the Second Tier Lockbox
is Bank One Arizona, N.A. Amounts in the Lockbox are required to be applied in
accordance with the Lockbox Waterfall.
The Magellan Apartment Pool Borrower has established (a) a Debt Service
Account, which requires a Monthly Reserve Deposit equal to the Monthly Payment,
(b) a Tax Account, which had an Initial Reserve Deposit of $155,474.07 and
requires a Monthly Reserve Deposit equal to the Monthly Tax Deposit Amount, (c)
an Insurance Account, which had an Initial Reserve Deposit of $20,509.00 and
requires a Monthly Reserve Deposit equal to the Monthly Insurance Deposit
Amount, (d) a Required Repair Account, which had an Initial Reserve Deposit of
$241,775 and (e) a Capital Expenditures Account, which requires a Monthly
Reserve Deposit equal to $48,237.50 per month based upon $255.00 per apartment
at the Magellan Apartment Pool.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Magellan Apartment Pool Borrower is prohibited from transferring the
Magellan Apartment Pool Properties without consent of mortgagee. The Magellan
Apartment Pool Borrower is also prohibited from further encumbering the
Magellan Apartment Pool Properties.
The Magellan Apartment Pool Loan generally prohibits the transfer of any
direct or indirect interest in the Magellan Apartment Pool Borrower without the
prior written consent of mortgagee. If (a) 12.5% or more of direct or indirect
beneficial interests in any Magellan Portfolio Borrower are sold or
transferred, (b) any sale or transfer shall result in a person or a group of
affiliates or family members, as applicable, acquiring more than a 49% direct
or indirect interest in any Magellan Apartment Pool Borrower or Magellan
Apartment Pool SPC General Partner or (c) there is any sale or transfer of any
direct interest in any Magellan Apartment Pool Borrower held by any Magellan
SPC General Partner, the Magellan Apartment Pool Borrower is required to
deliver a satisfactory nonconsolidation opinion in connection with any request
for consent to a transfer. Mortgagee's consent is not required with respect to
transfers of share interests in the Magellan REIT provided that (i) no such
sale or transfer shall result in a person or group of affiliates or family
members, as applicable, acquiring either an ownership interest of 10% or more
or a voting interest of 10% or more, directly or indirectly in the Magellan
REIT, (ii) no such sale or transfer shall result in a requalification,
reduction or withdrawal of any rating initially assigned or to be assigned or
then currently assigned or to be assigned to the Certificates and (iii) the
Magellan Apartment Pool Borrower shall deliver to mortgagee a satisfactory
nonconsolidation opinion.
The Magellan Apartment Pool Borrowers are not permitted to incur any
additional indebtedness other than unsecured indebtedness for trade payables
incurred in the ordinary course of owning and operating the Magellan Apartment
Pool which does not exceed, at any time, $170,000 per Magellan Apartment Pool
Property and is paid within 60 days of the date incurred (unless contested in
good faith in accordance with the requirements of the loan documents, including
the delivery to mortgagee of security in an amount equal to 125% of the
contested amount).
Insurance. The Magellan Apartment Pool Borrowers are required to maintain
for the Magellan Apartment Pool Properties (a) comprehensive all risk insurance
with coverage in an amount at all times sufficient to prevent the related
S-121
<PAGE>
Magellan Apartment Pool Borrower from becoming a co-insurer, but in any event
equal to the greater of the full replacement value of the improvements and the
outstanding principal amount of the Magellan Apartment Pool Loan, (b) general
liability insurance with coverage of $5,000,000 combined single limit, (c)
statutory workers compensation insurance, (d) business interruption insurance
to cover the loss of at least 24 months income, (e) during any period of
construction or repair, builder's "all risk" insurance in an amount not less
than full replacement value, (f) comprehensive boiler and machinery insurance
in amounts reasonably required by mortgagee, (g) flood insurance, if available,
with respect to any Magellan Apartment Pool Property located within a federally
designated "special flood hazard area," in an amount equal to the lesser of the
outstanding principal amount of the Magellan Apartment Pool Loan and the
maximum limit of coverage available under federal law, (h) in the event any of
the Magellan Apartment Pool Properties is located in an area with a high degree
of seismic activity, earthquake insurance in amount, form and substance
satisfactory to mortgagee, and (i) at mortgagee's reasonable request, such
other insurance in such amounts as are generally required by institutional
lenders for comparable properties. See "Risk Factors--Availability of
Earthquake, Flood and Other Insurance."
All insurance policies are required to meet the Insurance Requirements.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of a Magellan Apartment Pool Property or a
condemnation of any portion of a Magellan Apartment Pool Property, the related
Magellan Apartment Pool Borrower is obligated to commence and diligently
prosecute to completion the restoration of such Magellan Apartment Pool
Property. If both the net proceeds of the casualty or condemnation and the
costs of restoration are less than $500,000, the related Magellan Apartment
Pool Borrower may receive and apply such proceeds; otherwise such proceeds must
be paid to mortgagee for disbursement as provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the related Magellan Apartment Pool Borrower for
restoration so long as (i) there is no Loan Default, (ii) in the case of
casualty, less than 25% of the total floor area of the improvements is damaged
or destroyed, and in the case of condemnation, less than 10% of the land
constituting the related Magellan Apartment Pool Property is taken, and such
land is located along the perimeter or periphery of the related Magellan
Apartment Pool Property and no portion of the improvements is the subject of
the condemnation, (iii) mortgagee shall be satisfied that the work of
restoration can be completed before the earliest of (a) the date which is 6
months before the Effective Maturity Date, (b) the date on which the business
interruption insurance expires or (c) the time required under any lease or
applicable zoning law, (iv) the casualty or condemnation does not result in the
loss of access to the Magellan Apartment Pool Property or the related
improvements and (v) the Magellan Apartment Pool Borrower must commence
restoration within 60 days after such casualty or taking. If such conditions
are not met, the net proceeds of a casualty or condemnation may at the option
of mortgagee either (i) be applied to prepay the Magellan Apartment Pool Loan
without payment of a Yield Maintenance Charge or (ii) be disbursed to the
Magellan Apartment Pool Borrower for such purpose as mortgagee shall designate.
All disbursements of net proceeds of a casualty or condemnation shall be made
in accordance with the Disbursement Procedures.
Approval Rights. The Magellan Apartment Pool Loan provides mortgagee with
the Standard Approval Rights regarding budgets and alterations. The Alteration
Escrow Threshold is $350,000 per Magellan Apartment Pool Property. Because the
Magellan Apartment Pool Properties are residential properties, there are no
approval rights with respect to leases.
Financial Reporting. The Magellan Apartment Pool Borrowers are required to
furnish the Financial Statements to mortgagee, except that in lieu of monthly
statements, the same statements are required to be delivered quarterly within
45 days after the end of each calendar quarter.
The insert between pages S-122 and S-123 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: Glenborough Pool
Photographs
1. 700 South Washington Street, Alexandria, VA
2. Woodlands Plaza II, Maryland Heights, MO
3. The Overlook Apartments, Scottsdale, AZ
4. Riverview Office Tower, Bloomington, MN
Reverse of Page
Legend: Glenborough Pool
1. Map of U.S. showing locations of Glenborough Pool Properties
S-122
<PAGE>
GLENBOROUGH POOL: THE BORROWER; THE PROPERTIES
The Loan. The Glenborough Pool Loan was originated by Wells Fargo Bank,
National Association ("Wells Fargo") as of August 26, 1997 and was acquired by
MSMC on December 22, 1997. The Glenborough Pool Loan had a principal balance at
origination of $60,000,000 and has a Cut-Off Date Principal Balance of
approximately $59,465,982. It is secured by 10 Mortgages (collectively, the
"Glenborough Pool Mortgage") encumbering 5 office buildings, 4 industrial/flex
buildings and 1 multifamily apartment building located in 7 states (the
"Glenborough Pool Properties").
The Borrower. Glenborough Fund V, Limited Partnership (the "Glenborough
Pool Borrower") is a Delaware limited partnership whose purpose is limited to
owning and operating the Glenborough Pool Properties and related activities.
The Glenborough Pool Borrower owns no assets other than the Glenborough Pool
Properties and related interests. The sole general partner of the Glenborough
Pool Borrower is GRTV, Inc., a Delaware corporation (the "Glenborough SPC GP"),
formed for the limited purpose of acting as general partner of the Glenborough
Pool Borrower. Glenborough Properties, L.P., a California limited partnership,
is the limited partner of the Glenborough Pool Borrower. Glenborough Pool
Incorporated, a Maryland real estate investment trust (the "Glenborough REIT")
owns approximately 91% of the limited partner of the Glenborough Pool Borrower
and is also the owner of the Glenborough SPC GP.
The Properties. The Glenborough Pool Properties consist of 5 office
buildings constructed between 1973 and 1989, 4 industrial/flex buildings
constructed between 1985 and 1989, and 1 multifamily apartment building
constructed in 1987. The Glenborough Pool Properties contain 1,136,505 square
feet of net rentable area and 224 apartment units, and are located in 7
different states. As of December 31, 1997, the average occupancy rate was 98%,
and 5 of the properties were 100% occupied.
The aggregate appraised value of the Glenborough Pool Properties was
$115,900,000 as of May-June, 1997. As of December 31, 1997, no single
Glenborough Pool Property accounted for more than approximately 20.0% of the
NRA, 23.3% of the total rent or 22.0% of the Adjusted Net Operating Income
(with respect to the 12 months ended December 31, 1997).
The following table summarizes the Glenborough Pool Properties:
S-123
<PAGE>
<TABLE>
<CAPTION>
ALLOCATED YEAR
LOAN TOTAL BUILT/
PROPERTY NAME LOCATION AMOUNT SF/UNITS RENOVATED
- ------------------------ ---------------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
OFFICE
Centerstone Plaza Irvine, CA $14,965,606 157,579 1987
Riverview Office
Tower Bloomington, MN 10,703,877 227,346 1973
Westford Corporate
Center Westford, MA 5,351,938 163,247 1985
700 South Washington Alexandria, VA 5,054,608 56,348 1989
Woodlands Plaza II Maryland Heights, MO 2,775,079 72,966 1983
OFFICE
SUBTOTAL/WEIGHTED AVG. $38,851,108 677,486
FLEX/INDUSTRIAL
Southworth-Milton Milford, MA 4,955,499 146,125 1989
Lakepoint I, II, III Orlando, FL 4,261,729 135,032 1985
Fisher Pierce Weymouth, MA 2,973,299 79,825 1988
Woodlands Tech
Center Maryland Heights, MO 2,378,639 98,037 1986
FLEX/INDUSTRIAL
SUBTOTAL/WEIGHTED AVG. $14,569,166 459,019
MULTIFAMILY
Overlook Apartments Scottsdale, AZ 6,045,708 224 1987
TOTAL/WEIGHTED
AVERAGE $59,465,982 1,136,505
=========== =========
<CAPTION>
ANNUALIZED
BASE RENT
PSF/PER PRIMARY TENANTS
DECEMBER 31, UNIT WITH 15,000 SF
1997 UNDERWRITABLE DECEMBER 31, DECEMBER 31,
PROPERTY NAME OCCUPANCY CASH FLOW 1997 1997
- ------------------------ -------------- --------------- -------------- --------------------------
<S> <C> <C> <C> <C>
OFFICE
Centerstone Plaza 97.2% $ 2,309,048 $ 23.72 St. Joseph's Hospital
(2006)
Great Offices (2003)
Riverview Office
Tower 98.3 2,000,490 11.46 Health Systems
Integration (2001)
Westford Corporate
Center 100.0 861,787 8.73 Cascade
Communication (1999)
Sentry Insurance
(1999)
700 South Washington 100.0 1,052,008 23.33 Sutton Place Gourmet
Market (2004), Ollif
and Berridge (2000)
Woodlands Plaza II 97.6 457,592 16.14 No tenants with more
than 15,000 sf
OFFICE
SUBTOTAL/WEIGHTED AVG. 98.5% $ 6,680,925 $ 15.14
FLEX/INDUSTRIAL
Southworth-Milton 100.0 838,359 6.72 Southworth-Milton,
Inc. (1999)
Lakepoint I, II, III 93.8 764,302 9.50 Flying Food Group
(1998)
Attorney's Title
Insurance (1998)
Fisher Pierce 100.0 528,414 7.45 Pacific Scientific-Fisher
Pierce (2002)
Woodlands Tech
Center 100.0 457,290 8.40 Teleport
Communications (2006)
FLEX/INDUSTRIAL
SUBTOTAL/WEIGHTED AVG. 98.2% 2,588,365 8.02
MULTIFAMILY
Overlook Apartments 97.0 984,734 7,282 Average unit size is
839 SF
TOTAL/WEIGHTED
AVERAGE $10,254,024
</TABLE>
S-124
<PAGE>
Location. The following table summarizes the location of the Glenborough
Pool Properties based on NRA:
<TABLE>
<CAPTION>
NO. OF OFFICE INDUSTRIAL/ MULTIFAMILY TOTAL PERCENT OF PERCENT OF
STATE PROPERTIES NRA FLEX NRA NRA NRA TOTAL NRA NRA LEASED
- -------------------------------- ------------ --------- ------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Massachusetts .................. 3 163,247 225,950 0 389,197 29.4% 100%
Minnesota ...................... 1 227,346 0 0 227,346 17.2 98
Arizona ........................ 1 0 0 188,008 188,008 14.2 97
Missouri ....................... 2 72,966 98,037 0 171,003 12.9 99
California ..................... 1 157,579 0 0 157,579 11.9 97
Florida ........................ 1 0 135,032 0 135,032 10.2 94
Virginia ....................... 1 56,348 0 0 56,348 4.3 100
- ------- ------- ------- ------- ----- ---
Total/Weighted Average ......... 10 677,486 459,019 188,008 1,324,513 100.0% 98%
== ======= ======= ======= ========= ===== ===
</TABLE>
Operating History. The following table shows certain information regarding
the operating history of the Glenborough Pool Properties:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995(1) 1996 1997 NOI
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 11,784,447 $ 16,719,689 $ 18,803,666 $ 18,302,722
Expenses ...................... (3,922,853) (6,021,628) (6,856,654) (6,697,294)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 7,861,594 $ 10,698,061 $ 11,947,012 $ 11,605,428
============ ============ ============ ============
</TABLE>
- --------
(1) In 1995, Riverview Tower was vacant and being renovated. 1995 financial
statements for the Southworth Milton and Fisher-Pierce properties were
not available.
Occupancy History. The following table shows certain historical
information regarding average occupancy of the Glenborough Pool Properties:
<TABLE>
<CAPTION>
OCCUPANCY AS OF: PERCENT LEASED
- -------------------------- ---------------
<S> <C>
December, 1997 .......... 98%
December, 1996 .......... 95%
</TABLE>
Description of Tenants. Major tenants include St. Joseph's Hospital,
Health Systems Inc., Sentry Insurance and Southworth-Milton, each of which
contributed over 6.9% of the Annualized Base Rent of the Glenborough Pool
Portfolio. St. Joseph's Hospital, which occupies 2.9% of the total GLA of the
Glenborough Pool Properties, accounts for approximately 8.0% of the Annualized
Base Rent, which represents the largest contribution. The 10 largest tenants
occupy 52.3% of the total GLA, and account for $6,843,980, or 50.4% of the
total Annualized Base Rent, as of December 31, 1997. The Southworth-Milton
Property and the Fisher-Pierce Property are single tenant properties, and the
Westford Corporate Property is comprised of 2 buildings, each of which has a
single tenant.
S-125
<PAGE>
The following table shows certain information regarding the 10 largest
tenants of the Glenborough Pool Properties:
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT
<TABLE>
<CAPTION>
TENANT % OF TOTAL
TENANT NAME PROPERTY GLA GLA
- -------------------------------- ----------------------- ------------ ------------
<S> <C> <C> <C>
St. Joseph's Hospital .......... Centerstone 33,432 2.94%
Riverview Office
Health Systems Integration ..... Tower 87,311 7.68
Southworth-Milton, Inc. ........ Southworth-Milton 146,125 12.86
Sentry Insurance ............... Westford Corporate 81,632 7.18
Pacific Scientific-Fisher
Pierce ........................ Fisher Pierce 79,825 7.02
700 South
Sutton Place Gourmet ........... Washington 21,222 1.87
Cascade Communications ......... Westford Corporate 81,615 7.18
700 South
Oliff & Berridge ............... Washington 20,861 1.84
Attorney's Title Insurance ..... Lake Point I, II, III 27,360 2.41
Great Offices, Inc. ............ Centerstone 15,265 1.34
------- ------
Subtotal/Weighted Average 594,648 52.32%
Remaining Tenants .............. 523,372 46.05%
Vacant Tenants ................. 18,485 1.63%
------- ------
Total/Weighted Average ........ 1,136,505 100.0%
========= ======
<CAPTION>
% OF TOTAL
ANNUALIZED ANNUALIZED ANNUALIZED BASE RENT
TENANT NAME BASE RENT BASE RENT PER SF
- -------------------------------- -------------------- ------------ ---------------------
<S> <C> <C> <C>
St. Joseph's Hospital .......... $ 1,086,012 7.99% $ 32.48
Health Systems Integration ..... 1,003,628 7.38 11.49
Southworth-Milton, Inc. ........ 981,733 7.22 6.72
Sentry Insurance ............... 938,768 6.91 11.50
Pacific Scientific-Fisher
Pierce ........................ 594,696 4.38 7.45
Sutton Place Gourmet ........... 570,396 4.20 26.88
Cascade Communications ......... 486,535 3.58 5.96
Oliff & Berridge ............... 469,808 3.46 22.52
Attorney's Title Insurance ..... 398,067 2.93 14.55
Great Offices, Inc. ............ 314,337 2.31 20.59
------------- ------ --------
Subtotal/Weighted Average $ 6,843,980 50.35% $ 11.51
Remaining Tenants .............. 6,747,591 49.65 12.89
Vacant Tenants ................. 0 0.00 0.00
------------- ------ --------
Total/Weighted Average ........ $ 13,591,570(1) 100.00% $ 12.16(2)
=============== ====== ===========
</TABLE>
- --------
(1) Excludes Overlook Apartments rental income. Total potential rental income
for apartments is $1,729,988.
(2) Excludes vacant space.
Lease Expirations. The following table shows scheduled lease expirations
of the Glenborough Pool Properties as of December 31, 1997 assuming none of the
tenants renews its lease, exercises renewal options or terminates its lease
prior to the scheduled expiration date. Over 38% of the leased square footage
that expires in 1999 is currently leased and occupied by Southworth Milton,
Inc.
LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
LEASES EXPIRING PERCENT OF PERCENT OF
YEAR OF EXPIRATION(1) EXPIRING SF SF SF
- -------------------------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Vacant ......................... 5 18,485 1.63% 1.63%
Month-to-Month ................. 4 24,398 2.15 3.77%
Not Paying Rent/Free
Rent Period ................... 4 6,971 0.61 4.39%
1998 ........................... 23 103,429 9.10 13.49%
1999(2) ........................ 27 381,215 33.54 47.03%
2000 ........................... 30 115,363 10.15 57.18%
2001 ........................... 17 167,710 14.76 71.94%
2002 ........................... 15 155,160 13.65 85.59%
2003 ........................... 3 30,792 2.71 88.30%
2004 ........................... 4 33,277 2.93 91.23%
2005 ........................... 3 4,125 0.36 91.59%
2006 ........................... 4 61,945 5.45 97.04%
2007 ........................... 2 33,635 2.96 100.00%
-- ------- ------
Total/Weighted Average ......... 141 1,136,505 100.00%
=== ========= ======
<CAPTION>
CUMULATIVE
ANNUALIZED PERCENT OF PERCENT OF
ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION(1) BASE RENT PER SF BASE RENT BASE RENT
- -------------------------------- -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Vacant ......................... $ 0 $ 0 0.00% 0.00%
Month-to-Month ................. 295,511 12.11 2.17 2.17%
Not Paying Rent/Free
Rent Period ................... 0 0 0.00 2.17%
1998 ........................... 1,297,155 12.54 9.54 11.72%
1999(2) ........................ 3,450,993 9.05 25.39 37.11%
2000 ........................... 1,694,188 14.69 12.46 49.57%
2001 ........................... 1,902,209 11.34 14.00 63.57%
2002 ........................... 1,526,638 9.84 11.23 74.80%
2003 ........................... 666,105 21.63 4.90 79.70%
2004 ........................... 755,847 22.71 5.56 85.26%
2005 ........................... 73,648 17.85 0.54 85.81%
2006 ........................... 1,351,667 21.82 9.94 95.75%
2007 ........................... 577,604 17.17 4.25 100.00%
----------- -------- ------
Total/Weighted Average ......... $13,591,570 $ 12.16(3) 100.00%
=========== =========== ======
</TABLE>
- --------
(1) Based on December 31, 1997 rent roll.
(2) Includes expiration of Southworth-Milton Inc. lease, with 146,125 square
feet.
(3) Excludes vacant space and tenants not currently paying rent (i.e., in a
free rent period).
S-126
<PAGE>
Right to Purchase Southworth Property. The Southworth Property is 100%
leased to a single tenant. This lease provides the tenant thereunder (the
"Southworth Tenant") with the right, at various times throughout the term of
the Southworth Property lease and the extensions thereof, to purchase the
Southworth Property for the fair market value thereof. In an agreement entered
into by and among the Southworth Tenant, the Glenborough Pool Borrower and
Wells Fargo, it has been agreed that the Southworth Tenant will not exercise
its option to purchase the Southworth Property prior to September 12, 2000 and
that upon tender by the Southworth Tenant to mortgagee of a sum equal to the
greater of (i) the fair market value of the Southworth Property, as determined
in accordance with the terms of the Southworth Property lease and (ii) 125% of
the Glenborough Loan amount initially allocated to the Southworth Property, the
Glenborough Pool Borrower will convey the Southworth Property to the Southworth
Tenant and the Southworth Property will be released from the lien of the
Glenborough Pool Mortgage. The Glenborough Pool Borrower shall be required to
satisfy all other conditions to obtaining a Glenborough Pool Mortgage Release
as described in paragraph (a) under "--Glenborough Pool Mortgage Release"
below.
Environmental Reports. Environmental Site Assessments have been performed
on the Glenborough Pool Properties within the past 2 years. The Environmental
Site Assessments did not reveal any environmental liability that the Depositor
believes would have a material adverse effect on the borrower's business,
assets or results of operations taken as a whole. Nevertheless, there can be no
assurance that all environmental conditions and risks were identified in such
environmental assessments. See "Risk Factors--The Mortgage Loans--Environmental
Law Considerations."
Engineering Reports. Property Condition Reports were completed on the
Glenborough Pool Properties within the past 2 years by a third party due
diligence firm. The Property Condition Reports concluded that the Glenborough
Pool Properties were generally in good physical condition and identified
approximately between $838,060 and $950,060 in deferred maintenance
requirements. At origination of the loan, the Glenborough Pool Borrower agreed
to complete the work identified as deferred maintenance in the Property
Condition Reports on or before September 1, 1998 which obligation has been
guaranteed by the Glenborough REIT.
Property Management. The Glenborough Pool Properties are managed by the
Glenborough REIT (in such capacity, the "Glenborough Manager"), an affiliate of
the Glenborough Pool Borrower, pursuant to a management agreement dated August
26, 1997 (the "Glenborough Management Agreement"). Under the terms of the
Glenborough Management Agreement, the Glenborough Pool Manager is entitled to
(a) monthly management fees ranging from 3% to 5% (depending on the Glenborough
Pool Property) of gross revenues of the Glenborough Pool Properties for each
month, (b) costs of gross salaries and wages or pro rata shares thereof,
payroll taxes, insurance, workers' compensation, travel, office expenses, and
other fringe benefits of those field property management and maintenance
personnel (and independent contractors) of the Glenborough Pool Manager engaged
with respect to the Glenborough Pool Properties and personnel who provide
services customarily provided at the Glenborough Pool Properties, (c) an
administrative services fee to reimburse the Glenborough Pool Manager for a
reasonable and equitable share of its general overhead expenses and salary and
fringe benefits of all other personnel the services of whom are reasonably
related to the performance of the services enumerated in the Glenborough
Management Agreement and (d) all third party costs advanced by the Glenborough
Pool Manager for the Glenborough Pool Borrower pursuant to the Glenborough
Management Agreement.
The term of the Glenborough Management Agreement continues until the
winding up, termination or dissolution of the Glenborough Pool Borrower unless
terminated by the Glenborough Pool Borrower due to "cause," which includes
covenant defaults under such agreement, certain acts of misfeasance and
cessation of the Glenborough Pool Manager to do business or, if required by
law, to qualify to do business. The Glenborough Pool Manager has the right to
terminate the Glenborough Management Agreement if the Glenborough Pool Borrower
fails to pay the Glenborough Pool Manager any amount provided for in the
Glenborough Management Agreement or to perform any material obligation under
such agreement. If the management agreement is terminated, the Glenborough Pool
Borrower is required to use commercially reasonable efforts to enter into a
replacement management agreement with a nationally recognized management
organization acceptable to mortgagee.
Pursuant to a management subordination agreement among the Glenborough
Pool Borrower, the Glenborough Pool Manager, and mortgagee, the Glenborough
Pool Manager has agreed (i) that the Glenborough Management Agreement is
subordinate to the Glenborough Pool Loan and (ii) that mortgagee shall have the
right to terminate the Glenborough Management Agreement (a) upon, or at any
time after, the occurrence of a Loan Default or a continuing default by the
Glenborough Pool Manager under the Glenborough Management Agreement, (b) upon,
or at any time after there occurs, a 49% or more change in control of the
ownership of the Glenborough Pool Manager, (c) at any time for cause
(including, but not limited to, the Glenborough Pool Manager's gross
negligence, willful misconduct or fraud) and (d) at such time as
S-127
<PAGE>
the Loan DSCR shall be equal to 1.50x, unless the Glenborough Pool Borrower
deposits with mortgagee additional collateral in the form of a Glenborough
Letter of Credit (as defined below) such that a Loan DSCR of 1.50x can be
maintained on the loan amount net of such additional collateral. Additional
collateral is required to be released if the Loan DSCR exceeds 1.50x without
reference to any Glenborough Letter of Credit for 4 consecutive calendar
quarters. A "Glenborough Letter of Credit" is a freely transferable,
irrevocable standby letter of credit issued by a federally-insured financial
institution and in form and content acceptable to mortgagee in mortgagee's sole
and absolute discretion.
S-128
<PAGE>
<TABLE>
<S> <C>
GLENBOROUGH POOL: THE LOAN
ORIGINAL PRINCIPAL BALANCE: $60,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $59,465,982 INITIAL INTEREST RATE: 7.50%
ORIGINATION DATE: August 26, 1997 REVISED INTEREST RATE: 9.50%
EFFECTIVE MATURITY DATE: October 1, 2007 AMORTIZATION: 300 months
MATURITY DATE: October 1, 2022 MONTHLY PAYMENT: $443,394.71
EMD BALANCE: $48,701,064 CALL PROTECTION: Lockout to September 11, 2000;
Yield Maintenance Charge from September 12,
2000 to EMD.
</TABLE>
CERTAIN GLENBOROUGH POOL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO ACTUAL
SQUARE FOOT(1) VALUE RATIO(2) DSCR(3)
---------------- ---------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $52 51.3% 1.93x
At Effective Maturity Date ......... $43 42.0% 2.37x
</TABLE>
- --------
(1) Based on 1,136,505 square feet and 224 units securing the Glenborough
Pool Loan and the Cut-Off Date Principal Balance or Effective Maturity
Date Balance, as applicable.
(2) Based on the appraised market values and the Cut-Off Date Principal
Balance or Effective Maturity Date Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $10,254,023 and (b) in the
Cut-Off Date Actual DSCR, actual debt service on the Glenborough Pool
Loan during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
Glenborough Pool Loan assuming a balance equal to the Effective Maturity
Date Balance, a coupon equal to the Glenborough Pool Loan Initial
Interest Rate and an amortization term equal to 300 months.
Security. The Glenborough Pool Loan is a non-recourse loan, secured only
by the fee estate of the Glenborough Pool Borrower in the Glenborough Pool
Properties and certain other collateral relating thereto, including assignments
of leases and rents. Mortgagee is the named insured under title insurance
policies insuring that each of the Glenborough Pool Mortgages constitute a
valid and enforceable first lien on its related Glenborough Pool Property,
subject to certain exceptions set forth therein.
Payment Terms. The Glenborough Pool Loan is an EMD Loan. Interest on the
Glenborough Pool Loan is calculated on an Actual/360 Basis. Its Due Date is the
first day of each month with no grace period (provided, that if the Due Date is
not a business day, payment may be made on the next business day). The Late
Payment Fee on any principal or interest payment not paid on its due date is 5%
of the late amount and the Default Rate following a Loan Default is equal to
the greater of (i) the interest rate plus 5% and (ii) the base rate on
corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal plus 1%.
Prepayment. Voluntary prepayment is prohibited under the Glenborough Pool
Loan prior to September 12, 2000. The Yield Maintenance Charge Period begins on
September 12, 2000 and ends on October 1, 2007. From and after such date the
Glenborough Pool Loan may be voluntarily prepaid, in whole or in part, on any
date (whether or not a Due Date) without payment of a Yield Maintenance Charge.
Principal prepayments on the Glenborough Pool Loan may occur after the
Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the Glenborough Pool Loan following a Loan Default. Prepayments
following a Loan Default require payment of the Yield Maintenance Charge.
The Yield Maintenance Charge for the Glenborough Pool Loan is equal to the
greater of (a) 1% of the amount being prepaid and (b) the product of (i) a
fraction whose numerator is an amount equal to the portion of the principal
balance of the Glenborough Pool Loan being prepaid and whose denominator is the
entire outstanding principal balance of the Glenborough Pool Loan multiplied by
(ii) the remainder obtained by subtracting (x) an amount equal to the entire
outstanding principal balance of the Glenborough Pool Loan from (y) the present
value as of the date of such prepayment of the remaining scheduled payments of
principal and interest on the Glenborough Pool Loan (including the payment of
S-129
<PAGE>
principal on the Effective Maturity Date) determined by discounting such
payments at the Glenborough Discount Rate. The "Glenborough Discount Rate"
shall mean the rate which, when compounded monthly, is equivalent to the
Glenborough Yield Maintenance Treasury Rate. The term "Glenborough Yield
Maintenance Treasury Rate" means the yield, calculated by linear interpolation
of the yields of noncallable United States Treasury obligations with terms (one
longer and one shorter) most nearly approximating the period from the date of
prepayment to the Effective Maturity Date, as determined by mortgagee on the
basis of Federal Reserve Statistical Release H.15 Selected Interest Rates under
the heading U.S. Governmental Security/Treasury Constant Maturities or other
recognized source of financial market information selected by mortgagee for the
week prior to the date of prepayment.
As described below, prepayments may also be made, without payment of a
Yield Maintenance Charge, from insurance or condemnation proceeds. In addition,
a Yield Maintenance Charge may not be required to be paid in connection with
certain Glenborough Pool Mortgage Releases (as defined below).
Glenborough Pool Mortgage Releases. The Glenborough Pool Borrower may
obtain a release of one or more Glenborough Pool Properties from the lien of
the Glenborough Pool Mortgage (a "Glenborough Pool Mortgage Release") in the
following circumstances:
(a) The Glenborough Pool Borrower may, following the expiration of the
Lock-Out Period, obtain the release of any Glenborough Pool Property (but in no
event more than 3 Glenborough Pool Properties in the aggregate taking into
account both all Glenborough Pool Properties released pursuant to this
paragraph (a) and/or all Glenborough Pool Properties released pursuant to
paragraph (c) below) from the lien of the Glenborough Pool Mortgage upon, among
others, the following terms and conditions:
(i) The Glenborough Pool Borrower shall give at least 30 days
notice, including a certification stating that the Loan DSCR, as of the
last day of the most recent month, for the Glenborough Pool Properties
remaining after such release is not less than the greater of (i) the Loan
DSCR at origination and (ii) the Loan DSCR, as of the same date, for all
of the Glenborough Pool Properties immediately prior to such release;
(ii) The Glenborough Pool Borrower shall have made a principal
prepayment equal to at least 125% of the Allocated Loan Amount for the
applicable Glenborough Pool Property;
(iii) The Glenborough Pool Borrower shall have paid the Yield
Maintenance Charge;
(iv) No Loan Default shall then exist; and
(v) The Glenborough Pool Borrower shall pay mortgagee's reasonable
costs and expenses in connection therewith.
(b) With respect to any Glenborough Pool Property (i) which has had 50% or
more of the improvements thereon taken in condemnation or destroyed by a
casualty, and the Glenborough Pool Borrower is unable to, or has elected not
to, restore or repair such Glenborough Pool Property or (ii) which has had less
than 50% of the improvements located thereon taken in condemnation or destroyed
in a casualty loss, and the Glenborough Pool Borrower, after exercising good
faith, diligent efforts has reasonably determined that it will be unable to
comply with the requirements for restoration or repair set forth in the
Glenborough Pool Mortgage, the Glenborough Pool Borrower must prepay the
Glenborough Pool Loan in an amount equal to all casualty insurance proceeds or
condemnation proceeds received by the Glenborough Pool Borrower with respect to
such casualty or condemnation (the "Glenborough Pool Proceeds"), and no Yield
Maintenance Charge is payable in connection therewith. The Glenborough Pool
Borrower may obtain a release of such Glenborough Pool Property provided that,
among other things, such Glenborough Pool Proceeds are at least equal to 125%
of the Allocated Loan Amount for such Glenborough Pool Property or the
Glenborough Pool Borrower pays an additional amount so that a total of 125% of
the Allocated Loan Amount is paid to mortgagee. If the Glenborough Pool
Proceeds exceed 125% of such Allocated Loan Amount, the Allocated Loan Amounts
of each remaining Glenborough Pool Property shall be decreased by an amount
equal to the product of (i) the excess proceeds, and (ii) a fraction, the
numerator of which is the Allocated Loan Amount for such Glenborough Pool
Property and the denominator of which is the aggregate of all Allocated Loan
Amounts of all remaining Glenborough Pool Properties.
(c) The Glenborough Pool Borrower may, following the occurrence of a Loan
Default which is attributable to a Glenborough Pool Property being in violation
of a relevant environmental law, obtain a release of any such Glenborough Pool
Property (but in no event more than 3 Glenborough Pool Properties in the
aggregate taking into account all Glenborough Pool Properties released pursuant
to this paragraph (c) and/or all Glenborough Pool Properties released pursuant
to paragraph (a) above) from the lien of the Glenborough Pool Mortgage upon and
subject to, among others, the following terms and conditions:
S-130
<PAGE>
(i) The Glenborough Pool Borrower shall give at least 30 days prior
notice;
(ii) The event which resulted in the applicable Glenborough Pool Property
being in violation of the environmental law must not have resulted from
actions or omissions subsequent to the origination date by the Glenborough
Pool Borrower or an affiliate thereof;
(iii) The Glenborough Pool Borrower shall have made a principal prepayment
equal to the greater of (i) the Allocated Loan Amount for the applicable
Glenborough Pool Property and (ii) the net sales proceeds received by the
Glenborough Pool Borrower from the sale of such Glenborough Pool Property in
the event that such Glenborough Pool Property is sold by the Glenborough
Pool Borrower at the time of the release or at any time within 6 months
following such release; provided, however, that if the event or occurrence
which resulted in the Glenborough Pool Property being in violation of the
environmental law was known to the Glenborough Pool Borrower or any
affiliate thereof on or prior to the origination date, the amount of the
principal prepayment due shall be the greater of (a) such net sale proceeds
and (b) 125% of the Allocated Loan Amount;
(iv) To the extent that the Glenborough Pool Property is in violation of a
relevant environmental law due to the fault of the Glenborough Pool
Borrower, the Glenborough Pool Borrower shall have paid the Yield
Maintenance Charge with respect to the prepayment provided for in
subparagraph (iii) above; and
(v) The Glenborough Pool Borrower shall pay mortgagee's reasonable costs
and expenses.
Lockbox and Reserves. Pursuant to the terms of the Glenborough Pool Loan,
the Glenborough Pool Borrower is required to establish a Hard Lockbox (which
will be a One-Tier Lockbox) upon the following events: (i) following the
occurrence of a Loan Default, (ii) within 3 months of the Effective Maturity
Date or (iii) the Loan DSCR falls to a level of 1.50x or less. Following the
occurrence of such an event, the Glenborough Pool Borrower is required to (i)
establish a Lockbox with a Lockbox Bank acceptable to mortgagee, (ii) enter
into a lockbox agreement acceptable to mortgagee in its sole and absolute
discretion, and (iii) direct all tenants to pay their rents directly into the
Lockbox, and upon receipt by the Glenborough Pool Borrower of operating revenue
from the Glenborough Pool Properties, to deposit same directly into the
Lockbox.
Following the establishment of a Lockbox as a result of a decline in Loan
DSCR, the Glenborough Pool Borrower shall be permitted to use amounts in the
Lockbox for, and in the following order of priority: (i) debt service, (ii)
expenses, (iii) tenant improvement costs, (iv) third-party leasing expenses,
(v) costs of capital improvements and funding of a capital improvement reserve
and (vi) funding of other approved costs, with any funds remaining in the
Lockbox following the payment of the foregoing to be disbursed to the
Glenborough Pool Borrower. Following the occurrence of a Loan Default, amounts
in the Lockbox shall, after being disbursed for expenses pre-approved by
mortgagee, be applied to interest, principal and other amounts owing by the
Glenborough Pool Borrower under the Glenborough Pool Loan documents in such
order and manner as mortgagee may elect. Following the occurrence of the
Effective Maturity Date, amounts in the Lockbox are required to be applied in
accordance with the Lockbox Waterfall.
If the Glenborough Pool Borrower is otherwise required to establish the
Lockbox as a result of a failure of the Loan DSCR to exceed 1.50x, the
Glenborough Pool Borrower may avoid being required to establish, and to
thereafter utilize, the Lockbox by depositing with mortgagee additional
collateral in the form of a Glenborough Letter of Credit such that a Loan DSCR
in excess of 1.50x can be maintained on the loan amount net of such additional
collateral. Such Glenborough Letter of Credit shall be released to the
Glenborough Pool Borrower if the Loan DSCR exceeds 1.50x without reference to
any Glenborough Letter of Credit for 4 consecutive calendar quarters. Moreover,
in the event that the Glenborough Pool Borrower is required to establish and
utilize the Lockbox as a result of a decline in Loan DSCR, the Glenborough Pool
Borrower may thereafter have the requirement that it utilize the Lockbox
suspended if, for any period of 2 consecutive calendar quarters, the Loan DSCR
exceeds 1.50x.
A Tax Account and an Insurance Account are only required following the
occurrence of a Loan Default or the Effective Maturity Date. A Capital
Expenditures Account and a Rollover Account are only required following the
occurrence and during the continuation of a Loan Default and after the
Effective Maturity Date. Once effective, monthly deposits into the Tax Account
and Insurance Account are (after an initial deposit equal to 1 year of taxes
and insurance premiums) to be equal to the Monthly Tax Deposit Amount and the
Monthly Insurance Deposit Amount. Monthly deposits into the Capital
Expenditures Account are to be equal to 1/12th of an amount equal to the
product of (i) as to the office buildings, the total rentable square feet
multiplied by $.25 and (ii) as to the multifamily building, the number of units
multiplied by $250, and monthly deposits into the Rollover Account are to be
equal to 1/12th of an amount equal to the product of the total rentable square
feet in each Glenborough Pool Property multiplied by $1.
S-131
<PAGE>
Transfer of Properties and Interest in Borrower; Encumbrance; Other Debt.
The Glenborough Pool Borrower is prohibited from transferring or
encumbering the Glenborough Pool Properties.
Notwithstanding the foregoing, mortgagee's consent to a sale or transfer
of all of the Glenborough Pool Properties, on a one-time only basis, may be
permitted after consideration and approval by mortgagee, in its reasonable
discretion, of all relevant factors, provided that the following conditions,
among others, are met: (i) no Loan Default is continuing, (ii) the proposed
transferee shall be a reputable entity or person of good character,
creditworthy, with sufficient financial worth considering the obligations
assumed and undertaken, and shall comply in all respects with the provisions
set forth in the Glenborough Pool Loan documents with respect to being a single
purpose entity and all other applicable criteria of the Rating Agencies with
respect to special-purpose bankruptcy remote entities, (iii) all required
approvals, if any, to such sale or transfer shall have been obtained, (iv) the
transferee shall have sufficient experience in the ownership and management of
properties similar to the Glenborough Pool Properties, (v) the transfer shall
have been approved by the servicer of the Glenborough Pool Loan, (vi) the
transferee shall have executed and delivered an assumption agreement and all
modifications to the Glenborough Pool Loan documents as mortgagee deems
necessary, in form and substance reasonably acceptable to mortgagee, together
with such legal opinions and title insurance endorsements as may be reasonably
requested by mortgagee, (vii) mortgagee shall be reimbursed for all reasonable
costs incurred by it in connection with the transfer, (viii) confirmation from
each Rating Agency that such transfer will not result in the downgrade,
qualification or withdrawal of the then current ratings of the Certificates
(together with acceptable legal opinions as reasonably required by the Rating
Agencies) and (ix) the Glenborough Pool Borrower shall reimburse the Rating
Agencies for their costs and expenses.
The Glenborough Pool Loan documents prohibit the transfer of (i) any
general or limited partner interest in the Glenborough Pool Borrower and (ii)
any interest in any general or limited partner of the Glenborough Pool
Borrower, without the prior written consent of mortgagee.
The Glenborough Pool Borrower is not permitted to incur any additional
indebtedness other than unsecured indebtedness for operating expenses incurred
in the ordinary course of business and which are paid on customary trade terms
and otherwise within 60 days of the date incurred.
Insurance. The Glenborough Pool Borrower is required to maintain for each
Glenborough Pool Property (a) insurance against all perils included within the
classification "All Risks of Physical Loss" with extended coverage in an amount
equal to the full replacement cost of the improvements and equipment, (b)
comprehensive general liability insurance in a combined single limit amount of
not less than $10,000,000 (or such lesser amount as mortgagee may from time to
time deem reasonably prudent under then existing circumstances), (c) during
periods of construction, renovation or alteration, statutory workers'
compensation insurance for all persons engaged in such activities, (d) business
interruption insurance to cover the loss of rents for at least 18 months, (e)
during any period of repair or restoration, builder's "all risk" insurance in
an amount reasonably acceptable to mortgagee, (f) broad-form boiler and
machinery insurance and insurance against loss of occupancy or use arising from
any related breakdown in an amount equal to 100% of the full replacement cost
of the related improvements, (g) flood insurance, with respect to any of the
Glenborough Pool Properties located within an area designated as having special
flood hazards in an amount equal to the lesser of 100% of the full replacement
cost of the related improvements and the maximum limit of coverage available,
(h) if it is determined by mortgagee to be necessary, based on engineering
reports, surveys or other available earthquake maps, earthquake insurance (if
available at commercially reasonable rates) in amounts reasonably satisfactory
to mortgagee, and (i) at mortgagee's reasonable request, such other insurance
in such amounts as are generally required by institutional mortgagees for
comparable properties.
All insurance policies are required to meet the Insurance Requirements,
except that (i) the Glenborough Pool Borrower may obtain the insurance policies
from insurance carriers having claims paying abilities rated at least (x) "AA"
or its equivalent by S&P, (y) "A-15" by Best, or (z) "AA1" by Moody's (rather
than being rated by all Rating Agencies), (ii) the insurance policies shall
provide for at least 30 days' prior written notice to mortgagee prior to any
cancellation or termination thereof (provided that, in the event that such
cancellation or termination is due to the Glenborough Pool Borrower's failure
to pay the premium when due, such notice must be provided to mortgagee at least
10 days prior to such cancellation or termination) and prior to any material
modification thereof which affects the interest of mortgagee; and (iii) the
insurance policies shall contain a mortgagee's loss payable endorsement or an
agreement by the insurer that any loss shall be payable to mortgagee and the
Glenborough Pool Borrower in accordance with the terms of such policy
notwithstanding any act or negligence of the Glenborough Pool Borrower which
might otherwise result in forfeiture of such insurance. See "Risk
Factors--Availability of Earthquake, Flood and Other Insurance."
S-132
<PAGE>
Condemnation and Casualty. Following a casualty or condemnation at any
Glenborough Pool Property, any insurance proceeds and condemnation proceeds
will be applied (after payment of mortgagee's reasonable expenses of collection
thereof) to amounts due under the Glenborough Pool Loan and the prepayment of
the principal amount outstanding thereon, if: (a) a Loan Default has occurred,
or (b) 50% or more of the improvements on the applicable Glenborough Pool
Property have been taken or destroyed, or (c) restoration cannot be completed
before the earlier of (i) the date which is 6 months before the Maturity Date
or (ii) the date which is 1 year following the taking or casualty, or (d) all
necessary governmental approvals for rebuilding and reoccupancy cannot be
obtained, or (e) Glenborough Pool Borrower does not have sufficient funds
(inclusive of insurance proceeds) to complete restoration, or (f) the economic
feasibility of the damaged or taken Glenborough Pool Property will, after
restoration, be insufficient to pay the operating expenses of the Glenborough
Pool Property and, when combined with all other income of the other Glenborough
Pool Properties, to pay debt service on the Glenborough Pool Loan with the same
Loan DSCR that was (x) in effect immediately prior to such casualty or partial
taking, or (y) in effect at the origination date, whichever is lesser, or (g)
the Glenborough Pool Borrower shall not have delivered to mortgagee an
appraisal report appraising the value of the applicable Glenborough Pool
Property as so restored to be not less than the appraised value of such
Glenborough Pool Property considered in making the Glenborough Pool Loan.
Otherwise, funds will be applied to restoration. Insurance and condemnation
proceeds will be disbursed pursuant to the Disbursement Procedures except that
the Glenborough Pool Loan documents do not specify the amount of retainage
which will be required nor do they require an architect's certification as to
costs.
The Glenborough Pool Loan documents with respect to the Southworth
Property provide that the provisions therein with respect to the application of
casualty loss insurance proceeds are subject to the requirements of the sole
lease in effect as to said Southworth Property. The Southworth Property lease
provides that if any portion of the improvements on the Southworth Property are
damaged by fire or other casualty, the Glenborough Pool Borrower shall restore
same to the condition they were in immediately prior to such casualty, provided
that the Glenborough Pool Borrower shall not be obligated to spend more than
the amount of insurance proceeds recovered or recoverable on account of such
casualty.
Approval Rights. The Glenborough Pool Loan documents allow the Glenborough
Pool Borrower to enter into leases with respect to the applicable property to
the extent consistent with comparable properties and then current market
conditions and which (i) do not contain any options for renewal or expansion by
the tenant thereunder at rental rates which are below either comparable market
levels or the rent paid by the tenant during the initial lease term; (ii)
represent an arm's length transaction with a tenant which is experienced,
creditworthy and reputable; (iii) provide that they are subordinate to the
Glenborough Pool Mortgages and that the tenant thereunder agrees to attorn to
mortgagee; (iv) shall, except for Below-Market Leases (hereinafter defined),
provide for payment of rent and all other material amounts payable thereunder
at rates at least equal to the fair market rental value, as of the date such
lease is executed by the Glenborough Pool Borrower, of the space covered by
such lease or renewal lease for the term thereof, including any renewal
options; (v) shall not contain any provision whereby the rent payable
thereunder would be based, in whole or in part, upon the net income or profits
derived by any person from the property (provided, however, that it may contain
a provision in which a portion of rent may be payable based on a percentage of
gross income); (vi) shall not prevent casualty or condemnation proceeds from
being held and disbursed by mortgagee in accordance with the terms of the
Glenborough Pool Loan documents; and (vii) shall not entitle any tenant to
receive and retain condemnation proceeds except those that may be specifically
awarded to it in condemnation proceedings because of the taking of its trade
fixtures and its leasehold improvements which have not become part of the
realty and such business loss as tenant may specifically and separately
establish. "Below-Market Leases" shall mean leases (i) wherein the rents
payable thereunder reflect the fact that the tenant has, in order to enter into
the lease at the applicable Glenborough Pool Property, surrendered a
below-market rental lease at another property (such new lease at the applicable
Glenborough Pool Property to reasonably reflect the below-market rent of the
surrendered lease), or (ii) which are a lease between the Glenborough Pool
Borrower, as lessor, and its manager and/or leasing agent, as lessee, and which
are for a reasonable amount of space for use by the lessee thereunder solely in
connection with the management or leasing of the applicable Glenborough Pool
Property.
The Glenborough Pool Loan provides mortgagee with the Standard Approval
Rights regarding budgets and alterations.
Financial Reporting. The Glenborough Pool Borrower is required to furnish
to mortgagee: (a) annually, within 90 days after the end of each fiscal year, a
copy of its year-end financial statements audited by an accounting firm
reasonably acceptable to mortgagee; (b) quarterly, within 45 days after each
calendar quarter, unaudited certified financial statements and balance sheets
for the 4 consecutive prior calendar quarters (including an itemization of
actual capital expenditures) prepared internally in accordance with GAAP, (c)
quarterly, within 45 days after each calendar quarter, complete rent rolls
S-133
<PAGE>
and occupancy reports; (d) quarterly, within 45 days after each calendar
quarter, a comparison of the budgeted income and expenses and actual income and
expenses for each calendar quarter and year to date; and (e) such further
information regarding the Glenborough Pool Properties as mortgagee may
reasonably request.
Servicer. The Glenborough Pool Loan documents provide that Wells Fargo
shall act as the servicer or subservicer of the Glenborough Pool Loan unless
Wells Fargo materially defaults with respect to any of its material obligations
under its servicing and subservicing agreement or if Wells Fargo fails or
refuses to enter into a reasonable subservicing agreement on or prior to the
Closing Date.
The insert between pages S-134 and S-135 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: EQR Apartment Pool
Photographs
1. Plum Tree I, II, III Apartments Interior
2. Plum Tree I, II, III Apartments, Hales Corner, WI
3. Woodlands of Brookfield, Brookfield, WI
4. GlenGarry Club, Bloomingdale, IL
Reverse of Page
Legend: Magellan Apartment Pool
1. Area Map of North-Central United States showing location of EQR
Apartment Pool Properties.
S-134
<PAGE>
EQR APARTMENT POOL: THE BORROWER; THE PROPERTIES
The Loan. The EQR Apartment Pool Loan was originated by Secore and
acquired by MSMC on April 1, 1998. The EQR Apartment Pool Loan had an original
principal balance of $50,000,000 and has a Cut-Off Date Principal Balance of
$50,000,000. It is secured by 4 Mortgages (collectively, the "EQR Apartment
Pool Mortgage"), encumbering 5 multifamily apartment complexes located in
Minnetonka, Minnesota; Bloomingdale, Illinois; Greenfield, Wisconsin;
Brookfield, Wisconsin; and Hales Corners, Wisconsin (each an "EQR Apartment
Pool Property" and, collectively, the "EQR Apartment Pool Properties").
The Borrower. EQR-Flatlands, L.L.C. (the "EQR Apartment Pool Borrower") is
a Delaware limited liability company whose purpose is limited to owning and
operating the EQR Apartment Pool Properties and related activities. The EQR
Apartment Pool Borrower owns no assets other than the EQR Apartment Pool
Properties and related interests. ERP-QRS Flatlands, Inc., an Illinois
corporation (the "EQR SPC Managing Member"), is the special purpose managing
member of the EQR Apartment Pool Borrower and owns a 1% interest therein. ERP
Operating Limited Partnership, an Illinois limited partnership (the "EQR
Non-Managing Member"), is the non-managing member of the EQR Apartment Pool
Borrower and owns a 99% interest therein. Equity Residential Properties Trust,
a New York Stock Exchange traded Maryland real estate investment trust (the
"EQR REIT"), is the sole shareholder of the EQR SPC Managing Member. The EQR
REIT is also the general partner of the EQR Non-Managing Member and owns
approximately a 90% interest therein. The remaining approximately 10% limited
partnership interests in the EQR Non-Managing Member are held by various
individuals and entities. The EQR Apartment Pool Loan is solely an obligation
of the EQR Apartment Pool Borrower and is not an obligation of the EQR REIT or
the EQR Non-Managing member.
The Properties. The EQR Apartment Pool Properties consist of 5
multi-family apartment buildings with 1,371 rental units. Of the 5 properties
in the EQR Apartment Pool Loan, all 5 have outdoor swimming pools, fitness
centers, and community clubhouses with recreation rooms; 2 have tennis courts,
2 have whirlpool/jacuzzis, 1 has a sauna and 1 has a sand volleyball court. All
of the buildings were constructed between 1989 and 1991. The EQR Apartment Pool
Properties were acquired by the EQR Apartment Pool Borrower on April 1, 1998.
As of December, 1997, the average occupancy rate of the EQR Apartment Pool
Properties was approximately 94%. The aggregate appraised value of the EQR
Apartment Pool Properties based on the appraisals performed by Cushman &
Wakefield, from February 20, 1998 to February 27, 1998, is $100,650,000, with
the values for the individual EQR Apartment Pool Properties ranging from
$13,500,000 to $29,300,000.
The table below summarizes certain information relating to the residential
units at the EQR Apartment Pool Properties as of December, 1997:
<TABLE>
<CAPTION>
MORTGAGED METROPOLITAN YEAR NUMBER
PROPERTY AREA COMPLETED OF UNITS 1 BDR 2 BDR
- ------------------ --------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Gates at Carlson Minneapolis/
Center St. Paul, MN 1989 435 243 192
GlenGarry Club Chicago, IL 1989 250 156 94
Plum Tree
I, II, III Milwaukee, WI 1989 332 64 268
Ravinia Milwaukee, WI 1991 206 42 164
Woodlands of
Brookfield Milwaukee, WI 1990 148 0 148
--- --- ---
Total/Weighted
Average 1,371 505 866
===== === ===
<CAPTION>
AVERAGE
APPROX. AVERAGE MONTHLY ECONOMIC
RENTABLE UNIT RENT PER OCCUPANCY
MORTGAGED AREA SIZE UNIT AS OF AS OF APPRAISED
PROPERTY (SQ. FT.) (SQ. FT.) 12/31/97 12/31/97 VALUE
- ------------------ ----------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Gates at Carlson
Center 396,264 911 $ 851(1) 95.6% $ 29,300,000
GlenGarry Club 215,098 860 966 93.2 18,600,000
Plum Tree
I, II, III 355,074 1,070 867 93.2 23,750,000
Ravinia 219,932 1,068 838 94.0 13,500,000
Woodlands of
Brookfield 185,320 1,252 1,265 93.7 15,500,000
------- ----- --------- ---- ------------
Total/Weighted
Average 1,371,688 1,001 $ 935 94.1% $100,650,000
========= ===== ========= ==== ============
</TABLE>
(1) Based on 11/31/97 Rent Roll.
S-135
<PAGE>
Location/Access. The following table summarizes the location of the EQR
Apartment Pool Properties based on the number of units:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
SQUARE MONTHLY
NUMBER OF FEET PER TOTAL AVERAGE MARKET RENT/
STATE UNITS UNIT SQUARE FEET MONTHLY RENT PER SF
- -------------------------------- ----------- ---------- ------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Illinois ....................... 250 860 215,098 $901 $ 1.05
Minnesota ...................... 435 911 396,300 857 $ 0.94
Wisconsin ...................... 686 1,108 760,326 944 $ 0.85
--- ----- ------- ---- ------
Total/Weighted Average ......... 1,371 1,000 1,371,724 $935 $ 0.93
===== ===== ========= ==== ======
</TABLE>
Market Overview. The GlenGarry Club Apartment Complex is located in DuPage
County, Illinois, approximately 28 miles west of Chicago. DuPage County is one
of the 13 counties which constitute the Chicago Consolidated Metropolitan
Statistical Area (the "Chicago CMSA"). The population of the Chicago CMSA is
the third largest in the nation, behind only New York and greater Los Angeles.
According to Cushman & Wakefield's appraisal, the estimated 1997 population of
DuPage County was 870,407. DuPage County grew at a 1.72% rate from 1980 through
1990 and at an annual rate of 1.55% between 1990 and 1997. After Cook County,
DuPage County is home to more jobs than any other county in the Chicago CMSA,
employing 12.8% of the total labor force. The primary contributors to the
economic growth of the Chicago CMSA are the retail, finance, insurance, real
estate, manufacturing and service industries.
The Gates at Carlson Center Apartment Complex is located in Hennepin
County, Minnesota, and is approximately 9 miles west of Minneapolis/St. Paul.
Hennepin County is 1 of the 7 counties which constitute the Twin Cities
metropolitan area. According to Cushman & Wakefield's appraisal, the estimated
1995 population of Hennepin County was 1,052,800, which constitutes 43.4% of
the population in the metropolitan area. Hennepin County grew at a 0.75% rate
from 1980 through 1995. The economic growth of the Twin Cities metropolitan
area is based on wholesale and retail trade, health care, education, financial
services and manufacturing.
Two of the EQR Apartment Pool Properties are located in Milwaukee County,
Wisconsin (Plum Tree I, II, III Apartment Complex and Ravinia Apartment
Complex) and a third EQR Apartment Pool Property is located in Waukesha County,
Wisconsin (Brookfield Apartment Complex). Milwaukee County and Waukesha County
are 2 of the 4 counties that comprise the Milwaukee Primary Statistical Area
(the "Milwaukee PMSA") and are located in the southeastern portion of the state
of Wisconsin. According to Cushman & Wakefield's appraisals, the estimated 1997
population of the Milwaukee PMSA was 1,459,700, including 921,000 (63%) in
Milwaukee County and 345,000 (24%) in Waukesha County. While Milwaukee County
had a negative growth rate of -0.29% from 1980 through 1995, Waukesha County
had a growth rate of 1.31% during the same period. The economic growth of the
Milwaukee PMSA is based on trade and financial services, government and
manufacturing. Milwaukee area manufacturing companies include national industry
leaders in the production of x-ray apparatus and tubes, internal combustion
engines, malt beverages, iron and steel forging, construction and mining
machinery, speed changers and drives, metal-cutting machine tools and leather
goods.
Competition. The primary competitors of the EQR Apartment Pool Properties
are apartment complexes which were generally built at the same time as, and
provide similar amenities to, the EQR Apartment Pool Properties.
S-136
<PAGE>
The following table summarizes the EQR Apartment Pool Properties as of
February 1998 and shows competitive market rents:
<TABLE>
<CAPTION>
OCCUPANCY YEAR
PROPERTY NAME (AS OF 12/31/1997) COMPLETED TYPE OF UNIT
- --------------------------------- -------------------- ----------- -----------------
<S> <C> <C> <C>
Gates at Carlson Center 95.6% 1989 1 BR/1 BA
Minnetonka, MN 1 BR/1 BA
1 BR/1 BA
1 BR/1 BA
1 BR/1 BA
1 BR/1 BA
1 BR/1 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
Total/Weighted Average .........
GlenGarry Club 93.2% 1989 1 BR/1 BA
Bloomingdale, IL 1 BR/1 BA
1 BR/1 BA
1 BR/1 BA + Den
1 BR/1 BA + Den
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA + Den
2 BR/2 BA + Den
Total/Weighted Average .........
Plum Tree I, II, III 93.4% 1989 1 BR/1 BA
Hales Corners, WI 1 BR/1 BA
1 BR/1 BA
1 BR/1 BA
1 BR/1 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
Total/Weighted Average .........
Ravinia 94.2% 1991 1 BR/1 BA
Greenfield, WI 1 BR/1 BA
1 BR/1 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA
2 BR/2 BA + Den
2 BR/2 BA + Den
2 BR/2 BA + Den
Total/Weighted Average .........
<CAPTION>
AVERAGE AVERAGE TOTAL
NUMBER UNIT MONTHLY POTENTIAL
OF SIZE TOTAL RENT MONTHLY COMPETITIVE
PROPERTY NAME UNITS (SQ. FT.) SQ. FT. PER UNIT RENT MARKET RENT(1)
- --------------------------------- -------- ----------- --------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gates at Carlson Center 150 746 111,900 $ 775 $116,250 $725 - $980
Minnetonka, MN 24 750 18,000 795 19,080 $725 - $980
12 815 9,780 795 9,540 $725 - $980
24 870 20,880 850 20,400 $725 - $980
15 870 13,050 750 11,250 $725 - $980
12 970 11,640 910 10,920 $725 - $980
6 1,040 6,240 905 5,430 $725 - $980
132 1,045 137,940 985 130,020 $909 - $1,300
12 1,024 12,288 935 11,220 $909 - $1,300
39 1,140 44,460 1,075 41,925 $909 - $1,300
6 1,234 7,404 1,215 7,290 $909 - $1,300
3 894 2,682 930 2,790 $909 - $1,300
--- ------- --------
Total/Weighted Average ......... 435 911 396,264 $ 888 $386,115
=== ======= ========
GlenGarry Club 48 630 30,240 $ 745 $ 35,760 $735 - $952
Bloomingdale, IL 40 730 29,200 790 31,600 $735 - $952
20 730 14,600 820 16,400 $735 - $952
24 852 20,448 855 20,520 $735 - $952
24 852 20,448 855 20,520 $735 - $952
18 967 17,406 915 16,470 $875 - $1,238
28 967 27,076 945 26,460 $875 - $1,238
24 1,160 27,840 1,060 25,440 $875 - $1,238
24 1,160 27,840 1,090 26,160 $875 - $1,238
--- ------- --------
Total/Weighted Average ......... 250 860 215,098 $ 877 $219,330
=== ======= ========
Plum Tree I, II, III 8 626 5,008 $ 715 $ 5,720 $655 - $840
Hales Corners, WI 8 746 5,968 770 6,160 $655 - $840
16 753 12,048 760 12,160 $655 - $840
8 880 7,040 830 6,640 $655 - $840
24 950 22,800 825 19,800 $655 - $840
48 1,033 49,584 855 41,040 $715 - $1,015
22 1,055 23,210 875 19,250 $715 - $1,015
40 1,075 43,000 885 35,400 $715 - $1,015
48 1,075 51,600 900 43,200 $715 - $1,015
22 1,208 26,576 980 21,560 $715 - $1,015
40 1,230 49,200 1,020 40,800 $715 - $1,015
48 1,230 59,040 1,045 50,160 $715 - $1,015
--- ------- --------
Total/Weighted Average ......... 332 1,070 355,074 $ 909 $301,890
=== ======= ========
Ravinia 14 942 13,188 $ 785 $ 10,990 $655 - $840
Greenfield, WI 14 942 13,188 795 11,130 $655 - $840
14 942 13,188 815 11,410 $655 - $840
28 1,000 28,000 815 22,820 $715 - $1,015
28 1,000 28,000 825 23,100 $715 - $1,015
8 1,034 8,272 885 7,080 $715 - $1,015
32 1,036 33,152 840 26,880 $715 - $1,015
28 1,192 33,376 895 25,060 $715 - $1,015
8 1,216 9,728 995 7,960 $715 - $1,015
32 1,245 39,840 985 31,520 $715 - $1,015
--- ------- --------
Total/Weighted Average ......... 206 1,068 219,932 $ 864 $177,950
=== ======= ========
</TABLE>
S-137
<PAGE>
<TABLE>
<CAPTION>
NUMBER
OCCUPANCY YEAR OF
PROPERTY NAME (AS OF 12/31/1997) COMPLETED TYPE OF UNIT UNITS
- --------------------------------- -------------------- ----------- ------------------ --------
<S> <C> <C> <C> <C>
Woodlands of Brookfield 93.9% 1990 2 BR/2 BA 34
Brookfield, WI 2 BR/2 BA 24
2 BR/2 BA + Den 64
2 BR/2 BA + Den 20
2BR/2BA+Basement 6
--
Total/Weighted Average ......... 148
===
Pool Totals ..................... 94.2% 1,371
=====
<CAPTION>
AVERAGE AVERAGE TOTAL
UNIT MONTHLY POTENTIAL
SIZE TOTAL RENT MONTHLY COMPETITIVE
PROPERTY NAME (SQ. FT.) SQ. FT. PER UNIT RENT MARKET RENT(1)
- --------------------------------- ----------- ------------ ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Woodlands of Brookfield 1,100 37,400 1,025 34,850 $870 - $1,190
Brookfield, WI 1,100 26,400 1,105 26,520 $870 - $1,190
1,280 81,920 1,235 79,040 $870 - $1,190
1,320 26,400 1,525 30,500 $870 - $1,190
2,200 13,200 1,625 9,750 $870 - $1,190
------ ------
Total/Weighted Average ......... 1,252 185,320 $1,221 180,660
======= =======
Pool Totals ..................... 1,001 1,371,688 $ 923 $1,265,945
========= ==========
</TABLE>
- --------
(1) Source: Cushman & Wakefield appraisal.
Operating History. The following table shows certain information regarding
the operating history of the EQR Apartment Pool Properties:
ADJUSTED NET OPERATING INCOME(1)
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI
------ --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... N/A $ 9,592,381 $ 13,967,146 $ 14,318,002
Expenses ...................... N/A (3,948,818) (6,191,915) (6,119,454)
------------ ------------ ------------
Net Operating Income ......... N/A $ 5,643,563 $ 7,775,231 $ 8,198,548
============ ============ ============
</TABLE>
- --------
(1) The Adjusted Net Operating Income for 1996 does not reflect operating
results for Gates at Carlson.
Occupancy History. The occupancy of the EQR Apartment Pool Properties in
December, 1997 was 94%:
<TABLE>
<CAPTION>
OCCUPANCY AS OF: PERCENT LEASED
- -------------------------- ---------------
<S> <C>
December, 1997 .......... 94%
December, 1996 .......... N/A
December, 1995 .......... N/A
</TABLE>
Environmental Reports. Phase I site assessments dated April 17, 1998 were
performed on the EQR Apartment Pool Properties. The Phase I site assessments
did not reveal any environmental liability that the Depositor believes would
have a material adverse effect on the EQR Apartment Pool Borrower's business,
assets or results of operations taken as a whole. Nevertheless, there can be no
assurance that all environmental conditions and risks were identified in such
environmental assessment. See "Risk Factors--The Mortgage Loans--Environmental
Law Considerations herein."
Engineering Reports. Property Condition Reports dated March 30, 1998 were
completed on the EQR Apartment Pool Properties by a third party due diligence
firm. The Property Condition Reports concluded that the EQR Apartment Pool
Properties were generally in good physical condition and identified
approximately $79,140 in deferred maintenance. At origination of the EQR
Apartment Pool Loan, the EQR Apartment Pool Borrower provided a letter of
credit in the amount of $1,095,950, of which amount $98,925 was to secure its
obligation to fund the cost of addressing the identified items.
Property Management. The EQR Apartment Pool Properties (other than the 3
Properties in Wisconsin) are managed by Equity Residential Properties
Management Limited Partnership (the "EQR Apartment Pool Manager"), which is an
affiliate of the EQR Apartment Pool Borrower, pursuant to separate property
management agreements, each dated as of April 1, 1998 (the "EQR Management
Agreements"). Under each EQR Management Agreement, the EQR Apartment Pool
Manager receives (i) a monthly property management fee in an amount equal to 3%
of the monthly gross operating revenue, (ii) an annual asset management fee
equal to 0.60% of total book value of the EQR Apartment Pool Borrower's real
estate investment in the EQR Apartment Pool Properties (excluding depreciation
and including the EQR Apartment Pool
S-138
<PAGE>
Borrower's share of indebtedness relating to the EQR Apartment Pool Property
that has not been consolidated at the property level), paid on a monthly basis,
and (iii) a monthly fee equal to such percentage of all capital construction
costs as shall be charged by property managers managing similar properties in
similar geographical locations as the applicable EQR Apartment Pool Property.
The EQR Management Agreements are each for a term of 1 year (plus a
partial year, if applicable) beginning on the origination date and ending
variously on March 31, 1999 and April 30, 1999, and thereafter for annual
periods, unless terminated by either party (i) by notice given at least 30 days
prior to the end of the then current term, prior to April 1, 1999, (ii) by 60
days notice from the EQR Apartment Pool Borrower to the EQR Apartment Pool
Manager or (iii) after April 1, 1999 by either party with 60 days notice to the
other party. Under the terms of the EQR Apartment Pool Loan, any termination or
replacement of the EQR Apartment Pool Manager or entering into a new management
agreement requires (i) the consent of mortgagee and (ii) confirmation from each
Rating Agency that such action will not result in a downgrade, qualification or
withdrawal of the then current ratings of the Certificates; provided, however
that the EQR Apartment Pool Borrower may replace the EQR Apartment Pool Manager
without such consent if the new manager is an EQR Permitted Transferee (as
defined under "Transfer of Properties and Interest in Borrower; Encumbrance;
Other Debt").
Pursuant to separate Assignments of Management Agreements and
Subordinations of Management Agreements among the EQR Apartment Pool Borrower,
the EQR Apartment Pool Manager and mortgagee, the EQR Apartment Pool Manager
has agreed (i) that the related EQR Management Agreement is subordinate to the
EQR Apartment Pool Loan and (ii) that mortgagee has the right to terminate the
EQR Apartment Pool Manager and replace it with a manager selected by mortgagee
(a) upon the occurrence of any Loan Default which remains uncured and the
taking of possession of the applicable EQR Apartment Pool Property by mortgagee
or any person claiming by or through mortgagee, including, without limitation,
any receiver for such EQR Apartment Pool Property and (b) at any time that the
EQR Apartment Pool Manager has engaged in gross negligence, fraud or willful
misconduct arising out of or in connection with such EQR Management Agreement.
The 3 EQR Apartment Pool Properties listed in Wisconsin are currently
being managed by Mandel Property Services, Inc., an affiliate of the entity
from which the EQR Apartment Pool Borrower acquired the EQR Apartment Pool
Properties. The EQR Apartment Pool Borrower is obligated to terminate such
manager, and enter into management agreements for the 3 Wisconsin properties
with the EQR Apartment Pool Manager that are substantially identical to the
existing EQR Management Agreement by the date that is 120 days after the
origination date of the EQR Apartment Pool Loan.
The general partner of the EQR Apartment Pool Manager is the EQR
Non-Managing Member. The EQR Apartment Pool Manager has approximately 153,000
multifamily units under its management.
S-139
<PAGE>
EQR APARTMENT POOL: THE LOAN.
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $50,000,000 LOAN TYPE: Interest Only EMD
CUT-OFF DATE PRINCIPAL BALANCE: $50,000,000 INITIAL INTEREST RATE: 6.79%
ORIGINATION DATE: April 1, 1998 REVISED INTEREST RATE: 8.79%
EFFECTIVE MATURITY DATE: April 1, 2008 AMORTIZATION: Interest Only to EMD; thereafter 240 months
MATURITY DATE: April 1, 2028 MONTHLY PAYMENT: Interest only ($292,347.22 assuming a
31 day month) to EMD; thereafter $379,226.20
EMD BALANCE: $50,000,000
CALL PROTECTION: Lockout to 3 months prior to EMD
</TABLE>
CERTAIN EQR APARTMENT POOL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN
LOAN PER TO ACTUAL
UNIT(1) VALUE RATIO(2) DSCR(3)
---------- ---------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $36,470 49.7% 2.28x
At Effective Maturity Date ......... $36,470 49.7% 2.28x
</TABLE>
- --------
(1) Based on the 1,371 residential apartment units securing the EQR Apartment
Pool Loan and the Cut-Off Date Principal Balance or Effective Maturity
Date Balance, as applicable.
(2) Based on the Cushman & Wakefield appraised market values and the Cut-Off
Date Principal Balance or Effective Maturity Date Balance, as applicable
(3) Based on (a) Underwritable Cash Flow of $7,855,798 and (b) in the Cut-Off
Date Actual DSCR, actual debt service on the EQR Apartment Pool Loan
during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the EQR
Apartment Pool Loan assuming a balance equal to the Effective Maturity
Date Balance, a coupon equal to the EQR Apartment Pool Loan Initial
Interest Rate.
Security. The EQR Apartment Pool Loan is a nonrecourse loan secured only
by the fee estate of the EQR Apartment Pool Borrower in the EQR Apartment Pool
Properties and certain related collateral, including an assignment of leases
and rents. Mortgagee is the insured under title insurance policies insuring
that each EQR Apartment Pool Mortgage constitutes a valid and enforceable first
lien on the related EQR Apartment Pool Property, subject to certain exceptions
set forth therein.
The EQR Apartment Pool Loan amends and restates a certain previous loan
borrowed by the EQR Apartment Pool Borrower. In connection with the origination
of the EQR Apartment Pool Loan, the EQR Apartment Pool Borrower delivered to
Secore an originally executed Agreement of Assumption Amendment and Restatement
of Promissory Note and an Amended and Restated Promissory Note, but did not
deliver an original of the restated Note. The loss of such Note creates the
risk that a bona fide purchaser of such Note could assert competing claims for
payment under such Note. The EQR Apartment Pool Borrower has delivered to
Secore a lost note affidavit pursuant to which it agrees to indemnify Secore
and MSMC against any and all losses or liabilities incurred by Secore or MSMC
as a result of any person claiming an interest in the previous Note.
Payment Terms. Interest on the EQR Apartment Pool Loan is calculated on an
Actual/360 Basis. Its Due Date is the first day of each month with no grace
period (provided, that if the Due Date is not a business day, payment may be
made on the next business day). The Late Payment Fee on any principal or
interest payment not paid on its due date is 3% of such unpaid sum and the
Default Rate following a Loan Default is 5% above the then applicable interest
rate, in each case subject to applicable law.
Prepayment. Voluntary prepayment is prohibited under the EQR Apartment
Pool Loan prior to the date that is 3 months prior to the Effective Maturity
Date. From and after such date the EQR Apartment Pool Loan may be voluntarily
prepaid on any Due Date, in whole or in part, without payment of a Yield
Maintenance Charge.
Principal prepayments on the EQR Apartment Pool Loan may occur after the
Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
S-140
<PAGE>
acceleration of the EQR Apartment Pool Loan following a Loan Default.
Prepayments following a Loan Default require payment of the Yield Maintenance
Charge equal to the greater of (i) 1% of the portion of the principal amount
being repaid or (ii) the Yield Maintenance Premium. As described below,
prepayments may also be made, without payment of a Yield Maintenance Charge,
from insurance or condemnation proceeds.
Defeasance. Subject (except as set forth below) to the Defeasance
Conditions, commencing on the date that is 2 years after the Closing Date and
ending on the Effective Maturity Date, the EQR Apartment Pool Loan permits the
release of all of the EQR Apartment Pool Properties upon delivery to mortgagee
of U.S. Obligations which provide for payments on or prior to, but as close as
possible to, each Due Date up to the Effective Maturity Date and in amounts
equal to the principal and interest payments due on the EQR Apartment Pool Loan
on such dates, and provide for payment on the Effective Maturity Date of the
remaining principal balance of the EQR Apartment Pool Loan. Upon any such
Defeasance, at the option of either mortgagee or the EQR Apartment Pool
Borrower, the EQR Apartment Pool Borrower's obligations under the EQR Apartment
Pool Loan and the U.S. Obligations securing the EQR Apartment Pool Loan will be
transferred to a Successor Borrower. Following such Defeasance, the U.S.
Obligations will be the sole security for the EQR Apartment Pool Loan.
Subject to the Defeasance Conditions (except as described below),
commencing on the date that is 2 years after the Closing Date and ending on the
Effective Maturity Date, the EQR Apartment Pool Loan also permits the release
of any 1 or more of the EQR Apartment Pool Properties in exchange for U.S.
Obligations which provide for payments on or prior to, but as close as possible
to, each Due Date up to the Effective Maturity Date and in amounts equal to the
principal and interest payments due on the EQR Defeased Loan Amount on such
dates, and provide for payment on the Effective Maturity Date of the remaining
principal balance of the EQR Defeased Loan Amount. The "EQR Defeased Loan
Amount" is an amount equal to 125% of the Allocated Loan Amount of the EQR
Apartment Pool Property or Properties proposed to be released. Upon any such
substitution, at the option of mortgagee, the EQR Apartment Pool Loan will be
divided into 2 Notes, 1 of which (the "EQR Defeased Note") will be in a
principal amount equal to the EQR Defeased Loan Amount, and, at the option of
either mortgagee or the EQR Apartment Pool Borrower, the EQR Apartment Pool
Borrower's obligations under the EQR Defeased Note and the U.S. Obligations
securing the EQR Defeased Note will be transferred to a Successor Borrower.
Following such partial Defeasance, a Loan Default under the undefeased Note
shall constitute a Loan Default under the EQR Defeased Note and in such an
event mortgagee may enforce its rights and remedies against the U.S.
Obligations and the EQR Apartment Pool Properties in whatever order or manner
as mortgagee determines. Furthermore, after such partial Defeasance, a Loan
Default under the EQR Defeased Note shall constitute a Loan Default under the
undefeased Note and in such an event mortgagee may enforce its rights and
remedies against the U.S. Obligations and the EQR Apartment Pool Properties in
whatever order or manner the mortgagee determines; provided, however, that in
the event the EQR Apartment Pool Borrower's obligations under the EQR Defeased
Note and U.S. Obligations securing the EQR Defeased Note are transferred to a
Successor Borrower, a Loan Default under the EQR Defeased Note shall not
constitute a Loan Default under the undefeased Note.
Defeasance Condition (vi) (which requires confirmation that the Loan DSCR
of the remaining Mortgaged Properties is not less than the greater of (A) such
ratio prior to Defeasance and (B) such ratio at origination) does not apply to
a Defeasance of any EQR Apartment Pool Property.
Substitution of Properties. The EQR Apartment Pool Loan permits
substitution of any one or more of the EQR Apartment Pool Properties, subject
to the Substitution Conditions (except as described below). The Substitution
Period commences on the origination date and ends on the Effective Maturity
Date.
Substitution Condition (iii) (which requires that the value of the
substitute property be not less than the greater of the value, determined by
mortgagee, of the property being replaced as of origination and such value
immediately prior to substitution) will not apply to a substitution of an EQR
Apartment Pool Property. Instead, the appraised value of the substitute
property is required to be not less than 110% of the appraised value
(determined within 60 days of the substitution by a nationally recognized
appraisal firm selected by the EQR Apartment Pool Borrower) of the EQR
Apartment Pool Property being replaced. In addition, Substitution Condition
(iv) (which requires the net operating income and Loan DSCR of the substitute
property to be greater than 125% of those of the property being replaced) shall
not apply; however, the Underwritable Cash Flow of the substitute property is
required to be at least 110% of that of the EQR Apartment Pool Property being
replaced.
Lockbox and Reserves. Pursuant to the EQR Apartment Pool Loan, the EQR
Apartment Pool Borrower has established a Soft Lockbox, which is a Two-Tier
Lockbox. The Lockbox Banks for the First Tier Lockboxes are Banc One
S-141
<PAGE>
Corporation, U.S. Bank National Association and The First National Bank of
Chicago and for the Second Tier Lockbox is Bank of America National Trust and
Savings Association. Amounts in the Lockbox are required to be applied in
accordance with the Lockbox Waterfall, except that an Insurance Account is only
required from and after the Effective Maturity Date.
The EQR Apartment Pool Borrower has established (i) a Tax Account, (ii) a
Required Repair Account, and (iii) a Capital Expenditures Account. In lieu of
making the Monthly Reserve Deposit for the Tax Account or the Capital
Expenditures Account, the EQR Apartment Pool Borrower may post a letter of
credit with mortgagee in an amount sufficient to discharge all obligations of
the EQR Apartment Pool Borrower with respect to payment of such Monthly Reserve
Deposit. Any such letter of credit (an "EQR Letter of Credit") must be written
by Bank of America National Trust and Savings Association or an institution
having a rating of "A+" from each of S&P, Fitch and Duff and "A1" from Moody's
and entitle mortgagee to draw thereon if it shall not be replaced within 30
days after notice to the EQR Apartment Pool Borrower that the rating of the
issuer thereof has been downgraded, qualified or withdrawn below such required
rating. The amount of such letter of credit will be determined annually by
mortgagee. If the EQR Apartment Pool Borrower provides a letter of credit to
satisfy its obligations to fund the Monthly Tax Amount, such letter of credit
shall be in an amount determined by mortgagee equal to the highest projected
balance that would be held in the Tax Account over the succeeding 12-month
period had the EQR Apartment Pool Borrower not elected to provide such letter
of credit. If the EQR Apartment Pool Borrower provides a letter of credit to
satisfy its obligations to fund the Monthly Reserve Deposit, such letter of
credit shall be in an amount equal to (i) $275 per unit multiplied by the
number of years since the origination date of the EQR Apartment Pool Loan
including the succeeding year minus (ii) the total amount spent by the EQR
Apartment Pool Borrower since the origination date of the EQR Apartment Pool
Loan on capital expenditures and replacements. The EQR Apartment Pool Borrower
has initially provided a letter of credit in the amount of $1,095,950 of which
$620,000 was to satisfy its obligation to fund the Monthly Tax Amount, $98,925
was to fund the Required Repair Account and the remainder of $377,025 was to
satisfy its obligation to fund the Monthly Reserve Deposit for the Capital
Expenditures Account. The EQR Apartment Pool Borrower is required to establish
an Insurance Account, which will require a Monthly Reserve Deposit equal to the
Monthly Insurance Deposit Amount, on the Effective Maturity Date.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The EQR Apartment Pool Borrower is generally prohibited from transferring
any of the EQR Apartment Pool Properties, provided, however, that a one-time
only sale or transfer of all of the EQR Apartment Pool Properties together is
permitted upon 30 days prior written notice provided that (i) no Loan Default
shall have occurred and remain uncured, (ii) a single purpose entity acceptable
to mortgagee is the transferee, (iii) mortgagee shall have received
confirmation by each Rating Agency that such transfer will not result in the
downgrade, qualification or withdrawal of the then current ratings of the
Certificates, (iv) mortgagee shall have received a new nonconsolidation
opinion, (v) the transferee shall have executed and delivered to mortgagee an
assumption agreement in form and substance reasonably acceptable to mortgagee,
together with title insurance endorsements as may be reasonably requested by
mortgagee, (vi) mortgagee shall have received an assumption fee equal to 0.25%
of the outstanding principal balance of the EQR Apartment Pool Loan, plus its
reasonable costs and expenses in connection therewith and (vii) adequate
provision, satisfactory to mortgagee in its sole discretion, is made for the
payment by the EQR Apartment Pool Borrower of increased real estate taxes due
to a reappraisal or reassessment caused by or related to any transfer or
conveyance of the EQR Apartment Pool Properties. The EQR Apartment Pool
Borrower is also prohibited from further encumbering the EQR Apartment Pool
Properties, except as specifically provided below with respect to indebtedness
secured only by liens on the equipment or personal property being financed.
The EQR Apartment Pool Loan generally prohibits the transfer of any direct
or indirect interest in the EQR Apartment Pool Borrower other than transfers of
stock interests in the EQR REIT. In any instance where mortgagee shall be asked
to consent to any transfer of any direct or indirect interest in the EQR
Apartment Pool Borrower, without limiting any conditions which mortgagee may
require in connection with such consent, (i) if 12.5% or more of direct or
indirect beneficial interests in the EQR Apartment Pool Borrower are sold or
transferred, (ii) if any sale or transfer shall result in any person or a group
of affiliates or family members, as applicable, acquiring more than a 49%
direct or indirect interest in the EQR Apartment Pool Borrower or the EQR SPC
Managing Member or (iii) if there is any sale or transfer of any direct
interest in the EQR Apartment Pool Borrower held by the EQR SPC Managing
Member, the EQR Apartment Pool Borrower shall deliver or cause to be delivered
to the Rating Agencies and mortgagee (a) a satisfactory nonconsolidation
opinion and (b) an officer's certificate certifying that such sale or transfer
is not a Loan Default. Notwithstanding the foregoing, transfers of partnership
interests in the EQR Non-Managing Member shall be permitted without notice to
or the consent of mortgagee and notwithstanding the existence of a Loan
Default, provided that the EQR REIT shall at all times after such transfer(s)
remain the managing general partner of and have the right and power to direct
the management, policies and day-to-day
S-142
<PAGE>
business and affairs of the EQR Non-Managing Member. In addition, the following
transfers are permitted without the consent of mortgagee: (i) transfers of
share interests in the EQR SPC Managing Member to an EQR Permitted Transferee
or between EQR Permitted Transferees and (ii) transfers of non-managing member
interests in the EQR Apartment Pool Borrower to an EQR Permitted Transferee or
between EQR Permitted Transferees, provided that, in either case, (a) written
notice thereof shall be provided to mortgagee, (b) the EQR Apartment Pool
Borrower shall cause to be delivered to the Rating Agencies and mortgagee a
satisfactory nonconsolidation opinion when required as described above and (c)
in the event that any such transfer is as described in clause (ii) above, then
mortgagee shall have received confirmation by each Rating Agency that such
transfer will not result in the downgrade, qualification or withdrawal of the
then current ratings of the Certificates. "EQR Permitted Transferee" means the
EQR Non-Managing Member, the EQR REIT and any affiliate of either or both of
them, provided that either or both of the EQR Non-Managing Member or the EQR
REIT maintain direct or indirect ownership of at least 51% of the economic and
beneficial interests in such affiliate and the right and power to direct the
management, policies and day-to-day business and affairs of such affiliate. If
the EQR REIT acquires a direct non-managing member interest in the EQR
Apartment Pool Borrower, all transfers of stock interests in the EQR REIT shall
be permitted without notice to or consent of mortgagee and notwithstanding the
existence of a Loan Default, subject to the delivery of any nonconsolidation
opinions required as described above.
The EQR Apartment Pool Borrower is not permitted to incur any additional
indebtedness other than (i) unsecured indebtedness for trade payables incurred
in the ordinary course of owning and operating the EQR Apartment Pool
Properties which does not exceed at any time $1,500,000 in the aggregate for
all the EQR Apartment Pool Properties and is paid within 90 days of the date on
which each such amount is due (unless contested in good faith in accordance
with the requirements of the loan documents, including with respect to
contested amounts in excess of $50,000 the provision to mortgagee of such
security as may be reasonably requested by mortgagee or the Rating Agencies to
insure the payment of such trade payables), (ii) debt incurred in the financing
of equipment and other personal property located at the EQR Apartment Pool
Properties which is not in any way deemed to be real property, secured solely
by such equipment or personal property being financed, as may be necessary,
convenient or desirable in the exercise of the EQR Apartment Pool Borrower's
reasonable business judgment, not to exceed $500,000 in the aggregate at any
time with respect to all EQR Apartment Pool Properties and (iii) unsecured
loans from one or more of the EQR Affiliated Lenders to the EQR Apartment Pool
Borrower in connection with the management of the EQR Apartment Pool Properties
and in order to accommodate the EQR Apartment Pool Borrower's normal cash
management procedures. Loans may be made by the EQR Affiliated Lenders only if:
(a) either or both of the EQR REIT or the EQR Non-managing Member has an
"investment grade" credit rating at the time of making any such loan and at all
times during the term of such loan, (b) such loans are expressly fully subject
to and subordinate to the EQR Apartment Pool Loan, (c) the aggregate
outstanding amount of all such loans at any time shall not exceed $1,000,000,
(d) debt service on such loans is paid only out of available cash flow after
the EQR Apartment Pool Borrower's payment of all amounts required to be paid
under the loan documents, and after payment of all operating and capital
expenses and reserves of the EQR Apartment Pool Properties in amounts set forth
in the annual budget or reasonably satisfactory to mortgagee, (e) the
applicable EQR Affiliated Lender agrees in writing for the benefit of mortgagee
not to accelerate such indebtedness or enforce any of its rights or remedies
against, or raise any claims or initiate any proceeding against, the EQR
Apartment Pool Borrower or the EQR Apartment Pool Properties during the term of
the EQR Apartment Pool Loan and (f) the EQR Affiliated Lenders waive any right
they may have to cause a bankruptcy of the EQR Apartment Pool Borrower or
initiate or consent to the filing of any bankruptcy petition against the EQR
Apartment Pool Borrower either in federal or state court (provided that the EQR
Affiliated Lenders may file proofs of claim in bankruptcy proceedings not
caused or initiated or consented to by an EQR Affiliated Lender). "EQR
Affiliated Lender" means, together, the EQR Apartment Pool Manager and the EQR
Non-Managing Member.
Insurance. The EQR Apartment Pool Borrower is required to maintain for the
EQR Apartment Pool Properties (a) comprehensive all risk insurance with
coverage in an amount at all times sufficient to prevent the EQR Apartment Pool
Borrower from becoming a co-insurer, but in any event equal to the greater of
the full replacement value of the improvements and the outstanding principal
amount of the EQR Apartment Pool Loan, (b) general liability insurance with
coverage of $5,000,000 per occurrence and with an aggregate limit of not less
than $5,000,000, (c) statutory workers compensation insurance, (d) business
interruption insurance containing an extended period of indemnity endorsement
ending 180 days after restoration is completed, (e) during any period of
construction or repair, builder's "all risk" insurance in an amount not less
than full replacement value, (f) comprehensive boiler and machinery insurance
in amounts reasonably required by mortgagee, (g) flood insurance, if available,
with respect to any EQR Apartment Pool Property located within a federally
designated "special flood hazard area," in an amount equal to the lesser of the
outstanding principal amount of the EQR Apartment Pool Loan and the maximum
limit of coverage available under federal law and (h) at mortgagee's reasonable
request, such other insurance in such amounts as are generally required by
institutional lenders for comparable properties.
S-143
<PAGE>
All insurance policies are required to meet the Insurance Requirements;
except that the rating requirements contained in the Insurance Requirements do
not apply. Instead, the EQR Apartment Pool Borrower is entitled to retain its
current insurers for so long as the claims paying ability rating of such
insurers at the origination date is not downgraded by more than one rating
level. As more fully set forth herein under "Risk Factors--The Mortgage
Loans--Availability of Earthquake, Flood and Other Insurance," the ratings of
such insurers at the origination date ranged from "AAA" to "BBB," with the
majority having ratings of "A" or "AA." In the event that the EQR Apartment
Pool Borrower is required or elects to replace an insurer, the new insurer will
be required to have a rating at least equal to the rating that the insurer it
is replacing had as of the origination date.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the EQR Apartment Pool Properties or a
condemnation of all or any portion of the EQR Apartment Pool Properties, the
EQR Apartment Pool Borrower is obligated to commence and diligently prosecute
to completion the restoration of the EQR Apartment Pool Properties; provided,
however, that the EQR Apartment Pool Borrower's obligation to repair, restore
and rebuild the EQR Apartment Pool Properties is expressly conditioned upon net
proceeds received by mortgagee being made available by mortgagee to the EQR
Apartment Pool Borrower for restoration in accordance with the terms of the EQR
Apartment Pool Loan and to the extent required by the terms of the EQR
Apartment Pool Loan (provided that any insufficiency of such net proceeds so
received by mortgagee and made available to the EQR Apartment Pool Borrower
shall not affect the EQR Apartment Pool Borrower's obligations). If both the
net proceeds of the casualty or condemnation and the costs of restoration are
less than 20% of the Allocated Loan Amount with respect to such EQR Apartment
Pool Property, the EQR Apartment Pool Borrower may receive and apply such
proceeds; otherwise such proceeds must be paid to mortgagee for disbursement as
provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the EQR Apartment Pool Borrower for restoration so
long as (i) there is no Loan Default, (ii) in the case of casualty, less than
37% of the total floor area of the improvements is damaged or destroyed, and in
the case of condemnation, less than 15% of the land constituting the affected
EQR Apartment Pool Property is taken, and such land is located along the
perimeter or periphery of the property and (iii) mortgagee shall be satisfied
that the work of restoration can be completed before the earliest of (a) the
Effective Maturity Date, (b) the date on which the business interruption
insurance expires or (c) the time required under any lease or applicable zoning
law (provided, however, that if such restoration shall not be completed by the
time required by this clause (iii)(b) or (c), the EQR Apartment Pool Borrower
shall provide an EQR Letter of Credit or other security reasonably acceptable
to mortgagee in an amount which is adequate to service the debt on the EQR
Apartment Pool Loan, fund required reserves and pay operating expenses during
the additional period, but in no event shall such additional period extend
beyond the Effective Maturity Date). If such conditions are not met, the net
proceeds of a casualty or condemnation may, at the option of mortgagee, either
(i) be applied to prepay the EQR Apartment Pool Loan without payment of a Yield
Maintenance Charge or (ii) be disbursed to the EQR Apartment Pool Borrower for
such purposes as mortgagee shall designate. All disbursements of net proceeds
of a casualty or condemnation shall be made in accordance with the Disbursement
Procedures.
Notwithstanding the foregoing, the EQR Apartment Pool Borrower may,
provided no Loan Default has occurred and is continuing and in the exercise of
its reasonable business judgment and with the reasonable consent of mortgagee
and the Rating Agencies, elect not to rebuild any portion of the EQR Apartment
Pool Property that is not deemed integral to the regular use or marketing
thereof. In such event, any net proceeds of the related casualty or
condemnation remaining after restoration of any portion of the EQR Apartment
Pool Property that is required to be restored shall be applied to prepay the
EQR Apartment Pool Loan without payment of a Yield Maintenance Charge.
To the extent that mortgagee elects to apply proceeds of a casualty or
condemnation to a prepayment of the EQR Apartment Pool Loan, the EQR Apartment
Pool Borrower shall be entitled to prepay the EQR Apartment Pool Loan in an
amount equal to the remaining Allocated Loan Amount of the related EQR
Apartment Pool Property, without payment of a Yield Maintenance Charge, and,
upon such prepayment shall be entitled to obtain the release of such property.
Approval Rights. Because the EQR Apartment Pool Properties are residential
properties, there are no approval rights with respect to leases. The EQR
Apartment Pool Loan provides mortgagee with the Standard Approval Rights
regarding budgets and alterations. Mortgagee has no approval rights with
respect to residential leases.
Financial Reporting. The EQR Apartment Pool Borrower is required to
furnish the Financial Statements to mortgagee, except that (i) annual
statements may be delivered within 105 days after each fiscal year, (ii) in
lieu of monthly statements the same statements are required to be delivered
quarterly within 45 days after the end of each calendar quarter and (iii) no
calculation of the Loan DSCR is required.
The insert between pages S-144 and S-145 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: Charlestowne Mall
Photograph
1. Internal view of mall
2. Internal view of mall
3. Internal view of mall
Reverse of Page
Legend: Charlestowne Mall
1. Aerial view of mall
2. Site Plan of Charlestowne Mall
3. Area map of eastern Illinois showing location of Charlestowne Mall
S-144
<PAGE>
CHARLESTOWNE MALL: THE BORROWER; THE PROPERTY
The Loan. The Charlestowne Mall Loan was originated by Secore and acquired
by MSMC on February 25, 1998. The Charlestowne Mall Loan had an original
principal balance of $50,000,000 and has a Cut-Off Date Principal Balance of
approximately $50,000,000. It is secured by a Mortgage (the "Charlestowne Mall
Mortgage") encumbering a portion of a regional shopping center known as the
Charlestowne Mall, located in St. Charles, Illinois (the "Charlestowne Mall
Property").
The Borrower. Charlestowne Mall, L.L.C. (the "Charlestowne Mall Borrower")
is a New York limited liability company whose purpose is limited to owning and
operating the Charlestowne Mall Property and related activities. The
Charlestowne Mall Borrower owns no assets other than the Charlestowne Mall
Property and related interests. The Charlestowne Mall Borrower's regular
member, Charwil Associates Limited Partnership, an Illinois limited partnership
(the "Charlestowne Mall Mezzanine Borrower"), owns 99% of the membership
interests in the Charlestowne Mall Borrower, and the Charlestowne Mall
Borrower's managing member, Kit Properties, Inc., a New York corporation, owns
the remaining 1% of the membership interests. Fox Properties, Inc., a New York
corporation, owns a 50% interest in the Charlestowne Mall Mezzanine Borrower
and is its general partner and also owns all of the stock of Kit Properties,
Inc. Various persons and entities affiliated with Wilmorite, Inc., a New York
corporation ("Wilmorite") own the other 50% of the interests in the
Charlestowne Mall Mezzanine Borrower. Renard Properties, Inc., a New York
limited liability company, and Ivanhoe Equities, L.P., a Delaware limited
partnership, each own a 50% and a 49% interest, respectively, in Fox
Properties, Inc. The remaining 1% ownership interest in Fox Properties, Inc. is
owned by various employees of Wilmorite and its affiliates.
The Property. The Charlestowne Mall Property is comprised of a portion of
the Charlestowne Mall, an enclosed 2-level, 4-anchor, regional mall located in
the City of St. Charles, a municipality located approximately 40 miles west of
downtown Chicago, Illinois. The Charlestowne Mall Property was originally built
in 1991 and has been expanded, most recently in 1995. Charlestowne Mall is
anchored by Carson Pirie Scott & Co., Sears, JC Penney and Kohl's and contains
approximately 822,318 total square feet of which approximately 331,215 square
feet is mall store GLA. Construction of a 16-screen Regal Cinema is projected
to be completed by Spring 1999. The portion of the Charlestowne Mall that
secures the Charlestowne Mall Loan will consist of 742,318 square feet of mall
store, leased anchor, and theater GLA upon completion of the new cinema. The
Charlestowne Mall Property is situated on approximately 80.33 acres and
contains 4,280 parking spaces. The ratio of parking spaces is 5.77 per 1,000
square feet of total mall GLA. An appraisal completed by Landauer Associates,
Inc. on April 1, 1998 determined a market value of $86,600,000 for the
Charlestowne Mall Property.
The table below summarizes the components of total square feet at the
Charlestowne Mall as of March 19, 1998.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA
--------- ----------
<S> <C> <C>
Anchor Stores (Borrower-Owned)
- ----------------------------------------------------------
Carson Pirie Scott & Co. ................................ 141,808 17.2%
Sears ................................................... 98,228 11.9
JC Penney ............................................... 99,567 12.1
------- -----
Total Anchor Stores (Borrower-Owned) ................... 339,603 41.2%
Anchor Stores (Anchor-Owned)
- -----------------------------------------------------------
Kohl's .................................................. 80,000 9.7%
Mall Store Space ......................................... 331,215 40.3%
Regal Cinema (projected completion: Spring 1999) ......... 71,500 8.7%
------- -----
GLA Total .............................................. 822,318 100.0%
======= =====
</TABLE>
Location/Access. The Charlestowne Mall Property is located in St.
Charles, Illinois, a west suburban community of Chicago. The immediate area
includes the communities of St. Charles, Wayne, Geneva and West Chicago. The
property is located on Route 64 and Kirk Road.
Operating History. The following table shows certain information regarding
the operating history of the Charlestowne Mall Property:
S-145
<PAGE>
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI(1)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 10,697,347 $ 11,260,054 $ 11,055,637 $ 11,833,815
Expenses ...................... (3,896,002) (4,169,699) (4,123,678) (4,073,059)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 6,801,345 $ 7,090,355 $ 6,931,959 $ 7,760,756
============ ============ ============ ============
</TABLE>
- --------
(1) Includes Regal Cinema rental income. Also includes income from JC Penney
lease and Carson Pirie Scott lease, each of which may be terminated.
Occupancy History. The occupancy history for the mall store space of the
Charlestowne Mall Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
OCCUPANCY AS OF: PERCENT LEASED
- ---------------------------- ---------------
<S> <C>
March 19, 1998 ............ 77.6%(1)
December 31, 1997 ......... 74.8%
December 31, 1996 ......... 79.2%
</TABLE>
- --------
(1) Includes McNally's Irish Pub, a lease out for tenant signature for 4,000
square feet (1.2% of total mall store) with an annual rent of $76,000.
Occupancy Costs. The ratio of the average occupancy cost per square foot
(i.e., minimum rent, percentage rent, real estate taxes, insurance and common
area maintenance charges) to the comparable sales per square foot for mall
store tenants was approximately 17.9% in 1997.
Tenant Sales. The Charlestowne Mall's historical mall store sales and
anchor store sales are summarized as follows(1):
<TABLE>
<CAPTION>
ANNUAL 1996 SALES(2) ANNUAL 1997 SALES(3)
-------------------------- -----------------------
SQUARE TOTAL TOTAL
FOOTAGE (000S) PER SF (000S) PER SF
--------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Anchor Store Sales
- -------------------------------------------------
Carson Pirie Scott ............................. 141,808 $19,800 $140 $21,500 $152
Sears .......................................... 98,228 11,900 121 10,900 111
JC Penney ...................................... 99,567 9,800 98 9,000 90
Kohl's ......................................... 80,000 N/A N/A N/A N/A
------- ------- ---- ------- ----
Total Anchor Store ............................ 419,603 $41,500 $122 $41,400 $122
==== ====
Mall Store Sales
- --------------------------------------------------
Comparables .................................... 193,342 $41,209 $213 $39,639 $205
Non-Comparables ................................ 59,546 5,232 N/A 6,896 N/A
Vacant ......................................... 78,327 N/A N/A N/A N/A
------- ------- ---- ------- ----
Total Mall Store .............................. 331,215 $46,441 N/A $46,535 N/A
Total Sales--Anchors and Mall Stores ......... 750,818 $87,941 N/A $87,935 N/A
======= ======= ==== ======= ===
</TABLE>
- --------
(1) Based on the 12/31/96 and 12/31/97 sales reports and summarized only for
tenants on the 3/19/98 lease status report. Information is based solely
upon the figures provided by the Charlestowne Mall Borrower from data
provided by tenants. Square Footage is based on the 3/19/98 lease status
report.
(2) Sears and JC Penney 1996 Sales are based on the sales reporting periods
of 5/1/95--4/30/96 and 6/1/95--5/31/96, respectively.
(3) Sears and JC Penney 1997 Sales are based on the sales reporting periods
of 5/1/96--4/30/97 and 6/1/96--5/31/97, respectively.
<PAGE>
Mall Stores. The Charlestowne Mall Property Tenant base is primarily
comprised of national retailers such as The Gap, Gap Kids, The Limited,
Victoria's Secret and Foot Locker. The retail leases usually provide for
minimum rents, percentage rents based on gross sales and the recovery from
tenants of a portion of common area expenses, real estate taxes and other
property related costs.
S-146
<PAGE>
The following table shows certain information regarding the 10 largest
mall store tenants by Annualized Base Rent (percentage rent and tenant
reimbursement obligations are not included):
TEN LARGEST MALL STORE TENANTS BASED ON ANNUALIZED BASE RENT BY PARENT
COMPANY(1)
<TABLE>
<CAPTION>
% OF % OF TOTAL ANNUALIZED
TENANT TOTAL ANNUALIZED ANNUALIZED BASE RENT
TENANT OR TENANT PARENT COMPANY STORE NAME GLA GLA BASE RENT BASE RENT PER SF
- ---------------------------------- ---------------------- ---------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
The Limited Inc. ................. Limited 41,414 12.5% $ 733,370 12.1% $ 17.71
Limited Express
Victoria's Secret
Lane Bryant
Lerner New York
Woolworth Corp. .................. Afterthoughts 11,474 3.5 393,992 6.5 34.34
Footlocker
Lady Footlocker
Champs
The Gap, Inc. .................... The Gap 9,366 2.8 243,516 4.0 26.00
Gap Kids
Casual Corner Group Inc. ......... Casual Corner 8,125 2.5 162,500 2.7 20.00
Petite Sophisticates
Waves ............................ Waves 4,789 1.4 153,248 2.5 32.00
Trans World Entertainment
Group ........................... Record Town 2,864 0.9 108,832 1.8 38.00
The Children's Place ............. The Children's Place 4,222 1.3 105,550 1.7 25.00
Contempo Casuals ................. Contempo Casuals 3,192 1.0 105,336 1.7 33.00
Foot Star, Inc. .................. Footaction 9,304 2.8 93,040 1.5 10.00
Brown Group, Inc. ................ Famous Footwear 5,035 1.5 90,630 1.5 18.00
------ ----- ---------- ----- --------
Total/Weighted Average (10
Largest) ....................... 99,785 30.1% $2,190,014 36.2% $ 21.95
----- -----
Remaining Mall Stores ............ 153,103 46.2 3,646,043 60.3 23.81
Vacant(2) ........................ 78,327 23.6 213,213 3.5 --
------- ----- ---------- ----- --------
Total Mall Stores ............... 331,215 100.0% $6,049,269 100.0% $ 23.01(3)
======= ===== ========== ===== ===========
Proffitt's, Inc. ................. Carson Pirie Scott 141,808 789,864
JC Penney Co., Inc. .............. JC Penney 99,567 502,152
Sears Roebuck & Co. .............. Sears 98,228 337,904
------- ----------
Total (including anchor leases) 670,818 $7,679,189
======= ==========
</TABLE>
- --------
(1) Based on the March 19, 1998 lease status report and applicable lease
modifications.
(2) Vacant annualized base rent includes underwritable temporary tenant
income and income from one lease out for signature, McNally's Irish Pub
(annual rent $76,000; 4,000 square feet).
(3) Total annual base rent per square foot excludes vacant square footage and
underwritable temporary tenant rent.
S-147
<PAGE>
Mall Store Lease Expirations. The following table shows scheduled lease
expirations of mall store GLA at the Charlestowne Mall Property as of March 19,
1998, assuming none of the tenants renews its lease, exercises renewal options
or terminates its lease prior to the scheduled expiration date. See "Anchor
Stores" below for anchor lease or REA expirations.
LEASE EXPIRATION SCHEDULE(1)
<TABLE>
<CAPTION>
CUMULATIVE
ANNUALIZED PERCENT OF PERCENT OF
NUMBER OF EXPIRING PERCENT OF CUMULATIVE ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION LEASES SF SF PERCENT OF SF BASE RENT PER SF BASE RENT BASE RENT
- -------------------- ----------- ---------- ------------ --------------- ------------ --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant(2) .......... 1 74,327 22.4% 22.4% $ 137,213 $ 1.85 2.3% 2.3%
1998 ............... 6 8,191 2.5 24.9% 137,780 16.82 2.3 4.5%
1999 ............... 4 2,463 0.7 25.7% 96,678 39.25 1.6 6.1%
2000 ............... 1 984 0.3 26.0% 33,000 33.54 0.5 6.7%
2001 ............... 34 73,175 22.1 48.0% 1,944,699 26.58 32.1 38.8%
2002 ............... 17 35,672 10.8 58.8% 896,869 25.14 14.8 53.7%
2003 ............... 18 35,907 10.8 69.7% 986,454 27.47 16.3 70.0%
2004 ............... 4 11,035 3.3 73.0% 219,005 19.85 3.6 73.6%
2005 ............... 4 8,685 2.6 75.6% 174,470 20.09 2.9 76.5%
2006 ............... 4 15,602 4.7 80.3% 215,050 13.78 3.6 80.0%
2007 ............... 5 37,770 11.4 91.7% 667,540 17.67 11.0 91.1%
2008(3) ............ 8 22,369 6.8 98.5% 449,882 20.11 7.4 98.5%
2009 ............... 1 5,035 1.5 100.0% 90,630 18.00 1.5 100.0%
-- ------ ----- ---------- -------- -----
Total ............. 107 331,215 100.0% $6,049,269 $ 23.01(4) 100.0%
=== ======= ===== ========== =========== =====
</TABLE>
- --------
(1) Based on the March 19, 1998 lease status report and applicable lease
modifications.
(2) Includes underwritable temporary tenant income.
(3) One lease out for signature, McNally's Irish Pub (annual rent $76,000;
4,000 square feet).
(4) Total Annualized Base Rent per square foot excludes vacant square footage
and underwritable temporary tenant rent.
Anchor Stores. The following table shows certain information for each of
Charlestowne Mall's anchor tenants (and each respective corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING OF
PARENT COMPANY
ANCHORS PARENT COMPANY (S&P/MOODY'S)(1) GLA
- ------------------------ ----------------------- ------------------ ---------
<S> <C> <C> <C>
Carson Pirie Scott & Co. Proffitt's, Inc. BB+/Baa3 141,808
JC Penney .............. J.C. Penney Co., Inc. A/A2 99,567
Sears .................. Sears Roebuck A-/A2 98,228
Kohl's ................. Kohl's Dept. Stores BBB/Baal 80,000
<CAPTION>
OPERATING
ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS COLLATERAL EXPIRATION(2) EXPIRATION(3) TERMINATION
- ------------------------ --------------- ------------------ ------------------ ------------
<S> <C> <C> <C> <C>
Carson Pirie Scott & Co. Collateral 1/31/2007 8/15/2006 N/A
JC Penney .............. Collateral 5/31/2007(4) 5/31/2007(4) N/A
Sears .................. Collateral 4/4/2011 8/15/2006(5) N/A
Kohl's ................. Anchor-owned N/A 8/15/2006 12/31/2042
</TABLE>
- --------
(1) Reflects long-term debt rating as of April 7, 1998. Unless otherwise
stated, the parent company, if different from the anchor store listed, is
not a party to or guarantor of the anchor store's lease.
(2) Includes initial term only. The Carson Pirie Scott & Co. Lease lease has
7 renewal options of 7 years each, the JC Penney lease has 6 renewal
options of 5 years each, and the Sears lease has 3 renewal options of 5
years each.
(3) Date of operating covenant expirations is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into account
co-tenancy and other operating requirements.
<PAGE>
(4) Lease and operating covenant expires on the date that is 15 years from
the opening date. Based on information provided by the Charlestowne Mall
Borrower, the opening date was May 31, 1992 and the expiration date is
May 31, 2007. If the opening date had occurred on the date of the lease
(February 1, 1991), the expiration date would be February 1, 2006.
(5) Based on the borrower-identified opening date of store.
S-148
<PAGE>
Market Overview and Competition. According to the April 1, 1998 Landauer
Associates, Inc. appraisal, the Charlestowne Mall Property trade area is
estimated as of 1997 to have 178,620 people in approximately 60,803 households
with an average household income of $70,182. These estimates represent of
compound annual growth rate from 1990 to 1997 of 2.45% and 2.26% and 4.75%,
respectively.
The following table shows an overview of the primary and secondary
regional mall competition for the Charlestowne Mall:
<TABLE>
<CAPTION>
APPROXIMATE
DISTANCE FROM
MALL/RETAIL YEAR BUILT/ THE PROPERTY ANCHORS/
PROPERTY RENOVATED OWNER (MILES) MALL STORES SIZE (SF)
- -------------------- ---------------- ------------------------- -------------- ---------------------------- ----------
<S> <C> <C> <C> <C> <C>
Subject Property
- --------------------
Charlestowne Mall 1991 JC Penney 99,567
Sears 98,228
Carson Pirie Scott 141,808
Kohl's 80,000
Regal Cinema (Spring 1999) 71,500
Mall Stores 331,215
---------
Total 822,318
Primary Competition
- --------------------
Stratford Square 1981/1985/1998 Urban Retail Properties 11 Marshall Fields 141,958
Carson Pirie Scott 139,564
JC Penney 144,731
Montgomery Ward 156,906
Sears 141,719
Kohl's 76,757
Mall Stores 490,364
---------
Total 1,291,999
Fox Valley Center 1975/1997 Urban Retail Properties 12 Marshall Fields 231,174
Carson Pirie Scott 115,459
JC Penney 206,566
Sears 314,380
Mall Stores 597,657
---------
Total 1,465,236
Spring Hill Mall 1980/1986/1992 Spring Hill Mall 14 Marshall Fields 123,763
Partnership/ Carson Pirie Scott 132,710
TCW Realty Advisors JC Penney 132,870
Sears 190,022
Kohl's 70,403
Wickes Furniture 51,633
Mall Stores 345,115
---------
Total 1,046,516
Secondary
- --------------------
Competition
Woodfield Mall 1971/1995 The Taubman Co. 22 Lord & Taylor 123,651
Marshall Fields 347,148
Nordstrom 198,150
JC Penney 330,764
Sears 379,916
Mall Stores 1,308,000
---------
Total 2,687,629
Oak Brook Center 1962/1991 Urban Retail Properties 15 Lord & Taylor 99,187
Marshall Fields 363,789
Neiman Marcus 111,507
Nordstrom 214,726
Saks Fifth Avenue 90,947
Sears 282,125
Mall Stores 830,422
---------
Total 1,992,703
Yorktown Mall 1968/1985/1994 Pehrson-Long Associates 12 Carson Pirie Scott 214,534
JC Penney 239,110
Von Maur 206,342
Montgomery Ward 165,382
Target N/A
Mall Stores 874,632
---------
Total 1,700,000
</TABLE>
- --------
Sources: Landauer Associates , Inc.; Directory of Major Malls (18th Edition
1997)
S-149
<PAGE>
The Construction, Operation and Reciprocal Easement Agreement dated March
16, 1993, as amended (the "Charlestowne/Kohl's COREA") by and between the
Charlestowne Mall Borrower and Kohl's Department Stores, Inc. ("Kohls")
provides that Kohl's must operate continuously, under the name Kohl's or the
same name under which a majority of the stores formerly (prior to any name
change) operated in the Chicago metropolitan area, until August 15, 2006.
Kohl's may terminate its operating covenant if at least 2 of Sears, Roebuck and
Co. ("Sears"), Carson Pirie Scott & Co. ("CPS") and JC Penney Company, Inc.
("Penney") are not operating for 365 days and such conditions continues for 180
days after notice by Kohl's. If Kohl's ceases operation for more than 9
consecutive months, the Charlestowne Mall Borrower may repurchase the Kohl's
site at a price to be determined by an appraisal process; provided, that if
Kohl's operating covenant has expired, such repurchase may be effected only if
at least one other department store is open. The Charlestowne Mall Borrower is
required to operate as a mall until December 31, 2042; provided that after
March 1, 2005 such obligation terminates if at such time as Kohl's plus only
one other department store is open one of them closes and remains closed for 12
months.
Kohl's may lease, sell or mortgage its site subject to the operating
covenant. A purchaser at foreclosure on a mortgage of the Kohl's property takes
title to the site free of the operating covenant, but subject to the
Charlestowne Mall Borrower's right to repurchase. If Kohl's wishes to sell or
lease its site, the Charlestowne Mall Borrower has the right to repurchase the
Kohl's site at the proposed sale price or at a price determined by an appraisal
process if the transfer is not a sale.
The Charlestowne Mall Borrower may assign its rights to enforce the
Charlestowne/Kohl's COREA to an institutional mortgagee (defined to include a
savings bank, a savings and loan association, a commercial bank or trust
company, an insurance company, or a welfare, pension or retirement fund or
system or a subsidiary of any of the foregoing), but may be enforced by such
mortgagee only if it is performing the Charlestowne Mall Borrower's operating
covenants. The COREA requires that any mortgage on the Charlestowne Mall
Property must provide that it is subordinate to the COREA.
Pursuant to the lease between the Charlestowne Mall Borrower and CPS,
CPS's must operate under the name Carson Pirie Scott or such other trade name
as is used by the majority of its department stores operating in the Chicago
Standard Metropolitan Statistical Area, for a period of 15 years following
Commencement (defined as August 15, 1991); provided that Sears is open in a
space of at least 60,000 square feet. CPS is released from such operating
covenant if (i) operation of mall stores falls below 65%, (ii) at least one
other department store is not operating in a space of at least 60,000 feet, or
(iii) if 4 department stores have opened and at least 2 are not operating in a
space of at least 60,000 feet, and, in each case, landlord fails to cure within
12 months.
Pursuant to the lease between the Charlestowne Mall Borrower and Sears,
Sears must continuously operate, under the name Sears or another name as Sears
will be operating in the majority of its like retail department stores in the
same state, until approximately August 15, 2006. Sears is released from such
operating covenants if (i) less than 1 Department Store (or less than 2
Department Stores, if 4 or more Department Stores have opened) is open and
operating and such default continues for 12 months or (ii) less than 60% of the
mall store space is occupied, and such default continues for 12 months.
Pursuant to the lease between the Charlestowne Mall Borrower and Penney,
Penney must continuously operate at least 70% of the floor space of its main
store building as a retail department store under a name containing the words
Penney or JC Penney or under the name under which a majority of Penney's retail
stores are then being operated until 15 years after the date of commencement of
the lease. Penney may terminate such operating covenants if (i) landlord
violates its operating agreement, (ii) Sears or CPS cease to operate in excess
of 60 days as retail department stores or any covenants of either of them have
been terminated, cancelled or released or (iii) less than 60% of the mall store
space is open, and such default continues for 12 months. As described below
under "--Release of Certain Anchor Parcels," it is contemplated that the Penney
lease may be terminated.
The lease between the Charlestowne Mall Borrower and Regal Cinemas, Inc.
("Regal"), requires Regal to continuously operate during the term thereof. The
term of the lease is a 20 year term commencing on the earlier of 120 days after
landlord delivers the premises to tenant with all landlord work complete and
the date tenant opens for business. The Charlestowne/ Kohl's COREA imposes
certain obligations on the Charlestown Mall Borrower with respect to casualty
and condemnation, which may require the Charlestowne Mall Borrower to restore
the Charlestowne Mall Property (and which, because the Charlestowne Mall
Mortgage is not senior to the Charlestown/Kohl's COREA, will override
provisions that would otherwise permit mortgagee to cause a prepayment rather
than restoration). The Charlestown/Kohl's COREA and the anchor leases also
contain provisions which may permit the anchor store to abate rent or to
terminate the related lease or its operating covenant upon certain events of
casualty or condemnation.
S-150
<PAGE>
Release of Certain Anchor Parcels. The Charlestowne Mall Loan provides
that the JC Penney lease at the Charlestowne Mall may be terminated, the
property on which the JC Penney store is located may be released from the lien
of the Charlestowne Mall Mortgage, and the JC Penney property may then be
deeded to Von Maur, Inc. at no cost to Von Maur, Inc., for use as a Von Maur
store, if various conditions are satisfied. Those conditions include, but are
not limited to, (i) confirmation by the Rating Agencies that the JC Penney
lease termination will not result in a qualification, reduction or withdrawal
of any rating initially or then currently assigned to the Certificates, (ii)
the execution of an operating and reciprocal easement agreement satisfactory to
the Rating Agencies (which agreement must provide for the opening date of the
Von Maur store within approximately 1 year of the earlier of the JC Penney
lease termination or cessation by JC Penney of operations), (iii) the delivery
of a completion guaranty by Wilmorite, (iv) the obtaining of a letter of credit
satisfactory to the Rating Agencies in the amount of the difference between (a)
a certain grant from the City of St. Charles and (b) the cost of any lease
termination payments to JC Penney and the funds payable under the operating and
reciprocal easement agreement and other agreements with Von Maur (including
costs of construction) and (v) confirmation that the loan to value ratio as
determined by an MAI appraiser acceptable to the Rating Agencies of the
original Charlestowne Mall Loan amount to the appraised value of the
Charlestowne Mall property remaining after the release of the JC Penney
property, shall not be greater than 75%.
In addition, in the year 2001, CPS Realty Partnership ("CPS"), an
affiliate of Carson Pirie Scott, an anchor tenant at the Charlestowne Mall, has
an option to purchase a portion of its premises (the "CPS Initial Property")
for fair market value. Fair market value is to be determined by the average of
2 MAI appraisals; if the difference between the 2 appraisals is greater than
5%, the 2 appraisers will select a third MAI appraiser, and the fair market
value will be the average of all 3 appraisals. Upon payment of the purchase
price, the lien of the Charlestowne Mall Mortgage will be released from the CPS
Initial Property and the CPS Initial Property will be transferred to CPS. As a
condition to such release, CPS is required to enter into an operating and
reciprocal easement agreement with the Charlestowne Mall Borrower for the
duration of its existing lease with the Charlestowne Mall Borrower. The
purchase price will be paid directly to mortgagee and shall be used by
mortgagee to partially prepay the Charlestowne Mall Loan, without payment of a
Yield Maintenance Charge.
Construction of Regal Cinema Improvements. Under the Charlestowne Mall
Loan a Construction Fund Escrow Account has been established in the amount of
$5,720,000 (the "Construction Funds"), to be paid out only upon the
satisfaction of various conditions (hereinafter described) and upon the
completion of a multiplex theater ("Cinema Improvements") to be operated by
Regal Cinema, Inc. or another movie theater operator approved by mortgagee
("Theater Operator") (which completion must occur by December 31, 1999). During
the construction period, the land upon which the Cinema Improvements will be
located, which is not attached to the existing Improvements, is to be
ground-leased under a financeable ground-lease to a single purpose, bankruptcy
remote subsidiary of Wilmorite ("Cinema Ground Tenant"), which subsidiary would
then be the landlord under the Theater Operator's lease. Such ground lease is
required to provide for payment of ground rent of at least $100,000 a year to
the Charlestowne Mall Borrower. Cinema Ground Tenant would then be permitted to
obtain construction financing secured by such ground leasehold interest and by
an assignment of lease payments under any lease entered into with the Theater
Operator. Wilmorite has delivered to mortgagee a completion guaranty of the
Cinema Improvements construction. Upon satisfactory completion of the Cinema
Improvements in compliance with the plans and specifications therefor,
confirmation that (i) the ground lease has been terminated, (ii) the Theater
Operator's lease is a direct lease with the Charlestowne Mall Borrower, (iii)
the Theater Operator's lease is in full force and effect (and is satisfactory
to mortgagee in its sole discretion), (iv) the Theater Operator has accepted
the Cinema Improvements and (v) the construction lender's leasehold
construction mortgage has been discharged, the funds in the Construction Funds
Escrow Account are required to be paid either to Cinema Ground Tenant's
construction lender or to the Charlestowne Mall Borrower, if construction was
self financed by the Charlestowne Mall Borrower or the Cinema Ground Tenant. If
the December 31, 1999 deadline is not met or the Charlestowne Mall Borrower
does not satisfy the aforesaid conditions, mortgagee may either (i) continue to
hold the Construction Funds, (ii) apply the Construction Funds to any sums due
on the Charlestowne Mall Loan from and after the Effective Maturity Date,
without payment of a Yield Maintenance Charge or (iii) apply any Construction
Funds to debt service due and owing on the Charlestowne Mall Loan.
The completion guaranty delivered by Wilmonte provides mortgagee with the
option to apply such guaranty (i) to repay principal at such time as the
guarantor is first required to pay thereunder, (ii) to repay principal on the
Effective Maturity Date or (iii) to pay debt service. Under the Pooling
Agreement, the Master Servicer or Special Servicer, as applicable, will be
required to apply the guarantee under either option (i) or (ii) above, and not
to pay debt service.
Environmental Report. A Phase I site assessment, in February 1998, was
performed on the Charlestowne Mall Property. The Phase I site assessment did
not reveal any environmental liability that the Depositor believes would have a
S-151
<PAGE>
material adverse effect on the borrower's business, assets or results of
operations taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loan--Environmental Law
Considerations."
Engineering Report. A Property Condition Report was completed on the
Charlestowne Mall Property on February 26, 1998 by a third party due diligence
firm. The Property Condition Report concluded that the Charlestowne Mall
Property was generally in good physical condition and identified approximately
$193,050 in deferred maintenance requirements.
Property Management. The Charlestowne Mall Property is managed by Genesee
Management, Inc. (the "Charlestowne Mall Manager"), which is an affiliate of
the Charlestowne Mall Borrower, pursuant to a management agreement dated March
11, 1996 (the "Charlestowne Mall Management Agreement"). The Charlestowne Mall
Manager receives an annual management fee of (i) 4% of the sum of fixed annual
minimum rent paid under all leases, gross percentage rent paid under all leases
and income derived from termination of leases; and (ii) a leasing commission
fee equal to $4.00 per square foot for space up to and including 60,000 square
feet ($2.50 per square foot for space of more than 60,000 square feet). The
Charlestowne Mall Manager also receives a financing fee of 0.4% for arranging
and closing debt financing; reimbursement of legal costs; a tenant coordination
and construction fee of 5% of construction hard costs for tenant space; and a
development fee of 5% of project costs for new development at the Charlestowne
Mall.
The Charlestowne Mall Management Agreement is for a term ending March 11,
2001 with 2 automatic extensions of 5 years and 1 year, respectively, unless
terminated by either party. Under the terms of the Charlestowne Mall Loan, any
termination or replacement of the Charlestowne Mall Manager or entering into a
new management agreement requires (i) the consent of mortgagee and (ii)
confirmation from each Rating Agency that such action will not result in a
downgrade, qualification or withdrawal of the then current ratings of the
Certificates. Pursuant to a management subordination agreement among the
Charlestowne Mall Borrower, the Charlestowne Mall Manager and mortgagee, the
Charlestowne Mall Manager has agreed (i) that the Charlestowne Mall Management
Agreement is subordinate to the Charlestowne Mall Loan and (ii) that mortgagee
has the right to terminate the Charlestowne Mall Manager and replace it with a
manager approved by mortgagee (a) on or after any Loan Default, (b) for gross
negligence, willful misconduct or fraud, or (c) if the Loan DSCR of the
Charlestowne Mall Loan falls below 1.10x.
The Charlestowne Mall Manager is owned by an affiliate of Wilmorite, Inc.
an affiliate of the Charlestowne Mall Borrower. In a recent edition of the
industry trade publication Shopping Center World (March 1998) Wilmorite was
ranked among the 50 largest retail property managers in the United States, with
approximately 11,872,800 feet under management.
S-152
<PAGE>
<TABLE>
<S> <C>
CHARLESTOWNE MALL: THE LOAN.
ORIGINAL PRINCIPAL BALANCE: $50,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $50,000,000 INITIAL INTEREST RATE: 7.73%
ORIGINATION DATE: February 25, 1998 REVISED INTEREST RATE: 9.73%
EFFECTIVE MATURITY DATE: March 1, 2005 AMORTIZATION: 360 months
MATURITY DATE: March 1, 2028 MONTHLY PAYMENT: $357,515.34
EMD BALANCE: $46,730,265 CALL PROTECTION: Lockout to 3 months prior to EMD
</TABLE>
CERTAIN CHARLESTOWNE MALL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO VALUE ACTUAL
SQUARE FOOT(1) RATIO(2) DSCR(3)
---------------- --------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $67 57.7% 1.70x
At Effective Maturity Date ......... $63 54.0% 1.82x
</TABLE>
- --------
(1) Based on the 742,318 square feet of GLA securing the Charlestowne Mall
Loan and the Cut-Off Date Principal Balance or Effective Maturity Date
Balance as applicable.
(2) Based on the April 1, 1998, Landauer Associates, Inc. appraised market
value Cut-Off Date Principal Balance or Effective Maturity Date Balance,
as applicable.
(3) Based on (a) Underwritable Cash Flow of $7,306,601 and (b) in the case of
Cut-Off Date Actual DSCR, actual debt service on the Charlestowne Mall
Loan during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
Charlestowne Mall Loan assuming a balance equal to the Effective Maturity
Date Balance, a coupon equal to the Charlestowne Mall Initial Interest
Rate and an amortization term equal to 360 months.
Security. The Charlestowne Mall Loan is a nonrecourse loan, secured only
by the fee estate of the Charlestowne Mall Borrower in the Charlestowne Mall
Property and certain related collateral, including an assignment of leases and
rents. Mortgagee is the insured under title insurance policies insuring that
the Charlestowne Mall Mortgage constitutes a valid and enforceable first lien
on the Charlestowne Mall Property, subject to certain exceptions set forth
therein.
Payment Terms. Interest on the Charlestowne Mall Loan is calculated on an
Actual/360 Basis. Its Due Date is the first day of each month with no grace
period (provided, that if the Due Date is not a business day, payment may be
made on the next business day). The Late Payment Fee on any principal or
interest payment not paid on its due date is 5% of such unpaid sum and the
Default Rate following a Loan Default is 5% above the then applicable interest
rate, in each case subject to applicable law.
Prepayment. Voluntary prepayment is prohibited under the Charlestowne Mall
Loan prior to the date that is 3 months prior to the Effective Maturity Date.
From and after such date the Charlestowne Mall Loan may be voluntarily prepaid,
in whole or in part, without payment of a Yield Maintenance Charge, on any Due
Date.
Principal prepayments on the Charlestowne Mall Loan may occur after the
Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the Charlestowne Mall Loan following a Loan Default.
Prepayments following a Loan Default require payment of a Yield Maintenance
Charge equal to the greater of (a) 1% of the portion of the principal amount
being repaid and (b) the Yield Maintenance Premium. As described below,
prepayments may also be made, without payment of a Yield Maintenance Charge,
from insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 2 years after the Closing Date and ending on the Effective Maturity
Date, the Charlestowne Mall Loan permits the release of the Charlestowne Mall
Property upon delivery to mortgagee of U.S. Obligations which provide for
payments on or prior to, but as close as possible to, Each
S-153
<PAGE>
Due Date up to the Effective Maturity Date and in amounts equal to the
principal and interest payments due on the Charlestowne Mall Loan on such
dates, and provide for payment on the Effective Maturity Date of the remaining
principal balance of the Charlestowne Mall Loan. Upon any such Defeasance, at
the option of mortgagee, the Charlestowne Mall Borrower's obligations under the
Charlestowne Mall Loan and the U.S. Obligations securing the Charlestowne Mall
Loan will be transferred to a Successor Borrower. Following such Defeasance,
the U.S. Obligations will be the sole security for the Charlestowne Mall Loan.
Lockbox and Reserves. Pursuant to the Charlestowne Mall Loan, the
Charlestowne Mall Borrower is required to establish a Hard Lockbox, which will
be a One Tier Lockbox, on the Closing Date. The Lockbox Bank is Manufacturers
and Traders Trust Company. Amounts in the Lockbox are required to be applied in
accordance with the Lockbox Waterfall, except that there is no separate Debt
Service Account; however, Monthly Payments are escrowed and paid directly to
mortgagee.
The Charlestowne Mall Borrower has established (a) a Tax Account, which
had an Initial Reserve Deposit of $539,000, and requires a Monthly Reserve
Deposit equal to the Monthly Tax Deposit Amount, (b) an Insurance Account,
which had an Initial Reserve Deposit of $100,501.20, and requires a Monthly
Reserve Deposit equal to the Monthly Insurance Deposit Amount, (c) a Required
Repair Account, which had an Initial Reserve Deposit of $241,313, (d) a Capital
Expenditures Account, which requires a Monthly Reserve Deposit equal to
$11,101, which amount shall be adjusted upward for inflation at every
anniversary of the Charlestowne Mall origination date, and (e) a Rollover
Account, which had an Initial Reserve Deposit of $2,000,000, and requires a
Monthly Reserve Deposit equal to $49,416, which amount shall be adjusted upward
for inflation at every anniversary of the Charlestowne Mall origination date.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Charlestowne Mall Borrower is generally prohibited from transferring
the Charlestowne Mall Property, but is afforded a one-time only right to
transfer the Charlestowne Mall Property, upon satisfaction of the following:
(i) consent of mortgagee, (ii) confirmation by each Rating Agency that such
transfer will not result in the downgrade, qualification or withdrawal of the
then current ratings of the Certificates, and (iii) delivery of a new
nonconsolidation opinion. The Charlestowne Mall Borrower is also prohibited
from further encumbering the Charlestowne Mall Property.
The Charlestowne Mall Loan generally prohibits the transfer of any direct
or indirect interest in the Charlestowne Mall Borrower. In any instance where
mortgagee shall be asked to consent to any transfer of any direct or indirect
interest in the Charlestowne Mall Borrower, without limiting any conditions
which mortgagee may require in connection with such consent, (a) if 10% or more
of direct or indirect beneficial interests in Charlestowne Mall Borrower are
sold or transferred and if required by the Rating Agencies, (b) if any sale or
transfer shall result in a person or group of affiliates or family members, as
applicable, acquiring more than a 49% direct or indirect interest in the
Charlestowne Mall Borrower or Fox Properties, Inc. or (c) if there is any sale
or transfer of any direct interest in the Charlestowne Mall Borrower held by
Fox Properties, Inc., the Charlestowne Mall Borrower shall deliver or cause to
be delivered to the Rating Agencies and mortgagee (x) a nonconsolidation
opinion as between the transferee or any affiliate thereof and each of the
Charlestowne Mall Borrower and Fox Properties, Inc. and (y) an officer's
certificate certifying that such sale or transfer is not a Loan Default.
Notwithstanding the foregoing, the consent of mortgagee shall not be
required for the transfer, directly or indirectly, of ownership interests in
Fox Properties, Inc., or the transfer, directly or indirectly, of the limited
partnership interests in the Charlestowne Mall Mezzanine Borrower, provided
Thomas C. Wilmot, Wilmorite, and/or Ivanhoe Inc. and/or one or more affiliate
entities of any of the foregoing retains and maintains a direct or indirect
ownership of at least 51% of the economic and beneficial interests in the
Charlestowne Mall Borrower and the Charlestowne Mall Mezzanine Borrower and the
right and power, directly or indirectly, to direct the management, policies and
day-to-day business and affairs of the Charlestowne Mall Borrower and the
Charlestowne Mall Mezzanine Borrower following such transfer; and provided
further that (A) no Loan Default shall have occurred and be continuing, (B) the
bankruptcy-remote structure of the Charlestowne Mall Borrower and the
Charlestowne Mall Mezzanine Borrower and the special purpose corporation member
or partner of each of them (each a "Charlestowne SPE") shall not have been
affected as a result of such transfer, (C) the Charlestowne Mall Borrower shall
deliver a new or updated nonconsolidation opinion reasonably acceptable to
mortgagee and the Rating Agencies, with respect to the Charlestowne Mall
Borrower, the Charlestowne Mall Mezzanine Borrower, each Charlestowne SPE, the
transferee and any of their respective beneficial owners, as applicable, if
subsequent to any such transfer, such transferee together with any affiliated
person or entity of such transferee, directly or indirectly, own more than 49%
of the membership or partnership interests in the Charlestowne Mall Borrower
and/or the Charlestowne Mall Mezzanine Borrower or either Charlestowne SPE, and
(D) Wilmorite shall remain liable under certain completion guarantees.
S-154
<PAGE>
The Charlestowne Mall Borrower is not permitted to incur any additional
indebtedness other than unsecured indebtedness for trade payables incurred in
the ordinary course of owning and operating the Charlestowne Mall Property
which does not exceed, at any time, $800,000 and is paid within 100 days of the
date incurred.
Insurance. The Charlestowne Mall Borrower is required to maintain for the
Charlestowne Mall Property (a) comprehensive all risk insurance with coverage
in an amount at all times sufficient to prevent the Charlestowne Mall Borrower
from becoming a co-insurer, but in any event equal to the greater of the full
replacement value of the improvements and the outstanding principal amount of
the Charlestowne Mall Loan, (b) general liability insurance with an aggregate
limit of not less than $2,000,000, (c) statutory workers compensation
insurance, (d) business interruption insurance to cover the loss of at least 24
months income, (e) during any period of construction or repair, builder's "all
risk" insurance in an amount not less than full replacement value, (f)
comprehensive boiler and machinery insurance in amounts reasonably required by
mortgagee, and (g) at mortgagee's reasonable request, such other insurance in
such amounts as are generally required by institutional lenders for comparable
properties.
All insurance policies are required to meet the Insurance Requirements.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Charlestowne Mall Property or a
condemnation of a portion of the Charlestowne Mall Property, the Charlestowne
Mall Borrower is obligated to commence and diligently prosecute to completion
the restoration of the Charlestowne Mall Property. If both the net proceeds of
the casualty or condemnation and the costs of restoration are less than
$500,000, the Charlestowne Mall Borrower may receive and apply such proceeds;
otherwise such proceeds must be paid to mortgagee for disbursement as provided
below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Charlestowne Mall Borrower for restoration so
long as (i) there is no Loan Default, (ii) in the case of casualty, less than
25% of the total floor area of the improvements is damaged or destroyed, and in
the case of condemnation, less than 10% of the land constituting the
Charlestowne Mall Property is taken, and such land is located along the
perimeter or periphery of the property, (iii) leases demising more than the 75%
of mall store tenant rentable space and more than 75% of anchor tenant rentable
space remain in full force and effect during and after restoration without
abatement of rent and (iv) mortgagee shall be satisfied that the work of
restoration can be completed before the earliest of (a) the date which is 60
days before the Effective Maturity Date, (b) the date on which the business
interruption insurance expires or (c) the time required under any lease of
10,000 or more square feet or applicable zoning law. If such conditions are not
met, the net proceeds of a casualty or condemnation may at the option of
mortgagee either (i) be applied to prepay the Charlestowne Mall Loan without
payment of a Yield Maintenance Charge or (ii) be disbursed to the Charlestowne
Mall Borrower for restoration. All disbursements of net proceeds of a casualty
or condemnation shall be made in accordance with the Disbursement Procedures.
Approval Rights. The Charlestowne Mall Loan provides mortgagee with the
Standard Approval Rights regarding budgets, leases and alterations, except that
no approval is required for its construction of the Regal Cinema, Inc.
multiplex theatre (which is subject to the conditions discussed above). The
Lease Approval Threshold is 10,000 square feet, and the Alteration Escrow
Threshold is $2,350,000.
Financial Reporting. The Charlestowne Mall Borrower is required to furnish
the Financial Statements to mortgagee except that (i) the annual statements may
be delivered within 120 days after each fiscal year, and (ii) in lieu of
monthly statements the same statements are required to be delivered quarterly
within 60 days after the end of each calendar quarter.
Mezzanine Debt. The Charlestowne Mezzanine Borrower is the borrower under
a mezzanine loan in the amount of $10,000,000 the ("Charlestowne Mezzanine
Loan") originated by Secore and purchased by MSMC (the "Charlestowne Mezzanine
Lender") on February 25, 1998. The Charlestowne Mezzanine Loan is secured by
the 99% regular membership interest and all of the stock in the 1% managing
member of the Charlestowne Mall Borrower (collectively, the "Charlestowne
Pledged Interests"). Pursuant to an intercreditor agreement, the Charlestowne
Mezzanine Lender has agreed with mortgagee to obtain confirmation from each
Rating Agency that the following actions will not result in the qualification,
downgrade or withdrawal of the ratings assigned to the Certificates: (i)
foreclosure on the Charlestowne Pledged Interests; (ii) enforcement of its
rights described below regarding termination or replacement of the manager of
the Charlestowne Mall Property; and (iii) transfer of the Charlestowne
Mezzanine Loan, except to (a) an institutional investor with at least
$250,000,000 in capital/statutory surplus or shareholder's equity and at least
$12,000,000,000 in total assets, and experienced in making commercial real
estate loans; or (b) any entity wholly owned by the foregoing; provided,
however, that confirmation shall be obtained from each Rating Agency if the
Charlestowne Mezzanine Loan is being transferred in part to more than one such
institutional investor. See "Risk Factors--Other Financing."
S-155
<PAGE>
Under the intercreditor agreement, mortgagee must notify the Charlestowne
Mezzanine Lender of Loan Defaults and defaults under the Charlestowne Mall Loan
and may not accelerate the Charlestowne Mall Loan or pursue any remedies
thereunder, unless the Charlestowne Mezzanine Lender fails to cure such default
within the cure period, if any, under the Charlestowne Mall Loan documents, or
within 2 business days for a payment default, following the Charlestowne
Mezzanine Lender's receipt of written notice of such default. Such cure rights
terminate on the Effective Maturity Date and do not apply at any time that the
Charlestowne Mall Borrower or an affiliate thereof owns the Charlestowne
Mezzanine Loan.
The Charlestowne Mezzanine Loan matures on March 1, 2003, requires monthly
payments of interest only, and bears interest at a variable rate of LIBOR plus
4%. If certain events related to the construction of the Cinema Improvements
have not occurred by August 31, 1998, or upon an event of default and
acceleration of the Charlestowne Mezzanine Loan, all amounts in the Lockbox
remaining after payment of debt service, reserves and expenses must be applied
to prepay the Charlestowne Mezzanine Loan.
The Charlestowne Mezzanine Loan may be prepaid voluntarily, in whole (but
not in part), at any time, and is required to be prepaid from any net proceeds
of a casualty, condemnation, refinancing or transfer of the Charlestowne Mall
Property in excess of the portion required to be applied under the Charlestowne
Mall Loan.
The Charlestowne Mezzanine Lender may increase the interest rate of the
Charlestowne Mezzanine Loan if (i) the weighted average debt service coverage
ratio of the Charlestowne Mall Loan and the Charlestowne Mezzanine Loan for the
12 month period ending January 31, 2001 is below 1.35x; or (ii) as of January
31, 2001 (x) the Charlestowne Mall Cinema Tenant is not in place, (y) the Von
Maur store has not been open and operating in place of JC Penney for the
immediately preceding 8 consecutive months or (z) either less than 90% of the
mall space is leased or at least 75% of the tenants who became tenants after
February 25, 1998 are not first-class national or regional mall tenants.
The operating agreement of the Charlestowne Mall Borrower provides that it
may not cause or permit the transfer or encumbrance of the Charlestowne Mall
Property or prepay or refinance the Charlestowne Mall Loan without the consent
of the Charlestowne Mezzanine Borrower. The Charlestowne Mezzanine Borrower has
agreed under the Charlestowne Mezzanine Loan not to provide any of the
foregoing consents without the consent of the Charlestowne Mezzanine Lender.
However, the Charlestowne Mezzanine Lender has agreed not to withhold
consent to refinancing of the Charlestowne Mall Loan if certain conditions are
met, including among others that (i) in the event the aggregate amount of debt
increases, all net proceeds shall be used to reduce the Charlestowne Mezzanine
Loan, (ii) the new loan would not provide for the payment of any additional
interest, equity kicker or any similar equity feature and (iii) the new
mortgage lender assumes the obligations of mortgagee under the intercreditor
agreement and such lender and all parties to the Charlestowne Mezzanine Loan
documents enter into amendments or replacements thereto satisfactory to the
Charlestowne Mezzanine Lender, so as to preserve for it the benefits it had
prior to refinancing.
The Charlestowne Mezzanine Lender has agreed not to unreasonably withhold
consent to a transfer of the Charlestowne Mall Property if it determines in its
reasonable discretion that the following conditions, among others, are met: (i)
no default has occurred under the Charlestowne Mezzanine Loan; (ii) the Rating
Agencies confirm in writing that such transfer will not result in the
reduction, qualification or withdrawal of the then current ratings of the
Certificates; (iii) the ownership structure of the new property owner and
certain affiliates thereof is substantially the same as that of the
Charlestowne Mall Borrower (iv) the new property owner assumes the Charlestowne
Mall Loan documents, and the owners of the new property owner assume the
Charlestowne Mezzanine Loan documents, and each is approved as to credit and
reputation by the Charlestowne Mezzanine Lender; (v) the Charlestowne Mezzanine
Lender receives such opinions of counsel as it requests; and (vi) the
Charlestowne Mezzanine Lender receives payment of an assumption fee of 1% of
the original principal balance of the Charlestowne Mezzanine Loan.
Mortgagee has agreed to obtain the consent of the Charlestowne Mezzanine
Lender before consenting to a transfer of the Charlestowne Mall Property
(subject to the agreement of the Charlestowne Mezzanine Lender to consent to
certain transfers as described above).
Mortgagee may amend the Charlestowne Mall Loan without the consent of, but
upon notice to, the Charlestowne Mezzanine Lender, provided that mortgagee may
not, without the consent of the Charlestowne Mezzanine Lender, amend the
Charlestowne Mall Loan so as to (i) provide for the payment of additional
interest, an equity kicker or any similar equity feature, (ii) spread the lien
thereof to encumber additional collateral or (iii) cross-default such loan with
any other debt. The Charlestowne Mezzanine Lender has agreed that it will not,
without the approval of mortgagee, amend the Charlestowne
S-156
<PAGE>
Mall Mezzanine Loan so as to (i) increase the principal amount, (ii) increase
the interest rate, (iii) provide for the payment of any additional interest,
equity kicker or any similar equity feature, (iv) modify the maturity date
(except in connection with a work-out), (v) spread the lien thereof to encumber
additional collateral or (vi) cross-default such loan with any other debt.
The operating agreement of the Charlestowne Mall Borrower requires that it
obtain the approval of the Charlestowne Mall Mezzanine Borrower (which in turn
must obtain the approval of the Charlestowne Mezzanine Lender) for its budget
and for any expenses above budget. However, pursuant to the Charlestowne Mall
Intercreditor Agreement, mortgagee has the right to override any objection by
the Charlestowne Mezzanine Lender to the budget or any excess expense.
The Charlestowne Mezzanine Lender has certain rights to approve a
replacement property manager and to terminate the manager upon an event of
default under the Charlestowne Mezzanine Loan or a decline in the combined debt
service coverage ratio (calculated similarly to the Loan DSCR, but using the
combined debt service on the Charlestowne Mall Loan and Charlestowne Mall
Mezzanine Loan as the denominator in such ratio) below 1.05x. The Charlestowne
Mezzanine Lender has agreed that such rights are subject to any rights of
mortgagee to take such actions pursuant to the Charlestowne Mall Loan and to
confirmation from each Rating Agency that such actions will not result in a
downgrade, withdrawal or qualification of the then current ratings of the
Certificates.
The insert between pages S-157 and S-158 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: Ramco-Gershenson Pool
Photographs
1. Stonegate Plaza, Kingsport, TN
2. Ridgeview Crossing, Elkin, NC
3. Northwest Crossing, Knoxville, TN
4. Taylors Square, Greenville, SC
Reverse of Page
Legend: Ramco-Gershenson Pool
1. Map of eastern U.S. showing locations of Ramco-Gershenson Pool
Properties
S-157
<PAGE>
RAMCO-GERSHENSON POOL: THE BORROWER; THE PROPERTIES
The Loan. The Ramco-Gershenson Pool Loan was originated by Secore and
acquired by MSMC on November 26, 1997. The Ramco-Gershenson Pool Loan had an
original principal balance of $50,000,000 and has a Cut-Off Date Principal
Balance of approximately $49,761,281. It is secured by 7 separate Mortgages
(collectively, the "Ramco-Gershenson Pool Mortgage") encumbering 7 shopping
centers (each a "Ramco-Gershenson Pool Property" and collectively, the "Ramco-
Gershenson Pool Properties").
The Borrower. Ramco-Gershenson Properties Associates Limited Partnership
(the "Ramco-Gershenson Pool Borrower") is a Michigan limited partnership whose
purpose is limited to owning and operating the Ramco-Gershenson Pool Properties
and related activities. The Ramco-Gershenson Pool Borrower owns no assets other
than the Ramco-Gershenson Pool Properties and related interests. The general
partner of the Ramco-Gershenson Pool Borrower is Ramco Properties GP L.L.C., a
Michigan limited liability company whose managing member is Ramco-Gershenson
SPC Inc., a Michigan corporation. The limited partner of the Ramco-Gershenson
Pool Borrower is Ramco Properties, L.P., a Delaware limited partnership (the
"Ramco-Gershenson Limited Partner") whose general partner is Ramco-Gershenson
Properties Trust, a Maryland real estate investment trust (the
"Ramco-Gershenson REIT").
The Properties. The Ramco-Gershenson Pool Properties consist of 7 shopping
centers located in Michigan, North Carolina, Ohio, South Carolina, Tennessee
(2) and Wisconsin and contain 1,414,633 square feet of GLA. The Ramco-Gershenson
Pool Properties range in size from 329,407 square feet of GLA to approximately
76,584 square feet of GLA, with an average size of approximately 200,000 square
feet of GLA. The Ramco-Gershenson Pool Properties were constructed between 1977
and 1996, with the majority constructed in the 1980s. 4 of the Ramco-Gershenson
Pool Properties were acquired by the Ramco-Gershenson Pool Borrower in 1997. As
of February 18, 1998, the average occupancy rate of the Ramco-Gershenson Pool
Properties was approximately 98.6% and the aggregate Annualized Base Rent was
approximately $6.23 per square foot of occupied GLA. The aggregate appraised
value of the Ramco-Gershenson Pool Properties, based on the appraisals
performed by Joseph J. Blake and Associates, from August 1, 1997 to October 30,
1997, is $77,000,000, with the values for the individual Ramco-Gershenson Pool
Properties ranging from $3,400,000 to $19,300,000. As of February, 1998, no
single property comprised more than approximately 23% of the total GLA or 26.5%
of Annualized Base Rent. In addition, no single property comprised more than
approximately 26.3% of the Net Operating Income in respect of the 12 months
ended December 31, 1997.
S-158
<PAGE>
Location. The following table summarizes the location of the
Ramco-Gershenson Pool Properties based on square footage of GLA:
<TABLE>
<CAPTION>
OCCUPANCY
PERCENT OF RATE
TOTAL TOTAL GLA AS OF
PROPERTIES LOCATION GLA OF PROPERTIES 2/18/98
- --------------------------------- ---------------- ------------ --------------- ----------
<S> <C> <C> <C> <C>
West Allis Town Center .......... West Allis, WI 329,407 23.3% 98.9%
Northwest Crossing .............. Knoxville, TN 260,707 18.4 98.6
Taylors Square .................. Greenville, SC 243,484 17.2 98.2
Ridgeview Crossing .............. Elkin, NC 211,524 15.0 99.3
Troy Town Center ................ Troy, OH 154,437 10.9 96.6
Stonegate Plaza ................. Kingsport, TN 138,490 9.8 100.0
Fraser Shopping Center .......... Fraser, MI 76,584 5.4 97.4
------- ----- -----
Total/Weighted Average ......... 1,414,633 100.0% 98.6%
========= ===== =====
</TABLE>
Operating History. The following table shows certain information regarding
the operating history of the Ramco-Gershenson Pool Properties:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 10,186,322 $ 10,763,297 $ 11,001,193 $ 10,645,886
Expenses ...................... (2,145,877) (2,202,975) (2,080,133) (2,426,450)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 8,040,445 $ 8,560,322 $ 8,921,060 $ 8,219,436
============ ============ ============ ============
</TABLE>
Occupancy History. Occupancy of the Ramco-Gershenson Pool Properties as of
February 18, 1998 is 98.6%. Since most of the properties were acquired in 1997,
historical occupancy data is unavailable.
Description of the Tenants. As of February 18, 1998, approximately 89% of
the leased GLA of the Ramco-Gershenson Pool Properties is leased to tenants
with leased area greater than or equal to 5,000 square feet per lease. These
tenants include but are not limited to supermarkets, drug stores, and
value-oriented department, furniture and apparel stores. Tenants in the
Ramco-Gershenson Pool Properties offer a range of basic consumer necessities,
such as food, health and beauty aids, moderately priced clothing, furniture and
home improvement supplies.
The largest single tenant of the Ramco-Gershenson Pool Properties is
Wal-Mart whose 4 leases at the Ramco-Gershenson Pool Properties represent
approximately 34% of aggregate GLA and, as of February 18, 1998, generate less
than approximately 28% of the Annualized Base Rent of the Ramco-Gershenson Pool
Properties. The 10 largest tenants average approximately 50,716 square feet per
lease. Other than Wal-Mart, as of February 18, 1998, no single tenant
represented more than approximately 10.8% of the Annualized Base Rent of the
Ramco-Gershenson Pool Properties.
S-159
<PAGE>
The following table shows certain information regarding the 10 largest
tenants at the Ramco-Gershenson Pool Properties:
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT
<TABLE>
<CAPTION>
TENANT OR TENANT NO. OF TENANT
PARENT COMPANY(1) STORE NAME STORES GLA
- -------------------------------------- ------------------------ -------- ------------
<S> <C> <C> <C>
Wal-Mart Stores, Inc. Wal-Mart 4 485,187
K-Mart Corporation K-Mart/Builders Square 2 166,479
Kohl's Food Stores, Inc. Kohl's 1 49,995
Goody's Family Clothing Stores, Inc. Goody's 2 70,100
Country Market Country Market 1 40,000
Ingles Markets, Incorporated Ingles 2 75,000
Belk's Belk's Dept. Store 2 67,581
Fred W. Uhlman & Co. Stage 1 24,000
Sears, Roebuck & Co. Sears Hardware 1 21,000
Dollar Tree Dollar Tree 4 14,982
- -------
Total/Weighted Average
(10 Largest) 20 1,014,324
Other Major Tenants
(greater than 5,000 SF) 239,873
Remaining Tenants 140,129
Vacant Space 20,307
---------
Total/Mall Stores 1,414,633
=========
<CAPTION>
% OF % OF TOTAL ANNUALIZED
TENANT OR TENANT TOTAL ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY(1) GLA BASE RENT BASE RENT PER SF
- -------------------------------------- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Wal-Mart Stores, Inc. 34.30% $2,432,653 27.99% $ 5.01
K-Mart Corporation 11.77 940,435 10.82 5.65
Kohl's Food Stores, Inc. 3.53 490,951 5.65 9.82
Goody's Family Clothing Stores, Inc. 4.96 429,350 4.94 6.12
Country Market 2.83 270,000 3.11 6.75
Ingles Markets, Incorporated 5.30 263,880 3.04 3.52
Belk's 4.78 201,512 2.32 2.98
Fred W. Uhlman & Co. 1.70 179,760 2.07 7.49
Sears, Roebuck & Co. 1.48 178,500 2.05 8.50
Dollar Tree 1.06 155,581 1.79 10.38
------ ---------- ------
Total/Weighted Average
(10 Largest) 71.70% $5,542,621 63.77% $ 5.46
Other Major Tenants
(greater than 5,000 SF) 16.96 1,651,313 19.00 6.88
Remaining Tenants 9.91 1,497,942 17.23 10.69
Vacant Space 1.44 0 0 0
------ ---------- ------ --------
Total/Mall Stores 100.00% $8,691,875 100.00% $ 6.23(2)
====== ========== ====== ==========
</TABLE>
- --------
(1) The parent company may not be the obligor under the applicable lease.
(2) Excludes vacant space.
Sales History. The following table shows certain information regarding the
1996 and 1997 sales history of certain tenants at the Ramco-Gershenson Pool
Properties:
<TABLE>
<CAPTION>
ANNUAL 1996 SALES(1) ANNUAL 1997 SALES(1)
-------------------------- -------------------------
NO. OF SQUARE
TENANT NAME STORES FEET TOTAL PER SF TOTAL PER SF
- --------------------------------- -------- --------- --------------- -------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
Wal-Mart ........................ 4 485,205 $140,179,532 $289 $144,283,937 $297
K-Mart/Builders Square .......... 2 166,479 27,734,275 167 27,768,445 167
Oakridge Market ................. 1 32,384 14,378,513 444 13,757,741 425
Kohl's .......................... 1 49,995 10,183,272 204 10,378,183 208
Ingles .......................... 2 75,000 13,958,245 186 12,440,591 166
Goody's ......................... 2 70,100 8,668,909 124 10,361,235 148
Rite Aid ........................ 1 20,000 4,059,879 203 3,743,777 187
Stage ........................... 1 24,000 2,258,023 94 2,112,737 88
Revco Drugs ..................... 2 16,850 3,704,701 220 3,796,427 225
Factory Card Outlet ............. 1 11,513 1,260,360 109 1,354,640 118
- ------- ------------ ------------
Total/Weighted Average ......... 16 841,448 $226,385,709 $269 $196,047,393 $233
== ======= ============ ============
</TABLE>
<PAGE>
- --------
(1) Historical sales figures and square footage amounts are only listed for
tenants reporting sales for full years in both 1996 and 1997. The numbers
were provided by the Ramco-Gershenson Pool Borrower.
S-160
<PAGE>
Lease Expirations. The following table shows scheduled lease expirations
of all tenants at the Ramco-Gershenson Pool Properties as of February 18, 1998,
assuming none of the tenants renew their leases, exercise renewal options or
terminate their leases prior to the scheduled expiration date:
LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
CUMULATIVE
NUMBER OF CUMULATIVE ANNUALIZED PERCENT PERCENT OF
LEASES PERCENT PERCENT ANNUALIZED BASE RENT OF ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION EXPIRING EXPIRING SF OF SF OF SF BASE RENT PER SF BASE RENT BASE RENT
- -------------------- ----------- ------------- ----------- ------------ ------------ -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 8 20,307 1.44% 1.44% $ 0 $ 0 0.00% 0.00%
1998 ............... 11 22,340 1.58 3.01% 218,852 9.80 2.52 2.52%
1999 ............... 23 125,687 8.88 11.90% 1,011,181 8.05 11.63 14.15%
2000 ............... 17 58,339 4.12 16.02% 574,753 9.85 6.61 20.76%
2001 ............... 22 107,719 7.61 23.64% 844,754 7.84 9.72 30.48%
2002 ............... 11 63,232 4.47 28.11% 403,789 6.39 4.65 35.13%
2003 ............... 14 84,050 5.94 34.05% 577,058 6.87 6.64 41.77%
2004 ............... 4 57,261 4.05 38.10% 366,321 6.40 4.21 45.98%
2005 ............... 0 0 0.00 38.10% 0 0 0 45.98%
2006 ............... 1 21,000 1.48 39.58% 178,500 8.50 2.05 48.04%
2007 ............... 2 89,856 6.35 45.93% 552,026 6.14 6.35 54.39%
2008 ............... 2 183,619 12.98 58.91% 1,193,813 6.50 13.73 68.12%
2009 ............... 6 411,744 29.11 88.02% 1,889,314 4.59 21.74 89.86%
2010 ............... 1 43,000 3.04 91.06% 135,880 3.16 1.56 91.42%
2011 ............... 1 40,000 2.83 93.89% 270,000 6.75 3.11 94.53%
2012 ............... 1 86,479 6.11 100.00% 475,635 5.50 5.47 100.00%
-- ------- ------ ---------- ------- ------
Total/Weighted
Average ........... 124 1,414,633 100.00% $8,691,875 $ 6.23(1) 100.00%
=== ========= ====== ========== ========== ======
</TABLE>
- --------
(1) Excludes vacant space.
Property Summary. The following table sets forth certain information
regarding location, Cut-Off Date Allocated Loan Amount, GLA, occupancy history,
financial history, and the tenancy of the Ramco-Gershenson Pool Properties:
S-161
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF DATE
ALLOCATED APPRAISED TOTAL YEAR BUILT/ OCCUPANCY
PROPERTY NAME LOCATION LOAN AMOUNT VALUE SF/UNITS RENOVATED AS OF 2/18/98
- ---------------- ---------------- -------------- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
West Allis West Allis, WI $13,159,000 19,300,000 329,407 1987 98.9%
Towne Centre
Northwest Knoxville, TN 8,552,000 14,400,000 260,707 1989/1995 98.6%
Crossing
Shopping
Taylors Square Greenville, SC 8,517,000 13,000,000 243,484 1989/1995 98.2%
The Troy Troy, OH 7,350,000 11,200,000 154,437 1996 96.6%
Towne Centre
Ridgeview Elkin, NC 6,146,000 9,700,000 211,524 1989/1995 99.3%
Crossing
Shopping
Stonegate Kingsport, TN 3,622,000 6,000,000 138,490 1984/1993 100.0%
Plaza
Fraser Fraser, MI 2,654,000 3,400,000 76,584 1977/1983 97.4%
----------- ---------- ------- -----
Shopping
Center
TOTAL/WEIGHTED AVERAGE: $50,000,000 77,000,000 1,414,633 98.6%
=========== ========== ========= =====
<CAPTION>
NOI
-----------------------------------------
UNDER- ANNUALIZED ANNUALIZED
UNDER- WRITABLE BASE RENT BASE RENT
PROPERTY NAME 1996 1997 WRITABLE CASH FLOW 2/18/98 PSF 2/18/98
- ---------------- ------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
West Allis $2,377,762 $2,350,406 $2,161,264 $2,059,691 $2,307,397 $ 7.08
Towne Centre
Northwest 1,464,750 1,511,683 1,392,096 $1,335,199 1,515,827 5.90
Crossing
Shopping
Taylors Square 1,419,539 1,520,179 1,384,540 $1,330,935 1,393,832 5.83
The Troy 1,164,948 1,348,108 1,230,990 $1,172,694 1,306,350 8.75
Towne Centre
Ridgeview 989,906 1,111,734 1,003,441 $ 950,023 1,090,441 5.19
Crossing
Shopping
Stonegate 624,446 651,503 607,865 $ 581,298 701,506 5.07
Plaza
Fraser 518,971 427,447 439,239 $ 416,481 376,522 5.05
---------- ---------- ---------- ---------- ---------- -------
Shopping
Center
TOTAL/WEIGHTED $8,560,322 $8,921,060 $8,219,436 $7,846,323 $8,691,875 $ 6.23
========== ========== ========== ========== ========== =======
AVERAGE:
<CAPTION>
PRIMARY TENANTS WITH
GREATER THAN 15,000 SF
PROPERTY NAME 2/18/98
- ---------------- --------------------------------------------
<S> <C>
West Allis Kmart (2012), Builders Square (2007),
Towne Centre Kohls (2008)
Northwest Wal-Mart (2009), Ingles Food Market (2010),
Crossing Goody's (1999)
Shopping
Taylors Square Wal-Mart (2008), Belk's Dept. Store (2003),
Goody's (1999)
The Troy Country Market (2011),
Towne Centre Stage Dept. Store (2000),
Sears Hardware (2006)
Ridgeview Wal-Mart (2009), Ingles Food Market (2009),
Crossing Belk's Dept. Store (2009)
Shopping
Stonegate Wal-Mart (2009), Food Lion (2004)
Plaza
Fraser Oak Ridge Market (2002), Rite Aid (2001)
Shopping
Center
TOTAL/WEIGHTED
AVERAGE:
</TABLE>
S-162
<PAGE>
Environmental Reports. Environmental Site Assessments have been performed
on the Ramco-Gershenson Pool Properties within the past 2 years. The
Environmental Site Assessments did not reveal any environmental liability that
the Depositor believes would have a material adverse effect on the
Ramco-Gershenson Pool Borrower's business, assets or results of operations
taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessments.
Engineering Reports. Property Condition Reports were completed on the
Ramco-Gershenson Pool Properties between July, 1997 and November, 1997 by a
third party due diligence firm. The Property Condition Reports concluded that
the Ramco-Gershenson Pool Properties were generally in good physical condition
and identified approximately $400,000 in deferred maintenance. At origination
of the Ramco-Gershenson Pool Loan, the Ramco-Gershenson Pool Borrower
established a deferred maintenance reserve account and made an initial deposit
of approximately $490,000 to fund the cost of addressing the identified items.
Property Management. The Ramco-Gershenson Pool Properties are managed by
Ramco-Gershenson, Inc., a Michigan corporation (the "Ramco-Gershenson Pool
Manager"), which is an affiliate of the Ramco-Gershenson Pool Borrower,
pursuant to a management agreement dated November 24, 1997 (collectively, the
"Ramco-Gershenson Management Agreement"). The Ramco-Gershenson Pool Manager
receives an annual management fee of 4% of the gross revenues from the
Ramco-Gershenson Pool Properties and leasing commissions of 6% of the minimum
annual rental for the first 5 lease years and 3% thereafter.
The Ramco-Gershenson Management Agreement is for a term ending November
24, 2007. The Ramco-Gershenson Pool Manager and the Ramco-Gershenson Pool
Borrower may terminate the Ramco-Gershenson Management Agreement at any time
upon 30 days notice to the other. Under the terms of the Ramco-Gershenson Pool
Loan, any termination or replacement of the Ramco-Gershenson Pool Manager or
entering into a new management agreement requires (i) the consent of mortgagee
and (ii) confirmation from each Rating Agency that such action will not result
in a downgrade, qualification or withdrawal of the then current ratings of the
Certificates. Pursuant to a management subordination agreement among the
Ramco-Gershenson Pool Borrower, the Ramco-Gershenson Pool Manager and
mortgagee, the Ramco-Gershenson Pool Manager has agreed (i) that the
Ramco-Gershenson Management Agreement is subordinate to the Ramco-Gershenson
Pool Loan and (ii) that mortgagee has the right to terminate the
Ramco-Gershenson Pool Manager and replace it with a manager approved by
mortgagee (a) on or after any Loan Default, (b) at any time that the
Ramco-Gershenson Pool Manager has engaged in gross negligence, willful
misconduct or fraud arising out of the Ramco-Gershenson Management Agreement,
(c) if the Loan DSCR of the Ramco-Gershenson Pool Loan falls below 1.20x,
unless the Ramco-Gershenson Pool Borrower deposits with mortgagee additional
collateral in the form of cash, U.S. Obligations or a Letter of Credit such
that a Loan DSCR of 1.20x can be maintained on the loan amount net of such
additional collateral or (d) 6 months after the Effective Maturity Date if
mortgagee determines in its sole discretion, that the Ramco-Gershenson Pool
Properties are not being managed in a manner similar to comparable properties
managed by other professional property managers engaged in a similar business.
Additional collateral is required to be released if the Loan DSCR exceeds 1.20x
for 3 consecutive months.
All non-voting stock and 90% of all voting stock in the Ramco-Gershenson
Pool Manager is owned by the Ramco-Gershenson REIT. In addition to managing the
50 shopping centers covering 9.9 million square feet of GLA of their own
portfolio, the Ramco-Gershenson Pool Manager manages 20 properties covering 3.8
million square feet of GLA.
S-163
<PAGE>
RAMCO-GERSHENSON POOL: THE LOAN.
ORIGINAL PRINCIPAL BALANCE: $50,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $49,761,281 INITIAL INTEREST RATE: 6.83%
ORIGINATION DATE: November 26, 1997 REVISED INTEREST RATE: 8.83%
EFFECTIVE MATURITY DATE: December 1, 2007 AMORTIZATION: 360 months
MATURITY DATE: December 1, 2027 MONTHLY PAYMENT: $326,962.39
EMD BALANCE: $43,401,346 CALL PROTECTION: Lockout to 3 months
prior to EMD
CERTAIN RAMCO-GERSHENSON POOL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER
SQUARE LOAN TO ACTUAL
FOOT(1) VALUE RATIO(2) DSCR(3)
--------- ---------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $35 64.6% 2.00x
At Effective Maturity Date ......... $31 56.4% 2.30x
</TABLE>
- --------
(1) Based on the 1,414,633 square feet securing the Ramco-Gershenson Pool
Loan and the Cut-Off Date Principal Balance or Effective Maturity Date
Balance as applicable.
(2) Based on the Joseph J. Blake appraised market values and the Cut-Off Date
Principal Balance or Effective Maturity Date Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $7,846,323 and (b) in the Cut-Off
Date Actual DSCR, actual debt service on the Ramco-Gershenson Pool Loan
during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
Ramco-Gershenson Pool Loan assuming a balance equal to the Effective
Maturity Date Balance, a coupon equal to the Ramco-Gershenson Pool Loan
Initial Interest Rate and an amortization term equal to 360 months.
Security. The Ramco-Gershenson Pool Loan is a nonrecourse loan, secured
only by the fee estate of the Ramco-Gershenson Pool Borrower in the
Ramco-Gershenson Pool Properties and certain related collateral, including
assignments of leases and rents. Mortgagee is the insured under title insurance
policies issued simultaneously insuring that the Ramco-Gershenson Pool Mortgage
constitutes a valid and enforceable first lien on the Ramco-Gershenson Pool
Properties, subject to certain exceptions set forth therein.
Payment Terms. Interest on the Ramco-Gershenson Pool Loan is calculated on
an Actual/360 Basis. Its Due Date is the first day of each month with no grace
period (provided, that if the Due Date is not a business day, payment may be
made on the next business day). The Late Payment Fee on any principal or
interest payment not paid on its Due Date is 5% of the unpaid sum and the
Default Rate following a Loan Default is 5% above the then applicable interest
rate, in each case subject to applicable law.
Prepayment. Voluntary prepayment is prohibited under the Ramco-Gershenson
Pool Loan prior to the date that is 3 months prior to the Effective Maturity
Date. From and after such date the Ramco-Gershenson Pool Loan may be
voluntarily prepaid, in whole or in part, without payment of a Yield
Maintenance Charge, on any Due Date.
Principal prepayments on the Ramco-Gershenson Pool Loan may occur after
the Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the Ramco-Gershenson Pool Loan following a Loan Default.
Prepayments following a Loan Default require payment of a Yield Maintenance
Charge equal to the greater of (a) 1% of the portion of the principal amount
being repaid and (b) the Yield Maintenance Premium. As described below,
prepayments may also be made, without payment of a Yield Maintenance Charge,
from insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 2 years after the Closing Date and ending on the Effective Maturity
Date, the Ramco-Gershenson Pool Loan permits the release of all of the Ramco-
Gershenson Pool Properties upon delivery to mortgagee of U.S. Obligations which
provide for payments on or prior to, but as close as possible to, each Due Date
up to the Effective Maturity Date and in amounts equal to the principal and
interest payments due on the Ramco-Gershenson Pool Loan on such dates, and
provide for payment on the Effective Maturity Date of the remaining principal
balance of the Ramco-Gershenson Pool Loan. Upon any such Defeasance, upon the
request of the Ramco-Gershenson Pool Borrower or the mortgagee, the
Ramco-Gershenson Pool Borrower's obligations under the
S-164
<PAGE>
Ramco-Gershenson Pool Loan and the U.S. Obligations securing the
Ramco-Gershenson Pool Loan will be transferred to a Successor Borrower.
Following such Defeasance, the U.S. Obligations will be the sole security for
the Ramco-Gershenson Pool Loan.
Subject to the Defeasance Conditions, commencing on the date that is 2
years after the Closing Date and ending on the Effective Maturity Date, the
Ramco-Gershenson Pool Loan also permits the release of any 1 or more of the
Ramco-Gershenson Pool Properties in exchange for U.S. Obligations which provide
for payments on or prior to, but as close as possible to, each Due Date up to
the Effective Maturity Date and in amounts equal to 125% of the principal and
interest payments due on the Ramco-Gershenson Defeased Loan Amount on such
dates and provide for payment on the Effective Maturity Date of the remaining
principal balance of the Ramco-Gershenson Defeased Loan Amount. The "Ramco-
Gershenson Defeased Loan Amount" is an amount equal to 125% of the Allocated
Loan Amount of the Ramco-Gershenson Pool Property proposed to be released. Upon
any such substitution, at the option of mortgagee, the Ramco-Gershenson Pool
Loan will be divided into 2 Notes, 1 of which (the "Ramco-Gershenson Defeased
Note") will be in a principal amount equal to the Ramco-Gershenson Defeased
Loan Amount, and the Ramco-Gershenson Pool Borrower's obligations under the
Ramco-Gershenson Defeased Note and the U.S. Obligations securing the
Ramco-Gershenson Defeased Note will be transferred to a Successor Borrower.
Following such substitution, the U.S. Obligations will be the sole security for
the Ramco-Gershenson Defeased Note.
Substitution of Properties. The Ramco-Gershenson Pool Loan permits
substitution of any 1 or more of the Ramco-Gershenson Pool Properties, subject
to the Substitution Conditions except that there is no requirement that the net
operating income and Loan DSCR for the substitute property be greater than 125%
of the net operating income and Loan DSCR of the property being replaced, but
instead the DSCR for all of the Ramco-Gershenson Pool Properties must not be
less than the greater of (A) the DSCR for all of the Ramco-Gershenson
Properties must not be less than the greater of (A) the DSCR for all of the
Ramco-Gershenson Properties as of the closing date and (B) the DSCR for all of
the Ramco-Gershensen Properties as of the date immediately preceding the
substitution. The Substitution Period commences on the origination date and
ends on the Effective Maturity Date. No more than 2 substitutions may be
effected, and no substitution may be effected if the total appraised value as
of origination for all prior substituted properties together with the proposed
substituted property is equal to or exceeds 20% or more of the appraised value
as of origination of the Ramco-Gershenson Pool Properties.
Lockbox and Reserves. Pursuant to the Ramco-Gershenson Pool Loan, the
Ramco-Gershenson Pool Borrower has established a Hard Lockbox, which is a
One-Tier Lockbox. The Lockbox Bank is NBD Bank. Amounts in the Lockbox are
required to be applied in accordance with the Lockbox Waterfall.
The Ramco-Gershenson Pool Borrower has established (a) a Debt Service
Account, which requires a Monthly Reserve Deposit equal to the Monthly Payment,
(b) a Tax Account, which had an Initial Reserve Deposit of $311,339, and
requires a Monthly Reserve Deposit equal to the Monthly Tax Deposit Amount,
provided, however, that the Ramco-Gershenson Pool Borrower is not required to
make a Monthly Tax Deposit with respect to taxes that are paid directly to the
taxing authority by anchor tenants at a Ramco-Gershenson Pool Property or with
respect to taxes that are paid by such anchor tenants to the Ramco-Gershenson
Pool Borower (in which case such amounts are to be deposited as and when such
anchor tenants are required to pay such taxes) (c) an Insurance Account, which
requires a Monthly Reserve Deposit equal to the Monthly Insurance Deposit
Amount except that with respect to anchor tenants who are self-insuring or
carry their own third-party insurance, the Ramco-Gershenson Pool Borrower will
not be required to fund the Insurance Account with such amounts, (d) a Required
Repair Account, which had an Initial Reserve Deposit of $489,875 and (e) a
Capital Expenditures Account, which requires a Monthly Reserve Deposit equal to
one twelfth of $212,624, based on $.15 per square foot of gross leasable area
of the Ramco-Gershenson Pool Properties, but in no event to exceed $425,248 at
any one time, based on $.30 per square foot of gross leasable area of the
Ramco-Gershenson Pool Properties.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Ramco-Gershenson Pool Borrower is prohibited from transferring the
Ramco-Gershenson Pool Properties without (i) consent of mortgagee, (ii)
confirmation by each Rating Agency that such transfer will not result in the
downgrade, qualification or withdrawal of the then current ratings of the
Certificates, and (iii) delivery of a new nonconsolidation opinion. The
Ramco-Gershenson Pool Borrower is also prohibited from further encumbering the
Ramco-Gershenson Pool Properties.
The Ramco-Gershenson Pool Loan generally prohibits the transfer of any
direct or indirect interest in the Ramco-Gershenson Pool Borrower without the
prior written consent of mortgagee. However, holders of the Ramco-Gershenson
REIT shall have the right to transfer their share interests in the
Ramco-Gershenson REIT without mortgagee's
S-165
<PAGE>
consent; provided that (i) after taking into account any prior transfers, no
such transfer shall result in the proposed transferee, together with all
members of their immediate family or any affiliates thereof, owning in the
aggregate (directly, indirectly or beneficially) 49% or more of the ownership
and/or voting interests in the Ramco-Gershenson REIT and (ii) no such transfer
of interests shall result in a change of control of the Ramco-Gershenson REIT,
the Ramco-Gershenson Limited Partner or the Ramco-Gershenson Pool Borrower or
the day-to-day operation of the Ramco-Gershenson Pool Properties. In addition,
holders of partnership interests in the Ramco-Gershenson Limited Partner shall
have the right to transfer their partnership interests in the Ramco-Gershenson
Limited Partner without mortgagee's consent; provided, that (i) after taking
into account any prior transfers, no such transfer shall result in the proposed
transferee, together with all members of their immediate family or any
affiliates thereof, owning in the aggregate (directly, indirectly or
beneficially) 49% or more of the ownership and/or voting interests in the
Ramco-Gershenson Pool Borrower (or any entity directly or indirectly holding an
interest in the Ramco-Gershenson Pool Borrower), (ii) no such transfer of
interests shall result in a change of control of the Ramco-Gershenson Pool
Borrower or the Ramco-Gershenson Limited Partner or the day to day operations
of the Ramco-Gershenson Pool Properties and (iii) no such transfer shall result
in the Ramco-Gershenson REIT holding less than a 51% partnership and voting
interest in the Ramco-Gershenson Pool Borrower and in the Ramco-Gershenson
Limited Partner (directly or indirectly). Either (i) a one-time only sale or
transfer of 49% or more of the share interests in the Ramco-Gershenson REIT to
one person or an affiliated group of persons or (ii) a one time only sale or
transfer to one person or an affiliated group of persons of less than 49% of
the share interests in the Ramco-Gershenson REIT which results in a change of
control of the Ramco-Gershenson REIT, the Ramco-Gershenson Limited Partner, the
Ramco-Gershenson Pool Borrower and/or the day to day operation of the
Ramco-Gershenson Pool Properties, shall be permitted after consideration and
approval by mortgagee and the Rating Agencies, in their sole discretion, of all
relevant factors, provided that, among other things, (a) no Loan Default shall
have occurred and remain uncured, (b) mortgagee shall have received evidence in
writing from the Rating Agencies to the effect that such transfer will not
result in a re-qualification, reduction or withdrawal of any rating initially
or then currently assigned or to be assigned to the Certificates, (c) mortgagee
shall have received a satisfactory nonconsolidation opinion and (d) mortgagee
shall have received a transfer fee equal to 0.25% of the outstanding principal
balance of the Ramco-Gershenson Pool Loan, plus its reasonable costs and
expenses in connection therewith.
The Ramco-Gershenson Pool Borrower is not permitted to incur any
additional indebtedness other than unsecured indebtedness for trade payables
incurred in the ordinary course of owning and operating the Ramco-Gershenson
Pool Properties which does not exceed, at any time, $351,000 in the aggregate
and is paid within 60 days of the date incurred (unless contested in good faith
in accordance with the requirements of the loan documents, including the
provision to mortgagee of security in an amount equal to 125% of amounts that
are not paid within 60 days).
Insurance. The Ramco-Gershenson Pool Borrower is required to maintain for
the Ramco-Gershenson Pool Properties (a) comprehensive all risk insurance with
coverage in an amount at all times sufficient to prevent the Ramco-Gershenson
Pool Borrower from becoming a co-insurer, but in any event equal to the greater
of the full replacement value of the improvements and the outstanding principal
amount of the Ramco-Gershenson Pool Loan, (b) general liability insurance with
coverage of $5,000,000 combined single limit, (c) statutory workers
compensation insurance, (d) business interruption insurance to cover the loss
of at least 18 months income, (e) during any period of construction or repair,
builder's "all risk" insurance in an amount not less than full replacement
value, (f) comprehensive boiler and machinery insurance in amounts reasonably
required by mortgagee, (g) flood insurance, if available, with respect to any
Ramco-Gershenson Pool Property located within a federally designated "special
flood hazard area," in an amount equal to the lesser of the outstanding
principal amount of the Ramco-Gershenson Pool Loan and the maximum limit of
coverage available under federal law and (h) at mortgagee's reasonable request,
such other insurance and in such amounts as are generally required by
institutional lenders for comparable properties.
All insurance policies are required to meet the Insurance Requirements.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of a Ramco-Gershenson Pool Property or a
condemnation of any portion of a Ramco-Gershenson Pool Property, the
Ramco-Gershenson Pool Borrower is obligated to commence and diligently
prosecute to completion the restoration of such Ramco-Gershenson Pool Property.
If both the net proceeds of the casualty or condemnation and the costs of
restoration are less than the greater of $250,000 or 5% of the Allocated Loan
Amount with respect to such individual Ramco-Gershenson Pool Property, the
Ramco-Gershenson Pool Borrower may receive and apply such proceeds; otherwise
such proceeds must be paid to mortgagee for disbursement as provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Ramco-Gershenson Pool Borrower for restoration so
long as (i) there is no Loan Default, (ii) in the case of casualty, less than
40% of the total floor
S-166
<PAGE>
area of the improvements is damaged or destroyed, and in the case of
condemnation, less than 10% of the land constituting the Ramco-Gershenson Pool
Property is taken, and such land is located along the perimeter or periphery of
such Ramco-Gershenson Pool Property, no portion of the Improvements is taken
and the taking does not result in a loss of access to the individual
Ramco-Gershenson Pool Property, (iii) leases demising more than 70% of rentable
space remain in full force and effect during and after restoration without
abatement of rent and (iv) mortgagee shall be satisfied that the work of
restoration can be completed before the earliest of (a) the date which is 6
months before the Effective Maturity Date, (b) the date on which the business
interruption insurance expires and (c) the time required under any lease or
applicable zoning law. If such conditions are not met, the net proceeds of a
casualty or condemnation may at the option of mortgagee either (i) be applied
to prepay the Ramco-Gershenson Pool Loan without payment of a Yield Maintenance
Charge or (ii) be disbursed to the Ramco-Gershenson Pool Borrower for such
purposes as mortgagee shall designate. All disbursements of net proceeds of a
casualty or condemnation shall be made in accordance with the Disbursement
Procedures, except that the retainage shall be 10% until 50% of the restoration
has been completed and 5% after 50% of the restoration is completed.
Approval Rights. The Ramco-Gershenson Pool Loan provides mortgagee with
the Standard Approval Rights regarding budgets, leases and alterations. The
Lease Approval Threshold is 15,000 square feet. The Alteration Approval
Threshold is 5% of the Allocated Loan Amount with respect to the applicable
Ramco-Gershenson Pool Property or 5% of the original Ramco-Gershenson Pool Loan
amount for all work being performed at any one time.
Financial Reporting. The Ramco-Gershenson Pool Borrower is required to
furnish the Financial Statements to mortgagee, except that (i) annual
statements are required to be submitted within 100 days after each fiscal year
and (ii) in lieu of monthly statements, the same statements are required to be
delivered quarterly within 50 days after the end of the first 3 quarters and
100 days after the end of the fourth calendar quarter.
The insert between pages S-167 and S-168 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: Courthouse Plaza I
Photographs (clockwise from top right)
1. Elevators
2. Courtyard
3. Courthouse Plaza I
4. Courthouse Plaza I
Reverse of Page
Legend: Courthouse Plaza I
1. Plan of building showing tenants and available space on each floor
2. Map of Washington D.C. area showing location of Courthouse Plaza I
S-167
<PAGE>
COURTHOUSE PLAZA I: THE BORROWER; THE PROPERTY
The Loan. The Courthouse Plaza I Loan was originated by Secore and
acquired by MSMC on December 11, 1997. The Courthouse Plaza I Loan had an
original principal balance of $48,900,000 and has a Cut-Off Date Principal
Balance of approximately $48,704,653. It is secured by a Mortgage (the
"Courthouse Plaza I Mortgage") encumbering the Courthouse Plaza I Borrower's
leasehold interest in the land underlying an office building known as
Courthouse Plaza, located in Arlington, Virginia (the "Courthouse Plaza I
Property").
The Borrower. Courthouse Plaza Associates Limited Partnership (the
"Courthouse Plaza I Borrower") is a Virginia limited partnership whose purpose
is limited to constructing, owning and operating parcels of land in Arlington,
Virginia and related activities. Pursuant to the Courthouse Plaza I Loan, the
Courthouse Plaza I Borrower has agreed that for so long as the Courthouse Plaza
I Loan is outstanding the Courthouse Plaza I Borrower will limit its activities
to owning and operating the Courthouse Plaza I Property. The Courthouse Plaza I
Borrower owns no assets other than the Courthouse Plaza I Property and related
interests. The sole general partner of the Courthouse Plaza I Borrower is
Courthouse Plaza, LLC, a Delaware limited liability company (the "Courthouse
Plaza I G.P."), formed for the limited purpose of acting as the general partner
of the Courthouse Plaza I Borrower. The Courthouse Plaza I G.P. has 2 equity
members, Robert H. Smith and Robert P. Kogod, and 1 special member, Courthouse
Plaza, Inc., a Virginia corporation formed for the limited purpose of serving
as the special member and independent manager of the Courthouse Plaza I G.P.
The majority limited partnership interests in the borrowing entity are
held by Robert H. Smith (24.26%) Robert P. Kogod (10.85%) Henry Goldberg
(37.05%) and Alan Geller (8.53%). The remaining interests are held by various
minority limited partners.
The Property. The Courthouse Plaza I Property is comprised of the
Courthouse Plaza I Borrower's leasehold interest in the Courthouse Plaza I
Property, a multi-tenanted office building, with ground floor retail space and
a free standing 8 screen movie theater totaling 349,778 square feet, which is
situated on approximately 2.11 acres. Of the total, 306,306 square feet is
office, 6,677 square feet retail and 36,795 square feet is the movie theater.
The parking for the Courthouse Plaza I Property is provided in a 4 level
parking structure with available parking spaces for 711 cars.
An appraisal completed by an independent third party appraiser on October
31, 1997 valued the property at $69,100,000.
The fee owner of the Courthouse Plaza I Property is the County Board of
Arlington County, Virginia.
Location/Access. The Courthouse Plaza I Property is located in Arlington,
Virginia 2 miles west of Washington D.C. Access to the Courthouse Plaza I
Property is available via the numerous highways and secondary roadways in the
suburban Washington D.C. area and also via the "Orange Metro Line" which has a
station located adjacent to the Courthouse Plaza buildings. The Courthouse
Plaza I Property is located on Clarendon Boulevard, a major east-only
thoroughfare, which provides immediate access to Route 50, a major commuter
artery and the outer western suburban communities of Washington D.C. 2 of the
primary bridges connecting Washington D.C. and Virginia are also within 2 miles
of the Courthouse Plaza I Property.
The Courthouse Plaza I Property is located in a planned area, conceived by
the Arlington County Government and developed by Charles E. Smith Residential
Realty, Inc. and Charles E. Smith Commercial Realty, L.P., with the focal point
of the development being the Arlington County Courthouse. The area houses the
Arlington County Government offices, various federal agencies and numerous
private firms and corporations. Directly across the street from the Courthouse
Plaza I Property are the Arlington Courthouse Plaza Apartments, a highrise
luxury apartment building with 393 units. In addition to office space and the
residential units, there are retail shops located nearby.
Market Overview and Competition. According to the October 31, 1997
appraisal, the Courthouse Plaza I Property is part of the northern Virginia
sub-market, which represents the largest segment of the metropolitan Washington
D.C. office market. The overall metropolitan Washington D.C. area has
255,767,228 square feet of office space with an occupancy level of 91.7%. Rents
for the Metropolitan Washington D.C. area for "Class A" office space are
reported to be $28.33 per square foot and for "Class B" space $24.29 per square
foot. The northern Virginia sub-market is reported to have an occupancy level
of 94.5% with "Class A" space average rents of $24.68 per square foot and
"Class B" average rents of $22.11 per square foot.
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<PAGE>
The following table shows an overview of the competition to the Courthouse
Plaza I Property:
<TABLE>
<CAPTION>
APPROXIMATE
DISTANCE
FROM
COURTHOUSE
YEAR BUILT/ OWNER/ PLAZA I RENTAL
OFFICE PROPERTY RENOVATED MANAGEMENT (MILES) VACANCY RATE SIZE (SF)
- ------------------------- ------------- ----------------------------- ------------ --------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Subject Property
- -------------------------
Courthouse Plaza I 1988 Courthouse Plaza Associates N/A 2.9% $ 22.25-27.00 349,778
2200 Clarendon Blvd. Limited Partnership/
Charles E. Smith Real Estate
Services, L.P.
Competition
- -------------------------
2300 Clarendon Blvd. 1989 Second Courthouse Plaza Adjacent 3.3 22.25-27.00 254,428
Associates Limited
Partnership/Charles E. Smith
Real Estate Services, L.P.
2000 North 15th Street 1983 Crystal Rosslyn 1/8 0.0 N/A 178,415
L.L.C./Charles E. Smith Real
Estate Services, L.P.
3100 Clarendon Blvd. 1987 SI Clarendon, Inc., 1 0.0 N/A 238,183
Carr R.E. Services
2100 Washington Blvd. 1987 Combined Capital 1 0.0 N/A 149,500
Resources/Atlantic Capital
2110 Washington Blvd. 1991 USAA Income 1 6.8 22.50 161,560
Properties/Atlantic Capital
2120 Washington Blvd. 1990 USAA Income 1 0.0 N/A 58,168
Properties/Atlantic Capital
2101 Wilson Blvd. 1988 2101 Wilson Blvd. Inc./ 1/8 17.2 28.00 245,663
Lincoln Property
2111 Wilson Blvd. 1986 2111 Wilson Blvd. Inc./ 1/8 8.7 25.00 248,245
Lincoln Property
2200 Wilson Blvd. 1988 One Courthouse Metro L.P./ 1/8 0.0 N/A 96,765
Guardian Realty
2425 Wilson Blvd. 1968/1997 Assoc. of U.S. Army/ 1/4 62.7 24.50- 72,700
----- -------
Owner Manager 26.00
-------------
Total/Weighted Average 6.77% $ 25.32 2,053,405
===== ============= =========
</TABLE>
Source: Appraisal
The preceding table indicates the neighborhood buildings that are
considered by the appraiser to be "Class A" properties and provide direct
competition to the Courthouse Plaza I Property. All of the buildings (other
than 2425 Wilson Boulevard, which was renovated in 1997) are less than 15 years
old and provide similar services to that of the Courthouse Plaza I Property.
Rental rates in the sub-market are reported to be ranging from $22.25 to $28.00
per square foot on a full service basis with an overall market vacancy factor
of 6.7% for the competitive properties.
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<PAGE>
Operating History. The following table shows certain information regarding
the operating history of the Courthouse Plaza I Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 8,609,851 $ 9,317,524 $ 9,372,197 $ 9,684,441
Expenses ...................... (3,174,258) (2,995,254) (3,320,659) (3,289,926)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 5,435,593 $ 6,322,270 $ 6,051,538 $ 6,394,515
============ ============ ============ ============
</TABLE>
Occupancy History: The occupancy history of the Courthouse Plaza I
Property is as follows:
<TABLE>
<CAPTION>
OCCUPANCY AS OF: PERCENT LEASED
- ----------------------------- ---------------
<S> <C>
January 30, 1998 ........... 97.1%
December 31, 1997 .......... 97.8%
December 31, 1996 .......... 99.0%
December 31, 1995 .......... 92.0%
</TABLE>
Major Tenant Summary. The following table shows certain information
regarding the tenants who occupy greater than 5% of the leaseable space at the
Courthouse Plaza I Property by Annualized Base Rent.
TENANTS OCCUPYING GREATER THAN 5% OF THE NET LEASEABLE AREA, BY ANNUALIZED BASE
RENT(1)
<TABLE>
<CAPTION>
% OF TOTAL ANNUALIZED
TENANT OR TENANT TENANT % OF TOTAL ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY GLA SF GLA BASE RENT BASE RENT PER SF
- ----------------------------- ---------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Arlington County Government 181,781 52.0% $4,543,215 54.2% $ 24.99
AMC Theatres 36,795 10.5 500,000 6.0 13.59
ANADAC Inc. 24,870 7.1 690,380 8.2 27.76
Telephone Access 21,279 6.1 579,703 6.9 27.24
Ceridian 18,189 5.2 393,428 4.7 21.63
------- ----- ---------- ----- --------
Subtotal Major Tenants $282,914 80.9% $6,706,726 80.1% $ 23.71
Remaining Tenants 56,677 16.2 1,671,307 19.9 29.49
Vacant Space 10,187 2.9 0 0.0 0.00
-------- ----- ---------- ----- --------
Total Net Rentable Area 349,778 100.0% $8,378,033 100.0% $ 24.67(2)
======== ===== ========== ===== ===========
</TABLE>
- --------
(1) Based on January 30, 1998 Rent Roll.
(2) Excludes vacant space.
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<PAGE>
Lease Expiration. The following table shows scheduled lease expirations of
the Courthouse Plaza I Property as of January 30, 1998, assuming none of the
tenants renews its lease, exercises renewal options or terminates its lease
prior to the scheduled expiration date.
LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
YEAR OF LEASES EXPIRING PERCENT PERCENT
EXPIRATION EXPIRING TOTAL SQ. FT. OF GLA OF GLA
- ------------------------ ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Vacant ................. 10,187 2.91 2.91%
1998 ................... 7 1,631 0.47% 3.38%
1999 ................... 5 4,174 1.19 4.57%
2000 ................... 8 32,102 9.18 13.75%
2001 ................... 11 56,166 16.06 29.81%
2002 ................... 4 8,753 2.50 32.31%
2003 ................... 1 181,781 51.97 84.28%
2004 ................... 1 36,795 10.52 94.80%
2005 ................... 0 N/A N/A 94.80%
2006 ................... 1 18,189 5.20 100.0%
2007 ................... 1(2) N/A N/A 100.00%
---- ------- ------ ------
Total/Weighted Average 39 349,778 100.00%
==== ======= ======
<CAPTION>
CUMULATIVE
PERCENT OF PERCENT OF
ANNUALIZED TOTAL TOTAL
YEAR OF ANNUALIZED BASE RENT ANNUALIZED AMORTIZED
EXPIRATION BASE RENT PER SF BASE RENT BASE RENT
- ------------------------ ------------ --------------- ------------ -----------
<S> <C> <C> <C> <C>
Vacant ................. 0 0.00 0.00 0.00
1998 ................... 30,257 18.55 0.36% 0.36%
1999 ................... 164,827 39.49 2.00 2.33
2000 ................... 912,931 28.44 10.90 13.23
2001 ................... 1,555,968 27.70 18.57 31.80
2002 ................... 260,604 29.77 3.11 34.91
2003 ................... 4,543,214 24.99 54.23 89.14
2004 ................... 500,000 13.59 5.97 95.10
2005 ................... N/A N/A N/A N/A
2006 ................... 393,428 21.63 4.70 99.80
2007 ................... 16,800 N/A 0.20 100.00
--------- ------ ------ ------
Total/Weighted Average $8,378,033 $ 24.67(3) 100.00%
========== =========== ======
</TABLE>
- --------
(1) Based on January 30, 1998 rent roll.
(2) Represents expiration of lease for use of roof space.
(3) Excludes vacant space.
Ground Lease. The interest of the Courthouse Plaza I Borrower in the
Courthouse Plaza I Property consists of a ground leasehold interest under a
lease the ("Courthouse Plaza I Ground Lease") with The County Board of
Arlington County, Virginia (the "Courthouse Plaza I Ground Lessor"). The term
of the Courthouse Plaza I Ground Lease expires in 2062. Rent is payable
annually on April 15 of each year at the rate of the greater of $50,000 or 50%
of the Net Cash Flow from the Courthouse Plaza I Property. "Net Cash Flow" is
generally defined as the following: (a) gross rents and income received by the
Courthouse Plaza I Borrower from leasing space at the Courthouse Plaza I
Property, less (i) real estate taxes and similar assessments reasonably
allocable to the property, (ii) principal, interest and financing costs on
leasehold mortgage loans on the property and (iii) costs and expenses
reasonably and actually incurred in the ownership and operation of the
property, such as insurance premiums, repairs, and utilities, plus (b) net
proceeds of any construction or permanent loans obtained to finance the
construction and operation of the property after payment of all costs of
construction of the improvements on the property, certain related costs, and
costs of obtaining such loans, plus (c) net proceeds of any refinancing
mortgage loans after payment of amounts due under the loans being refinanced,
building costs, if any, and costs of obtaining such loans. For 1997, the lease
payment totaled $50,000, see "Risk Factors--Risks Relating to the Leasehold
Interest Securing the Courthouse Plaza I Loan."
The Courthouse Plaza I Ground Lessor has entered into a subordination and
estoppel agreement pursuant to which (i) it has agreed that its rights under
the Courthouse Plaza I Ground Lease, including its rights to receive rent, are
subordinate to the Courthouse Plaza I Loan and (ii) it has granted and
mortgaged its fee interest in the ground leased property, subject only to its
right to a reversion of the fee interest upon the expiration or earlier
termination of the Courthouse Plaza I Ground Lease (the "Courthouse Plaza I
Reversionary Interest"), to secure the Courthouse Plaza I Loan. Under such
agreement, the Courthouse Plaza I Borrower and Courthouse Plaza I Ground Lessor
acknowledge that they have granted their separate estates in the property for
the purpose of permitting mortgagee to sell, at foreclosure sale, the fee
simple title to the property (subject only to the Courthouse Plaza Reversionary
Interest) free and clear of the interests now owned by such parties under the
Courthouse Plaza I Ground Lease.
The Courthouse Plaza I Ground Lessor has also agreed (i) to provide
mortgagee with notice of and the right to cure defaults of the Courthouse Plaza
I Borrower under the Courthouse Plaza I Ground Lease for a period of 30 days
after
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<PAGE>
borrower's cure period, (ii) to provide 45 days notice of any termination of
the Courthouse Plaza I Ground Lease, (iii) that the lease may not be terminated
while mortgagee is diligently pursuing its remedies under the Courthouse Plaza
I Mortgage so long as all ground rents and impositions are paid and (iv) that
mortgagee may obtain a new lease upon the same terms if the Courthouse Plaza I
Ground Lease is terminated due to bankruptcy or other defaults that cannot be
readily cured by mortgagee.
Pursuant to the subordination and estoppel agreement, mortgagee has given
the Courthouse Plaza I Ground Lessor certain rights to cure defaults under the
Courthouse Plaza I Loan, and agreed to notify it of defaults simultaneously
with the Courthouse Plaza I Borrower. For monetary defaults, the Courthouse
Plaza I Ground Lessor has 30 days after notice to either (i) cure the default
or (ii) notify mortgagee that it will hold a referendum to sell bonds to raise
funds to cure the default. If the Courthouse Plaza I Ground Lessor elects to
hold the referendum, mortgagee may commence foreclosure proceedings and pursue
other remedies but cannot hold a foreclosure sale. The Courthouse Plaza I
Ground Lessor has 90 days to hold its referendum and, if it passes, an
additional 90 days to sell bonds and repay the Courthouse Plaza I Loan or make
such other payment as will cure the default. If the referendum fails but the
Courthouse Plaza I Ground Lessor has pursued alternative methods to cure, the
Courthouse Plaza I Ground Lessor has an additional 30 days to cure the default.
If the foregoing time periods elapse without a cure, mortgagee may hold a
foreclosure sale. The Courthouse Plaza I Ground Lessor is required to pay
current interest as a condition to the continuation of its cure rights during
the foregoing periods.
Land Disposition Agreement. Pursuant to a land disposition agreement
between the Courthouse Plaza I Ground Lessor and certain owners of the
Courthouse Plaza I Borrower (the "Courthouse Plaza I Land Disposition
Agreement"), the Courthouse Plaza I Ground Lessor has agreed that if a court of
competent jurisdiction finds that the Courthouse Plaza I Ground Lessor did not
have the authority to enter into a subordinated ground lease, it would replace
its subordinated ground lease with an unsubordinated ground lease, and if such
a court were to find that it did not have the authority to enter into an
unsubordinated ground lease, it would provide the owners of the Courthouse
Plaza I Borrower with the opportunity to purchase its fee interest at a price
to be determined by agreement, or by an appraisal process if no agreement is
reached. The owners of the Courthouse Plaza I Borrower may not have assigned
their purchase rights to the Courthouse Plaza Borrower, and therefore such
borrower, and mortgagee, might encounter difficulty in enforcing any such
rights. The title insurance policy for the Courthouse Plaza I Loan insures
mortgagee against loss sustained by reason of a final decree from a court of
competent jurisdiction declaring the Courthouse Plaza I Ground Lease to be
invalid and terminated based upon the courts determination that the County
Board of Arlington County did not have the power or authority to enter into the
Courthouse Plaza I Ground Lease.
Pursuant to the Courthouse Plaza I Land Disposition Agreement, the
Courthouse Plaza I Borrower is required to create additional parking spaces
upon the occurrence of certain events or in the alternative, negotiate a
settlement with the county manager of Arlington County. The Courthouse Plaza I
Borrower has agreed to post a Letter of Credit in the amount of $750,000 (the
"Courthouse Plaza I Letter of Credit") with mortgagee to insure the completion
of such obligation. The mortgagee will have the right, but not the obligation,
to draw on the Courthouse Plaza I Letter of Credit to complete the obligations
of the Courthouse Plaza I Borrower.
Environmental Report. A Phase I site assessment, dated October 24, 1997,
was performed on the Courthouse Plaza I Property. The Phase I site assessment
did not reveal any environmental liability that the Depositor believes would
have a material adverse effect on the borrower's business, assets or results of
operations taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment.
Engineering Report. A Property Condition Report was completed on the
Courthouse Plaza I Property on October 29, 1997. The Property Condition Report
concluded that the Courthouse Plaza I Property was generally in good physical
condition. The report did identify an "Immediate Repairs Cost Estimate" item in
the amount of $5,000 for an engineering evaluation of "pattern cracking" on
slabs located in the parking structure of the Courthouse Plaza I. Further the
report identified an aggregate replacement reserve estimate for the ensuing
twelve (12) years of $946,055 for ongoing maintenance requirements.
Property Management. The Courthouse Plaza I Loan is managed by Charles E.
Smith Real Estate Services L.P. (the "Courthouse Plaza I Manager"), which is an
affiliate of the Courthouse Plaza I Borrower, pursuant to a management
agreement dated November 30, 1987 (the "Courthouse Plaza I Management
Agreement"), as amended. The Courthouse Plaza I Manager receives a monthly
management fee of 3% of the monthly gross income and leasing commissions of 2%
of all gross income collected from the leases negotiated or extended during the
term of the Courthouse Plaza I Management Agreement. With respect to any space
leased to the County of Arlington there are no leasing fees and the management
fee is 4% of the monthly gross income from such space.
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<PAGE>
The Courthouse Plaza I Management Agreement is for a yearly term and
renews on an annual basis unless terminated by 60 days notice given prior to
the end of any year by either party. Under the terms of the Courthouse Plaza I
Loan, any termination or replacement of the Courthouse Plaza I Manager or
entering into a new management agreement requires the consent of mortgagee. The
Courthouse Plaza I Management Agreement is terminable by either party (i) for
just cause, including the failure of either party to perform any of its
covenants thereunder and (ii) upon the sale of all or a majority interest in
the Courthouse Plaza I Property to a bona fide purchaser, in each case upon
payment to the Courthouse Plaza I Manager of all management fees earned and
accrued and reimbursement of all amounts expended on behalf of the Courthouse
Plaza I Property plus a termination fee in an amount equal to the management
fee which would have been collected from the Courthouse Plaza I Property for
one year at 100% occupancy and a leasing fee equal to all amounts due as
leasing commissions had the agreement not been terminated. Under the terms of
the Courthouse Plaza I Loan, the Courthouse Plaza I Borrower is required to
replace the Courthouse Plaza I Manager with an entity acceptable to mortgagee
after a Decline in Performance Event. A "Decline in Performance Event" is any
date on which the Loan DSCR has fallen below 1.10x, and the Courthouse Plaza I
Borrower has failed to provide additional collateral satisfactory to mortgagee
which in mortgagee's determination in its sole discretion provides sufficient
income to produce a Loan DSCR of 1.10x. Such additional collateral may be
released if at any time Loan DSCR shall reach 1.20x.
Pursuant to a Conditional Assignment of Management Agreement executed by
the Courthouse Plaza I Borrower and mortgagee and acknowledged and consented to
by the Courthouse Plaza I Manager, the Courthouse Plaza I Manager has agreed
(i) that any management fees due to the Courthouse Plaza I Manager will be
subordinate to amounts due under the Courthouse Plaza I Loan and (ii) mortgagee
has the right to terminate the Courthouse Plaza I Manager (a) on or after the
acceleration of the Courthouse Plaza I Loan after any Loan Default or (b) if
mortgagee, in its reasonable discretion, determines that the Courthouse Plaza I
Property is not being managed in accordance with generally accepted management
practices for properties similar to the Courthouse Plaza I Property, provides
written notice of the conditions for such determination and the Courthouse
Plaza I Manager fails to correct or undertake to correct the conditions within
a 30-day period.
The Courthouse Plaza I Manager is owned by the Charles E. Smith Commercial
Realty, L.P., an affiliate of the Courthouse Plaza I Borrower, and is the
largest office property manager in the metropolitan Washington D.C. area, with
approximately 21,000,000 square feet of commercial space under management.
S-173
<PAGE>
COURTHOUSE PLAZA I: THE LOAN. LOAN TYPE: EMD
ORIGINAL PRINCIPAL BALANCE: $48,900,000 INITIAL INTEREST RATE: 7.19%
CUT-OFF DATE PRINCIPAL BALANCE: $48,704,653 REVISED INTEREST RATE: 9.19%
ORIGINATION DATE: December 11, 1997 AMORTIZATION: 360 months
EFFECTIVE MATURITY DATE: January 1, 2008 MONTHLY PAYMENT: $331,596.47
MATURITY DATE: January 1, 2028 CALL PROTECTION: Lockout to 3
months prior to EMD
EMD BALANCE: $42,147,916
CERTAIN COURTHOUSE PLAZA I LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN
LOAN PER TO VALUE ACTUAL
SQUARE FOOT(1) RATIO(2) DSCR(3)
---------------- ---------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $139 70.5% 1.49x
At Effective Maturity Date ......... $120 61.0% 1.72x
</TABLE>
- --------
(1) Based on the 349,778 square feet securing the Courthouse Plaza I Loan and
the Cut-Off Date Principal Balance or Effective Maturity Date Balance as
applicable.
(2) Based on the EMG appraised market values and the Cut-Off Date Principal
Balance or Effective Maturity Date Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $5,910,161 and (b) in the Cut-Off
Date Actual DSCR, actual debt service on the Courthouse Plaza I Loan
during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
Courthouse Plaza I Loan assuming a balance equal to the Effective
Maturity Date Balance, a coupon equal to the Courthouse Plaza I Loan
Initial Interest Rate and an amortization term equal to 360 months.
Security. The Courthouse Plaza I Loan is a nonrecourse loan, secured only
by the ground leasehold estate of the Courthouse Plaza I Borrower in the
Courthouse Plaza I Property and certain related collateral, including an
assignment of leases and rents. Mortgagee is the insured under title insurance
policies issued simultaneously insuring that the Courthouse Plaza Mortgage
constitutes a valid and enforceable first lien on the Courthouse Plaza I
Borrower's leasehold interest in the Courthouse Plaza I Property, subject to
certain exceptions set forth therein.
Payment Terms. The Courthouse Plaza I Loan is an EMD Loan. Interest on the
Courthouse Plaza I Loan is calculated on a 30/360 Basis. Its Due Date is the
first day of each month with no grace period (provided, that if the Due Date is
not a business day, payment may be made on the next business day). The Late
Payment Fee on any principal or interest payment not paid on its due date is 5%
of the unpaid sum, and the Default Rate following a Loan Default is 5% over the
then applicable interest rate, in each case subject to applicable law.
Prepayment. Voluntary prepayment is prohibited under the Courthouse Plaza
I Loan prior to the date that is 3 months prior to the Effective Maturity Date.
From and after such date the Courthouse Plaza I Loan may be voluntarily
prepaid, in whole or in part, without payment of a Yield Maintenance Charge, on
any Due Date.
Principal prepayments on the Courthouse Plaza I Loan may occur after the
Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the Courthouse Plaza I Loan following a Loan Default.
Prepayments following a Loan Default require payment of the Yield Maintenance
Charge equal to the greater of (a) 1% of the portion of the principal amount
being repaid and (b) the Yield Maintenance Premium.
As described below, prepayments may also be made, without payment of a
Yield Maintenance Charge, from insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 3 years after the Closing Date, the Courthouse Plaza I Loan permits the
release of the Courthouse Plaza I Property upon delivery to mortgagee of U.S.
Obligations which provide for payments on or prior to, but as close as possible
to, each Due Date up to the Effective Maturity Date and in amounts equal to the
principal and interest payments due on the Courthouse Plaza I Loan on such
dates, and provide for payment on the Effective Maturity Date of the remaining
principal balance of the Courthouse Plaza I Loan. Upon any such Defeasance, at
the option of mortgagee the Courthouse Plaza I Borrower's obligations under the
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<PAGE>
Courthouse Plaza I Loan and the U.S. Obligations securing the Courthouse Plaza
I Loan will be transferred to a Successor Borrower. Following such Defeasance,
the U.S. Obligations will be the sole security for the Courthouse Plaza I Loan.
Lockbox and Reserves. Pursuant to the Courthouse Plaza I Loan, the
Courthouse Plaza I Borrower has established a Hard Lockbox, which is a Two-Tier
Lockbox. The Courthouse Plaza I Borrower shall retain control of the First Tier
Lockbox Account until the occurrence of either (a) a Decline in Performance
Event, (b) the Effective Maturity Date or (c) a Loan Default. Amounts in the
Lockbox are required to be applied in accordance with the Lockbox Waterfall
except that there is no reserve fund for ground rent under the Courthouse Plaza
I Ground Lease, and except that payments to fund the Capital Expenditures
Account and the Required Reserve Account have been reversed in priority. If the
Courthouse Plaza I Borrower is required to forfeit control of funds in the
Lockbox as a result of a Decline in Performance Event, it may regain such
control if it maintains a Loan DSCR of at least 1.20x for any 12 month period.
The Courthouse Plaza I Borrower has established (a) a Tax Account, which
had an Initial Reserve Deposit of $208,017.84, and requires a Monthly Reserve
Deposit equal to the Monthly Tax Deposit Amount, (b) an Insurance Account,
which requires a Monthly Reserve Deposit equal to the Monthly Insurance Deposit
Amount, (c) a Required Repair Account, which had an Initial Reserve Deposit of
$18,750, (d) a Capital Expenditures Account, which requires a Monthly Reserve
Deposit equal to $11,358.04 and (e) a Rollover Account, which requires a
Monthly Reserve Deposit equal to $52,246.33 up to a maximum of $1,600,000.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Courthouse Plaza I Borrower is prohibited from transferring the
Courthouse Plaza I Property without the consent of mortgagee, and mortgagee has
the right to condition such consent upon, among other things, (a) confirmation
by each Rating Agency that such transfer will not result in the downgrade,
qualification or withdrawal of the then current ratings of the Certificates and
(b) delivery of a new nonconsolidation opinion, except that transfers by
devise, descent or by operation of law upon the death of any partner, member,
shareholder of the Courthouse Plaza I Borrower or of any general partner of the
Courthouse Plaza I Borrower shall not require such consent. The Courthouse
Plaza I Borrower is also prohibited from further encumbering the Courthouse
Plaza I Property.
The Courthouse Plaza I Loan generally prohibits the transfer of any direct
or indirect interest in the Courthouse Plaza I Borrower without the prior
written consent of mortgagee and mortgagee has the right to condition such
consent upon, among other things, (a) confirmation by each Rating Agency that
such transfer will not result in the downgrade, qualification or withdrawal of
the then current ratings of the Certificates and (b) delivery of a satisfactory
nonconsolidation opinion. However, mortgagee's consent is not required with
respect to transfers of any limited partnership or non-managing membership
interests in the Courthouse Plaza I Borrower or in any general partner, limited
partner or member of the Courthouse Plaza I Borrower. Transfers among the
principals of the Courthouse Plaza I Borrower are also permitted without
consent, as long as the principals retain the controlling interests in the
Courthouse Plaza I Borrower.
The Courthouse Plaza I Borrower is not permitted to incur any additional
indebtedness other than (i) unsecured indebtedness for trade payables incurred
in the ordinary course of owning and operating the Courthouse Plaza I Property
which does not exceed amounts reasonably expected to be outstanding given the
use of the Courthouse Plaza I Property and is paid within 60 days of the date
incurred (unless contested in good faith in accordance with the requirements of
the loan documents, including the provision to mortgagee of security in an
amount equal to 125% of the contested amount) and (ii) unsecured debt to
certain affiliates of the Courthouse Plaza I Borrower ("Courthouse Plaza I
Affiliate Debt"), which Courthouse Plaza I Affiliate Debt (a) cannot exceed the
lesser of (x) the amount of Courthouse Plaza I Affiliate Debt incurred as of
the origination date and (y) 5% of the Courthouse Plaza I Loan Amount, (b) is
required to be used for the benefit of the Courthouse Plaza I Property and (c)
is required to be subject to a subordination agreement satisfactory to
mortgagee in all respects.
The holders of the Courthouse Plaza I Affiliate Debt outstanding on the
origination date have each entered into a subordination agreement with
mortgagee. Each such agreement provides that the lien and payment of the notes
evidencing such Courthouse Plaza I Affiliate Debt, together with all interest
and other sums due under such notes, and any other indebtedness from the
Courthouse Plaza I Borrower to such holders is subordinated to the full payment
of the Courthouse Plaza I Loan. Each such agreement further provides, among
other things, that (a) no payments of principal or interest may be required on
the Courthouse Plaza I Affiliate Debt for so long as any sum of the Courthouse
Plaza I Loan shall remain outstanding and for 367 days thereafter (provided,
that payments of principal and interest may be made from Excess Cash Flow so
long as no Loan Default has occurred and is continuing), (b) each holder
thereof is prohibited from declaring any
S-175
<PAGE>
default under the Courthouse Plaza I Affiliate Debt, (c) each holder thereof
shall not initiate any bankruptcy or similar action against the Courthouse
Plaza I Borrower and (d) each holder thereof is prohibited from transferring,
assigning, encumbering or subordinating any portion of the Courthouse Plaza I
Affiliate Debt.
Insurance. The Courthouse Plaza I Borrower is required to maintain for the
Courthouse Plaza I Property (a) comprehensive all risk insurance with coverage
in an amount at all times sufficient to prevent the Courthouse Plaza I Borrower
from becoming a co-insurer, but in any event equal to the greater of the full
replacement value of the improvements and the outstanding principal amount of
the Courthouse Plaza I Loan, (b) general liability insurance having an
aggregate coverage limit of not less than $25,000,000, (c) statutory workers
compensation insurance, (d) business interruption insurance to cover the loss
of at least 24 months income, (e) during any period of construction or repair,
builder's all risk" insurance in an amount not less than full replacement
value, (f) comprehensive boiler and machinery insurance in amounts reasonably
required by mortgagee and (g) at mortgagee's reasonable request, such other
insurance in such amounts as are generally required by institutional lenders
for comparable properties.
All insurance policies are required to meet the Insurance Requirements,
except that such policies must be rated "AA" or better by at least 2 of the
Rating Agencies, rather than by all Rating Agencies.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Courthouse Plaza I Property or a
condemnation of all or any portion of the Courthouse Plaza I Property, the
Courthouse Plaza I Borrower is obligated to commence and diligently prosecute
to completion the restoration of the Courthouse Plaza I Property. If both the
net proceeds of the casualty or condemnation and the costs of restoration are
less than $1,000,000, the Courthouse Plaza I Borrower may receive and apply
such proceeds; otherwise such proceeds must be paid to mortgagee for
disbursement as provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Courthouse Plaza I Borrower for restoration so
long as (i) there is no Loan Default, (ii) in the case of casualty, less than
25% of the total floor area of the improvements is damaged or destroyed, and in
the case of condemnation, less than 10% of the land constituting the Courthouse
Plaza I Property is taken, and such land is located along the perimeter or
periphery of the Courthouse Plaza I Property, (iii) leases demising more than
50% of rentable space remain in full force and effect during and after
restoration without abatement of rent, (iv) mortgagee shall be satisfied that
the work of restoration can be completed before the earliest of (a) the date
which is 6 months before the Effective Maturity Date, or (b) the time required
under any lease or applicable zoning law and (v) mortgagee shall be satisfied
that any operating deficits and all Monthly Payments will be paid during such
restoration, either from the net proceeds of the casualty or condemnation, or
by other funds of the Courthouse Plaza I Borrower, including business
interruption insurance. If such conditions are not met, the net proceeds of a
casualty or condemnation may at the option of mortgagee either (i) be applied
to prepay the Courthouse Plaza I Loan without payment of a Yield Maintenance
Charge or (ii) be disbursed to the Courthouse Plaza I Borrower for restoration.
All disbursements of net proceeds of a casualty or condemnation shall be made
in accordance with the Disbursement Procedures, except that a retainage of only
5% of the total costs shall be held until final completion.
Approval Rights. The Courthouse Plaza I Loan provides mortgagee with the
Standard Approval Rights regarding budgets, leases and alterations. The Lease
Approval Threshold is 30,000 square feet, prior to a Decline in Performance
Event and 15,000 square feet thereafter and the Alteration Escrow Threshold is
7% of the balance of the Courthouse Plaza I Loan. The Courthouse Plaza I Loan
also provides mortgagee with budget approval rights after a Decline in
Performance Event.
Financial Reporting. The Courthouse Plaza I Borrower is required to
furnish the Financial Statements to mortgagee except that the Courthouse Plaza
I Borrower must furnish annual financial statements within 120 days after each
fiscal year, and the time period for providing the rent roll, operating
statement and Loan DSCR calculation is 30 days.
With respect to non-monetary defaults, the Courthouse Plaza I Ground
Lessor has a cure period equal to the cure period given to the Courthouse Plaza
I Borrower, plus 30 days, subject to extension for an additional 30 days if the
default is not capable of cure within 30 days. The cure period may also be
extended, for the minimum required statutory period, if a statute requires the
Courthouse Plaza I Ground Lessor to take an additional period to procure items
necessary for such cure (for example, by reason of bidding procedures);
provided that the cure period may not extend beyond 6 months after the date
notice of default was given. After the cure period of the Courthouse Plaza I
Borrower has expired, mortgagee may commence foreclosure proceedings and pursue
other remedies but it may not hold a foreclosure sale until the cure period
given to the Courthouse Plaza I Ground Lessor has expired.
The insert between pages S-176 and S-177 of the paper version of the
prospectus supplement shows the following:
Front of page:
Legend: Quail Springs Mall
Photographs
1. Internal view of mall
2. Internal view of mall
3. Internal view of mall
4. Internal view of mall
5. Internal view of mall
Reverse of Page
Legend: Quail Springs Mall
1. Aerial view of mall
2. Site Plan of Quail Springs Mall
2. Area map of Oklahoma City showing location of Quail Springs
S-176
<PAGE>
QUAIL SPRINGS MALL: THE BORROWER; THE PROPERTY
The Loan. The Quail Springs Mall Loan was originated by Secore and
acquired by MSMC on May 15, 1998. The Quail Springs Mall Loan had an original
principal balance of $45,000,000 and has a Cut-off Date Principal Balance of
approximately $45,000,000. It is secured by a Mortgage (the "Quail Springs Mall
Mortgage") encumbering a portion of a regional shopping center known as the
Quail Springs Mall, located in Oklahoma City, Oklahoma (the "Quail Springs Mall
Property").
The Borrower. Dayjay Associates (the "Quail Springs Mall Borrower") is an
Oklahoma general partnership whose purpose is limited to owning and operating
the Quail Springs Mall Property and related activities. The Quail Springs Mall
Borrower owns no assets other than the Quail Springs Mall Property and related
interests. The general partners of the Quail Springs Mall Borrower are Oklahoma
Mall, LLC (50%), JCP Realty, Inc. (49%) and Riley, Inc. (1%). Both Riley, Inc.
and Oklahoma Mall, LLC were formed for the limited purpose of acting as general
partner of the Quail Springs Mall Borrower. The members of Oklahoma Mall, LLC
are Oklahoma Mall, Inc. (1%), which is owned by General Growth Properties, Inc.
("GGP"), and GGP Limited Partnership ("GGP LP") (99%), whose 66% general
partner is GGP and whose limited partnership interests are primarily held by
trusts for the benefit of families of the original stockholders who founded
GGP. Riley Inc. is wholly owned by JCP Realty Inc., which is wholly owned by JC
Penney Company, Inc.
The Property. The Quail Springs Mall Property is comprised of a portion of
the Quail Springs Mall, an enclosed 3-level, 4-anchor, super-regional mall
located in northern Oklahoma City, approximately 11 miles from downtown
Oklahoma City, Oklahoma. The Quail Springs Mall was originally built in 1980,
and was enclosed and renovated in 1988. Cosmetic renovations were completed on
the property in 1992-1993. The Quail Springs Mall is anchored by Sears, JC
Penney, Dillard's and Foley's and contains approximately 1,112,036 total square
feet, of which approximately 329,183 square feet is mall store GLA. The 95,000
square foot, 24-screen AMC Theatre is currently under construction. In addition
to the construction of the theatre, the food court will expand from its current
9,682 square foot layout to 14,005 square feet. The estimated total cost for
the construction of the theatre and the food court is $20-$21 million, which
will be financed from the proceeds of the Quail Springs Mall Loan. The Quail
Springs Mall Property is situated on approximately 95 acres (including the
acreage owned by anchors) and contains approximately 5,355 parking spaces with
cross utilization provided under reciprocal easement agreements with adjoining
property owners. Another 199 parking spaces are planned for the site in
conjunction with the construction of the AMC Theatre. Upon completion of this
construction, the ratio of parking spaces is expected to be 5.0 per 1,000
square feet of GLA.
In connection with the construction of the AMC Theatre, one of the
self-owned anchors at the Quail Springs Mall Property has alleged that it did
not grant its consent to the construction of the AMC Theatre, as required under
the reciprocal easement agreement among the Quail Springs Mall Borrower and the
self-owned anchors. In order to mitigate the risks created by any such lack of
consent, one of the indirect owners of the Quail Springs Mall Borrower has
executed an indemnification agreement to indemnify mortgagee from and against
all losses arising out of alleged defaults under the reciprocal easement
agreement with respect to the construction of the AMC Theatre. In addition, an
indirect owner of the Quail Springs Mall Borrower has executed a construction
guaranty in favor of mortgagee and a payment guaranty in favor of mortgagee in
the amount of $5,000,000 (which will require the Quail Springs Mall Borrower to
defease the Quail Springs Mall Loan in such amount if such guaranty becomes
payable and will terminate upon completion of the construction). See "Risk
Factors -- Risks Associated with Construction at Quail Springs Mall Property,
Charlestowne Mall Property, West Town Mall Property and Wynnewood Village
Property."
The table below summarizes the components of total square feet at the
Quail Springs Mall as of December 31, 1997.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA
------------- ----------
<S> <C> <C>
Anchor Stores (Anchor-Owned)
- --------------------------------------------------------------
Dillard's .............................................. 205,320 18.5%
Sears .................................................. 182,257 16.4
JC Penney .............................................. 154,576 13.9
Foley's ................................................ 145,700 13.1
------- -----
Total Anchor Stores (Anchor-Owned) .................... $ 687,853 61.9%
---------- -----
AMC Theatre (projected completion: Winter 1998) ......... 95,000 8.5%
---------- -----
Mall Store Space ........................................ 329,183 29.6%
---------- -----
GLA Total .............................................. $1,112,036 100.0%
========== =====
</TABLE>
S-177
<PAGE>
Location/Access. The Quail Springs Mall is located north of Oklahoma City,
approximately 11 miles from downtown, and 4 miles southwest of the city of
Edmund. The Quail Springs Mall is located on East Memorial Road, which serves
as a frontage road running parallel to the John Kilpatrick Turnpike (Route 74).
Operating History. The following table shows certain information regarding
the operating history of the Quail Springs Mall Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 1997 NOI(1)
------ --------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... N/A $ 8,789,133 $ 8,566,065 $ 10,972,092
Expenses ...................... N/A (3,594,683) (3,573,205) (3,708,203)
------ ------------ ------------ ------------
Net Operating Income ......... N/A $ 5,194,450 $ 4,992,860 $ 7,263,889
====== ============ ============ ============
</TABLE>
- --------
(1) Includes income for AMC Theatre which is currently under construction.
Occupancy History. The occupancy history for the mall store space of the
Quail Springs Mall Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
OCCUPANCY AS OF: PERCENT LEASED
- ---------------------------- ---------------
<S> <C>
December 31, 1997 ......... 77.9%
December 31, 1996 ......... 76.8%
</TABLE>
Occupancy Costs. The ratio of the average occupancy cost per square foot
(i.e., minimum rent, percentage rent, real estate taxes, insurance and common
area maintenance charges) to the comparable sales per square foot for mall
store tenants was approximately 14.9% in 1997.
The Quail Springs Mall's historical mall store sales are summarized as
follows:
<TABLE>
<CAPTION>
ANNUAL 1996 SALES ANNUAL 1997 SALES
----------------------- --------------------
SQUARE TOTAL TOTAL
FOOTAGE (000S) PER SF (000S) PER SF
------------ ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Mall Store Sales(1)
- ---------------------------------------
Comparable Store ..................... 208,117 $ 45,981 $221 $ 46,838 $225
Non-Comparable Store ................. 48,184 6,669 N/A 7,692 N/A
Vacant ............................... 72,882 0 N/A 0 0
------- -------- ---- -------- ----
Total Mall Store .................... 329,183 $ 52,650 N/A $ 54,530 N/A
Total Sales--Anchors and Mall ......... 1,017,036 $148,150 N/A $153,530 N/A
========= ======== ==== ========
</TABLE>
- --------
(1) Based on the December, 1997 sales report. Information is based solely
upon the sales figures provided by the Quail Springs Mall Borrower from
data provided by the tenants.
Mall Stores. The Quail Springs Mall Property tenant base is primarily
comprised of national retailers such as The Gap and Gap Kids, The Disney Store,
Champs Sports and The Limited. Recently signed leases include Eddie Bauer,
Abercrombie and Fitch and Zales Jewelers. The retail leases usually provide for
minimum rents, percentage rents based on gross sales and the recovery from
tenants of a portion of common area expenses, real estate taxes and other
property related costs.
S-178
<PAGE>
The following table shows certain information regarding the 10 largest
mall store tenants by Annualized Base Rent (percentage rent and tenant
reimbursement obligations are not included):
TEN LARGEST MALL STORES BASED ON ANNUALIZED BASE RENT BY PARENT COMPANY(1)
<TABLE>
<CAPTION>
TENANT
TENANT OR TENANT COMPANY STORE NAME GLA
- ------------------------------------- ----------------------------- ----------
<S> <C> <C>
The Limited ......................... Limited Express 50,116
Limited
Lerner New York
Victoria's Secret
Bath & Body Works
Structure
The Gap, Inc. ....................... The Gap 12,895
Gap Kids
Spiegel, Inc. ....................... Eddie Bauer 6,664
Garfield's Restaurant & Pub ......... Garfield's Restaurant & Pub 5,712
The Walt Disney Co. ................. The Disney Store 4,438
Eyemaster ........................... Eyemaster 3,090
Lens Crafters ....................... Lens Crafters 5,048
Buckle .............................. The Buckle 5,213
Disk Jockey ......................... Disk Jockey 5,070
Discovery Zone ...................... Discovery Zone 12,157
------
Total/Weighted Average
(10 Largest) ...................... 110,403
-------
Remaining Mall Stores ............... $145,898
Vacant Space ........................ 72,882
--------
Total Mall Stores .................. 329,183
========
<CAPTION>
% OF % OF TOTAL ANNUALIZED
TOTAL ANNUALIZED ANNUALIZED BASE RENT
TENANT OR TENANT COMPANY GLA BASE RENT BASE RENT PER SF
- ------------------------------------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
The Limited ......................... 15.2% $ 817,337 17.3% $ 16.31
The Gap, Inc. ....................... 3.9 335,292 7.1 26.00
Spiegel, Inc. ....................... 2.0 119,952 2.5 18.00
Garfield's Restaurant & Pub ......... 1.7 89,952 1.9 15.75
The Walt Disney Co. ................. 1.3 88,764 1.9 20.00
Eyemaster ........................... 0.9 86,244 1.8 27.91
Lens Crafters ....................... 1.5 85,812 1.8 17.00
Buckle .............................. 1.6 83,412 1.8 16.00
Disk Jockey ......................... 1.5 81,120 1.7 16.00
Discovery Zone ...................... 3.7 79,020 1.7 6.50
----- ---------- --------- --------
Total/Weighted Average
(10 Largest) ...................... 33.5% $1,866,905 39.6% $ 16.91
----- ---------- --------- --------
Remaining Mall Stores ............... 44.3 $2,847,663 60.4 19.52
Vacant Space ........................ 22.1 -- 0.0 --
----- ---------- --------- --------
Total Mall Stores .................. 100.0% $4,714,568 100.0 %. $ 18.39(2)
===== ========== ========= ===========
</TABLE>
- --------
(1) Based on the January 5, 1998 rent roll.
(2) Excludes vacant square footage.
S-179
<PAGE>
Mall Store Lease Expiration. The following table shows scheduled lease
expirations of mall store GLA at the Quail Springs Mall Property as of January
5, 1998, assuming none of the tenants renew their leases, exercise renewal
options or terminate their leases prior to the scheduled expiration date. See
"Anchor Stores" below for anchor lease or REA expirations.
LEASE EXPIRATION SCHEDULE(1)
<TABLE>
<CAPTION>
CUMULATIVE
ANNUALIZED PERCENT OF PERCENT OF
NUMBER OF EXPIRING PERCENT OF CUMULATIVE ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION LEASES SF SF PERCENT OF SF BASE RENT PER SF BASE RENT BASE RENT
- ----------------------- ----------- ---------- ------------ --------------- ------------ --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ................ 0 72,882 22.1% 22.1% $ 0 0.00 0.0% 0.0%
1998 .................. 8 10,736 3.3 25.4 247,116 23.02 5.2 5.2
1999 .................. 11 19,740 6.0 31.4 296,848 15.04 6.3 11.5
2000 .................. 10 16,311 5.0 36.4 279,355 17.13 5.9 17.5
2001 .................. 17 34,657 10.5 46.9 727,127 20.98 15.4 32.9
2002 .................. 3 6,163 1.9 48.8 157,692 25.59 3.3 36.2
2003 .................. 14 31,031 9.4 58.2 563,476 18.16 12.0 48.2
2004 .................. 9 26,462 8.0 66.2 415,592 15.71 8.8 57.0
2005 .................. 6 19,766 6.0 72.2 287,748 14.56 6.1 63.1
2006 .................. 9 31,459 9.6 81.8 688,044 21.87 14.6 77.1
2007 .................. 8 45,521 13.8 95.6 750,045 16.48 15.9 93.6
2008 or Later ......... 4 14,455 4.4 100.0 301,524 20.86 6.4 100.0
-- ------ ----- ---------- ------ -----
Total/Weighted
Average .............. 99 329,183 100.0% $4,714,568 $ 18.39(2) 100.0%
== ======= ===== ========== =========== =====
</TABLE>
- --------
(1) Based on January 5, 1998 rent roll.
(2) Excludes vacant square footage.
Anchor Stores. The following table shows certain information for each of
Quail Springs Mall's anchor tenants (and each respective corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING OF
PARENT COMPANY
ANCHORS PARENT COMPANY (S&P/MOODY'S)(1) GLA
- ------------------- ----------------------------- ------------------ ---------
<S> <C> <C> <C>
Dillard's ......... Dillard's Dept. Stores Inc. A+/A2 205,320
Sears ............. Sears Roebuck & Co. A-/A2 182,257
JC Penney ......... JC Penney Co., Inc. A/A2 154,576
Foley's ........... May Department Store Co. A/A2 145,700
<CAPTION>
OPERATING
ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS COLLATERAL EXPIRATION(2) EXPIRATION(3) TERMINATION
- ------------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Dillard's ......... Anchor-owned N/A 1995 10/23/30
Sears ............. Anchor-owned N/A 1995 10/23/30
JC Penney ......... Anchor-owned N/A 1995 10/23/30
Foley's ........... Anchor-owned N/A 1995 10/22/30
</TABLE>
- --------
(1) Reflects long-term debt rating as of April 7, 1998.
(2) Includes initial term of the lease only. Based on the latest required
term commencement date of the lease. The actual commencement date and
expiration date may be earlier.
(3) Date of operating covenant expirations is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into account
co-tenancy or other operating requirements.
Market Overview and Competition. According to the April 7, 1998 Cushman &
Wakefield market study, the Quail Springs Mall trade area (estimated by Cushman
& Wakefield to be a 10-mile radius), is estimated as of 1997 to have
approximately 372,157 people in approximately 149,467 households with an
average per capita income of $21,919. This estimate represents a compound
annual growth rate from 1990 to 1997 of 3.2%.
S-180
<PAGE>
The following table shows an overview of the primary competition for the
Quail Springs Mall:
<TABLE>
<CAPTION>
APPROXIMATE
DISTANCE FROM
MALL/RETAIL YEAR BUILT/ THE PROPERTY ANCHORS/
PROPERTY RENOVATED OWNER (MILES) MALL STORES SIZE (SF)
- -------------------- ------------- --------------------------- -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Subject Property
- --------------------
Quail Springs Mall 1980/1993 Dayjay Assoc./ Dillard's 205,320
JCP Realty/ Sears 182,257
General Growth Properties JC Penney 154,576
Foley's 145,700
AMC Theatres 95,000
Mall Stores 329,183
-------
Total 1,112,036
Competition
- --------------------
Crossroads Mall 1974 Macerich 17 Dillard's 194,538
Foley's 152,000
JC Penney 209,047
Montgomery Ward 180,431
Mall Stores 376,358
---------
Total 1,112,374
Penn Square Mall 1960/1988 Urban Retail Properties/ 7 Dillard's 170,609
John Kraus Foley's 160,000
JC Penney 125,000
Montgomery Ward 163,893
Mall Stores 480,498
---------
Total 1,100,000
</TABLE>
- --------
Source: Cushman & Wakefield, Inc.
Operating Agreement and Anchor Lease. The Construction, Operation and
Reciprocal Easement Agreement (the "Quail Springs Mall REA") dated February 22,
1979, as amended, by and among the Quail Springs Mall Borrower, Sears Roebuck
and Co., Dayton Hudson Corporation, Dillard's Department Stores, Inc.,
Construction Developers Incorporated and JC Penney Properties, Inc., The May
Department Stores, Inc. and May Centers Associates Corporation contains
operating covenants affecting the operation of the anchor stores in the Quail
Springs Mall Property. The Quail Springs Mall REA, in part, requires that the
anchor stores operate retail department stores at the Quail Springs Mall
Property until various dates, which have passed. Hence, the anchor stores at
the Quail Springs Mall Property are no longer contractually required to
operate. The Quail Springs Mall REA permits the Quail Springs Mall Borrower to
reduce operation if any of Sears, Penney, May and Dillard's cease operation and
to cease operation entirely if only 1 or none of such anchor stores are
operating. The Quail Springs Mall Borrower is required to operate for the full
term of the Quail Springs Mall REA (which expires on October 23, 2030), so long
as any 2 of Sears, Penney, May or Dillard's are operating.
The Quail Springs Mall REA requires the Quail Springs Mall Borrower to
restore the portion of the improvements owned by it within 18 months if such
improvements are damaged during the period when the Quail Springs Mall Borrower
is required to operate. If improvements on any party's parcel are condemned,
that party must provide equivalent improvements at its expense, unless (i) the
condemnation renders it impracticable, in that party's reasonable judgment, to
operate the building on its parcel or (ii) the condemnation involves all of a
portion of a building or the mall and restoration cost would exceed the award.
If in either such case a party elects not to restore, the Quail Springs Mall
REA terminates as to that party. Condemnation proceeds are required to be paid
to a third party escrowee and applied to restoration; if a party that is
required to restore does not do so within 18 months, then such proceeds are to
be paid to all or any of the other parties for restoration.
S-181
<PAGE>
The Quail Springs Mall REA requires that all mortgages on the property be
subordinate to the Quail Springs Mall REA.
The lease between the Quail Springs Mall Borrower and American
Multi-Cinema Inc. ("AMC"), requires rental payments to commence on the earlier
of 180 days after tenant is required to commence work on its required
improvements and the date tenant opens for business, and terminate 20 years
after the date rent commences. As long as certain mall operating parameters are
met, AMC is required to operate 8 auditoriums on a continuous basis, 7 days per
week. The AMC lease generally provides that landlord is required to restore to
the extent of its original construction obligations. However, if the estimated
cost of such restoration exceeds 20% of replacing tenant's building in its
entirety, Landlord may terminate the lease. Tenant may negate such termination
and undertake the restoration of the property, with landlord responsible for
the amount that is 20% of the replacement cost of the building. Tenant is
entitled to terminate the lease upon certain takings, and absent termination,
tenant is entitled to rent abatement proportionate to the taking.
Environmental Report. A Phase I site assessment, dated April 9, 1998 was
performed on the Quail Springs Mall Property. The Phase I site assessment did
not reveal any environmental liability that the Depositor believes would have a
material adverse effect on the Quail Springs Mall Borrower's business, assets
or results of operations taken as a whole. Nevertheless, there can be no
assurance that all environmental conditions and risks were identified in such
environmental assessment. See "Risk Factors--The Mortgage Loans--Environmental
Law Considerations."
Engineering Report. A Property Condition Report was completed on the Quail
Springs Mall Property on April 14, 1998 by a third party due diligence firm.
The Property Condition Report concluded that the Quail Springs Mall Property
was generally in good physical condition and identified approximately $3,200 in
deferred maintenance requirements.
Property Management. The Quail Springs Mall Property is managed by General
Growth Properties, Inc. (the "Quail Springs Mall Manager"), which is an
affiliate of the Quail Springs Mall Borrower, pursuant to a management
agreement dated November 1, 1990 (the "Quail Springs Mall Management
Agreement"). The Quail Springs Mall Manager receives an annual management fee
of 4.5% of all minimum and percentage rents, net utilities, net common area
charges and all other income of the Quail Springs Mall Property and is
reimbursed for its costs of managing the Quail Springs Mall Property.
The Quail Springs Mall Management Agreement terminates in 2003. It
provides for a management fee equal to 4 1/2% of all minimum and percentage
rents, net utilities, new common area charges and all other income of the Quail
Springs Mall Property. Under the terms of the Quail Springs Mall Loan, any
replacement of the Quail Springs Mall Manager or entering into a new management
agreement requires (i) the consent of mortgagee and (ii) confirmation from each
applicable Rating Agency that such action will not result in a downgrade,
qualification or withdrawal of the then current ratings of the Certificates;
provided, however, that the Quail Springs Mall Borrower may replace the Quail
Springs Mall Manager without such consent or such ratings confirmation if the
new manager is an affiliate of GGP. Pursuant to a management subordination
agreement among the Quail Springs Mall Borrower, the Quail Springs Mall Manager
and mortgagee, the Quail Springs Mall Manager has agreed (i) that the Quail
Springs Mall Management Agreement is subordinate to the Quail Springs Mall Loan
and (ii) that mortgagee has the right to terminate the Quail Springs Mall
Manager (a) on or after any Loan Default, (b) if there is a default by the
Quail Springs Mall Manager under the Quail Springs Mall Management Agreement,
(c) if the Quail Springs Mall Manager shall become insolvent or a debtor in any
bankruptcy or insolvency proceeding or (d) if the Loan DSCR of the Quail
Springs Mall Loan falls below 1.15x, unless the Quail Springs Mall Borrower
deposits with mortgagee additional collateral in the form of cash or a Letter
of Credit such that the Loan DSCR of 1.15x can be maintained on the loan amount
net of such collateral. Additional collateral is required to be released if the
Loan DSCR equals or exceeds 1.15x for 12 consecutive months.
The Quail Springs Mall Manager is 95% owned by GGP (as holder of
non-voting preferred stock therein). GGP and its affiliates own interests in
and/or manage approximately 90 million square feet of retail properties
including 42 million square feet managed on behalf of unaffiliated owners.
S-182
<PAGE>
<TABLE>
<S> <C>
QUAIL SPRINGS MALL: THE LOAN.
PRINCIPAL BALANCE AT ORIGINATION: $45,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $45,000,000 INITIAL INTEREST RATE: 6.82%
ORIGINATION DATE: May 15, 1998 REVISED INTEREST RATE: 8.82%
EFFECTIVE MATURITY DATE: June 1, 2008 AMORTIZATION: 360 months
MATURITY DATE: June 1, 2028 MONTHLY PAYMENT: $293,966.09
EMD BALANCE: 39,064,080 CALL PROTECTION: Lockout to 120 days prior to EMD
</TABLE>
CERTAIN QUAIL SPRINGS MALL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO VALUE ACTUAL
SQUARE FOOT(1) RATIO(2) DSCR(3)
---------------- --------------- ----------
<S> <C> <C> <C>
Cut-Off Date ....................... $106 52.7% 1.95x
At Effective Maturity Date ......... $ 92 45.7% 2.24x
</TABLE>
- --------
(1) Based on the 424,183 square feet securing the Quail Springs Mall Loan and
the Cut-Off Date Principal Balance or Effective Maturity Date Balance, as
applicable.
(2) Based on the value calculated at an 8.5% cap rate on Underwritable NOI
and the Cut-Off Date Principal Balance or Effective Maturity Date
Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $6,873,808 and (b) in the Cut-Off
Date Actual DSCR, actual debt service on the Quail Springs Mall Loan
during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
Quail Springs Mall Loan assuming a balance equal to the Effective
Maturity Date Balance, a coupon equal to the Quail Springs Mall Loan
Interest Rate.
Security. The Quail Springs Mall Loan is a nonrecourse loan, secured only
by the fee estate of the Quail Springs Mall Borrower in the Quail Springs Mall
Property and certain related collateral, including an assignment of leases and
rents and provided, however, that GGP Limited Partnership has provided a
$5,000,000 payment guarantee to mortgagee which will terminate upon the
completion of the AMC Theatres. Mortgagee is the insured under title insurance
policies insuring that the Quail Springs Mall Mortgage constitutes a valid and
enforceable first lien on the Quail Springs Mall Property, subject to certain
exceptions set forth therein.
Payment Terms. Interest on the Quail Springs Mall Loan is calculated on an
Actual/360 Basis. Its Due Date is the first day of each month with no grace
period (provided, that if the Due Date is not a business day, payment may be
made on the next business day). The Late Payment Fee on any principal or
interest payment not paid on its due date is 5% of the unpaid sum and the
Default Rate following a Loan Default is 3% over the then applicable interest
rate, in each case subject to applicable law.
Prepayment. Voluntary prepayment is prohibited under the Quail Springs
Mall Loan prior to the date that is 120 days prior to the Effective Maturity
Date. From and after such date the Quail Springs Mall Loan may be voluntarily
prepaid, in whole or in part, without payment of a Yield Maintenance Charge, on
any Due Date, or on a date other than a Due Date provided interest is paid to
the next Due Date.
Principal prepayments on the Quail Springs Mall Loan may occur after the
Effective Maturity Date through application of rents, as described in the
definition of "EMD Loan," and must be made, at mortgagee's option, upon
acceleration of the Quail Springs Mall Loan following a Loan Default.
Prepayments following a Loan Default require payment of a Yield Maintenance
Charge equal to the greater of (a) 1% of the portion of the principal amount
being repaid and (b) the Yield Maintenance Premium. As described below,
prepayments may also be made, without payment of a Yield Maintenance Charge,
from insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 2 years after the Closing Date, the Quail Springs Mall Loan permits the
release of the Quail Springs Mall Property upon delivery to mortgagee of U.S.
Obligations which provide for payments on or prior to, but as close as possible
to, each Due Date up to the Effective Maturity Date and in amounts equal to the
principal and interest payments due on the Quail Springs Mall Loan on such
dates, and provide for payment on the Effective Maturity Date of the remaining
principal balance of the Quail Springs Mall Loan. Upon any such Defeasance, at
the option of mortgagee, the Quail Springs Mall Borrower's obligations under
the Quail Springs Mall Loan and the U.S. Obligations securing the Quail Springs
Mall Loan will be transferred to a Successor Borrower. Following such
Defeasance, the U.S. Obligations will be the sole security for the Quail
Springs Mall Loan.
S-183
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Lockbox and Reserves. Pursuant to the Quail Springs Mall Loan, the Quail
Springs Mall Borrower has established a Hard Lockbox which is a One-Tier
Lockbox. The Lockbox Bank is U.S. Bank, National Association. Until (i) the
occurrence (and during the continuance, only) of a Loan Default, (ii) within 60
days prior to the Effective Maturity Date or (iii) if the Loan DSCR for the
Quail Springs Mall Property shall fall below 1.20x (each a "Quail Springs Mall
Cash Management Event"), the Quail Springs Mall Borrower shall have access to
all funds on deposit in the Lockbox. Upon the occurrence of any Quail Springs
Cash Management Event, the Quail Springs Mall Borrower will no longer have
access to the funds in the Lockbox and funds in the Lockbox are required to be
applied in accordance with the Lockbox Waterfall except that provided that no
Event of Default shall have occurred and be continuing, after payment of (i)
the Monthly Tax Deposit Amount, (ii) the Monthly Insurance Deposit Amount,
(iii) the Monthly Debt Service Payment, (iv) required payments into the Capital
Expenditures Account, (v) operating expenses, and (vi) extraordinary expenses
approved by mortgagee, a payment will be made to the Quail Springs Mall
Borrower equal to the amount of any income taxes payable by the partners of the
Quail Springs Mall Borrower, provided there is no Loan Default. Thereafter,
late charges and default interest will be paid and any remaining amount will be
held by mortgagee as additional collateral. If a Loan Default exists, mortgagee
is required to apply funds in the lockbox to fund the required reserves and
payment of debt service on the Quail Springs Mall Loan and will have the option
but not the obligation to apply funds in the Lockbox to the payment of
operating expenses and extraordinary expenses. If the Quail Springs Mall Loan
is accelerated, mortgagee will have the option, but not the obligation, to
apply funds in the Lockbox for any of the purposes set forth in the Lockbox
Waterfall, but any amounts not so applied shall be retained by Lender as
additional collateral for the Quail Springs Mall Loan. Upon an acceleration of
the Quail Springs Mall Loan, mortgagee may apply any amounts in the Lockbox to
such items and in such amounts as it may determine. If a Loan DSCR of 1.20x is
achieved for 6 consecutive months or if a Loan Default is cured, the Quail
Springs Mall Borrower will again be given access to all funds in the Lockbox
Account, and the additional collateral will be released to the Quail Springs
Mall Borrower.
The Quail Springs Mall Borrower has established a Debt Service Account,
which requires a Monthly Reserve Deposit equal to the Monthly Payment. Upon the
occurrence of a Quail Springs Mall Cash Management Event, the Quail Springs
Mall Borrower is required to establish, (a) a Tax Account, which requires a
Monthly Reserve Deposit equal to the Monthly Tax Deposit Amount, (b) an
Insurance Account, which requires a Monthly Reserve Deposit equal to the
Monthly Insurance Deposit Amount and (c) a Capital Expenditures Account, which
will be required to be funded only upon certain DSCR trigger events or a Loan
Default. If a Loan Default is cured or the Quail Springs Mall Borrower
maintains a Loan DSCR of 1.20x for 6 consecutive months, the foregoing reserves
for taxes, insurance and capital expenditures will no longer be required.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Quail Springs Mall Borrower is prohibited from transferring the Quail
Springs Mall Property without the consent of mortgagee, except that no consent
is required with respect to a sale to (i) a person or entity involved in the
ownership of commercial real estate that owns shopping center property having a
net value of over $200 million net of secured debt, (ii) a pension fund owning
real estate or real estate related assets having a value net of secured debt of
over $200 million, or (iii) a real estate investment trust having an investment
grade rating ((i), (ii) and (iii), each a "Quail Springs Mall Approved
Transferee"), (iv) an affiliate or partner of the Quail Springs Mall Borrower,
or (v) any entity in which JCP Realty, Inc. (or its parent) or GGP Limited
Partnership owns not less than a 51% voting and financial interest ((iv) and
(v) each, a "Quail Springs Mall Affiliated Transferee") provided that, in each
case, mortgagee receives (a) confirmation by each Rating Agency that such
transfer will not result in the downgrade, qualification or withdrawal of the
then current ratings of the Certificates, (b) delivery of a new
nonconsolidation opinion, (c) evidence that the transferee is a new special
purpose entity and (d) if the transferee is not a Quail Springs Mall Affiliated
Transferee, payment of a transfer fee equal to 0.50% of the then outstanding
principal balance of the Quail Springs Mall Loan. The Quail Springs Mall
Borrower is also prohibited from further encumbering the Quail Springs Mall
Property.
The Quail Springs Mall Loan generally prohibits the transfer of any direct
or indirect interest in the Quail Springs Mall Borrower without the prior
written consent of mortgagee except that mortgagee's consent is not required in
connection with transfers to Quail Springs Mall Approved Transferees and Quail
Springs Mall Affiliated Transferees; provided that mortgagee receives (i)
confirmation by each Rating Agency that such transfer will not result in the
downgrade, qualification or withdrawal of the then current ratings of the
Certificates, (ii) a satisfactory nonconsolidation opinion, and (iii) evidence
that such transfer will not affect the single purpose entity requirements of
the Quail Springs Mall Borrower, provided that (a) such requirements do not
apply to transfers of indirect interests in the Quail Springs Mall Borrower as
a result of sales through a nationally recognized stock exchange and (b)
non-consolidation opinions and Rating Agency ratings confirmations are not
required in connection with transfers of interests in JCP Realty, Inc. or
Riley, Inc., provided that JCP Realty, Inc. and its affiliates do not own more
than a 50% interest in the Quail Springs Mall Borrower.
S-184
<PAGE>
The Quail Springs Mall Borrower is not permitted to incur any additional
indebtedness other than unsecured indebtedness for trade payables incurred in
the ordinary course of owning and operating the Quail Springs Mall Property
which does not exceed, at any time, $450,000 and is paid within 60 days of the
date incurred (unless contested in good faith in accordance with the
requirements of the loan documents, including the provision to mortgagee of
security in an amount equal to 125% of the amount in excess of $450,000).
Insurance. The Quail Springs Mall Borrower is required to maintain for the
Quail Springs Mall Property (a) comprehensive all risk insurance with coverage
in an amount at all times sufficient to prevent the Quail Springs Mall Borrower
from becoming a co-insurer, but in any event equal to the greater of the full
replacement value of the improvements and the outstanding principal amount of
the Quail Springs Mall Loan, (b) general liability insurance with coverage of
$25,000,000, combined limit, including umbrella coverage, (c) statutory workers
compensation insurance, (d) business interruption insurance to cover the loss
of at least 3 months income beyond the completion of restoration, (e) during
any period of construction or repair, builder's "all risk" insurance in an
amount not less than full replacement value, (f) comprehensive boiler and
machinery insurance in amounts reasonably required by mortgagee, and (g) at
mortgagee's reasonable request, such other insurance in such amounts as are
generally required by institutional lenders for comparable properties.
All insurance policies are required to meet the Insurance Requirements
except that the claims paying ability of the insurers shall not be required to
be rated "AA" by each Rating Agency but instead shall be rated "AA" or better
by at least one Rating Agency and carry no lower rating by any other Rating
Agency.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Quail Springs Mall Property or a
condemnation of any portion of the Quail Springs Mall Property, the Quail
Springs Mall Borrower is obligated to commence and diligently prosecute to
completion the restoration of the Quail Springs Mall Property. If both the net
proceeds of the casualty or condemnation and the costs of restoration are less
than $1,750,000, the Quail Springs Mall Borrower may receive and apply such
proceeds; otherwise such proceeds must be paid to mortgagee for disbursement as
provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Quail Springs Mall Borrower for restoration so
long as (i) there is no Loan Default, (ii) in the case of casualty, less than
25% of the total floor area of the improvements is damaged or destroyed, and in
the case of condemnation, the land taken is located along the perimeter or
periphery of the Quail Springs Mall Property and there remains adequate parking
and access to the Quail Springs Mall Property and none of the improvements are
taken, (iii) leases demising more than 80% of the rentable space which provide
gross revenue upon completion of the restoration sufficient to yield a Debt
Service Coverage Ratio of 1.20 to 1.00 remain in full force and effect during
and after restoration without abatement of rent beyond the time required for
restoration, (iv) mortgagee shall be satisfied that the work of restoration can
be completed before the earliest of (a) the Effective Maturity Date, (b) the
date on which the business interruption insurance expires, or (c) the time
required under any lease or applicable zoning law. If such conditions are not
met, the net proceeds of a casualty or condemnation may at the option of
mortgagee either (i) be applied to prepay the Quail Springs Mall Loan without
payment of a Yield Maintenance Charge or (ii) be disbursed to the Quail Springs
Mall Borrower for restoration. Notwithstanding the foregoing conditions,
mortgagee shall be obligated to make proceeds available to the Quail Springs
Mall Borrower in the event the Quail Springs Mall Borrower is obligated to
restore any damage under the terms of any lease of 7,500 square feet or more
provided that the conditions in items (i) and (iv) above have been met. All
disbursements of net proceeds of a casualty or condemnation shall be made in
accordance with the Disbursement Procedures.
Approval Rights. The Quail Springs Mall Loan provides mortgagee with the
Standard Approval Rights regarding budgets, leases and alterations. The Lease
Approval Threshold is 7,500 square feet. Mortgagee has the right to approve all
alterations other than those relating to tenant improvement work that does not
materially affect the structure or the utility systems of any improvement and
the Alteration Escrow Threshold is $2,250,000.
Financial Reporting. The Quail Springs Mall Borrower is required to
furnish the Financial Statements to mortgagee except that no monthly reports
are required and within 45 days after the end of each fiscal quarter, the Quail
Springs Mall Borrower is required to deliver quarterly and year to date income
and expense statements, a calculation of Loan DSCR, a rent roll, any variances
in the budget of more than 10%, and any notice from a tenant leasing more than
7,500 square feet.
S-185
<PAGE>
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement and will
consist of fourteen classes (each, a "Class") to be designated as the Class A-1
Certificates, the Class A-2 Certificates and the Class A-3 Certificates
(collectively, the "Class A Certificates"), the Class B Certificates, the Class
C Certificates, the Class D Certificates, the Class E Certificates, the Class F
Certificates, the Class G Certificates, the Class H Certificates, the Class X
Certificates, the Class Q Certificates, the Class R Certificates and the Class
LR Certificates. The Class E, Class F, Class G, Class H, Class Q, Class R and
Class LR Certificates (collectively, the "Private Certificates") are not
offered hereby.
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting of: (i) the Mortgage Loans and
all payments under and proceeds of the Mortgage Loans due after the Cut-Off
Date; (ii) any Mortgaged Property acquired on behalf of the Trust Fund through
foreclosure or deed in lieu of foreclosure (upon acquisition, an "REO
Property"); (iii) such funds or assets as from time to time are deposited in
the Collection Account, the Lower-Tier Distribution Account, the Upper-Tier
Distribution Account, the Deferred Interest Distribution Account, the Class Q
Distribution Account and any account established in connection with REO
Properties (an "REO Account"); (iv) the rights of the mortgagee under all
insurance policies with respect to the Mortgage Loans; (v) certain rights and
remedies under the Loan Sale Agreement; and (vi) all of the mortgagee's right,
title and interest in the Reserve Accounts, the Cash Collateral Accounts and
the Lockbox Accounts. The Certificates do not represent an interest in or
obligation of the Depositor, MSMC, the Master Servicer, the Special Servicer,
the Trustee, the Underwriter, the borrowers or any of their respective
affiliates.
Upon initial issuance, the Class A-1, Class A-2, Class A-3, Class B, Class
C, Class D, Class E, Class F, Class G and Class H Certificates (collectively,
the "Principal Balance Certificates") and the Class X Certificates will have
the following Certificate Principal Amount or Notional Amount (in each case,
subject to a variance of plus or minus 5%):
<TABLE>
<CAPTION>
INITIAL CERTIFICATE PRINCIPAL
CLASS AMOUNT OR NOTIONAL AMOUNT
- --------------------- ------------------------------
<S> <C>
Class A-1 .........
Class A-2 .........
Class A-3 .........
Class B ...........
Class C ...........
Class D ...........
Class E ...........
Class F ...........
Class G ...........
Class H ...........
Class X ...........
</TABLE>
The Certificate Principal Amount of any Class of Principal Balance
Certificates outstanding at any time represents the maximum amount which the
holders thereof are entitled to receive as distributions allocable to principal
from the cash flow on the Mortgage Loans and the other assets in the Trust
Fund; provided, however, that in the event that Realized Losses previously
allocated to a Class of Certificates in reduction of their Certificate
Principal Amounts are recovered subsequent to the reduction of the Certificate
Principal Amount of such Class to zero, such Class may receive distributions in
respect of such recoveries in accordance with the priorities set forth under
"--Distributions--Payment Priorities" herein. The respective Certificate
Principal Amount of each Class of Certificates entitled to distributions of
principal will in each case be reduced by amounts actually distributed thereon
that are allocable to principal and by any Realized Losses allocated to such
Class of Certificates.
The Class X will not have a Certificate Principal Amount. Such Class will
represent the right to receive distributions of interest accrued as described
herein on a notional principal amount (a "Notional Amount"). The Notional
Amount of the Class X Certificates will generally equal the aggregate
Certificate Principal Amounts of the Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E, Class F, Class G and Class H Certificates
outstanding from time to time, plus the amount of any unpaid Interest Shortfall
on such Classes. For convenience in describing interest distributions, the
Class X Certificates will be deemed to consist of 10 components, the "Class A-1
Component", the "Class A-2 Component", the "Class A-3 Component", the "Class B
Component", the "Class C Component", the "Class D Component", the "Class E
Component",
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the "Class F Component", the "Class G Component" and the "Class H Component",
each of which will have a notional amount (each, a "Component Notional Amount")
allocable to principal and by any Realized Losses allocated to such Class of
Certificates. The Notional Amount of the Class X Certificates will be reduced
to the extent of all reductions in the aggregate of the Certificate Principal
Amounts of the Principal Balance Certificates.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the third Business Day of each month, commencing in July, 1998 (each, a
"Distribution Date"). All distributions (other than the final distribution on
any Certificate) will be made by the Trustee to the persons in whose names the
Certificates are registered at the close of business on the last day of the
month immediately preceding the month in which the related Distribution Date
occurs, or if such day is not a Business Day, the immediately preceding
Business Day. Such distributions will be made (a) by wire transfer in
immediately available funds to the account specified by the Certificateholder
at a bank or other entity having appropriate facilities therefor, if such
Certificateholder provides the Trustee with wiring instructions no less than
five Business Days prior to the related Record Date, or otherwise (b) by check
mailed to such Certificateholder. The final distribution on any Offered
Certificates will be made in like manner, but only upon presentment or
surrender (for notation that the Certificate Principal Amount or the Notional
Amount, as the case may be, thereof has been reduced to zero) of such
Certificate at the location specified in the notice to the Certificateholder
thereof of such final distribution. All distributions made with respect to a
Class of Certificates on each Distribution Date will be allocated pro rata
among the outstanding Certificates of such Class based on their respective
Percentage Interests. The "Percentage Interest" evidenced by any Offered
Certificate is equal to the initial denomination thereof as of the Closing Date
divided by the initial Certificate Principal Amount of the related Class.
The aggregate distribution to be made on the Certificates on any
Distribution Date will equal the Available Funds. The "Available Funds" for a
Distribution Date will be the sum of (i) all Monthly Payments, Balloon Payments
or other receipts on account of principal and interest on or in respect of the
Mortgage Loans (including Unscheduled Payments and Net REO Proceeds, if any)
received by the Master Servicer in the related Collection Period, (ii) all
other amounts required to be deposited in the Collection Account by the Master
Servicer pursuant to the Pooling Agreement in respect of such Distribution Date
that are allocable to the Mortgage Loans, including all P&I Advances made by
the Master Servicer or the Trustee, as applicable, in respect of such
Distribution Date, and any interest or other income earned on funds in the
Interest Reserve Account, and (iii) any late payments of the items set forth in
clause (i) above received after the end of the Collection Period relating to
such Distribution Date but prior to the related Master Servicer Remittance Date
but excluding the following:
(a) amounts permitted to be used to reimburse the Master Servicer, the
Special Servicer or the Trustee, as applicable, for previously unreimbursed
Advances and interest thereon as described herein under "The Pooling
Agreement--Advances";
(b) the aggregate amount of the Servicing Fee (which includes the fees for
both the Trustee and the Master Servicer) payable to the Master Servicer and
the amounts payable to the Special Servicer described herein under "The
Pooling Agreement--Special Servicer" in each case in respect of such
Distribution Date, and all amounts in the nature of late fees, loan
modification fees, extension fees, loan service transaction fees, demand
fees, beneficiary statement charges, assumption fees, modification fees and
similar fees, and reinvestment earnings on payments received with respect to
the Mortgage Loans which the Master Servicer or Special Servicer is entitled
to receive as additional servicing compensation pursuant to the terms of the
Pooling Agreement (together with the Servicing Fee, "Servicing
Compensation");
(c) all amounts representing scheduled Monthly Payments due after the
related Due Date;
(d) to the extent permitted by the Pooling Agreement, that portion of
liquidation proceeds, insurance proceeds, condemnation proceeds or the
Repurchase Price received with respect to a Mortgage Loan which represents
any unpaid Servicing Compensation as described herein, to which the Master
Servicer, the Special Servicer or the Trustee is entitled;
(e) all amounts representing certain unanticipated or default related
expenses reimbursable or payable to the Master Servicer, the Special
Servicer or the Trustee and other amounts permitted to be retained by the
Master Servicer or withdrawn pursuant to the Pooling Agreement in respect of
various items, including indemnities;
(f) Prepayment Premiums;
(g) Default Interest;
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(h) Deferred Interest;
(i) all amounts received with respect to each Mortgage Loan previously
purchased or repurchased pursuant to the Pooling Agreement during the
related Collection Period and subsequent to the date as of which the amount
required to effect such purchase or repurchase was determined; and
(j) the amount reasonably determined by the Trustee to be necessary to pay
any applicable federal, state or local taxes imposed on the Upper-Tier REMIC
or the Lower-Tier REMIC under the circumstances and to the extent described
in the Pooling Agreement.
"Monthly Payment" with respect to any Mortgage Loan (other than any REO
Mortgage Loan) and any Due Date is the scheduled monthly payment of principal
(if any) and interest at the related Mortgage Rate which is payable by the
related borrower on such Due Date, but not including any Balloon Payment. The
Monthly Payment for any Distribution Date with respect to (i) any REO Mortgage
Loan, or (ii) any Mortgage Loan which is delinquent at its maturity date and
with respect to which the Special Servicer does not enter into an extension, is
the monthly payment that would otherwise have been payable on the related Due
Date had the related Note not been discharged or the related maturity date not
been reached, as the case may be, determined as set forth in the Pooling
Agreement.
"Balloon Payment" means with respect to the Magellan Apartment Pool Loan,
the payments due on its Maturity Date.
"Unscheduled Payments" are all net liquidation proceeds, net insurance
proceeds and net condemnation proceeds payable under the Mortgage Loans, any
Principal Prepayment, any delinquent Monthly Payment received from the related
borrower after the Master Servicer Remittance Date for the Due Date related to
such Monthly Payment, any Repurchase Price received in connection with a
Mortgage Loan repurchased from the Trust Fund and any other payments under or
with respect to the Mortgage Loans not scheduled to be made, but excluding
Prepayment Premiums, Deferred Interest and Default Interest and excluding any
amount paid in connection with the release of the related Mortgaged Property
through defeasance.
"Net REO Proceeds" with respect to any REO Property and any related REO
Mortgage Loan are all revenues received by the Special Servicer with respect to
such REO Property or REO Mortgage Loan (other than the proceeds of a
liquidation thereof) net of any insurance premiums, taxes, assessments and
other costs and expenses permitted to be paid therefrom pursuant to the Pooling
Agreement.
"Principal Prepayments" are unscheduled payments of principal permitted to
be made by a borrower under the terms of a Mortgage Loan and received from the
borrower.
"Collection Period" with respect to a Distribution Date and each Mortgage
Loan is the period beginning on the day after the Due Date in the month
preceding the month in which such Distribution Date occurs (or, in the case of
the Distribution Date occurring in July , 1998, beginning on the day after the
Cut-Off Date) and ending on the Due Date in the month in which such
Distribution Date occurs.
"Net Default Interest" with respect to any Mortgage Loan is any Default
Interest accrued on such Mortgage Loan less amounts required to pay the Master
Servicer, the Special Servicer or the Trustee, as applicable, interest on
Advances at the Advance Rate.
"Default Interest" with respect to any Mortgage Loan is interest accrued
on such Mortgage Loan at the excess of (i) the related Default Rate over (ii)
the sum of the related Mortgage Rate plus, if applicable, the related Excess
Rate.
"Default Rate" with respect to any Mortgage Loan is the per annum rate at
which interest accrues on such Mortgage Loan following any event of default on
such Mortgage Loan including a default in the payment of a Monthly Payment.
"Excess Rate" with respect to each of the Mortgage Loans (other than the
Magellan Apartment Pool Loan) is the excess of the related Revised Interest
Rate over the related Initial Interest Rate.
"Deferred Interest" with respect to each of the Mortgage Loans (other than
the Magellan Apartment Pool Loan) is the interest accrued at the related Excess
Rate in respect of such Mortgage Loan, plus interest thereon, to the extent
permitted by applicable law, at the related Revised Interest Rate.
Payment Priorities. As used below in describing the priorities of
distribution of Available Funds for each Distribution Date, the terms set forth
below will have the following meanings.
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The "Interest Accrual Amount", with respect to any Distribution Date and
any Class of Principal Balance Certificates, is equal to interest for the
related Interest Accrual Period at the Pass-Through Rate for such Class on the
related Certificate Principal Amount (provided, that for interest accrual
purposes any distributions in reduction of Certificate Principal Amount or
reductions in Certificate Principal Amount as a result of allocations of
Realized Losses on the Distribution Date occurring in an Interest Accrual
Period will be deemed to have been made on the first day of such Interest
Accrual Period); and "Interest Accrual Amount" with respect to any Distribution
Date and the Class X Certificates is equal to interest for the related Interest
Accrual Period at the Pass-Through Rate for such Class for such Interest
Accrual Period on the Notional Amount (provided, that for interest accrual
purposes any distributions in reduction of Notional Amount or reductions in
Notional Amount as a result of allocations of Realized Losses on the
Distribution Date occurring in an Interest Accrual Period shall be deemed to
have been made on the first day of such Interest Accrual Period) of such Class.
Calculations of interest on the Certificates, will be made on the basis of a
360-day year consisting of twelve 30-day months.
The "Interest Distribution Amount" with respect to any Distribution Date
and each Class of Regular Certificates will equal (A) the sum of (i) the
Interest Accrual Amount for such Distribution Date and (ii) the Interest
Shortfall, if any, for such Distribution Date, less (B) any Excess Prepayment
Interest Shortfall allocated to such Class on such Distribution Date.
The "Interest Accrual Period" with respect to any Distribution Date and
with respect to any Class of Certificates is the calendar month preceding the
month in which such Distribution Date occurs.
Each Interest Accrual Period with respect to each Class of Certificates is
assumed to consist of 30 days.
An "Interest Shortfall" with respect to any Distribution Date for any
Class of Regular Certificates is the sum of (a) the excess, if any, of (i) the
Interest Distribution Amount for such Class for the immediately preceding
Distribution Date, over (ii) all distributions of interest (other than Deferred
Interest) made with respect to such Class of Certificates on the immediately
preceding Distribution Date, and (b) to the extent permitted by applicable law,
(i) other than in the case of the Class X Certificates, one month's interest on
any such excess at the Pass-Through Rate applicable to such Class of
Certificates for the current Distribution Date and (ii) in the case of the
Class X Certificates, one month's interest on any such excess at the WAC Rate
for such Distribution Date.
The "Pass-Through RatePass-Through Rate" for any Class of Regular
Certificates for any Interest Accrual Period is the per annum rate at which
interest accrues on the Certificates of such Class during such Interest Accrual
Period, as follows:
The Pass-Through Rate on the Class A-1 Certificates will be equal to
%.
The Pass-Through Rate on the Class A-2 Certificates will be equal to
%, provided, however, that in no event shall the Class A-2 Pass-Through
Rate exceed the WAC Rate.
The Pass-Through Rate on the Class A-3 Certificates will be equal to
%, provided, however, that in no event shall the Class A-3 Pass-Through
Rate exceed the WAC Rate.
The Pass-Through Rate on the Class B Certificates is equal to the WAC
Rate minus %.
The Pass-Through Rate on the Class C Certificates is equal to the WAC
Rate minus %.
The Pass-Through Rate on the Class D Certificates is equal to the WAC
Rate minus %.
The Pass-Through Rate on the Class E Certificates is equal to the WAC
Rate minus %.
The Pass-Through Rate on the Class F Certificates is equal to the WAC
Rate minus %.
The Pass-Through Rate on the Class G Certificates is equal to the WAC
Rate minus %.
The Pass-Through Rate on the Class H Certificates will be equal to %
per annum.
The Pass-Through Rate on the Class X Certificates is a per annum rate
equal to the weighted average of the Pass-Through Rates on the Class A-1
Component, the Class A-2 Component, the Class A-3 Component, the Class B
Component, the Class C Component, the Class D Component, the Class E Component,
the Class F Component, the Class G Component and the Class H Component,
weighted on the basis of their respective Component Notional Amounts. The
Pass-Through Rate on the Class A-1 Component is a per annum rate equal to the
WAC Rate minus the Pass-Through Rate on the Class A-1 Certificates. The
Pass-Through Rate on the Class A-2 Component is a per annum rate equal to the
WAC Rate minus the Pass-Through Rate on the Class A-2 Certificates. The
Pass-Through Rate on the Class A-3 Component is a per annum rate equal to the
WAC Rate minus the Pass-Through Rate on the Class A-3 Certificates. The
Pass-Through Rate
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on the Class B Component is a per annum rate equal to %. The Pass-Through
Rate on the Class C Component is a per annum rate equal to %. The
Pass-Through Rate on the Class D Component is a per annum rate equal to %.
The Pass-Through Rate on the Class E Component is a per annum rate equal to
%. The Pass-Through Rate on the Class F Component is a per annum rate equal
to %. The Pass-Through Rate on the Class G Component is a per annum rate
equal to %. The Pass-Through Rate on the Class H Component is a per annum
rate equal to the WAC Rate minus the Pass-Through Rate on the Class H
Certificates.
The "WAC Rate" for any Distribution Date is the weighted average of the
Net Mortgage Rates in effect for the Mortgage Loans as of their Due Date in the
month preceding the month in which such Distribution Date occurs weighted on
the basis of their respective Stated Principal Balances on such Due Date.
The "Regular Certificates" are the Class A-1, Class A-2, Class A-3, Class
B, Class C, Class D, Class E, Class F, Class G, Class H and Class X
Certificates.
The "Net Mortgage Rate" with respect to any Mortgage Loan is a per annum
rate equal to the related Mortgage Rate in effect from time to time minus the
Servicing Fee Rate. However, for purposes of calculating Pass-Through Rates,
the Net Mortgage Rate of such Mortgage Loan shall be determined without regard
to any modification, waiver or amendment of the terms, whether agreed to by the
Special Servicer or resulting from a bankruptcy, insolvency or similar
proceeding involving the related borrower.
The "Mortgage Rate" with respect to any Mortgage Loan is the per annum
rate at which interest accrues on such Mortgage Loan as stated in the related
Note in each case without giving effect to the Excess Rate or the Default Rate.
Notwithstanding the foregoing, if any Mortgage Loan does not accrue interest on
the basis of a 360-day year consisting of twelve 30-day months, then, for
purposes of calculating Pass-Through Rates, the Mortgage Rate of such Mortgage
Loan for any one-month period preceding a related Due Date will be the
annualized rate at which interest would have to accrue in respect of such
Mortgage Loan on the basis of a 360-day year consisting of twelve 30-day months
in order to produce the aggregate amount of interest actually accrued in
respect of such Mortgage Loan during such one-month period at the related
Mortgage Rate.
The "Stated Principal Balance" of any Mortgage Loan at any date of
determination will equal (a) the principal balance as of the Cut-Off Date of
such Mortgage Loan, minus (b) the sum of (i) the principal portion of each
Monthly Payment or, if applicable, Extended Monthly Payment due on such
Mortgage Loan after the Cut-Off Date and prior to such date of determination,
if received from the borrower or advanced by the Master Servicer or Trustee,
(ii) all Balloon Payments, voluntary and involuntary principal prepayments and
other unscheduled collections of principal received with respect to such
Mortgage Loan, to the extent distributed to holders of the Certificates or
applied to other payments required under the Pooling Agreement before such date
of determination and (iii) any adjustment thereto as a result of a reduction of
principal by a bankruptcy court or as a result of a modification reducing the
principal amount due on such Mortgage Loan. The Stated Principal Balance of a
Mortgage Loan with respect to which title to the related Mortgaged Property has
been acquired by the Trust Fund is equal to the principal balance thereof
outstanding on the date on which such title is acquired less any Net REO
Proceeds allocated to principal on such Mortgage Loan. The Stated Principal
Balance of a defaulted Mortgage Loan with respect to which the Master Servicer
or the Special Servicer has determined that it has received all payments and
recoveries which it expects to be finally recoverable on such Mortgage Loan is
zero.
The "Principal Distribution Amount" for any Distribution Date will be
equal to the sum, without duplication, of:
(i) the principal component of all scheduled Monthly Payments (other than
Balloon Payments) due on the Due Date immediately preceding such
Distribution Date (if received, or advanced by the Master Servicer or
Trustee, in respect of such Distribution Date) with respect to the Mortgage
Loans;
(ii) the principal component of all Extended Monthly Payments due on the
related Due Date (if received, or advanced by the Master Servicer or
Trustee, in respect of such Distribution Date) with respect to the Mortgage
Loans;
(iii) the principal component of any payment (including any Balloon
Payment) on any Mortgage Loan received on or after the maturity date thereof
in the related Collection Period; and
(iv) the portion of Unscheduled Payments allocable to principal of any
Mortgage Loan received or applied during the related Collection Period, net
of the principal portion of any unreimbursed P&I Advances related to such
Mortgage Loan.
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An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
On each Distribution Date prior to the Cross-over Date, the Available
Funds for such Distribution Date will be distributed in the following amounts
and order of priority:
First, pro rata, in respect of interest, to the Class A-1, Class A-2,
Class A-3 and Class X Certificates, up to an amount equal to, and pro rata
as among such Classes in accordance with, the Interest Distribution Amounts
of such Classes;
Second, to the Class A Certificates, in reduction of their respective
Certificate Principal Amounts in the following order: first, to the Class
A-1 Certificates, second, to the Class A-2 Certificates, and third, to the
Class A-3 Certificates, in each case up to an amount equal to the lesser of
(i) the Certificate Principal Amount thereof and (ii) the Principal
Distribution Amount for such Distribution Date;
Third, to the Class B Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Fourth, to the Class B Certificates, in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Fifth, to the Class B Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded monthly
from the date the related Realized Loss was allocated to such Class;
Sixth, to the Class C Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Seventh, to the Class C Certificates, in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Eighth, to the Class C Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded monthly
from the date the related Realized Loss was allocated to such Class;
Ninth, to the Class D Certificates in respect of interest, up to an amount
equal to the aggregate Interest Distribution Amount of such Class;
Tenth, to the Class D Certificates, in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Eleventh, to the Class D Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded monthly
from the date the related Realized Loss was allocated to such Class;
Twelfth, to the Class E Certificates in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Thirteenth, to the Class E Certificates in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Fourteenth, to the Class E Certificates, an amount equal to the aggregate
of unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded monthly
from the date the related Realized Loss was allocated to such Class;
Fifteenth, to the Class F Certificates in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Sixteenth, to the Class F Certificates in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
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Seventeenth, to the Class F Certificates, an amount equal to the aggregate
of unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded monthly
from the date the related Realized Loss was allocated to such Class;
Eighteenth, to the Class G Certificates in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Nineteenth, to the Class G Certificates in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Twentieth to the Class G Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded monthly
from the date the related Realized Loss was allocated to such Class;
Twenty-first, to the Class H Certificates in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Twenty-second, to the Class H Certificates in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Twenty-third, to the Class H Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest thereon at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class; and
Twenty-fourth, to the Class R Certificates, any amounts remaining in the
Upper-Tier Distribution Account, and to the Class LR Certificates, any
amounts remaining in the Lower-Tier Distribution Account.
On each Distribution Date occurring on and after the Cross-over Date,
regardless of the allocation of principal payments described in priority Second
above, an amount equal to the aggregate of the Principal Distribution Amounts
will be distributed, first, to the Class A-1, Class A-2 and, Class A-3
Certificates, pro rata, based on their respective Certificate Principal
Amounts, in reduction of their respective Certificate Principal Amounts, until
the Certificate Principal Amount of each such Class is reduced to zero, and,
second, to the Class A-1, Class A-2 and Class A-3 Certificates for unreimbursed
amounts of Realized Losses previously allocated to such Classes, pro rata in
accordance with the amount of such unreimbursed Realized Losses so allocated,
plus interest thereon at the Pass-Through Rates for such Classes compounded
monthly from the date the related Realized Losses were allocated for such
Classes. The "Cross-over Date" is the Distribution Date on which the
Certificate Principal Amount of each Class of Certificates entitled to
distributions of principal (other than the Class A-1, Class A-2 and Class A-3
Certificates) has been reduced to zero.
All references to "pro rata" in the preceding clauses, unless otherwise
specified, mean pro rata based upon the amount distributable pursuant to such
clause.
Prepayment Charges. On any Distribution Date, Prepayment Charges collected
during the related Collection Period will be distributed to the holders of the
Certificates as described below.
If any Class A Certificate remains outstanding on such Distribution Date,
holders of the Classes of Principal Balance Certificates entitled to
distributions of principal on such Distribution Date will be entitled to
distributions with respect to the applicable Prepayment Charge in an aggregate
amount (allocable among such Classes if more than one such Class remains
outstanding, as described below) equal to the product of (a) the amount of such
Prepayment Charge, multiplied by (b) a fraction, expressed as a percentage, the
numerator of which is equal to the excess, if any, of the then current
Pass-Through Rate applicable to the most senior of such Classes of Principal
Balance Certificates (or, in the case of two or more classes of Class A
Certificates remaining outstanding, the one with the earliest payment
priority), over the relevant Discount Rate, and the denominator of which is
equal to the excess, if any, of the Mortgage Rate for the prepaid Mortgage Loan
over the relevant Discount Rate. If there is more than one Class of Principal
Balance Certificates entitled to distributions of principal on such
Distribution Date, the aggregate amount described in the preceding sentence
will be allocated among such Classes on a pro rata basis, in accordance with
the relative amounts of such distributions of principal. Any portion of such
Prepayment Charge that is not so distributed to the holders of such Principal
Balance Certificates will be distributed to the Class X Certificates.
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If no Class A Certificate remains outstanding on such Distribution Date,
holders of the Class X Certificates will be entitled to a distribution with
respect to the applicable Prepayment Charge equal to the product of such
Prepayment Charge, multiplied by a fraction, the numerator of which is equal to
the sum of the Servicing Fee Rate and the Component Pass-Through Rate related
to the Class of Certificates with the earliest Class designation which has a
Class Prepayment Percentage greater than zero, and the denominator of which is
the greater of (x) the excess, if any, of the Mortgage Rate of the Mortgage
Loan that prepaid over the Discount Rate, and (y) the sum of such Component
Pass-Through Rate and the Servicing Fee Rate. Any portion of such Prepayment
Charge that is not so distributed to the holders of the Class X Certificates
will be distributed to the holders of one or more of the Class B, Class C,
Class D, Class E and Class F Certificates in an amount equal to the product of
(a) the related Class Prepayment Percentage for such Distribution Date and (b)
such remaining portion of the Prepayment Charge.
With respect to any Class of Certificates (other than the Class X and
Residual Certificates) and any Distribution Date, the "Class Prepayment
Percentage" will be equal to a fraction, expressed as a percentage, the
numerator of which is the portion of the Principal Distribution Amount to be
distributed to the holders of such Class of Certificates on such Distribution
Date, and the denominator of which is the total Principal Distribution Amount
for such Distribution Date.
For purposes of the foregoing, the "Discount Rate" is the rate which, when
compounded monthly, is equivalent to the Treasury Rate when compounded
semi-annually. The "Treasury Rate" is the yield calculated by the linear
interpolation of the yields, as reported in Federal Reserve Statistical Release
H.15--Selected Interest Rates ("Release H.15") under the heading "U.S.
government securities/Treasury constant maturities" for the week ending prior
to the date of the relevant principal prepayment, of U.S. Treasury constant
maturities with a maturity date (one longer and one shorter) most nearly
approximating the maturity of the Mortgage Loan prepaid. If Release H.15 is no
longer published, the Trustee will select a comparable publication to determine
the Treasury Rate.
See "Certain Legal Aspects of the Mortgage Loans and the Leases--Default
Interest, Prepayment Charges and Prepayments" in the Prospectus regarding the
enforceability of Prepayment Charges.
Deferred Interest. On each Distribution Date, the Trustee shall distribute
any Deferred Interest received with respect to any Mortgage Loan during the
related Collection Period to holders of the following Classes of Certificates
in the following percentages: % to the Class B Certificates, % to the
Class C Certificates, % to the Class D Certificates, % to the Class E
Certificates, % to the Class F Certificates, % to the Class G
Certificates and % to the Class H Certificates.
Class Q Distributions. On each Distribution Date, Net Default Interest
received in the related Collection Period with respect to a default on a
Mortgage Loan will be distributed solely to the Class Q Certificates, to the
extent set forth in the Pooling Agreement. The Class Q Certificates are not
entitled to any other distributions.
Realized Losses. The Certificate Principal Amount of each Class of
Certificates entitled to distributions of principal will be reduced without
distribution on any Distribution Date as a write-off to the extent of any
Realized Loss allocated to such Class on such Distribution Date. As referred to
herein, the "Realized Loss" with respect to any Distribution Date shall mean
the amount, if any, by which the aggregate Certificate Principal Amount of all
such Classes of Certificates after giving effect to distributions made on such
Distribution Date exceeds the aggregate Stated Principal Balance of the
Mortgage Loans after giving effect to any payments of principal received or
advanced with respect to the Due Date occurring immediately prior to such
Distribution Date. Any such write-offs will be applied to such Classes of
Certificates in the following order, until each is reduced to zero: first, to
the Class H Certificates; second, to the Class G Certificates; third, to the
Class F Certificates; fourth, to the Class E Certificates; fifth, to the Class
D Certificates; sixth, to the Class C Certificates; seventh, to the Class B
Certificates and, finally, pro rata, to the Class A-1, Class A-2, and Class A-3
Certificates, based on their respective Certificate Principal Amounts.
Shortfalls in Available Funds resulting from additional servicing
compensation other than the Servicing Fee, interest on Advances to the extent
not covered by Default Interest, Excess Prepayment Interest Shortfalls,
extraordinary expenses of the Trust Fund, a reduction of the interest rate of a
Mortgage Loan by a bankruptcy court pursuant to a plan of reorganization or
pursuant to any of its equitable powers or other unanticipated or
default-related expenses will be allocated to each Class of Certificates in the
same manner as Realized Losses. The Notional Amount of the Class X Certificates
will be reduced to reflect reductions in the Certificate Principal Amount of
the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D, Class E, Class
F, Class G and Class H Certificates resulting from allocations of Realized
Losses.
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The "Prepayment Interest Shortfall", with respect to any Distribution Date
and any Mortgage Loan, is equal to the amount of any shortfall in collections
of interest, adjusted to the applicable Net Mortgage Rate, resulting from a
Principal Prepayment on such Mortgage Loan during the related Collection Period
and prior to the Due Date in such Collection Period. Such shortfall may result
because interest on a Principal Prepayment in full is paid by the related
borrower only to the date of prepayment.
The "Excess Prepayment Interest Shortfall" with respect to any
Distribution Date, is the aggregate amount by which the Prepayment Interest
Shortfall with respect to all Principal Prepayments received during the related
Collection Period exceeds the aggregate Servicing Fee (minus the Trustee Fee
and, in the case where such Prepayment Interest Shortfall is the result of a
prepayment on the Glenborough Pool Loan, the monthly pro-rated amount of the
annual surveillance fees (the "Surveillance Fees") allocable to the Glenborough
Pool Loan) available to be paid to the Master Servicer for such Distribution
Date.
Appraisal Reduction Amounts. In the event that an Appraisal Reduction
Event occurs with respect to a Mortgage Loan, (i) the amount advanced by the
Master Servicer with respect to delinquent payments of interest with respect to
the related Mortgage Loan will be reduced as described under "The Pooling and
Servicing Agreement--Advances" below, and (ii) the Voting Rights of certain
Classes will be reduced as described under "The Pooling Agreement--Amendment"
herein. The reduction of interest advanced by the Master Servicer will have the
effect of reducing the amount available to be distributed as interest on the
then most subordinate Class or Classes of Certificates.
The Certificate Principal Amount of each of the Class H, Class G, Class F,
Class E, Class D, Class C and Class B Certificates will be notionally reduced
(solely for purposes of determining the Voting Rights of the related Classes)
on any Distribution Date to the extent of any Appraisal Reduction Amounts
allocated to such Class on such Distribution Date. To the extent that the
aggregate of the Appraisal Reduction Amounts for any Distribution Date exceed
such Certificate Principal Amount, such excess will be applied, subject to any
reversal described below, to notionally reduce the Certificate Principal Amount
of the next most subordinate Class of Certificates on the next Distribution
Date. Any such reductions will be applied in the following order of priority:
first, to the Class H Certificates; second, to the Class G Certificates; third,
to the Class F Certificates; fourth, to the Class E Certificates; fifth, to the
Class D Certificates; sixth, to the Class C Certificates; and finally, to the
Class B Certificates (provided in each case that no Certificate Principal
Amount in respect of any such Class may be notionally reduced below zero). See
"--Payment Priorities" above and "--Appraisal Reductions" below.
SUBORDINATION
As a means of providing a certain amount of protection to the holders of
the Class A-1, Class A-2, Class A-3 and Class X Certificates against losses
associated with delinquent and defaulted Mortgage Loans, the rights of the
holders of the Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates to receive distributions of interest (other than Deferred
Interest) and principal, as applicable, will be subordinated to such rights of
the holders of the Class A-1, Class A-2, Class A-3 and Class X Certificates.
This subordination will be effected in two ways: (i) by the preferential right
of the holders of a Class of Certificates to receive on any Distribution Date
the amounts of interest and principal distributable in respect of such
Certificates on such date prior to any distribution being made on such
Distribution Date in respect of any Classes of Certificates subordinate thereto
and (ii) by the allocation of Realized Losses first, to the Class H
Certificates; second, to the Class G Certificates; third, to the Class F
Certificates; fourth to the Class E Certificates; fifth, to the Class D
Certificates; sixth, to the Class C Certificates; seventh, to the Class B
Certificates; and, finally, to the Class A-1, Class A-2 and Class A-3
Certificates, pro rata, based on their respective Certificate Principal
Amounts. No other form of credit enhancement will be available for the benefit
of the holders of the Offered Certificates.
APPRAISAL REDUCTIONS
With respect to the first Distribution Date following the earliest of (i)
the third anniversary of the date on which an extension of the maturity date of
a Mortgage Loan becomes effective as a result of a modification of such
Mortgage Loan by the Special Servicer, which extension does not change the
amount of Monthly Payments on the Mortgage Loan, (ii) 90 days after an uncured
delinquency occurs in respect of a Mortgage Loan, (iii) 45 days after the date
on which a reduction in the amount of Monthly Payments on a Mortgage Loan, or a
change in any other material economic term of the Mortgage Loan, becomes
effective as a result of a modification of such Mortgage Loan by the Special
Servicer, (iv) 30 days after a receiver has been appointed or after the
commencement of an involuntary bankruptcy proceeding, (v) immediately after a
borrower declares bankruptcy, and (vi) immediately after a Mortgage Loan
becomes an REO Mortgage Loan (each, an "Appraisal
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Reduction Event"), an Appraisal Reduction Amount will be calculated. The
"Appraisal Reduction Amount" for any Distribution Date and for any Mortgage
Loan as to which any Appraisal Reduction Event has occurred will be an amount
equal to the excess of (a) the outstanding Stated Principal Balance of such
Mortgage Loan as of the last day of the related Collection Period over (b) the
excess of (i) 90% of the sum of the appraised values of the related Mortgaged
Properties as determined by independent MAI appraisals (the costs of which
shall be paid by the Master Servicer as an Advance) over (ii) the sum of (A) to
the extent not previously advanced by the Master Servicer or the Trustee, all
unpaid interest on such Mortgage Loan at a per annum rate equal to the Mortgage
Rate, (B) all unreimbursed Advances and interest thereon at the Advance Rate in
respect of such Mortgage Loan and (C) all currently due and unpaid real estate
taxes and assessments and insurance premiums and all other amounts, including,
if applicable, ground rents, due and unpaid under the Mortgage Loan (which
taxes, premiums and other amounts have not been the subject of an Advance). If
no independent MAI appraisal has been obtained within twelve months prior to
the first Distribution Date on or after an Appraisal Reduction Event has
occurred, the Special Servicer will be required to estimate the value of the
related Mortgaged Properties (the "Special Servicer's Appraisal Reduction
Estimate") and such estimate will be used for purposes of determining the
Appraisal Reduction Amount. Within 60 days after the Special Servicer receives
notice or is otherwise aware of an Appraisal Reduction Event, the Special
Servicer will be required to obtain an independent MAI appraisal, the cost of
which will be paid by the Master Servicer as a Property Advance. On the first
Distribution Date occurring on or after the delivery of such independent MAI
appraisal, the Special Servicer will be required to adjust the Appraisal
Reduction Amount to take into account such appraisal (regardless of whether the
independent MAI appraisal is higher or lower than the Special Servicer's
Appraisal Reduction Estimate). Annual updates of such independent MAI appraisal
will be obtained during the continuance of an Appraisal Reduction Event and the
Appraisal Reduction Amount will be adjusted accordingly.
Upon payment in full or liquidation of any Mortgage Loan for which an
Appraisal Reduction Amount has been determined, such Appraisal Reduction Amount
will be eliminated.
DELIVERY, FORM AND DENOMINATION
The Offered Certificates (other than the Class X Certificates) will be
issued, maintained and transferred in the book-entry form only in denominations
of $10,000 initial Certificate Principal Amount, and in multiples of $1 in
excess thereof, and the Class X Certificates will be issued, maintained and
transferred in the book-entry form only in denominations of $100,000 initial
Notional Amount, and in multiples of $1 in excess thereof.
The Offered Certificates will initially be represented by one or more
global Certificates for each such Class registered in the name of the nominee
of DTC. The Depositor has been informed by DTC that DTC's nominee will be Cede
& Co. No holder of an Offered Certificate will be entitled to receive a
certificate issued in fully registered, certificated form (each, a "Definitive
Certificate") representing its interest in such Class, except under the limited
circumstances described below under "--Definitive Certificates." Unless and
until Definitive Certificates are issued, all references to actions by holders
of the Offered Certificates will refer to actions taken by DTC upon
instructions received from holders of Offered Certificates through its
participating organizations (together with CEDEL and Euroclear participating
organizations, the "Participants"), and all references herein to payments,
notices, reports, statements and other information to holders of Offered
Certificates will refer to payments, notices, reports and statements to DTC or
Cede & Co., as the registered holder of the Offered Certificates, for
distribution to holders of Offered Certificates through its Participants in
accordance with DTC procedures; provided, however, that to the extent that the
party to the Pooling Agreement responsible for distributing any report,
statement or other information has been provided with the name of the
beneficial owner of a Certificate (or the prospective transferee of such
beneficial owner), such report, statement or other information will be provided
to such beneficial owner (or prospective transferee).
Until Definitive Certificates are issued in respect of the Offered
Certificates, interests in the Offered Certificates will be transferred on the
book-entry records of DTC and its Participants. The Trustee will initially
serve as certificate registrar (in such capacity, the "Certificate Registrar")
for purposes of recording and otherwise providing for the registration of the
Offered Certificates.
A "Certificateholder" or "holder" under the Pooling Agreement will be the
person in whose name a Certificate is registered in the certificate register
maintained pursuant to the Pooling Agreement, except that solely for the
purpose of giving any consent or taking any action pursuant to the Pooling
Agreement, any Certificate registered in the name of the Depositor, the
Trustee, the Master Servicer, the Special Servicer, a manager of a Mortgaged
Property, a mortgagor or any person affiliated with the Depositor, the Trustee,
the Master Servicer, or the Special Servicer, such Certificate will be deemed
not to be outstanding and the Voting Rights to which it is entitled will not be
taken into account in determining whether the
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requisite percentage of Voting Rights necessary to effect any such consent or
take any such action has been obtained; provided, however, that for purposes of
obtaining the consent of Certificateholders to an amendment to the Pooling
Agreement, any Certificates beneficially owned by the Master Servicer, the
Special Servicer or an affiliate of the Master Servicer or the Special Servicer
will be deemed to be outstanding, provided that such amendment does not relate
to compensation of the Master Servicer or the Special Servicer, or otherwise
benefit the Master Servicer or the Special Servicer in any material respect;
and, provided, further, that for purposes of obtaining the consent of
Certificateholders to any action proposed to be taken by the Special Servicer
with respect to a Specially Serviced Mortgage Loan, any Certificates
beneficially owned by the Master Servicer or an affiliate thereof will be
deemed to be outstanding, provided that the Special Servicer is not the Master
Servicer. The Percentage Interest of any Offered Certificate of any Class will
be equal to the percentage obtained by dividing the denomination of such
Certificate by the aggregate initial Certificate Principal Amount of such Class
of Certificates. See "Description of the Certificates--General" in the
Prospectus.
BOOK-ENTRY REGISTRATION
Holders of Offered Certificates may hold their Certificates through DTC
(in the United States) or CEDEL or Euroclear (in Europe) if they are
Participants of such system, or indirectly through organizations that are
participants in such systems. CEDEL and Euroclear will hold omnibus positions
on behalf of the CEDEL Participants and the Euroclear Participants,
respectively, through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositories (collectively, the
"Depositories") which in turn will hold such positions in customers' securities
accounts in the Depositories' names on the books of DTC. DTC is a limited
purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
computerized book-entries, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing system
by its Depository; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures.
If the transaction complies with all relevant requirements, Euroclear or CEDEL,
as the case may be, will then deliver instructions to the Depository to take
action to effect final settlement on its behalf.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
CEDEL Participant or Euroclear Participant on such business day. Cash received
in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
The holders of Offered Certificates that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Offered Certificates may do so only through Participants
and Indirect Participants. In addition, holders of Offered Certificates will
receive all distributions of principal and interest from the Trustee through
the Participants who in turn will receive them from DTC. Under a book-entry
format, holders of Offered Certificates may experience some delay in their
receipt of payments, since such payments will be forwarded by the Trustee to
Cede & Co., as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
beneficial owners of Offered Certificates.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Offered Certificates among Participants on whose behalf it acts with respect to
the
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Offered Certificates and to receive and transmit distributions of principal of,
and interest on, the Offered Certificates. Participants and Indirect
Participants with which the holders of Offered Certificates have accounts with
respect to the Offered Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
holders of Offered Certificates. Accordingly, although the holders of Offered
Certificates will not possess the Offered Certificates, the Rules provide a
mechanism by which Participants will receive payments on Offered Certificates
and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Offered Certificates to pledge such Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised the Depositor that it will take any action permitted to be
taken by a holder of an Offered Certificate under the Pooling Agreement only at
the direction of one or more Participants to whose accounts with DTC the
Offered Certificates are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear system ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear system,
withdrawal of securities and cash from the Euroclear system, and receipts of
payments with respect to securities in the Euroclear system.
Although DTC, Euroclear and CEDEL have implemented the foregoing
procedures in order to facilitate transfers of interests in Global Certificates
among Participants of DTC, Euroclear and CEDEL, they are under no obligation to
perform or to continue to comply with such procedures, and such procedures may
be discontinued at any time. None of the Depositor, the Trustee, the Master
Servicer, the Special Servicer or the Underwriter will have any responsibility
for the performance by DTC, Euroclear or CEDEL or their respective direct or
indirect Participants of their respective obligations under the rules and
procedures governing their operations. The information herein concerning DTC,
CEDEL and Euroclear and their book-entry systems has been obtained from sources
believed to be reliable, but the Depositor takes no responsibility for the
accuracy or completeness thereof.
DEFINITIVE CERTIFICATES
Definitive Certificates will be delivered to beneficial owners of Offered
Certificates ("Certificate Owners") (or their nominees) only if (i) DTC is no
longer willing or able properly to discharge its responsibilities as depository
with respect to the Offered Certificates, and the Depositor is unable to locate
a qualified successor, (ii) the Depositor or the Trustee, at its sole option,
elects to terminate the book-entry system through DTC, or (iii) after the
occurrence of an Event of Default under the Pooling Agreement, Certificate
Owners representing a majority in principal amount of the Offered Certificates
of any Class then outstanding advise DTC through DTC Participants in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of such Certificate Owners.
Upon the occurrence of any of the events described in clauses (i) through
(iii) in the immediately preceding paragraph, DTC is required to notify all
affected DTC Participants of the availability through DTC of Definitive
Certificates. Upon delivery of Definitive Certificates, the Trustee,
Certificate Registrar and Master Servicer will recognize the holders of such
Definitive Certificates as holders under the Pooling Agreement ("Holders").
Distributions of principal of and interest on the Definitive Certificates will
be made by the Trustee directly to Holders of Definitive Certificates in
accordance with the procedures set forth in the Pooling Agreement.
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Upon the occurrence of any of the events described in clauses (i) through
(iii) of the second preceding paragraph, requests for transfer of Definitive
Certificates will be required to be submitted directly to the Certificate
Registrar in a form acceptable to the Certificate Registrar (such as the forms
which will appear on the back of the certificate representing a Definitive
Certificate), signed by the Holder or such Holder's legal representative and
accompanied by the Definitive Certificate or Certificates for which transfer is
being requested.
TRANSFER RESTRICTIONS
Each Class B, Class C and Class D Certificate (each, a "Subordinated
Offered Certificate" and, collectively, the "Subordinated Offered
Certificates") will bear a legend substantially to the effect that such
Certificate may not be purchased by a transferee that is (A) an employee
benefit plan or other retirement arrangement, including an individual
retirement account or a Keogh plan, which is subject to Title I of ERISA, or
Section 4975 of the Code, or a "governmental plan" (as defined in Section 3(32)
of ERISA) that is subject to any federal, state or local law ("Similar Law")
which is, to a material extent, similar to the foregoing provisions of ERISA of
the Code (each, a "Plan"), or (B) a collective investment fund in which Plans
are invested, an insurance company using assets of separate accounts or general
accounts which include assets of Plans (or which are deemed pursuant to ERISA
or any Similar Law to include assets of Plans) or other person acting on behalf
of any such Plan or using the assets of any such Plan, other than an insurance
company using the assets of its general account under circumstances whereby
such purchase and the subsequent holding of such Certificate by such insurance
company would be exempt from the prohibited transaction provisions of ERISA and
the Code under Prohibited Transaction Class Exemption 95-60.
Holders of Subordinated Offered Certificates that are in book-entry form
will be deemed to have represented that they are not persons or entities
referred to in clause (A) or (B) of the legend described in the preceding
paragraph. In the event that holders of the Subordinated Offered Certificates
become entitled to receive Definitive Certificates under the circumstances
described under "--Definitive Certificates," each prospective transferee of a
Subordinated Offered Certificate that is a Definitive Certificate will be
required to either deliver to the Seller, the Certificate Registrar and the
Trustee a representation letter substantially in the form set forth as an
exhibit to the Pooling Agreement stating that such transferee is not a person
or entity referred to in clause (A) or (B) of the legend or provide an opinion
to the Seller, the Certificate Registrar and the Trustee as described in the
Pooling Agreement. Any transfer of a Subordinated Offered Certificate that
would result in a prohibited transaction under ERISA or Section 4975 of the
Code, or a materially similar characterization under any Similar Law will be
deemed absolutely null and void ab initio.
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YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
YIELD
The yield to maturity on the Offered Certificates will depend upon the
price paid by the Certificateholders, the rate and timing of the distributions
in reduction of Certificate Principal Amounts or Notional Amounts, as
applicable, of the related Classes of Certificates and the rate, timing and
severity of losses on the Mortgage Loans and the extent to which such losses
are allocable in reduction of the Certificate Principal Amounts or Notional
Amounts, as applicable, of such Classes of Certificates, as well as prevailing
interest rates at the time of payment or loss realization.
The rate of distributions in reduction of the Certificate Principal Amount
or Notional Amount, as applicable, of any Class of Offered Certificates, the
aggregate amount of distributions on any Class of Offered Certificates and the
yield to maturity of any Class of Offered Certificates will be directly related
to the rate of payments of principal (both scheduled and unscheduled) on the
Mortgage Loans and the amount and timing of borrower defaults. In addition,
such distributions in reduction of Certificate Principal Amount or Notional
Amount, as applicable, may result from repurchases of Mortgage Loans made by
MSMC due to missing or defective documentation or breaches of representations
and warranties with respect to the Mortgage Loans as described herein under
"The Pooling Agreement--Representations and Warranties; Repurchase" or
purchases of the Mortgage Loans in the manner described under "The Pooling
Agreement--Optional Termination."
Disproportionate principal payments (whether resulting from differences in
amortization terms, prepayments following expirations of the respective
Prepayment Lockout Periods or otherwise) on the Mortgage Loans affect the
Pass-Through Rates of the Class A-2, Class A-3, Class X, Class B, Class C and
Class D Certificates for one or more future periods and therefore the yield on
such Classes.
The Certificate Principal Amount of any Class of Offered Certificates may
be reduced without distributions thereon as a result of the occurrence and
allocation of Realized Losses, reducing the maximum amount distributable in
respect of Certificate Principal Amount, if applicable, as well as the amount
of interest that would have accrued on such Certificates in the absence of such
reduction. In general, a Realized Loss occurs when the aggregate principal
balance of a Mortgage Loan is reduced without an equal distribution to
applicable Certificateholders in reduction of the Certificate Principal Amounts
of the Certificates. Realized Losses are likely to occur only in connection
with a default on a Mortgage Loan and the liquidation of the related Mortgaged
Properties or a reduction in the principal balance of a Mortgage Loan by a
bankruptcy court.
Because the Notional Amount of the Class X Certificates is based upon the
Certificate Principal Amounts of the Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E, Class F, Class G and Class H Certificates, the yield
to maturity on the Class X Certificates will be extremely sensitive to the rate
and timing of prepayments of principal (including both voluntary and
involuntary prepayments, delinquencies, defaults and liquidations) on the
Mortgage Loans and any repurchase with respect to breaches of representations
and warranties with respect to the Mortgage Loans to the extent such payments
of principal are allocated to each such Class in reduction of the Certificate
Principal Amount thereof. The rate at which voluntary prepayments occur on the
Mortgage Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans, the length of any Prepayment
Lockout Period, the level of prevailing interest rates, the availability of
mortgage credit, the occurrence of casualties or natural disasters and
economic, demographic, tax, legal and other factors, and no representation is
made as to the anticipated rate of prepayments on the Mortgage Loans.
Although the payment of a Prepayment Charge is required in connection with
a voluntary prepayment of certain of the Mortgage Loans during certain periods
of time, there can be no assurance that the related borrowers would refrain
from prepaying such Mortgage Loans due to the existence of such Prepayment
Charges, or that such Prepayment Charges would be held to be enforceable if
challenged.
Certificateholders are not entitled to receive distributions of Monthly
Payments when due except to the extent they are either covered by an Advance or
actually received. Consequently, any defaulted Monthly Payment for which no
such Advance is made will tend to extend the weighted average lives of the
Certificates, whether or not a permitted extension of the maturity date of the
related Mortgage Loan has been effected.
The rate of payments (including voluntary and involuntary prepayments) on
pools of mortgage loans is influenced by a variety of economic, geographic,
social and other factors, including the level of mortgage interest rates and
the rate at which borrowers default on their mortgage loans. The terms of the
Mortgage Loans (in particular, the term of any Prepayment Lockout Period, the
extent to which Prepayment Charges are due with respect to any principal
prepayments, the right of the mortgagee to apply condemnation and casualty
proceeds to prepay the Mortgage Loan, the availability of certain rights to
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defease all or a portion of the Mortgage Loan, and any increase in the interest
rate and the application of Excess Cash Flow, if applicable, to prepay the
related Mortgage Loan) may affect the rate of principal payments on Mortgage
Loans, and consequently, the yield to maturity of the Classes of Offered
Certificates. See "Mortgage Pool Characteristics" and "Description of the
Mortgaged Properties and the Mortgage Loans" herein.
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
even if the average rate of principal payments experienced over time is
consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the Mortgage Loans, the greater the effect on such
investor's yield to maturity. As a result, the effect on such investor's yield
of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Offered Certificates would not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates. In addition, although Excess Cash Flow is applied to reduce
principal of the respective Mortgage Loans (other than with respect to the
Magellan Apartment Pool Loan) after their respective Effective Maturity Dates,
there can be no assurance that any of such Mortgage Loans will be prepaid on
that date or any date prior to maturity. An investor is urged to make an
investment decision with respect to any Class of Offered Certificates based on
the anticipated yield to maturity of such Class of Offered Certificates
resulting from its purchase price and such investor's own determination as to
anticipated Mortgage Loan prepayment rates under a variety of scenarios. The
extent to which any Class of Offered Certificates is purchased at a discount or
a premium and the degree to which the timing of payments on such Class of
Offered Certificates is sensitive to prepayments will determine the extent to
which the yield to maturity of such Class of Offered Certificates may vary from
the anticipated yield. An investor should carefully consider the associated
risks, including, in the case of any Offered Certificates purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield and, in the case of any Offered Certificates
purchased at a premium, the risk that a faster than anticipated rate of
principal payments could result in an actual yield to such investor that is
lower than the anticipated yield.
An investor should consider the risk that rapid rates of prepayments on
the Mortgage Loans, and therefore of amounts distributable in reduction of the
principal balance of Offered Certificates entitled to distributions of
principal, may coincide with periods of low prevailing interest rates. During
such periods, the effective interest rates on securities in which an investor
may choose to reinvest such amounts distributed to it may be lower than the
applicable Pass-Through Rate. Conversely, slower rates of prepayments on the
Mortgage Loans, and therefore, of amounts distributable in reduction of
principal balance of the Offered Certificates entitled to distributions of
principal, may coincide with periods of high prevailing interest rates. During
such periods, the amount of principal distributions resulting from prepayments
available to an investor in such Certificates for reinvestment at such high
prevailing interest rates may be relatively small.
The effective yield to holders of Offered Certificates will be lower than
the yield otherwise produced by the applicable Pass-Through Rate and applicable
purchase prices because while interest will accrue during each Interest Accrual
Period, the distribution of such interest will not be made until the
Distribution Date immediately following such Interest Accrual Period, and
principal paid on any Distribution Date will not bear interest during the
period from the end of such Interest Accrual Period to the Distribution Date
that follows.
YIELD ON THE OFFERED CERTIFICATES
The yield to maturity of Offered Certificates will be sensitive to the
rate and timing of principal payments (including voluntary and involuntary
prepayments and repurchases), delinquencies and liquidations on the Mortgage
Loans.
The following tables indicate the assumed purchase price (before adding
accrued interest, if any), expressed as a percentage of the applicable
Certificate Principal Amount, and the hypothetical pre-tax yield to maturity on
the Offered Certificates, stated on a corporate bond equivalent basis, based on
certain hypothetical scenarios. The pre-tax yields to maturity set forth in the
tables below were calculated by determining the monthly discount rate that,
when applied to the assumed stream of cash flows to be paid on the Offered
Certificates, would cause the discounted present value of such assumed cash
flows to equal the assumed purchase price thereof, plus accrued interest, if
any, as basis points and by converting such monthly rates to corporate bond
equivalent rates. Such calculations of yield do not take into account
variations that may occur in the interest rates at which investors may be able
to reinvest funds received by them as distributions on the Offered Certificates
and consequently, do not purport to reflect the return on any investment in the
Offered Certificates when such reinvestment rates are considered.
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For purposes of preparing the tables, it was assumed that (i) each of the
Mortgage Loans has the following characteristics as of the Cut-Off Date:
<TABLE>
<CAPTION>
REMAINING
TERM TO
CUT-OFF REMAINING TERM MATURITY
DATE TO EFFECTIVE (MONTHS)
PRINCIPAL MATURITY DATE INTEREST SERVICING ASSUMED NET
MORTGAGE LOAN BALANCE (MONTHS) ACCRUAL FEE CASH FLOW
- ------------------------------- ------------- ---------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1. Hotel Del Coronado 164,947,035 115 295 0.028% 28,728,037
2. CenterAmerica Pool 163,000,000 120 360 0.028% 23,348,985
3. Wells Fargo Office Tower 143,855,648 83 299 0.028% 20,276,676
4. West Town Mall 76,000,000 119 353 0.028% 14,192,113
5. Magellan Apartment Pool 75,113,551 113 353 0.028% 8,332,513
6. Glenborough Pool 59,465,982 112 292 0.033% 10,254,024
7. Ramco-Gershenson Pool 50,000,000 119 359 0.028% 7,855,798
8. EQR Apartment Pool 49,916,742 81 357 0.028% 7,306,601
9. Courthouse Plaza I 49,761,281 114 354 0.028% 7,846,323
10. Charlestowne Mall 48,704,653 115 355 0.028% 5,910,161
11. Quail Springs Mall 45,000,000 120 360 0.028% 6,873,808
</TABLE>
(ii) each Mortgage Loan will pay principal and interest in accordance with
its terms, and scheduled payments will be timely received; (iii) MSMC does not
repurchase any Mortgage Loan as described herein under "The Pooling Agreement--
Representations and Warranties; Repurchase"; (iv) none of the Depositor, Master
Servicer or the Class LR Certificateholders exercise the right to cause early
termination of the Trust Fund; (v) the Closing Date is June , 1998; (vi) there
are no delinquencies; (vii) partial prepayments on the Mortgage Loans are
permitted, but are assumed not to affect the amortization schedules; (viii) no
Prepayment Charges are collected except as otherwise noted in the tables; (ix)
there are no Prepayment Interest Shortfalls or Appraisal Reduction Amounts; (x)
distributions on the Offered Certificates are made on the 3rd day of the month
(each assumed to be a Business Day); (xi) no Balloon Payment is extended beyond
its maturity date; (xii) each Mortgage Loan bears interest at the related
Mortgage Rate as described herein; (xiii) the Offered Certificates bear
interest at the related Pass-Through Rates as described herein; and (xiv)
unless otherwise specified in the Scenarios described below, the Mortgage Loans
do not prepay (assumptions (i) through (xiv) above are collectively referred to
as the "Mortgage Loan Assumptions").
In the case of Scenario 1 below, it is assumed that all of the Mortgage
Loans having Effective Maturity Dates are prepaid in full ("Scenario 1") on the
first day prepayment is permitted. In the case of Scenario 2, it is assumed
that the Mortgage Loans are prepaid in full on the first Due Dates on which
prepayments in full can be made without payment of any Prepayment Charge and
without defeasance. Scenarios 1 and 2 are collectively referred to herein as
the "Scenarios".
CLASS A-1
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
- -------------------- ---------- ---------
<S> <C> <C>
</TABLE>
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CLASS A-2
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
- -------------------- ---------- ---------
<S> <C> <C>
</TABLE>
CLASS A-3
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
- -------------------- ---------- ---------
<S> <C> <C>
</TABLE>
CLASS B
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
- -------------------- ---------- ---------
<S> <C> <C>
</TABLE>
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CLASS C
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
- -------------------- ---------- ---------
<S> <C> <C>
</TABLE>
CLASS D
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
- -------------------- ---------- ---------
<S> <C> <C>
</TABLE>
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CLASS X
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE (%) 1 2
- -------------------- ---------- ---------
<S> <C> <C>
</TABLE>
It is highly unlikely that principal of the Mortgage Loans will be repaid
consistent with the assumptions underlying any one of the Scenarios. The
Mortgage Loans will not have all of the characteristics assumed for purposes of
the Scenarios. Yield will be affected by prepayment rates, Balloon Payment
extensions, and may differ significantly from the Mortgage Loan Assumptions.
There can be no assurance that the pre-tax yields, on the Offered Certificates
will correspond to any of the pre-tax yields or discounted margins, as
applicable, shown herein or that the aggregate purchase prices of the Offered
Certificates will be as assumed. Investors must make their own decisions as to
the appropriate prepayment assumptions to be used in deciding whether to
purchase the Offered Certificates.
RATED FINAL DISTRIBUTION DATE
The "Rated Final Distribution Date" is the Distribution Date occurring
three years after the latest maturity date of any Mortgage Loan. Because
certain of the Mortgage Loans have maturity dates that occur earlier than the
latest maturity date, and because certain of the Mortgage Loans may be prepaid
prior to maturity, it is possible that the Certificate Principal Amount of each
Class of Offered Certificates will be reduced to zero significantly earlier
than the Rated Final Distribution Date. However, delinquencies on Mortgage
Loans could result in final distributions in reduction of the Certificate
Principal Amount of one or more Classes after the Rated Final Distribution Date
of such Class or Classes.
WEIGHTED AVERAGE LIFE OF OFFERED CERTIFICATES
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution or allocation
to the investor of each dollar in reduction of Certificate Principal Amount.
The weighted average lives of the Offered Certificates will be influenced by,
among other things, the rate at which principal of the Mortgage Loans is paid,
which may occur as a result of scheduled amortization, voluntary or involuntary
prepayments or liquidations.
The weighted average lives of the Offered Certificates may also be
affected to the extent that additional distributions in reduction of the
Certificate Principal Amount of such Certificates occur as a result of the
repurchase or purchase of Mortgage Loans from the Trust Fund as described under
"The Pooling Agreement--Representations and Warranties; Repurchase" or
"--Optional Termination; Optional Mortgage Loan Purchase" herein. Such a
repurchase or purchase from the Trust Fund will have the same effect on
distributions to the holders of Certificates as if the related Mortgage Loans
had prepaid in full, except that no Prepayment Charges are made in respect
thereof. The tables of "Percentage of Initial Certificate Principal Amount
Outstanding For Each Designated Scenario" set forth below indicate the weighted
average life of each Class of Offered Certificates (other than the Class X
Certificates) and set forth the percentage of the initial Certificate Principal
Amount of such Offered Certificates that would be outstanding after each of the
dates shown based on the assumptions for each of the designated Scenarios
described above under "--Yield on the Offered Certificates." The tables have
also been prepared on the basis of the Mortgage Loan Assumptions described
under "--Yield on the Offered Certificates." The
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Mortgage Loan Assumptions made in preparing the previous and following tables
are expected to vary, and may vary significantly, from the actual performance
of the Mortgage Loans. It is highly unlikely that principal of the Mortgage
Loans will be repaid consistent with the assumptions underlying any one of the
Scenarios. Investors are urged to conduct their own analysis concerning the
likelihood that the Mortgage Loans may pay or prepay on any particular date.
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS A-1
<TABLE>
<CAPTION>
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
- --------------------------- ---------- ---------
<S> <C> <C>
Initial Percent .........
Weighted Average Life
(in years) ..............
</TABLE>
- --------
(1) Assuming that the 3rd day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-1 Certificates is determined by
(i) multiplying the amount of each distribution or allocation in
reduction of Certificate Principal Amount of such Class by the number of
years from the date of determination to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Principal Amount
referred to in clause (i).
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS A-2
<TABLE>
<CAPTION>
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
- --------------------------- ---------- ---------
<S> <C> <C>
Initial Percent .........
Weighted Average Life
(in years) ..............
</TABLE>
- --------
(1) Assuming that the 3rd day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-2 Certificates is determined by
(i) multiplying the amount of each distribution or allocation in
reduction of Certificate Principal Amount of such Class by the number of
years from the date of determination to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Principal Amount
referred to in clause (i).
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<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS A-3
<TABLE>
<CAPTION>
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
- --------------------------- ---------- ---------
<S> <C> <C>
Initial Percent .........
Weighted Average Life
(in years) ..............
</TABLE>
- --------
(1) Assuming that the 3rd day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-3 Certificates is determined by
(i) multiplying the amount of each distribution in reduction of
Certificate Principal Amount of such Class by the number of years from
the date of determination to the related Distribution Date, (ii) adding
the results and (iii) dividing the sum by the aggregate distributions in
reduction of Certificate Principal Amount referred to in clause (i).
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS B
<TABLE>
<CAPTION>
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
- --------------------------- ---------- ---------
<S> <C> <C>
Initial Percent .........
Weighted Average Life
(in years) ..............
</TABLE>
- --------
(1) Assuming that the 3rd day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class B Certificates is determined by
(i) multiplying the amount of each distribution or allocation in
reduction of Certificate Principal Amount of such Class by the number of
years from the date of determination to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Principal Amount
referred to in clause (i).
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<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS C
<TABLE>
<CAPTION>
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
- --------------------------- ---------- ---------
<S> <C> <C>
Initial Percent .........
Weighted Average Life
(in years) ..............
</TABLE>
- --------
(1) Assuming that the 3rd day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class C Certificates is determined by
(i) multiplying the amount of each distribution or allocation in
reduction of Certificate Principal Amount of such Class by the number of
years from the date of determination to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Principal Amount
referred to in clause (i).
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS D
<TABLE>
<CAPTION>
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
- --------------------------- ---------- ---------
<S> <C> <C>
Initial Percent .........
Weighted Average Life
(in years) ..............
</TABLE>
- --------
(1) Assuming that the 3rd day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class D Certificates is determined by
(i) multiplying the amount of each distribution or allocation in
reduction of Certificate Principal Amount of such Class by the number of
years from the date of determination to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the aggregate
distributions or allocations in reduction of Certificate Principal Amount
referred to in clause (i).
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<PAGE>
THE POOLING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of June 1, 1998 (the "Pooling Agreement"), by and
among the Depositor, the Master Servicer, the Special Servicer and the Trustee.
The Depositor will provide to a prospective or actual holder of an Offered
Certificate without charge, upon written request, a copy (without exhibits) of
the Pooling Agreement. Requests should be addressed to Morgan Stanley Capital I
Inc., 1585 Broadway, New York, New York 10036; Attention: Domenico Ruscitti,
Prospectus Department, (212) 761-8570.
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the Depositor will sell, transfer or otherwise
convey, assign or cause the assignment of the Mortgage Loans, without recourse,
to the Trustee for the benefit of the holders of Certificates. On or prior to
the Closing Date, the Depositor will cause to be delivered to the Trustee, with
respect to each Mortgage Loan (i) the original Note endorsed without recourse
to the order of the Trustee, as trustee; (ii) the original Mortgage(s) or
counterpart(s) thereof; (iii) the assignment(s) of the Mortgage(s) in
recordable form in favor of the Trustee; (iv) to the extent not contained in
the Mortgages, the original assignment of leases and rents or counterpart
thereof; (v) if applicable, the original assignment of assignment of leases and
rents to the Trustee; (vi) where applicable, a copy of the UCC-1 financing
statements, if any, including UCC-3 assignments; (vii) the original lender's
title insurance policy (or marked commitments to insure); and (viii) originals
or copies of environmental indemnities, collateral assignments of management
agreements and such other loan documents as are in the possession of the
Depositor, including original assignments thereof to the Trustee, unless the
Depositor is delayed in making such delivery by reason of the fact that such
documents shall not have been returned by the appropriate recording office in
which case it shall notify the Trustee in writing of such delay and shall
deliver such documents to the Trustee promptly upon the Depositor's receipt
thereof.
The Trustee, or any custodian for the Trustee, will hold such documents in
trust for the benefit of the holders of Certificates. The Trustee is obligated
to review such documents for each Mortgage Loan (in certain cases only to the
extent such documents are identified by the Depositor as being part of the
related mortgage file) within 45 days after the later of delivery or execution
of the Pooling Agreement and report any missing documents or certain types of
defects therein to the Depositor and MSMC.
REPRESENTATIONS AND WARRANTIES; REPURCHASE
In the Pooling Agreement, the Depositor will assign the representations
and warranties made by MSMC in the Loan Sale Agreement to the Trustee for the
benefit of Certificateholders. The representations and warranties to be
assigned to the Trustee for the benefit of the Certificateholders are set forth
on Exhibit B to this Prospectus Supplement.
The Pooling Agreement requires that the Master Servicer, the Special
Servicer or the Trustee notify MSMC and the Depositor upon its becoming aware
of any breach of any representation or warranty with respect to a Mortgage Loan
that materially and adversely affects the value of such Mortgage Loan or the
interests of the holders of the Certificates therein. In the Loan Sale
Agreement, MSMC will make the representations and warranties set forth in
Exhibit B with respect to the Mortgage Loans, and that upon a breach of any of
such representations and warranties that remains uncured and which materially
and adversely affects the value of a Mortgage Loan, or the interest of the
Certificateholders therein, MSMC will repurchase such Mortgage Loan at the
Repurchase Price. The Pooling Agreement will provide that the Trustee will
enforce the rights of the Trust Fund and Certificateholders under the Loan Sale
Agreement.
Notwithstanding the foregoing, the Pooling Agreement will provide that
upon discovery by the Trustee, the Special Servicer or the Master Servicer of a
breach of a representation or warranty that causes any Mortgage Loan not to be
a "qualified mortgage" within the meaning of the REMIC provisions of the Code,
such party shall give prompt notice thereof to the Depositor and MSMC and
within 90 days after such discovery, if such breach cannot be cured within such
period MSMC will be required to purchase such Mortgage Loan from the Trust Fund
at the Repurchase Price.
The obligations of MSMC to repurchase or cure constitute the sole remedies
available to holders of Certificates or the Trustee for a breach of a
representation or warranty by MSMC with respect to a Mortgage Loan. None of the
Depositor, the Master Servicer, the Special Servicer, the Trustee or any of
their respective affiliates will be obligated to purchase a Mortgage
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Loan if MSMC defaults on its obligation to repurchase or cure, and no assurance
can be given that MSMC will fulfill such obligations. See "The Depositor" in
the Prospectus. If such obligation is not met as to a Mortgage Loan that is not
a "qualified mortgage," the Upper-Tier REMIC and Lower-Tier REMIC may be
disqualified as REMICs.
The "Repurchase Price" with respect to a Mortgage Loan shall be equal to
the sum of (i) the outstanding principal balance of such Mortgage Loan as of
the date of purchase, (ii) all accrued and unpaid interest on such Mortgage
Loan at the related Mortgage Rate, in effect from time to time, to but not
including the Due Date in the Collection Period of purchase, (iii) all related
unreimbursed Property Advances plus accrued and unpaid interest on related
Advances at the Advance Rate, and unpaid Special Servicing Fees allocable to
such Mortgage Loan and (iv) all reasonable out-of-pocket expenses reasonably
incurred by the Master Servicer, the Special Servicer, the Depositor and the
Trustee in respect of the breach giving rise to the repurchase obligation,
including any expenses arising out of the enforcement of the repurchase
obligation, which are reimbursable to such parties under the terms of the
Pooling Agreement.
SERVICING OF THE MORTGAGE LOANS; COLLECTION OF PAYMENTS
The Pooling Agreement requires each of the Master Servicer and the Special
Servicer to service and administer the Mortgage Loans on behalf of the Trust
Fund in the best interests of and for the sole benefit of all of the holders of
Certificates (as determined by the Master Servicer or the Special Servicer in
the exercise of its good faith and reasonable judgment) in accordance with
applicable law, the terms of the Pooling Agreement and the Mortgage Loans, and
to the extent not inconsistent with the foregoing, in the same manner in which,
and with the same care, skill and diligence as is normal and usual in its
general mortgage servicing and REO property management activities on behalf of
third parties, giving due consideration to customary and usual standards of
practice of prudent institutional commercial mortgage lenders servicing their
own loans and to the maximization of the net present value of the Mortgage
Loans, or the same care, skill, prudence and diligence which the Master
Servicer and Special Servicer uses for loans serviced for their own account,
whichever is higher, with respect to mortgage loans and REO properties that are
comparable to the Mortgaged Properties, and in each event with a view to the
timely collection of all scheduled payments of principal and interest under the
Mortgage Loans or, if a Mortgage Loan comes into and continues in default and
if, in the good faith and reasonable judgment of the Special Servicer, no
satisfactory arrangements can be made for the collection of the delinquent
payments, the maximization of the recovery on such Mortgage Loan to the
Certificateholders (as a collective whole) on a present value basis (the
relevant discounting of anticipated collection that will be distributable to
Certificateholders to be performed at the related Net Mortgage Rate), but
without regard to (i) any known relationship that the Master Servicer or the
Special Servicer, or an affiliate of the Master Servicer or the Special
Servicer, as applicable, may have with the borrowers or any other parties to
the Pooling Agreement; (ii) the ownership of any Certificate by the Master
Servicer or the Special Servicer or any affiliate of the Master Servicer or the
Special Servicer, as applicable, (iii) the Master Servicer's or the Special
Servicer's obligation, as applicable, to make Advances: (iv) the right of the
Master Servicer (or any affiliate thereof) or the Special Servicer (or any
affiliate thereof), as the case may be, to receive reimbursement of costs, or
the sufficiency of any compensation for its services under the Pooling
Agreement or with respect to any particular transaction; (v) the ownership,
servicing or management for others or itself, by the Master Servicer or the
Special Servicer of any other mortgage loans or properties, or (vi) any
obligation of the Master Servicer or Special Servicer to pay any indemnity with
respect to or repurchase of any Mortgage Loan (the "Servicing Standard"). The
Master Servicer and the Special Servicer are permitted, at their own expense,
to employ subservicers, agents or attorneys in performing any of their
respective obligations under the Pooling Agreement. The Glenborough Pool Loan
and the Wells Fargo Office Tower Loan will be subserviced for the Master
Servicer by Wells Fargo. The Ramco-Gershenson Pool Loan and the Hotel Del
Coronado Loan will be subserviced for the Master Servicer by AMRESCO (together
with Wells Fargo, the "Initial Subservicers"). Notwithstanding any subservicing
agreement, the Master Servicer or Special Servicer, as applicable, shall remain
primarily liable to the Trustee and Certificateholders for the servicing and
administering of the Mortgage Loans in accordance with the provisions of the
Pooling Agreement without diminution of such obligation or liability by virtue
of such subservicing agreement. Any subservicing agreement entered into by the
Master Servicer or Special Servicer, as applicable, will provide that it may be
assumed or terminated by the Trustee, or any successor Master Servicer or
Special Servicer, if the Trustee, or any successor Master Servicer or Special
Servicer, has assumed the duties of the Master Servicer or Special Servicer,
respectively, except that the Trustee or the successor Master Servicer or
Special Servicer, as applicable, may not terminate any subservicing agreement
with any Initial Subservicer unless such Initial Subservicer is in default
thereunder. The Pooling Agreement provides, however, that none of the Master
Servicer, the Special Servicer, or any of their respective directors, officers,
employees or agents shall have any liability to the Trust Fund or the
Certificateholders for taking any action or refraining from taking any action
in good faith, or for errors in judgment. The foregoing provision would not
protect the Master Servicer or the Special Servicer for the breach of its
representations
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or warranties in the Pooling Agreement, the breach of certain specified
covenants therein or any liability by reason of willful misconduct, bad faith,
fraud or negligence in the performance of its duties or by reason of its
reckless disregard of its obligations or duties under the Pooling Agreement.
The Trustee or any other successor Master Servicer assuming the obligations of
the Master Servicer under the Pooling Agreement will be entitled to the
compensation to which the Master Servicer would have been entitled after the
date of the assumption of the Master Servicer's obligations. If no successor
Master Servicer can be obtained to perform such obligations for such
compensation, additional amounts payable to such successor Master Servicer will
be treated as Realized Losses.
The Master Servicer initially will be responsible for the servicing and
administration of the entire Mortgage Pool. The duties of the Special Servicer
relate to Specially Serviced Mortgage Loans and to any REO Property. The
Pooling Agreement will define a "Specially Serviced Mortgage Loan" to include
any Mortgage Loan with respect to which: (i) the related borrower has not made
two consecutive Monthly Payments (and has not cured at least one such
delinquency by the next due date under such Mortgage Loan); (ii) the Master
Servicer and/or the Trustee has made four consecutive P&I Advances (regardless
of whether such P&I Advances have been reimbursed); (iii) the related borrower
has expressed to the Master Servicer an inability to pay or a hardship in
paying the Mortgage Loan in accordance with its terms; (iv) the Master Servicer
has received notice that the related borrower has become the subject of any
bankruptcy, insolvency or similar proceeding, admitted in writing the inability
to pay its debts as they come due or made an assignment for the benefit of
creditors; (v) the Master Servicer has received notice of a foreclosure or
threatened foreclosure of any lien on the Mortgaged Property securing such
Mortgage Loan; (vi) a default of which the Master Servicer has notice (other
than a failure by the related borrower to pay principal or interest) and which
materially and adversely affects the interests of the Certificateholders has
occurred and remains unremedied for the applicable grace period specified in
the Mortgage Loan (or, if no grace period is specified, 60 days); provided,
that a default requiring a Property Advance will be deemed to materially and
adversely affect the interests of Certificateholders; or (vii) in the opinion
of the Master Servicer (consistent with the Servicing Standard) a default under
a Mortgage Loan is imminent and such Mortgage Loan deserves the attention of
the Special Servicer; provided however, that a Mortgage Loan will cease to be a
Specially Serviced Mortgage Loan (a) with respect to the circumstances
described in clauses (i) and (ii) above, when the borrower thereunder has
brought the Mortgage Loan current and thereafter made three consecutive full
and timely monthly payments, including pursuant to any workout of the Mortgage
Loan, (b) with respect to the circumstances described in clause (iii), (iv),
(v) and (vii) above, when such circumstances cease to exist in the good faith
judgment of the Master Servicer, or (c) with respect to the circumstances
described in clause (vi) above, when such default is cured; provided, in any
case, that at that time no circumstance exists (as described above) that would
cause the Mortgage Loan to continue to be characterized as a Specially Serviced
Mortgage Loan. With respect to any Specially Serviced Mortgage Loan the Master
Servicer will transfer its servicing responsibilities to the Special Servicer,
but will continue to receive payments on such Mortgage Loan (including amounts
collected by the Special Servicer), to make certain calculations with respect
to such Mortgage Loan and to make remittances and prepare certain reports to
the Trustee for remittance to the Certificateholders with respect to such
Mortgage Loan and upon the curing of such events the servicing of such Mortgage
Loan will be returned to the Master Servicer.
The Pooling Agreement requires the Master Servicer or the Special
Servicer, as applicable, to make reasonable best efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans
consistent with the Servicing Standard. Consistent with the above, the Master
Servicer or the Special Servicer may, in its discretion, waive any late payment
charge or penalty fee in connection with any delinquent Monthly Payment with
respect to any Mortgage Loan. For any Mortgage Loan with respect to which,
under the terms of the related loan documents, the mortgagee may, in its
discretion, apply insurance proceeds, condemnation awards or escrowed funds to
the prepayment of such loan prior to the expiration of the related Prepayment
Lockout Period, the Master Servicer or Special Servicer, as applicable, may
only require such a prepayment if the Master Servicer or Special Servicer, as
applicable, has determined in accordance with the Servicing Standard that such
prepayment is in the best interest of all Certificateholders. The Master
Servicer and the Special Servicer will be directed in the Pooling Agreement not
to take any enforcement action other than requests for payment with respect to
payment of Deferred Interest or principal in excess of the principal component
of the Monthly Payment prior to the final maturity date. The Master Servicer
will also be permitted to forgive the payment of Deferred Interest under the
circumstances described under "--Realization Upon Mortgage Loans;
Modifications" below. With respect to any defaulted Mortgage Loan, subject to
the restrictions set forth below under "--Realization Upon Mortgage Loans;
Modifications," the Special Servicer will be entitled to pursue any of the
remedies set forth in the related Mortgage, including the right to acquire,
through foreclosure, all or any of the Mortgaged Properties securing such
Mortgage Loan. The Special Servicer may elect to extend a Specially Serviced
Mortgage Loan (subject to conditions described herein) notwithstanding its
decision to foreclose on certain of the Mortgaged Properties.
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ADVANCES
The Master Servicer will be obligated to advance, on the Business Day
immediately preceding a Distribution Date (the "Master Servicer Remittance
Date"), an amount (each such amount, a "P&I Advance") equal to the total or any
portion of the Monthly Payment (with interest calculated at the Net Mortgage
Rate plus the Trustee Fee Rate) on a Mortgage Loan that was delinquent as of
the close of business on the immediately preceding Due Date (and which
delinquent payment has not been cured as of the Master Servicer Remittance
Date), or, with respect to a Mortgage Loan for which the Special Servicer has
elected to extend the payments as described in "--Realization Upon Mortgage
Loans; Modifications" herein, the amount equal to the lesser of (a) the related
Extended Monthly Payment (net of the related Servicing Fee) or (b) the Monthly
Payment (with interest calculated at the Net Mortgage Rate plus the Trustee Fee
Rate) that was due prior to the maturity date; provided, however, that the
Master Servicer will not be required to make a P&I Advance to the extent it
determines that such Advance would not ultimately be recoverable out of related
late payments, net insurance proceeds, net condemnation proceeds, net
liquidation proceeds and certain other collections with respect to such
Mortgage Loan as to which such Advances were made. The Master Servicer will not
be required or permitted to make an advance for Deferred Interest, Default
Interest, Prepayment Charges or Balloon Payments. The amount required to be
advanced by the Master Servicer with respect to any Distribution Date in
respect of Monthly Payments (or Extended Monthly Payments) on Mortgage Loans
that have been subject to an Appraisal Reduction Event will equal (i) the
amount required to be advanced by the Master Servicer without giving effect to
such Appraisal Reduction Amounts less (ii) an amount equal to the product of
(x) the amount required to be advanced by the Master Servicer in respect to
delinquent payments of interest without giving effect to such Appraisal
Reduction Amounts, and (y) a fraction, the numerator of which is the Appraisal
Reduction Amount with respect to such Mortgage Loan and the denominator of
which is the Stated Principal Balance as of the last day of the related
Collection Period.
The Master Servicer will also be obligated (subject to the limitations
described herein) to make cash advances ("Property Advances," and together with
P&I Advances, "Advances") to pay delinquent real estate taxes, ground lease
rent payments, assessments and hazard insurance premiums and to cover other
similar costs and expenses necessary to preserve the priority of or enforce the
related Mortgage or to maintain such Mortgaged Property. In addition, the
Special Servicer may be obligated to make certain Property Advances with
respect to Specially Serviced Mortgage Loans.
The obligation of the Master Servicer, the Special Servicer or the
Trustee, as applicable, to make Advances with respect to any Mortgage Loan
pursuant to the Pooling Agreement continues through the foreclosure of such
Mortgage Loan and until the liquidation of such Mortgage Loan or related
Mortgaged Properties. Advances are intended to provide a limited amount of
liquidity, not to guarantee or insure against losses. None of the Master
Servicer, the Special Servicer or the Trustee will be required to make any
Advance that it determines in its good faith business judgment will not be
ultimately recoverable by the Master Servicer, the Special Servicer or the
Trustee, as applicable, out of related late payments, net insurance proceeds,
net condemnation proceeds, net liquidation proceeds and certain other
collections with respect to the Mortgage Loan as to which such Advances were
made. In addition, if the Master Servicer, the Special Servicer or the Trustee,
as applicable, determines in its good faith business judgment that any Advance
previously made will not be ultimately recoverable from the foregoing sources,
then the Master Servicer, the Special Servicer or the Trustee, as applicable,
will be entitled to be reimbursed for such Advance, plus interest thereon at
the Advance Rate, out of amounts payable on or in respect of all of the
Mortgage Loans prior to distributions on the Certificates. Any such judgment or
determination with respect to the recoverability of Advances must be evidenced
by an officers' certificate delivered to the Trustee (or in the case of the
Trustee, the Depositor) setting forth such judgment or determination of
nonrecoverability and the procedures and considerations of the Master Servicer,
the Special Servicer or the Trustee, as applicable, forming the basis of such
determination (including but not limited to information selected by the Master
Servicer or the Special Servicer in its good faith discretion such as related
income and expense statements, rent rolls, occupancy status, property
inspections, inquiries by the Master Servicer, the Special Servicer or the
Trustee, as applicable, and an independent appraisal performed in accordance
with MAI standards and methodologies on the applicable Mortgaged Properties).
To the extent the Master Servicer or Special Servicer fails to make an
Advance it is required to make under the Pooling Agreement, the Trustee,
subject to a determination of recoverability, will make such required Advance,
pursuant to the terms of the Pooling Agreement. The Trustee (or the Master
Servicer with respect to a Property Advance required to be made by the Special
Servicer) will be entitled to rely conclusively on any non-recoverability
determination of the Master Servicer (or the Special Servicer). See "--Duties
of the Trustee" below.
The Master Servicer, the Special Servicer or the Trustee, as applicable,
will be entitled to reimbursement for any Advance made by it equal to the
amount of such Advance and interest accrued thereon at the Advance Rate from
(i) late
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payments on the Mortgage Loan by the borrower, (ii) insurance proceeds,
condemnation proceeds or liquidation proceeds from the sale of the defaulted
Mortgage Loan or the related Mortgaged Property or (iii) upon determining in
good faith that such Advance or interest is not recoverable in the manner
described in the preceding two clauses, from any other amounts from time to
time on deposit in the Collection Account.
The Master Servicer, the Special Servicer and the Trustee will each be
entitled to receive interest on Advances at the Prime Rate (the "Advance
Rate"), compounded monthly, as of each Master Servicer Remittance Date and the
Master Servicer will be authorized to pay itself, the Special Servicer or the
Trustee, as applicable, such interest monthly from general collections with
respect to all of the Mortgage Loans prior to any payment to holders of
Certificates. If the interest on such Advance is not recovered from Default
Interest on such Mortgage Loan, a shortfall will result which will have the
same effect as a Realized Loss. The "Prime Rate" is the rate, for any day, set
forth as such in The Wall Street Journal, New York edition. Although the Master
Servicer will be required to make P&I Advances with respect to the Magellan
Apartment Pool Loan, the Master Servicer will not be entitled to recover
interest on such P&I Advances that have accrued prior to the end of the
applicable grace period.
ACCOUNTS
Collection Account. On each Due Date, the Master Servicer will be required
to withdraw from each Lockbox an amount equal to the Monthly Payment on the
related Mortgage Loan and deposit such amount into a segregated account (the
"Collection Account") established pursuant to the Pooling Agreement for
application towards the Monthly Payment due on the related Mortgage Loan. The
Master Servicer shall also deposit into the Collection Account within one
Business Day of receipt all other payments in respect of the Mortgage Loans,
other than amounts deposited into any Reserve Account.
Distribution Accounts. The Trustee will establish and maintain two
segregated accounts (the "Lower-Tier Distribution Account Account" and the
"Upper-Tier Distribution Account ") in the name of the Trustee for the benefit
of the holders of Certificates entitled to distributions therefrom. With
respect to each Distribution Date, the Master Servicer will disburse from the
Collection Account and deposit into the Lower-Tier Distribution Account, to the
extent of funds on deposit in the Collection Account, on the Master Servicer
Remittance Date an aggregate amount of immediately available funds equal to the
sum of (i) the Available Funds, and (ii) the portion of the Servicing
Compensation representing the Trustee Fee. In addition, the Master Servicer
will deposit all P&I Advances into the Lower-Tier Distribution Account on the
related Master Servicer Remittance Date. To the extent the Master Servicer
fails to do so, the Trustee will deposit all P&I Advances into the Lower-Tier
Distribution Account as described herein. On each Distribution Date, the
Trustee will withdraw amounts distributable on such date on the Regular
Certificates and on the Class R Certificates (which are expected to be zero)
from the Lower-Tier Distribution Account and deposit such amounts in the
Upper-Tier Distribution Account. See "Description of the Offered
Certificates--Distributions" herein.
The Trustee will also establish and maintain one or more segregated
accounts for the "Deferred Interest Distribution Account" in the name of the
Trustee for the benefit of the Certificateholders entitled to distributions
therefrom and the "Class Q Distribution Account" in the name of the Trustee for
the benefit of the holders of the Class Q Certificates.
The Lockboxes, the Collection Account, the Lower-Tier Distribution
Account, the Upper-Tier Distribution Account, the Deferred Interest
Distribution Account and the Class Q Distribution Account will be held in the
name of the Trustee (or the Master Servicer on behalf of the Trustee) on behalf
of the holders of Certificates and the Master Servicer will be authorized to
make withdrawals from the Lockboxes, the Cash Collateral Accounts and the
Collection Account. Each of the Lockboxes, Collection Account, any REO Account,
the Lower-Tier Distribution Account, the Upper-Tier Distribution Account, any
escrow account, the Deferred Interest Distribution Account and the Class Q
Distribution Account will be either (i) (A) an account maintained with either a
federal or state chartered depository institution or trust company the long
term unsecured debt obligations (or short-term unsecured debt obligations if
the account holds funds for less than 30 days) of which are rated by each of
the Rating Agencies in one of its three highest rating categories at all times
(or in the case of the REO Account, Lockboxes, and Collection Account, the long
term unsecured debt obligations (or short-term unsecured debt obligations if
the account holds funds for less than 30 days) of which are rated at least "AA"
by Fitch and "AA--" by S&P or, if applicable, the short term rating equivalent
thereof (or "A-1" in the case of S&P)) or (B) as to which the Master Servicer
or the Trustee, as applicable, has received written confirmation from each of
the Rating Agencies that holding funds in such account would not cause such
Rating Agency to qualify, withdraw or downgrade any of its ratings on the
Certificates, or (ii) a segregated trust account or accounts maintained with a
federal or state chartered depository institution or trust company acting in
its fiduciary capacity (an "Eligible Bank"); provided, however, that the
establishment and administration of the Lockboxes and escrow accounts will be
subject to the related Mortgage Loan documents and applicable law. Amounts
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on deposit in the Collection Account, the Lockboxes, the escrow accounts and
any REO Account may be invested in certain United States government securities
and other high-quality investments ("Permitted Investments"). Interest or other
income earned on funds in the Collection Account, the Lockboxes and the escrow
accounts will be paid to the Master Servicer (except, in the case of the
Lockboxes or the escrow accounts to the extent required to be paid to the
related borrower) as additional servicing compensation and interest or other
income earned on funds in any REO Account will be payable to the Special
Servicer.
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Master Servicer may make withdrawals from the Collection Account for
the following purposes, to the extent permitted and in the priorities provided
in the Pooling Agreement: (i) to remit on or before each Master Servicer
Remittance Date (A) to the Lower-Tier Distribution Account an amount equal to
the sum of (I) Available Funds and any Prepayment Charges and (II) the Trustee
Fee for such Distribution Date, (B) to the Class Q Distribution Account an
amount equal to the Net Default Interest received in the related Collection
Period, if any, (C) to the Deferred Interest Distribution Account an amount
equal to the Deferred Interest received in the related Collection Period, if
any, (ii) to pay or reimburse the Master Servicer, the Special Servicer or the
Trustee, as applicable, pursuant to the terms of the Pooling Agreement for
Advances made by any of them and interest on Advances, the Master Servicer's,
the Special Servicer's or the Trustee's right, as applicable, to reimbursement
for items described in this clause (ii) being limited as described above under
"--Advances"; (iii) to pay on or before each Master Servicer Remittance Date to
the Master Servicer and the Special Servicer as compensation, the aggregate
unpaid Servicing Compensation (not including the portion of the Servicing
Compensation representing the Trustee Fee) in respect of the immediately
preceding Interest Accrual Period; (iv) to pay on or before each Distribution
Date to any person with respect to each Mortgage Loan or REO Property that has
previously been purchased or repurchased by such person pursuant to the Pooling
Agreement, all amounts received thereon during the related Collection Period
and subsequent to the date as of which the amount required to effect such
purchase or repurchase was determined; (v) to the extent not reimbursed or paid
pursuant to any of the above clauses, to reimburse or pay the Master Servicer,
the Special Servicer, the Trustee and/or the Depositor for unpaid Servicing
Compensation (in the case of the Master Servicer, the Special Servicer or the
Trustee), and certain other unreimbursed expenses incurred by such person
pursuant to and to the extent reimbursable under the Pooling Agreement and to
satisfy any indemnification obligations of the Trust Fund under the Pooling
Agreement; (vi) to pay to the Trustee amounts requested by it to pay any taxes
imposed on the Upper-Tier REMIC or the Lower-Tier REMIC; (vii) to withdraw any
amount deposited into the Collection Account that was not required to be
deposited therein; and (viii) to clear and terminate the Collection Account
pursuant to a plan for termination and liquidation of the Trust Fund.
SUCCESSOR MANAGER
With respect to each Mortgage Loan, the Master Servicer or the Special
Servicer, as applicable, will enforce the Trustee's rights with respect to the
manager under the related Mortgage Loan and management agreement. In the event
the Master Servicer or the Special Servicer is entitled itself to terminate, or
to cause the related borrower to terminate, the manager under the Mortgage
Loan, the Master Servicer or the Special Servicer, as the case may be, will
promptly give notice of its intent to exercise its right to terminate the
manager to the Trustee (who will copy the holders of Certificates and the
Rating Agencies). The most subordinate Class of Certificates then outstanding
(provided, however, that for purposes of determining the most subordinate
Class, in the event that the Class A Certificates are the only Classes
outstanding (other than the Class X Certificates or the Class Q or Residual
Certificates), the Class A Certificates and the Class X Certificates together
will be treated as the most subordinate Class of Certificates) will have the
right to recommend termination of the manager, and if so, to recommend a
Successor Manager (as defined below). Holders of Certificates representing
Voting Rights of greater than 50% of such subordinate Class of Certificates
will have 10 Business Days from the receipt of such notice to respond to such
notice. Upon receipt of a recommendation to terminate the manager and appoint a
Successor Manager, the Master Servicer or the Special Servicer, as the case may
be, will give notice of such recommendation to the Trustee (who will copy the
holders of Certificates) and effect such recommendation unless: (i) within five
business days of the receipt of notice of such recommendation holders of
Certificates representing Voting Rights of greater than 50% of any Class of
Certificates which is assigned a rating by any Rating Agency on the Closing
Date reject such proposed Successor Manager; or (ii) the Master Servicer or the
Special Servicer, as the case may be, determines that effecting such
recommendation to terminate is not consistent with the Servicing Standard and
therefore the Master Servicer or Special Servicer elects not to effect such
recommendation. If the Master Servicer or the Special Servicer, as the case may
be, does not receive a required response (or if the response received is
inconsistent) and the Master Servicer or the Special Servicer, as the case may
be, determines it is
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consistent with the Servicing Standard to terminate the manager or in the event
the manager is otherwise terminated or resigns under the related Mortgage or
management agreement, the Master Servicer or the Special Servicer, as
applicable, shall use its best efforts, or if applicable cause the related
borrower, to retain a Successor Manager (or the recommended Successor Manager,
if any) on terms substantially similar to the existing management agreement or,
failing that, on terms as favorable to the Trust Fund as can reasonably be
obtained. For purposes of this paragraph, a "Successor Manager" shall be
reasonably acceptable to the Master Servicer or the Special Servicer, as
applicable, shall not cause a qualification, withdrawal or downgrading of any
of the ratings then assigned to the Certificates by the Rating Agencies, as
evidenced in writing, and shall be a professional management corporation or
business entity which manages, and is experienced in managing, other comparable
commercial properties and meets any criteria in the related loan documents.
ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
Subject to certain exceptions in the case of certain of the Mortgage Loans
(see "Description of the Mortgaged Properties and the Mortgage Loans" herein),
the Mortgage Loans contain provisions in the nature of "due-on-sale" clauses,
which by their terms (a) provide that the Mortgage Loans shall, at the
mortgagee's option, become due and payable upon the sale or other transfer of
an interest in the related Mortgaged Property or (b) provide that the Mortgage
Loans may not be assumed without the consent of the related mortgagee in
connection with any such sale or other transfer. The Master Servicer or the
Special Servicer, with respect to Specially Serviced Mortgage Loans, will not
be required to enforce such due-on-sale clauses and in connection therewith
will not be required to (i) accelerate payments thereon or (ii) withhold its
consent to such an assumption if (x) such provision is not exercisable under
applicable law or such provision is reasonably likely to result in meritorious
legal action by the borrower or (y) the Master Servicer or the Special
Servicer, as applicable, determines, in accordance with the Servicing Standard,
that granting such consent would be likely to result in a greater recovery, on
a present value basis (discounting at the related Mortgage Rate), than would
enforcement of such clause. If the Master Servicer or the Special Servicer, as
applicable, determines that granting such consent would be likely to result in
a greater recovery, the Master Servicer or the Special Servicer, as applicable,
is authorized to take or enter into an assumption agreement from or with the
proposed transferee as obligor thereon, provided that (a) the proposed transfer
is in compliance with the terms of the related Mortgage and (b) the Master
Servicer or the Special Servicer, as applicable, has received written
confirmation from each Rating Agency that such assumption or substitution would
not, in and of itself, cause a downgrade, qualification or withdrawal of any of
the then current ratings assigned to the Certificates.
Subject to certain exceptions in the case of certain of the Mortgage Loans
(see "Description of the Mortgaged Properties and the Mortgage Loans" herein),
the Mortgage Loans contain provisions in the nature of a "due-on-encumbrance"
clause which by their terms (a) provide that the Mortgage Loans shall, at the
mortgagee's option, become due and payable upon the creation of any lien or
other encumbrance on the related Mortgaged Property, or (b) require the consent
of the related mortgagee to the creation of any such lien or other encumbrance
on the related Mortgaged Property. The Master Servicer or the Special Servicer,
as applicable, will not be required to enforce such due-on-encumbrance clauses
and in connection therewith will not be required to (i) accelerate payments
thereon or (ii) withhold its consent to such lien or encumbrance if the Master
Servicer or the Special Servicer, as applicable, (x) determines, in accordance
with the Servicing Standard, that such enforcement would not be in the best
interests of the Trust Fund and (y) receives prior written confirmation from
each Rating Agency that granting such consent would not, in and of itself,
cause a downgrade, qualification or withdrawal of any of the then current
ratings assigned to the Certificates.
See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Due-on-Sale and Due-on-Encumbrance" in the Prospectus.
INSPECTIONS
The Master Servicer (or with respect to any Specially Serviced Mortgage
Loan, the Special Servicer) is required to inspect or cause to be inspected
each Mortgaged Property at such times and in such manner as are consistent with
the Servicing Standards, but in any event (i) the Master Servicer is required
to inspect each Mortgaged Property with an Allocated Loan Amount of (a)
$5,000,000 or more at least once every 12 months and (b) less than $5,000,000
at least once every 24 months (provided, however, that at least 25% of the
Mortgaged Properties with Allocated Loan Amounts of less than $5,000,000 will
be inspected within 12 months after the Closing Date), in each case commencing
in June, 1999 (or at such other times, provided each Rating Agency has
confirmed in writing to the Master Servicer that such schedule will not result
in the withdrawal, downgrading or qualification of the then current ratings
assigned to the Certificates) and (ii) if the Mortgage Loan (a) becomes a
Specially Serviced Mortgage Loan, or (b) has a debt service coverage ratio of
less than 1.0,
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the Master Servicer (or with respect to Specially Serviced Mortgage Loans, the
Special Servicer) is required to inspect the related Mortgaged Properties as
soon as practicable and thereafter at least every twelve months until such
condition ceases to exist. The cost of any such inspection shall be borne by
the Master Servicer unless the related Mortgage Loan is a Specially Serviced
Mortgage Loan, in which case such cost will be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
The Pooling Agreement requires that each of the Master Servicer and the
Special Servicer cause a nationally recognized firm of independent public
accountants (which may render other services to the Master Servicer), which is
a member of the American Institute of Certified Public Accountants, to furnish
to the Trustee on or before April 15 of each year, beginning April 15, 1999, a
report which expresses an opinion to the effect that the assertion of
management of the Master Servicer or the Special Servicer that it has
maintained an effective internal control system over the servicing of mortgage
loans including the Mortgage Loans for the preceding calendar year is fairly
stated, based on an examination, conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for the Federal Home Loan Mortgage Corporation, except
for such exceptions stated in such report.
The Pooling Agreement also requires each of the Master Servicer and the
Special Servicer to deliver to the Trustee, on or before April 15 of each year,
beginning April 15, 1999, an officers' certificate of the Master Servicer or
the Special Servicer, as the case may be, stating that, to the best of each
such officer's knowledge, the Master Servicer or the Special Servicer, as the
case may be, has fulfilled its obligations under the Pooling Agreement in all
material respects throughout the preceding calendar year or, if there has been
a default, specifying each default known to each such officer, and that it has
maintained an effective internal control system over the servicing of mortgage
loans including the Mortgage Loans.
CERTAIN MATTERS REGARDING THE DEPOSITOR, THE MASTER SERVICER AND THE SPECIAL
SERVICER
Each of the Master Servicer and the Special Servicer may assign its rights
and delegate its duties and obligations under the Pooling Agreement, provided
that certain conditions are satisfied including obtaining the consent of the
Trustee and written confirmation of each of the Rating Agencies that such
assignment or delegation will not cause a qualification, withdrawal or
downgrading of the then current ratings assigned to the Certificates. The
Pooling Agreement provides that the Master Servicer or the Special Servicer, as
the case may be, may not otherwise resign from its obligations and duties as
Master Servicer or the Special Servicer, as the case may be, thereunder, except
upon the determination that performance of its duties is no longer permissible
under applicable law and provided that such determination is evidenced by an
opinion of counsel delivered to the Trustee. No such resignation may become
effective until a successor Master Servicer or Special Servicer has assumed the
obligations of the Master Servicer or the Special Servicer under the Pooling
Agreement. The Trustee or any other successor Master Servicer or Special
Servicer assuming the obligations of the Master Servicer or the Special
Servicer under the Pooling Agreement will be entitled to the compensation to
which the Master Servicer or the Special Servicer would have been entitled. If
no successor Master Servicer or Special Servicer can be obtained to perform
such obligations for such compensation, additional amounts payable to such
successor Master Servicer or Special Servicer will be treated as Realized
Losses.
The Pooling Agreement also provides that none of the Depositor, the Master
Servicer, the Special Servicer, nor any director, officer, employee or agent of
the Depositor, the Master Servicer or the Special Servicer will be under any
liability to the Trust Fund or the holders of Certificates for any action taken
or for refraining from the taking of any action in good faith pursuant to the
Pooling Agreement, or for errors in judgment; provided, however, that neither
the Depositor, the Master Servicer, the Special Servicer nor any such person
will be protected against any liability which would otherwise be imposed by
reason of (i) any breach of warranty or representation, or (ii) any willful
misconduct, bad faith, fraud or negligence in the performance or disregard of
duties thereunder. The Pooling Agreement further provides that the Depositor,
the Master Servicer, the Special Servicer and any director, officer, employee
or agent of the Depositor, the Master Servicer or the Special Servicer will be
entitled to indemnification by the Trust Fund for any loss, liability or
expense incurred in connection with or relating to the Pooling Agreement or the
Certificates, other than any loss, liability or expense (i) incurred by reason
of willful misconduct, bad faith, fraud or negligence in the performance or
disregard of duties thereunder in each case by the person being indemnified, or
(ii) with respect to any such party, resulting from the breach by such party of
any of its representations or warranties contained in the Pooling Agreement.
In addition, the Pooling Agreement provides that none of the Depositor,
the Master Servicer, nor the Special Servicer will be under any obligation to
appear in, prosecute or defend any legal action unless such action is related
to its duties under
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the Pooling Agreement and which in its opinion does not expose it to any
expense or liability. The Depositor, the Master Servicer or the Special
Servicer may, however, in its discretion undertake any such action which it may
deem necessary or desirable with respect to the Pooling Agreement and the
rights and duties of the parties thereto and the interests of the holders of
Certificates thereunder. In such event, the legal expenses and costs of such
action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Depositor, the Master Servicer and the
Special Servicer will be entitled to be reimbursed therefor from the Collection
Account.
The Depositor is not obligated to monitor or supervise the performance of
the Master Servicer, the Special Servicer or the Trustee under the Pooling
Agreement. The Depositor may, but is not obligated to, enforce the obligations
of the Master Servicer or the Special Servicer under the Pooling Agreement and
may, but is not obligated to, perform or cause a designee to perform any
defaulted obligation of the Master Servicer or the Special Servicer or exercise
any right of the Master Servicer or the Special Servicer under the Pooling
Agreement. In the event the Depositor undertakes any such action, it will be
reimbursed and indemnified by the Trust Fund in accordance with the standard
set forth above. Any such action by the Depositor will not relieve the Master
Servicer or the Special Servicer of its obligations under the Pooling
Agreement.
Any person into which the Depositor or the Master Servicer may be merged
or consolidated, or any person resulting from any merger or consolidation to
which the Depositor or the Master Servicer is a party, or any person succeeding
to the business of the Depositor or the Master Servicer, will be the successor
of the Depositor or the Master Servicer, as the case may be, under the Pooling
Agreement, and shall be deemed to have assumed all of the liabilities and
obligations of the Depositor or the Master Servicer under the Pooling
Agreement.
EVENTS OF DEFAULT
Events of default of the Master Servicer (each, with respect to the Master
Servicer, an "Event of Default") under the Pooling Agreement consist, among
other things, of (i) any failure by the Master Servicer to remit to the
Collection Account or any failure by the Master Servicer to remit to the
Trustee for deposit into the Upper-Tier Distribution Account, Lower-Tier
Distribution Account, Deferred Interest Distribution Account or Class Q
Distribution Account any amount required to be so remitted at the time required
to be remitted pursuant to the Pooling Agreement; (ii) any failure by the
Master Servicer duly to observe or perform in any material respect any of its
other covenants or agreements or the material breach of its representations or
warranties under the Pooling Agreement which continues unremedied for thirty
(30) days after the giving of written notice of such failure to the Master
Servicer by the Depositor or the Trustee, or to the Master Servicer and to the
Depositor and the Trustee by the holders of Certificates evidencing Percentage
Interests of at least 25% of any affected Class, and if such default is not
capable of being cured within such 30 day period and the Master Servicer is
diligently pursuing such cure, the Master Servicer shall be entitled to an
additional 30 day period; (iii) any failure by the Master Servicer to make any
Advances as required pursuant to the Pooling Agreement; (iv) confirmation in
writing by any Rating Agency that not terminating the Master Servicer would, in
and of itself, cause the then-current rating assigned to any Class of
Certificates to be qualified, withdrawn or downgraded; or (v) certain events of
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings and certain actions by, on behalf of or
against the Master Servicer indicating its insolvency or inability to pay its
obligations.
Events of default of the Special Servicer (each, with respect to the
Special Servicer, an "Event of Default") under the Pooling Agreement consist,
among other things, of (i) any failure by the Special Servicer to remit to the
Collection Account any amount so required under the Pooling Agreement; (ii) any
failure by the Special Servicer duly to observe or perform in any material
respect any of its other covenants or agreements, or the material breach of its
representations or warranties under the Pooling Agreement which continues
unremedied for a period of 30 days after the giving of written notice of such
failure to the Special Servicer by the Master Servicer, the Depositor or the
Trustee, or to the Special Servicer, the Master Servicer, the Depositor and the
Trustee by the holders of Certificates evidencing Percentage Interests of at
least 25% of any affected Class; (iii) confirmation in writing by any Rating
Agency that not terminating the Special Servicer would, in and of itself, cause
the then-current rating assigned to any Class of Certificates to be qualified,
withdrawn or downgraded; or (iv) certain events of bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings and certain actions by, on behalf of or against the Special
Servicer indicating its insolvency or inability to pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Master Servicer (acting as
Master Servicer or Special Servicer) occurs, which has not been remedied, then
the Trustee may, and at the direction of the holders of Certificates evidencing
at least 25% of
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the aggregate Voting Rights of all Certificateholders, the Trustee will be
required to terminate all of the rights and obligations of the Master Servicer
as Master Servicer under the Pooling Agreement and in and to the Trust Fund. If
an Event of Default with respect to the Master Servicer (acting as Master
Servicer or Special Servicer) described in clause (v) in the second preceding
paragraph occurs, the rights and obligations of the Master Servicer under the
Pooling Agreement shall automatically terminate. Notwithstanding the foregoing,
upon any termination of the Master Servicer under the Pooling Agreement, the
Master Servicer will continue to be entitled to receive all accrued and unpaid
servicing compensation through the date of termination plus reimbursement for
all Advances and interest on such Advances as provided in the Pooling
Agreement. In the event that the Master Servicer is also the Special Servicer
and the Master Servicer is terminated, the Master Servicer will also be
terminated as Special Servicer.
On and after the date of termination following an Event of Default by the
Master Servicer, the Trustee will succeed to all authority and power of the
Master Servicer (and the Special Servicer if the Special Servicer is also the
Master Servicer) under the Pooling Agreement and will be entitled to the
compensation arrangements to which the Master Servicer (and the Special
Servicer if the Special Servicer is also the Master Servicer) would have been
entitled. If the Trustee is unwilling or unable so to act, or if the holders of
Certificates evidencing at least 25% of the aggregate Voting Rights of all
Certificateholders so request, or if the long-term unsecured debt rating of the
Trustee is not at least "AA" by Fitch and S&P and "Aa2" by Moody's or if the
Rating Agencies do not provide written confirmation that the succession of the
Trustee as Master Servicer or Special Servicer will not cause a qualification,
withdrawal or downgrading of the then current ratings assigned to the
Certificates, the Trustee must appoint, or petition a court of competent
jurisdiction for the appointment of, a mortgage loan servicing institution the
appointment of which will not result in the downgrading, qualification or
withdrawal of the then current ratings assigned to any Class of Certificates as
evidenced in writing by each Rating Agency to act as successor to the Master
Servicer or Special Servicer under the Pooling Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
any such successor may agree upon the servicing compensation to be paid. If the
compensation payable to such successor exceeds that to which the predecessor
Master Servicer was entitled, the additional servicing compensation will be
allocated to the Certificates in the same manner as Realized Losses.
If the Special Servicer is not the Master Servicer and an Event of Default
with respect to the Special Servicer occurs, which has not been remedied, the
Trustee may, and at the direction of the holders of at least 25% of the
aggregate Voting Rights of all Certificateholders, the Trustee will be required
to terminate the Special Servicer and the Trustee will succeed to all the power
and authority of the Special Servicer under the Pooling Agreement, unless such
termination and succession would result in the downgrading, qualification or
withdrawal of the then current ratings assigned to any Class of Certificates,
as evidenced in writing by each Rating Agency, in which case, a successor
Special Servicer shall be appointed in accordance with the Pooling Agreement.
The Trustee or other successor Special Servicer which succeeds to the power and
authority of the Special Servicer will be entitled to the compensation to which
the Special Servicer would have been entitled.
No Certificateholder will have any right under the Pooling Agreement to
institute any proceeding with respect to the Pooling Agreement or the Mortgage
Loans, unless, with respect to the Pooling Agreement, such holder previously
shall have given to the Trustee a written notice of a default under the Pooling
Agreement, and of the continuance thereof, and unless also the holders of
Certificates of each Class affected thereby evidencing Percentage Interests of
at least 25% of such Class shall have made written request of the Trustee to
institute such proceeding in its own name as Trustee under the Pooling
Agreement and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute
such proceeding.
The Trustee will have no obligation to make any investigation of matters
arising under the Pooling Agreement or to institute, conduct or defend any
litigation thereunder or in relation thereto at the request, order or direction
of any of the holders of Certificates, unless such holders of Certificates
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
The Pooling Agreement may be amended at any time by the Depositor, the
Master Servicer, the Special Servicer and the Trustee without the consent of
any of the holders of Certificates (i) to cure any ambiguity; (ii) to correct
or supplement any provisions therein which may be defective or inconsistent
with any other provisions therein; (iii) to amend any provision thereof to the
extent necessary or desirable to maintain the status of each of the Upper-Tier
REMIC and Lower-Tier REMIC as a REMIC, or to prevent the imposition of any
material state or local taxes; (iv) to amend or supplement a provision which
will not adversely affect in any material respect the interests of any
Certificateholder not consenting thereto, as evidenced
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in writing by an opinion of counsel or confirmation in writing from each Rating
Agency that such amendment will not result in a qualification, withdrawal or
downgrading of the then current ratings assigned to the Certificates; (v) to
amend or supplement any provisions therein to the extent necessary or desirable
to maintain the rating assigned to each of the Classes of Certificates by each
Rating Agency; and (vi) to make any other provisions with respect to matters
which are not inconsistent with any other provisions therein and will not
result in a qualification, withdrawal or downgrading of the then current
ratings assigned to the Certificates. The Pooling Agreement provides that no
such amendment shall cause the Upper-Tier REMIC or the Lower-Tier REMIC to fail
to qualify as a REMIC.
The Pooling Agreement may also be amended from time to time by the
Depositor, the Master Servicer, the Special Servicer and the Trustee with the
consent of the holders of Certificates evidencing at least 66 2/3% of the
Percentage Interests of each Class of Certificates affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Pooling Agreement or modifying in any manner the
rights of the holders of Certificates; provided, however, that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
payments received on the Mortgage Loans which are required to be distributed on
any Certificate; (ii) alter the obligations of the Master Servicer, the Special
Servicer or the Trustee to make a P&I Advance or Property Advance or alter the
servicing standards set forth in the Pooling Agreement; (iii) change the
percentages of Voting Rights of holders of Certificates which are required to
consent to any action or inaction under the Pooling Agreement; or (iv) amend
the section in the Pooling Agreement relating to the amendment of the Pooling
Agreement, in each case without the consent of the holders of all Certificates
representing all the Percentage Interests of the Class or Classes affected
thereby.
The "Voting Rights" assigned to each Class shall be (a) 0% in the case of
the Class Q, Class R and Class LR Certificates, (b) [4%] in the case of the
Class X Certificates (the "Fixed Voting Rights Percentage"), and (c) in the
case of the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D, Class
E, Class F, Class G and Class H Certificates, a percentage equal to the product
of (i) 100% minus the Fixed Voting Rights Percentage multiplied by (ii) a
fraction, the numerator of which is equal to the aggregate outstanding
Certificate Principal Amount of any such Class (which will be reduced for this
purpose by the amount of any Appraisal Reduction Amounts notionally allocated
to such Class, if applicable) and the denominator of which is equal to the
aggregate outstanding Certificate Principal Amounts of all Classes of
Certificates. The Voting Rights of any Class of Certificates shall be allocated
among holders of Certificates of such Class in proportion to their respective
Percentage Interests.
REALIZATION UPON MORTGAGE LOANS; MODIFICATIONS
Specially Serviced Mortgage Loans; Appraisals; Extensions. Within 60 days
following the occurrence of an Appraisal Reduction Event, the Special Servicer
will be required to obtain an appraisal of the Mortgaged Property or REO
Property, as the case may be, from an independent appraiser in accordance with
MAI standards (an "Updated Appraisal"); provided, that, the Special Servicer
will not be required to obtain an Updated Appraisal of any Mortgaged Property
with respect to which there exists an appraisal which is less than twelve
months old. The cost of any Updated Appraisal shall be a Property Advance to be
paid by the Master Servicer.
Following a default in the payment of any principal balance and accrued
interest remaining unpaid on the maturity date of a Mortgage Loan, the Special
Servicer may either foreclose or elect to grant up to three consecutive
one-year extensions of the Specially Serviced Mortgage Loan; provided that the
Special Servicer may only extend such Mortgage Loan if (i) immediately prior to
the default on the maturity date (or the first or second anniversary thereof in
the case of the second or third extension), respectively, the related borrower
had made twelve consecutive Monthly Payments (or Extended Monthly Payments in
the case of the second or third extension) on or prior to their Due Dates, (ii)
the Special Servicer determines that (A) extension of such Mortgage Loan is
consistent with the Servicing Standard described herein and (B) extension of
such Mortgage Loan is likely to result in a recovery which on a net present
value basis would be greater than the recovery that would result from a
foreclosure, (iii) such extension requires that all cash flow on all related
Mortgaged Properties in excess of amounts required to operate and maintain such
Mortgaged Properties be applied to payments of principal and interest on such
Mortgage Loan, (iv) the Special Servicer terminates the related manager unless
the Special Servicer determines that retaining such manager is conducive to
maintaining the value of such Mortgaged Properties and (v) such extension
requires the related borrower to make Extended Monthly Payments. The Special
Servicer's determination to extend shall be made in the Special Servicer's good
faith judgment, and may, but is not required to be, based on an Updated
Appraisal.
The Special Servicer will not be permitted to agree to any extension of a
Mortgage Loan beyond the date which is two years prior to the Rated Final
Distribution Date. If such borrower fails to make an Extended Monthly Payment
during the
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initial extension period, no further extensions will be granted. The "Extended
Monthly Payment" with respect to any extension of a Mortgage Loan that is
delinquent in the payment of any principal balance and accrued interest
remaining unpaid on its maturity date, is equal to (a) the principal portion of
a revised monthly payment (which will be calculated based on an amortization
schedule which would fully amortize such principal balance and accrued interest
over a term that does not extend past the date occurring two years prior to the
Rated Final Distribution Date (commencing on the maturity date of such Mortgage
Loan) and an interest rate no less than the Mortgage Rate with respect to such
Mortgage Loan), and (b) interest at the applicable Default Rate; provided,
however, that the Special Servicer may agree that the Extended Monthly Payments
may include interest at a rate lower than the related Default Rate (but, except
as otherwise provided in the Pooling Agreement, not lower than the related
Mortgage Rate). In no event will the Special Servicer be permitted to extend
any Mortgage Loan at a rate lower than the Mortgage Rate.
The Master Servicer or Special Servicer shall be permitted, in its
discretion, to waive all or any accrued Deferred Interest if, prior to the
related maturity date, the related borrower has requested the right to prepay
the Mortgage Loan in full together with all payments required by the Mortgage
Loan in connection with such prepayment except for all or a portion of accrued
Deferred Interest, provided that the Master Servicer or Special Servicer, as
applicable, determines that (i) in the absence of the waiver of such Deferred
Interest, there is a reasonable likelihood that the Mortgage Loan will not be
paid in full on the related maturity date and (ii) waiver of the right to such
accrued Deferred Interest is reasonably likely to produce a greater payment in
the aggregate to Certificateholders on a present value basis than a refusal to
waive the right to such Deferred Interest. Any such waiver shall not be
effective until such prepayment is tendered.
Pursuant to the terms of the Charlestowne Mall Loan and the CenterAmerica
Pool Loan, the mortgagee is required to give prior written notice to the
Charlestowne Mall Mezzanine Lender or CenterAmerica Mezzanine Lender, as
applicable, of any material default under such Mortgage Loans prior to
commencing foreclosure proceedings. In addition, the Charlestowne Mall
Mezzanine Lender and CenterAmerica Mezzanine Lender, as the case may be, will
have the right to cure any such default prior to foreclosure. See "Description
of the Mortgaged Properties and Mortgage Loans--Charlestowne Mall: The
Loan--Mezzanine Debt" and "--CenterAmerica Pool: The Loan--Mezzanine Debt"
herein. In addition, the mortgagee is required to give notice to the Courthouse
Plaza I Ground Lessor of a Loan Default under the Courthouse Plaza I Loan, and
the Courthouse Plaza I Grand Lessor has certain cure rights during the exercise
of which certain of mortgagee's rights may not be exercised. See "Description
of the Mortgaged Properties and Mortgage Loans--Courthouse Plaza I, The
Borrower and the Property--Ground Lease."
Standards for Conduct Generally in Effecting Foreclosure or the Sale of
Defaulted Loans. In connection with any foreclosure, enforcement of the loan
documents, or other acquisition, the cost and expenses of any such proceeding
shall be paid by the Master Servicer as a Property Advance.
If the Special Servicer elects to proceed with a non-judicial foreclosure
in accordance with the laws of the state where the Mortgaged Property is
located, the Special Servicer shall not be required to pursue a deficiency
judgment against the related Mortgagor, if available, or any other liable party
if the laws of the state do not permit such a deficiency judgment after a
non-judicial foreclosure or if the Special Servicer determines, in its best
judgment, that the likely recovery if a deficiency judgment is obtained will
not be sufficient to warrant the cost, time, expense and/or exposure of
pursuing the deficiency judgment and such determination is evidenced by an
officers' certificate delivered to the Trustee.
Notwithstanding anything herein to the contrary, the Pooling Agreement
will provide that the Special Servicer will not, on behalf of the Trust Fund,
obtain title to a Mortgaged Property as a result of or in lieu of foreclosure
or otherwise, and will not otherwise acquire possession of, or take any other
action with respect to, any Mortgaged Property if, as a result of any such
action, the Trustee, or the Trust Fund or the holders of Certificates, would be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or "operator" of, such Mortgaged Property within the meaning of CERCLA
or any comparable law, unless the Special Servicer has previously determined,
based on an environmental assessment report prepared by an independent person
who regularly conducts environmental audits, that: (i) such Mortgaged Property
is in compliance with applicable environmental laws or, if not, after
consultation with an environmental consultant that it would be in the best
economic interest of the Trust Fund to take such actions as are necessary to
bring such Mortgaged Property in compliance therewith and (ii) there are no
circumstances present at such Mortgaged Property relating to the use,
management or disposal of any hazardous materials for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any currently effective federal, state or local law or regulation, or
that, if any such hazardous materials are present for which such action could
be required, after consultation with an environmental consultant it would be in
the best economic interest of the Trust Fund to take such actions with respect
to the affected Mortgaged Property.
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In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
is required to be issued to the Trustee, to a co-trustee or to its nominee, on
behalf of holders of Certificates. Notwithstanding any such acquisition of
title and cancellation of the related Mortgage Loan, such Mortgage Loan shall
be considered to be an REO Mortgage Loan held in the Trust Fund until such time
as the related REO Property shall be sold by the Trust Fund and shall be
reduced only by collections net of expenses.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling
Agreement provides that the Trustee (or the Special Servicer, on behalf of the
Trustee), must administer such Mortgaged Property so that it qualifies at all
times as "foreclosure property" within the meaning of Code Section 860G(a)(8).
The Pooling Agreement also requires that any such Mortgaged Property be managed
and operated by an "independent contractor," within the meaning of applicable
Treasury regulations, who furnishes or renders services to the tenants of such
Mortgaged Property. Generally, the Lower-Tier REMIC will not be taxable on
income received with respect to a Mortgaged Property to the extent that it
constitutes "rents from real property," within the meaning of Code Section
856(c)(3)(A) and Treasury regulations thereunder. "Rents from real property" do
not include the portion of any rental based on the net income or gain of any
tenant or sub-tenant. No determination has been made whether rent on any of the
Mortgaged Properties meets this requirement. "Rents from real property" include
charges for services customarily furnished or rendered in connection with the
rental of real property, whether or not the charges are separately stated.
Services furnished to the tenants of a particular building will be considered
as customary if, in the geographic market in which the building is located,
tenants in buildings which are of similar class are customarily provided with
the service. No determination has been made whether the services furnished to
the tenants of the Mortgaged Properties are "customary" within the meaning of
applicable regulations. It is therefore possible that a portion of the rental
income with respect to a Mortgaged Property owned by the Lower-Tier REMIC,
presumably allocated based on the value of any non-qualifying services, would
not constitute "rents from real property." In addition to the foregoing, any
net income from a trade or business operated or managed by an independent
contractor on a Mortgaged Property owned by the Lower-Tier REMIC, such as the
Hotel Del Coronado, will not constitute "rents from real property." Any of the
foregoing types of income may instead constitute "net income from foreclosure
property," which would be taxable to the Lower-Tier REMIC at the highest
marginal federal corporate rate (currently 35%) and may also be subject to
state or local taxes. Any such taxes would be chargeable against the related
income for purposes of determining the Net REO Proceeds available for
distribution to holders of Certificates. The Pooling Agreement provides that
the Special Servicer will be permitted to cause the Lower-Tier REMIC to earn
"net income from foreclosure property" that is subject to tax if it determines
that the net after-tax benefit to Certificateholders is greater than another
method of operating or net leasing the Mortgaged Property. See "Certain Federal
Income Tax Consequences--Prohibited Transactions and Other Taxes" in the
Prospectus.
The Pooling Agreement will provide that the Special Servicer may offer to
sell to any person any defaulted Mortgage Loan or any REO Property, or may
offer to purchase any Specially Serviced Mortgage Loan or any REO Property, if
and when the Special Servicer determines, consistent with the Servicing
Standard, that no satisfactory arrangements can be made for collection of
delinquent payments thereon and such a sale would be in the best economic
interests of the Trust Fund, but shall, in any event, so offer to sell any REO
Property no later than the time determined by the Special Servicer to be
sufficient to result in the sale of such REO Property within the period
specified in the Pooling Agreement, including extensions thereof. The Special
Servicer is required to give the Trustee not less than five days' prior written
notice of its intention to sell any Specially Serviced Mortgage Loan or REO
Property, in which case the Special Servicer is required to accept the highest
offer (of at least three offers) received from any person for any Specially
Serviced Mortgage Loan or any REO Property in an amount at least equal to the
Repurchase Price or, at its option, if it has received no offer at least equal
to the Repurchase Price therefor, purchase the Specially Serviced Mortgage Loan
or REO Property at such Repurchase Price.
In the absence of any such offer (or purchase by the Special Servicer),
the Special Servicer shall accept the highest offer received from any person
that is determined by the Special Servicer to be a fair price for such
Specially Serviced Mortgage Loan or REO Property, if the highest offeror is a
person not affiliated with the Special Servicer, or is determined to be a fair
price by the Trustee (based solely upon updated independent appraisals received
by the Trustee), if the highest offeror is affiliated with the Special
Servicer. Neither the Trustee, in its individual capacity, nor any of its
affiliates may make an offer for or purchase any Specially Serviced Mortgage
Loan or any REO Property.
The Pooling Agreement will not obligate the Special Servicer to accept the
highest offer if the Special Servicer determines, in accordance with the
Servicing Standard, that rejection of such offer would be in the best interests
of the holders of Certificates. In addition, the Special Servicer may accept a
lower offer if it determines, in accordance with the Servicing Standard, that
acceptance of such offer would be in the best interests of the holders of
Certificates (for example,
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if the prospective buyer making the lower offer is more likely to perform its
obligations, or the terms offered by the prospective buyer making the lower
offer are more favorable), provided that the offeror is not a person affiliated
with the Special Servicer. The Special Servicer is required to use its best
efforts to sell all Specially Serviced Mortgage Loans and REO Property prior to
the Rated Final Distribution Date.
Following a default in the payment of principal or interest on a Mortgage
Loan, the Special Servicer, after consultation with, and agreement by, the
Master Servicer, may elect not to foreclose or institute similar proceedings or
modify such Mortgage Loan (as described below) and instead the Master Servicer
shall continue to make P&I Advances with respect to such delinquencies so long
as the Special Servicer, in its reasonable judgment, after consultation with,
and agreement by, the Master Servicer, concludes (a) that the election not to
foreclose or modify would likely result in a greater recovery, on a present
value basis, than would foreclosure or modification and (b) such P&I Advances
will not be Nonrecoverable Advances. With respect to such conclusions, the
Master Servicer may conclusively rely (absent manifest error) on the Special
Servicer's computations and analysis.
Modifications. During the term of a Specially Serviced Mortgage Loan, the
Special Servicer, may, consistent with the Servicing Standard, agree to modify
such Mortgage Loan to reduce the amount of principal (but, except as otherwise
provided below, not interest) payable monthly on such Mortgage Loan provided
that (a) a material default in respect of payment on such Mortgage Loan has
occurred or, in the Special Servicer's reasonable and good faith judgment, a
default in respect of payment on such Mortgage Loan is reasonably foreseeable,
and such modification is reasonably likely to produce a greater recovery to
Certificateholders, on a net present value basis, than would liquidation; (b)
the Special Servicer terminates the related manager (unless the Special
Servicer determines that retaining such manager is conducive to maintaining the
value of the related Mortgaged Properties); and (c) the Special Servicer may
only agree to reductions of principal lasting a period of no more than twelve
consecutive months and, in the aggregate, to no more than three reductions of
twelve months or less each; provided, however, Certificateholders representing
greater than 66 2/3% of all Voting Rights may direct the Special Servicer not
to agree to any such modification. The Special Servicer will promptly provide a
copy of such proposed modification to the Master Servicer, the Rating Agencies
and the Trustee. The Trustee will, within five Business Days, notify, in
writing, all of the Certificateholders that have Voting Rights for such
proposed modification. For purposes of determining whether Certificateholders
representing 66 2/3% of all Voting Rights have directed the Special Servicer
not to agree to such modification, each Certificateholder will have 15 days to
respond to such notice, and any Certificateholder that has not responded within
such time period will be deemed to have consented to such modification. In the
event that the Special Servicer is directed not to agree to such modification,
the Special Servicer will continue to have the options described elsewhere
herein, including foreclosure, subject to the following paragraph, or, if
applicable, extension of the related Mortgage Loan.
Additionally, the Special Servicer may, consistent with the Servicing
Standard, agree to any modification, waiver or amendment of any term or forgive
or defer interest on and principal of, and/or add collateral for, any Specially
Serviced Mortgage Loan with the consent of Certificateholders representing 100%
of the Percentage Interests of the most subordinate Class of Certificates then
outstanding (the "Directing Class"), subject, however, to each of the following
limitations, conditions and restrictions: (a) a material default in respect of
such Mortgage Loan has occurred or, in the Special Servicer's reasonable and
good faith judgment, a default in respect of payment on such Mortgage Loan is
reasonably foreseeable, and such modification, waiver, amendment or other
action is reasonably likely to produce a greater recovery to Certificateholders
on a net present value basis, than would liquidation; (b) no reduction in the
scheduled monthly payment of interest on any Mortgage Loan as a result of such
modification, waiver or amendment may result in an Interest Shortfall to any
Class other than the Directing Class, determined as of the date of such
modification, waiver or amendment; (c) any reduction in the scheduled monthly
payment of principal and/or interest on any Mortgage Loan must require that all
cash flow on all related Mortgaged Properties in excess of amounts required to
operate and maintain such Mortgaged Properties be applied to payments of
principal and interest on such Mortgage Loan; (d) the Special Servicer may only
agree to reductions of principal and/or interest lasting a period of no more
than twelve consecutive months and, in the aggregate, to no more than three
periods of twelve months or less each; (e) the Special Servicer may not reduce
any Prepayment Charge or Prepayment Lockout Period; (f) the Special Servicer
may not forgive an aggregate amount of principal of the Mortgage Loans in
excess of the Certificate Principal Amount of the Directing Class less the sum
of (x) the aggregate amount of Appraisal Reduction Amounts then outstanding and
(y) the aggregate amount of Interest Shortfalls then outstanding (other than
with respect to the Directing Class); and (g) the Special Servicer will not
permit any borrower to add any collateral unless the Special Servicer (i) has
first determined in accordance with the Servicing Standard, based upon an
environmental assessment prepared by an independent person who regularly
conducts environmental assessments, at the expense of the borrower, that
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such additional collateral is in compliance with applicable environmental laws
and regulations and that there are no circumstances or conditions present with
respect to such new collateral relating to the use, management or disposal of
any hazardous materials for which investigation, testing, monitoring,
containment, clean-up or remediation would be required under any then
applicable environmental laws and/or regulations and (ii) has received
confirmation from each Rating Agency that such action will not result in the
downgrade, qualification or withdrawal of the ratings of the Certificates. The
Certificateholders of the Directing Class will be required to identify
themselves to the Trustee and the Special Servicer (who may rely on such
identification absent any contrary instructions from the Trustee). For the
purpose of determining the Percentage Interest of the Directing Class, the
Certificates held by any Certificateholder that (i) holds, or whose affiliate
holds, any debt of any of the borrowers, or any of the affiliates of the
borrowers, under the Mortgage Loans, or (ii) is the related manager or
affiliate of the related manager, shall not be taken into consideration. If the
Certificateholders representing 100% of the Percentage Interests of the second
most subordinate Class of Certificates then outstanding consent to such
modification, waiver or amendment, the Directing Class for purposes of the
determinations made in clauses (b) and (f) shall include the second most
subordinate Class of Certificates and the amount by which principal can be
reduced shall not be in excess of 80% of the aggregate principal balance of
both such Classes less the items specified in clauses (f)(x) and (y) above. A
modification pursuant to this paragraph is not subject to the veto of
Certificateholders set forth in the preceding paragraph.
The Master Servicer or the Special Servicer, as applicable, shall be
permitted to modify, waive or amend any term of a Mortgage Loan that is not in
default or as to which default is not reasonably foreseeable if, and only if,
such modification, waiver or amendment (a) would not be "significant" as such
term is defined in Code Section 1001 and Treasury Regulations Section
1.860G-2(b)(3), as evidenced by an Opinion of Counsel, (b) would be in
accordance with the Servicing Standard and (c) would not adversely affect in
any material respect the interest of any Certificateholder not consenting
thereto. The consent thereto of the majority of Percentage Interests of each
Class of Certificates affected thereby or written confirmation from each Rating
Agency that such modification, waiver or amendment will not result in a
qualification, withdrawal or downgrading of the then-current ratings assigned
to the Certificates shall not be required but shall be conclusive evidence that
such modification, waiver or amendment would not adversely affect in any
material respect the interest of any Certificateholder not consenting thereto.
The Master Servicer or the Special Servicer, as applicable, shall provide
copies of any modifications, waiver or amendment to each Rating Agency.
OPTIONAL TERMINATION
The Depositor and, if the Depositor does not exercise its option, the
Master Servicer and, if neither the Depositor nor the Master Servicer exercises
its option, the holders of the Class LR Certificates representing greater than
a 50% Percentage Interest of the Class LR Certificates will have the option to
purchase all of the Mortgage Loans and all property acquired in respect of any
Mortgage Loan remaining in the Trust Fund, and thereby effect termination of
the Trust Fund and early retirement of the then outstanding Certificates, on
any Distribution Date on which the aggregate Stated Principal Balance of the
Mortgage Loans remaining in the Trust Fund is less than 1% of the aggregate
Stated Principal Balance of such Mortgage Loans as of the Cut-Off Date. The
purchase price payable upon the exercise of such option on such a Distribution
Date will be an amount equal to the greater of (i) the sum of (A) 100% of the
outstanding principal balance of each Mortgage Loan included in the Trust Fund
as of the last day of the month preceding such Distribution Date; (B) the fair
market value of all other property included in the Trust Fund as of the last
day of the month preceding such Distribution Date, as determined by an
independent appraiser as of a date not more than 30 days prior to the last day
of the month preceding such Distribution Date; (C) all unpaid interest accrued
on such principal balance of each such Mortgage Loan (including any Mortgage
Loans as to which title to the related Mortgaged Property has been acquired) at
the Mortgage Rate (plus the Excess Rate, to the extent applicable) to the last
day of the Interest Accrual Period preceding such Distribution Date, and (D)
unreimbursed Property Advances, and unpaid servicing compensation, special
servicing compensation, Trustee Fees and Trust Fund expenses, in each case to
the extent permitted under the Pooling Agreement with interest on all
unreimbursed Advances at the Advance Rate and (ii) the aggregate fair market
value of the Mortgage Loans and all other property acquired in respect of any
Mortgage Loan in the Trust Fund, on the last day of the month preceding such
Distribution Date, as determined by an independent appraiser acceptable to the
Master Servicer, together with one month's interest thereon at the related
Mortgage Rates. There can be no assurance that payment of the Certificate
Principal Amount, if any, of each outstanding Class of Certificates plus
accrued interest would be made in full in the event of such a termination of
the Trust Fund. See "Description of the Certificates--Termination" in the
Prospectus.
Any Mortgage Loan purchased under the circumstances described in the
preceding paragraph will be purchased subject to a continuing right of (i) the
holders of the Class Q Certificates to receive from the purchaser(s), from time
to time,
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payments corresponding to Default Interest with respect to such Mortgage Loan
and (ii) the holders of the Classes of Certificates entitled to receive the
Deferred Interest with respect to such Mortgage Loan, to receive from the
purchaser(s), from time to time, payments corresponding to Deferred Interest
with respect to such Mortgage Loan.
THE TRUSTEE
State Street Bank and Trust Company will act as Trustee of the Trust Fund.
The corporate trust office of the Trustee responsible for administration of the
Trust is located at Two International Place-5th Floor, Boston, Massachusetts
02110, Attention: Corporate Trust Department, Ref. Morgan Stanley 1998-XL1. In
its Consolidated Report of condition as of December 31, 1997, State Street Bank
and Trust Company, a Massachusetts chartered institution and foreign and
domestic subsidiaries, reported total assets of $37,449,709,000.
The Depositor may remove the Trustee if, among other things, the Trustee
ceases to be eligible to continue as such under the Pooling Agreement or if at
any time the Trustee becomes incapable of acting, or is adjudged bankrupt or
insolvent, or a receiver of the Trustee or its property is appointed or any
public officer takes charge or control of the Trustee or of its property. The
holders of Certificates evidencing aggregate Voting Rights of at least 50% of
all Certificateholders may remove the Trustee upon written notice to the
Depositor, the Master Servicer and the Trustee. Any resignation or removal of
the Trustee and appointment of a successor trustee and, if such trustee is not
rated at least "AA" by Fitch and S&P and "Aa2" by Moody's, fiscal agent, will
not become effective until acceptance of the appointment by the successor
trustee and, if necessary, fiscal agent. Notwithstanding the foregoing, upon
any termination of the Trustee under the Pooling Agreement, the Trustee will
continue to be entitled to receive all accrued and unpaid compensation through
the date of termination plus reimbursement for all Advances made by them and
interest thereon as provided in the Pooling Agreement. All expenses incurred by
the Trustee upon any removal without cause will be paid by the party
terminating the Trustee. Any successor trustee must have a combined capital and
surplus of at least $50,000,000 and such appointment must not result in the
downgrade, qualification or withdrawal of the then-current ratings assigned to
the Certificates, as evidenced in writing by the Rating Agencies.
Pursuant to the Pooling Agreement, the Trustee will be entitled to receive
a monthly fee (the "Trustee Fee") at a specified rate (the "Trustee Fee Rate"),
payable by the Master Servicer out of the Servicing Fee.
The Trust Fund will indemnify the Trustee against any and all losses,
liabilities, damages, claims or unanticipated expenses (including reasonable
attorneys' fees) arising in respect of the Pooling Agreement or the
Certificates other than those resulting from the negligence, bad faith or
willful misconduct of the Trustee. The Trustee will not be required to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties under the Pooling Agreement, or in the exercise of any of
its rights or powers, if in the Trustee's opinion, as applicable, the repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. The Master Servicer and the Special Servicer each
indemnify the Trustee and certain related parties for similar losses incurred
related to the willful misconduct, bad faith, fraud and/or negligence in the
performance of the Master Servicer's or the Special Servicer's duties as
applicable, under the Pooling Agreement or by reason of reckless disregard of
its respective obligations and duties under the Pooling Agreement.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
is located, the Depositor and the Trustee acting jointly will have the power to
appoint one or more persons or entities approved by the Trustee to act (at the
expense of the Trustee) as co-trustee or co-trustees, jointly with the Trustee,
or separate trustee or separate trustees, of all or any part of the Trust Fund,
and to vest in such co-trustee or separate trustee such powers, duties,
obligations, rights and trusts as the Depositor and the Trustee may consider
necessary or desirable. Except as required by applicable law, the appointment
of a co-trustee or separate trustee will not relieve the Trustee of its
responsibilities, obligations and liabilities under the Pooling Agreement.
DUTIES OF THE TRUSTEE
The Trustee (except for the information under the first paragraph of
"--The Trustee") and the Master Servicer (except for the information under the
second and third paragraph under "--The Master Servicer") will make no
representation as to the validity or sufficiency of the Pooling Agreement, the
Certificates or the Mortgage Loans, this Prospectus Supplement or related
documents.
In the event that the Master Servicer fails to make a required Advance,
the Trustee (or with respect to a Property Advance required to be made by the
Special Servicer, the Master Servicer, and if the Master Servicer so fails, the
Trustee),
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will be obligated to make such Advance, provided that the Trustee shall not be
obligated to make any Advance it deems to be nonrecoverable. The Trustee shall
be entitled to rely conclusively on any determination by the Master Servicer or
Special Servicer, as applicable, that an Advance, if made, would not be
recoverable. The Trustee will be entitled to reimbursement for each Advance
made by it in the same manner and to same extent as the Master Servicer or
Special Servicer, as applicable.
If no Event of Default has occurred, and after the curing of all Events of
Default which may have occurred, the Trustee is required to perform only those
duties specifically required under the Pooling Agreement. Upon receipt of the
various certificates, reports or other instruments required to be furnished to
it, the Trustee is required to examine such documents and to determine whether
they conform on their face to the requirements of the Pooling Agreement. The
Trustee will not be accountable for the use or application by the Depositor,
the Master Servicer or the Special Servicer of any Certificates issued to it or
of the proceeds of such Certificates, or for the use of or application of any
funds paid to the Depositor, the Master Servicer or the Special Servicer in
respect of the assignment of the Mortgage Loans to the Trust Fund, or any funds
deposited in or withdrawn from the Lockbox Accounts, Cash Collateral Accounts,
Reserve Accounts, Collection Account, Upper-Tier Distribution Account,
Lower-Tier Distribution Account, Deferred Interest Distribution Account, Class
Q Distribution Account or any other account maintained by or on behalf of the
Master Servicer or the Special Servicer, nor will the Trustee be required to
perform, or be responsible for the manner of performance of, any of the
obligations of the Master Servicer or the Special Servicer under the Pooling
Agreement.
In addition, pursuant to the Pooling Agreement, the Trustee, at the cost
and expense of the Depositor, based upon reports, documents, and other
information provided to the Trustee, will be obligated to file with the
Securities and Exchange Commission (the "Commission"), in respect of the Trust
and the Certificates, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may from time to time by rules and regulations prescribe)
required to be filed with the Commission pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934, as amended, and any other Form 8-K reports
required to be filed pursuant to the Pooling Agreement.
THE MASTER SERVICER
Midland Loan Services, Inc. ("Midland") will initially act as the Master
Servicer. The following information has been provided by Midland. None of the
Depositor, the Trustee, the Underwriter, or any of their respective affiliates
takes any responsibility therefor or makes any representation or warranty as to
the accuracy or completeness thereof.
Midland is a real estate financial services company which provides loan
servicing and asset management for large pools of commercial and multifamily
real estate assets and which originates commercial real estate loans. Midland
is a wholly-owned subsidiary of PNC Bank, National Association. Midland's
address is 210 West 10th Street, Kansas City, Missouri 64105.
As of April 30, 1998, Midland was responsible for the servicing of
approximately 12,000 commercial and multifamily loans with an aggregate
principal balance of approximately $26.3 billion, the collateral for which is
located in 50 states, Puerto Rico and the District of Columbia. With respect to
such loans, approximately 10,400 loans with an aggregate principal balance of
approximately $18.7 billion pertain to commercial and multifamily
mortgage-backed securities. Property type concentrations within the portfolio
include multifamily, office, retail, hotel/motel and other types of income
producing properties. Midland also provides commercial loan servicing for
newly-orginated loans and loans acquired in the secondary market on behalf of
issuers of commercial and multifamily mortgage-backed securities, financial
institutions and private investors.
Pursuant to the terms of the Pooling Agreement, the Master Servicer will
be required to indemnify the Depositor and the Trustee for any losses, fines,
judgments, costs and expenses incurred by them as a result of the Master
Servicer's willful misfeasance, bad faith or negligent failure to comply with
its duties and obligations under the Pooling Agreement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the Pooling Agreement, the Master Servicer will be entitled to
withdraw monthly from the Collection Account its portion of the Servicing Fee.
The monthly servicing fee (the "Servicing Fee") for any Distribution Date is an
amount per Interest Accrual Period equal to the sum for each Mortgage Loan of
the product of (i) 1/12 times a per annum rate equal to (a) with respect to the
Glenborough Pool Loan, 0.033%, (b) with respect to the Wells Fargo Tower Loan,
0.028%, (c) with respect to the Hotel Del Coronado Loan, 0.028%, (d) with
respect to the Ramco-Gershenson Pool Loan, 0.028%, and (e) with respect to all
other Mortgage Loans, 0.028% (in each case, the "Servicing Fee Rate") and (ii)
the Stated
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Principal Balance of such Mortgage Loan, provided, that such amounts shall be
computed on the basis of the same principal amount and, in connection with any
partial interest payment, for the same period respecting which any related
interest payment due or deemed due on the related Mortgage Loan is computed.
The Servicing Fee includes the compensation payable to the Master Servicer
(which includes, in the case of the Glenborough Pool Loan, a fee (the
"Glenborough Pool Subservicing Fee") payable to the subservicer equal to 0.015%
per annum, in the case of the Wells Fargo Tower Loan, a fee (the "Wells Fargo
Tower Subservicing Fee") payable to the subservicer equal to 0.01% per annum,
in the case of the Ramco-Gershenson Pool Loan, a fee (the "Ramco-Gershenson
Pool Subservicing Fee") payable to the subservicer equal to 0.005% per annum,
and in the case of the Hotel Del Coronado Loan, a fee (the "Hotel Del Coronado
Subservicing Fee") payable to the subservicer equal to 0.005% per annum) and
the Trustee Fee. With respect to any Distribution Date, to the extent that
there are Prepayment Interest Shortfalls with respect to Principal Prepayments
received during the related Collection Period, the Servicing Fee payable to the
Master Servicer with respect to all the Mortgage Loans (excluding the fees
payable to the Trustee and in the case where such Prepayment Interest Shortfall
is the result of a prepayment on the Glenborough Pool Loan, excluding the
monthly pro-rated amount of the Surveilance Fees allocable to the Greenborough
Pool Loan) for the related Distribution Date shall be reduced (but not below
zero) up to the amount sufficient to fully offset such Prepayment Interest
Shortfalls. The Master Servicer's portion of the Servicing Fee relating to each
Mortgage Loan will be retained by the Master Servicer from payments and
collections (including insurance proceeds, condemnation proceeds and
liquidation proceeds) in respect of such Mortgage Loan. The Master Servicer
will also be entitled to retain as additional servicing compensation all
investment income earned on amounts on deposit in the Collection Account and
the Reserve Accounts (to the extent not payable to the related borrower under
the related Mortgage Loan or applicable law).
In addition, the Master Servicer shall be entitled to receive, as
additional servicing compensation, to the extent permitted by applicable law
and the related Mortgage Loans, any late payment charges, assumption fees, loan
modification fees, extension fees, loan service transaction fees, beneficiary
statement charges or similar items (but not including any yield maintenance
charge or prepayment premiums), in each case to the extent received and not
required to be deposited or retained in the Collection Account pursuant to the
Pooling Agreement.
The Master Servicer will be required to pay all expenses incurred in
connection with its responsibilities under the Pooling Agreement (subject to
reimbursement as described herein), including all fees of any subservicers
retained by it.
SPECIAL SERVICER
Clarion Partners, LLC ("Clarion", a New York limited partnership, will
initially be appointed as special servicer of the Mortgage Loans (in such
capacity, the "Special Servicer"). The Special Servicer will, among other
things, oversee the resolution of non-performing Mortgage Loans and act as
disposition manager of REO Properties. The Pooling Agreement will provide that
although more than one Special Servicer may be appointed, only one Special
Servicer may specially service any Mortgage Loan.
Clarion (formerly known as Jones Lang Wootton Realty Advisors) was
established in 1982 and is registered with the Securities and Exchange
Commission as a registered investment advisor. Clarion and its affiliated
companies manage a portfolio of over $6 billion in commercial real
estate-related investments and have completed over $2 billion in distressed
commercial real estate resolutions. Clarion, with a staff of 356 employees in
21 offices nationwide, has been approved as a special servicer by S&P, Fitch
and Moody's. It is anticipated that Clarion or an affiliate will purchase a
significant portion of the Private Certificates (including all of the Class H
Certificates, which will be the initial Controlling Class). Clarion has offices
at 335 Madison Avenue, 7th Floor, New York, New York 10017.
The information set forth herein concerning Clarion has been provided by
it, and neither the Depositor, the Master Servicer, the Trustee, nor the
Underwriter makes any representation or warranty as to the accuracy or
completeness of such information.
The Special Servicer will be obligated to, among other things, oversee the
resolution of non-performing Mortgage Loans and act as disposition manager of
REO Properties. The Pooling Agreement provides that holders of Certificates
evidencing greater than 50% of the Percentage Interests of the most subordinate
Class of Certificates then outstanding (provided, however, that for purposes of
determining the most subordinate Class, in the event that the Class A
Certificates and the Class X Certificates are the only Classes outstanding, the
Class A Certificates and the Class X Certificates together will be treated as
the subordinate Class) may replace the Special Servicer, provided that each
Rating Agency confirms to the Trustee in writing that such replacement, will
not cause a qualification, withdrawal or downgrading of the then-current
ratings assigned to any Class of Certificates.
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The Pooling Agreement provides that if the Special Servicer acquires
either the Charlestowne Mall Mezzanine Loan or the CenterAmerica Pool Mezzanine
Loan, as applicable, or any preferred equity issued by the Wells Fargo Office
Tower Borrower, the Special Servicer shall promptly resign as Special Servicer
with respect to the related Mortgage Loan, and if the Special Servicer fails to
promptly resign, the Master Servicer will be required to terminate the Special
Servicer as Special Servicer with respect to such Mortgage Loan, and the
holders of the most subordinate Class of Certificates then outstanding will
then appoint a successor Special Servicer.
Pursuant to the Pooling Agreement, the Special Servicer will be entitled
to certain fees, including a special servicing fee (and if the Special Servicer
is the Master Servicer, such fees will be in addition to the Servicing Fee),
payable with respect to each Interest Accrual Period, equal to the product of
(i) 1/12 times a per annum rate of 0.25% and (ii) the Stated Principal Balance
of each related Specially Serviced Mortgage Loan (the "Special Servicing Fee");
provided, that such amounts shall be computed on the basis of the same
principal amount and, in connection with any partial interest payment, for the
same period respecting which any related interest payment due or deemed due on
the related Mortgage Loan is computed. The Special Servicer will be entitled,
in addition to the Special Servicing Fee, to receive a "Liquidation Fee" equal
to 1.00% of the amount equal to (x) the proceeds of the sale of any Mortgage
Loan or REO Property minus (y) any broker's commission and related brokerage
referral fees and to receive a "Rehabilitation Fee" with respect to any
Mortgage Loan which ceases to be specially serviced and has made three
consecutive Monthly Payments on or prior to the related Due Dates after the
Mortgage Loan has ceased to be a Specially Serviced Mortgage Loan in an amount
equal to 1.00% of the highest Stated Principal Balance of such Mortgage Loan
during the period in which it was specially serviced; provided, however, that
such Rehabilitation Fee shall be due only once for each Mortgage Loan during
the term of the Pooling Agreement. However, no Liquidation Fee will be payable
in connection with, or out of, Liquidation Proceeds resulting from the purchase
of any Specially Serviced Mortgage Loan or REO Property (i) MSMC as described
herein under "--Representations and Warranties; Repurchase," (ii) by the Master
Servicer, the Depositor or the Certificateholders as described herein under
"--Optional Termination; Optional Mortgage Loan Purchase," or (iii) in certain
other limited circumstances. Each of the foregoing fees, along with certain
expenses related to special servicing of a Mortgage Loan, shall be payable out
of funds otherwise available to make payments on the Certificates.
MASTER SERVICER AND SPECIAL SERVICER PERMITTED TO BUY CERTIFICATES
The Master Servicer and the Special Servicer will be permitted to purchase
any Class of Certificates. Such a purchase by the Master Servicer or the
Special Servicer could cause a conflict relating to the Master Servicer's or
the Special Servicer's duties pursuant to the Pooling Agreement and the Master
Servicer's or the Special Servicer's interest as a holder of Certificates,
especially to the extent that certain actions or events have a disproportionate
effect on one or more Classes of Certificates. The Pooling Agreement provides
that the Master Servicer or Special Servicer shall administer the Mortgage
Loans in accordance with the servicing standard set forth therein without
regard to ownership of any Certificate by the Master Servicer or the Special
Servicer or any affiliate thereof. Additionally, the Pooling Agreement provides
that (i) an affiliate of a borrower may not vote with respect to matters where
there is a potential conflict of interest and, (ii) any Certificateholder that
is also (A) the holder of any debt of any of the affiliates of any of the
borrowers under the Mortgage Loans or (B) the related manager or affiliate of
the related manager may not vote with respect to selecting, or directing the
actions of the Special Servicer with respect to such Mortgage Loan.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee is obligated to make available to
each Certificateholder, to the Depositor, the Master Servicer, the Special
Servicer and the Rating Agencies a statement setting forth certain information
with respect to the Mortgage Loans and the Certificates required pursuant to
the Pooling Agreement. In addition, to the extent provided to it by the Master
Servicer, the Trustee shall make available upon request to each
Certificateholder and Rating Agency a quarterly report and an annual summary of
quarterly reports setting forth certain information with respect to the
borrowers and the Mortgaged Properties. Such quarterly and annual summaries
will be prepared by the Master Servicer solely from information provided to the
Master Servicer pursuant to the Mortgage Loans (to the extent not inconsistent
with the related borrower's rights under the Mortgage Loan or applicable law)
without modification, interpretation or analysis (except that the Master
Servicer will use its best efforts to isolate management fees and funded
reserves from borrower reported expenses, if necessary) and the Master Servicer
shall not be responsible for the completeness or accuracy of such information
(except that the Master Servicer will use its best efforts to correct patent
errors). A form of the monthly reports is included herein as Exhibit C. Within
a reasonable period of time after each calendar year, the Trustee is obligated
as provided in the Pooling
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and Servicing Agreement to furnish to each person who at any time during such
calendar year was the holder of a Certificate a statement containing certain
information with respect to the Certificates required pursuant to the Pooling
Agreement, aggregated for such calendar year or portion thereof during which
such person was a Certificateholder. See "Description of the
Certificates--Reports to Certificateholders" in the Prospectus.
Additionally, the Master Servicer shall make available (to the extent not
inconsistent with the related borrower's rights under the Mortgage Loan or
applicable law) to the Rating Agencies and to the Trustee, which shall make
available to the Certificateholders upon written request (provided that each
such Certificateholder will be required to pay any expenses incurred by the
Trustee in connection with the provision of such information), information
relating to the Mortgaged Properties or the borrowers which has been provided
to the Master Servicer pursuant to the Mortgage Loans, including financial and
operating statements and other information specified on the list described in
the previous paragraph and provided to the Master Servicer pursuant to the
Mortgage Loans.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans in California (approximately 39.5% of the Mortgage Loans by
Cut-Off Date Allocated Loan Amount), Texas (approximately 17.6% of the Mortgage
Loans by Cut-Off Date Allocated Loan Amount), and Tennessee (approximately 9.5%
of the Mortgage Loans by Cut-Off Date Allocated Loan Amount) which are general
in nature. The summaries do not purport to be complete and are qualified in
their entirety by reference to the applicable federal and state laws governing
the Mortgage Loans.
New York, California, Texas, Indiana, South Carolina, Illinois, Arizona
and Ohio and various other states have imposed statutory prohibitions or
limitations that limit the remedies of a mortgagee under a mortgage or a
beneficiary under a deed of trust. All of the Mortgage Loans are nonrecourse
loans as to which, in the event of default by a borrower, recourse may be had
only against the specific property pledged to secure the Mortgage Loan and not
against the borrower's other assets. Even if recourse is available pursuant to
the terms of the Mortgage Loan, certain states have adopted statutes which
impose prohibitions against or limitations on such recourse. The limitations
described below and similar or other restrictions in other jurisdictions where
Mortgaged Properties are located may restrict the ability of the Master
Servicer or the Special Servicer, as applicable, to realize on the Mortgage
Loans and may adversely affect the amount and timing of receipts on the
Mortgage Loans.
California statutes limit the right of the beneficiary to obtain a
deficiency judgment against the trustor (i.e., obligor) following a
non-judicial foreclosure sale under a deed of trust. A deficiency judgment is a
personal judgment against the obligor in most cases equal to the difference
between the amount due to the beneficiary and the fair market value of the
collateral. No deficiency judgment is permitted under California law following
a nonjudicial sale under the power of sale provision in a deed of trust. Other
California statutes require the beneficiary to exhaust the security afforded
under the deed of trust by foreclosure in an attempt to satisfy the full debt
before bringing a personal action (if otherwise permitted) against the obligor
for recovery of the debt except in certain cases involving environmentally
impaired real property. California case law has held that acts such as an
offset of an unpledged account or the application of rents from secured
property prior to foreclosure, under some circumstances, constitute violations
of such statutes. Violations of such statutes may result in the loss of some or
all of the security under the loan. Finally, other statutory provisions in
California limit any deficiency judgment (if otherwise permitted) against the
former trustor following a judicial sale to the excess of the outstanding debt
over the greater of (i) the fair market value of the property at the time of
the public sale or (ii) the amount of the winning bid in the foreclosure, and
give the borrower a one-year period within which to redeem the property.
California statutes also provide priority to certain tax liens over the lien of
previously recorded deeds of trust.
Under Texas law, a deed of trust is foreclosed by non-judicial process;
judicial process is generally not used. Generally, there is no election of
remedies observed in Texas. Accordingly, a mortgagee does not preclude its
ability to sue on a recourse note by instituting foreclosure proceedings.
Unless a longer period or other curative rights are provided by the loan
documents, 21 days notice prior to foreclosure is required. Deficiency
judgments are obtainable under Texas law. To determine the amount of any
deficiency judgment, a borrower is given credit for the greater of the actual
sale price (excluding trustee's and other allowable costs) or the fair market
value of the property. Under a relation-back theory, the entire amount of any
mechanic's or materialmen's lien takes priority over the lien of a deed of
trust if the lien claimant began work or delivered its first materials prior to
recordation of the deed of trust.
Foreclosure under either a mortgage or a deed of trust or the sale by the
referee or other designated official or by the trustee is often a public sale.
However, because of the difficulty a potential buyer at the sale might have in
determining the
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exact status of title to the property subject to the lien of the mortgage or
deed of trust and the redemption rights that may exist, and because the
physical condition and financial performance of the property may have
deteriorated during the foreclosure proceedings and/or for a variety of other
reasons, a third party may be unwilling to purchase the property at the
foreclosure sale. Some states require that the lender disclose to potential
bidders at a trustee's sale all known facts materially affecting the value of
the property. Such disclosure may have an adverse effect on the trustee's or
mortgagee's ability to sell the property or upon the sale price.
A Deed of Trust is the preferred form of security interest in Tennessee;
however, there is no statutory or common law prohibition against the use of a
mortgage form. Enforcement of a mortgage would likely require judicial sale. It
is a common practice in the State of Tennessee to use a Deed of Trust rather
than a mortgage and most foreclosures are held under a power sale contained in
the Deed of Trust and are nonjudicial sales.
Foreclosure of the lien of Deed of Trust in Tennessee typically and most
efficiently is accomplished by a trustee's sale under a power of sale provision
as contained in the Deed of Trust. In a non-judicial foreclosure, there is a
public notice of the Trustee's sale containing certain information which must
be given for the time prescribed in the Deed of Trust, but subject to statutory
minimums. After such notice, the trustee may sell the real estate generally on
the courthouse steps, in the county in which the real property is located.
Publication and the notice of sale must be for at least three weekly times
in a newspaper published in the county where the sale is to be made, with the
first publication being at least twenty (20) days prior to the date of the
sale. The notice must also comply with all of the provisions of the Deed of
Trust. The typical length of time for a non-judicial sale in Tennessee is
approximately thirty (30) days. Where there is a provision in the Deed of
Trust, the holder of the indebtedness may enter a credit bid and apply the same
to the balance of the indebtedness. Deficiencies may be obtained and the
statute of limitation is six (6) years from the maturity of the note.
Leases senior in priority to the foreclosed mortgage are unaffected unless
subordinated. Junior leases are extinguished as well as subordinate mortgages
or mechanic liens. There are specific statutory requirements to foreclose a
Deed of Trust on property where a tax lien exists. The statute of limitations
for a lien of a Deed of Trust is barred ten (10) years from the maturity of the
debt.
The general summaries as set forth above may be varied by specific
provisions of the Deed of Trust and it would be important to review and examine
the terms of the Deed of Trust.
USE OF PROCEEDS
The net proceeds from the sale of Offered Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Elections will be made to treat the portion of the Trust Fund exclusive of
the Deferred Interest, the Deferred Interest Distribution Account, the Default
Interest, and the Class Q Distribution Account, and, in the opinion of
Cadwalader, Wickersham & Taft, special tax counsel to the Depositor, such
portion of the Trust Fund will qualify, as two separate REMICs (the "Upper-Tier
REMIC " and the "Lower-Tier REMIC," respectively) within the meaning of Code
Section 860D. The Lower-Tier REMIC will hold the Mortgage Loans (exclusive of
the Deferred Interest and the Default Interest), proceeds therefrom, the
Collection Account, the Lower-Tier Distribution Account and any REO Property,
and will issue (i) certain uncertificated classes of regular interests (the
"Lower-Tier Regular Interests") to the Upper-Tier REMIC and (ii) the Class LR
Certificates, which will represent the sole class of residual interests in the
Lower-Tier REMIC. The Upper-Tier REMIC will hold the Lower-Tier Regular
Interests, and the Upper-Tier Distribution Account in which distributions
thereon will be deposited and will issue (i) classes of regular interests
represented by the Regular Certificates and (ii) the Class R Certificates,
which will represent the sole class of residual interests in the Upper-Tier
REMIC. In addition, the Class B, Class C, Class D, Class E, Class F, Class G
and Class H Certificates will represent pro rata undivided beneficial interests
in designated portions of the Deferred Interest and the related portions of the
Deferred Interest Distribution Account, which portion of the Trust Fund will be
treated as part of a grantor trust for federal income tax purposes. Although
holders of these Classes of Certificates will be required to allocate their
purchase price between their interests in the regular interests in the
Upper-Tier REMIC and their beneficial interests in Deferred Interest based on
the relative fair market values of each, it is anticipated that the rights to
Deferred Interest will have negligible value as of the Closing Date. The Class
Q Certificates will represent
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pro rata undivided beneficial interests in the portion of the Trust Fund
consisting of Default Interest (subject to an obligation to pay interest on
Advances to the Master Servicer, Special Servicer or Trustee, as the foregoing
case may be) in respect of the Mortgage Loans and the Class Q Distribution
Account, and such portion will be treated as part of the grantor trust for
federal income tax purposes.
The Offered Certificates will be treated as "real estate assets" under
Code Section 856(c)(4)(A), to the extent that the assets of the REMICs are so
treated. The interest on the Offered Certificates will be "interest on
obligations secured by mortgages on real property" described in Code Section
856(c)(3)(B) for a real estate investment trust, in the same proportion that
the income of the REMICs is so treated.
A beneficial owner's interest in an Offered Certificate will qualify for
the foregoing treatments under Sections 856(c)(4)(A) and 856(c)(3)(B) in their
entirety if at least 95% of the REMICs' assets qualify for such treatment, and
otherwise will qualify to the extent of the REMICs' percentage of such assets.
A beneficial owner's interest in an Offered Certificate will constitute "loans
. . . secured by an interest in real property which is . . . residential real
property" within the meaning of Code Section 7701(a)(19)(C)(v) in the case of a
domestic building and loan association only to the extent of the portion of the
Offered Certificate allocable to the Magellan Apartment Pool Loan and the EQR
Apartment Pool Loan, and to the Glenborough Pool Loan (but only to the extent
not allocable to commercial use with respect thereto). The preceding four
sentences do not apply to a beneficial owner's interest in the Offered
Certificates (other than the Class A-1, Class A-2, Class A-3 and Class X
Certificates) to the extent allocable to the right to receive Deferred
Interest. However, a beneficial owner's interest in Deferred Interest will
separately qualify under such sections. A Mortgage Loan that has been defeased
with U.S. Treasury securities will not qualify for the foregoing treatments.
The Lower-Tier REMIC and the Upper-Tier REMIC will be treated as one REMIC
solely for the purpose of making the foregoing determinations.
The regular interests represented by the Offered Certificates generally
will be treated as newly originated debt instruments for federal income tax
purposes. Beneficial owners of the Offered Certificates will be required to
report income on the regular interests represented by the Offered Certificates
in accordance with the accrual method of accounting. Deferred Interest will be
required to be reported as income by the beneficial owners thereof (to the
extent such amounts do not represent a recovery of a portion of the owner's
adjusted basis therein, if any) as such amounts are received or accrued by the
Trust Fund, based on their own methods of accounting.
It is anticipated that the regular interests represented by the [Class
A-1, Class A-2, Class A-3, Class B, Class C and Class D Certificates will be
issued [at a premium] [with [de minimis] original issue discount] for federal
income tax purposes. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--General" in the Prospectus.
Although unclear for federal income tax purposes, it is anticipated that
the Class X Certificates will be treated as issued with original issue discount
in an amount equal to the excess of all distributions of interest expected to
be received thereon over their respective issue prices (including accrued
interest). Any "negative" amounts of original issue discount on the Class X
Certificates attributable to rapid prepayment with respect to the Mortgage
Loans will not be deductible currently, but may be offset against future
positive accruals of original issue discount, if any. Finally, a holder of a
Class X Certificate may be entitled to a loss deduction to the extent it
becomes certain that such holder will not recover a portion of its basis in
such Certificate, assuming no further prepayments. In the alternative, it is
possible that rules similar to the "noncontingent bond method" of the
contingent interest rules in the OID Regulations, as amended on June 12, 1996,
may be promulgated with respect to the Class X Certificates. Under the
noncontingent bond method, if the interest payable for any period is greater or
less than the amount projected, the amount of income included for that period
would be either increased or decreased accordingly. Any net reduction in the
income accrual for the taxable year below zero (a "Negative Adjustment") would
be treated by a Certificateholder as ordinary loss to the extent of prior
income accruals and would be carried forward to offset future interest
accruals. At maturity, any remaining Negative Adjustment would be treated as a
loss on retirement of the Certificate. The legislative history of relevant Code
provisions indicates, however, that negative amounts of original issue discount
on an instrument such as a REMIC regular interest may not give rise to taxable
losses in any accrual period prior to the instrument's disposition or
retirement. Thus, it is not clear whether any losses resulting from a Negative
Adjustment would be recognized currently or be carried forward until
disposition or retirement of the debt obligation. However, unless and until
otherwise required under applicable regulations, the Depositor does not intend
to treat the payments of interest on the Class X Certificates as contingent
interest.
The prepayment assumption that will be used to amortize premium of an
initial owner will be Scenario 1 as described under "Yield, Prepayment and
Maturity Considerations--Yield on the Offered Certificates" above.
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Although not free from doubt, it is anticipated that any prepayment
premiums will be treated as ordinary income to the extent allocable to
beneficial owners of the Offered Certificates as such amounts become due to
such beneficial owners.
CERTAIN ERISA CONSIDERATIONS
The purchase by or transfer to an employee benefit plan or other
retirement arrangement, including an individual retirement account or a Keogh
plan, which is subject to Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or a
"governmental plan" (as defined in Section 3(32) of ERISA) that is subject to
any federal, state or local law ("Similar Law") which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code (each, a "Plan"), or a
collective investment fund in which such Plans are invested, an insurance
company using the assets of separate accounts or general accounts which include
assets of Plans (or which are deemed pursuant to ERISA or Similar Law to
include assets of Plans) or other persons acting on behalf of any such Plan or
using the assets of any such Plan of the Class B, Class C and Class D
Certificates (the "Subordinated Offered Certificates") is restricted. See
"Description of the Offered Certificates--Transfer Restrictions." Accordingly,
except as specifically referenced herein, the following discussion does not
purport to discuss the considerations under ERISA or Section 4975 of the Code
with respect to the purchase, holding or disposition of the Subordinated
Offered Certificates. For purposes of the following discussion all references
to the Offered Certificates, unless otherwise indicated, shall be deemed to
exclude the Subordinated Offered Certificates.
As described in the Prospectus under "Certain ERISA Considerations," Title
I of ERISA and Section 4975 of the Code impose certain duties and restrictions
on Plans and certain persons who perform services for Plans. For example,
unless exempted, investment by a Plan in the Offered Certificates may
constitute or give rise to a prohibited transaction under ERISA or the Code.
There are certain exemptions issued by the United States Department of Labor
(the "Department") that may be applicable to an investment by a Plan in the
Offered Certificates. The Department has granted to the Underwriter an
administrative exemption (Prohibited Transaction Exemption 90-24, 55 Fed. Reg.
20548 (May 17, 1990)), referred to herein as the "Exemption," for certain
mortgage-backed and asset-backed certificates underwritten in whole or in part
by the Underwriter. The Exemption might be applicable to the initial purchase,
the holding, and the subsequent resale by a Plan of certain certificates, such
as the Offered Certificates, underwritten by the Underwriter, representing
interests in pass-through trusts that consist of certain receivables, loans and
other obligations, provided that the conditions and requirements of the
Exemption are satisfied. The loans described in the Exemption include mortgage
loans such as the Mortgage Loans. However, it should be noted that in issuing
the Exemption, the Department may not have considered interests in pools of the
exact nature as some of the Offered Certificates.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of Offered Certificates by a Plan is on terms
(including the price for the Offered Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with
an unrelated party;
(2) The rights and interests evidenced by Offered Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
Certificates of the Trust Fund;
(3) The Offered Certificates acquired by the Plan have received a rating
at the time of such acquisition that is in one of the three highest generic
rating categories from any of Moody's, S&P, Fitch or Duff & Phelps Credit
Rating Co. ("DCR");
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of Offered Certificates represents not more
than reasonable compensation for underwriting the Offered Certificates. The
sum of all payments made to and retained by the Depositor pursuant to the
assignment of the Mortgage Loans to the Trust Fund represents not more than
the fair market value of such Mortgage Loans. The sum of all payments made
to and retained by the Master Servicer and any other servicer represents not
more than reasonable compensation for such person's services under the
Pooling Agreement and reimbursement of such person's reasonable expenses in
connection therewith; and
(6) The Plan investing in the Offered Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
The Trust Fund must also meet the following requirements:
S-230
<PAGE>
(a) the corpus of the Trust Fund must consist solely of assets of the type
that have been included in other investment pools;
(b) certificates evidencing interests in such other investment pools must
have been rated in one of the three highest rating categories of Moody's,
Fitch, DCR or S&P for at least one year prior to the Plan's acquisition of
the Offered Certificates pursuant to the Exemption; and
(c) certificates evidencing interests in such other investment pools must
have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of the Offered Certificates pursuant to the
Exemption.
If all of the conditions of the Exemption are met, whether or not a Plan's
assets would be deemed to include an ownership interest in the Mortgage Loans
in the Mortgage Pool, the acquisition, holding and resale of the Offered
Certificates by Plans would be exempt from certain of the prohibited
transaction provisions of ERISA and the Code.
Moreover, the Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables, loans or
obligations held in the trust provided that, among other requirements, (a) in
the case of an acquisition in connection with the initial issuance of
certificates, at least fifty percent of each class of certificates in which
Plans have invested is acquired by persons independent of the Restricted Group
and at least fifty percent of the aggregate interest in the trust is acquired
by persons independent of the Restricted Group; (b) such fiduciary (or its
affiliate) is an obligor with respect to five percent or less of the fair
market value of the obligations contained in the trust; (c) the Plan's
investment in certificates of any class does not exceed twenty-five percent of
all of the certificates of that class outstanding at the time of the
acquisition; and (d) immediately after the acquisition no more than twenty-five
percent of the assets of the Plan with respect to which such person is a
fiduciary are invested in certificates representing an interest in one or more
trusts containing assets sold or serviced by the same entity. Borrowers who are
acting on behalf of Plans or who are investing assets of Plans, and any
affiliates of any such borrowers, should not purchase any of the Offered
Certificates, unless the conditions described in this paragraph are met.
The Exemption does not apply to the purchasing or holding of Offered
Certificates by Plans sponsored by the Depositor, the Underwriter, the Trustee,
the Master Servicer, any obligor with respect to Mortgage Loans included in the
Trust Fund constituting more than five percent of the aggregate unamortized
principal balance of the assets in the Trust Fund, or any affiliate of such
parties (the "Restricted Group").
The Underwriter believes that the conditions to the applicability of the
Exemption will generally be met with respect to the Offered Certificates, other
than possibly those conditions which are dependent on facts unknown to the
Underwriter or which it cannot control, such as those relating to the
circumstances of the Plan purchaser or the Plan fiduciary making the decision
to purchase any such Class of Offered Certificates. However, before purchasing
an Offered Certificate, a fiduciary of a Plan should make its own determination
as to the availability of the exemptive relief provided by the Exemption or the
availability of any other prohibited transaction exemptions, and whether the
conditions of any such exemption will be applicable to the Offered
Certificates. THE CLASS B, CLASS C AND CLASS D CERTIFICATES ARE SUBORDINATE TO
ONE OR MORE OTHER CLASSES OF CERTIFICATES AND, ACCORDINGLY, SUCH CERTIFICATES
MAY NOT BE PURCHASED BY OR TRANSFERRED TO A PLAN OR ANY PERSON ACTING ON BEHALF
OF OR INVESTING THE ASSETS OF A PLAN, UNLESS SUCH PERSON IS AN INSURANCE
COMPANY INVESTING THE ASSETS OF ITS GENERAL ACCOUNT UNDER CIRCUMSTANCES WHEREBY
THE PURCHASE AND HOLDING OF ANY SUCH CERTIFICATE WOULD BE EXEMPT FROM THE
PROHIBITED TRANSACTION PROVISIONS OF ERISA AND THE CODE UNDER PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60.
Any fiduciary of a Plan considering whether to purchase an Offered
Certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment. See "Certain ERISA Considerations" in
the Prospectus. A fiduciary of a governmental plan should make its own
determination as to the need for and the availability of any exemptive relief
under Similar Law.
The sale of Offered Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by Plans generally
or any particular Plan, or that this investment is appropriate for Plans
generally or any particular Plan.
LEGAL INVESTMENT
The Class A-1, Class A-2, Class A-3, Class X and Class B Certificates will
constitute "mortgage related securities" for purposes of SMMEA, so long as such
Certificates are rated in one of the two highest rating categories by one or
more Rating
S-231
<PAGE>
Agencies and the Mortgage Loans are secured by real estate. The other Classes
of Offered Certificates will not constitute "mortgage related securities" for
purposes of SMMEA. Except as to the status of certain Offered Certificates as
"mortgage related securities," no representation is made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase the Offered Certificates of any Class under
applicable legal investment restrictions. These uncertainties may adversely
affect the liquidity of the Offered Certificates.
Accordingly, all institutions whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors
in determining whether and to what extent the Offered Certificates constitute
legal investments for them or are subject to investment, capital or other
restrictions. See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting Agreement between
the Depositor and the Underwriter, the Offered Certificates will be purchased
from the Depositor by the Underwriter, an affiliate of the Depositor and MSMC,
upon issuance. Distribution of the Offered Certificates will be made by the
Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Depositor
from the sale of the Offered Certificates will be approximately % of the
initial aggregate Certificate Principal Amount of the Offered Certificates,
plus accrued interest, if any, from , 1998, before deducting expenses
payable by the Depositor.
In connection with the purchase and sale of the Offered Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts. One or more affiliates of the Underwriter
have entered into and may, in the future, enter into other financing
arrangements with affiliates of some or all of the borrowers.
Affiliates of the Underwriter and Depositor are the indirect owners of the
CenterAmerica Pool Borrower. In addition, MSMC, an affiliate of the Underwriter
and the Depositor, currently holds the Charlestowne Mall Mezzanine Loan and
CenterAmerica Mezzanine Loan, and if MSMC were to foreclose on the collateral
for either such loan following an event of default, MSMC would become the owner
of the Charlestowne Mall Borrower or CenterAmerica Pool Borrower, as
applicable. Certain affiliates of the Underwriter, including MSMC, engage in,
and intend to continue to engage in, the acquisition, development, operation,
financing and disposition of real estate-related assets in the ordinary course
of their business, and are not prohibited in any way from engaging in business
activities similar to or competitive with those of the borrowers. See "Risk
Factors--The Mortgage Loans--Other Financing", "--Conflicts of Interest",
"Description of the Mortgaged Properties and the Mortgage Loans--CenterAmerica:
The Borrower; The Property--Mezzanine Debt" and "Description of the Mortgaged
Properties and the Mortgage Loans--Charlestowne Mall: The Borrower; The
Property--Mezzanine Debt" herein.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933.
In connection with the offering, the Underwriter may purchase and sell the
Offered Certificates in the open market. These transactions may include
purchases to cover short positions created by the Underwriter in connection
with the offering. Short positions created by the Underwriter involve the sale
by the Underwriter of a greater number of Certificates than they are required
to purchase from the Depositor in the offering. The Underwriter also may impose
a penalty bid, whereby selling concessions allowed to broker-dealers in respect
of the securities sold in the offering may be reclaimed by the Underwriter if
such Certificates are repurchased by the Underwriter in covering transactions.
These activities may maintain or otherwise affect the market price of the
Certificates, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if commenced, may be discontinued at
any time. These transactions may be affected in the over-the-counter market or
otherwise.
This Prospectus Supplement and the Prospectus may only be issued or passed
on in the United Kingdom to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom this Prospectus Supplement and
the Prospectus may otherwise lawfully be issued or passed on.
The Trust Fund described in this Prospectus Supplement may only be
promoted (whether by the issuing or passing on of documents as referred to in
the foregoing restriction or otherwise) by an authorized person under Chapter
III of the Financial Services Act of 1986 of the United Kingdom ("FSA") to a
person in the United Kingdom if that person is of a kind described in section
76(2) of the FSA or as permitted by the Financial Services (Promotion of
Unregulated Schemes) Regulation 1991 (as amended).
S-232
<PAGE>
EXPERTS
Cushman & Wakefield, Inc., Hospitality Valuation Services, Joseph J. Blake
Associates, Miller Appraisal Group, Inc., Rule & Co., Inc., Real Estate
Counselors International, Inc., Michael Franenthal & Associates, Inc.,
Mustorakos-Hurd, Inc., CB Richard Ellis, Inc., Byrne McKinney & Associates,
Inc., CB Commercial Real Estate Group, Inc., Aaron & Wright Incorporated and
Landauer Associates, Inc. (the "Appraisers") are each an independent real
estate brokerage, appraisal, management and consulting firm, and have either
appraised or rendered an opinion on the current fair market value of the
Mortgaged Properties or prepared a market study of the Mortgaged Properties.
The results of such appraisals, marketability study and market studies and
references to such firms are set forth in the information included in this
Prospectus Supplement under the heading "Description of the Mortgaged
Properties and the Mortgage Loans--Description of the Borrowers and the
Properties" and in the complete report available for inspection at the
corporate trust office of the Trustee, and such summary report, together with
information based on the complete report included in this Prospectus
Supplement, have been included in this Prospectus Supplement in reliance upon
the authority of the Appraisers as experts on real estate appraisals.
VALIDITY OF OFFERED CERTIFICATES
The validity of the Offered Certificates will be passed upon for the
Depositor and for the Underwriter by Cadwalader, Wickersham & Taft, New York,
New York. The material federal income tax consequences of the Offered
Certificates will be passed upon for the Depositor by Cadwalader, Wickersham &
Taft.
RATINGS
It is a condition to the issuance of the Offered Certificates that (i)
each of the Class A-1, Class A-2 and Class A-3 Certificates be rated " " by
Fitch and " " by S&P; (ii) the Class B Certificates be rated " " by Fitch
and " " by S&P; (iii) the Class C Certificates be rated " " by Fitch and
" " by S&P; (iv) the Class D Certificates be rated " " by Fitch and
" " by S&P and (v) the Class X Certificates be rated " " by Fitch and
" " by S&P. The ratings on the Offered Certificates address the likelihood of
the timely receipt by holders thereof of all distributions of interest to which
they are entitled and, the ultimate distribution of principal by the Rated
Final Distribution Date. A security rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or withdrawal at any time by
the assigning rating organization. A security rating does not address the
frequency of prepayments (both voluntary and involuntary) or the possibility
that Certificateholders might suffer a lower than anticipated yield, nor does a
security rating address the likelihood of receipt of Prepayment Charges, Net
Default Interest or Deferred Interest or the tax treatment of the Certificates.
The ratings do not address the fact that the Pass-Through Rates of the Offered
Certificates, to the extent that they are based on the WAC Rate, will be
affected by changes therein due to variations in the rates of amortization of
the Mortgage Loans. See "Risk Factors" herein and "Yield Considerations" in the
Prospectus.
The Rating Agencies' ratings take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
Certificates, and the extent to which the payment stream in the mortgage pool
is adequate to make payments required under the Certificates. Ratings on
mortgage pass-through certificates do not, however, represent an assessment of
the likelihood, timing or frequency of principal prepayments (both voluntary
and involuntary) by mortgagors, or the degree to which such prepayments might
differ from those originally anticipated. In general, the ratings thus address
credit risk and not prepayment risk. Also, a security rating does not represent
any assessment of the yield to maturity that investors may experience or the
possibility that the holders of the Class X Certificates might not fully
recover their initial investment in the event of delinquencies or defaults or
rapid prepayments of the Mortgage Loans (including both voluntary and
involuntary prepayments) or the application of Realized Losses. As described
herein, the amounts payable with respect to the Class X Certificates consist
only of interest. If all of the Mortgage Loans were to prepay in the initial
month, with the result that the Class X Certificateholders receive only a
single month's interest and thus suffer a nearly complete loss of their
investment, all amount "due" to such holders will nevertheless have been paid,
and such result is consistent with the rating received on the Class X
Certificates. Accordingly, the ratings of the Class X Certificates should be
evaluated independently from similar ratings on other types of securities.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating and, if so, what
such rating would be. A rating assigned to the Offered Certificates by a rating
agency that has not been requested by the Depositor to do so may be lower than
the rating assigned by the Rating Agencies pursuant to the Depositor's request.
The rating of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency.
S-233
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<S> <C>
30/360 Basis .................................... S-58
A-1 ............................................. S-212
ACMs ............................................ S-38
Actual DSCR ..................................... S-58
Actual/360 Basis ................................ S-58
ADA ............................................. S-50
Advance Rate .................................... S-212
Advances ........................................ S-211
Allocated Loan Amount ........................... S-58
Alteration Approval Threshold ................... S-58
Alteration Escrow Threshold ..................... S-58
AMC ............................................. S-182
AMRESCO ......................................... S-10
Annual Debt Service ............................. S-58
Annualized Base Rent ............................ S-58
Anticipated Term ................................ S-58
Appraisal Reduction Amount ...................... S-195
Appraisal Reduction Event ....................... S-194
Approved Bank ................................... S-58
Available Funds ................................. S-187
Average Base Rent Per Square Foot ............... S-58
Balloon Payment ................................. S-188
Bankruptcy Code ................................. S-37
Below-Market Leases ............................. S-133
Best ............................................ S-58
Business Day .................................... S-10
Calculated Payments ............................. S-66
Capital Expenditures Account .................... S-58
CBD ............................................. S-96
CEDEL ........................................... S-11, S-55
CEDEL Participants .............................. S-197
CenterAmerica ................................... S-83
CenterAmerica Architect ......................... S-93
CenterAmerica Defeased Loan Amount .............. S-90
CenterAmerica Defeased Note ..................... S-90
CenterAmerica Mezzanine Borrower ................ S-83
CenterAmerica Mezzanine Lender .................. S-93
CenterAmerica Mezzanine Loan .................... S-41, S-93
CenterAmerica Permitted Transferee .............. S-90
CenterAmerica Pledged Interests ................. S-93
CenterAmerica Pool Borrower ..................... S-13, S-83
CenterAmerica Pool Loan ......................... S-13
CenterAmerica Pool Management Agreement ......... S-88
CenterAmerica Pool Manager ...................... S-88
CenterAmerica Pool Mortgage ..................... S-83
CenterAmerica Pool Properties ................... S-13, S-83
CenterAmerica Sponsor ........................... S-91
CERCLA .......................................... S-39
Certificate Owners .............................. S-197
</TABLE>
S-234
<PAGE>
<TABLE>
<S> <C>
Certificate Registrar ........................................... S-195
Certificateholder ............................................... S-195
Certificateholders .............................................. S-55
Certificates .................................................... S-10
Charlestowne Mall Borrower ...................................... S-17, S-145
Charlestowne Mall Loan .......................................... S-17
Charlestowne Mall Management Agreement .......................... S-152
Charlestowne Mall Manager ....................................... S-152
Charlestowne Mall Mezzanine Borrower ............................ S-145
Charlestowne Mall Mezzanine Loan ................................ S-41
Charlestowne Mall Mortgage ...................................... S-145
Charlestowne Mall Property ...................................... S-17, S-145
Charlestowne Mezzanine Lender ................................... S-155
Charlestowne Mezzanine Loan ..................................... S-155
Charlestowne Pledged Interests .................................. S-155
Charlestowne SPE ................................................ S-154
Charlestowne/Kohl's COREA ....................................... S-150
Chicago CMSA .................................................... S-136
Cinema Ground Tenant ............................................ S-151
Cinema Improvements ............................................. S-151
Clarion ......................................................... S-225
Class ........................................................... S-186
Class A Certificates ............................................ S-21, S-186
Class A-1 Component ............................................. S-186
Class A-2 Component ............................................. S-186
Class A-3 Component ............................................. S-186
Class B Component ............................................... S-186
Class C Component ............................................... S-186
Class D Component ............................................... S-186
Class E Component ............................................... S-186
Class F Component ............................................... S-187
Class G Component ............................................... S-187
Class H Component ............................................... S-187
Class Prepayment Percentage ..................................... S-193
Code ............................................................ S-28
Collection Account .............................................. S-212
Collection Period ............................................... S-188
Commission ...................................................... S-224
Comparable Store ................................................ S-59
Component Notional Amount ....................................... S-187
Construction Funds .............................................. S-151
Courthouse Plaza I Affiliate Debt ............................... S-175
Courthouse Plaza I Borrower ..................................... S-19, S-168
Courthouse Plaza I G.P. ......................................... S-168
Courthouse Plaza I Ground Lease ................................. S-44, S-171
Courthouse Plaza I Ground Lease Subordination Agreement ......... S-44
Courthouse Plaza I Ground Lessor ................................ S-44, S-171
Courthouse Plaza I Land Disposition Agreement ................... S-172
Courthouse Plaza I Letter of Credit ............................. S-172
Courthouse Plaza I Loan ......................................... S-19
Courthouse Plaza I Management Agreement ......................... S-172
</TABLE>
S-235
<PAGE>
<TABLE>
<S> <C>
Courthouse Plaza I Manager ............................................. S-172
Courthouse Plaza I Mortgage ............................................ S-168
Courthouse Plaza I Property ............................................ S-19, S-168
Courthouse Plaza I Reversionary Interest ............................... S-171
CPS .................................................................... S-150, S-151
CPS Initial Property ................................................... S-151
Cross-over Date ........................................................ S-25
Cut-Off Date Allocated Loan Amount ..................................... S-58, S-59
DCR .................................................................... S-230
Debt Service Account ................................................... S-59
Debt Service Coverage Ratio ............................................ S-59
Decline in Performance Event ........................................... S-173
Default Interest ....................................................... S-188
Default Rate ........................................................... S-59, S-188
Defeasance ............................................................. S-59
Defeasance Conditions .................................................. S-59
Deferred Interest ...................................................... S-59, S-60, S-188
Definitive Certificate ................................................. S-195
Department ............................................................. S-230
Depositor .............................................................. S-10
Depositories ........................................................... S-196
Description of the Mortgaged Properties and the Mortgage Loans ......... S-35
Dillard's .............................................................. S-109
Directing Class ........................................................ S-221
Disbursement Procedures ................................................ S-59
Discount Rate .......................................................... S-67, S-193
Distribution Date ...................................................... S-187
DSCR ................................................................... S-59
DTC .................................................................... S-11
Effective Gross Income ................................................. S-59
Effective Maturity Date ................................................ S-59
Effective Maturity Date Balance ........................................ S-59
Effective Maturity Date LTV ............................................ S-59
Eligible Bank .......................................................... S-212
EMD .................................................................... S-59
EMD Loan ............................................................... S-60
EMD LTV ................................................................ S-59
Environmental Reserve Account .......................................... S-60
Environmental Site Assessments ......................................... S-39
EPA .................................................................... S-39
EQR Affiliated Lender .................................................. S-143
EQR Apartment Pool Borrower ............................................ S-16, S-135
EQR Apartment Pool Loan ................................................ S-16
EQR Apartment Pool Manager ............................................. S-138
EQR Apartment Pool Mortgage ............................................ S-135
EQR Apartment Pool Properties .......................................... S-16, S-135
EQR Apartment Pool Property ............................................ S-135
EQR Defeased Loan Amount ............................................... S-141
EQR Defeased Note ...................................................... S-141
EQR Letter of Credit ................................................... S-142
EQR Management Agreements .............................................. S-138
</TABLE>
S-236
<PAGE>
<TABLE>
<S> <C>
EQR Non-Managing Member ............................. S-135
EQR Permitted Transferee ............................ S-143
EQR REIT ............................................ S-135
EQR SPC Managing Member ............................. S-135
ERISA ............................................... S-28, S-230
Euroclear ........................................... S-11, S-55
Euroclear Participants .............................. S-197
Event of Default .................................... S-216
Event of Default .................................... S-216
Excess Cash Flow .................................... S-60
Excess Prepayment Interest Shortfall ................ S-194
Excess Rate ......................................... S-188
Exemption ........................................... S-28
FFE Account ......................................... S-60
Financial Statements ................................ S-60
First P&I Date ...................................... S-60
First Tier Lockbox .................................. S-60
First-Tier Lockbox .................................. S-65
Fitch ............................................... S-29
Fixed Voting Rights Percentage ...................... S-218
Form 8-K ............................................ S-74
FSA ................................................. S-232
GAAP ................................................ S-68
GGP ................................................. S-177
GLA ................................................. S-13, S-60
Glenborough Discount Rate ........................... S-130
Glenborough Letter of Credit ........................ S-128
Glenborough Management Agreement .................... S-127
Glenborough Manager ................................. S-127
Glenborough Pool Borrower ........................... S-16, S-123
Glenborough Pool Loan ............................... S-16
Glenborough Pool Mortgage ........................... S-123
Glenborough Pool Mortgage Release ................... S-130
Glenborough Pool Proceeds ........................... S-130
Glenborough Pool Properties ......................... S-16, S-123
Glenborough Pool Subservicing Fee ................... S-225
Glenborough REIT .................................... S-123
Glenborough SPC GP .................................. S-123
Glenborough Yield Maintenance Treasury Rate ......... S-130
Hard Lockbox ........................................ S-60
HDM ................................................. S-105
Hexalon ............................................. S-105
HHC REIT ............................................ S-83
HHC SPE GP .......................................... S-83
holder .............................................. S-195
Holders ............................................. S-197
Hotel Del Coronado Borrower ......................... S-12, S-75
Hotel Del Coronado Licensor ......................... S-75
Hotel Del Coronado Loan ............................. S-12
Hotel Del Coronado Management Agreement ............. S-77
Hotel Del Coronado Manager .......................... S-77
</TABLE>
S-237
<PAGE>
<TABLE>
<S> <C>
Hotel Del Coronado Marks ...................... S-75
Hotel Del Coronado Mortgage ................... S-75
Hotel Del Coronado Operating Lease ............ S-77
Hotel Del Coronado Operating Lessee ........... S-75
Hotel Del Coronado Property ................... S-12, S-75
Hotel Del Coronado Security Agreement ......... S-75
Hotel Del Coronado Stockholder ................ S-75
Hotel Del Coronado Subservicing Fee ........... S-225
HRE ........................................... S-105
Indirect Participants ......................... S-196
Initial Interest Rate ......................... S-60
Initial Reserve Deposit ....................... S-60
Initial Subservicers .......................... S-209
Insurance Account ............................. S-60
Insurance Requirements ........................ S-61
Interest Accrual Amount ....................... S-25
Interest Distribution Amount .................. S-25
Interest Only EMD Loan ........................ S-61
Interest Rate ................................. S-61
Interest Shortfall ............................ S-25
Kohls ......................................... S-150
Late Payment Fee .............................. S-61
LC ............................................ S-65
Lease Approval Threshold ...................... S-61
Letter of Credit .............................. S-61
LIBOR ......................................... S-61
Liquidation Fee ............................... S-226
Loan Default .................................. S-61
Loan Description .............................. S-61
Loan DSCR ..................................... S-61
Loan Per Square Foot/Unit ..................... S-61
Loan Sale Agreement ........................... S-57
Loan to Value Ratio ........................... S-61
Lockbox ....................................... S-62
Lockbox Bank .................................. S-62
Lockbox Waterfall ............................. S-62
Lockout Period ................................ S-54, S-62
Lower-Tier REMIC .............................. S-28
LTM ........................................... S-62
LTV ........................................... S-61
LUSTs ......................................... S-39
Magellan Apartment Pool Borrower .............. S-15, S-116
Magellan Apartment Pool Borrowers ............. S-15, S-116
Magellan Apartment Pool Loan .................. S-15
Magellan Apartment Pool Manager ............... S-119
Magellan Apartment Pool Mortgage .............. S-116
Magellan Apartment Pool Properties ............ S-15, S-116
Magellan Apartment Pool Property .............. S-116
Magellan Defeased Loan Amount ................. S-121
Magellan Defeased Note ........................ S-121
Magellan Management Agreement ................. S-119
</TABLE>
S-238
<PAGE>
<TABLE>
<S> <C>
Magellan REIT ............................ S-116
Magellan SPC General Partner ............. S-116
Master Servicer .......................... S-10
Master Servicer Remittance Date .......... S-211
Maturity Date ............................ S-62
Maturity Date Balance .................... S-62
May ...................................... S-49
Mezzanine Debt ........................... S-62
Mezzanine Loans .......................... S-41
Midland .................................. S-224
Milwaukee PMSA ........................... S-136
Monthly Insurance Deposit Amount ......... S-62
Monthly Payment .......................... S-62, S-188
Monthly Reserve Deposit .................. S-62
Monthly Tax Deposit Amount ............... S-62
Morgan Stanley Real Estate Fund .......... S-90
Mortgage ................................. S-11, S-57
Mortgage Loan Assumptions ................ S-201
Mortgage Pool ............................ S-11
Mortgage Rate ............................ S-23
Mortgaged Properties ..................... S-11
Mortgaged Property ....................... S-57
MSMC ..................................... S-10
MSREF II ................................. S-83
Negative Adjustment ...................... S-229
Net Cash Flow ............................ S-171
Net Default Interest ..................... S-188
Net Mortgage Rate ........................ S-23
Net REO Proceeds ......................... S-188
NOI ...................................... S-62
Non-Comparable Store ..................... S-63
Non-EMD Loan ............................. S-63
Note ..................................... S-11, S-57
Notional Amount .......................... S-186
NRA ...................................... S-123
OCC ...................................... S-63
Occupancy ................................ S-63
Occupancy Costs .......................... S-63
Ohio PERS ................................ S-75
Ohio PERS Law ............................ S-82
One-Tier Lockbox ......................... S-63
OPERS .................................... S-38
OPERS Law ................................ S-38
Original Principal Balance ............... S-63
Originators .............................. S-20, S-57
Parisian ................................. S-110
Participants ............................. S-195
Pass-Through Rate ........................ S-22
PCBs ..................................... S-39
Penney ................................... S-109, S-150
Percentage Interest ...................... S-187
</TABLE>
S-239
<PAGE>
<TABLE>
<S> <C>
Permitted Investments ............................ S-213
P&I Advance ...................................... S-26, S-211
Plan ............................................. S-29, S-198, S-230
PMA .............................................. S-117
Pooling Agreement ................................ S-10
Pooling Agreement ................................ S-208
Prepayment Charge ................................ S-63
Prepayment Charge Period ......................... S-63
Prepayment Interest Shortfall .................... S-194
Principal Balance Certificates ................... S-21, S-186
Principal Distribution Amount .................... S-25
Principal Prepayments ............................ S-188
Principal Window ................................. S-8
Private Certificates ............................. S-186
Proffitt's ....................................... S-110
Property Advances ................................ S-211
Property Condition Reports ....................... S-73
psf .............................................. S-63
Quail Springs Mall Affiliated Transferee ......... S-184
Quail Springs Mall Approved Transferee ........... S-184
Quail Springs Mall Borrower ...................... S-19, S-177
Quail Springs Mall Cash Management Event ......... S-184
Quail Springs Mall Loan .......................... S-19
Quail Springs Mall Management Agreement .......... S-182
Quail Springs Mall Manager ....................... S-182
Quail Springs Mall Mortgage ...................... S-177
Quail Springs Mall Property ...................... S-20, S-177
Quail Springs Mall REA ........................... S-181
Ramco-Gershenson Defeased Loan Amount ............ S-165
Ramco-Gershenson Defeased Note ................... S-165
Ramco-Gershenson Limited Partner ................. S-158
Ramco-Gershenson Management Agreement ............ S-163
Ramco-Gershenson Pool Borrower ................... S-18, S-158
Ramco-Gershenson Pool Loan ....................... S-18
Ramco-Gershenson Pool Manager .................... S-163
Ramco-Gershenson Pool Mortgage ................... S-158
Ramco-Gershenson Pool Properties ................. S-158
Ramco-Gershenson Pool Properties ................. S-18
Ramco-Gershenson Pool Property ................... S-158
Ramco-Gershenson Pool Subservicing Fee ........... S-225
Ramco-Gershenson REIT ............................ S-52, S-158
Rated Final Distribution Date .................... S-204
Rating Agencies .................................. S-29
REAs ............................................. S-51
Reduction in Value ............................... S-49
Regal ............................................ S-110, S-150
Regular Certificates ............................. S-28
Rehabilitation Fee ............................... S-226
Release H.15 ..................................... S-193
REMIC ............................................ S-28
REO Account ...................................... S-186
</TABLE>
S-240
<PAGE>
<TABLE>
<S> <C>
REO Property ............................................ S-186
Repurchase Price ........................................ S-209
Required Repair Account ................................. S-63
Reserve Account ......................................... S-63
Residual Certificates ................................... S-28
Restricted Group ........................................ S-29, S-231
Revised Interest Rate ................................... S-63
Rodamco ................................................. S-105
Rodamco Entity .......................................... S-113
Rollover Account ........................................ S-63
Rules ................................................... S-196
Sales per SF ............................................ S-63
Scenario 1 .............................................. S-201
Scenarios ............................................... S-201
SDG ..................................................... S-105
SDG Entity .............................................. S-113
Sears ................................................... S-109, S-150
Second Ohio PERS Trust .................................. S-75
Second Tier Lockbox ..................................... S-63
Second-Tier Lockbox ..................................... S-65
Secore .................................................. S-20, S-57
Senior Offered Certificates ............................. S-29
Servicing Compensation .................................. S-187
Servicing Fee Rate ...................................... S-224
Servicing Fee ........................................... S-224
Servicing Standard ...................................... S-209
SF/Units ................................................ S-63
Similar Law ............................................. S-198, S-230
Simon DeBartolo Group REIT .............................. S-105
SMMEA ................................................... S-30
Soft Lockbox ............................................ S-64
Southworth Tenant ....................................... S-127
S&P ..................................................... S-29
Special Servicer ........................................ S-10
Special Servicer's Appraisal Reduction Estimate ......... S-195
Special Servicer ........................................ S-225
Special Servicing Fee ................................... S-226
Specially Serviced Mortgage Loan ........................ S-210
Standard Approval Rights ................................ S-64
Subordinated Offered Certificate ........................ S-198
Subordinated Offered Certificates ....................... S-198, S-230
Substitution Conditions ................................. S-64
Substitution Period ..................................... S-64
Successor Borrower ...................................... S-64
Surveillance Fees ....................................... S-194
Tax Account ............................................. S-64
Terms and Conditions .................................... S-197
Theater Operator ........................................ S-151
TI ...................................................... S-65
Total Revenue ........................................... S-64
Treasury Rate ........................................... S-65, S-193
</TABLE>
S-241
<PAGE>
<TABLE>
<S> <C>
Trustee ............................................... S-10, S-57
Trustee Fee ........................................... S-223
Trustee Fee Rate ...................................... S-223
Two-Tier Lockbox ...................................... S-65
CEDEL ................................................. 1
Certificate Principal Amount .......................... S-2
Certificates .......................................... 1
Class ................................................. 1
Depositor ............................................. 1
Distribution Date ..................................... S-2
DTC ................................................... 1
Euroclear ............................................. 1
Fitch ................................................. 1
Master Servicer ....................................... S-2
Mortgage Loans ........................................ 1
Mortgage Pool ......................................... 1
Mortgaged Properties .................................. 1
MSMC .................................................. 1
Notional Amount ....................................... S-2
Offered Certificates .................................. 1
Private Certificates .................................. 1
Rating Agencies ....................................... 1
REMIC ................................................. S-2
S&P ................................................... 1
Trust Fund ............................................ 1
Trust REMICs .......................................... S-2
Trustee ............................................... S-2
Underwriter ........................................... 1
Underwritable Cash Flow ............................... S-65
Underwritable NOI ..................................... S-66
Underwriter ........................................... S-10
Unscheduled Payments .................................. S-188
Updated Appraisal ..................................... S-218
Upper-Tier REMIC ...................................... S-28
U.S. Obligations ...................................... S-66
Value ................................................. S-66
WAC Rate .............................................. S-23
Weighted Average Life ................................. S-8
Wells Fargo ........................................... S-10, S-14, S-57, S-123
Wells Fargo Office Tower Borrower ..................... S-13, S-96
Wells Fargo Office Tower Loan ......................... S-13
Wells Fargo Office Tower Management Agreement ......... S-99
Wells Fargo Office Tower Manager ...................... S-99
Wells Fargo Office Tower Mortgage ..................... S-96
Wells Fargo Office Tower Property ..................... S-13, S-96
Wells Fargo Qualified Transferee ...................... S-103
Wells Fargo Tower Subservicing Fee .................... S-225
West Town Mall Approved Partner Loans ................. S-113
West Town Mall Borrower ............................... S-14, S-105
West Town Mall Loan ................................... S-14
West Town Mall Management Agreement ................... S-111
</TABLE>
S-242
<PAGE>
<TABLE>
<S> <C>
West Town Mall Manager ...................................... S-111
West Town Mall Mortgage ..................................... S-105
West Town Mall Property ..................................... S-14, S-105
West Town ROA ............................................... S-109
Wilmorite ................................................... S-145
Wynnewood Ground Lessee ..................................... S-93
Wynnewood Village Redevelopment Parcel ...................... S-93
Wynnewood Village Redevelopment Parcel Improvements ......... S-93
Yield Maintenance Premium ................................... S-66
Yield Maintenance Treasury Rate ............................. S-67
</TABLE>
S-243
<PAGE>
EXHIBIT A-1
SUMMARIZED FINANCIAL INFORMATION FOR
HOTEL DEL CORONADO PROPERTY
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
($000S) ($000S)
------------------- -------------------
<S> <C> <C>
Gross Income from Operations ......................... 36,577 44,051
Operating Expenses ................................... 15,740 15,751
------ ------
Gross Operating Profit ............................... 20,837 28,300
Fixed expenses ....................................... 2,074 2,354
------ ------
Income from Operations, Exclusive of Interest
Income, Depreciation and Financial Expenses ......... 18,763 25,946
====== ======
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
($000S) ($000S)
------------------- -------------------
<S> <C> <C>
Gross Income from Operations ......................... 51,660 13,008
Operating Expenses ................................... 15,681 3,927
------ ------
Gross Operating Profit ............................... 35,979 9,161
Fixed expenses ....................................... 3,148 994
------ ------
Income from Operations, Exclusive of Interest
Income, Depreciation and Financial Expenses ......... 32,831 8,167
====== ======
</TABLE>
A-1
<PAGE>
EXHIBIT A-2
SUMMARIZED FINANCIAL INFORMATION FOR
CENTERAMERICA POOL PROPERTIES
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
($000S) ($000S) ($000S) ($000S)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net Income from Operations ....................... 29,684 30,980 34,157 8,636
Property Expenses ................................ 3,152 2,863 3,102 1,080
Fixed Expenses ................................... 5,226 5,160 5,537 1,039
------ ------ ------ -----
Income from Operations, Exclusive of Interest
Income, Depreciation and Financial Expenses ..... 21,306 22,957 25,518 6,517
====== ====== ====== =====
</TABLE>
A-2
<PAGE>
EXHIBIT A-3
SUMMARIZED FINANCIAL INFORMATION FOR
WELLS FARGO TOWER PROPERTY
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
($000S) ($000S) ($000S) ($000S)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Gross Income from Operations ..................... 39,599 38,500 39,347 9,359
Operating Expenses ............................... 12,924 12,459 12,461 2,577
------ ------ ------ -----
Gross Operating Profit ........................... 26,675 26,041 26,886 6,782
Fixed Expenses ................................... 2,649 2,654 2,697 1,038
------ ------ ------ -----
Income from Operations, Exclusive of Interest
Income, Depreciation and Financial Expenses ..... 24,026 23,387 24,189 5,744
====== ====== ====== =====
</TABLE>
A-3
<PAGE>
EXHIBIT B
REPRESENTATIONS AND WARRANTIES
For purposes of the representations and warranties, the date of
origination of each Mortgage Loan is the date on which MSMC took an assignment
of the existing note and mortgage from the prior lender. With respect to each
Mortgage Loan, as of the Closing Date (except as may be specified in the
related representation and warranty or on Schedule 1 to this Exhibit B):
(i) The information set forth in the mortgage loan schedule attached to
the Loan Sale Agreement as to the Mortgage Loan is complete, true and correct
in all material respects;
(ii) MSMC is the sole owner and holder of the Mortgage Loan and has good
and marketable title thereto, has full right, power and authority to sell and
assign such Mortgage Loan free and clear of any interest or claim of a third
party;
(iii) The Mortgage Loan has not been since the date of origination by the
applicable Originator, and currently is not, thirty or more days delinquent,
and the mortgagor is not in default thereunder beyond any applicable grace
period for the payment of any obligation to pay principal and interest, taxes,
insurance premiums and required reserves;
(iv) MSMC has not advanced funds, or knowingly received any advance of
funds from a party other than the mortgagor subject to the related Mortgage,
directly or indirectly, for the payment of any amount required by the Mortgage
Loan;
(v) (A) The Mortgage Loan documents have been duly and properly executed,
and (B) the Mortgage Loan documents are legal, valid and binding obligations of
the mortgagor, and their terms are enforceable against the mortgagor, subject
only to bankruptcy, insolvency, moratorium, fraudulent transfer, fraudulent
conveyance and similar laws affecting rights of creditors generally and to the
application of general principles of equity;
(vi) The lien of each Mortgage is insured by an ALTA lender's title
insurance policy or its equivalent as adopted in the applicable jurisdiction
issued by one or more nationally recognized title insurance companies, insuring
the Originator, its successors and assigns, as to the first priority lien of
the Mortgage in the original principal amount of the Mortgage Loan after all
advances of principal, subject only to (a) the lien of current real property
taxes, ground rents, water charges, sewer rents and assessments not yet due and
payable, (b) covenants, conditions and restrictions, rights of way, easements
and other matters of public record, none of which, individually or in the
aggregate, in the reasonable judgment of MSMC, materially interferes with the
current use of the related Mortgaged Property or the security intended to be
provided by such Mortgage or with the mortgagor's ability to pay its
obligations when they become due or the value of the related Mortgaged Property
and (c) the exceptions (general and specific) set forth in such policy, none of
which, individually or in the aggregate, in the reasonable judgment of MSMC,
materially interferes with the current use of the related Mortgaged Property or
security intended to be provided by such Mortgage, with the mortgagor's ability
to pay its obligations when they become due or the value of the related
Mortgaged Property (or if a title insurance policy has not yet been issued in
respect of the Mortgage Loan, a policy meeting the foregoing description is
evidenced by a commitment for title insurance "marked-up" at the closing of the
Mortgage Loan). To the actual knowledge of MSMC, no material claims have been
made under such title policy and no claims have been made thereunder;
(vii) As of the date of origination of the Mortgage Loan there were no,
and to the best knowledge of MSMC there are no, mechanics', materialman's or
other similar liens or claims which have been filed for work, labor or
materials affecting the Mortgaged Property which are or may be liens prior to,
or equal or coordinate with, the lien of the Mortgage, unless such lien is
insured against under the related title insurance policy;
(viii) (A) each building or other improvement located on any Mortgaged
Property is insured by a fire and extended perils insurance policy, issued by
an insurer or reinsured by an insurer meeting the requirements of the Mortgage
Loan documents, in an amount not less than the replacement cost of the
Mortgaged Property; each Mortgaged Property is also covered by business
interruption insurance and comprehensive general liability insurance in amounts
generally required by institutional lenders for similar properties; all
premiums on such insurance policies required to be paid as of the date hereof
have been paid; such insurance policies require prior notice to the insured of
termination or cancellation, and no such notice has been received; and (B) the
loan documents obligate the mortgagor to maintain all such insurance and, at
the mortgagor's failure to do so, authorize the mortgagee to maintain such
insurance at the mortgagor's cost and expense and to seek reimbursement
therefor from such mortgagor;
(ix) As of the most recent date of inspection of each Mortgaged Property
by MSMC, based solely on MSMC's review of the Property Condition Reports issued
with respect to the Mortgage Loan and the most recent visual inspection (as
B-1
<PAGE>
described in (xviii) below) of the Mortgaged Property, no building or other
improvement on any Mortgaged Property has been affected in any material manner
or suffered any material loss as a result of any fire, wind, explosion,
accident, riot, war, or act of God or the public enemy, and each Mortgaged
Property is free of any material damage that would affect materially and
adversely the value of the Mortgaged Property as security for the Mortgage Loan
and is in good repair. MSMC has neither received notice, nor is otherwise
aware, of any proceedings pending for the total condemnation of any Mortgaged
Property or a partial condemnation of any portion material to the borrower's
ability to perform its obligations under its related Mortgage Loan;
(x) To MSMC's best knowledge, after review of compliance confirmations
from applicable municipalities, surveys and/or title insurance endorsements,
none of the improvements included for the purpose of determining the appraised
value of each Mortgaged Property at the time of the origination of the Mortgage
Loan lies outside of the boundaries and building restriction lines of the
Mortgaged Property, and no improvements on adjoining properties materially
encroach upon the Mortgaged Property except those which are insured against by
the title insurance policy (including endorsements thereto) issued in
connection with the Mortgage Loan and all improvements on the Mortgaged
Property comply with the applicable zoning laws and/or set-back ordinances in
force when improvements were added;
(xi) The Mortgage Loan does not violate applicable usury laws;
(xii) Since the date of origination of the Mortgage Loan, the terms of the
Mortgage Loan have not been impaired, waived, altered, satisfied, canceled,
subordinated or modified in any respect (except with respect to modifications
the economic terms of which are reflected in the mortgage loan schedule and
which are evidenced by documents in the Mortgage Loan file delivered to the
Trustee) and no portion of the Mortgaged Property has been released from the
lien of the Mortgage in any manner;
(xiii) All applicable mortgage recording taxes and other filing fees have
been paid in full or deposited with the issuer of the title insurance policy
issued in connection with the Mortgage Loan for payment upon recordation of the
relevant documents;
(xiv) Each assignment of leases and rents, if any, creates a valid
assignment of, or a valid security interest in, certain rights under the
related leases, subject only to a license granted to the relevant mortgagor to
exercise certain rights and to perform certain obligations of the lessor under
such leases, including the right to operate the related Mortgaged Property,
subject only to those exceptions described in clause (vi) above. To the best of
MSMC's knowledge and without affirmative investigation, no person other than
the relevant mortgagor owns any interest in any payments due under such leases
that is superior to or of equal priority with the mortgagee's interest therein,
subject only to those exceptions described in clause (vi) above;
(xv) Each Mortgage, upon due recordation, is a valid and enforceable first
lien on the related Mortgaged Property, subject only to those exceptions
described in clause (vi) above;
(xvi) MSMC has not taken any action, nor has knowledge that the mortgagor
has taken any action, that would cause the representations and warranties made
by the mortgagor in the Mortgage Loan documents not to be true;
(xvii) The proceeds of the Mortgage Loan have been fully disbursed and
there is no requirement for future advances thereunder and MSMC covenants that
it will not make any future advances under the Mortgage Loan to the mortgagor.
Except for the escrows and disbursements therefrom as contemplated by the
mortgage loan documents, any mortgagor requirements for on or off-site
improvements or as to disbursement of any escrow funds therefor have been
complied with;
(xviii) MSMC has inspected or caused to be inspected each Mortgaged
Property within the past twelve months preceding the date hereof;
(xix) The Mortgage Loan does not have a shared appreciation feature, other
contingent interest feature or negative amortization, except with those
Mortgage Loans that provide for Deferred Interest;
(xx) The Mortgage Loan is a whole loan and contains no equity
participation by the lender;
(xxi) No fraudulent acts were committed by MSMC in connection with the
origination process of the Mortgage Loan;
(xxii) All taxes and governmental assessments that prior to the date of
origination of the Mortgage Loan became due and owing in respect of each
Mortgaged Property have been paid, or an escrow of funds in an amount
sufficient to cover such payments has been established or are insured against
by the title insurance policy issued in connection with the origination of the
Mortgage Loan;
B-2
<PAGE>
(xxiii) To the extent required under applicable law, MSMC was authorized
to transact and do business in each jurisdiction in which a Mortgaged Property
is located at all times when it held the Mortgage Loan;
(xxiv) To the best knowledge of MSMC, there is no material default,
breach, violation or event of acceleration existing under any of the Mortgage
Loan documents and MSMC has not received actual notice of any event (other than
payments due but not yet delinquent) which, with the passage of time or with
notice and the expiration of any grace or cure period, would and does
constitute a default, breach, violation or event of acceleration; no waiver of
the foregoing exists and no person other than the holder of the Note may
declare any of the foregoing;
(xxv) Each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against each related Mortgaged Property of the material benefits of
the security, including realization by judicial or, if applicable, non-judicial
foreclosure, and there is no exemption available to the mortgagor which would
materially interfere with such right to foreclosure;
(xxvi) With respect to each Mortgaged Property, a Phase I environmental
report and, in certain cases, a Phase II environmental report or an update to
such Phase I report was conducted by a licensed qualified engineer. MSMC has
reviewed each such report and update. MSMC, having made no independent inquiry
other than reviewing the environmental reports and updates referenced herein
and without other investigation or inquiry, has no knowledge of any material
and adverse environmental condition or circumstance affecting any Mortgaged
Property that was not disclosed in the related report and/or update. MSMC has
not received any actual notice of a material violation of CERCLA or any
applicable federal, state or local environmental law with respect to any
Mortgaged Property that was not disclosed in the related report and/or update.
MSMC has not taken any actions which would cause any Mortgaged Property not to
be in compliance with all federal, state and local laws pertaining to
environmental hazards;
(xxvii) The Mortgage Loan agreement contains provisions for the
acceleration of the payment of the unpaid principal balance of the Mortgage
Loan if (A) the mortgagor voluntarily transfers or encumbers all or any portion
of any related Mortgaged Property, or (B) any direct or indirect interest in
mortgagor is voluntarily transferred or assigned, other than, in each case, as
permitted under the terms and conditions of the Mortgage Loan documents;
(xxviii) To the best of MSMC's knowledge and without affirmative
investigation or inquiry, there is no pending action, suit or proceeding,
arbitration or governmental investigation against the mortgagor or any
Mortgaged Property an adverse outcome of which is reasonably likely to
materially affect the mortgagor's performance of its obligations under the
Mortgage Loan documents;
(xxix) The servicing and collection practices used by MSMC, and to the
best of MSMC's knowledge, the origination practices of the related Originator,
have been in all respects legal, proper and prudent and have met customary
industry standards except to the extent that, in connection with its
origination, such standards were modified by the applicable Originator in its
reasonable discretion;
(xxx) In connection with the assignment, transfer or conveyance of any
individual Mortgage, the Note and Mortgage contain no provision limiting the
right or ability of the applicable Originator to assign, transfer and convey
the Mortgage to any other person or entity;
(xxxi) If any Mortgaged Property is subject to any leases (other than any
ground lease referred to in (xxxv) below), to MSMC's knowledge, the mortgagor
is the owner and holder of the landlord's interest under any leases, and the
related Mortgage and assignment of leases and rents, if any, provides for the
appointment of a receiver for rents or allows the mortgagee to enter into
possession to collect rent or provide for rents to be paid directly to
mortgagee in the event of a default, subject to the exceptions described in
clause (vi) hereof;
(xxxii) If a Mortgage is a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and currently so
serves and is named in the deed of trust, and no fees or expenses are or will
become payable to the trustee under the deed of trust, except in connection
with the sale or release of the Mortgaged Property following default or payment
of the loan;
(xxxiii) Any insurance proceeds in respect of a casualty loss or taking
will be applied either to the repair or restoration of all or part of the
related Mortgaged Property, with the mortgagee or a trustee appointed by it
having the right to hold and disburse such proceeds (provided that such
proceeds exceed the threshold amount described in the loan documents) as the
repair or restoration progresses, or to the payment of the outstanding
principal balance of the Mortgage Loan together with any accrued interest
thereon, except to the extent of any excess proceeds after restoration;
B-3
<PAGE>
(xxxiv) Based on MSMC's review of surveyor certificates, except for the
Mortgaged Properties set forth on Schedule 1, no Mortgaged Property is located
in a special flood hazard area (Zone A) as defined by the Federal Insurance
Administration and, with respect to the Mortgaged Properties set forth on
Schedule 1, flood insurance coverage has been obtained;
(xxxv) With respect to any Mortgage which is secured in whole or in part
by the interest of a borrower as a lessee under a ground lease and based upon
the terms of the ground lease or an estoppel letter from the ground lessor the
following apply to such ground lease:
A. The ground lease or a memorandum thereof has been duly recorded, the
ground lease permits the interest of the lessee thereunder to be encumbered
by the related Mortgage, does not restrict the use of the Mortgaged Property
by the lessee or its successors and assigns in a manner that would adversely
affect the security provided by the related Mortgage, and there has not been
a material change in the terms of the ground lease since its recordation,
with the exception of written instruments which are part of the related
Mortgage Loan documents delivered to the Trustee.
B. The ground lease is not subject to any liens or encumbrances superior
to, or of equal priority with, the related Mortgage, other than the related
ground lessor's related fee interest [and any permitted encumbrances on such
fee interest.]
C. The borrower's interest in the ground lease is assignable to the holder
of the Mortgage upon notice to, but without the consent of, the lessor
thereunder and, in the event that it is so assigned, it is further
assignable by the trustee and its successors and assigns upon notice to, but
without a need to obtain the consent of, such lessor.
D. To the best of MSMC's knowledge, as of the origination date of the
Mortgage Loan, the ground lease was in full force and effect and no material
default had occurred under the ground lease and there was no existing
condition which, but for the passage of time or the giving of notice, would
result in a default under the terms of the ground lease. No notice of
default under the ground lease has been received by MSMC.
E. The ground lease requires the lessor thereunder to give notice of any
default by the lessee to the mortgagee; and the ground lease, or an estoppel
letter received by the mortgagee from the lessor, further provides that
notice of termination given under the ground lease is not effective against
the mortgagee unless a copy of the notice has been delivered to the
mortgagee in the manner described in such ground lease or estoppel letter.
F. The mortgagee is permitted a reasonable opportunity (including, where
necessary, sufficient time to gain possession of the interest of the lessee
under the ground lease) to cure any default under the ground lease which is
curable after the receipt of notice of any default, before the lessor
thereunder may terminate the ground lease.
G. The ground lease either (i) has a term which extends not less than 10
years beyond the maturity date of the related Mortgage Loan or (ii) grants
the lessee the option to extend the term of the lease for a period (in the
aggregate) which exceeds 10 years beyond the maturity date of the related
Mortgage Loan.
H. The ground lease requires the lessor to enter into a new lease with the
mortgagee upon termination of the ground lease for any reason, including
rejection of the ground lease in a bankruptcy proceeding, provided the
mortgagee cures the lessee's defaults to the extent they are curable and
succeeds to the interests of the mortgagee.
I. Under the terms of the ground lease and the related Mortgage, taken
together, any related insurance proceeds will be applied either to the
repair or restoration of all or part of the related Mortgaged Property, with
the mortgagee or a trustee appointed by it having the right to hold and
disburse the proceeds as the repair or restoration progresses, or to the
payment of the outstanding principal balance of the Mortgage Loan together
with any accrued interest thereon.
J. Such ground lease does not impose any material restrictions on
subletting.
K. Either the ground lease or the related Mortgage contains the borrower's
covenant that such ground lease shall not be amended, canceled, or
terminated without the prior written consent of the mortgagee.
L. Either the ground lease or an estoppel letter contains a covenant that
the lessor thereunder is not permitted, in the absence of an uncured default
under the ground lease, to disturb the possession, interest or quiet
enjoyment of any lessee in the relevant portion of the Mortgaged Property
subject to such ground lease for any reason, or in any manner, which would
materially adversely affect the security provided by the related Mortgage;
(xxxvi) (A) the Mortgage Loan is directly secured by a Mortgage on a
commercial real property, (B) the fair market value of such real property
exclusive of any items of tangible or intangible personal property with respect
thereto, as
B-4
<PAGE>
evidenced by an appraisal conducted within 12 months of the origination of the
Mortgage Loan, or as determined by MSMC based on market studies and pursuant to
its underwriting standards, was at least equal to 80% of the principal amount
of the Mortgage Loan (I) at origination (or if the Mortgage Loan has been
modified in a manner that constituted a deemed exchange under Section 1001 of
the Code at a time when the Mortgage Loan was not in default or default with
respect thereto was not reasonably foreseeable, the date of the last such
modification) or (II) at the Closing Date; provided that the fair market value
of the real property interest must first be reduced by (1) the amount of any
lien on the real property interest that is senior to the Mortgage Loan (unless
such senior lien also secures a Mortgage Loan, in which event the computation
described in (I) and (II) shall be made on an aggregated basis) and (2) a
proportionate amount of any lien that is in parity with the Mortgage Loan
(unless such other lien secures a Mortgage Loan that is crosscollateralized
with such Mortgage Loan, in which event the computation described in (I) and
(II) shall be made on an aggregate basis); and (C) the exceptions set forth in
Schedule I to Exhibit B were either taken into account in the foregoing
appraisal or determination of fair market value or do not have a material
effect on such fair market value;
(xxxvii) To the knowledge of MSMC, all required certificates of occupancy
and building permits, as applicable, have been issued with respect to the
Mortgaged Property;
(xxxviii) Any escrow accounts for taxes or other reserves required to be
funded on the date of origination of the Mortgage Loan pursuant to the Mortgage
Loan documents have been funded and all such escrow accounts required to have
been funded as of the Cut-Off Date (taking into account any applicable notice
and grace period) have been funded;
(xxxix) The related Assignment of Mortgage constitutes a legal, valid and
binding assignment of such Mortgage to the Depositor, and the related
reassignment of assignment of leases and rents, if any, constitutes a legal,
valid and binding assignment thereof to the Depositor;
(xl) The related Note is not, and has not been since the date of
origination of the Mortgage Loan, secured by any collateral except the lien of
the related Mortgage, any related assignment of leases and rents and any
related security agreement and escrow agreement; the security for the Mortgage
Loan consists only of the related Mortgaged Property or Properties, any leases
(including without limitation any credit leases) thereof, and any
appurtenances, fixtures and other property located thereon; and such Mortgaged
Property or Properties do not secure any mortgage loan other than the Mortgage
Loan being transferred and assigned to the Depositor under the Loan Sale
Agreement (except for Mortgage Loans, if any, which are crosscollateralized
with other Mortgage Loans being conveyed to the Depositor or subsequent
transferee under the Loan Sale Agreement and identified on the mortgage loan
schedule); and
(xli) To MSMC's knowledge, based on due diligence that it customarily
performs in the origination of comparable mortgage loans, as of the date of
origination of each Mortgage Loan, the related Mortgagor was in possession of
all material licenses, permits and franchises required by applicable law for
the ownership and operation of the related Mortgaged Property as it was then
operated.
B-5
<PAGE>
SCHEDULE 1 TO EXHIBIT B
<TABLE>
<CAPTION>
REPRESENTATION EXCEPTION
- ------------------ -------------------------------------------------------------------------------------------------------------
<S> <C>
(vi) With respect to the Quail Springs Mall Loan, the related title insurance company does not insure for
consequences resulting from the fact that May Department Store has objected to the construction of the
American Multi-Cinema Theatre.
(viii) (A) With respect to the Wells Fargo Office Tower Loan, the loan documents require insurers having "AA"
claims paying rating, whereas the actual coverage obtained by the Wells Fargo Office Tower Borrower is with
an insurer with an "A" rating.
(xxxi) The mortgagor is the fee simple owner of the property and has leased its interest to the Hotel Del Coronado
Operating Lessee. The Hotel Del Coronado Operating Lessee holds the landlord's interest in certain space
leases at the Hotel Del Coronado Property.
(xxxiii) With respect to the CenterAmerica Pool Loan, such proceeds must be made available to Borrower for
restoration of the affected property if (a) the mortgagee has agreed to make such proceeds available for
restoration pursuant to a subordination, nondisturbance agreement between a mortgagee and a tenant under
a Major Lease or (b) such proceeds must be made available for restoration pursuant to the terms of a Major
Lease in effect as of the closing date of the Mortgage Loan. A Major Lease is any lease (a) covering no less
than the greater of (i) five percent (5%) of the gross leaseable area of any individual property or (ii)
15,000
leaseable square feet or (b) made with a tenant that is an affiliate of any other tenant under a lease at
such
individual property, if the leases together cover no less than the greater of (i) five percent (5%) of the
gross
leaseable area of such individual property or (ii) 15,000 leaseable square feet.
(xxxiv) The CenterAmerica Pool Properties known as Jefferson Park, Klein Square, and Village Plaza are each located
in a special flood hazard area. The CenterAmerica Pool Borrower is required to maintain flood insurance in
an
amount equal to the maximum available National Flood Insurance Program coverage. The CenterAmerica
Pool Borrower has obtained such flood insurance as part of its general all risk insurance coverage in the
amount
of $100,000,000. The property insurance for the CenterAmerica Pool Properties is provided by St. Paul Fire
and
Marine Insurance Company (50%), which has a claims paying ability rating of "AAA" by S&P, and by
Lexington Insurance Company (50%), which has a claims paying ability rating of "AAA" by S&P.
(xxxv) (H) Courthouse Plaza I Loan. The Courthouse Plaza I Ground Lease only requires the lessor to enter into
a new lease with the mortgage upon termination of the ground lease due to a default that cannot be readily
cured by mortgagee, including without limitation bankruptcy,
(xxxvii) With respect to the CenterAmerica Pool Loan, properties comprising the mortgaged property are located in
countries or municipalities which (A) did not issue certificates of occupancy at the time of construction or
(B)
do not issue certificates of occupancy for the shell building and only issue certificates of occupancy to
individual
tenants with respect to their leased premises. With respect to properties to which clause (B) applies, MSMC
has
been able to verify that certificates of occupancy were issued to certain of those tenants.
</TABLE>
B-6
<PAGE>
EXHIBIT C
FORM OF REPORT TO CERTIFICATEHOLDERS
MORGAN STANLEY CAPITAL I INC. W.A.C.
COMMERCIAL MORTGAGE PASS THROUGH CERTIFICATES W.A.M.
SERIES 1998-XL1 PAYMENT DATE
RECORD DATE
TRUSTEE'S REPORT TO CERTIFICATEHOLDERS
PAYMENT SUMMARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pass-Through Interest Current Moody's Original Beginning Principal Interest Total Ending
Class CUSIP Rate Type Rating ** Balance Balance Paid Paid Paid Balance
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS:
--------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS PER CERTIFICATE
- -------------------------------------------------------------------------------------------
Beginning Principal Interest Ending
Class Certificate Factor Distribution Distribution Certificate Factor
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------
For additional information or with questions, please contact:
- -----------------------------------------------------------------------------
STATE STREET CORPORATE TRUST
- -----------------------------------------------------------------------------
Bond Analyst:
Account Officer:
Street Connection:(factor and rate by cusip) (617) 664-5500
To receive current or historical reports for this deal please use:
WEBSITE: HTTP://CORPORATETRUST.STATESTREET.COM
Street Fax:Bondholder & Secondary Market Reports(617) 664-5600
- -----------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STATE STREET This report has been prepared by or based on information
Serving furnished to State Street Bank and Trust Company ("State
Institutional Street") by one or more third parties (e.g.,Servicer, Master
Investors Servicer, etc.).State Street shall not have and does not Serving
Worldwide Institutional Investors Worldwide undertake responsibility for
the accuracy or completeness of information provided by such
third parties, and makes no representations or warranties with
respect to the accuracy or completeness thereof or the
sufficiency thereof for any particular purpose. State Street has
not independently verified information received from third
parties, and shall have no liability for any inaccuracies
therein or caused thereby.
C-1
<PAGE>
[LOGO] MORGAN STANLEY CAPITAL I INC. W.A.C.
COMMERCIAL MORTGAGE PASS THROUGH CERTIFICATES W.A.M.
SERIES 1998-XL1 PAYMENT DATE
RECORD DATE
TRUSTEE'S REPORT TO CERTIFICATEHOLDERS
PRINCIPAL DETAIL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning Scheduled Unscheduled Other Principal/ Total Principal Realized Losses/ Appraisal
Class Balance Principal Principal Cash Adjustments Distribution Amount Balance Adj. Reduction Amt.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------
Ending Cumulative Cumulative
Balance Realized Losses Appraisal Reduction
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
TOTALS:
---------------------------------------------------------------------------
<CAPTION>
INTEREST DETAIL
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued Beg. Unpaid Prepayment Current Interest Additional Trust Prepayment Additional
Class Certificate Interest Interest Int. Shortfall Shortfalls Fund Expenses Premiums Adjustments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------
Total Interest Cumulative Unpaid
Distr. Amount Interest Shortfall
- ---------------------------------------------------------------
<S> <C>
- ---------------------------------------------------------------
TOTALS:
----------------------------------------------
</TABLE>
C-2
<PAGE>
[LOGO] MORGAN STANLEY CAPITAL I INC. W.A.C.
COMMERCIAL MORTGAGE PASS THROUGH CERTIFICATES W.A.M.
SERIES 1998-XL1 PAYMENT DATE
RECORD DATE
TRUSTEE'S REPORT TO CERTIFICATEHOLDERS
BOND CLASS RATING, SUBORDINATION LEVEL AND MATURITIES:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Ratings Original Current Last Original Current Orig. Class Maturity
Class As Of Date Rating Rating Rating Subordination Level Sub.Level @ 0% CPR
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------
DELINQUENCIES One Month Two Months Three+Months Foreclosures Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
# of Loans 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------
Ending APB $0.00 $0.00 $0.00 $0.00 $0.00
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
TWELVE MONTH SUMMARY OF PREPAYMENTS AND PREPAYMENT PENALTIES:
- --------------------------------------------------------------------------------------------------------------------
MONTH/YEAR PREPAYMENTS PENALTIES
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------
APPRAISAL REDUCTIONS: Current Total Cum.Total
------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loan # 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------
Amount $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
- ----------------------------------------------------------------------------------------------------
</TABLE>
C-3
<PAGE>
[LOGO] MORGAN STANLEY CAPITAL I INC. W.A.C.
COMMERCIAL MORTGAGE PASS THROUGH CERTIFICATES W.A.M.
SERIES 1998-XL1 PAYMENT DATE
RECORD DATE
TRUSTEE'S REPORT TO CERTIFICATEHOLDERS
OTHER INFORMATION
================================================================================
AVAILABLE DISTRIBUTION AMOUNT
COLLATERAL INFORMATION: CLOSING BEG ENDING
COLL. BALANCE COLL. BALANCE COLL. BALANCE
LOAN COUNT
Aggregate amount of P&I Advances made during current period:
SERVICING FEES:
---------------
Aggregate Amount of servicing compensation paid to Master Servicer
Aggregate Amount of servicing compensation paid to Trustee:
Additional Special Servicing Fee
AGGREGATE AMOUNT OF:
Additional Trust Fund Expenses
Mortgage Loans that have been paid in full:
Mortgage Loans that have been paid at their Maturity Date:
Prepayment Penalties paid on the Mortgage Loans:
================================================================================
C-4
<PAGE>
MORGAN STANLEY CAPITAL I INC. STATE STREET CORPORATE TRUST
MORTGAGE PASS-THROUGH CERTIFICATES WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1998-XL1 PAYMENT DATE
UNDERWRITER: MORGAN STANLEY DEAN WITTER REPORT #
DISTRIBUTION OF CURRENT SCHEDULED PRINCIPAL BALANCES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CURRENT
SCHEDULE # OF AGGREGATE % TOT WEIGHTED AVERAGES
PRINCIPAL MTG SCHED PRIN SCHED MNTHS MORT
BALABCE LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 1,000,000.00
1,000,000.00+
2,000,000.00+
3,000,000.00+
4,000,000.00+
5,000,000.00+
5,999,999.91+
7,000,000.00+
8,000,000.00+
9,000,000.00+
10,000,000.00+
15,000,000.00+
20,000,000.00+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF CURRENT MORTGAGE INTEREST RATES
- ----------------------------------------------------------------------------------------------
CURRENT
MORTGAGE # OF AGGREGATE % TOT WEIGHTED AVERAGES
INTEREST MTG SCHED PRIN SCHED MNTHS MORT
RATE LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 8.50%
8.50%+
8.75%+
9.00%+
9.25%+
9.50%+
9.75%+
10.00%+
10.25%+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF TOP TEN STATES BY BALANCE
- ----------------------------------------------------------------------------------------------
TOP # OF AGGREGATE % TOT WEIGHTED AVERAGES
10 MTG SCHED PRIN SCHED MNTHS MORT
STATES LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Texas
California
Florida
New York
Ohio
Pennsylvania
Oregon
Nevada
North Carolina
Other
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF PROPERTY TYPE
- ----------------------------------------------------------------------------------------------
# OF AGGREGATE % TOT WEIGHTED AVERAGES
PROPERTY MTG SCHED PRIN SCHED MNTHS MORT
TYPES LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Multi-Family
Anchored Retail
Hospitality
Office
Insdustrial
Unanchored Retail
Health Care
Moblie Home Park
Mixed
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
</TABLE>
C-5
<PAGE>
MORGAN STANLEY CAPITAL I INC. STATE STREET CORPORATE TRUST
MORTGAGE PASS-THROUGH CERTIFICATES WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1998-XL1 PAYMENT DATE
UNDERWRITER: MORGAN STANLEY DEAN WITTER REPORT #
DISTRIBUTION OF RAMAINING STATED TERM (BALLOON LOANS ONLY)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
REMAINING
STATED # OF AGGREGATE % TOT WEIGHTED AVERAGES
TERM MTG SCHED PRIN SCHED MNTHS MORT
(MONTHS) LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 60
60+
96+
132+
180+
240+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DIST. OF REMAINING STATED TERM (FULLY AMORTIZING LOANS ONLY)
- ----------------------------------------------------------------------------------------------
REMAINING
STATED # OF AGGREGATE % TOT WEIGHTED AVERAGES
TERM MTG SCHED PRIN SCHED MNTHS MORT
(MONTHS) LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 60
60+
96+
132+
180+
240+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF REMAINING STATED TERM (ALL LOANS)
- ----------------------------------------------------------------------------------------------
REMAINING
STATED # OF AGGREGATE % TOT WEIGHTED AVERAGES
TERM MTG SCHED PRIN SCHED MNTHS MORT
(MONTHS) LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 60
60+
96+
132+
180+
240+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF REMAINING AMORTIZATION TERM
- ----------------------------------------------------------------------------------------------
ORIGINAL
AMORTIZATION # OF AGGREGATE % TOT WEIGHTED AVERAGES
TERM MTG SCHED PRIN SCHED MNTHS MORT
(MONTHS) LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 60
60+
120+
180+
240+
300+
360+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF SEASONING
- ----------------------------------------------------------------------------------------------
# OF AGGREGATE % TOT WEIGHTED AVERAGES
SEASONING MTG SCHED PRIN SCHED MNTHS MORT
(MONTHS) LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
less than 13
13-24
25-36
37-48
19-60
61-120
121+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
</TABLE>
C-6
<PAGE>
MORGAN STANLEY CAPITAL I INC. STATE STREET CORPORATE TRUST
MORTGAGE PASS-THROUGH CERTIFICATES WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1998-XL1 PAYMENT DATE
UNDERWRITER: MORGAN STANLEY DEAN WITTER REPORT #
DISTRIBUTION OF ORIGINAL TERM TO STATED MATURITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
ORIGINAL # OF AGGREGATE % TOT WEIGHTED AVERAGES
TERM TO MTG SCHED PRIN SCHED MNTHS MORT
MATURITY LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0+
50+
100+
150+
200+
250+
300+
400+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF LOAN TO VALUE RATIO
- ----------------------------------------------------------------------------------------------
MOST # OF AGGREGATE % TOT WEIGHTED AVERAGES
RECENT MTG SCHED PRIN SCHED MNTHS MORT
LTV LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Not Populated
less than 50.01
50.01+
55.01+
60.01+
70.01+
75.01+
80.01+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF AMORTIZATION TYPE
- ----------------------------------------------------------------------------------------------
# OF AGGREGATE % TOT WEIGHTED AVERAGES
AMORTIZATION MTG SCHED PRIN SCHED MNTHS MORT
TYPE LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amoritzing Balloon
Fully Amortizing
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTION OF MOST RECENT DEBT SERVICE COVERAGE RATIO
- ----------------------------------------------------------------------------------------------
# OF AGGREGATE % TOT WEIGHTED AVERAGES
MTG SCHED PRIN SCHED MNTHS MORT
DSCR LOANS BALANCE BAL DSCR TO MAT RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Not populated
less than 1.20x
1.20x+
1.25x+
1.30x+
1.35x+
1.40x+
1.45x+
1.50x+
1.55x+
1.60x+
1.70x+
1.80x+
- ----------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------
</TABLE>
C-7
<PAGE>
DEAL NAME: MORGAN STANLEY CAPITAL I INC. STATE STREET CORPORATE TRUST
MORTGAGE PASS-THROUGH CERTIFICATES WEB: CORPORATETRUST.STATESTREET.COM
SERIES 1998-XL1 PAYMENT DATE
UNDERWRITER: MORGAN STANLEY DEAN WITTER REPORT
LOAN LEVEL DETAIL
<TABLE>
<CAPTION>
CLOSING TERMS CURRENT TERMS
- -----------------------------------------------------------------------------------------------------------------------------------
OFFER PROPERTY SCHED NOTE MATURITY SCHED NOTE MATURITY SCHED PREPAY/ PREPAY/
CONTROL# TYPE CITY STATE BAL RATE DATE BAL RATE DATE P&I LIQUID/ADJ DATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
CURRENT TERMS
- -------------------------------------------------------
PAID THRU PREMIT TRANSFER LOAN
DATE PREMIUM DATE STATUS
- -------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
totals
Loan Status:
A = Payment not recd. but still in grace period, B = late payment, but less than
1 mo., 0 = Current, 1 = 1 mo. delinquent, 2 = 2 mo. delinquent, 3 = Three or
more mo. delinquent
4 = Assumed scheduled payment (performing matured balloon), 7 = Foreclosure,
9 = REO
C-8
<PAGE>
EXHIBIT D
TERM SHEET
<PAGE>
- -------------------------------------------------------------------------------
[MORGAN STANLEY DEAN WITTER LOGO]
MORGAN STANLEY May 20, 1998
Real Estate Debt Capital Markets
Mortgage/Asset Backed Capital Markets
- -------------------------------------------------------------------------------
CMBS NEW ISSUE
PRELIMINARY COLLATERAL OVERVIEW
-----------------------------------------------------------
$925,848,151
(APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL1
-----------------------------------------------------------
XL1 1998
LARGE LOAN
MORGAN STANLEY DEAN WITTER
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
1
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 May 20, 1998
LARGE LOAN PRELIMINARY COLLATERAL OVERVIEW
- -------------------------------------------------------------------------------
$925,848,151 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL1
COLLATERAL CHARACTERISTICS
Cut-Off Date Principal Balance: (as of June 1, 1998) $925,848,151
Number of Mortgage Loans: 11
Number of Mortgaged Properties: 83
Weighted Average Coupon: 7.02%
Weighted Average Cut-Off Date LTV: 58.4%
Weighted Average LTV at Effective Maturity Date: 51.0%
Weighted Average DSCR: 1.90x
Weighted Average Original Amortization Term: 332 months
Weighted Average Original Term to Effective Maturity Date: 113 months
Weighted Average Remaining Term to Effective Maturity Date: 109 months
Weighted Average Seasoning: 4 months
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE PRINCIPAL
CUT-OFF OF BALANCE AT ORIGINAL REMAINING
DATE CUT-OFF EFFECTIVE EFFECTIVE TERM TO TERM TO
PRINCIPAL DATE MATURITY CUT-OFF MATURITY ORIGINAL EFFECTIVE EFFECTIVE
BALANCE PRINCIPAL DATE DATE DATE AMORTIZATION MATURITY MATURITY
LOAN NAME ($000'S) BALANCE(1) COUPON ($000'S) LTV LTV DSCR(2) TERM(3) DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hotel Del Coronado $164,947,035 17.8% 6.90% $130,163,932 50.0% 39.4% 2.06x 300 120 115
CenterAmerica Pool 163,000,000 17.6 6.67 140,921,222 61.3 53.0 1.86 360 120 120
Wells Fargo Tower 143,855,648 15.5 7.17 126,516,032 61.2 53.8 1.64 300 84 83
West Town Mall 76,000,000 8.2 6.90 76,000,000 47.5 47.5 2.71 N/A 126 119
Magellan Apartment Pool 75,113,551 8.1 7.28 66,308,919 79.3 70.0 1.34 360 120 113
Glenborough Pool 59,465,982 6.4 7.50 48,701,064 51.3 42.0 1.93 300 120 112
EQR Apartment Pool 50,000,000 5.4 6.79 50,000,000 49.7 49.7 2.28 N/A 120 118
Charlestowne Mall 50,000,000 5.4 7.73 46,730,265 57.7 54.0 1.70 360 84 81
Ramco-Gershenson Pool 49,761,281 5.4 6.83 43,401,346 64.6 56.4 2.00 360 120 114
Courthouse Plaza I 48,704,653 5.3 7.19 42,147,916 70.5 61.0 1.49 360 120 115
Quail Springs Mall 45,000,000 4.9 6.82 39,064,080 52.7 45.7 1.95 360 120 120
------------ ----- ---- ------------ ---- ---- ---- --- --- ---
Total/Weighted Average $925,848,151 100.0% 7.02% $809,954,776 58.4% 51.0 1.90x 332 113 109
============ ===== ==== ============ ==== ==== ==== === === ===
Notes: (1) Numbers may not total 100% due to rounding.
(2) Based on underwritable net cash flow and actual annual debt service.
(3) Weighted average original amortization term excludes West Town Mall and EQR Apartment Pool.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
2
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 May 20, 1998
LARGE LOAN PRELIMINARY COLLATERAL OVERVIEW
- -------------------------------------------------------------------------------
$925,848,151 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL1
<TABLE>
<CAPTION>
LOAN FEATURES
- -----------------------------------------------------------------------------------------------------------------------------------
BANKRUPTCY- FUNDED
REMOVAL OF CAPITAL LOCK BOX/ CROSS REMOTE TAX AND
PRINCIPAL PROPERTY RESERVE SWEEP COLLATERALIZATION BORROWING INSURANCE
LOAN NAME CALL PROTECTION REPAYMENT MANAGER ACCOUNTS ACCOUNT (POOLS ONLY) ENTITY ESCROW
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hotel Del Coronado Locked 24 mos., Effective Maturity Yes Yes Yes N/A Yes Yes
Defeasance
CenterAmerica Pool Locked 24 mos., Effective Maturity Yes Yes Yes Yes Yes Yes
Defeasance
Wells Fargo Tower Locked 24 mos., Effective Maturity Yes Yes Yes N/A Yes Yes
Defeasance
West Town Mall Locked 36 mos., Effective Maturity Yes(2) No None N/A Yes(5) No
Defeasance(1) Until EMD
Magellan Apartment Locked 24 mos., Balloon Yes Yes Yes(3) Yes N/A Yes
Pool Defeasance
Glenborough Pool Locked 36 mos., Effective Maturity Yes Yes(6) Yes(4) Yes Yes Yes(6)
Greater of 1% and
Yield Maintenance
at U.S. Treasury
flat(1)
EQR Apartment Pool Locked 24 mos., Effective Maturity Yes(2) Yes Yes(3) Yes Yes Yes
Defeasance
Charlestowne Mall Locked 24 mos., Effective Maturity Yes Yes Yes N/A Yes Yes
Defeasance
Ramco-Gershenson Locked 24 mos., Effective Maturity Yes Yes Yes Yes Yes Yes
Pool Defeasance
Courthouse Plaza I Locked 36 mos., Effective Maturity Yes Yes Yes N/A Yes Yes
Defeasance(1)
Quail Springs Mall Locked 24 mos., Effective Maturity Yes Yes Yes N/A Yes Yes
Defeasance
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Lock-out period from loan origination.
(2) Removal of manager only upon an Event of Default under the Loan or based upon manager's gross negligence, fraud or
willful misconduct.
(3) Sweep Account
(4) Springing Lock-box
(5) The West Town Mall borrower does not have an independent director.
(6) Deferred maintenance, capital expenditures, taxes and insurance payments are guaranteed by Glenborough Realty
Trust, Inc.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
3
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 May 20, 1998
LARGE LOAN PRELIMINARY COLLATERAL OVERVIEW
- -------------------------------------------------------------------------------
$925,848,151 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL1
<TABLE>
<CAPTION>
PROPERTY OVERVIEW
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWING ENTITY/ PROPERTY YEAR BUILT/
LOAN NAME LOCATION SPONSOR TYPE RENOVATED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hotel Del Coronado Coronado, CA L-O Coronado Holding II, Inc./Lowe Enterprises Hotel 1888/1988 and
for Ohio PERS current
CenterAmerica Pool TX Center America Capital Partnership LP. Community Shopping 1950 - 1995
/CenterAmerica Property Trust, L.P. and MSREF II Centers
Wells Fargo Tower Los Angeles, CA Affiliates of Wells Fargo Bank, Mitsui Mutual Office 1982
Life Ins. Co., Gibson, Dunn & Crutcher and Maguire
Partners
West Town Mall Knoxville, TN West Town Mall Joint Venture/Simon DeBartolo/ Super-Regional Mall 1972/1995
Rodamco and current
Magellan Apartment Pool AZ, CA 11 special purpose borrowing entities/Magellan Multifamily 1980 - 1990
Corporation
Glenborough Pool MA, MN, AZ, MO, Glenborough Fund V, L.P./Glenborough Realty Office (5),
CA, FL, VA Trust, Inc. Industrial (4),
Multifamily (1) 1973-1989
EQR Apartment Pool IL, MN, WI EQR-Flatland, LLC/Equity Residential Properties Multifamily 1989-1991
("EQR")
Charlestowne Mall St. Charles, IL Charlestowne Mall, LLC/Wilmorite, Inc., and Regional Mall 1991/Current
Ivanhoe, Inc.
Ramco-Gershenson Pool MI, NC, OH, SC, Ramco Properties Associates L.P./Ramco- Community Shopping 1977-1996
TN, WI Gershenson Centers
Courthouse Plaza I Arlington, VA The Courthouse Plaza Associates LP/Charles Office 1988
E. Smith Companies
Quail Springs Mall Oklahoma City, OK Day Jay Associates/ Super-Regional Mall 1960/1988
General Growth Properties, Inc. and current
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CUT-OFF DATE SQUARE FEET/
LOAN NO. OF LOAN PSF/ APPRAISED
LOAN NAME AMOUNT UNITS(1) PER UNIT VALUE(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hotel Del Coronado $164,947,035 692 $238,363 $ 330,000,000
CenterAmerica 163,000,000 4,761,994 34 266,073,957
Wells Fargo Tower 143,855,648 1,336,248 108 235,000,000
West Town Mall 76,000,000 764,369 99 160,000,000
Magellan Apartment Pool 75,113,551 2,270 33,090 94,775,000
Glenborough Pool 59,465,982 1,136,505/224 52 115,900,000
EQR Apartment Pool 50,000,000 1,371 36,470 100,650,000
Charlestowne 50,000,000 742,318 67 86,600,000
Ramco-Gershenson Pool 49,761,281 1,414,633 35 77,000,000
Courthouse Plaza I 48,704,653 349,778 139 69,100,000
Quail Springs 45,000,000 424,183 106 85,457,518
------------ --------------
TOTAL $925,848,151 $1,620,556,475
============ ==============
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Self-owned anchors are excluded from square feet.
(2) Values for CenterAmerica and Quail Springs Mall were calculated based on underwritable NOI and a cap rate.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
4
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 May 20, 1998
LARGE LOAN PRELIMINARY COLLATERAL OVERVIEW
- -------------------------------------------------------------------------------
$925,848,151 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL1
<TABLE>
<CAPTION>
GEOGRAPHIC DIVERSIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE
OF TOTAL
CUT-OFF CUT-OFF DATE PERCENTAGE OF PERCENTAGE WEIGHTED
DATE ALLOCATED TOTAL WEIGHTED OF TOTAL AVERAGE
NUMBER OF ALLOCATED LOAN UNDERWRITTEN UNDERWRITTEN AVERAGE APPRAISED APPRAISED CUT-OFF
STATE PROPERTIES LOAN AMOUNT AMOUNT(1) CASH FLOW CASH FLOW(1) DSCR VALUE(2) VALUE(1) DATE LTV
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California 9 $365,433,925 39.5% $ 55,896,061 39.7% 1.81x $ 648,050,000 40.0% 57.8%
Texas 44 163,000,000 17.6 23,348,985 16.6 1.86 266,073,957 16.4 61.3
Tennessee 3 88,115,877 9.5 16,108,610 11.4 2.61 180,400,000 11.1 49.9
Illinois 2 58,568,677 6.3 8,658,671 6.1 1.79 105,200,000 6.5 56.6
Virginia 2 53,759,262 5.8 6,962,169 4.9 1.53 78,850,000 4.9 68.7
Oklahoma 1 45,000,000 4.9 6,873,808 4.9 1.95 85,457,518 5.3 52.7
Wisconsin 4 40,897,591 4.4 6,417,096 4.6 2.19 72,050,000 4.4 54.5
Arizona 6 39,493,623 4.3 4,734,947 3.4 1.43 52,425,000 3.2 75.0
Minnesota 2 24,333,783 2.6 4,146,813 2.9 2.13 50,100,000 3.1 50.4
Massachusetts 3 13,280,736 1.4 2,228,560 1.6 1.93 25,900,000 1.6 51.3
South Carolina 1 8,476,337 0.9 1,330,935 0.9 2.00 13,000,000 0.8 64.6
Ohio 1 7,314,908 0.8 1,172,694 0.8 2.00 11,200,000 0.7 64.6
North Carolina 1 6,116,657 0.7 950,023 0.7 2.00 9,700,000 0.6 64.6
Missouri 2 5,153,718 0.6 914,882 0.6 1.93 10,050,000 0.6 51.3
Florida 1 4,261,729 0.5 764,302 0.5 1.93 8,700,000 0.5 51.3
Michigan 1 2,641,329 0.3 416,481 0.3 2.00 3,400,000 0.2 64.6
-- ------------ ----- ------------ ----- ---- -------------- ----- ----
TOTAL/WEIGHTED
AVERAGE 83 $925,848,151 100.0% $140,925,038 100.0% 1.90X $1,620,556,475 100.0% 58.4%
== ============ ===== ============ ===== ==== ============== ===== ====
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Numbers may not total 100% due to rounding.
(2) Values for CenterAmerica and Quail Springs Mall were calculated based on underwritable NOI and a cap rate.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
5
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 May 20, 1998
LARGE LOAN PRELIMINARY COLLATERAL OVERVIEW
- -------------------------------------------------------------------------------
$925,848,151 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL1
PROPERTY TYPE DIVERSIFICATION
- -------------------------------------------------------------------------------
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
[PIE CHART]
Retail
23.0
Regional Mall
18.5
Industrial
1.6
Multifamily
14.2
Office
25.0
Hotel
17.8
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
CUT-OFF CUT-OFF PERCENTAGE PERCENTAGE WEIGHTED
DATE DATE OF TOTAL WEIGHTED OF TOTAL AVERAGE
NUMBER OF ALLOCATED ALLOCATED UNDERWRITTEN UNDERWRITTEN AVERAGE APPRAISED APPRAISED CUT-OFF
PROPERTY TYPE PROPERTIES LOAN AMOUNT LOAN AMOUNT(1) CASH FLOW CASH FLOW(1) DSCR VALUE(2) VALUE(1) DATE LTV
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office 7 $231,411,410 25.0% 32,867,762 23.3% 1.65x $ 379,550,000 23.4% 61.5%
Retail 51 212,761,281 23.0 31,195,307 22.1 1.89 343,073,957 21.2 62.0
Regional Mall 3 171,000,000 18.5 28,372,522 20.1 2.21 332,057,518 20.5 51.8
Hotel 1 164,947,035 17.8 28,728,037 20.4 2.06 330,000,000 20.4 50.0
Multifamily 17 131,159,259 14.2 17,173,045 12.2 1.73 207,125,000 12.8 66.7
Industrial 4 14,569,166 1.6 2,588,365 1.8 1.93 28,750,000 1.8 51.3
-- ------------ ----- ------------ ----- ---- -------------- ----- ----
TOTAL/WEIGHTED
AVERAGE 83 $925,848,151 100.0% $140,925,038 100.0% 1.90x $1,620,556,475 100.0% 58.4%
== ============ ===== ============ ===== ==== ============== ===== ====
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Numbers may not total 100% due to rounding.
(2) Values for CenterAmerica and Quail Springs Mall were calculated based on underwritable NOI and a cap rate.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
6
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN HOTEL DEL CORONADO
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $166,000,000 $164,947,035
ORIGINATION DATE: December 2, 1997
INTEREST RATE: 6.9%
AMORTIZATION: 300 Months
HYPERAMORTIZATION: After the Effective Maturity Date,
interest rate increases to 8.9%. All
excess cash flow is used to reduce the
outstanding principal balance; the
additional 2% interest accrues
interest at the increased rate and is
deferred until the principal balance
is zero.
EFFECTIVE MATURITY
DATE: January 1, 2008
MATURITY DATE: January 1, 2023
BORROWER/SPONSOR: L-O Coronado Holding II, Inc., a
wholly owned subsidiary of Ohio PERS,
which is advised by Lowe Enterprises
CALL PROTECTION: 2-year lockout from the date of
securitization, with U.S. government
securities defeasance thereafter. Loan
prepayable at par beginning on the
Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) if at
any time the DSCR for the trailing 12
months is < 1.25x, or (ii) following
acceleration of the loan after an
Event of Default or (iii) at the
Effective Maturity Date
UP FRONT RESERVES: Required Repair Fund: $2,637,025
Environmental: $39,317
GENERAL MONTHLY
RESERVES: 1/12 of Property Taxes and Insurance
and Capital Expenditures and FF&E
Reserves equal to 5% of the previous
month's gross revenue.
COLLECTION ACCOUNT: Hard Lock-Box
CROSS-
COLLATERALIZATION/
DEFAULT: N/A
EARTHQUAKE
INSURANCE: Yes
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE
ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Hotel
LOCATION: Coronado, California
YEAR BUILT/RENOVATED: 1888/Renovated periodically over
time. Last major renovation
completed in 1988. Lowe will be
undertaking a 5 - year, $50MM program.
THE COLLATERAL: World renowned destination resort
hotel with 692 rooms, 73,034 S.F. of
banquet and meeting space, 7
restaurants and lounges, 30 retail
shops, 6 tennis courts, 2 pools, a
health club and a boat house/marina.
Property has beachfront location.
PROPERTY
MANAGEMENT: Destination Coronado Hotel, Inc., a
subsidiary of Destination Hotel &
Resorts, a subsidiary of Lowe
Enterprises
LTM
AVERAGE OCCUPANCY: FEB. 1998 1996 1995
--------- ---- ----
85% 84% 80%
ADR: $202.80 $179.76 $165.31
REVPAR: $173.15 $151.36 $131.56
1997 NET OPERATING
INCOME: $33,818,866
UNDERWRITABLE CASH
FLOW: $28,728,037
APPRAISED VALUE(1): $330,000,000
APPRAISED BY: HVS International
APPRAISAL DATE: October 28, 1997
CUT-OFF DATE AT EMD(2)
LOAN/ROOM: $238,363 $188,098
LTV: 50.0% 39.4%
DSCR: 2.06x(3) 2.63x(4)
Notes: (1) Purchased in August, 1997 for the same price.
(2) Effective Maturity Date.
(3) Based on Underwritable Cash Flow and Actual Debt
Service.
(4) Based on Underwritable Cash Flow and recalculated
Debt Service assuming original financing terms and
the EMD balance.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
7
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN CENTERAMERICA POOL
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $163,000,000 $163,000,000
ORIGINATION DATE: Estimated to be May 20, 1998
INTEREST RATE: 6.67%
AMORTIZATION: 360 Months
HYPERAMORTIZATION: After the Effective Maturity Date,
interest rate increases to 8.67%. All
excess cash flow is used to reduce the
outstanding principal balance; the
additional 2% interest accrues
interest at the increased rate and is
deferred until the principal balance
is zero.
EFFECTIVE MATURITY June 1, 2008
DATE:
MATURITY DATE: June 1, 2028
BORROWER/SPONSOR: CenterAmerica Capital Partnership, L.P.,
a special-purpose borrowing entity
controlled by Morgan Stanley Real Estate
Fund II, L.P., ("MSREF"), which is
sponsored, asset managed and 10% owned
by Morgan Stanley, Dean Witter, Discover
& Co.
CALL PROTECTION: 2-year lockout from the date of
securitization, with U.S. government
securities defeasance thereafter. Loan
prepayable at par beginning on the
Effective Maturity Date.
SUBSTITUTION: Property substitution is permitted
subject to certain conditions.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (I) after a
monetary event of default; (ii) upon
gross negligence fraud or willful
misconduct; and (iii) upon transfer of
all the properties unless transfer is to
an entity with sufficient management
expertise.
UP FRONT RESERVES: Environmental Reserve: Approximately
$200,000
GENERAL MONTHLY
RESERVES: 1/12 of Property Taxes and Insurance,
Capital Expenditure reserves of
$.15/S.F. per year and $.35/S.F. per
year for TIs and LCs
COLLECTION ACCOUNT: Hard Lock-Box
CROSS-
COLLATERALIZATION/
DEFAULT: Cross-collateralized and
cross-defaulted
MEZZANINE LOANS: $47,000,000 currently held by Morgan
Stanley Mortgage Capital Inc.
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE Portfolio
ASSET/PORTFOLIO:
PROPERTY TYPE: 44 Community Retail Centers
LOCATION: Location by Allocated Loan Amount:
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED
FOR THE PURPOSE OF EDGAR FILING.]
[PIE CHART]
CORPUS CHRISTI
9.6%
DALLAS
FORT WORTH
25.9%
HOUSTON
64.5%
YEAR BUILT/RENOVATED: Between 1950 and 1995.
See Property Summary Table for detail
THE COLLATERAL: 44 community and neighborhood retail
shopping centers encompassing total
GLA of 4,761,994 S.F.
Anchors include: Krogers, Walgreens,
Minyards, H.E.B. Pantry, Eckerd Drugs,
and Weiner's.
PROPERTY
MANAGEMENT: CenterAmerica Property Trust, L.P.
OCCUPANCY
(AS OF 12/31/97): 92%
1997 NET OPERATING
INCOME: $25,518,237
UNDERWRITABLE CASH
FLOW: $23,348,985
CALCULATED VALUE AT
AN 9.5% CAP RATE ON
UNDERWRITABLE NOI: $266,073,957
MARKET STUDY Aaron and Wright Incorporated
PERFORMED BY:
MARKET STUDY DATE: April 29, 1998
CUT-OFF DATE AT EMD(1)
LOAN/SF: $34 $30
LTV: 61.3% 53.0%
DSCR(1): 1.86x(2) 2.15x(3)
Notes: (1) Effective Maturity Date.
(2) Based on Underwritable Cash Flow and Actual Debt
Service.
(3) Based on Underwritable Cash Flow and recalculated
Debt Service assuming original financing terms and
the EMD balance.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
8
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN CENTERAMERICA POOL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPERTY SUMMARY TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
BASE RENT
ALLOCATED PSF PRIMARY TENANTS WITH
LOAN TOTAL YEAR 1997 UNDERWRITABLE DECEMBER 15,000 SF
PROPERTY NAME LOCATION AMOUNT SF/UNITS BUILT OCCUPANCY CASH FLOW 31, 1997 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wynnewood Village Dallas $15,196,700 632,229 1978 92.9% $2,176,914 $4.80 (1)
Westheimer Commons Houston 13,612,700 249,789 1981 93.5 1,949,953 8.84 (2)
Five Points Corpus 12,625,600 276,657 1980 99.1 1,808,562 7.01 (3)
Christi
Northtown Plaza Houston 8,438,900 198,104 1960 100.0 1,208,832 7.20 Weiner's (2002), Mac
Frugal's(2010), OfficeMax
(2001)
Texas City Bay Texas City 7,649,100 233,984 1980 97.2 1,095,699 5.21 Kroger (2014), Kmart (2019)
Braes Heights Houston 6,055,900 113,078 1959 89.3 867,473 9.11 CenterAmerica (2002),
Weiner's (2006)
Highland Village Highland 5,828,100 88,841 1995 100.0 834,842 10.53 Minyard's (2016)
Town Center Village
Clearlake/ Camino Houston 5,365,400 101,218 1964 100.0 768,565 8.28 Hancock Fabrics (2006),
South H.E.B. Pantry (2007)
Park Plaza Houston 5,140,300 211,923 1980 89.8 736,327 4.52 Kmart (2004), Fiesta Mart
(2000)
Parktown Center Deer Park 4,905,300 121,621 1970 97.7 702,659 5.69 (4)
and Parktown
Center East
Moore Square Houston 4,043,200 132,239 1975 81.0 579,175 5.56 Randall's (2010), Walgreen's
(2017)
Moore Village Houston 3,828,500 108,094 1978 100.0 548,410 6.02 Hobby Lobby (2011), Hoffer
Furniture (2007)
Huntington Village Houston 3,702,500 112,287 1980 89.1 530,367 5.87 Gerland (2005)
Williamstown Houston 3,680,800 70,328 1978 87.0 527,256 8.72 Michael's (1999)
Village Plaza Garland 3,446,800 80,581 1960 100.0 493,737 7.48 Troung Nguyen Supermarket
(2007)
Jefferson Park Mount 3,360,600 130,541 1985 92.6 481,383 4.36 Super 1 (2001), Beall's (2010)
Pleasant
Webb Royal Plaza Dallas 3,348,000 108,819 1961 85.8 479,588 5.66 Minyard's (2005)
Carmel Village Corpus 3,093,000 86,678 1965 91.4 443,061 5.87 Beall's (2001)
Christi
Klein Square Houston 3,058,600 80,857 1977 83.1 438,132 6.34 Gerland (2002)
Brenham Four Brenham 2,993,900 113,147 1975 98.3 428,855 4.14 H.E.B. Pantry Foods (2012),
Corners Weiner's (2002)
Tanglewilde Houston 2,823,600 86,590 1972 87.6 404,471 6.94 Safeway (2014)
Maplewood Mall Houston 2,679,900 95,684 1962 93.4 383,890 4.51 Cox's Foodarama (2000),
Weiner's (2000)
Jeff Davis Dallas 2,674,100 69,563 1965 100.0 383,053 5.26 Carnival (2000)
League City League 2,556,000 100,030 1966 89.4 366,138 4.51 Cloth World (2007), Beall's
City (2000), H.E.B. Pantry (2007)
Braes Oaks Houston 2,384,100 46,720 1966 100.0 341,508 8.53 H.E.B. Pantry Foods (2007)
Stevens Park Dallas 2,379,500 45,492 1974 100.0 340,852 8.75 Minyard's (2016)
Cedar Bellaire Bellaire 2,312,700 50,997 1950 100.0 331,288 7.40 H.E.B. Pantry (2009)
Countryside Village Houston 2,258,900 136,470 1977 50.8 323,570 3.31 (5)
Broadway Houston 2,247,000 74,932 1977 100.0 321,867 4.95 Walgreen's (2006), Rice Food
Markets (2001)
Long Pointe Plaza Houston 2,203,600 65,332 1957 93.1 315,651 6.04 (5)
Lamar Plaza Rosenberg 2,174,200 150,133 1972 68.8 311,442 3.38 Kroger (2001) and Weiner's
(2000)
Highland Village Dallas 2,069,800 66,942 1985 93.7 296,489 5.63 Minyard's (2016)
Tidwell Plaza Houston 1,953,000 41,630 1983 100.0 279,751 7.87 Walgreen's (2017)
Forest Hills Fort Worth 1,872,800 70,390 1972 100.0 268,265 4.92 Winn-Dixie (2006)
Washington Square Kaufman 1,819,700 65,050 1985 96.7 260,662 3.81 Brookshire's (1998)
Northgate Houston 1,800,700 43,245 1978 100.0 257,936 7.21 OfficeMax (2005)
Parkview West Pasadena 1,651,400 39,774 1966 93.3 236,558 7.16 (5)
Parkview East Pasadena 1,471,100 41,169 1968 75.7 210,723 6.27 (5)
El Camino Bellaire 1,457,100 59,575 1972 100.0 208,723 4.20 Davis Food City (2002)
Palm Plaza Aransas 1,065,300 52,102 1978 97.6 152,598 3.49 IGA (1999), Wilcox Furniture
Pass (1998)
Bryan Square Bryan 895,400 55,115 1965 100.0 128,259 3.24 Kroger (2001)
Lazybrook Houston 654,200 10,745 1965 100.0 93,706 10.14 (5)
North Hills Village Haltom 222,000 43,299 1972 44.4 31,794 2.05 (5)
City ------------ --------- ---- ----------- ------
TOTAL/WEIGHTED
AVERAGE $163,000,000 4,761,994 91.8% $23,348,985 6.39(6)
============ ========= ==== =========== ======
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: Major tenants and lease expirations:
(1) Kroger (2000), Colbert's (2002), Weiner's (1999), Mac Frugal's (2003), Rhoton's Food For Less (2002), former Montgomery
Ward, and 50-Off (2000).
(2) Kroger (2004), Michael's (2006) and Marshall's (2010).
(3) Solo Serve (2002), Sutherland Lumber (2006), Beall's (2003), Hobby-Lobby (2003).
(4) Walgreen's (2056), Gerland's Food Fair (2016), Weiner's (1999).
(5) No tenants with 15,000 square feet or more space.
(6) Excludes vacant space
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
9
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN CENTERAMERICA POOL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT
- ----------------------------------------------------------------------------------------------------------------------------
% OF % OF TOTAL ANNUALIZED
TENANT OR TENANT NO. OF TENANT TOTAL ANNUALIZED ANNUALIZED BASE
PARENT COMPANY(1) STORE NAME STORES GLA (SF) GLA(2) BASE RENT BASE RENT(2) RENT PER SF
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Kroger Company Kroger 5(3) 261,934 5.5% $1,523,961 5.5% $5.82
Minyard Food Stores, Inc. Minyard's 4 168,153 3.5 1,081,370 3.9 6.43
Walgreen Company Walgreens 8 110,016 2.3 817,989 2.9 7.44
National Amusements, Inc. Blockbuster 11 90,387 1.9 816,482 2.9 9.03
H.E.B. Pantry Foods H.E.B. Pantry 5 159,394 3.3 682,281 2.4 4.28
Hobby Lobby Stores, Inc. Hobby Lobby 2(3) 97,130 2.0 611,616 2.2 6.30
JC Penney Company, Inc. Eckerd Drug 10 93,120 2.0 568,740 2.0 6.11
Store
Kmart Corporation Kmart 2 187,277 3.9 565,979 2.0 3.02
Weiner's Stores, Inc. Weiner's 7 165,119 3.5 446,805 1.6 2.71
Gerland Corporation Gerland 3 105,598 2.2 377,321 1.4 3.57
-- --------- ---- ---------- ---- -----
SUBTOTAL TEN LARGEST TENANTS 57 1,438,128 30.2% $7,492,544 26.8% $5.21
Other Major Tenants (greater than 5,000 SF) 2,014,905 42.3 11,135,005 39.9 5.53
Remaining Tenants 917,393 19.3 9,298,297 33.3 10.14
Vacant Space 391,568 8.2 0 0.0 0.00
--------- ----- ----------- ----- -------
TOTAL/WEIGHTED AVERAGE 4,761,994 100.0% $27,925,846 100.0% $6.39(4)
========= ===== =========== ===== =====
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LEASE EXPIRATION SCHEDULE
- ----------------------------------------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF ANNUAL TOTAL CUMULATIVE
LEASES EXPIRING PERCENT OF ANNUALIZED BASE RENT BASE PERCENT OF
YEAR EXPIRATION EXPIRING SF TOTAL SF (2) CUMULATIVE BASE RENT PER SF RENT(2) BASE RENT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 99 391,568 8.2% 8.2% -- -- 0.0% 0.0%
Month to Month 16 20,468 0.4 8.7 $ 139,150 $6.80 0.5 0.5
1998 131 372,531 7.8 16.5 2,740,112 7.36 9.8 10.3
1999 146 627,422 13.2 29.7 3,658,121 5.83 13.1 23.4
2000 150 626,282 13.2 42.8 4,029,612 6.43 14.4 37.8
2001 101 482,500 10.1 52.9 3,418,105 7.08 12.2 50.1
2002 117 540,188 11.3 64.3 3,653,597 6.76 13.1 63.2
2003 31 210,634 4.4 68.7 1,663,947 7.90 6.0 69.1
2004 14 186,485 3.9 72.6 1,199,889 6.43 4.3 73.4
2005 15 114,536 2.4 75.0 678,609 5.92 2.4 75.8
2006 15 233,601 4.9 79.9 1,080,858 4.63 3.9 79.7
2007 16 194,574 4.1 84.0 1,141,088 5.86 4.1 83.8
2008 or later 34 761,205 16.0 100.0 4,522,758 5.94 16.2 100.0
--- --------- ----- ----------- ---- -----
TOTAL 885 4,761,994 100.0% $27,925,845 6.39 (4) 100.0%
=== ========= ====== =========== ==== =====
- ----------------------------------------------------------------------------------------------------------------------------
Notes: (1) The parent company may not be the obligor under the applicable lease.
(2) Numbers may not total 100% due to rounding.
(3) Kroger occupies four stores; one store is sub-leased to Hobby-Lobby.
(4) Excludes vacant space.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
10
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN WELLS FARGO TOWER
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $144,000,000 $143,855,648
ORIGINATION DATE: May 1, 1998
INTEREST RATE: 7.17%
AMORTIZATION: 300 Months
HYPERAMORTIZATION: After the Effective Maturity Date,
interest rate increases to 9.17%. All
excess cash flow is used to reduce the
outstanding principal balance; the
additional 2% interest accrues
interest at the increased rate and is
deferred until the principal balance
is zero.
EFFECTIVE MATURITY April 30, 2005
DATE:
MATURITY DATE: April 30, 2023
BORROWER/SPONSOR: Managing and other members consist of
affiliates of : Wells Fargo Bank,
Mitsui Mutual Life, Maguire Partners
and Gibson Dunn & Crutcher.
CALL PROTECTION: 2-year lockout from the date of
securitization, with U.S. government
securities defeasance thereafter. Loan
prepayable at par beginning on the
Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated if (i)
NOI for the trailing twelve months
falls below $19,000,000, or (ii) upon
an Event of Default under the Loan
Documents or Management Agreement.
UP FRONT RESERVES: Tenant Improvement: $9,000,000
GENERAL MONTHLY
RESERVES: 1/12 of Property Taxes and Insurance
and Capital Expenditures of $.15 per
square foot
COLLECTION ACCOUNT: Hard Lock-Box
CROSS-
COLLATERALIZATION/
DEFAULT: N/A
EARTHQUAKE
INSURANCE: Yes
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE Single Asset
ASSET/PORTFOLIO:
PROPERTY TYPE: Class A Office
LOCATION: Los Angeles, California
YEAR
BUILT/RENOVATED: 1982
THE COLLATERAL: 54 Story Class A office building with
1,336,248 S.F. of net rentable area,
which includes 69,139 S.F. of retail
space.
MAJOR TENANTS: Wells Fargo Bank; Gibson, Dunn &
Crutcher; Oaktree Capital (lease
commences April, 1999); Thelen Marrin
Johnson & Bridges; Peterson Ross; Payden
& Rygel; Salomon Smith Barney; Paine
Webber; Sumitomo Trust; Peterson Ross
and Donovan Leisure.
PROPERTY
MANAGEMENT: Maguire Partners Development, Ltd. or
an affiliate
OCCUPANCY
(AS OF 1/31/98): 92% Leased
1997 NET OPERATING
INCOME: $23,876,023
UNDERWRITABLE CASH
FLOW: $20,276,676
APPRAISED VALUE: $235,000,000
APPRAISED BY: Cushman & Wakefield
APPRAISAL DATE: February 27, 1998
CUT-OFF DATE AT EMD(1)
LOAN/SF: $108 $95
LTV: 61.2 % 53.8%
DSCR: 1.64x(2) 1.86x(3)
Notes: (1) Effective Maturity Date.
(2) Based on Underwritable Cash Flow and Actual Debt
Service.
(3) Based on Underwritable Cash Flow and recalculated
Debt Service assuming original financing terms and
the EMD balance.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
11
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN WELLS FARGO TOWER
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT(1)
- ---------------------------------------------------------------------------------------------------------------------------
TENANT NET % OF TOTAL % OF TOTAL ANNUALIZED
TENANT NAME RENTABLE NET RENTABLE ANNUALIZED ANNUALIZED BASE
PARENT COMPANY (LEASE EXPIRATION) AREA (SF) AREA(2) BASE RENT BASE RENT(2) RENT PER SF
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gibson Dunn & Crutcher Gibson Dunn & Crutcher 224,958 16.8% $4,818,402 21.1% $21.42
(2012)
Wells Fargo and Co. Wells Fargo (2013) 253,718 19.0 4,473,755 19.6 17.63
Travelers Group Inc. Salomon Smith Barney (2002) 50,648 3.8 1,924,632 8.4 38.00
Thelen Marrin Johnson Thelen Marrin Johnson & 53,884 4.0 1,205,688 5.3 22.38
& Bridges LLP Bridges LLP (2002)
Oaktree Capital(4) Oaktree Capital (2009) 73,473 5.5 1,138,832 5.0 15.50
PaineWebber Group PaineWebber (2001) 44,986 3.4 1,027,934 4.5 22.85
Sumitomo Bank Ltd. Sumitomo Trust (2002) 25,324 1.9 886,344 3.9 35.00
Payden and Rygel Payden & Rygel (2004) 48,982 3.7 704,728 3.1 14.39
Peterson Ross Peterson Ross (2001) 24,145 1.8 688,464 3.0 28.51
Donovan Leisure Donovan Leisure (1999) 24,887 1.9 622,175 2.7 25.00
Newton and Irvine --------- ----- ----------- ----- ------
SUBTOTAL TEN LARGEST TENANTS 825,005 61.7% $17,490,953 76.6% $21.20
Other Tenants 406,273 30.4 5,355,407 23.4 13.18
Vacant Tenants 104,970 7.9 - 0.0 -
TOTAL/WEIGHTED AVERAGE 1,336,248 100.0% $22,846,360 100.0% $18.55(3)
========= ===== =========== ===== ======
<CAPTION>
HISTORICAL OCCUPANCY
- ---------------------------------------------------------------------------------------------------------------------------
OCCUPANCY PERIOD/DATE: PERCENT LEASED
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
January 31, 1998 92%
January 31, 1997 94%
February 29, 1996 90%
January 31, 1995 94%
- ---------------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on the 1/31/98 rent roll.
(2) Numbers may not total 100% due to rounding (3) Excludes vacant space (4) Oaktree Capital lease commences
April, 1999
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
12
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN WELLS FARGO TOWER
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEASE EXPIRATION SCHEDULE(1)
- ----------------------------------------------------------------------------------------------------------------------
PERCENT OF CUMULATIVE
NUMBER OF CUMULATIVE ANNUALIZED ANNUALIZED PERCENT OF
LEASES EXPIRING PERCENT OF PERCENT OF ANNUALIZED BASE RENT TOTAL BASE ANNUALIZED
EXPIRATION YEAR EXPIRING SF TOTAL SF SF BASE RENT PER SF RENT BASE RENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant - 104,970 7.9% 7.9% - - 0.0% 0.0%
Month-to-Month 15 21,174 1.6 9.4 $161,536 $7.63 0.7 0.7
1998 33 74,723 5.6 15.0 1,064,838 14.25 4.7 5.4
1999 7 53,391 4.0 19.0 1,408,028 26.37 6.2 11.5
2000 10 33,834 2.5 21.6 401,318 11.86 1.8 13.3
2001 16 133,818 10.0 31.6 2,429,842 18.16 10.6 23.9
2002 13 164,389 12.3 43.9 4,401,616 26.78 19.3 43.2
2003 9 57,227 4.3 48.2 502,753 8.79 2.2 45.4
2004 5 77,827 5.8 54.0 972,093 12.49 4.2 49.6
2005 0 - 0.0 54.0 - - 0.0 49.6
2006 3 19,017 1.4 55.4 345,494 18.17 1.5 51.2
2007 4 40,779 3.1 58.5 682,281 16.73 3.0 54.1
2008 or Later (2) 30 555,099 41.5 100.0 10,476,561 18.87 45.9 100.0
-- ------- ---- ----- ---------- ----- ---- -----
TOTAL/WEIGHTED 146 1,336,248 100.0% $22,846,360 $18.55 (3) 100.0%
AVERAGE === ========= ===== =========== ====== =====
- ----------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on the 1/31/98 rent roll.
(2) Includes the Oaktree Capital Lease for floors 27-29 for a total of 73,473 square feet and $1,138,832 of
annualized base rent.
(3) Excludes vacant space.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
13
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN WEST TOWN MALL
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $76,000,000 $76,000,000
ORIGINATION DATE: October 17,1997
INTEREST RATE: 6.9%
AMORTIZATION: Interest only until Effective Maturity
Date
HYPERAMORTIZATION: After the Effective Maturity Date, the
principal begins a 240 month
amortization, based on a monthly
payment of $584,674 and an interest
rate of 6.9% with interest accruing at
8.9%. All excess cash flow is used to
reduce the outstanding principal
balance; the additional 2% interest
accrues interest at the increased rate
and is deferred until the principal
balance is zero.
EFFECTIVE MATURITY
DATE: May 1, 2008
MATURITY DATE: May 1, 2028
BORROWER/SPONSOR: West Town Mall Joint Venture, a joint
venture between the Rodamco Group and
the Simon DeBartolo Group, L.P.
CALL PROTECTION: Lockout through the date 3 years after
origination, with U.S. government
securities defeasance thereafter
through 6 months prior to the
Effective Maturity Date. Loan
prepayable at par after 6 months prior
to the Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Upon Event of Default
UP FRONT RESERVES: None
GENERAL MONTHLY
RESERVES: None
COLLECTION ACCOUNT: None until Effective Maturity Date.
Hard Lock Box thereafter.
CROSS-
COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE Single Asset
ASSET/PORTFOLIO:
PROPERTY TYPE: Regional Mall
LOCATION: Knoxville, Tennessee
YEAR
BUILT/RENOVATED: 1972/1995 and present
THE COLLATERAL: A five anchor super-regional mall,
with a total GLA of 1,336,901 S.F.,
mall store space of 381,626 S.F.,
878,695 S.F. of anchor stores and a
76,580 S.F. Regal Cinema scheduled to
be opened by Summer of 1998.
Collateral is 381,626 s.f. mall store
space and 382,743 s.f. of anchor
space, which includes the Regal Cinema
space.
Anchors include Dillard's, Sears,
Proffit's, J.C. Penney and Parisian.
The mall is located in a community of
mid -to high-income homes.
PROPERTY
MANAGEMENT: Simon DeBartolo Group, L.P.
PERCENT OF MALL
STORE SPACE LEASED
AS OF 2/12/98: 92%
1997 NET OPERATING
INCOME: $13,383,720
UNDERWRITABLE CASH
FLOW: $14,192,113
APPRAISED VALUE: $160,000,000
APPRAISED BY: Cushman & Wakefield
APPRAISAL DATE: October 17, 1997
CUT-OFF DATE AT EMD (1)
LOAN/UNIT: $99 $99
LTV: 47.5% 47.5%
DSCR: 2.71x(2) 2.71x(3)
MALL STORE SALES 1996 1997
---- ----
PSF(4): $325 $338
Notes: (1) Effective Maturity Date.
(2) Based on Underwritable Cash Flow and Actual Debt
Service.
(3) Based on Underwritable Cash Flow and recalculated
Debt Service assuming original financing terms
and the EMD balance.
(4) Comparable Mall Store Sales.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
14
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN WEST TOWN MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST MALL STORES AND ANCHOR TENANTS BASED ON ANNUALIZED BASE RENT(1)
- -----------------------------------------------------------------------------------------------------------------------
% OF TOTAL ANNUALIZED
TENANT OR TENANT TENANT % OF TOTAL ANNUALIZED ANNUALIZED BASE
PARENT COMPANY STORE NAME GLA GLA BASE RENT BASE RENT RENT PER SF
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Limited, Inc. Lane Bryant 47,900 6.3% $975,228 6.9% $20.36
The Limited
Lerner New York
Victoria's Secret
Compagnie Int'l Express
The Gap, Inc. The Gap 18,663 2.4 460,494 3.2 24.67
Gap Kids
Banana Republic
Woolworth, Corp. Champs Sports 11,255 1.5 314,610 2.2 27.95
Foot Locker
Abercrombie and Fitch, Abercrombie and Fitch 10,804 1.4 216,080 1.5 20.00
Inc.
Time/Warner Warner Bros. Studio 6,503 0.8 162,575 1.1 25.00
Musicland, Inc. Sam Goody 6,006 0.8 162,162 1.1 27.00
Sports Seasons, Inc. Sports Seasons 5,735 0.8 154,845 1.1 27.00
Ann Taylor, Inc. Ann Taylor 5,796 0.8 144,900 1.0 25.00
Eddie Bauer, Inc. Eddie Bauer 5,960 0.8 143,040 1.0 24.00
Store of Knowledge, Inc. Store of Knowledge 4,647 0.6 139,410 1.0 30.00
SUBTOTAL TEN LARGEST TENANTS 123,269 16.1% $2,873,347 20.2 $23.31
------- ------ ----------- ------ ------
Remaining (excluding non-owned anchors) 228,446 29.9 6,383,770 45.0 27.81
Vacant Space 29,911 3.9 0 0.0 0.00
------- ------ ----------- ------ ------
SUBTOTAL (EXCLUDING NON-OWNED ANCHORS) 381,626 49.93% $9,257,117 65.22% $26.32(2)
Regal Cinemas, Inc. Regal Cinemas 76,580 10.0% $1,263,570 8.90% $16.50
Proffitt's Inc. Parisian 306,163 40.0 3,673,956 25.88 12.00
Proffitt's
------- ------ ----------- ------ ------
TOTAL (EXCLUDING NON-OWNED ANCHORS) 764,369 100.00% $14,194,643 100.00% $19.32(2)
======= ====== =========== ====== ========
- -----------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on the 2/12/98 rent roll.
(2) Does not include vacant and open expiration square footage.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
<PAGE>
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
15
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN WEST TOWN MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT RATING
OF PARENT ANCHOR- OPERATING 1997
COMPANY(1) OWNED/ LEASE COVENANT REA SALES
ANCHORS PARENT COMPANY (S*&P/MOODY'S) GLA COLLATERAL EXPIRATION(2) EXPIRATION(3) TERMINATION PSF
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proffitt's Proffitt's, Inc. BB/Ba2 162,885 Collateral 6/30/06(4) 7/15/04(5) NA $211
Parisian 143,278 Collateral 7/13/14(4) 7/13/09(6) NA 98
Sears Sears, Roebuck & A-/A2 182,140 Anchor-Owned NA 7/15/04(7) 7/15/44 N/A
Co.
Dillard's Dillard's Inc. A+/A2 243,110 Anchor-Owned NA 11/3/08(8) 7/15/44 N/A
J.C. J.C. Penney & Co. A/A2 147,282 Anchor-Owned NA 7/16/09(9) 7/15/44 N/A
Penney -------
TOTAL 878,695
=======
<CAPTION>
MALL STORE LEASE EXPIRATION SCHEDULE(10)
- -------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
NUMBER OF PERCENT OF CUMULATIVE ANNUAL PERCENT OF PERCENT OF
LEASES EXPIRING TOTAL PERCENT OF ANNUALIZED BASE RENT TOTAL BASE TOTAL BASE
YEAR OF EXPIRATION EXPIRING SF SF(12) TOTAL SF BASE RENT PER SF RENT(12) RENT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Month-to-Month 1 1,050 0.3% 0.3% $48,510 $46.20 0.5% 0.5%
Vacant N/A 29,911 7.8 8.1 N/A N/A N/A N/A
1998 8 8,413 2.2 10.3 320,395 38.08 3.5 4.0
1999 9 18,529 4.9 15.2 495,544 26.74 5.4 9.3
2000 7 5,538 1.5 16.6 202,700 36.60 2.2 11.5
2001 5 3,960 1.0 17.7 146,131 36.90 1.6 13.1
2002 10 18,033 4.7 22.4 573,021 31.78 6.2 19.3
2003 8 36,768 9.6 32.0 579,825 15.77 6.3 25.5
2004 24 53,174 13.9 45.9 1,577,601 29.67 17.0 42.6
2005 27 73,617 19.3 65.2 2,053,996 27.90 22.2 64.8
2006 16 40,559 10.6 75.9 1,137,504 28.05 12.3 77.0
2007 9 36,033 9.4 85.3 880,653 24.44 9.5 86.5
2008 9 46,365 12.2 97.5 1,009,992 21.78 10.9 97.5
2009 2 9,676 2.5 100.0 231,240 23.90 2.5 100.0
--- ------- --- ---------- --------- -----
TOTAL/WEIGHTED
AVG. 135 381,626 100% $9,257,117 $26.32(11) 100.0%
=== ======= === ========== ========= =====
- -------------------------------------------------------------------------------------------------------------------------
Notes: (1) Reflects long-term debt rating as of 4/7/98.
(2) Includes initial term and options identified in the lease.
(3) The expiration date of the covenant requiring the anchor store to
be open and operating (inclusive of current store name and other
store names) without taking into account co-tenancy or other
operating requirements.
(4) Based on the latest required term commencement date of the lease.
The actual commencement date and expiration date may be earlier.
(5) Proffitt's will operate provided retail department stores operate
under the following (1) Parisian or (2) J.C. Penney or such other
name.
(6) Parisian may terminate within 12 months if less than two of Sears,
J.C. Penney, Dillard and Profitt's are being operated. The
operating covenant is co-extensive with the shorter operating
covenant of either Dillard's or Profitt's.
(7) Sears must operate through 7/15/04 and must continue to operate for
an additional 5 years as long as (1) at least 65% of floor area of
Tenant's fronting the mall are operating, (2) at least 3 other
department stores are operating and (3) Developer is operating
shopping center.
(8) Operating covenant could also expire upon the date on which any
other Dept. Store's operating covenant expires. (9) JC Penney's
covenant also expires upon the following: (1) the last expiring or
relapsed operating covenant of other dept. store operators,
Parisian, Profitt's, or Sears, (2) any time in which both Parisian
and at least two of the other Department Stores operating under the
Dillard's, Profitt's' or Sears names are no longer open, or (3) any
time in which mall tenants in operation occupy less than 75% of the
net floor area of Developer Buildings
(10) Based on 2/12/98 rent roll.
(11) Excludes vacant space.
(12) Numbers may not total 100% due to rounding.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
16
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN MAGELLAN APARTMENT POOL
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $75,500,000 $75,113,551
ORIGINATION DATE: October 24, 1997
INTEREST RATE: 7.28%
AMORTIZATION: 360 Months
HYPERAMORTIZATION: N/A
EFFECTIVE MATURITY
DATE: N/A
MATURITY DATE: November 1, 2007
BORROWER/SPONSOR: 11 separate special-purpose borrowing
entities, each controlled by the
Magellan Real Estate Investment Trust.
CALL PROTECTION: 2-year prepayment lockout from the
date of securitization, with U.S.
government securities defeasance
thereafter. Loan prepayable at par
beginning 3 months prior to the
Maturity Date.
REMOVAL OF PROPERTY
MANAGER: Management may be terminated (i) at
any time the DSCR for the trailing 12
months is less than 1.10x unless
Borrower deposits additional
collateral to enable the Loan to meet
the test, or (ii) based upon a
monetary Event of Default, a property
related non-monetary Eventy of
Default, or acceleration under the
Loan Documents, or (iii) for fraud,
gross negligence or willful misconduct.
UP FRONT RESERVES: Required repairs $241,775
GENERAL MONTHLY
RESERVES: 1/12 of Property Taxes and Insurance
and Capital Expenditure reserves of
$255 per unit per year.
COLLECTION ACCOUNT: "Sweep Account" whereby Borrower
deposits gross receipts promptly into a
property account which is swept
regularly into a cash collateral account
used to pay debt service and establish
the reserves listed above.
CROSS-
COLLATERALIZATION/
DEFAULT: Cross-collateralized and
cross-defaulted
EARTHQUAKE
INSURANCE: Yes
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE
ASSET/PORTFOLIO: Portfolio
PROPERTY TYPE: Multifamily
LOCATION: Location by Allocated Loan Amount:
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED
FOR THE PURPOSE OF EDGAR FILING.]
[PIE CHART]
ARIZONA
44.5%
CALIFORNIA
55.5%
YEAR
BUILT/RENOVATED: Between 1980 and 1990
THE COLLATERAL: 11 properties with 2,270 residential
units
PROPERTY
MANAGEMENT: Magellan Residential, L.L.C.
OCCUPANCY
(AS OF 2/25/98): 94%
1997 NET OPERATING
INCOME: $8,176,100
UNDERWRITABLE CASH
FLOW: $8,332,513
APPRAISED VALUE: $94,775,000
APPRAISED BY: CB Commercial Real Estate Services
APPRAISAL DATE: September 8 - September 22, 1997
CUT-OFF DATE AT MATURITY
LOAN/UNIT: $33,090 $29,211
LTV: 79.3% 70.0%
DSCR: 1.34x(1) 1.53x(2)
Notes: (1) Based on Underwritable Cash Flow and Actual Debt
Service.
(2) Based on Underwritable Cash Flow and recalculated
Debt Service assuming original financing terms and
the EMD balance.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
17
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN MAGELLAN APARTMENT POOL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPERTY SUMMARY TABLE
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE
MONTHLY
AVERAGE RENT
APPROX. UNIT PER AVERAGE
RENTABLE SIZE UNIT ECONOMIC
MORTGAGED PROPERTY YEAR NUMBER AREA (SQ. AS OF OCCUPANCY AS APPRAISED
PROPERTY LOCATION COMPLETED OF UNITS 1 BDR 2 BDR (SQ. FT.) FT.) 12/31/97 OF 2/28/98 VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Acacia Park Los Angeles, CA 1989 320 128 192 290,880 909 $713 96.2% $18,300,000
Bradbury Los Angeles, CA 1987 136 34 94 104,380 768 568 94.0 4,750,000
Place(1)
Canterbury Phoenix, AZ 1986 348 140 208 246,052 707 520 94.5 13,750,000
Hills
Dobson Phoenix, AZ 1980 120 18 102 102,600 855 573 96.7 5,200,000
Springs
El Royale Los Angeles, CA 1990 98 36 62 83,664 854 617 91.9 3,500,000
Harbor Los Angeles, CA 1988 192 171 21 161,640 842 513 88.2 5,600,000
Grand
Las Palmas Phoenix, AZ 1982 106 52 54 83,968 792 540 94.8 3,725,000
Maryland Phoenix, AZ 1987 364 192 172 258,840 711 421 96.3 11,200,000
Meadows
Northwood Phoenix, AZ 1981 202 130 72 141,918 703 464 95.7 6,850,000
Village
Rancho Las Los Angeles, CA 1989 200 48 152 154,960 775 633 91.1 8,800,000
Brisas
Sea Bluffs San Diego, CA 1989 184 88 96 150,512 818 832 91.2 13,100,000
----- ----- ----- --------- --- ---- ---- -----------
TOTAL/WEIGHTED AVERAGE 2,270 1,037 1,225 1,779,414 784 $572 94.0% $94,775,000
===== ===== ===== ========= === ==== ==== ===========
- --------------------------------------------------------------------------------------------------------------------------------
Note: (1) Bradbury Place Apartments contains 8 studios which are not listed, but are reflected in the totals.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
18
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN GLENBOROUGH POOL
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $60,000,000(1) $59,465,982
ORIGINATION DATE: August 26, 1997
INTEREST RATE: 7.5%
AMORTIZATION: 300 Months(1)
HYPERAMORTIZATION: After the Effective Maturity Date,
interest rate increases to 9.5%. All
excess cash flow is used to reduce the
outstanding principal balance; the
additional 2% interest accrues
interest at the increased rate and is
deferred until the principal balance
is zero.
EFFECTIVE MATURITY
DATE: October 1, 2007
MATURITY DATE: October 1, 2022
BORROWER/SPONSOR: Glenborough Fund V, Limited
Partnership, which is a subsidiary
of Glenborough Realty Trust, Inc.
CALL PROTECTION: Prepayment lockout prior to September
12, 2000; thereafter prepayable with a
prepayment premium of the greater of:
(i) yield maintenance at U.S. Treasury
flat and (ii) 1% of the amount
prepaid. Loan prepayable at par
beginning on the Effective Maturity
Date. Property releases permitted
after lockout subject to certain
conditions generally including 125%.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) if
the DSCR for the 12 trailing months is
1.50x or less, unless Borrower
deposits additional collateral to
enable the Loan to meet the DSCR test;
or (ii) upon an Event of Default under
the Loan
UP FRONT RESERVES: None. Borrower obligation to perform
required repairs is guaranteed by
Glenborough Realty Trust, Inc.
GENERAL MONTHLY
RESERVES: Required only in the Event of Default
or Debt Service Coverage Failure.
1/12 of Property Taxes and Insurance,
Capital Expenditures and TI costs.
COLLECTION ACCOUNT: Springing Lock-Box
CROSS-
COLLATERALIZATION/
DEFAULT: Cross-collateralized and
cross-defaulted
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE Portfolio
ASSET/PORTFOLIO:
PROPERTY TYPE: 10 Properties: 5 Office Buildings, 4
Industrial/Flex, 1 Multifamily
Apartment Building.
LOCATION: Location by Allocated Loan Amount:
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED
FOR THE PURPOSE OF EDGAR FILING.]
[PIE CHART]
VIRGINIA
8.5%
FLORIDA
7.2%
MISSOURI
8.7%
MINNESOTA
18.0%
CALIFORNIA
25.1
YEAR See Property Description Table
BUILT/RENOVATED:
THE COLLATERAL: 5 office properties totaling 677,486
square feet, 4 industrial and flex
properties totaling 459,019 square
feet and 1 apartment property of 224
units located in 7 states.
PROPERTY
MANAGEMENT: Glenborough Realty Trust, Inc.
AVERAGE OCCUPANCY
(AS OF 12/31/97): 98%
1997 NET OPERATING
INCOME: $11,947,012
UNDERWRITABLE CASH
FLOW: $10,254,023
APPRAISED VALUE: $115,900,000
APPRAISED BY: Various
APPRAISAL DATE: Between May 1997 and June, 1997
CUT-OFF DATE AT EMD(2)
LOAN/SF: $52 $43
LTV: 51.3% 42.0%
DSCR: 1.93x(3) 2.37x(3)
Notes: (1) Loan Balance and Amortization Term was $59,862,783
and 298 months respectively as of the December,
1997 Loan modification date
(2) Effective Maturity Date
(3) Based on Underwritable Cash Flow and Actual Debt
Service.
(4) Based on Underwritable Cash Flow and recalculated
Debt service assuming original financing terms
and the EMD balance.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
19
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN GLENBOROUGH POOL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPERTY SUMMARY TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
BASE RENT
PSF/PER PRIMARY TENANTS
ALLOCATED YEAR DECEMBER UNIT WITH
LOAN TOTAL BUILT/ 31, 1997 UNDERWRITABLE DECEMBER 15,000 SF
PROPERTY NAME LOCATION AMOUNT SF/UNITS RENOVATED OCCUPANCY CASH FLOW 31, 1997 DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE
Centerstone Plaza Irvine, CA $14,965,606 157,579 1987 97.2% $2,309,048 $23.72 St. Joseph's
Hospital (2006)
Great Offices
(2003),
Riverview Office Bloomington, MN 10,703,877 227,346 1973 98.3 2,000,490 11.46 Health Systems
Tower Integration (2001)
Westford Corporate Westford, MA 5,351,938 163,247 1985 100.0 861,787 8.73 Cascade
Center Communication
(1999)
Sentry Insurance
(1999)
700 South Washington Alexandria, VA 5,054,608 56,348 1989 100.0 1,052,008 23.33 Sutton Place
Gourmet Market
(2004), Ollif and
Berridge (2000)
Woodlands Plaza II Maryland Heights, 2,775,079 72,966 1983 97.6 457,592 16.14 No tenants with
MO more than 15,000
sf
OFFICE
SUBTOTAL/WEIGHTED $38,851,108 677,486 98.5% $6,680,925 $15.14
AVG.
FLEX/INDUSTRIAL
Southworth-Milton Milford, MA 4,955,499 146,125 1989 100.0 838,359 6.72 Southworth-Milton,
Inc. (1999)
Lakepoint I, II, III Orlando, FL 4,261,729 135,032 1985 93.8 764,302 9.50 Flying Food Group
(1998)
Attorney's Title
Insurance (1998)
Fisher Pierce Weymouth, MA 2,973,299 79,825 1988 100.0 528,414 7.45 Pacific
Scientific-Fisher
Pierce (2002)
Woodlands Tech Center Maryland Heights, 2,378,639 98,037 1986 100.0 457,290 8.40 Teleport
MO Communications
(2006)
FLEX/INDUSTRIAL $14,569,166 459,019 98.2% 2,588,365 8.02
SUBTOTAL/WEIGHTED
AVG.
MULTIFAMILY
Overlook Apartments Scottsdale, AZ 6,045,708 224 1987 97.0 984,734 7,282 Average unit size
is 839 SF
TOTAL/WEIGHTED AVERAGE $59,465,982 1,136,505 $10,254,024
=========== ========= ===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
20
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN GLENBOROUGH POOL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT
- ----------------------------------------------------------------------------------------------------------------------
% OF TOTAL ANNUALIZED
% OF ANNUALIZED ANNUALIZED BASE
TENANT NAME PROPERTY GLA TENANT GLA TOTAL BASE RENT BASE RENT RENT PER SF
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
St. Joseph's Hospital Centerstone 33,432 2.9% $1,086,012 8.0% $32.48
Health Systems Riverview Office Tower 87,311 7.7 1,003,628 7.4 11.49
Integration
Southworth-Milton, Inc. Southworth -Milton 146,125 12.9 981,733 7.2 6.72
Sentry Insurance Westford Corporate 81,632 7.2 938,768 6.9 11.50
Pacific Fisher Pierce 79,825 7.0 594,696 4.4 7.45
Scientific-Fisher
Pierce
Sutton Place Gourmet 700 South Washington 21,222 1.9 570,396 4.2 26.88
Cascade Communications Westford Corporate 81,615 7.2 486,535 3.6 5.96
Oliff & Berridge 700 South Washington 20,861 1.8 469,808 3.5 22.52
Attorney's Title Lake Point I, II, III 27,360 2.4 398,067 2.9 14.55
Insurance
Great Offices, Inc. Centerstone 15,265 1.3 314,337 2.3 20.59
--------- ----- ----------- ----- ------
SUBTOTAL TEN LARGEST TENANTS 594,648 52.3 $6,843,980 50.4 11.51
Remaining 523,372 46.1 6,747,591 49.6 12.89
Vacant Tenants 18,485 1.6 -- 0.0 --
--------- ----- ----------- ----- ------
TOTAL/WEIGHTED AVERAGE 1,136,505 100.0% $13,591,570(2) 100.0% $12.16(1)
========= ===== =========== ===== ======
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
OFFICE/INDUSTRIAL LEASE EXPIRATION SCHEDULE(3)
- -------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
NUMBER OF PERCENT CUMULATIVE ANNUAL PERCENT PERCENT OF
LEASES EXPIRING OF PERCENT OF ANNUALIZED BASE RENT OF TOTAL TOTAL
EXPIRATION YEAR EXPIRING SF TOTAL SF TOTAL SF BASE RENT PER SF BASE RENT BASE RENT
- -------------------------------------------------------------------------------------------------------------------------
Vacant 5 18,485 1.6% 1.6% $ $ 0.0% 0.0%
Month-to-Month 4 24,398 2.2 3.8 295,511 12.11 2.2 2.2
Not Paying
Rent/Free Rent 4 6,971 0.6 4.4 - - 0.0 2.2
Period
1998 23 103,429 9.1 13.5 1,297,155 12.54 9.5 11.7
1999(4) 27 381,215 33.5 47.0 3,450,993 9.05 25.4 37.1
2000 30 115,363 10.1 57.2 1,694,188 14.69 12.5 49.6
2001 17 167,710 14.8 71.9 1,902,209 11.34 14.0 63.6
2002 15 155,160 13.6 85.6 1,526,638 9.84 11.2 74.8
2003 3 30,792 2.7 88.3 666,105 21.63 4.9 79.7
2004 4 33,277 2.9 91.2 755,847 22.71 5.6 85.3
2005 3 4,125 0.4 91.6 73,648 17.85 0.5 85.8
2006 4 61,945 5.5 97.0 1,351,667 21.82 9.9 95.8
2007 2 33,635 3.0 100.0 577,604 17.17 4.2 100.0
--- --------- ----- ----------- ------ -----
TOTAL/WEIGHTED
AVERAGE 141 1,136,505 100.0% $13,591,570(2) $12.16(1) 100.0%
=== ========= ===== =========== ====== =====
- -------------------------------------------------------------------------------------------------------------------------
Notes: (1) Excludes vacant space of 18,485 square feet.
(2) Excludes Overlook Apartments rental income. Total potential rentalincome for Overlook Apartments is
$1,729,988.
(3) Based on the 12/31/97 rent roll.
(4) 1999 expirations includes Southworth-Milton Inc., with 146,125 square feet.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
21
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN EQR APARTMENT POOL
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $50,000,000 $50,000,000
ORIGINATION DATE: April 1, 1998.
INTEREST RATE: 6.79%
AMORTIZATION: Interest only until EMD.
HYPERAMORTIZATION: After the Effective Maturity Date, the
principal begins a 240 month
amortization based on an interest rate
of 6.79%. After the Effective
Maturity Date, interest rate increases
to 8.79%. All excess cash flow is
used to reduce the outstanding
principal balance; the additional 2%
interest accrues interest at the
increased rate and is deferred until
the principal balance is zero.
EFFECTIVE MATURITY April 1, 2008.
DATE:
MATURITY DATE: April 1, 2028.
BORROWER/SPONSOR: EQR-Flatlands, L.L.C., a
special-purpose borrowing entity,
controlled by Equity Residential
Properties Trust.
CALL PROTECTION: 2-year lockout from the date of
securitization, with U.S. government
securities defeasance thereafter. Loan
prepayable at par beginning 3 months
prior to the Effective Maturity Date.
SUBSTITUTION: Substitution of properties permitted
subject to certain conditions.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) upon an
Event of Default under the Loan
Documents and Lender's taking possession
of the related Property or (ii) based
upon manager's gross negligence, fraud
or willful misconduct.
UP FRONT RESERVES: Deferred Maintenance: $98,925
GENERAL MONTHLY
RESERVES: 1/12 of Property Taxes and Capital
Expenditure reserves of $275 per unit
per year. Funded by a letter of credit
in lieu of cash.
COLLECTION ACCOUNT: "Sweep Account" whereby Borrower
deposits gross receipts promptly into a
property account which is swept
regularly into a cash collateral account
used to establish the reserves listed
above, to the extent not funded by a
letter of credit.
CROSS-
COLLATERALIZATION/
DEFAULT: Cross-collateralized and
cross-defaulted
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE Portfolio
ASSET/PORTFOLIO:
PROPERTY TYPE: Multifamily
LOCATION: Location by Underwritable Net Cash
Flow:
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED
FOR THE PURPOSE OF EDGAR FILING.]
[PIE CHART]
ILLINOIS
17.1%
MINNESOTA
27.3%
WISCONSIN
55.6%
YEAR
BUILT/RENOVATED: See Property Description Table
THE COLLATERAL: 5 properties totaling 1,371
residential units. Two and three
story Class A garden apartments in
upper-middle class suburban locations
Large units with amenities including
pools, tennis courts, weight and aerobic
rooms.
PROPERTY
MANAGEMENT: Equity Residential Properties
Management Limited Partnership
AVERAGE OCCUPANCY
(AS OF DECEMBER 31,
1997): 94%
1997 NET OPERATING
INCOME: $7,775,231
UNDERWRITABLE CASH
FLOW: $7,855,798
APPRAISED VALUE: $100,650,000
TO BE APPRAISED BY: Cushman & Wakefield
APPRAISAL DATE: Between February 20, and February 27,
1998
CUT-OFF DATE AT EMD(1)
LOAN/UNIT: $36,470 $36,470
LTV: 49.7% 49.7%
DSCR: 2.28x(2) 2.28x(3)
Notes: (1) Effective Maturity Date.
(2) Based on Underwritable Cash Flow and Actual Debt
Service.
(3) Based on Underwritable Cash Flow and recalculated
Debt Service assuming original financing terms and
the EMD balance.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
22
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN EQR APARTMENT POOL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPERTY SUMMARY TABLE
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE
MONTHLY
APPROX. AVERAGE RENT PER
RENTABLE UNIT UNIT AS ECONOMIC
MORTGAGED PROPERTY YEAR NUMBER AREA SIZE OF OCCUPANCY AS APPRAISED
PROPERTY LOCATION COMPLETED OF UNITS 1 BDR 2 BDR (SQ. FT.) (SQ. FT.) 12/31/97 OF 12/31/97 VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gates at Minnetonka,
Carlson MN 1989 435 243 192 396,300 911 $ 851(2) 95.6% $29,300,000
Center
GlenGarry Bloomingdale, 1989 250 156 94 215,098 860 966(1) 93.2 18,600,000
Club IL
Plum Tree Hales
I, II, III Corner, 1989 332 64 268 355,074 1,070 867 93.2 23,750,000
WI
Ravinia Greenfield, 1991 206 42 164 219,932 1,068 838 94.0 13,500,000
WI
Woodlands of Brookfield,
Brookfield WI 1990 148 0 148 185,320 1,252 1,265 93.7 15,500,000
----- --- --- --------- ----- ------ ---- ------------
TOTAL/WEIGHTED AVERAGE 1,371 505 866 1,371,724 1,001 $ 935 94.1% $100,650,000
===== === === ========= ===== ====== ==== ============
- -------------------------------------------------------------------------------------------------------------------------------
Notes: (1) GlenGarry Club's Average Monthly Rent Per Unit is derived from annualizing 11 months 1997 actual rents.
(2) Average Monthly Rent per Unit is based on the 11/13/97 rent roll.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
23
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN CHARLESTOWNE MALL
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL $50,000,000 $50,000,000
BALANCE(1):
ORIGINATION DATE: February 25, 1998
INTEREST RATE(1): 7.73%
AMORTIZATION: 360 months
HYPERAMORTIZATION: After the Effective Maturity Date,
interest rate increases to 9.73%. All
excess cash flow is used to reduce the
outstanding principal balance; the
additional 2% interest accrues at the
increased rate and is deferred until the
principal balance is zero.
EFFECTIVE MATURITY March 1, 2005
DATE:
MATURITY DATE: March 1, 2028
BORROWER/SPONSOR: Charlestowne Mall, L.L.C., a
wholly-owned subsidiary of Wilmorite,
Inc., Ivanhoe, Inc. and their
affiliates.
CALL PROTECTION: 2-year prepayment lockout from the
date of securitization with U.S.
Treasury defeasance thereafter. Loan
prepayable at par beginning 3 months
prior to the Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be replaced by Lender (i)
if at any time the trailing twelve month
DSCR <1.10x, (ii) upon an Event of
Default under the loan or (iii) for
gross negligence, willful misconduct or
fraud.
UP FRONT RESERVES: Required Repair Fund: $241,313
Tenant Rollover/Remerchandising
Reserve Fund: $2,000,000
Theater Construction Reserve: Borrower
has escrowed $5,720,000 to be
released, among other events, upon
commencement of the cinema lease.
GENERAL MONTHLY
RESERVES: 1/12 of Property Taxes and Insurance,
Capital Reserves of $0.18/SF and Tenant
Rollover Reserves of $1.79/SF (mall
store space only).
COLLECTION ACCOUNT: Hard Lock-Box
CROSS-
COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: $10,000,000. Currently held by Morgan
Stanley Mortgage Capital Inc.
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE Single Asset
ASSET/PORTFOLIO:
PROPERTY TYPE: Retail
LOCATION: St. Charles, Illinois
YEAR
BUILT/RENOVATED: 1991, new theater construction in 1998
THE COLLATERAL: 2-story, 4-anchor regional mall, with
a total GLA of 822,318 S.F., including
mall store space of 331,215 S.F.,
419,603 S.F. of anchor stores and a
71,500 S.F. Regal Cinema Theater with
an expected opening date of April
1999. Collateral is 742,318 S.F.
Anchors include Carson Pirie Scott &
Co., JC Penney, Sears, and Kohl's.
PROPERTY Genesee Management, Inc., an affiliate
MANAGEMENT: of Wilmorite.
PERCENT OF MALL
STORE SPACE LEASED
AS OF 3/19/98: 78%
1997 NET OPERATING
INCOME: $6,931,959
UNDERWRITABLE CASH
FLOW: $7,306,601
APPRAISED VALUE: $86,600,000
APPRAISED BY: Landauer Associates, Inc.
APPRAISAL DATE: April 1, 1998
CUT-OFF DATE AT EMD(2)
LOAN/SF: $67 $63
LTV: 57.7% 54.0%
DSCR: 1.70x(3) 1.82x(4)
MALL STORE SALES 1996 1997
PSF(5): $213 $205
Notes: (1) Upon the permitted amendment to the loan.
(2) Effective Maturity Date.
(3) Based on Underwritable Cash Flow and Actual Debt
Service.
(4) Based on Underwritable Cash Flow and recalculated
Debt service assuming original financing terms and
the EMD balance.
(5) Comparable Mall Store Sales.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
24
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN CHARLESTOWNE MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST MALL STORE TENANTS AND ANCHOR LEASES BASED ON
ANNUALIZED BASE RENT BY PARENT COMPANY(1)
- --------------------------------------------------------------------------------------------------------------------
% OF TOTAL
% OF ANNUALIZED ANNUALIZED
TENANT OR TENANT TENANT TOTAL ANNUALIZED BASE BASE RENT
PARENT COMPANY STORE NAME GLA GLA(2) BASE RENT RENT(2) PER SF
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Limited Inc. Limited 41,414 12.5% $733,370 12.1% $17.71
Limited Express
Victoria's Secret
Lane Bryant
Lerner New York
Woolworth Corp. Afterthoughts 11,474 3.5 393,992 6.5 34.34
Footlocker (2)
Lady Footlocker
Champs
The Gap, Inc. The Gap 9,366 2.8 243,516 4.0 26.00
Gap Kids
Casual Corner Group Inc. Casual Corner 8,125 2.5 162,500 2.7 20.00
Petite
Sophisticates
Waves Waves 4,789 1.4 153,248 2.5 32.00
Trans World Entertainment Group Record Town 2,864 0.9 108,832 1.8 38.00
The Children's Place The Children's 4,222 1.3 105,550 1.7 25.00
Place
Contempo Casuals Contempo Casuals 3,192 1.0 105,336 1.7 33.00
Foot Star, Inc. Footaction 9,304 2.8 93,040 1.5 10.00
Brown Group, Inc. Famous Footwear 5,035 1.5 90,630 1.5 18.00
------- ----- ---------- ----- ------
SUBTOTAL TEN LARGEST TENANTS 99,785 30.1 2,190,014 36.2 21.95
Remaining (excluding non-owned 153,103 46.2 3,646,043 60.3 23.81
anchors)
Vacant Space & Leases out for 78,327 23.6 213,213 3.5 --
------- ----- ---------- ----- ------
Signature(2)
TOTAL (EXCLUDING NON-OWNED 331,215 100.0% $6,049,269 100.0% $23.01(4)
ANCHORS) ======= ===== ========== ===== ======
Proffitt's, Inc. Carson Pirie Scott 141,808 789,864
JC Penney Co., Inc. JC Penney 99,567 502,152
Sears Roebuck Sears 98,228 337,904
------- ----------
TOTAL (INCLUDING NON-OWNED ANCHORS) 670,818 $7,679,189
======= ==========
- ---------------------------------------------------------------------------------------------------------------------
Notes: (1) Data based on the 3/19/98 lease status report and applicable lease modifications.
(2) Numbers may not total 100% due to rounding.
(3) Annualized based rent includes underwritable temporary tenant income.
(4) Total annual base rent per square foot excludes vacant square footage and underwritable temporary
tenant rent.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
25
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN CHARLESTOWNE MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT RATING
OF PARENT OPERATING 1997
PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT REA SALES
ANCHORS COMPANY (S&P/MOODY'S)(1) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION PSF(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carson Pirie Proffitt's, BB+/Baa3 141,808 Collateral 1/31/2007 8/15/2006 N/A $152(4)
Scott & Co. Inc.
JC Penney JC Penney A/A2 99,567 Collateral 5/31/2007(3) 5/31/2007(3) N/A 90
Co., Inc.
Sears Sears A-/A2 98,228 Collateral 4/4/2011 8/15/2006(3) N/A 111(4)
Roebuck &
Co.
Kohl's Kohl's BBB/Baal 80,000 Anchor-owned N/A 8/15/2006 12/31/2042 N/A
Dept. Stores
<CAPTION>
MALL STORE LEASE EXPIRATION SCHEDULE(5)
- ----------------------------------------------------------------------------------------------------------------------
CUMULATIVE
NUMBER OF CUMULATIVE ANNUAL PERCENT OF PERCENT OF
LEASES EXPIRING PERCENT OF PERCENT OF ANNUALIZED BASE RENT TOTAL TOTAL BASE
YEAR EXPIRATION EXPIRING SF TOTAL SF TOTAL SF BASE RENT PER SF BASE RENT RENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant(6) 1 74,327 22.4% 22.4% $137,213 $ 1.85 2.3% 2.3%
1998 6 8,191 2.5 24.9 137,780 16.82 2.3 4.5
1999 4 2,463 0.7 25.7 96,678 39.25 1.6 6.1
2000 1 984 0.3 26.0 33,000 33.54 0.5 6.7
2001 34 73,175 22.1 48.0 1,944,699 26.58 32.1 38.8
2002 17 35,672 10.8 58.8 896,869 25.14 14.8 53.7
2003 18 35,907 10.8 69.7 986,454 27.47 16.3 70.0
2004 4 11,035 3.3 73.0 219,005 19.85 3.6 73.6
2005 4 8,685 2.6 75.6 174,470 20.09 2.9 76.5
2006 4 15,602 4.7 80.3 215,050 13.78 3.6 80.0
2007 5 37,770 11.4 91.7 667,540 17.67 11.0 91.1
2008(7) 8 22,369 6.8 98.5 449,882 20.11 7.4 98.5
2009 1 5,035 1.5 100.0 90,630 18.00 1.5 100.0
--- ------- ----- ---------- ------ -----
TOTAL 107 331,215 100.0% $6,049,269 $23.01(8) 100.0%
=== ======= ===== ========== =====
- ----------------------------------------------------------------------------------------------------------------------
Notes: (1) Reflects long-term debt rating as of 4/7/97.
(2) Information is basely solely upon the figures provided by the Charlestowne Mall Borrower from data
provided by tenants.
(3) Based on the borrower-identified opening date of store.
(4) Sears and JC Penney 1997 Sales are based on the sales reporting periods of 5/1/96 - 4/30/97 and 6/1/96 -
5/31/97 respectively.
(5) Data based on the 3/19/98 lease status report and applicable lease modifications.
(6) Includes temporary tenant income.
(7) Includes JJ Finnigan's lease which is expected to be fully executed
by May 31, 1998.
(8) Total annual base rent per square foot excludes vacant square footage and temporary tenant rent.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
26
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN RAMCO-GERSHENSON POOL
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $50,000,000 $49,761,281
ORIGINATION DATE: November 26, 1997
INTEREST RATE: 6.83%
AMORTIZATION: 360 Months
HYPERAMORTIZATION: After the Effective Maturity Date,
interest rate increases to 8.83%. All
excess cash flow is used to reduce the
outstanding principal balance; the
additional 2% interest accrues
interest at the increased rate and is
deferred until the principal balance
is zero.
EFFECTIVE MATURITY
DATE: December 1, 2007
MATURITY DATE: December 1, 2027
BORROWER/SPONSOR: Ramco-Gershenson Properties Associates
Limited Partnership, a special purpose
borrowing entity owned and controlled by
Ramco-Gershenson Properties Trust.
CALL PROTECTION: 2-year lockout from the date of
securitization, with U.S. government
securities defeasance thereafter.
Loan prepayable at par beginning on
the Effective Maturity Date.
SUBSTITUTION: Property substitution permitted
subject to certain conditions.
REMOVAL OF PROPERTY
MANAGER: Management may be terminated: (i) upon
an Event of Default under the Loan;
(ii) if the Debt Service Coverage
Ratio drops below 1.2x unless Borrower
deposits additional collateral to
enable the Loan to meet the DSCR test
or (iii) based upon manager's fraud,
gross negligence or willful
misconduct.
REQUIRED REPAIRS: $496,125
GENERAL MONTHLY
RESERVES: 1/2 of Property Taxes and Insurance
and Capital Reserves equal to $0.15
per square foot annually, not to
exceed $0.30 per square foot in the
aggregate at any time.
COLLECTION ACCOUNT: Hard Lock-Box
CROSS-
COLLATERALIZATION/
DEFAULT: Cross-collateralized and
cross-defaulted
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE
ASSET/PORTFOLIO: Portfolio
PROPERTY TYPE: 7 Community Shopping Centers
LOCATION: Location by Allocated Loan Amount:
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED
FOR THE PURPOSE OF EDGAR FILING.]
[PIE CHART]
MICHIGAN
5.3%
TENNESEE
24.3%
WISCONSIN
26.3%
OHIO
14.7%
S. CAROLINA
%
N. CAROLINA
%
YEAR BUILT/
RENOVATED: Between 1977 and 1996.
See Property Description Table
THE COLLATERAL: 7 Community and neighborhood retail
shopping centers encompassing total
GLA of 1,414,633 S.F.
Anchors include: Wal-Mart, K-Mart,
Builders Square, Belks, Goody's,
Ingles, Food Lion and Kohl's.
PROPERTY
MANAGEMENT: Affiliate of Ramco-Gershenson
Properties Trust
AVERAGE OCCUPANCY
(AS OF 2/18/98): 99%
1997 NET OPERATING
INCOME: $8,921,060
UNDERWRITABLE CASH
FLOW: $7,846,323
APPRAISED VALUE: $77,000,000
APPRAISED BY: Joseph J. Blake
APPRAISAL DATES: Between August, 1997 and October, 1997
CUT-OFF DATE AT EMD(1)
LOAN/SF: $35 $31
LTV: 64.6% 56.4%
DSCR: 2.00(2)x 2.30(3)x
Notes: (1) Effective Maturity Date
(2) Based on Underwritable Cash Flow and Actual Debt
Service.
(3) Based on Underwritable Cash Flow and recalculated
Debt service assuming original financing terms
and the EMD balance.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
27
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN RAMCO-GERSHENSON POOL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPERTY SUMMARY TABLE
- ----------------------------------------------------------------------------------------------------------------------------
CUT-OFF
DATE ANNUALIZED
ALLOCATED YEAR OCCUPANCY BASE RENT PRIMARY TENANTS WITH
PROPERTY LOAN TOTAL BUILT/ AS OF UNDERWRITABLE PSF 15,000 SF
NAME LOCATION AMOUNT SF/UNITS RENOVATED 2/18/98 CASH FLOW 2/18/98 2/18/98
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
West Allis West Allis, $13,159,000 329,407 1987 98.9% $2,059691 $7.08 Kmart (2012)
Town Centre Wisconsin Builders Square (2007)
Kohls (2008)
Northwest Knoxville, 8,552,000 260,707 1989/1995 98.6 1,335,199 5.90 Wal-Mart (2009)
Crossing Tennessee Ingles Food Market
Shopping (2010)
Goody's (1999)
Taylors Greenville, 8,517,000 243,484 1989/1995 98.2 1,330,935 5.83 Wal-Mart (2008)
Square South Belks Dept Store (2003)
Carolina Goody's (1999)
The Troy Troy, Ohio 7,350,000 154,437 1996 96.6 1,172,694 8.75 Country Mkt Grocery
Towne (2011)
Center Stage Dept. Store
(2000)
Sears Hardware Store
(2006)
Ridgeview Elkin, 6,146,000 211,524 1989/1995 99.3 950,023 5.19 Wal-Mart (2009)
Crossing North Ingles Supermarket
Shopping Carolina (2009)
Belks Dept. Store
(2009)
Stonegate Kingsport, 3,622,000 138,490 1984/1993 100.0 581,298 5.07 Wal-Mart (2009)
Plaza Tennessee Food Lion (2004)
Fraser Fraser, 2,654,000 76,584 1977/1983 97.4 416,481 5.05 Oak Ridge Market (2002)
Shopping Michigan Rite Aid (2001)
Center
----------- --------- ---- ---------- -----
TOTAL/
WEIGHTED
AVERAGE: $50,000,000 1,414,633 98.6% $7,846,323 $6.23
=========== ========= ==== ========== =====
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
28
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN RAMCO-GERSHENSON POOL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT
- ---------------------------------------------------------------------------------------------------------------------
% OF % OF TOTAL ANNUALIZED
TENANT OR TENANT NO. OF TENANT TOTAL ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY (1) STORE NAME STORES GLA (SF) GLA(2) BASE RENT BASE RENT(2) PER SF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Wal-Mart Stores, Inc. Wal-Mart 4 485,187 34.3% $2,432,653 28.0% $5.01
K-Mart Corporation K-Mart/Builders 2 166,479 11.8 940,435 10.8 5.65
Square
Kohl's Food Stores, Inc. Kohl's 1 49,995 3.5 490,951 5.7 9.82
Goody's Family Clothing Goody's 2 70,100 5.0 429,350 4.9 6.12
Stores, Inc.
Country Market Country Market 1 40,000 2.8 270,000 3.1 6.75
Ingles Markets, Ingles 2 75,000 5.3 263,880 3.0 3.52
Incorporated
Belk's Belk Dept. 2 4.8 201,512 2.3 2.98
Store 67,581
Fred W. Uhlman & Co. Stage 1 24,000 1.7 179,760 2.1 7.49
Sears & Roebuck Sears Hardware 1 21,000 1.5 178,500 2.1 8.50
Dollar Tree Dollar Tree 4 14,982 1.1 155,581 1.8 10.38
-- --------- ---- ---------- ---- -----
SUBTOTAL TEN LARGEST TENANTS 20 1,014,324 71.7% $5,542,621 63.8% $5.46
Other Major Tenants (more than 5,000 SF) 239,873 17.0 1,651,313 19.0 6.88
Remaining Tenants 140,129 9.9 1,497,942 17.2 10.69
Vacant Space 20,307 1.4 0 0.0 0
--------- ---- ---------- ---- -----
TOTAL/WEIGHTED AVERAGE 1,414,633 100.0% $8,691,875 100.0% $6.23(3)
========= ===== ========== =====
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
LEASE EXPIRATION SCHEDULE
- -----------------------------------------------------------------------------------------------------------------------
PERCENT PERCENT CUMULATIVE
NUMBER OF OF CUMULATIVE ANNUALIZED OF TOTAL PERCENT OF
LEASES TOTAL PERCENT OF ANNUALIZED BASE RENT BASE TOTAL BASE
EXPIRATION YEAR EXPIRING EXPIRING SF SF(2) TOTAL SF BASE RENT PER SF RENT(2) RENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 8 20,307 1.4% 1.4% $ - $ - 0.0% 0.0%
1998 11 22,340 1.6 3.0 218,852 9.80 2.5 2.5
1999 23 125,687 8.9 11.9 1,011,181 8.05 11.6 14.1
2000 17 58,339 4.1 16.0 574,753 9.85 6.6 20.8
2001 22 107,719 7.6 23.6 844,754 7.84 9.7 30.5
2002 11 63,232 4.5 28.1 403,789 6.39 4.7 35.1
2003 14 84,050 5.9 34.1 577,058 6.87 6.6 41.8
2004 4 57,261 4.1 38.1 366,321 6.40 4.2 46.0
2005 0 0 0.0 38.1 0 0 0.0 46.0
2006 1 21,000 1.5 39.6 178,500 8.50 2.0 48.0
2007 2 89,856 6.3 45.9 552,026 6.14 6.4 54.4
2008 2 183,619 13.0 58.9 1,193,813 6.50 13.7 68.1
2009 6 411,744 29.1 88.0 1,889,314 4.59 21.7 89.9
2010 1 43,000 3.0 91.1 135,880 3.16 1.6 91.4
2011 1 40,000 2.8 93.9 270,000 6.75 3.1 94.5
2012 1 86,479 6.1 100.0 475,635 5.50 5.5 100.0
--- --------- ----- ---------- ----- -----
TOTAL/WEIGHTED 124 1,414,633 100.0% $8,691,875 $6.23(3) 100.0%
AVERAGE === ========= ===== ========== ===== =====
- -----------------------------------------------------------------------------------------------------------------------
Notes: (1) The parent company may not be the obligor under the applicable lease.
(2) Numbers may not total 100% due to rounding.
(3) Excludes vacant space.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
29
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN COURTHOUSE PLAZA I
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $48,900,000 $48,704,653
ORIGINATION DATE: December 11, 1997
INTEREST RATE: 7.19%
AMORTIZATION: 360 Months
HYPERAMORTIZATION: After the Effective Maturity Date,
interest rate increases to 9.19%. All
excess cash flow is used to reduce the
outstanding principal balance; the
additional 2% interest accrues
interest at the increased rate and is
deferred until the principal balance
is zero.
EFFECTIVE MATURITY
DATE: January 1, 2008
MATURITY DATE: January 1, 2028
BORROWER/SPONSOR: Courthouse Plaza I Associates Limited
Partnership, a single purpose
bankruptcy-remote entity whose general
partner is Courthouse Plaza LLC, which
includes Mr. Robert H. Smith and Mr.
Robert P. Kogod as equity members. Mr.
Smith and Mr. Kogod, who are also
limited partners of the Borrower, are
principals of the Charles E. Smith
Companies.
CALL PROTECTION: 3-year prepayment lockout from the
date loan closed, with U.S. government
securities defeasance thereafter. Loan
prepayable at par beginning 3 months
prior to the Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be replaced by Lender
upon (i) an Event of Default and
acceleration under the Loan Documents,
(ii) if DSCR <1.10x, unless Borrower
provides additional collateral to
enable the Loan to meet the DSCR test,
or (iii) if Lender determines property
is not managed in accordance with
generally accepted managing practices
and manager fails to cure or undertake
to cure within 30 days.
UP FRONT RESERVES: Repair Fund: $18,750
GENERAL MONTHLY
RESERVES: 1/12 of Property Taxes and Insurance,
Capital Reserves equal to $11,358.04
and Tenant Rollover Reserves, equal to
$2 per s.f. annually up to a maximum
of $1,600,000.
COLLECTION ACCOUNT: Hard Lock-Box, however, Borrower retains
control of Lock-Box funds unless DSCR
declines below 1.10x, Loan Default or at
Effective Maturity Date. Borrower
regains control if DSCR remains above
1.20x for 12 months.
CROSS-
COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE
ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Class A Office and Movie Theatre
LOCATION: Arlington, Virginia
YEAR BUILT/
RENOVATED: 1988
THE COLLATERAL: Leasehold interest in a 14-story
office building and a 3-story, 8
screen movie theatre; 349,778 total
square feet.
Tenants Include: Arlington County
Board (which is the fee owner), AMC
Theatres, Anadac and Ceridian
Corporations.
PROPERTY
MANAGEMENT: Charles E. Smith Real Estate Services,
L.P.
PERCENT OF SPACE
LEASED (1/30/98): 97%
1997 NET OPERATING
INCOME: $6,051,538
UNDERWRITABLE CASH
FLOW: $5,910,161
APPRAISED VALUE: $69,100,000
APPRAISAL DATE: October 31, 1997
CUT-OFF DATE AT EMD(1)
LOAN/SF: $139 $120
LTV: 70.5% 61.0%
DSCR: 1.49 x(2) 1.72 x(3)
Notes: (1) Effective Maturity Date.
(2) Based on Underwritable Cash Flow and Actual Debt
Service.
(3) Based on Underwritable Cash Flow and recalculated
Debt service assuming original financing terms and
the EMD balance.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
30
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN COURTHOUSE PLAZA I
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR TENANT SUMMARY BY ANNUALIZED BASE RENT(1)
- -------------------------------------------------------------------------------------------------------------------------
% OF TOTAL ANNUALIZED
TENANT OR TENANT TENANT % OF TOTAL ANNUALIZED ANNUALIZED BASE
PARENT COMPANY (LEASE EXPIRATION) GLA GLA(2) BASE RENT BASE RENT(2) RENT PER SF
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arlington County Government (2003)(4) 181,781 52.0% $4,543,215 54.2% $24.99
AMC Theatres (2004) 36,795 10.5 500,000 6.0 13.59
ANADAC Inc. (2001) 24,870 7.1 690,380 8.2 27.76
Ceridian (2006) 18,189 5.2 393,428 4.7 21.63
------- ----- ---------- ----- ------
SUBTOTAL MAJOR TENANTS 261,635 74.8 6,127,023 73.1 23.41
Other Tenants (Greater than 5% of 77,956 22.3 2,251,010 26.9 28.88
NRA)
Vacant Space 10,187 2.9 0.0 0.00
------- ----- ---------- ----- ------
0
TOTAL/WEIGHTED AVERAGE 349,778 100.0% $8,378,033 100.0% $24.67(3)
======= ====== ========== ====== ======
<CAPTION>
HISTORICAL OCCUPANCY
- -------------------------------------------------------------------------------------------------------------------------
OCCUPANCY AS OF: PERCENT LEASED
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
January 30, 1998 97.1%
December 31, 1997 97.8%
December 31, 1996 99.0%
December 31, 1995 92.0%
- -------------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on January 30, 1998 Rent Rolls.
(2) Numbers may not total 100% due to rounding.
(3) Excludes vacant space.
(4) Fee owner of land.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
31
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN COURTHOUSE PLAZA I
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEASE EXPIRATION SCHEDULE(1)
- -------------------------------------------------------------------------------------------------------------------------
PERCENT CUMULATIVE
# OF PERCENT CUMULATIVE ANNUAL OF TOTAL PERCENT
YEAR OF LEASES EXPIRING OF TOTAL PERCENT ANNUALIZED BASE RENT BASE OF TOTAL
EXPIRATION EXPIRING TOTAL SF SF(2) OF TOTAL SF BASE RENT PER SF RENT(2) BASE RENT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 10,187 2.9% 2.9% N/A N/A 0.0% 0.0%
1998 7 1,631 0.5 3.4 $30,257 $18.55 0.4 0.4
1999 5 4,174 1.2 4.6 164,827 39.49 2.0 2.3
2000 8 32,102 9.2 13.8 912,931 28.44 10.9 13.2
2001 11 56,166 16.1 29.8 1,555,968 27.70 18.6 31.8
2002 4 8,753 2.5 32.3 260,604 29.77 3.1 34.9
2003 1 181,781 52.0 84.3 4,543,214 24.99 54.2 89.1
2004 1 36,795 10.5 94.8 500,000 13.59 6.0 95.1
2005 0 N/A N/A 94.8 N/A N/A N/A N/A
2006 1 18,189 5.2 100.0 393,428 21.63 4.7 99.8
2007 1 N/A N/A 100.0 16,800 N/A 0.2 100.0
-- ------- ----- ---------- ------ -----
TOTAL/WEIGHTED 39 349,778 100.0% $8,378,033 $24.67(3) 100.0%
AVERAGE == ======= ====== ========== ====== ======
- -------------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on January 30, 1998 rent roll.
(2) Numbers may not total 100% due to rounding.
(3) Excludes vacant space.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
32
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN QUAIL SPRINGS MALL
- -------------------------------------------------------------------------------
- --------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $45,000,000 $45,000,000
ORIGINATION DATE: May 15, 1998.
INTEREST RATE: 6.82%
AMORTIZATION: 360 months
HYPERAMORTIZATION: After the Effective Maturity Date,
interest rate increases to 2% above
the initial interest rate. All excess
cash flow is used to reduce the
outstanding principal balance; the
additional 2% interest accrues
interest at the increased rate and is
deferred until the principal balance
is zero.
EFFECTIVE MATURITY
DATE: June 1, 2008
MATURITY DATE: June 1, 2028
BORROWER/SPONSOR: Dayjay Associates, a joint venture,
50% owned by a special purpose
affiliate of General Growth
Properties, Inc. and 50% owned by JCP
Realty, Inc. directly and through a
special purpose subsidiary.
CALL PROTECTION: 2-year lockout from the date of
securitization, with U.S. government
securities defeasance thereafter.
Loan prepayable at par beginning 120
days prior to the Effective Maturity
Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) if
the DSCR for the trailing 12 months is
less than 1.15x unless Borrower
deposits additional collateral to
enable the Loan to meet the DSCR test,
and (ii) upon an Event of Default
under the Loan Documents or Management
Agreement.
UP FRONT RESERVES: None
GENERAL MONTHLY
RESERVES: Springing reserves for taxes,
insurance, capital replacements and
lease rollover costs if DSCR falls below
1.20x, 60 days before EMD or if there is
a Loan default ("Quail Springs Cash
Management Event").
COLLECTION ACCOUNT: Hard Lock-Box; however, Borrower retains
control of Lock-Box funds unless there
is a Cash Management Event. If Loan
Default is cured or DSCR is 1.20x or
above for 6 months, control returns to
borrower and reserves no longer
required.
CROSS-
COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: None
- --------------------------------------------------------------
- --------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------
SINGLE Single Asset
ASSET/PORTFOLIO:
PROPERTY TYPE: Super-Regional Mall
LOCATION: Oklahoma City, Oklahoma
YEAR BUILT/
RENOVATED: 1980/1993 and Present
THE COLLATERAL: 3-story, 4 anchor super regional mall
with a total GLA of 1,112,036 S.F.,
Mall store space of 329,183 S.F.,
687,853 S.F. of self-owned anchor
space and a 95,000 S.F. AMC Theatres
currently under construction.
Collateral is mall store space and AMC
Theatres for a total of 424,183 S.F..
Anchors include: Foley's, Dillard's,
JC Penney, Sears.
PROPERTY
MANAGEMENT: General Growth Management, Inc.
PERCENT OF MALL
STORE SPACE LEASED
AS OF 1/3/98: 78%
1997 NET OPERATING
INCOME: $4,992,860
UNDERWRITABLE CASH
FLOW: $6,873,808
CALCULATED VALUE AT
AN 8.5% CAP RATE ON
UNDERWRITABLE NOI: $85,457,518
MARKET STUDY BY: Cushman & Wakefield
MARKET STUDY DATE: April 7, 1998
CUT-OFF DATE EMD(1)
LOAN/SF: $106 $92
LTV: 52.7% 45.7%
DSCR: 1.95x(2) 2.24x(3)
1996 1997
MALL STORE SALES $221 $225
PSF(4):
Notes: (1) Effective Maturity Date
(2) Based on Underwritable Cash Flow and Actual Debt
Service.
(3) Based on Underwritable Cash Flow and recast Debt
Service assuming original financing terms and the
EMD balance.
(4) Comparable Mall Store Sales.
- --------------------------------------------------------------
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
33
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN QUAIL SPRINGS MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST MALL STORES BASED ON ANNUALIZED BASE RENT BY PARENT COMPANY(1)
- ------------------------------------------------------------------------------------------------------------------------------
% OF TOTAL
% OF ANNUALIZED ANNUALIZED
TENANT TOTAL ANNUALIZED BASE BASE RENT
PARENT TENANT GLA GLA(2) BASE RENT RENT(2) PER SF
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Limited, The Limited Express 50,116 15.2% $817,337 17.3% $16.31
Limited
Lerner New York
Victoria's Secret
Structure
The Gap, Inc. The Gap 12,895 3.9 335,292 7.1 26.00
Gap Kids
Spiegel, Inc. Eddie Bauer 6,664 2.0 119,952 2.5 18.00
Garfield's Restaurant & Pub Garfield's Restaurant 5,712 1.7 89,952 1.9 15.75
& Pub
The Walt Disney Co. The Disney Store 4,438 1.3 88,764 1.9 20.00
Eyemaster Eyemaster 3,090 0.9 86,244 1.8 27.91
Lens Crafters Lens Crafters 5,048 1.5 85,812 1.8 17.00
The Buckle The Buckle 5,213 1.6 83,412 1.8 16.00
Disk Jockey Disk Jockey 5,070 1.5 81,120 1.7 16.00
Discovery Zone Discovery Zone 12,157 3.7 79,020 1.7 6.50
------- ----- ---------- ----- ------
SUBTOTAL TEN LARGEST TENANTS 110,403 33.5% $1,866,905 39.6% $16.91
Remaining Excluding (anchors, 145,898 44.3% $2,847,663 60.4% $19.52
non-owned anchors)
Vacant Space 72,882 22.1% -- 0.0% --
------- ----- ---------- ----- ------
TOTAL (EXCLUDING NON-OWNED
ANCHORS) 329,183 100.0% $4,714,568 100.0% $18.39(3)
======= ====== ========== ====== ======
- ------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on 1/5/98 rent roll.
(2) Numbers may not total 100% due to rounding.
(3) Excludes vacant square footage.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
34
<PAGE>
- -------------------------------------------------------------------------------
XL1 1998 PRELIMINARY COLLATERAL OVERVIEW:
LARGE LOAN QUAIL SPRINGS MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT RATING
OF PARENT OPERATING
COMPANY ANCHOR-OWNED/ LEASE COVENANT REA 1997 SALES
ANCHORS PARENT COMPANY (S&P/MOODY'S)(1) GLA COLLATERAL EXPIRATION(2) EXPIRATION(3) TERMINATION PSF(4)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dillard's Dillard Dept. Stores Inc. A+/A2 205,320 Anchor Owned NA 1995 10/23/30 $168
Sears Sears Roebuck & Co. A-/A2 182,257 Anchor Owned NA 1995 10/23/30 137
JC Penney J. C. Penney Co., Inc. A/A2 154,576 Anchor Owned NA 1995 10/23/30 142
Foley's May Department Store Co. A/A2 145,700 Anchor Owned NA 1995 10/22/30 120
AMC American Multi-Cinema, B/B2 95,000 Collateral 1/1/20 2005 NA N/A
Theatres Inc.
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MALL STORE LEASE EXPIRATION SCHEDULE(5)
- --------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
NUMBER OF CUMULATIVE ANNUAL PERCENT OF PERCENT OF
YEAR OF LEASES EXPIRING PERCENT OF PERCENT OF ANNUALIZED BASE RENT TOTAL BASE TOTAL BASE
EXPIRATION EXPIRING SF TOTAL SF TOTAL SF BASE RENT PER SF RENT RENT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 0 72,882 22.1% 22.1% - - 0.0% 0.0%
1998 8 10,736 3.3 25.4 $247,116 $23.02 5.2 5.2
1999 11 19,740 6.0 31.4 296,848 15.04 6.3 11.5
2000 10 16,311 5.0 36.4 279,355 17.13 6.0 17.5
2001 17 34,657 10.5 46.9 727,127 20.98 15.4 32.9
2002 3 6,163 1.9 48.8 157,692 25.59 3.3 36.2
2003 14 31,031 9.4 58.2 563,476 18.16 12.0 48.2
2004 9 26,462 8.0 66.2 415,592 15.71 8.8 57.0
2005 6 19,766 6.0 72.2 287,748 14.56 6.1 63.1
2006 9 31,459 9.6 81.8 688,044 21.87 14.6 77.7
2007 8 45,521 13.8 95.6 750,045 16.48 15.9 93.6
2008 or Later 4 14,455 4.4 100.0 301,524 20.86 6.4 100.0
-- ------- ----- ---------- ------ ------
TOTAL/WEIGHTED 99 329,183 100.0% $4,714,568 $18.39(6) 100.00%
AVERAGE == ======= ===== ========== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Reflects long-term debt rating as of 4/7/98.
(2) Includes initial term of the lease only. Based on the latest required commencement date of the lease term. The
actual commencement date and expiration date may be earlier.
(3) Date of operating covenant expirations is the expiration date of the covenant requiring the anchor store to be open
and operating (inclusive of current store name and other store names) without taking into account co-tenancy or
other operating requirements.
(4) Based on the December, 1997 sales report. Information is based solely upon the sales figures provided by the Quail
Springs Mall Borrower from data provided by the tenants. Anchor store sales are the Quail Springs Borrower's
estimates.
(5) Based on 1/5/98 rent roll. (6) Excludes vacant square footage.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by the
Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example, it
is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR THE
ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available upon
request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
<PAGE>
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
35
<PAGE>
ANNEX A
MORTGAGED PROPERTIES CHARACTERISTICS
<TABLE>
<CAPTION>
MORTGAGE PROPERTY
LOAN PROJECT NAME TYPE
- -------------------- ------------------------------------------ ---------------
<S> <C> <C>
Hotel Del Coronado Hotel
- -------------------- ---------------
CenterAmerica Pool
- --------------------
1 Braes Heights Retail
2 Braes Oaks Retail
3 Brenham Four Corners Retail
4 Broadway Retail
5 Bryan Square Retail
6 Carmel Village Retail
7 Cedar Bellaire Retail
8 Clearlake Camino South Retail
9 Countryside Village Retail
10 El Camino Retail
11 Five Points Retail
12 Forest Hills Retail
13 Highland Village Retail
14 Highland Village Town Center Retail
15 Huntington Village Retail
16 Jeff Davis Retail
17 Jefferson Park Retail
18 Klein Square Retail
19 Lamar Plaza Retail
20 Lazybrook Retail
21 League City Retail
22 Long Point Plaza Retail
23 Maplewood Retail
24 Moore Plaza West (Westheimer Commons) Retail
25 Moore Square (North 45 Plaza) Retail
26 Moore Village (1960/Kuykendahl) Retail
27 North Hills Village Retail
28 Northgate Retail
29 Northtown Plaza Retail
30 Palm Plaza Retail
31 Park Plaza Retail
32 & 33 Parktown Center and Parktown Center East Retail
34 Parkview East Retail
35 Parkview West Retail
36 Stevens Park Retail
37 Tanglewilde Retail
38 Texas City Retail
39 Tidwell Plaza Retail
40 Village Plaza Retail
41 Washington Square Retail
42 Webb Royal Retail
43 Williamstown Retail
44 Wynnewood Retail
- -- ------------------------------------------ ---------------
Wells Fargo Tower Office
- -------------------- ---------------
West Town Mall Regional Mall
- -------------------- ---------------
Magellan Apartment
Pool
- --
1 Acacia Park Multifamily
2 Bradbury Place Multifamily
3 Canterbury Hills Multifamily
4 Dobson Springs Multifamily
5 El Royale Multifamily
6 Harbor Grand Multifamily
7 Las Palmas Multifamily
8 Maryland Meadows Multifamily
9 Northwood Village Multifamily
10 Rancho Las Brisas Multifamily
11 Sea Bluffs Multifamily
- -- ------------------------------------------ ---------------
<CAPTION>
MORTGAGE YEAR BUILT/ TOTAL
LOAN ADDRESS CITY STATE ZIP CODE RENOVATED SF/UNITS
- -------------------- ----------------------------------------- ------------------ ------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Hotel Del Coronado 1500 Orange Avenue Coronado CA 92118 1888/1995 692
- -------------------- ----------------------------------------- ------------------ ------- ----- --------- ---
CenterAmerica Pool
- --------------------
1 3737 Bellaire Blvd. Houston TX 77025 1959/1997 113,078
2 5401 South Braeswood Houston TX 77096 1966/1992 46,720
3 2500 South Day Brenham TX 77833 1975/1997 113,147
4 8201 Broadway Blvd. Houston TX 77061 1977/1995 74,932
5 2102 South Texas Avenue Bryan TX 77802 1965 55,115
6 4100 South Staples Corpus Christi TX 78411 1965/1994 86,678
7 5106 Bissonnet Bellaire TX 77401 1950/1993 50,997
8 16701 El Camino Real Blvd. Houston TX 77062 1964/1992 101,218
9 2436 FM 1960 East Houston TX 77073 1977/1996 136,470
10 5815 Bissonnet Street Bellaire TX 77401 1972 59,575
11 4101 Highway 77 Corpus Christi TX 78410 1980/1996 276,657
12 3320 Mansfield Highway Fort Worth TX 76119 1972 70,390
13 8040 Ferguson Road and Highland Rd. Dallas TX 75067 1985 66,942
14 2240-2250 FM 407(Justin Road) Highland Village TX 77562 1995/1998 88,841
15 12605 Bissonnet Street Houston TX 77099 1980 112,287
16 2550 Jefferson Blvd. Dallas TX 75211 1965/1975 69,563
17 U.S. Highway 271/State Highway 49 Mt. Pleasant TX 75455 1985/1995 130,541
18 16812 Stuebner Airline Houston TX 77379 1977/1992 80,857
19 4300 Avenue H Rosenberg TX 77471 1972 150,133
20 1710 West 18th Street Houston TX 77008 1965/1986 10,745
21 200 FM 518 League City TX 77573 1966/1994 100,030
22 8133-8247 Long Point Houston TX 77055 1957/1985 65,332
23 5621 Beechnut Houston TX 77096 1962/1987 95,684
24 12520 Westheimer Houston TX 77077 1981/1994 249,789
25 10830 North Freeway Houston TX 77037 1975 132,239
26 2315 FM 1960 Road West Houston TX 77068 1978/1997 108,094
27 3500 Denton Highway Haltom City TX 76117 1972 43,299
28 11310 North Freeway Houston TX 77037 1978/1990 43,245
29 5402 North Freeway Houston TX 77076 1960/1990 198,104
30 1901 Wheeler Aransas Pass TX 78336 1978/1995 52,102
31 4705 Highway 6 Houston TX 77084 1980/1993 211,923
32 & 33 3308 Center Deer Park TX 77536 1970/1996 121,621
34 3909 Spencer Highway Pasadena TX 77504 1966/1997 41,169
35 3421 Spencer Highway Pasadena TX 77504 1968/1992 39,774
36 2102-2128 Fort Worth Avenue Dallas TX 75211 1974 45,492
37 9519 Westheimer Houston TX 77063 1972/1994 86,590
38 3401 Palmer Highway Texas City TX 77590 1980/1993 233,984
39 906 East Tidwell Houston TX 77022 1983 41,630
40 3555 West Walnut Street Garland TX 75042 1960/1997 80,581
41 2005 South Washington Avenue (U.S. 175) Kaufman TX 75142 1985 65,050
42 10909 Webb Chapel Road Dallas TX 75220 1961/1988 108,819
43 9501 Highway 59 Houston TX 77074 1978 70,328
44 Illinois Avenue/Zang Avenue Dallas TX 75216 1978 632,229
- -- ----------------------------------------- ------------------ ------- ----- --------- -------
Wells Fargo Tower 333 South Grande Avenue Los Angeles CA 99071 1982 1,336,248
- -------------------- ----------------------------------------- ------------------ ------- ----- --------- ---------
West Town Mall 7600 Kingston Pike Knoxville TN 37919 1972/1995 764,369
- -------------------- ----------------------------------------- ------------------ ------- ----- --------- ---------
Magellan Apartment
Pool
- --
1 29605 Solana Way Temecula CA 92591 1989 320
2 25445 Sunnymead Blvd. Moreno Valley CA 92553 1987 136
3 3535 West Tierra Buena Lane Phoenix AZ 85023 1986 348
4 1325 West Guadalupe Road Mesa AZ 85202 1980 120
5 1414 North Riverside Drive Rialto CA 92376 1990 98
6 15120-15150 Grand Avenue Lake Elsinore CA 92530 1988 192
7 2635 East Indian School Road Phoenix AZ 85016 1982 106
8 6444 North 67th Avenue Glendale AZ 85301 1987 364
9 14020 North Black Canyon Highway Phoenix AZ 85023 1981 202
10 40126 Los Alamos Road Murrieta CA 92562 1989 200
11 2500 Sea Cliff Way Oceanside CA 92056 1989 184
- -- ----------------------------------------- ------------------ ------- ----- --------- ---------
<CAPTION>
CUT-OFF DATE CUT-OFF 1995 1996 1997
MORTGAGE OCCUPANCY ALLOCATED APPRAISED DATE TOTAL TOTAL TOTAL
LOAN OCCUPANCY AS OF DATE LOAN AMOUNT VALUE(1) LTV REVENUE REVENUE REVENUE
- -------------------- ----------- ------------ -------------- ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hotel Del Coronado 85% 28-Feb-98 164,947,035 330,000,000 49.98% 69,820,360 78,235,791 89,489,392
- -------------------- -- --------- ----------- ----------- ----- ---------- ---------- ----------
CenterAmerica Pool
- --------------------
1 89% 31-Dec-97 6,055,900 9,885,382 (6) 847,571 882,079 1,181,729
2 100% 31-Dec-97 2,384,100 3,891,699 (6) 456,540 457,694 489,738
3 98% 31-Dec-97 2,993,900 4,887,109 (6) 313,901 314,871 597,898
4 100% 31-Dec-97 2,247,000 3,667,903 (6) 425,661 458,900 522,816
5 100% 31-Dec-97 895,400 1,461,611 (6) 220,137 221,818 212,867
6 91% 31-Dec-97 3,093,000 5,048,876 (6) 555,359 577,016 572,015
7 100% 31-Dec-97 2,312,700 3,775,149 (6) 399,110 396,867 421,522
8 100% 31-Dec-97 5,365,400 8,758,241 (6) 1,075,627 1,129,484 1,111,937
9 51% 31-Dec-97 2,258,900 3,687,328 (6) 381,545 372,054 489,489
10 100% 31-Dec-97 1,457,100 2,378,505 (6) 317,025 313,133 331,940
11 99% 31-Dec-97 12,625,600 20,609,468 (6) 2,290,362 2,784,003 2,496,266
12 100% 31-Dec-97 1,872,800 3,057,076 (6) 390,539 400,835 421,558
13 94% 31-Dec-97 2,069,800 3,378,650 (6) NA NA 538,152
14 100% 31-Dec-97 5,828,100 9,513,531 (6) NA NA 1,005,863
15 89% 31-Dec-97 3,702,500 6,043,796 (6) 748,508 809,240 789,904
16 100% 31-Dec-97 2,674,100 4,365,082 (6) 439,185 476,221 580,852
17 93% 31-Dec-97 3,360,600 5,485,694 (6) 542,871 796,410 693,202
18 83% 31-Dec-97 3,058,600 4,992,723 (6) 684,031 698,787 703,332
19 69% 31-Dec-97 2,174,200 3,549,067 (6) 650,494 576,873 526,058
20 100% 31-Dec-97 654,200 1,067,887 (6) 126,598 124,518 123,316
21 89% 31-Dec-97 2,556,000 4,172,301 (6) 439,257 473,204 488,629
22 93% 31-Dec-97 2,203,600 3,597,059 (6) 419,246 387,798 406,074
23 93% 31-Dec-97 2,679,900 4,374,550 (6) 500,856 535,584 558,005
24 94% 31-Dec-97 13,612,700 22,220,767 (6) 2,573,044 2,625,937 2,754,929
25 81% 31-Dec-97 4,043,200 6,599,940 (6) 1,030,552 1,073,116 972,042
26 100% 31-Dec-97 3,828,500 6,249,473 (6) 490,627 354,410 586,561
27 44% 31-Dec-97 222,000 362,383 (6) 201,039 154,198 115,607
28 100% 31-Dec-97 1,800,700 2,939,383 (6) 364,480 382,325 377,039
29 100% 31-Dec-97 8,438,900 13,775,285 (6) 1,355,095 1,437,025 1,637,521
30 98% 31-Dec-97 1,065,300 1,738,948 (6) 214,468 261,993 246,582
31 90% 31-Dec-97 5,140,300 8,390,797 (6) 1,072,236 1,099,395 1,016,203
32 & 33 97% 31-Dec-97 4,905,300 8,007,194 (6) 635,265 710,233 874,885
34 76% 31-Dec-97 1,471,100 2,401,358 (6) 190,164 161,302 195,552
35 93% 31-Dec-97 1,651,400 2,695,672 (6) 246,750 269,872 287,910
36 100% 31-Dec-97 2,379,500 3,884,190 (6) NA NA 490,770
37 88% 31-Dec-97 2,823,600 4,609,119 (6) 767,536 772,436 756,315
38 97% 31-Dec-97 7,649,100 12,486,051 (6) 1,538,383 1,568,018 1,514,780
39 100% 31-Dec-97 1,953,000 3,187,990 (6) 339,813 455,891 394,645
40 100% 31-Dec-97 3,446,800 5,626,403 (6) 555,889 639,086 663,321
41 97% 31-Dec-97 1,819,700 2,970,397 (6) 327,741 355,774 386,459
42 86% 31-Dec-97 3,348,000 5,465,126 (6) 740,283 763,027 748,527
43 87% 31-Dec-97 3,680,800 6,008,374 (6) 729,630 664,971 708,942
44 93% 31-Dec-97 15,196,700 24,806,418 (6) 4,086,552 4,043,797 4,165,333
- -- --- --------- ----------- ----------- -------- ---------- ---------- ----------
Wells Fargo Tower 92% 31-Jan-98 143,855,648 235,000,000 61.22% 39,438,030 38,287,711 39,003,365
- -------------------- --- --------- ----------- ----------- ------- ---------- ---------- ----------
West Town Mall 92% 12-Feb-98 76,000,000 160,000,000 47.50% 14,650,000 15,796,000 17,864,747
- -------------------- --- --------- ----------- ----------- ------- ---------- ---------- ----------
Magellan Apartment
Pool
- --
1 96% 25-Feb-98 15,077,429 18,300,000 (4) NA 2,521,509 2,633,513
2 94% 25-Feb-98 3,755,678 4,750,000 (4) NA 825,309 825,317
3 95% 25-Feb-98 11,341,649 13,750,000 (4) NA 2,137,529 2,226,989
4 97% 25-Feb-98 4,178,502 5,200,000 (4) NA 765,292 765,356
5 92% 25-Feb-98 2,885,156 3,500,000 (4) NA 609,121 625,913
6 88% 25-Feb-98 3,730,806 5,600,000 (4) NA 999,499 1,078,026
7 95% 25-Feb-98 3,064,235 3,725,000 (4) NA 610,406 640,338
8 96% 25-Feb-98 9,212,602 11,200,000 (4) NA 1,837,252 1,886,444
9 96% 25-Feb-98 5,650,927 6,850,000 (4) NA 1,065,798 1,131,281
10 91% 25-Feb-98 5,869,801 8,800,000 (4) NA 1,288,046 1,343,002
11 91% 25-Feb-98 10,346,767 13,100,000 (4) NA 1,511,622 1,681,435
- -- --- --------- ----------- ----------- -------- ---------- ---------- ----------
<CAPTION>
1995 1996 1997
MORTGAGE TOTAL TOTAL TOTAL UNDERWRITABLE FEE/
LOAN NOI NOI NOI CASH FLOW DSCR LEASEHOLD
- -------------------- ------------ ------------ ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hotel Del Coronado 18,765,428 25,910,507 33,818,866 28,728,037 2.06 Fee
- -------------------- ---------- ---------- ---------- ---------- ---- ----------
CenterAmerica Pool
- --------------------
1 685,448 715,101 940,713 867,473 (6) Fee
2 374,637 381,176 405,144 341,508 (6) Fee
3 215,848 244,254 529,910 428,855 (6) Fee
4 267,089 325,647 377,225 321,867 (6) Fee
5 131,586 157,431 156,949 128,259 (6) Fee
6 400,171 458,942 464,766 443,061 (6) Fee
7 318,811 321,593 339,884 331,288 (6) Fee
8 828,483 877,622 860,344 768,565 (6) Fee
9 179,208 237,538 370,258 323,570 (6) Fee
10 241,128 227,805 245,215 208,723 (6) Fee
11 1,874,427 2,367,397 2,100,687 1,808,562 (6) Fee
12 281,443 303,326 325,896 268,265 (6) Fee
13 NA NA 359,822 296,489 (6) Fee
14 NA NA 824,838 834,842 (6) Fee
15 519,961 622,600 584,222 530,367 (6) Fee
16 331,410 359,486 440,494 383,053 (6) Fee
17 360,458 664,807 556,262 481,383 (6) Fee
18 519,388 541,918 539,600 438,132 (6) Fee
19 492,645 411,309 355,915 311,442 (6) Fee
20 100,478 103,338 98,289 93,706 (6) Fee
21 291,415 345,610 336,904 366,138 (6) Fee
22 312,550 287,550 309,374 315,651 (6) Fee
23 340,604 396,188 407,354 383,890 (6) Fee
24 2,000,338 2,021,873 2,129,400 1,949,953 (6) Fee
25 681,750 748,360 678,707 579,175 (6) Fee
26 256,586 141,319 410,683 548,410 (6) Fee
27 131,975 92,903 60,623 31,794 (6) Fee
28 293,055 304,369 303,132 257,936 (6) Fee
29 986,162 1,086,813 1,308,448 1,208,832 (6) Fee
30 149,193 205,673 177,418 152,598 (6) Fee
31 849,974 869,057 811,715 736,327 (6) Fee
32 & 33 504,640 568,695 712,925 702,659 (6) Fee
34 121,590 116,679 149,177 210,723 (6) Fee
35 177,343 215,690 226,742 236,558 (6) Fee
36 NA NA 385,528 340,852 (6) Fee
37 469,069 505,168 482,396 404,471 (6) Fee
38 1,186,055 1,231,921 1,201,485 1,095,699 (6) Fee
39 253,315 354,513 310,938 279,751 (6) Fee
40 417,070 508,111 505,252 493,737 (6) Fee
41 230,987 260,217 300,491 260,662 (6) Fee
42 553,387 593,163 535,127 479,588 (6) Fee
43 572,116 507,604 550,067 527,256 (6) Fee
44 2,404,081 2,274,011 2,347,918 2,176,914 (6) Fee
- -- ---------- ---------- ---------- ---------- ------ ----------
Wells Fargo Tower 24,556,458 23,184,151 23,876,023 20,276,676 1.64 Fee
- -------------------- ---------- ---------- ---------- ---------- ----- ----------
West Town Mall 9,932,000 11,495,000 13,383,720 14,192,113 2.71 Fee
- -------------------- ---------- ---------- ---------- ---------- ----- ----------
Magellan Apartment
Pool
- --
1 NA 1,592,334 1,660,494 1,722,017 (4) Fee
2 NA 346,044 376,703 446,792 (4) Fee
3 NA 1,225,554 1,360,738 1,400,943 (4) Fee
4 NA 439,331 396,795 447,336 (4) Fee
5 NA 238,258 281,996 337,999 (4) Fee
6 NA 315,026 390,147 371,542 (4) Fee
7 NA 323,207 339,797 347,567 (4) Fee
8 NA 1,011,709 1,000,788 924,509 (4) Fee
9 NA 617,290 673,824 629,857 (4) Fee
10 NA 590,631 633,143 648,696 (4) Fee
11 NA 880,648 1,061,675 1,055,254 (4) Fee
- -- ---------- ---------- ---------- ---------- ------ ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE PROPERTY
LOAN PROJECT NAME TYPE ADDRESS CITY STATE
- -------------------- ----------------------------- --------------- ------------------------------------ -------------- -------
<S> <C> <C> <C> <C> <C>
Glenborough Pool
- --------------------
1 Centerstone Plaza Office 4000-4050 Barranca Pkwy. Irvine CA
2 Riverview Office Tower Office 8009 34th Avenue South Bloomington MN
3 Overlook Apartments Multifamily 11620 East Sahuaro Drive Scottsdale AZ
4 Westford Corporate Center Office 3 & 5 Carlisle Road Westford MA
5 700 South Washington Office 700 South Washington Street Alexandria VA
6 Southworth-Milton Industrial 100 Quarry Drive Milford MA
7 Lakepoint I, II, III Industrial 6200-6380 Hazeltine National Drive Orlando FL
8 Fisher Pierce Industrial 90 Libbey Industrial Pkwy. Weymouth MA
Maryland
9 Woodlands Plaza II Office 11701 Borman Drive Heights MO
Maryland
10 Woodlands Tech Center Industrial 11800-11846 Borman Drive Heights MO
- -- ----------------------------- --------------- ------------------------------------ -------------- -------
EQR Apartment Pool
- --------------------
1 The Gates at Carlson Center Multifamily 300 Carlson Pkwy. Minnetonka MN
2 Glengarry Club Apartments Multifamily 231 Butterfield Drive Bloomingdale IL
3 Ravinia Apartments Multifamily 4280 S. Ravina Drive Greenfield WI
4 The Woodlands Multifamily 790 Lakeview Drive Brookfield WI
5 Plum Tree Apartments Multifamily 10459 West College Avenue Hales Corner WI
- -- ----------------------------- --------------- ------------------------------------ -------------- -------
Charlestowne Mall Regional Mall 3800 East Main Street St. Charles IL
- -------------------- --------------- ------------------------------------ -------------- -------
Ramco-Gershenson
Pool
- --
1 Fraser Shopping Center Retail 31240-31340 Groesbeck Highway Fraser MI
2 Northwest Crossing Retail Clinton Highway and Callahan Drive Knoxville TN
3 Ridgeview Crossing Retail 2099-2199 North Bridge Street Elkin NC
4 Stonegate Plaza Retail 800 Stonegate Road Kingsport TN
5 Taylors Square Retail 3027 Wade Hampton Blvd. Greensville SC
6 Troy Towne Center Retail 1803-1881 West Main Street Troy OH
7 West Allis Towne Centre Retail South 70th and Greenfield Avenue West Allis WI
- -- ----------------------------- --------------- ------------------------------------ -------------- -------
Courthouse Plaza I Office 2200 Clarendon Blvd. Arlington VA
- -------------------- --------------- ------------------------------------ -------------- -------
Quail Springs Mall Regional Mall 2501 West Memorial Road Oklahoma OK
- -------------------- --------------- ------------------------------------ -------------- -------
<CAPTION>
CUT-OFF DATE CUT-OFF
MORTGAGE YEAR BUILT/ TOTAL OCCUPANCY ALLOCATED APPRAISED DATE
LOAN ZIP CODE RENOVATED SF/UNITS OCCUPANCY AS OF DATE LOAN AMOUNT VALUE(1) LTV
- -------------------- ---------- ------------- ---------- ----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glenborough Pool
- --------------------
1 92604 1987 157,579 97% 1-Jan-98 14,965,606 29,000,000 (2)
2 55425 1973 227,346 98% 1-Jan-98 10,703,877 20,800,000 (2)
3 85259 1987 224 97% 1-Jan-98 6,045,708 11,700,000 (2)
4 01886 1985 163,247 100% 1-Jan-98 5,351,938 10,500,000 (2)
5 22314 1989 56,348 100% 1-Jan-98 5,054,608 9,750,000 (2)
6 01757 1989 146,125 100% 1-Jan-98 4,955,499 9,600,000 (2)
7 32822 1985 135,032 94% 1-Jan-98 4,261,729 8,700,000 (2)
8 02189 1988 79,825 100% 1-Jan-98 2,973,299 5,800,000 (2)
9 63043 1983 72,966 98% 1-Jan-98 2,775,079 5,400,000 (2)
10 63043 1986 98,037 100% 1-Jan-98 2,378,639 4,650,000 (2)
- -- ----- ---- ------- --- --------- ---------- ---------- ---
EQR Apartment Pool
- --------------------
1 55305 1989 435 96% 13-Nov-97 13,629,906 29,300,000 (5)
2 60108 1989 250 93% 18-Dec-97 8,568,677 18,600,000 (5)
3 53221 1991 206 94% 22-Dec-97 7,295,724 13,500,000 (5)
4 53045 1990 148 94% 22-Dec-97 7,810,374 15,500,000 (5)
5 53130 1989 332 93% 22-Dec-97 12,695,319 23,750,000 (5)
- -- ----- ---- ------- --- --------- ---------- ---------- ---
Charlestowne Mall 60174 1991 742,318 78% 3-Feb-98 50,000,000 86,600,000 57.74%
- -------------------- ----- ---- ------- --- --------- ---------- ---------- -------
Ramco-Gershenson
Pool
- --
1 48026 1977/1983 76,584 97% 18-Feb-98 2,641,329 3,400,000 (3)
2 37912 1989/1995 260,707 99% 18-Feb-98 8,511,170 14,400,000 (3)
3 28621 1989/1995 211,524 99% 18-Feb-98 6,116,657 9,700,000 (3)
4 37660 1984/1993 138,490 100% 18-Feb-98 3,604,707 6,000,000 (3)
5 29867 1989/1995 243,484 98% 18-Feb-98 8,476,337 13,000,000 (3)
6 45373 1996 154,437 97% 18-Feb-98 7,314,908 11,200,000 (3)
7 53204 1987 329,407 99% 18-Feb-98 13,096,174 19,300,000 (3)
- -- ----- --------- ------- --- --------- ---------- ---------- --------
Courthouse Plaza I 22201 1988 349,778 97% 2-Feb-98 48,704,653 69,100,000 70.48%
- -------------------- ----- --------- ------- --- --------- ---------- ---------- -------
Quail Springs Mall 73134 1980/1998 424,183 78% 5-Jan-98 45,000,000 85,457,518 52.66%
- -------------------- ----- --------- ------- --- --------- ---------- ---------- -------
<CAPTION>
1995 1996 1997 1995 1996 1997
MORTGAGE TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL UNDERWRITABLE
LOAN REVENUE REVENUE REVENUE NOI NOI NOI CASH FLOW DSCR
- -------------------- ------------ ------------ ------------ ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glenborough Pool
- --------------------
1 3,474,639 3,764,742 3,931,172 2,504,363 2,767,643 2,625,960 2,309,048 (2)
2 NA 2,809,881 4,265,690 NA 1,132,171 2,253,653 2,000,490 (2)
3 1,615,255 1,641,418 1,558,758 1,002,556 1,090,951 910,803 984,734 (2)
4 1,845,653 1,816,614 1,867,951 1,165,066 1,072,742 1,146,482 861,787 (2)
5 1,513,295 1,577,899 1,671,080 1,110,725 1,088,998 1,264,879 1,052,008 (2)
6 NA 1,187,088 1,246,805 NA 999,610 1,009,694 838,359 (2)
7 1,306,732 1,385,921 1,393,306 910,277 957,409 894,973 764,302 (2)
8 NA 709,056 780,126 NA 596,682 635,578 528,414 (2)
9 1,181,323 1,040,250 1,178,361 620,920 520,832 589,435 457,592 (2)
10 847,550 786,820 910,417 547,687 471,023 615,555 457,290 (2)
- -- --------- --------- --------- --------- --------- --------- --------- ---
EQR Apartment Pool
- --------------------
1 NA NA 4,220,718 NA NA 2,058,185 2,146,323 (5)
2 NA 2,474,660 2,536,451 NA 1,315,079 1,306,093 1,352,070 (5)
3 NA 1,920,402 1,966,692 NA 1,084,564 1,188,717 1,144,786 (5)
4 NA 1,936,829 2,017,995 NA 1,215,077 1,241,481 1,223,267 (5)
5 NA 3,260,490 3,225,291 NA 2,028,843 1,980,755 1,989,352 (5)
- -- --------- --------- --------- --------- --------- --------- --------- ---
Charlestowne Mall 10,697,347 11,260,054 11,055,636 6,801,345 7,090,355 6,931,958 7,306,601 1.70
- -------------------- ---------- ---------- ---------- --------- --------- --------- --------- -----
Ramco-Gershenson
Pool
- --
1 799,554 874,205 780,763 421,490 518,971 427,447 416,481 (3)
2 1,553,305 1,698,755 1,712,537 1,363,767 1,464,750 1,511,683 1,335,199 (3)
3 1,026,661 1,181,530 1,276,052 846,837 989,906 1,111,734 950,023 (3)
4 790,198 745,975 790,596 679,171 624,446 651,503 581,298 (3)
5 1,438,265 1,633,051 1,745,203 1,232,075 1,419,539 1,520,179 1,330,935 (3)
6 1,350,511 1,370,388 1,565,940 1,122,290 1,164,948 1,348,108 1,172,694 (3)
7 3,227,828 3,259,393 3,130,102 2,374,815 2,377,762 2,350,406 2,059,691 (3)
- -- ---------- ---------- ---------- --------- --------- --------- --------- ------
Courthouse Plaza I 8,609,851 9,317,524 9,372,197 5,435,593 6,322,270 6,051,538 5,910,161 1.49
- -------------------- ---------- ---------- ---------- --------- --------- --------- --------- -----
Quail Springs Mall NA 8,789,133 8,566,065 NA 5,194,450 4,992,860 6,873,808 1.95
- -------------------- ---------- ---------- ---------- --------- --------- --------- --------- -----
<CAPTION>
MORTGAGE FEE/
LOAN LEASEHOLD
- -------------------- ----------
<S> <C>
Glenborough Pool
- --------------------
1 Fee
2 Fee
3 Fee
4 Fee
5 Fee
6 Fee
7 Fee
8 Fee
9 Fee
10 Fee
- -- ----------
EQR Apartment Pool
- --------------------
1 Fee
2 Fee
3 Fee
4 Fee
5 Fee
- -- ----------
Charlestowne Mall Fee
- -------------------- ----------
Ramco-Gershenson
Pool
- --
1 Fee
2 Fee
3 Fee
4 Fee
5 Fee
6 Fee
7 Fee
- -- ----------
Courthouse Plaza I Leasehold
- -------------------- ----------
Quail Springs Mall Fee
- -------------------- ----------
</TABLE>
- ----
(1) Appraised Values for CenterAmerica, Courthouse Plaza I and Quail Springs
Mall were calculated based on Underwritable NOI and a cap rate.
(2) Glenborough Pool Properties Cut-Off Date LTV and DSCR are calculated on a
pool basis and equal 51.31% and 1.93x respectively.
(3) Ramco-Gershenson Pool Properties Cut-Off Date LTV and DSCR are calculated
on a pool basis and equal 64.63% and 2.00x respectively.
(4) Magellan Apartment Pool Properties Cut-Off Date LTV and DSCR are calculated
on a pool basis and equal 79.25% and 1.34x respectively.
(5) EQR Apartment Pool Properties Cut-Off Date LTV and DSCR are calculated on a
pool basis and equal 49.68% and 2.28x respectively.
(6) CenterAmerica Pool Properties Cut-Off Date LTV and DSCR are calculated on a
pool basis and equal 61.26% and 1.86x respectively.
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in one or more
series. Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "Mortgage Loans"), mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby (the "MBS"), certain direct
obligations of the United States, agencies thereof or agencies created thereby
(the "Government Securities") or a combination of Mortgage Loans, MBS and/or
Government Securities (with respect to any series, collectively, "Assets"). If
so specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged
Properties (as defined herein) and/or assignments of the rental payments due
from the lessees under such leases (each type of assignment, a "Lease
Assignment"). A significant or the sole source of payments on certain
Commercial Loans (as defined herein) and, therefore, of distributions on
certain series of Certificates, will be such rent payments. The Mortgage Loans
and MBS are collectively referred to herein as the "Mortgage Assets." If so
specified in the related Prospectus Supplement, the Trust Fund for a series of
Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any series, collectively, "Credit Support"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any series, collectively, "Cash Flow
Agreements"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such
classes may include classes of Offered Certificates. See "Description of the
Certificates."
(cover continued on next page)
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, CERTAIN RISKS SET FORTH UNDER
THE CAPTION "RISK FACTORS" HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
---------------
Prior to issuance there will have been no market for the Certificates of
any series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement for
such series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
---------------
MORGAN STANLEY & CO.
INCORPORATED
May 22, 1998
<PAGE>
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any series will be made only from the assets of the related
Trust Fund.
The Certificates of each series will not represent an obligation of or
interest in the Depositor, Morgan Stanley & Co. Incorporated, any Master
Servicer, any Sub-Servicer, any Special Servicer or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor any assets in the related
Trust Fund will be guaranteed or insured by any governmental agency or
instrumentality or by any other person, unless otherwise provided in the
related Prospectus Supplement. The assets in each Trust Fund will be held in
trust for the benefit of the holders of the related series of Certificates
pursuant to a Pooling and Servicing Agreement or a Trust Agreement, as more
fully described herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein
and in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "Risk Factors" herein and such information as may be set forth under
the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Certificate.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as
a "real estate mortgage investment conduit" for federal income tax purposes.
See also "Certain Federal Income Tax Consequences" herein.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each series will, among other things, set forth
with respect to such Certificates, as appropriate: (i) a description of the
class or classes of Certificates, the payment provisions with respect to each
such class and the Pass-Through Rate or method of determining the Pass-Through
Rate with respect to each such class; (ii) the aggregate principal amount and
distribution dates relating to such series and, if applicable, the initial and
final scheduled distribution dates for each class; (iii) information as to the
assets comprising the Trust Fund, including the general characteristics of the
assets included therein, including the Mortgage Assets and any Credit Support
and Cash Flow Agreements (with respect to the Certificates of any series, the
"Trust Assets"); (iv) the circumstances, if any, under which the Trust Fund may
be subject to early termination; (v) additional information with respect to the
method of distribution of such Certificates; (vi) whether one or more REMIC
elections will be made and designation of the regular interests and residual
interests; (vii) the aggregate original percentage ownership interest in the
Trust Fund to be evidenced by each class of Certificates; (viii) information as
to any Master Servicer, any Sub-Servicer, any Special Servicer (or provision
for the appointment thereof) and the Trustee, as applicable; (ix) information
as to the nature and extent of subordination with respect to any class of
Certificates that is subordinate in right of payment to any other class; and
(x) whether such Certificates will be initially issued in definitive or
book-entry form.
2
<PAGE>
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Certificates contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the rules and regulations of
the Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits
can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices located
as follows: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661; and New York Regional Office, Seven World Trade
Center, New York, New York 10048.
To the extent described in the related Prospectus Supplement, some or all
of the Mortgage Loans may be secured by an assignment of the lessors' (i.e.,
the related mortgagors') rights in one or more leases (each, a "Lease") of the
related Mortgaged Property. Unless otherwise specified in the related
Prospectus Supplement, no series of Certificates will represent interests in or
obligations of any lessee (each, a "Lessee") under a Lease. If indicated,
however, in the Prospectus Supplement for a given series, a significant or the
sole source of payments on the Mortgage Loans in such series, and, therefore,
of distributions on such Certificates, will be rental payments due from the
Lessees under the Leases. Under such circumstances, prospective investors in
the related series of Certificates may wish to consider publicly available
information, if any, concerning the Lessees. Reference should be made to the
related Prospectus Supplement for information concerning the Lessees and
whether any such Lessees are subject to the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and any
Prospectus Supplement with respect hereto do not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the Offered
Certificates or an offer of the Offered Certificates to any person in any state
or other jurisdiction in which such offer would be unlawful. The delivery of
this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date; however, if any material change occurs
while this Prospectus is required by law to be delivered, this Prospectus will
be amended or supplemented accordingly.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Certificates, pursuant to the applicable Agreement. Such reports may be
available to holders of interests in the Certificates (the
"Certificateholders") upon request to their respective DTC participants. See
"Description of the Certificates--Reports to Certificateholders" and
"Description of the Agreements--Evidence as to Compliance." The Depositor will
file or cause to be filed with the Commission such periodic reports with
respect to each Trust Fund as are required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder.
3
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of an offering of Offered Certificates evidencing interests therein. The
Depositor will provide or cause to be provided without charge to each person to
whom this Prospectus is delivered in connection with the offering of one or
more classes of Offered Certificates, a copy of any or all documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such classes of such Offered Certificates,
other than the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests to the
Depositor should be directed in writing to Morgan Stanley Capital I Inc., c/o
Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th Floor, New York, New
York 10036, Attention: John E. Westerfield, or by telephone at (212) 761-4700.
The Depositor has determined that its financial statements are not material to
the offering of any Offered Certificates.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT ............................................... 2
AVAILABLE INFORMATION ............................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ................... 4
SUMMARY OF PROSPECTUS ............................................... 5
RISK FACTORS ........................................................ 13
DESCRIPTION OF THE TRUST FUNDS ...................................... 20
USE OF PROCEEDS ..................................................... 26
YIELD CONSIDERATIONS ................................................ 27
THE DEPOSITOR ....................................................... 31
DESCRIPTION OF THE CERTIFICATES ..................................... 31
DESCRIPTION OF THE AGREEMENTS ....................................... 39
DESCRIPTION OF CREDIT SUPPORT ....................................... 56
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES .......... 58
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ............................. 74
STATE TAX CONSIDERATIONS ............................................ 100
CERTAIN ERISA CONSIDERATIONS ........................................ 101
LEGAL INVESTMENT .................................................... 103
PLAN OF DISTRIBUTION ................................................ 105
LEGAL MATTERS ....................................................... 105
FINANCIAL INFORMATION ............................................... 106
RATING .............................................................. 106
INDEX OF PRINCIPAL DEFINITIONS ...................................... 107
</TABLE>
4
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series. An Index of Principal
Definitions is included at the end of this Prospectus.
Title of Certificates....... Mortgage Pass-Through Certificates, issuable in
series (the "Certificates").
Depositor................... Morgan Stanley Capital I Inc., a wholly-owned
subsidiary of Morgan Stanley Group Inc. See "The
Depositor."
Master Servicer............. The master servicer (the "Master Servicer"), if
any, for each series of Certificates, which may
be an affiliate of the Depositor, will be named
in the related Prospectus Supplement. See
"Description of the Agreements--Collection and
Other Servicing Procedures."
Special Servicer............ The special servicer (the "Special Servicer"),
if any, for each series of Certificates, which
may be an affiliate of the Depositor, will be
named, or the circumstances in accordance with
which a Special Servicer will be appointed will
be described, in the related Prospectus
Supplement. See "Description of the
Agreements--Special Servicers."
Trustee..................... The trustee (the "Trustee") for each series of
Certificates will be named in the related
Prospectus Supplement. See "Description of the
Agreements--The Trustee."
The Trust Assets............ Each series of Certificates will represent in
the aggregate the entire beneficial ownership
interest in a Trust Fund consisting primarily of:
(a) Mortgage Assets........ The Mortgage Assets with respect to each series
of Certificates will consist of a pool of
multifamily and/or commercial mortgage loans
(collectively, the "Mortgage Loans") and mortgage
participations, mortgage pass-through
certificates or other mortgage-backed securities
evidencing interests in or secured by Mortgage
Loans (collectively, the "MBS") or a combination
of Mortgage Loans and MBS. The Mortgage Loans
will not be guaranteed or insured by the
Depositor or any of its affiliates or, unless
otherwise provided in the Prospectus Supplement,
by any governmental agency or instrumentality or
other person. As more specifically described
herein, the Mortgage Loans will be secured by
first or junior liens on, or security interests
in, properties consisting of (i) residential
properties consisting of five or more rental or
cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, retail stores,
hotels or motels, nursing homes, hospitals or
other health-care related facilities, mobile home
parks,
5
<PAGE>
warehouse facilities, mini-warehouse facilities
or self-storage facilities, industrial plants,
congregate care facilities, mixed use or other
types of commercial properties (the "Commercial
Properties"). The term "Mortgaged Properties"
shall refer to Multifamily Properties or
Commercial Properties, or both.
To the extent described in the related
Prospectus Supplement, some or all of the
Mortgage Loans may also be secured by an
assignment of one or more leases (each, a
"Lease") of one or more lessees (each, a
"Lessee") of all or a portion of the related
Mortgaged Properties. Unless otherwise specified
in the related Prospectus Supplement, a
significant or the sole source of payments on
certain Commercial Loans (as defined herein)
will be the rental payments due under the
related Leases. In certain circumstances, with
respect to Commercial Properties, the material
terms and conditions of the related Leases may
be set forth in the related Prospectus
Supplement. See "Description of the Trust
Funds--Mortgage Loans--Leases" and "Risk
Factors--Limited Assets" herein.
The Mortgaged Properties may be located in any
one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico. The
Prospectus Supplement will indicate additional
jurisdictions, if any, in which the Mortgaged
Properties may be located. Unless otherwise
provided in the related Prospectus Supplement,
all Mortgage Loans will have individual
principal balances at origination of not less
than $25,000 and original terms to maturity of
not more than 40 years. All Mortgage Loans will
have been originated by persons other than the
Depositor, and all Mortgage Assets will have
been purchased, either directly or indirectly,
by the Depositor on or before the date of
initial issuance of the related series of
Certificates. The related Prospectus Supplement
will indicate if any such persons are affiliates
of the Depositor.
Each Mortgage Loan may provide for no accrual of
interest or for accrual of interest thereon at
an interest rate (a "Mortgage Rate") that is
fixed over its term or that adjusts from time to
time, or that may be converted from an
adjustable to a fixed Mortgage Rate, or from a
fixed to an adjustable Mortgage Rate, from time
to time at the mortgagor's election, in each
case as described in the related Prospectus
Supplement. Adjustable Mortgage Rates on the
Mortgage Loans in a Trust Fund may be based on
one or more indices. Each Mortgage Loan may
provide for scheduled payments to maturity,
payments that adjust from time to time to
accommodate changes in the Mortgage Rate or to
reflect the occurrence of certain events, and
may provide for negative amortization or
accelerated amortization, in each case as
described in the related Prospectus Supplement.
Each Mortgage Loan may be fully amortizing or
require a balloon payment due on its stated
maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage
Loan may contain prohibitions on prepayment
6
<PAGE>
or require payment of a premium or a yield
maintenance penalty in connection with a
prepayment, in each case as described in the
related Prospectus Supplement. The Mortgage
Loans may provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such
other interval as is specified in the related
Prospectus Supplement. See "Description of the
Trust Funds--Assets."
(b) Government Securities... If so provided in the related Prospectus
Supplement, the Trust Fund may include, in
addition to Mortgage Assets, certain direct
obligations of the United States, agencies
thereof or agencies created thereby which provide
for payment of interest and/or principal
(collectively, "Government Securities").
(c) Collection Accounts.... Each Trust Fund will include one or more
accounts established and maintained on behalf of
the Certificateholders into which the person or
persons designated in the related Prospectus
Supplement will, to the extent described herein
and in such Prospectus Supplement, deposit all
payments and collections received or advanced
with respect to the Mortgage Assets and other
assets in the Trust Fund. Such an account may be
maintained as an interest bearing or a
non-interest bearing account, and funds held
therein may be held as cash or invested in
certain short-term, investment grade obligations,
in each case as described in the related
Prospectus Supplement. See "Description of the
Agreements--Certificate Account and Other
Collection Accounts."
(d) Credit Support......... If so provided in the related Prospectus
Supplement, partial or full protection against
certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be provided
to one or more classes of Certificates of the
related series in the form of subordination of
one or more other classes of Certificates of such
series, which other classes may include one or
more classes of Offered Certificates, or by one
or more other types of credit support, such as a
letter of credit, insurance policy, guarantee,
reserve fund or another type of credit support,
or a combination thereof (any such coverage with
respect to the Certificates of any series,
"Credit Support"). The amount and types of
coverage, the identification of the entity
providing the coverage (if applicable) and
related information with respect to each type of
Credit Support, if any, will be described in the
Prospectus Supplement for a series of
Certificates. The Prospectus Supplement for any
series of Certificates evidencing an interest in
a Trust Fund that includes MBS will describe any
similar forms of credit support that are provided
by or with respect to, or are included as part of
the trust fund evidenced by or providing security
for, such MBS. See "Risk Factors--Credit Support
Limitations" and "Description of Credit Support."
(e) Cash Flow Agreements... If so provided in the related Prospectus
Supplement, the Trust Fund may include guaranteed
investment contracts pursuant to
7
<PAGE>
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate. The Trust Fund may
also include certain other agreements, such as
interest rate exchange agreements, interest rate
cap or floor agreements, currency exchange
agreements or similar agreements provided to
reduce the effects of interest rate or currency
exchange rate fluctuations on the Assets or on
one or more classes of Certificates. (Currency
exchange agreements might be included in the
Trust Fund if some or all of the Mortgage Assets
(such as Mortgage Loans secured by Mortgaged
Properties located outside the United States)
were denominated in a non-United States
currency.) The principal terms of any such
guaranteed investment contract or other
agreement (any such agreement, a "Cash Flow
Agreement"), including, without limitation,
provisions relating to the timing, manner and
amount of payments thereunder and provisions
relating to the termination thereof, will be
described in the Prospectus Supplement for the
related series. In addition, the related
Prospectus Supplement will provide certain
information with respect to the obligor under
any such Cash Flow Agreement. The Prospectus
Supplement for any series of Certificates
evidencing an interest in a Trust Fund that
includes MBS will describe any cash flow
agreements that are included as part of the
trust fund evidenced by or providing security
for such MBS. See "Description of the Trust
Funds--Cash Flow Agreements." Description of
Certificates.
Distributions on
Certificates................ Each series of Certificates evidencing an
interest in a Trust Fund that includes Mortgage
Loans as part of its assets will be issued
pursuant to a pooling and servicing agreement,
and each series of Certificates evidencing an
interest in a Trust Fund that does not include
Mortgage Loans will be issued pursuant to a trust
agreement. Pooling and servicing agreements and
trust agreements are referred to herein as the
"Agreements." Each series of Certificates will
include one or more classes. Each series of
Certificates (including any class or classes of
Certificates of such series not offered hereby)
will represent in the aggregate the entire
beneficial ownership interest in the Trust Fund.
Each class of Certificates (other than certain
Stripped Interest Certificates, as defined below)
will have a stated principal amount (a
"Certificate Balance") and (other than certain
Stripped Principal Certificates, as defined
below), will accrue interest thereon based on a
fixed, variable or adjustable interest rate (a
"Pass-Through Rate"). The related Prospectus
Supplement will specify the Certificate Balance,
if any, and the Pass-Through Rate for each class
of Certificates or, in the case of a variable or
adjustable Pass-Through Rate, the method for
determining the Pass-Through Rate.
Each series of Certificates will consist of one
or more classes of Certificates that may (i)
provide for the accrual of interest thereon
based on fixed, variable or adjustable rates;
(ii) be senior (collectively, "Senior
Certificates") or subordinate (col--
8
<PAGE>
lectively, "Subordinate Certificates") to one or
more other classes of Certificates in respect of
certain distributions on the Certificates; (iii)
be entitled to principal distributions, with
disproportionately low, nominal or no interest
distributions (collectively, "Stripped Principal
Certificates"); (iv) be entitled to interest
distributions, with disproportionately low,
nominal or no principal distributions
(collectively, "Stripped Interest
Certificates"); (v) provide for distributions of
accrued interest thereon commencing only
following the occurrence of certain events, such
as the retirement of one or more other classes
of Certificates of such series (collectively,
"Accrual Certificates"); (vi) provide for
distributions of principal sequentially, based
on specified payment schedules or other
methodologies; and/or (vii) provide for
distributions based on a combination of two or
more components thereof with one or more of the
characteristics described in this paragraph,
including a Stripped Principal Certificate
component and a Stripped Interest Certificate
component, to the extent of available funds, in
each case as described in the related Prospectus
Supplement. Any such classes may include classes
of Offered Certificates. With respect to
Certificates with two or more components,
references herein to Certificate Balance,
notional amount and Pass-Through Rate refer to
the principal balance, if any, notional amount,
if any, and the Pass-Through Rate, if any, for
any such component.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person, unless
otherwise provided in the related Prospectus
Supplement. See "Risk Factors--Limited Assets"
and "Description of the Certificates."
(a) Interest................ Interest on each class of Offered Certificates
(other than Stripped Principal Certificates and
certain classes of Stripped Interest
Certificates) of each series will accrue at the
applicable Pass-Through Rate on the outstanding
Certificate Balance thereof and will be
distributed to Certificateholders as provided in
the related Prospectus Supplement (each of the
specified dates on which distributions are to be
made, a "Distribution Date"). Distributions with
respect to interest on Stripped Interest
Certificates may be made on each Distribution
Date on the basis of a notional amount as
described in the related Prospectus Supplement.
Distributions of interest with respect to one or
more classes of Certificates may be reduced to
the extent of certain delinquencies, losses,
prepayment interest shortfalls, and other
contingencies described herein and in the related
Prospectus Supplement. See "Risk Factors--Average
Life of Certificates; Prepayments; Yields,"
"Yield Considerations" and "Description of the
Certificates--Distributions of Interest on the
Certificates."
(b) Principal............... The Certificates of each series initially will
have an aggregate Certificate Balance no greater
than the outstanding principal
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balance of the Assets as of, unless the related
Prospectus Supplement provides otherwise, the
close of business on the first day of the month
of formation of the related Trust Fund (the
"Cut-off Date"), after application of scheduled
payments due on or before such date, whether or
not received. The Certificate Balance of a
Certificate outstanding from time to time
represents the maximum amount that the holder
thereof is then entitled to receive in respect
of principal from future cash flow on the assets
in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement,
distributions of principal will be made on each
Distribution Date to the class or classes of
Certificates entitled thereto until the
Certificate Balances of such Certificates have
been reduced to zero. Unless otherwise specified
in the related Prospectus Supplement,
distributions of principal of any class of
Certificates will be made on a pro rata basis
among all of the Certificates of such class or
by random selection, as described in the related
Prospectus Supplement or otherwise established
by the related Trustee. Stripped Interest
Certificates with no Certificate Balance will
not receive distributions in respect of
principal. See "Description of the
Certificates--Distributions of Principal of the
Certificates."
Advances.................... Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer will
be obligated as part of its servicing
responsibilities to make certain advances that in
its good faith judgment it deems recoverable with
respect to delinquent scheduled payments on the
Whole Loans in such Trust Fund. Neither the
Depositor nor any of its affiliates will have any
responsibility to make such advances. Advances
made by a Master Servicer are reimbursable
generally from subsequent recoveries in respect
of such Whole Loans and otherwise to the extent
described herein and in the related Prospectus
Supplement. If and to the extent provided in the
Prospectus Supplement for any series, the Master
Servicer will be entitled to receive interest on
its outstanding advances, payable from amounts in
the related Trust Fund. The Prospectus Supplement
for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will
describe any corresponding advancing obligation
of any person in connection with such MBS. See
"Description of the Certificates--Advances in
Respect of Delinquencies."
Termination................. If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination through the
repurchase of the Assets in the related Trust
Fund by the party specified therein, under the
circumstances and in the manner set forth
therein. If so provided in the related Prospectus
Supplement, upon the reduction of the Certificate
Balance of a specified class or classes of
Certificates by a specified percentage or amount
or on and after a date specified in such
Prospectus Supplement, the party specified
therein will solicit
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bids for the purchase of all of the Assets of
the Trust Fund, or of a sufficient portion of
such Assets to retire such class or classes, or
purchase such Assets at a price set forth in the
related Prospectus Supplement. In addition, if
so provided in the related Prospectus
Supplement, certain classes of Certificates may
be purchased subject to similar conditions. See
"Description of the Certificates--Termination."
Registration of
Certificates................ If so provided in the related Prospectus
Supplement, one or more classes of the Offered
Certificates will initially be represented by one
or more Certificates registered in the name of
Cede & Co., as the nominee of DTC. No person
acquiring an interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such person's
interest except in the event that definitive
certificates are issued under the limited
circumstances described herein. See "Risk
Factors--Book-Entry Registration" and
"Description of the Certificates--Book-Entry
Registration and Definitive Certificates."
Tax Status of
the Certificates............ The Certificates of each series will constitute
either (i) "regular interests" ("REMIC Regular
Certificates") and "residual interests" ("REMIC
Residual Certificates") in a Trust Fund treated
as a REMIC under Sections 860A through 860G of
the Code, or (ii) interests ("Grantor Trust
Certificates") in a Trust Fund treated as a
grantor trust under applicable provisions of the
Code.
(a) REMIC.................. REMIC Regular Certificates generally will be
treated as debt obligations of the applicable
REMIC for federal income tax purposes. Certain
REMIC Regular Certificates may be issued with
original issue discount for federal income tax
purposes. See "Certain Federal Income Tax
Consequences" in the Prospectus Supplement.
A portion (or, in certain cases, all) of the
income from REMIC Residual Certificates (i) may
not be offset by any losses from other
activities of the holder of such REMIC Residual
Certificates, (ii) may be treated as unrelated
business taxable income for holders of REMIC
Residual Certificates that are subject to tax on
unrelated business taxable income (as defined in
Section 511 of the Code), and (iii) may be
subject to foreign withholding rules. See
"Certain Federal Income Tax Consequences--
REMICs--Taxation of Owners of REMIC Residual
Certificates".
The Offered Certificates will be treated as (i)
assets described in section 7701(a)(19)(C) of
the Internal Revenue Code of 1986, as amended
(the "Code") and (ii) "real estate assets"
within the meaning of section 856(c)(4)(A) of
the Code, in each case to the extent described
herein and in the Prospectus. See "Certain
Federal Income Tax Consequences" herein and in
the Prospectus.
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(b) Grantor Trust.......... If no election is made to treat the Trust Fund
relating to a Series of Certificates as a real
estate mortgage investment conduit ("REMIC"), the
Trust Fund will be classified as a grantor trust
and not as an association taxable as a
corporation for federal income tax purposes, and
therefore holders of Certificates will be treated
as the owners of undivided pro rata interests in
the Mortgage Pool or pool of securities and any
other assets held by the Trust Fund.
Investors are advised to consult their tax
advisors and to review "Certain Federal Income
Tax Consequences" herein and in the related
Prospectus Supplement.
ERISA Considerations........ A fiduciary of an employee benefit plan or
other retirement plan or arrangement, including
an individual retirement account or annuity or a
Keogh plan, and any collective investment fund or
insurance company general or separate account in
which such plans, accounts, annuities or
arrangements are invested, that is subject to
Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code should carefully review
with its legal advisors whether the purchase or
holding of Offered Certificates could give rise
to a transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. See "Certain ERISA
Considerations" herein and in the related
Prospectus Supplement. To the extent specified in
the related Prospectus Supplement, certain
classes of Certificates may not be transferred
unless the Trustee and the Depositor are
furnished with a letter of representations or an
opinion of counsel to the effect that such
transfer will not result in a violation of the
prohibited transaction provisions of ERISA and
the Code, will not cause the assets of the Trust
to be deemed "plan assets" for purposes of ERISA
and the Code and will not subject the Trustee,
the Depositor or the Master Servicer to
additional obligations. See "Certain ERISA
Considerations" herein and in the related
Prospectus Supplement.
Legal Investment............ The related Prospectus Supplement will specify
whether any class or classes of the Offered
Certificates will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, as
amended. Investors whose investment authority is
subject to legal restrictions should consult
their own legal advisors to determine whether and
to what extent the Offered Certificates
constitute legal investments for them. See "Legal
Investment" herein and in the related Prospectus
Supplement.
Rating...................... At the date of issuance, as to each series,
each class of Offered Certificates will be rated
not lower than investment grade by one or more
nationally recognized statistical rating agencies
(each, a "Rating Agency"). See "Rating" herein
and in the related Prospectus Supplement.
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<PAGE>
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of
Certificates by a holder in any secondary market that may develop may be at a
discount from 100% of their original principal balance or from their purchase
price. Furthermore, secondary market purchasers may look only hereto, to the
related Prospectus Supplement and to the reports to Certificateholders
delivered pursuant to the related Agreement as described herein under the
heading "Description of the Certificates--Reports to Certificateholders",
"--Book-Entry Registration and Definitive Certificates" and "Description of the
Agreements--Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and
the Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination". Morgan Stanley & Co.
Incorporated currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so.
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, or any of their affiliates. The only
obligations with respect to the Certificates or the Assets will be the
obligations (if any) of the Warrantying Party (as defined herein) pursuant to
certain limited representations and warranties made with respect to the
Mortgage Loans, the Master Servicer's, any Special Servicer's and any
Sub-Servicer's servicing obligations under the related Pooling and Servicing
Agreement (including the limited obligation to make certain advances in the
event of delinquencies on the Mortgage Loans, but only to the extent deemed
recoverable). Since certain representations and warranties with respect to the
Mortgage Assets may have been made and/or assigned in connection with transfers
of such Mortgage Assets prior to the Closing Date, the rights of the Trustee
and the Certificateholders with respect to such representations or warranties
will be limited to their rights as an assignee thereof. Unless otherwise
specified in the related Prospectus Supplement, none of the Depositor, the
Master Servicer or any affiliate thereof will have any obligation with respect
to representations or warranties made by any other entity. Unless otherwise
specified in the related Prospectus Supplement, neither the Certificates nor
the underlying Mortgage Assets will be guaranteed or insured by any
governmental agency or instrumentality, or by the Depositor, the Master
Servicer, any Special Servicer, any Sub-Servicer or any of their affiliates.
Proceeds of the assets included in the related Trust Fund for each series of
Certificates (including the Assets and any form of credit enhancement) will be
the sole source of payments on the Certificates, and there will be no recourse
to the Depositor or any other entity in the event that such proceeds are
insufficient or otherwise unavailable to make all payments provided for under
the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a series
of Certificates will not have any claim against or security interest in the
Trust Funds for any other series. If the related Trust Fund is insufficient to
make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts
maintained as Credit Support, may be withdrawn under certain conditions, as
described in the related Prospectus Supplement. In the event of such
withdrawal, such amounts will not be available for future payment of principal
of or interest on the Certificates. If so provided in the Prospectus Supplement
for a series of Certificates consisting of one or more classes of Subordinate
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<PAGE>
Certificates, on any Distribution Date in respect of which losses or shortfalls
in collections on the Assets have been incurred, the amount of such losses or
shortfalls will be borne first by one or more classes of the Subordinate
Certificates, and, thereafter, by the remaining classes of Certificates in the
priority and manner and subject to the limitations specified in such Prospectus
Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets in
any Trust Fund generally will result in a faster rate of principal payments on
one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly
below the applicable mortgage interest rates, principal prepayments are likely
to be higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A series of Certificates may include one
or more classes of Certificates with priorities of payment and, as a result,
yields on other classes of Certificates, including classes of Offered
Certificates, of such series may be more sensitive to prepayments on Mortgage
Assets. A series of Certificates may include one or more classes offered at a
significant premium or discount. Yields on such classes of Certificates will be
sensitive, and in some cases extremely sensitive, to prepayments on Mortgage
Assets and, where the amount of interest payable with respect to a class is
disproportionately high, as compared to the amount of principal, as with
certain classes of Stripped Interest Certificates, a holder might, in some
prepayment scenarios, fail to recoup its original investment. A series of
Certificates may include one or more classes of Certificates, including classes
of Offered Certificates, that provide for distribution of principal thereof
from amounts attributable to interest accrued but not currently distributable
on one or more classes of Accrual Certificates and, as a result, yields on such
Certificates will be sensitive to (a) the provisions of such Accrual
Certificates relating to the timing of distributions of interest thereon and
(b) if such Accrual Certificates accrue interest at a variable or adjustable
Pass-Through Rate, changes in such rate. See "Yield Considerations" herein and,
if applicable, in the related Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders
of Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates
of the related series are entitled that is not covered by the applicable
rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage
loans in a larger group. Such analysis is often the basis upon which each
Rating Agency determines the amount of credit support required with respect to
each such class. There can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency,
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<PAGE>
foreclosure or loss experience of any particular pool of Mortgage Assets. No
assurance can be given that values of any Mortgaged Properties have remained or
will remain at their levels on the respective dates of origination of the
related Mortgage Loans. Moreover, there is no assurance that appreciation of
real estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans underlying or comprising
the Mortgage Assets in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional lenders.
In addition, adverse economic conditions (which may or may not affect real
property values) may affect the timely payment by mortgagors of scheduled
payments of principal and interest on the Mortgage Loans and, accordingly, the
rates of delinquencies, foreclosures and losses with respect to any Trust Fund.
To the extent that such losses are not covered by the Credit Support, if any,
described in the related Prospectus Supplement, such losses will be borne, at
least in part, by the holders of one or more classes of the Certificates of the
related series. See "Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds--Assets." The ability of a
mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a mortgagor to repay a
single family loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of
an income-producing property will likely affect both the performance of the
related loan as well as the liquidation value of such property, whereas a
decline in the income of a mortgagor on a single family property will likely
affect the performance of the related loan but may not affect the liquidation
value of such property. Moreover, a decline in the value of a Mortgaged
Property will increase the risk of loss particularly with respect to any
related junior Mortgage Loan. See "--Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing property
leased by the mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants or,
if applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
mortgagor default, recourse may be had only against the specific property and
such other assets, if any, as have been pledged to secure the related Mortgage
Loan. With respect to those Mortgage Loans that provide for recourse against
the mortgagor and its assets generally, there can be no assurance that such
recourse will ensure a recovery in respect of a defaulted Mortgage Loan greater
than the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a limited number of Mortgage Loans and/or relate to Leases
to only a single Lessee or a limited number of Lessees.
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If applicable, certain legal aspects of the Mortgage Loans for a series of
Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each mortgagor under
a Commercial Loan may be an entity created by the owner or purchaser of the
related Commercial Property solely to own or purchase such property, in part to
isolate the property from the debts and liabilities of such owner or purchaser.
Unless otherwise specified, each such Commercial Loan will represent a
nonrecourse obligation of the related mortgagor secured by the lien of the
related Mortgage and the related Lease Assignments. Whether or not such loans
are recourse or nonrecourse obligations, it is not expected that the mortgagors
will have any significant assets other than the Commercial Properties and the
related Leases, which will be pledged to the Trustee under the related
Agreement. Therefore, the payment of amounts due on any such Commercial Loans,
and, consequently, the payment of principal of and interest on the related
Certificates, will depend primarily or solely on rental payments by the
Lessees. Such rental payments will, in turn, depend on continued occupancy by,
and/or the creditworthiness of, such Lessees, which in either case may be
adversely affected by a general economic downturn or an adverse change in their
financial condition. Moreover, to the extent a Commercial Property was designed
for the needs of a specific type of tenant (e.g., a nursing home, hospital,
hotel or motel), the value of such property in the event of a default by the
Lessee or the early termination of such Lease may be adversely affected because
of difficulty in re-leasing the property to a suitable substitute lessee or, if
re-leasing to such a substitute is not possible, because of the cost of
altering the property for another more marketable use. As a result, without the
benefit of the Lessee's continued support of the Commercial Property, and
absent significant amortization of the Commercial Loan, if such loan is
foreclosed on and the Commercial Property liquidated following a lease default,
the net proceeds might be insufficient to cover the outstanding principal and
interest owing on such loan, thereby increasing the risk that holders of the
Certificates will suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and,
thus, will require substantial principal payments (i.e., balloon payments) at
their stated maturity. Mortgage Loans with balloon payments involve a greater
degree of risk because the ability of a mortgagor to make a balloon payment
typically will depend upon its ability either to timely refinance the loan or
to timely sell the related Mortgaged Property. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage interest rates at the time of sale or
refinancing, the mortgagor's equity in the related Mortgaged Property, the
financial condition and operating history of the mortgagor and the related
Mortgaged Property, tax laws, rent control laws (with respect to certain
Multifamily Properties and mobile home parks), reimbursement rates (with
respect to certain hospitals, nursing homes and convalescent homes),
renewability of operating licenses, prevailing general economic conditions and
the availability of credit for commercial or multifamily real properties, as
the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case of
liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
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OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Whole Loans, a Master Servicer, a Sub-Servicer or a
Special Servicer will be permitted (within prescribed parameters) to extend and
modify Whole Loans that are in default or as to which a payment default is
imminent, including in particular with respect to balloon payments. In
addition, a Master Servicer, a Sub-Servicer or a Special Servicer may receive a
workout fee based on receipts from or proceeds of such Whole Loans. While any
such entity generally will be required to determine that any such extension or
modification is reasonably likely to produce a greater recovery on a present
value basis than liquidation, there can be no assurance that such flexibility
with respect to extensions or modifications or payment of a workout fee will
increase the present value of receipts from or proceeds of Whole Loans that are
in default or as to which a payment default is imminent. Additionally, if so
specified in the related Prospectus Supplement, certain of the Mortgage Loans
included in the Mortgage Pool for a Series may have been subject to workouts or
similar arrangements following periods of delinquency and default.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of single family mortgage loans. The mortgagor's sophistication and form
of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Support may not cover all potential losses or
risks; for example, Credit Support may or may not cover fraud or negligence by
a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more
classes of Certificates of a series are made in a specified order of priority,
any limits with respect to the aggregate amount of claims under any related
Credit Support may be exhausted before the principal of the lower priority
classes of Certificates of such series has been repaid. As a result, the impact
of significant losses and shortfalls on the Assets may fall primarily upon
those classes of Certificates having a lower priority of payment. Moreover, if
a form of Credit Support covers more than one series of Certificates (each, a
"Covered Trust"), holders of Certificates evidencing an interest in a Covered
Trust will be subject to the risk that such Credit Support will be exhausted by
the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies, other losses or other factors. There can, however, be
no assurance that the loss experience on the related Mortgage Assets will not
exceed such assumed levels. See "--Limited Nature of Ratings," "Description of
the Certificates" and "Description of Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. The Master
Servicer will generally be permitted to reduce, terminate or substitute all or
a portion of the credit enhancement for any series of Certificates, if the
applicable Rating Agency indicates that the then-current rating thereof will
not be adversely affected. The rating of any series of Certificates by any
applicable Rating Agency may be lowered following the initial issuance thereof
as a result of the
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downgrading of the obligations of any applicable credit support provider, or as
a result of losses on the related Mortgage Assets substantially in excess of
the levels contemplated by such Rating Agency at the time of its initial rating
analysis. None of the Depositor, the Master Servicer or any of their affiliates
will have any obligation to replace or supplement any credit enhancement, or to
take any other action to maintain any rating of any series of Certificates.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES; EFFECT OF LOSSES ON THE ASSETS
The rights of Subordinate Certificateholders to receive distributions to
which they would otherwise be entitled with respect to the Assets will be
subordinate to the rights of the Master Servicer (to the extent that the Master
Servicer is paid its servicing fee, including any unpaid servicing fees with
respect to one or more prior Due Periods, and is reimbursed for certain
unreimbursed advances and unreimbursed liquidation expenses) and the Senior
Certificateholders to the extent described herein. As a result of the
foregoing, investors must be prepared to bear the risk that they may be subject
to delays in payment and may not recover their initial investments in the
Subordinate Certificates. See "Description of the Certificates--General" and
"--Allocation of Losses and Shortfalls."
The yields on the Subordinate Certificates may be extremely sensitive to
the loss experience of the Assets and the timing of any such losses. If the
actual rate and amount of losses experienced by the Assets exceed the rate and
amount of such losses assumed by an investor, the yields to maturity on the
Subordinate Certificates may be lower than anticipated.
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of
the mortgagor. Such clauses are generally enforceable subject to certain
exceptions. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default. The equity courts of
any state, however, may refuse the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to
the lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
mortgagor defaults, the license terminates and the lender is entitled to
collect rents. Such assignments are typically not perfected as security
interests prior to actual possession of the cash flows. Some state laws may
require that the lender take possession of the Mortgaged Property and obtain a
judicial appointment of a receiver before becoming entitled to collect the
rents. In addition, if bankruptcy or similar proceedings are commenced by or in
respect of the mortgagor, the lender's ability to collect the rents may be
adversely affected. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of
hazardous substances that require remedy at a property, if agents or employees
of the lender have become sufficiently involved in the operations of the
mortgagor, regardless of whether or not the environmental
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damage or threat was caused by a prior owner. A lender also risks such
liability on foreclosure of the mortgage. Unless otherwise specified in the
related Prospectus Supplement, each Pooling and Servicing Agreement will
provide that none of the Master Servicer, the Sub-Servicer or the Special
Servicer, acting on behalf of the Trust Fund, may acquire title to a Mortgaged
Property securing a Mortgage Loan or take over its operation unless the Master
Servicer has previously determined, based upon a report prepared by a person
who regularly conducts environmental audits, that: (i) the Mortgaged Property
is in compliance with applicable environmental laws, and there are no
circumstances present at the Mortgaged Property relating to the use, management
or disposal of any hazardous substances, hazardous materials, wastes, or
petroleum based materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any federal, state
or local law or regulation; or (ii) if the Mortgaged Property is not so in
compliance or such circumstances are so present, then it would be in the best
economic interest of the Trust Fund to acquire title to the Mortgaged Property
and further to take such actions as would be necessary and appropriate to
effect such compliance and/or respond to such circumstances. See "Certain Legal
Aspects of the Mortgage Loans and the Leases--Environmental Legislation."
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Except as provided in the Prospectus Supplement, REMIC Residual
Certificates, if offered hereunder, are anticipated to have "phantom income"
associated with them. That is, taxable income is anticipated to be allocated to
the REMIC Residual Certificates in the early years of the existence of the
related REMIC, even if the REMIC Residual Certificates receive no distributions
from the related REMIC, with a corresponding amount of losses allocated to the
REMIC Residual Certificates in later years. Accordingly, the present value of
the tax detriments associated with the REMIC Residual Certificates may
significantly exceed the present value of the tax benefits related thereto, and
the REMIC Residual Certificates may have a negative "value." Moreover, the
REMIC Residual Certificates will in effect be allocated an amount of gross
income equal to the non-interest expenses of the REMIC, but such expenses will
be deductible by holders of the REMIC Residual Certificates that are
individuals only as itemized deductions (and be subject to all the limitations
applicable to itemized deductions). Accordingly, investment in the REMIC
Residual Certificates will generally not be suitable for individuals or for
certain pass-through entities, such as partnerships or S corporations, that
have individuals as partners or shareholders. In addition, REMIC Residual
Certificates are subject to certain restrictions on transfer. Finally,
prospective purchasers of a REMIC Residual Certificate should be aware that
recently issued final regulations provide restrictions on the ability to
mark-to-market certain "negative value" REMIC residual interests. See "Certain
Federal Income Tax Consequences--REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making under
the related Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders of such series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description
of the Agreements--Events of Default," "--Rights Upon Event of Default,"
"--Amendment" and "--List of Certificateholders."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will
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not be registered in the names of the Certificateholders or their nominees.
Because of this, unless and until Definitive Certificates are issued,
Certificateholders will not be recognized by the Trustee as
"Certificateholders" (as that term is to be used in the related Agreement).
Hence, until such time, Certificateholders will be able to exercise the rights
of Certificateholders only indirectly through DTC and its participating
organizations. See "Description of the Certificates--Book-Entry Registration
and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the "Assets") will include (i)
multifamily and/or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities ("MBS"), (iii) direct
obligations of the United States, agencies thereof or agencies created thereby
which are not subject to redemption prior to maturity at the option of the
issuer and are (a) interest-bearing securities, (b) non-interest-bearing
securities, (c) originally interest-bearing securities from which coupons
representing the right to payment of interest have been removed, or (d)
interest-bearing securities from which the right to payment of principal has
been removed (the "Government Securities"), or (iv) a combination of Mortgage
Loans, MBS and Government Securities. As used herein, "Mortgage Loans" refers
to both whole Mortgage Loans and Mortgage Loans underlying MBS. Mortgage Loans
that secure, or interests in which are evidenced by, MBS are herein sometimes
referred to as Underlying Mortgage Loans. Mortgage Loans that are not
Underlying Mortgage Loans are sometimes referred to as "Whole Loans." Any
mortgage participations, pass-through certificates or other asset-backed
certificates in which an MBS evidences an interest or which secure an MBS are
sometimes referred to herein also as MBS or as "Underlying MBS." Mortgage Loans
and MBS are sometimes referred to herein as "Mortgage Assets." The Mortgage
Assets will not be guaranteed or insured by Morgan Stanley Capital I Inc. (the
"Depositor") or any of its affiliates or, unless otherwise provided in the
Prospectus Supplement, by any governmental agency or instrumentality or by any
other person. Each Asset will be selected by the Depositor for inclusion in a
Trust Fund from among those purchased, either directly or indirectly, from a
prior holder thereof (an "Asset Seller"), which may be an affiliate of the
Depositor and, with respect to Mortgage Assets, which prior holder may or may
not be the originator of such Mortgage Loan or the issuer of such MBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Assets.
MORTGAGE LOANS
General
The Mortgage Loans will be secured by liens on, or security interests in,
Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively-owned dwelling units in high-rise,
mid-rise or garden apartment buildings ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, shopping centers,
retail stores, hotels or motels, nursing homes, hospitals or other health
care-related facilities, mobile home parks, warehouse facilities,
mini-warehouse facilities or self-storage facilities, industrial plants,
congregate care facilities, mixed use or other types of commercial properties
("Commercial Properties" and the related loans, "Commercial Loans") located,
unless otherwise specified in the related Prospectus Supplement, in any one of
the fifty states, the District of Columbia or the Commonwealth of Puerto Rico.
To the extent specified in the related Prospectus Supplement, the Mortgage
Loans will be secured by first or junior mortgages or deeds of trust or other
similar security instruments creating a first or junior lien on Mortgaged
Property.
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Multifamily Property may include mixed commercial and residential structures
and may include apartment buildings owned by private cooperative housing
corporations ("Cooperatives"). The Mortgaged Properties may include leasehold
interests in properties, the title to which is held by third party lessors.
Unless otherwise specified in the Prospectus Supplement, the term of any such
leasehold will exceed the term of the related mortgage note by at least five
years. Each Mortgage Loan will have been originated by a person (the
"Originator") other than the Depositor. The related Prospectus Supplement will
indicate if any Originator is an affiliate of the Depositor. The Mortgage Loans
will be evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages or deeds of trust (the "Mortgages") creating a lien on the Mortgaged
Properties. Mortgage Loans will generally also be secured by an assignment of
leases and rents and/or operating or other cash flow guarantees relating to the
Mortgage Loan.
Leases
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or
a portion of such properties. Pursuant to a Lease Assignment, the related
mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for
application to the monetary obligations of the mortgagor. State law may limit
or restrict the enforcement of the Lease Assignments by a mortgagee until it
takes possession of the related Mortgaged Property and/or a receiver is
appointed. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Leases and Rents." Alternatively, to the extent specified in the
related Prospectus Supplement, the mortgagor and the mortgagee may agree that
payments under Leases are to be made directly to the Master Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to
cover all scheduled payments of principal and interest on the related Mortgage
Loans and, in certain cases, their pro rata share of the operating expenses,
insurance premiums and real estate taxes associated with the Mortgaged
Properties. Certain of the Leases may require the mortgagor to bear costs
associated with structural repairs and/or the maintenance of the exterior or
other portions of the Mortgaged Property or provide for certain limits on the
aggregate amount of operating expenses, insurance premiums, taxes and other
expenses that the Lessees are required to pay. If so specified in the related
Prospectus Supplement, under certain circumstances the Lessees may be permitted
to set off their rental obligations against the obligations of the mortgagors
under the Leases. In those cases where payments under the Leases (net of any
operating expenses payable by the mortgagors) are insufficient to pay all of
the scheduled principal and interest on the related Mortgage Loans, the
mortgagors must rely on other income or sources (including security deposits)
generated by the related Mortgaged Property to make payments on the related
Mortgage Loan. To the extent specified in the related Prospectus Supplement,
some Commercial Properties may be leased entirely to one Lessee. In such cases,
absent the availability of other funds, the mortgagor must rely entirely on
rent paid by such Lessee in order for the mortgagor to pay all of the scheduled
principal and interest on the related Commercial Loan. To the extent specified
in the related Prospectus Supplement, certain of the Leases may expire prior to
the stated maturity of the related Mortgage Loan. In such cases, upon
expiration of the Leases the mortgagors will have to look to alternative
sources of income, including rent payment by any new Lessees or proceeds from
the sale or refinancing of the Mortgaged Property, to cover the payments of
principal and interest due on such Mortgage Loans unless the Lease is renewed.
As specified in the related Prospectus Supplement, certain of the Leases may
provide that upon the occurrence of a casualty affecting a Mortgaged Property,
the Lessee will have the right to terminate its Lease, unless the mortgagor, as
lessor, is able to cause the Mortgaged Property to be restored within a
specified period of time. Certain Leases may provide that it is the lessor's
responsibility, while other Leases provide that it is the Lessee's
responsibility, to restore the Mortgaged Property after a casualty to its
original condition. Certain Leases may provide a right of termination to the
related Lessee if a taking of a material or specified percentage of the leased
space in the Mortgaged Property occurs, or if the ingress or egress to the
leased space has been materially impaired.
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Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the mortgagor's assets, in the event of the mortgagor's
default. Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at
any given time is the ratio of the Net Operating Income for a twelve-month
period to the annualized scheduled payments on the Mortgage Loan. "Net
Operating Income" means, for any given period, unless otherwise specified in
the related Prospectus Supplement, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than
(i) non-cash items such as depreciation and amortization, (ii) capital
expenditures and (iii) debt service on loans secured by the Mortgaged Property.
The Net Operating Income of a Mortgaged Property will fluctuate over time and
may be sufficient or insufficient to cover debt service on the related Mortgage
Loan at any given time.
As the primary component of Net Operating Income, rental income (as well
as maintenance payments from tenant-stockholders of a Cooperative) is subject
to the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as (typically) warehouses, retail stores, office buildings and
industrial plants. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
Mortgage Loan. As may be further described in the related Prospectus
Supplement, in some cases leases of Mortgaged Properties may provide that the
Lessee, rather than the mortgagor, is responsible for payment of some or all of
these expenses; however, because leases are subject to default risks as well
when a tenant's income is insufficient to cover its rent and operating
expenses, the existence of such "net of expense" provisions will only temper,
not eliminate, the impact of expense increases on the performance of the
related Mortgage Loan. See "--Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and hospitals,
the income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of the
property. Low-and moderate-income housing in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect
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to a Balloon Mortgage Loan, for example, the risk of default as a result of the
unavailability of a source of funds to finance the related balloon payment at
maturity on terms comparable to or better than those of such Balloon Mortgage
Loans could be significant even though the related Debt Service Coverage Ratio
is high.
The liquidation value of any Mortgaged Property may be adversely affected
by risks generally incident to interests in real property, including declines
in rental or occupancy rates. Lenders generally use the Loan-to-Value Ratio of
a mortgage loan as a measure of risk of loss if a property must be liquidated
upon a default by the mortgagor.
Appraised values of income-producing properties may be based on the market
comparison method (recent resale value of comparable properties at the date of
the appraisal), the cost replacement method (the cost of replacing the property
at such date), the income capitalization method (a projection of value based
upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are
complete or relevant. See "Risk Factors--Risks Associated with Mortgage Loans
and Mortgaged Properties," "--Balloon Payments," "--Junior Mortgage Loans,"
"--Obligor Default" and "--Mortgagor Type."
Loan-to-Value Ratio
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance of
the Mortgage Loan to the Value of the related Mortgaged Property. The "Value"
of a Mortgaged Property, other than with respect to Refinance Loans, is
generally the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of such loan and (b) the sales price
for such property. "Refinance Loans" are loans made to refinance existing
loans. Unless otherwise set forth in the related Prospectus Supplement, the
Value of the Mortgaged Property securing a Refinance Loan is the appraised
value thereof determined in an appraisal obtained at the time of origination of
the Refinance Loan. The Value of a Mortgaged Property as of the date of initial
issuance of the related series of Certificates may be less than the value at
origination and will fluctuate from time to time based upon changes in economic
conditions and the real estate market.
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable
Cut-off Date, (ii) the type of property securing the Mortgage Loans (e.g.,
Multifamily Property or Commercial Property and the type of property in each
such category), (iii) the weighted average (by principal balance) of the
original and remaining terms to maturity of the Mortgage Loans, (iv) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(v) the weighted average (by principal balance) of the Loan-to-Value Ratios at
origination of the Mortgage Loans, (vi) the Mortgage Rates or range of Mortgage
Rates and the weighted average Mortgage Rate borne by the Mortgage Loans, (vii)
the state or states in which most of the Mortgaged Properties are located,
(viii) information with respect to the
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prepayment provisions, if any, of the Mortgage Loans, (ix) the weighted average
Retained Interest, if any, (x) with respect to Mortgage Loans with adjustable
Mortgage Rates ("ARM Loans"), the index, the frequency of the adjustment dates,
the highest, lowest and weighted average note margin and pass-through margin,
and the maximum Mortgage Rate or monthly payment variation at the time of any
adjustment thereof and over the life of the ARM Loan and the frequency of such
monthly payment adjustments, (xi) the Debt Service Coverage Ratio either at
origination or as of a more recent date (or both) and (xii) information
regarding the payment characteristics of the Mortgage Loans, including without
limitation balloon payment and other amortization provisions. The related
Prospectus Supplement will also contain certain information available to the
Depositor with respect to the provisions of leases and the nature of tenants of
the Mortgaged Properties and other information referred to in a general manner
under "--Mortgage Loans--Default and Loss Considerations with Respect to the
Mortgage Loans" above. If specific information respecting the Mortgage Loans is
not known to the Depositor at the time Certificates are initially offered, more
general information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of the related Certificates at or before
the initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Securities and Exchange Commission within fifteen days after
such initial issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination
of not less than $25,000, (ii) have original terms to maturity of not more than
40 years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is fixed over its term or that adjusts
from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time to
time pursuant to an election or as otherwise specified on the related Mortgage
Note, in each case as described in the related Prospectus Supplement. Each
Mortgage Loan may provide for scheduled payments to maturity or payments that
adjust from time to time to accommodate changes in the Mortgage Rate or to
reflect the occurrence of certain events, and may provide for negative
amortization or accelerated amortization, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may be fully amortizing or
require a balloon payment due on its stated maturity date, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may contain
prohibitions on prepayment (a "Lock-out Period" and the date of expiration
thereof, a "Lock-out Date") or require payment of a premium or a yield
maintenance penalty (a "Prepayment Premium") in connection with a prepayment,
in each case as described in the related Prospectus Supplement. In the event
that holders of any class or classes of Offered Certificates will be entitled
to all or a portion of any Prepayment Premiums collected in respect of Mortgage
Loans, the related Prospectus Supplement will specify the method or methods by
which any such amounts will be allocated. A Mortgage Loan may also contain
provisions entitling the mortgagee to a share of profits realized from the
operation or disposition of the Mortgaged Property ("Equity Participations"),
as described in the related Prospectus Supplement. In the event that holders of
any class or classes of Offered Certificates will be entitled to all or a
portion of an Equity Participation, the related Prospectus Supplement will
specify the terms and provisions of the Equity Participation and the method or
methods by which distributions in respect thereof will be allocated among such
Certificates.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture
or similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the "MBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced by
the MBS.
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Distributions of any principal or interest, as applicable, will be made on
MBS on the dates specified in the related Prospectus Supplement. The MBS may be
issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the MBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying MBS
evidenced by or securing such MBS and other factors and generally will have
been established for the MBS on the basis of requirements of either any Rating
Agency that may have assigned a rating to the MBS or the initial purchasers of
the MBS.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that include MBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the MBS to be included in
the Trust Fund, (ii) the original and remaining term to stated maturity of the
MBS, if applicable, (iii) whether such MBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or bond
rate of the MBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the MBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the MBS Issuer,
MBS Servicer and MBS Trustee, as applicable, (vii) certain characteristics of
the credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the related Underlying
Mortgage Loans, the Underlying MBS or directly to such MBS, (viii) the terms on
which the related Underlying Mortgage Loans or Underlying MBS for such MBS or
the MBS may, or are required to, be purchased prior to their maturity, (ix) the
terms on which Mortgage Loans or Underlying MBS may be substituted for those
originally underlying the MBS, (x) the servicing fees payable under the MBS
Agreement, (xi) the type of information in respect of the Underlying Mortgage
Loans described under "--Mortgage Loans--Mortgage Loan Information in
Prospectus Supplements" above, and the type of information in respect of the
Underlying MBS described in this paragraph, (xii) the characteristics of any
cash flow agreements that are included as part of the trust fund evidenced or
secured by the MBS and (xiii) whether the MBS is in certificated form,
book-entry form or held through a depository such as The Depository Trust
Company or the Participants Trust Company.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Certificates evidencing
interests in Assets of a Trust Fund that include Government Securities will
specify, to the extent available, (i) the aggregate approximate initial and
outstanding principal amounts or notional amounts, as applicable, and types of
the Government Securities to be included in the Trust Fund, (ii) the original
and remaining terms to stated maturity of the Government Securities, (iii)
whether such Government Securities are entitled only to interest payments, only
to principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreement--Certificate Account and Other Collection Accounts."
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CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the
related series in the form of subordination of one or more other classes of
Certificates in such series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee, reserve fund or
another type of credit support, or a combination thereof (any such coverage
with respect to the Certificates of any series, "Credit Support"). The amount
and types of coverage, the identification of the entity providing the coverage
(if applicable) and related information with respect to each type of Credit
Support, if any, will be described in the Prospectus Supplement for a series of
Certificates. See "Risk Factors--Credit Support Limitations" and "Description
of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets
or on one or more classes of Certificates. (Currency exchange agreements might
be included in the Trust Fund if some or all of the Mortgage Assets (such as
Mortgage Loans secured by Mortgaged Properties located outside the United
States) were denominated in a non-United States currency.) The principal terms
of any such guaranteed investment contract or other agreement (any such
agreement, a "Cash Flow Agreement"), including, without limitation, provisions
relating to the timing, manner and amount of payments thereunder and provisions
relating to the termination thereof, will be described in the Prospectus
Supplement for the related series. In addition, the related Prospectus
Supplement will provide certain information with respect to the obligor under
any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Assets acquired by the Depositor,
prevailing interest rates, availability of funds and general market conditions.
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YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Assets in the related Trust Fund. The Prospectus Supplement
with respect to any series of Certificates will specify the Pass-Through Rate
for each class of such Certificates or, in the case of a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Asset on the Pass-Through Rate of one
or more classes of Certificates; and whether the distributions of interest on
the Certificates of any class will be dependent, in whole or in part, on the
performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled to
payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while
interest may accrue on each Asset during a certain period, the distribution of
such interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Assets may be made on the first day of the
Interest Accrual Period for a Distribution Date and not on such Distribution
Date. Such method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
Interest Accrual Period. The Interest Accrual Period for any class of Offered
Certificates will be described in the related Prospectus Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Assets (including principal prepayments on Mortgage
Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). Such payments may be directly dependent upon the
payments on Leases underlying such Mortgage Loans. The rate at which principal
prepayments occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund, such Mortgage Loans are likely to be the subject of higher
principal prepayments than if prevailing rates remain at or above the rates
borne by such Mortgage Loans. In this regard, it should be noted that certain
Assets may consist of Mortgage Loans with different Mortgage Rates and the
stated pass-through or pay-through interest rate of certain MBS may be a number
of percentage points
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higher or lower than certain of the underlying Mortgage Loans. The rate of
principal payments on some or all of the classes of Certificates of a series
will correspond to the rate of principal payments on the Assets in the related
Trust Fund and is likely to be affected by the existence of Lock-out Periods
and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Assets, and by the extent to which the servicer of any such
Mortgage Loan is able to enforce such provisions. Mortgage Loans with a
Lock-out Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal prepayments
than otherwise identical Mortgage Loans without such provisions, with shorter
Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that
is slower than that actually experienced on the Assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the Prospectus Supplement for a series of Certificates, the effect on yield
on one or more classes of the Certificates of such series of prepayments of the
Assets in the related Trust Fund may be mitigated or exacerbated by any
provisions for sequential or selective distribution of principal to such
classes.
When a full prepayment is made on a Mortgage Loan, the mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for
the number of days in the month actually elapsed up to the date of the
prepayment. Unless otherwise specified in the related Prospectus Supplement,
the effect of prepayments in full will be to reduce the amount of interest paid
in the following month to holders of Certificates entitled to payments of
interest because interest on the principal amount of any Mortgage Loan so
prepaid will be paid only to the date of prepayment rather than for a full
month. Unless otherwise specified in the related Prospectus Supplement, a
partial prepayment of principal is applied so as to reduce the outstanding
principal balance of the related Mortgage Loan as of the Due Date in the month
in which such partial prepayment is received. As a result, unless otherwise
specified in the related Prospectus Supplement, the effect of a partial
prepayment on a Mortgage Loan will be to reduce the amount of interest passed
through to holders of Certificates in the month following the receipt of such
partial prepayment by an amount equal to one month's interest at the applicable
Pass-Through Rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on
such investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets included
in or comprising a Trust Fund and the rate at which payments are made from any
Credit Support or Cash Flow Agreement for the related series of Certificates
may affect the ultimate maturity and the weighted average life of each class of
such series. Prepayments on the Mortgage Loans comprising or underlying the
Mortgage Assets in a particular Trust Fund will generally accelerate the rate
at which principal is paid on some or all of the classes of the Certificates of
the related series.
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of Certificates may have a final scheduled Distribution
Date, which is the date on or prior to which the Certificate Balance thereof is
scheduled to be reduced to zero, calculated on the basis of the assumptions
applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted
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average life of a class of Certificates of a series will be influenced by the
rate at which principal on the Mortgage Loans comprising or underlying the
Mortgage Assets is paid to such class, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments, in whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be affected
by the varying maturities of the Mortgage Loans comprising or underlying the
MBS. If any Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund have actual terms to maturity of less than those assumed in
calculating final scheduled Distribution Dates for the classes of Certificates
of the related series, one or more classes of such Certificates may be fully
paid prior to their respective final scheduled Distribution Dates, even in the
absence of prepayments. Accordingly, the prepayment experience of the Assets
will, to some extent, be a function of the mix of Mortgage Rates and maturities
of the Mortgage Loans comprising or underlying such Assets. See "Description of
the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
Neither CPR nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it
is likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available prepayment
statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage of
the initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Mortgage Loans
comprising or underlying the related Assets are made at rates corresponding to
various percentages of CPR or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions are intended to illustrate the
sensitivity of weighted average life of the Certificates to various prepayment
rates and will not be intended to predict or to provide information that will
enable investors to predict the actual weighted average life of the
Certificates. It is unlikely that prepayment of any Mortgage Loans comprising
or underlying the Mortgage Assets for any series will conform to any particular
level of CPR or any other rate specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement, be permitted to modify Mortgage Loans that are
in default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a Mortgage Loan will tend
to extend the weighted average life of the Certificates, thereby lengthening
the period of time elapsed from the date of issuance of a Certificate until it
is retired.
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Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets that are foreclosed in relation to
the number and principal amount of Mortgage Loans that are repaid in accordance
with their terms will affect the weighted average life of the Mortgage Loans
comprising or underlying the Mortgage Assets and that of the related series of
Certificates. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings, may also have an
effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Assets may include "due-on-sale"
clauses or "due-on-encumbrance" clauses that allow the holder of the Mortgage
Loans to demand payment in full of the remaining principal balance of the
Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer, on behalf of the Trust Fund, will be required to exercise (or
waive its right to exercise) any such right that the Trustee may have as
mortgagee to accelerate payment of the Whole Loan in a manner consistent with
the Servicing Standard. See "Certain Legal Aspects of the Mortgage Loans and
the Leases--Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements--Due-on-Sale and Due-on-Encumbrance Provisions."
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THE DEPOSITOR
Morgan Stanley Capital I Inc., the Depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of the Depositor
are located at 1585 Broadway, 37th Floor, New York, New York 10036. Its
telephone number is (212) 761-4700.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be entitled to interest distributions,
with disproportionately low, nominal or no principal distributions
(collectively, "Stripped Interest Certificates"); (v) provide for distributions
of accrued interest thereon commencing only following the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such series (collectively, "Accrual Certificates"); (vi) provide for payments
of principal sequentially, based on specified payment schedules, from only a
portion of the Assets in such Trust Fund or based on specified calculations, to
the extent of available funds, in each case as described in the related
Prospectus Supplement; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph including a Stripped Principal
Certificate component and a Stripped Interest Certificate component. Any such
classes may include classes of Offered Certificates.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in
the related Prospectus Supplement. The transfer of any Offered Certificates may
be registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a series may be issued in definitive form
("Definitive Certificates") or in book-entry form ("Book-Entry Certificates"),
as provided in the related Prospectus Supplement. See "Risk Factors--Book-Entry
Registration" and "Description of the Certificates--Book-Entry Registration and
Definitive Certificates." Definitive Certificates will be exchangeable for
other Certificates of the same class and series of a like aggregate Certificate
Balance, notional amount or percentage interest but of different authorized
denominations. See "Risk Factors--Limited Liquidity" and "Limited Assets."
DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month in
which the Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class or by random selection, as described in the related Prospectus Supplement
or otherwise established by the
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related Trustee. Payments will be made either by wire transfer in immediately
available funds to the account of a Certificateholder at a bank or other entity
having appropriate facilities therefor, if such Certificateholder has so
notified the Trustee or other person required to make such payments no later
than the date specified in the related Prospectus Supplement (and, if so
provided in the related Prospectus Supplement, holds Certificates in the
requisite amount specified therein), or by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register; provided,
however, that the final distribution in retirement of the Certificates (whether
Definitive Certificates or Book-Entry Certificates) will be made only upon
presentation and surrender of the Certificates at the location specified in the
notice to Certificateholders of such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each series on each Distribution
Date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related Prospectus Supplement.
Unless provided otherwise in the related Prospectus Supplement, the "Available
Distribution Amount" for each Distribution Date equals the sum of the following
amounts:
(i) the total amount of all cash on deposit in the related Certificate
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but due
on a date subsequent to the related Due Period (unless the related
Prospectus Supplement provides otherwise, a "Due Period" with respect to
any Distribution Date will commence on the second day of the month in
which the immediately preceding Distribution Date occurs, or the day
after the Cut-off Date in the case of the first Due Period, and will end
on the first day of the month of the related Distribution Date),
(b) unless the related Prospectus Supplement provides otherwise, all
prepayments, together with related payments of the interest thereon and
related Prepayment Premiums, Liquidation Proceeds, Insurance Proceeds
and other unscheduled recoveries received subsequent to the related Due
Period, and
(c) all amounts in the Certificate Account that are due or
reimbursable to the Depositor, the Trustee, an Asset Seller, a
Sub-Servicer, a Special Servicer, the Master Servicer or any other
entity as specified in the related Prospectus Supplement or that are
payable in respect of certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so provides,
amounts paid by a Master Servicer or any other entity as specified in the
related Prospectus Supplement with respect to interest shortfalls resulting
from prepayments during the related Prepayment Period; and
(v) unless the related Prospectus Supplement provides otherwise, to the
extent not on deposit in the related Certificate Account as of the
corresponding Determination Date, any amounts collected under, from or in
respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or adjustable
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rate at which interest will accrue on such class or a component thereof (the
"Pass-Through Rate"). The related Prospectus Supplement will specify the
Pass-Through Rate for each class or component or, in the case of a variable or
adjustable Pass-Through Rate, the method for determining the Pass-Through Rate.
Unless otherwise specified in the related Prospectus Supplement, interest on
the Certificates will be calculated on the basis of a 360-day year consisting
of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class will
be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest
is distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "Accrued Certificate Interest" will be equal
to interest accrued for a specified period on the outstanding Certificate
Balance thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. Unless otherwise provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution
Date, at the applicable Pass-Through Rate, reduced as described below. The
method of determining the notional amount for any class of Stripped Interest
Certificates will be described in the related Prospectus Supplement. Reference
to notional amount is solely for convenience in certain calculations and does
not represent the right to receive any distributions of principal. Unless
otherwise provided in the related Prospectus Supplement, the Accrued
Certificate Interest on a series of Certificates will be reduced in the event
of prepayment interest shortfalls, which are shortfalls in collections of
interest for a full accrual period resulting from prepayments prior to the due
date in such accrual period on the Mortgage Loans comprising or underlying the
Mortgage Assets in the Trust Fund for such series. The particular manner in
which such shortfalls are to be allocated among some or all of the classes of
Certificates of that series will be specified in the related Prospectus
Supplement. The related Prospectus Supplement will also describe the extent to
which the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise
be added to the Certificate Balance of) a class of Offered Certificates may be
reduced as a result of any other contingencies, including delinquencies, losses
and deferred interest on or in respect of the Mortgage Loans comprising or
underlying the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of Certificates
by reason of the allocation to such class of a portion of any deferred interest
on the Mortgage Loans comprising or underlying the Mortgage Assets in the
related Trust Fund will result in a corresponding increase in the Certificate
Balance of such class. See "Risk Factors--Average Life of Certificates;
Prepayments; Yields" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect of the
related Assets, may be increased in respect of deferred interest on the related
Mortgage Loans to the extent provided in the related Prospectus Supplement and,
in the case of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, will be increased by any
related Accrued Certificate Interest. Unless otherwise provided in the related
Prospectus Supplement, the initial aggregate Certificate Balance of all classes
of Certificates of a series will not be greater than the outstanding
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aggregate principal balance of the related Assets as of the applicable Cut-off
Date. The initial aggregate Certificate Balance of a series and each class
thereof will be specified in the related Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, distributions of
principal will be made on each Distribution Date to the class or classes of
Certificates entitled thereto in accordance with the provisions described in
such Prospectus Supplement until the Certificate Balance of such class has been
reduced to zero. Stripped Interest Certificates with no Certificate Balance are
not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement, distribution
on a class of Certificates may be based on a combination of two or more
different components as described under "--General" above. To such extent, the
descriptions set forth under "--Distributions of Interests on the Certificates"
and "--Distributions of Principal of the Certificates" above also relate to
components of such a class of Certificates. In such case, reference in such
sections to Certificate Balance and Pass-Through Rate refer to the principal
balance, if any, of any such component and the Pass-Through Rate, if any, on
any such component, respectively.
Distributions on the Certificates of Prepayment Premiums or in Respect of
Equity Participations
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or shortfalls
will be borne first by a class of Subordinate Certificates in the priority and
manner and subject to the limitations specified in such Prospectus Supplement.
See "Description of Credit Support" for a description of the types of
protection that may be included in a Trust Fund against losses and shortfalls
on Mortgage Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount
equal to the aggregate of payments of principal (other than any balloon
payments) and interest (net of related servicing fees and Retained Interest)
that were due on the Whole Loans in such Trust Fund during the related Due
Period and were delinquent on the related Determination Date, subject to the
Master Servicer's (or another entity's) good faith determination that such
advances will be reimbursable from Related Proceeds (as defined below). In the
case of a series of Certificates that includes one or more classes of
Subordinate Certificates and if so provided in the related Prospectus
Supplement, the Master Servicer's (or another entity's) advance obligation may
be limited only to the portion of such delinquencies necessary to make the
required distributions on one or more classes of Senior Certificates and/or may
be subject to the Master Servicer's (or another entity's) good faith
determination that such advances will be reimbursable not only from Related
Proceeds but also from collections on other Assets otherwise distributable on
one or more classes of such Subordinate Certificates. See "Description of
Credit Support."
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the related Prospectus Supplement, advances of the Master
Servicer's
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(or another entity's) funds will be reimbursable only out of related recoveries
on the Mortgage Loans (including amounts received under any form of Credit
Support) respecting which such advances were made (as to any Mortgage Loan,
"Related Proceeds") and, if so provided in the Prospectus Supplement, out of
any amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
reimbursable from any amounts in the Certificate Account prior to any
distributions being made on the Certificates to the extent that the Master
Servicer (or such other entity) shall determine in good faith that such advance
(a "Nonrecoverable Advance") is not ultimately recoverable from Related
Proceeds or, if applicable, from collections on other Assets otherwise
distributable on such Subordinate Certificates. If advances have been made by
the Master Servicer from excess funds in the Certificate Account, the Master
Servicer is required to replace such funds in the Certificate Account on any
future Distribution Date to the extent that funds in the Certificate Account on
such Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligations of the Master Servicer (or another entity) to make
advances may be secured by a cash advance reserve fund, a surety bond, a letter
of credit or another form of limited guaranty. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any such
surety bond, will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, the
Master Servicer (or another entity) will be entitled to receive interest at the
rate specified therein on its outstanding advances and will be entitled to pay
itself such interest periodically from general collections on the Assets prior
to any payment to Certificateholders or as otherwise provided in the related
Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment
Premiums and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by any
Special Servicer and any Sub-Servicer) and such other customary information
as any such Master Servicer or the Trustee deems necessary or desirable, or
that a Certificateholder reasonably requests, to enable Certificateholders
to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in
respect of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced; (viii)
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with respect to each Whole Loan that is delinquent two or more months, (a)
the loan number thereof, (b) the unpaid balance thereof, (c) whether the
delinquency is in respect of any balloon payment, (d) the aggregate amount
of unreimbursed servicing expenses and unreimbursed advances in respect
thereof, (e) if applicable, the aggregate amount of any interest accrued
and payable on related servicing expenses and related advances assuming
such Mortgage Loan is subsequently liquidated through foreclosure, (f)
whether a notice of acceleration has been sent to the mortgagor and, if so,
the date of such notice, (g) whether foreclosure proceedings have been
commenced and, if so, the date so commenced and (h) if such Mortgage Loan
is more than three months delinquent and foreclosure has not been
commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof, (b)
the manner in which it was liquidated and (c) the aggregate amount of
liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to the Master Servicer (or any other entity) in respect of
such Mortgage Loan and (b) the amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
loan number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the aggregate
amount of sale proceeds, (c) the portion of such sales proceeds payable or
reimbursable to the Master Servicer or a Special Servicer in respect of
such REO Property or the related Mortgage Loan and (d) the amount of any
loss to Certificateholders in respect of the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case
may be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate Balance of a class
of Accrual Certificates in the event that Accrued Certificate Interest has
been added to such balance;
(xv) the aggregate amount of principal prepayments made during the
related Due Period;
(xvi) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xvii) the amount remaining in the reserve fund, if any, as of the close
of business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on
each class of Certificates at the close of business on such Distribution
Date;
(xix) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xx) in the case of Certificates with an adjustable Pass-Through Rate,
for statements to be distributed in any month in which an adjustment date
occurs, the adjustable Pass-Through Rate applicable to such Distribution
Date and the immediately succeeding Distribution Date as calculated in
accordance with the method specified in the related Prospectus Supplement;
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(xxi) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xxii) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xviii) and (xix) above, such amounts shall also be provided with
respect to each component, if any, of a class of Certificates. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder, to the Depositor and to
such other parties as may be specified in the Agreement, a copy of any
statements or reports received by the Master Servicer or the Trustee, as
applicable, with respect to any MBS. The Prospectus Supplement for each series
of Offered Certificates will describe any additional information to be included
in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreement for each series of Certificates
will terminate upon the payment to Certificateholders of that series of all
amounts held in the Certificate Account or by the Master Servicer, if any, or
the Trustee and required to be paid to them pursuant to such Agreement
following the earlier of (i) the final payment or other liquidation of the last
Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such termination,
under the circumstances and in the manner set forth in the related Prospectus
Supplement. In no event, however, will the trust created by the Agreement
continue beyond the date specified in the related Prospectus Supplement.
Written notice of termination of the Agreement will be given to each
Certificateholder, and the final distribution will be made only upon
presentation and surrender of the Certificates at the location to be specified
in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein, under the circumstances and in the manner set forth therein. If so
provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, the party specified therein will solicit bids
for the purchase of all assets of the Trust Fund, or of a sufficient portion of
such assets to retire such class or classes or purchase such class or classes
at a price set forth in the related Prospectus Supplement, in each case, under
the circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform
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Commercial Code ("UCC") and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
their accounts, thereby eliminating the need for physical movement of
certificates. Participants include Morgan Stanley & Co. Incorporated,
securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). Unless
otherwise provided in the related Prospectus Supplement, investors that are not
Participants or Indirect Participants but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, Book-Entry Certificates may do so
only through Participants and Indirect Participants. In addition, such
investors ("Certificate Owners") will receive all distributions on the
Book-Entry Certificates through DTC and its Participants. Under a book-entry
format, Certificate Owners will receive payments after the related Distribution
Date because, while payments are required to be forwarded to Cede & Co., as
nominee for DTC ("Cede"), on each such date, DTC will forward such payments to
its Participants which thereafter will be required to forward them to Indirect
Participants or Certificate Owners. Unless otherwise provided in the related
Prospectus Supplement, the only "Certificateholder" (as such term is used in
the Agreement) will be Cede, as nominee of DTC, and the Certificate Owners will
not be recognized by the Trustee as Certificateholders under the Agreement.
Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Agreement only indirectly through the
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Book-Entry Certificates and is
required to receive and transmit distributions of principal of and interest on
the Book-Entry Certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Book-Entry Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in the Book-Entry Certificates, may be limited due
to the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one or
more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificate Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled,
and thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
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DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer
appointed as of the date of the Pooling and Servicing Agreement and the
Trustee. The Certificates of each series evidencing interests in a Trust Fund
not including Whole Loans will be issued pursuant to a Trust Agreement between
the Depositor and a Trustee. Any Master Servicer, any such Special Servicer and
the Trustee with respect to any series of Certificates will be named in the
related Prospectus Supplement. In lieu of appointing a Master Servicer, a
servicer may be appointed pursuant to the Pooling and Servicing Agreement for
any Trust Fund. Such servicer will service all or a significant number of Whole
Loans directly without a Sub-Servicer. Unless otherwise specified in the
related Prospectus Supplement, the obligations of any such servicer shall be
commensurate with those of the Master Servicer described herein. References in
this prospectus to Master Servicer and its rights and obligations, unless
otherwise specified in the related Prospectus Supplement, shall be deemed to
also be references to any servicer servicing Whole Loans directly. A manager or
administrator may be appointed pursuant to the Trust Agreement for any Trust
Fund to administer such Trust Fund. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. A form of a Pooling and Servicing Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Any Trust Agreement will generally conform to the form of
Pooling and Servicing Agreement filed herewith, but will not contain provisions
with respect to the servicing and maintenance of Whole Loans. The following
summaries describe certain provisions that may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any provision
of the Agreement relating to such series that materially differs from the
description thereof contained in this Prospectus. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Agreement for each Trust Fund and
the description of such provisions in the related Prospectus Supplement. As
used herein with respect to any series, the term "Certificate" refers to all of
the Certificates of that series, whether or not offered hereby and by the
related Prospectus Supplement, unless the context otherwise requires. The
Depositor will provide a copy of the Agreement (without exhibits) relating to
any series of Certificates without charge upon written request of a holder of a
Certificate of such series addressed to Morgan Stanley Capital I Inc., c/o
Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th Floor, New York, New
York 10036, Attention: John E. Westerfield.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal and interest to
be received on or with respect to such Assets after the Cut-off Date, other
than principal and interest due on or before the Cut-off Date and other than
any Retained Interest. The Trustee will, concurrently with such assignment,
deliver the Certificates to the Depositor in exchange for the Assets and the
other assets comprising the Trust Fund for such series. Each Mortgage Asset
will be identified in a schedule appearing as an exhibit to the related
Agreement. Unless otherwise provided in the related Prospectus Supplement, such
schedule will include detailed information (i) in respect of each Whole Loan
included in the related Trust Fund, including without limitation, the address
of the related Mortgaged Property and type of such property, the Mortgage Rate
and, if applicable, the applicable index, margin, adjustment date and any rate
cap information, the original and remaining term to maturity, the original and
outstanding principal balance and balloon payment, if any, the Value,
Loan-to-Value Ratio and the Debt Service Coverage Ratio as of the date
indicated and payment and prepayment provisions, if applicable, and (ii) in
respect of each MBS included in the related Trust Fund, including without
limitation, the MBS Issuer, MBS Servicer and MBS Trustee, the pass-through or
bond rate or formula for determining such rate, the issue date and original and
remaining term to maturity, if applicable, the original and outstanding
principal amount and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to) certain
loan documents, which unless otherwise specified in the related Prospectus
Supplement will include the original Mortgage Note endorsed, without recourse,
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in blank or to the order of the Trustee, the original Mortgage (or a certified
copy thereof) with evidence of recording indicated thereon and an assignment of
the Mortgage to the Trustee in recordable form. Notwithstanding the foregoing,
a Trust Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Depositor delivers to the Trustee or the
custodian a copy or a duplicate original of the Mortgage Note, together with an
affidavit certifying that the original thereof has been lost or destroyed. With
respect to such Mortgage Loans, the Trustee (or its nominee) may not be able to
enforce the Mortgage Note against the related borrower. Unless otherwise
specified in the related Prospectus Supplement, the Asset Seller will be
required to agree to repurchase, or substitute for, each such Mortgage Loan
that is subsequently in default if the enforcement thereof or of the related
Mortgage is materially adversely affected by the absence of the original
Mortgage Note. Unless otherwise provided in the related Prospectus Supplement,
the related Agreement will require the Depositor or another party specified
therein to promptly cause each such assignment of Mortgage to be recorded in
the appropriate public office for real property records, except in the State of
California or in other states where, in the opinion of counsel acceptable to
the Trustee, such recording is not required to protect the Trustee's interest
in the related Whole Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor, the Master Servicer, the relevant
Asset Seller or any other prior holder of the Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents within
a specified period of days after receipt thereof, and the Trustee (or a
custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Master Servicer and the Depositor, and the Master Servicer shall immediately
notify the relevant Asset Seller. If the Asset Seller cannot cure the omission
or defect within a specified number of days after receipt of such notice, then
unless otherwise specified in the related Prospectus Supplement, the Asset
Seller will be obligated, within a specified number of days of receipt of such
notice, to repurchase the related Whole Loan from the Trustee at the Purchase
Price or substitute for such Mortgage Loan. There can be no assurance that an
Asset Seller will fulfill this repurchase or substitution obligation, and
neither the Master Servicer nor the Depositor will be obligated to repurchase
or substitute for such Mortgage Loan if the Asset Seller defaults on its
obligation. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation constitutes the sole remedy
available to the Certificateholders or the Trustee for omission of, or a
material defect in, a constituent document. To the extent specified in the
related Prospectus Supplement, in lieu of curing any omission or defect in the
Asset or repurchasing or substituting for such Asset, the Asset Seller may
agree to cover any losses suffered by the Trust Fund as a result of such breach
or defect.
If so provided in the related Prospectus Supplement, the Depositor will,
as to some or all of the Mortgage Loans, assign or cause to be assigned to the
Trustee the related Lease Assignments. In certain cases, the Trustee, or Master
Servicer, as applicable, may collect all moneys under the related Leases and
distribute amounts, if any, required under the Lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related Lease
agreement. The Trustee, or if so specified in the Prospectus Supplement, the
Master Servicer, as agent for the Trustee, may hold the Lease in trust for the
benefit of the Certificateholders.
With respect to each Government Security or MBS in certificated form, the
Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security or MBS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or MBS, as applicable, to the Trustee for the benefit of
the Certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or held through a "clearing corporation"
within the meaning of the UCC, the Depositor and the Trustee will cause such
Government Security or MBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any MBS and Government Securities
in certificated form not registered in the name of the Trustee to be
re-registered, with the applicable persons, in the name of the Trustee.
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REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign certain
representations and warranties, as of a specified date (the person making such
representations and warranties, the "Warrantying Party") covering, by way of
example, the following types of matters: (i) the accuracy of the information
set forth for such Whole Loan on the schedule of Assets appearing as an exhibit
to the related Agreement; (ii) the existence of title insurance insuring the
lien priority of the Whole Loan; (iii) the authority of the Warrantying Party
to sell the Whole Loan; (iv) the payment status of the Whole Loan and the
status of payments of taxes, assessments and other charges affecting the
related Mortgaged Property; (v) the existence of customary provisions in the
related Mortgage Note and Mortgage to permit realization against the Mortgaged
Property of the benefit of the security of the Mortgage; and (vi) the existence
of hazard and extended perils insurance coverage on the Mortgaged Property.
Any Warrantying Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warrantying
Party will be obligated to reimburse the Trust Fund for losses caused by any
such breach or either cure such breach or repurchase or replace the affected
Whole Loan as described below. Since the representations and warranties may not
address events that may occur following the date as of which they were made,
the Warrantying Party will have a reimbursement, cure, repurchase or
substitution obligation in connection with a breach of such a representation
and warranty only if the relevant event that causes such breach occurs prior to
such date. Such party would have no such obligations if the relevant event that
causes such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warrantying Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that
materially and adversely affects the value of such Whole Loan or the interests
therein of the Certificateholders. If such Warrantying Party cannot cure such
breach within a specified period following the date on which such party was
notified of such breach, then such Warrantying Party will be obligated to
repurchase such Whole Loan from the Trustee within a specified period from the
date on which the Warrantying Party was notified of such breach, at the
Purchase Price therefor. As to any Whole Loan, unless otherwise specified in
the related Prospectus Supplement, the "Purchase Price" is equal to the sum of
the unpaid principal balance thereof, plus unpaid accrued interest thereon at
the Mortgage Rate from the date as to which interest was last paid to the due
date in the Due Period in which the relevant purchase is to occur, plus certain
servicing expenses that are reimbursable to the Master Servicer. If so provided
in the Prospectus Supplement for a series, a Warrantying Party, rather than
repurchase a Whole Loan as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such series of
Certificates, to cause the removal of such Whole Loan from the Trust Fund and
substitute in its place one or more other Whole Loans, in accordance with the
standards described in the related Prospectus Supplement. If so provided in the
Prospectus Supplement for a series, a Warrantying Party, rather than repurchase
or substitute a Whole Loan as to which a breach has occurred, will have the
option to reimburse the Trust Fund or the Certificateholders for any losses
caused by such breach. Unless otherwise specified in the related Prospectus
Supplement, this reimbursement, repurchase or substitution obligation will
constitute the sole remedy available to holders of Certificates or the Trustee
for a breach of representation by a Warrantying Party.
Neither the Depositor (except to the extent that it is the Warrantying
Party) nor the Master Servicer will be obligated to purchase or substitute for
a Whole Loan if a Warrantying Party defaults on its obligation to do so, and no
assurance can be given that Warrantying Parties will carry out such obligations
with respect to Whole Loans.
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Unless otherwise provided in the related Prospectus Supplement the
Warrantying Party will, with respect to a Trust Fund that includes Government
Securities or MBS, make or assign certain representations or warranties, as of
a specified date, with respect to such Government Securities or MBS, covering
(i) the accuracy of the information set forth therefor on the schedule of
Assets appearing as an exhibit to the related Agreement and (ii) the authority
of the Warrantying Party to sell such Assets. The related Prospectus Supplement
will describe the remedies for a breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation
of the Master Servicer which materially and adversely affects the interests of
the Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to the Master Servicer by the Trustee
or the Depositor, or to the Master Servicer, the Depositor and the Trustee by
the holders of Certificates evidencing not less than 25% of the Voting Rights
(unless otherwise specified in the related Prospectus Supplement), will
constitute an Event of Default under such Pooling and Servicing Agreement. See
"Events of Default" and "Rights Upon Event of Default."
CERTIFICATE ACCOUNT AND OTHER COLLECTION ACCOUNTS
General
The Master Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Assets
(collectively, the "Certificate Account"), which must be either (i) an account
or accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that the Certificateholders have a claim with
respect to the funds in the Certificate Account or a perfected first priority
security interest against any collateral securing such funds that is superior
to the claims of any other depositors or general creditors of the institution
with which the Certificate Account is maintained or (ii) otherwise maintained
with a bank or trust company, and in a manner, satisfactory to the Rating
Agency or Agencies rating any class of Certificates of such series. The
collateral eligible to secure amounts in the Certificate Account is limited to
United States government securities and other investment grade obligations
specified in the Agreement ("Permitted Investments"). A Certificate Account may
be maintained as an interest bearing or a non-interest bearing account and the
funds held therein may be invested pending each succeeding Distribution Date in
certain short-term Permitted Investments. Unless otherwise provided in the
related Prospectus Supplement, any interest or other income earned on funds in
the Certificate Account will be paid to a Master Servicer or its designee as
additional servicing compensation. The Certificate Account may be maintained
with an institution that is an affiliate of the Master Servicer, if applicable,
provided that such institution meets the standards imposed by the Rating Agency
or Agencies. If permitted by the Rating Agency or Agencies and so specified in
the related Prospectus Supplement, a Certificate Account may contain funds
relating to more than one series of mortgage pass-through certificates and may
contain other funds respecting payments on mortgage loans belonging to the
Master Servicer or serviced or master serviced by it on behalf of others.
Deposits
A Master Servicer or the Trustee will deposit or cause to be deposited in
the Certificate Account for one or more Trust Funds on a daily basis, unless
otherwise provided in the related Agreement, the following payments and
collections received, or advances made, by the Master Servicer or the Trustee
or on its behalf subsequent to the Cut-off Date (other than payments due on or
before the Cut-off Date, and exclusive of any amounts representing a Retained
Interest):
(i) all payments on account of principal, including principal
prepayments, on the Assets;
(ii) all payments on account of interest on the Assets, including any
default interest collected, in each case net of any portion thereof
retained by a Master Servicer, a Sub-Servicer or a Special Servicer as its
servicing compensation and net of any Retained Interest;
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(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each Mortgaged
Property securing a Whole Loan in the Trust Fund (to the extent such
proceeds are not applied to the restoration of the property or released to
the mortgagor in accordance with the normal servicing procedures of a
Master Servicer or the related Sub-Servicer, subject to the terms and
conditions of the related Mortgage and Mortgage Note) and all proceeds of
rental interruption policies, if any, insuring against losses arising from
the failure of Lessees under a Lease to make timely rental payments because
of certain casualty events (collectively, "Insurance Proceeds") and all
other amounts received and retained in connection with the liquidation of
defaulted Mortgage Loans in the Trust Fund, by foreclosure or otherwise
("Liquidation Proceeds"), together with the net proceeds on a monthly basis
with respect to any Mortgaged Properties acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts representing Prepayment Premiums;
(vii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
(viii) all proceeds of any Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person as described under "Assignment of
Assets; Repurchases" and "Representations and Warranties; Repurchases," all
proceeds of any defaulted Mortgage Loan purchased as described under
"Realization Upon Defaulted Whole Loans," and all proceeds of any Asset
purchased as described under "Description of the Certificates Termination"
(also, "Liquidation Proceeds");
(ix) any amounts paid by a Master Servicer to cover certain interest
shortfalls arising out of the prepayment of Whole Loans in the Trust Fund
as described under "Description of the Agreements Retained Interest;
Servicing Compensation and Payment of Expenses";
(x) to the extent that any such item does not constitute additional
servicing compensation to a Master Servicer, any payments on account of
modification or assumption fees, late payment charges, Prepayment Premiums
or Equity Participations on the Mortgage Assets;
(xi) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy
described under "Hazard Insurance Policies";
(xii) any amount required to be deposited by a Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held in
the Certificate Account; and
(xiii) any other amounts required to be deposited in the Certificate
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
Withdrawals
A Master Servicer or the Trustee may, from time to time, unless otherwise
provided in the related Agreement and described in the related Prospectus
Supplement, make withdrawals from the Certificate Account for each Trust Fund
for any of the following purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced as
described under "Description of the Certificates Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by the Master Servicer as late collections of
interest (net of related servicing fees and Retained Interest) on and
principal of the
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particular Whole Loans with respect to which the advances were made or out
of amounts drawn under any form of Credit Support with respect to such
Whole Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned and
certain unreimbursed servicing expenses incurred with respect to Whole
Loans and properties acquired in respect thereof, such reimbursement to be
made out of amounts that represent Liquidation Proceeds and Insurance
Proceeds collected on the particular Whole Loans and properties, and net
income collected on the particular properties, with respect to which such
fees were earned or such expenses were incurred or out of amounts drawn
under any form of Credit Support with respect to such Whole Loans and
properties;
(iv) to reimburse a Master Servicer for any advances described in clause
(ii) above and any servicing expenses described in clause (iii) above
which, in the Master Servicer's good faith judgment, will not be
recoverable from the amounts described in clauses (ii) and (iii),
respectively, such reimbursement to be made from amounts collected on other
Assets or, if and to the extent so provided by the related Agreement and
described in the related Prospectus Supplement, just from that portion of
amounts collected on other Assets that is otherwise distributable on one or
more classes of Subordinate Certificates, if any, remain outstanding, and
otherwise any outstanding class of Certificates, of the related series;
(v) if and to the extent described in the related Prospectus Supplement,
to pay a Master Servicer interest accrued on the advances described in
clause (ii) above and the servicing expenses described in clause (iii)
above while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments with respect to, and for containment,
clean-up or remediation of hazardous wastes, substances and materials on,
Mortgaged Properties securing defaulted Whole Loans as described under
"Realization Upon Defaulted Whole Loans";
(vii) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be,
for certain expenses, costs and liabilities incurred thereby, as and to the
extent described under "Certain Matters Regarding a Master Servicer and the
Depositor";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(ix) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "Certain
Matters Regarding the Trustee";
(x) unless otherwise provided in the related Prospectus Supplement, to
pay a Master Servicer, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the Certificate
Account;
(xi) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master Servicer
as recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the proper
operation, management and maintenance of any Mortgaged Property acquired
for the benefit of Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise, such payments to be made out of income received
on such property;
(xiii) if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to
the extent described under "Certain Federal Income Tax Consequences--
REMICS--Prohibited Transactions Tax and Other Taxes";
(xiv) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a defaulted
Whole Loan or a property acquired in respect thereof in connection with the
liquidation of such Whole Loan or property;
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(xv) to pay for the cost of various opinions of counsel obtained pursuant
to the related Agreement for the benefit of Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Certificateholders, provided that such payment shall not constitute a
waiver with respect to the obligation of the Warrantying Party to remedy
any breach of representation or warranty under the Agreement;
(xvii) to pay the person entitled thereto any amounts deposited in the
Certificate Account in error, including amounts received on any Asset after
its removal from the Trust Fund whether by reason of purchase or
substitution as contemplated by "Assignment of Assets; Repurchase" and
"Representations and Warranties; Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related Agreement
and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account at the termination
of the Trust Fund.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Sub-Servicer or Special Servicer will deposit on
a daily basis the amounts described under "--Deposits" above for one or more
series of Certificates. Any amounts on deposit in any such collection account
will be withdrawn therefrom and deposited into the appropriate Certificate
Account by a time specified in the related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement, any amounts which could be
withdrawn from the Certificate Account as described under "--Withdrawals"
above, may also be withdrawn from any such collection account. The Prospectus
Supplement will set forth any restrictions with respect to any such collection
account, including investment restrictions and any restrictions with respect to
financial institutions with which any such collection account may be
maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through Sub-Servicers, is required to
make reasonable efforts to collect all scheduled payments under the Whole Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Whole Loans
and held for its own account, provided such procedures are consistent with (i)
the terms of the related Agreement and any related hazard, business
interruption, rental interruption or general liability insurance policy or
instrument of Credit Support included in the related Trust Fund described
herein or under "Description of Credit Support," (ii) applicable law and (iii)
the general servicing standard specified in the related Prospectus Supplement
or, if no such standard is so specified, its normal servicing practices (in
either case, the "Servicing Standard"). In connection therewith, the Master
Servicer will be permitted in its discretion to waive any late payment charge
or penalty interest in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the Master
Servicer has determined not to enforce any applicable due-on-sale clause;
attempting to cure delinquencies; supervising foreclosures; inspecting and
managing Mortgaged Properties under certain circumstances; and maintaining
accounting records relating to the Whole Loans. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will be responsible for
filing and settling claims in respect of particular Whole Loans under any
applicable instrument of Credit Support. See "Description of Credit Support."
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The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in
its judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and
(ii) in its judgment, such modification, waiver or amendment is reasonably
likely to produce a greater recovery with respect to the Whole Loan on a
present value basis than would liquidation. The Master Servicer is required to
notify the Trustee in the event of any modification, waiver or amendment of any
Whole Loan.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of the
Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such Master
Servicer will remain obligated under the related Agreement. Each sub-servicing
agreement between a Master Servicer and a Sub-Servicer (a "Sub-Servicing
Agreement") must be consistent with the terms of the related Agreement and must
provide that, if for any reason the Master Servicer for the related series of
Certificates is no longer acting in such capacity, the Trustee or any successor
Master Servicer may assume the Master Servicer's rights and obligations under
such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to the
related Agreement is sufficient to pay such fees. However, a Sub-Servicer may
be entitled to a Retained Interest in certain Whole Loans. Each Sub-Servicer
will be reimbursed by the Master Servicer for certain expenditures which it
makes, generally to the same extent the Master Servicer would be reimbursed
under an Agreement. See "Retained Interest, Servicing Compensation and Payment
of Expenses."
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, a special
servicer (the "Special Servicer") may be appointed. The related Prospectus
Supplement will describe the rights, obligations and compensation of a Special
Servicer. The Master Servicer will only be responsible for the duties and
obligations of a Special Servicer to the extent set forth in the Prospectus
Supplement.
REALIZATION UPON DEFAULTED WHOLE LOANS
A mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer is required to monitor any Whole Loan which is
in default, contact the mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action
in cooperation with the mortgagor if cure is likely, inspect the Mortgaged
Property and take such other actions as are consistent with the Servicing
Standard. A significant period of time may elapse before the Master Servicer is
able to assess the success of such corrective action or the need for additional
initiatives.
The time within which the Master Servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Whole Loan, the Mortgaged Property, the mortgagor, the presence of
an acceptable party to assume the Whole Loan and the laws of the jurisdiction
in which the Mortgaged Property is located. Under federal bankruptcy law, the
Master
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Servicer in certain cases may not be permitted to accelerate a Whole Loan or to
foreclose on a Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of the Mortgage--Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Whole Loans may grant
to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "Representations and Warranties; Repurchases."
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer may offer to sell any defaulted Whole Loan described in the
preceding paragraph and not otherwise purchased by any person having a right of
first refusal with respect thereto, if and when the Master Servicer determines,
consistent with the Servicing Standard, that such a sale would produce a
greater recovery on a present value basis than would liquidation through
foreclosure or similar proceeding. The related Agreement will provide that any
such offering be made in a commercially reasonable manner for a specified
period and that the Master Servicer accept the highest cash bid received from
any person (including itself, an affiliate of the Master Servicer or any
Certificateholder) that constitutes a fair price for such defaulted Whole Loan.
In the absence of any bid determined in accordance with the related Agreement
to be fair, the Master Servicer shall proceed with respect to such defaulted
Mortgage Loan as described below. Any bid in an amount at least equal to the
Purchase Price described under "Representations and Warranties; Repurchases"
will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Whole Loan by operation of law or otherwise, if such action
is consistent with the Servicing Standard and a default on such Whole Loan has
occurred or, in the Master Servicer's judgment, is imminent. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer may not
acquire title to any related Mortgaged Property or take any other action that
would cause the Trustee, for the benefit of Certificateholders, or any other
specified person to be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or an "operator" of such
Mortgaged Property within the meaning of certain federal environmental laws,
unless the Master Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable environmental
laws, and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation; or
(ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic
interest of the Trust Fund to acquire title to the Mortgaged Property and
further to take such actions as would be necessary and appropriate to
effect such compliance and/or respond to such circumstances (the cost of
which actions will be an expense of the Trust Fund).
Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property prior to the close of the third
calendar year following the year of acquisition of such Mortgaged Property by
the Trust Fund, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the Trust
Fund subsequent to such period will not result in the imposition of a tax on
the Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the
Code at any time that any Certificate is outstanding. Subject
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to the foregoing, the Master Servicer will be required to (i) solicit bids for
any Mortgaged Property so acquired in such a manner as will be reasonably
likely to realize a fair price for such property and (ii) accept the first
(and, if multiple bids are contemporaneously received, the highest) cash bid
received from any person that constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Master Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC provisions
of the Code (if a REMIC election has been made with respect to the related
Trust Fund) on the operations and ownership of any Mortgaged Property acquired
on behalf of the Trust Fund may result in the recovery of an amount less than
the amount that would otherwise be recovered. See "Certain Legal Aspects of the
Mortgage Loans and the Leases--Foreclosure."
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Whole Loan. If the proceeds of any liquidation of the property securing the
defaulted Whole Loan are less than the outstanding principal balance of the
defaulted Whole Loan plus interest accrued thereon at the Mortgage Rate plus
the aggregate amount of expenses incurred by the Master Servicer in connection
with such proceedings and which are reimbursable under the Agreement, the Trust
Fund will realize a loss in the amount of such difference. The Master Servicer
will be entitled to withdraw or cause to be withdrawn from the Certificate
Account out of the Liquidation Proceeds recovered on any defaulted Whole Loan,
prior to the distribution of such Liquidation Proceeds to Certificateholders,
amounts representing its normal servicing compensation on the Whole Loan,
unreimbursed servicing expenses incurred with respect to the Whole Loan and any
unreimbursed advances of delinquent payments made with respect to the Whole
Loan.
If any property securing a defaulted Whole Loan is damaged and proceeds,
if any, from the related hazard insurance policy are insufficient to restore
the damaged property to a condition sufficient to permit recovery under the
related instrument of Credit Support, if any, the Master Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Whole Loan after reimbursement of the
Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself,
the Trustee and the Certificateholders, will present claims to the obligor
under each instrument of Credit Support, and will take such reasonable steps as
are necessary to receive payment or to permit recovery thereunder with respect
to defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Certificate Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "Hazard Insurance Policies" and "Description of
Credit Support."
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
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Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such coverage
will be in general in an amount equal to the lesser of the principal balance
owing on such Whole Loan and the amount necessary to fully compensate for any
damage or loss to the improvements on the Mortgaged Property on a replacement
cost basis, but in either case not less than the amount necessary to avoid the
application of any co-insurance clause contained in the hazard insurance
policy. The ability of the Master Servicer to assure that hazard insurance
proceeds are appropriately applied may be dependent upon its being named as an
additional insured under any hazard insurance policy and under any other
insurance policy referred to below, or upon the extent to which information in
this regard is furnished by mortgagors. All amounts collected by the Master
Servicer under any such policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the mortgagor in
accordance with the Master Servicer's normal servicing procedures, subject to
the terms and conditions of the related Mortgage and Mortgage Note) will be
deposited in the Certificate Account. The Agreement will provide that the
Master Servicer may satisfy its obligation to cause each mortgagor to maintain
such a hazard insurance policy by the Master Servicer's maintaining a blanket
policy insuring against hazard losses on the Whole Loans. If such blanket
policy contains a deductible clause, the Master Servicer will be required to
deposit in the Certificate Account all sums that would have been deposited
therein but for such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Whole Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry
rot, vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, such clause generally
provides that the insurer's liability in the event of partial loss does not
exceed the lesser of (i) the replacement cost of the improvements less physical
depreciation and (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
Each Agreement for a Trust Fund that includes Whole Loans will require the
Master Servicer to cause the mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of
the related Mortgage and the Servicing Standard, which insurance may typically
include flood insurance (if the related Mortgaged Property was located at the
time of origination in a federally designated flood area).
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the Master Servicer, Sub-Servicer or Special
Servicer to maintain public liability insurance with respect to any REO
Properties. Any cost incurred by the Master Servicer in maintaining any such
insurance policy will be added to the amount owing under the Mortgage Loan
where the terms of the Mortgage Loan so permit; provided, however, that the
addition of such cost will not be taken into account for purposes of
calculating the distribution to be made to Certificateholders. Such costs may
be recovered by the Master Servicer, Sub-Servicer or Special Servicer, as the
case may be, from the Collection Account, with interest thereon, as provided by
the Agreement.
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Under the terms of the Whole Loans, mortgagors will generally be required
to present claims to insurers under hazard insurance policies maintained on the
related Mortgaged Properties. The Master Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on Mortgaged
Properties securing the Whole Loans. However, the ability of the Master
Servicer to present or cause to be presented such claims is dependent upon the
extent to which information in this regard is furnished to the Master Servicer
by mortgagors.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Master Servicer
or the mortgagors will maintain rental interruption insurance policies in full
force and effect with respect to some or all of the Leases. Although the terms
of such policies vary to some degree, a rental interruption insurance policy
typically provides that, to the extent that a Lessee fails to make timely
rental payments under the related Lease due to a casualty event, such losses
will be reimbursed to the insured. If so specified in the related Prospectus
Supplement, the Master Servicer will be required to pay from its servicing
compensation the premiums on the rental interruption policy on a timely basis.
If so specified in the Prospectus Supplement, if such rental interruption
policy is canceled or terminated for any reason (other than the exhaustion of
total policy coverage), the Master Servicer will exercise its best reasonable
efforts to obtain from another insurer a replacement policy comparable to the
rental interruption policy with a total coverage that is equal to the then
existing coverage of the terminated rental interruption policy; provided that
if the cost of any such replacement policy is greater than the cost of the
terminated rental interruption policy, the amount of coverage under the
replacement policy will, unless otherwise specified in the related Prospectus
Supplement, be reduced to a level such that the applicable premium does not
exceed, by a percentage that may be set forth in the related Prospectus
Supplement, the cost of the rental interruption policy that was replaced. Any
amounts collected by the Master Servicer under the rental interruption policy
in the nature of insurance proceeds will be deposited in the Certificate
Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that the Master Servicer and any Special Servicer obtain
and maintain in effect a fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring
against loss occasioned by fraud, theft or other intentional misconduct of the
officers, employees and agents of the Master Servicer or the Special Servicer,
as applicable. The related Agreement will allow the Master Servicer and any
Special Servicer to self-insure against loss occasioned by the errors and
omissions of the officers, employees and agents of the Master Servicer or the
Special Servicer so long as certain criteria set forth in the Agreement are
met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged Property,
or due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer, on behalf of the Trust Fund, will
exercise any right the Trustee may have as mortgagee to accelerate payment of
any such Whole Loan or to withhold its consent to any transfer or further
encumbrance in a manner consistent with the Servicing Standard. Unless
otherwise specified in the related Prospectus Supplement, any fee collected by
or on behalf of the Master Servicer for entering into an assumption agreement
will be retained by or on behalf of the Master Servicer as additional servicing
compensation. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Due-on-Sale and Due-on-Encumbrance."
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RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Retained Interest in the Assets, and, if so, the
initial owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "Retained Interest" in an Asset represents a specified portion of
the interest payable thereon. The Retained Interest will be deducted from
mortgagor payments as received and will not be part of the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer's and a Sub-Servicer's primary servicing compensation with
respect to a series of Certificates will come from the periodic payment to it
of a portion of the interest payment on each Asset. Since any Retained Interest
and a Master Servicer's primary compensation are percentages of the principal
balance of each Asset, such amounts will decrease in accordance with the
amortization of the Assets. The Prospectus Supplement with respect to a series
of Certificates evidencing interests in a Trust Fund that includes Whole Loans
may provide that, as additional compensation, the Master Servicer or the
Sub-Servicers may retain all or a portion of assumption fees, modification
fees, late payment charges or Prepayment Premiums collected from mortgagors and
any interest or other income which may be earned on funds held in the
Certificate Account or any account established by a Sub-Servicer pursuant to
the Agreement.
The Master Servicer may, to the extent provided in the related Prospectus
Supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the Assets, including, without
limitation, payment of the fees and disbursements of the Trustee and
independent accountants, payment of expenses incurred in connection with
distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement. Certain other
expenses, including certain expenses relating to defaults and liquidations on
the Whole Loans and, to the extent so provided in the related Prospectus
Supplement, interest thereon at the rate specified therein, and the fees of any
Special Servicer, may be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to Assets which include Whole Loans will provide
that on or before a specified date in each year, beginning with the first such
date at least six months after the related Cut-off Date, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for the Federal Home Loan
Mortgage Corporation ("FHLMC"), the servicing by or on behalf of the Master
Servicer of mortgage loans under pooling and servicing agreements substantially
similar to each other (including the related Agreement) was conducted in
compliance with the terms of such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, either the
Audit Program for Mortgages serviced for FHLMC, or paragraph 4 of the Uniform
Single Attestation Program for Mortgage Bankers, requires it to report. In
rendering its statement such firm may rely, as to matters relating to the
direct servicing of mortgage loans by Sub-Servicers, upon comparable statements
for examinations conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC (rendered within one year of such statement) of firms of
independent public accountants with respect to the related Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding calendar
year or other specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies of
such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders without charge upon written request to the
Master Servicer at the address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING A MASTER SERVICER AND THE DEPOSITOR
The Master Servicer, if any, or a servicer for substantially all the Whole
Loans under each Agreement will be named in the related Prospectus Supplement.
The entity serving as Master Servicer (or as such
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servicer) may be an affiliate of the Depositor and may have other normal
business relationships with the Depositor or the Depositor's affiliates.
Reference herein to the Master Servicer shall be deemed to be to the servicer
of substantially all of the Whole Loans, if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Master Servicer so causing such a
conflict being of a type and nature carried on by the Master Servicer at the
date of the Agreement. No such resignation will become effective until the
Trustee or a successor servicer has assumed the Master Servicer's obligations
and duties under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will further provide that neither any Master Servicer, the Depositor
nor any director, officer, employee, or agent of a Master Servicer or the
Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be protected
against any breach of a representation, warranty or covenant made in such
Agreement, or against any liability specifically imposed thereby, or against
any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of obligations or
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. Unless otherwise specified in the related Prospectus Supplement,
each Agreement will further provide that any Master Servicer, the Depositor and
any director, officer, employee or agent of a Master Servicer or the Depositor
will be entitled to indemnification by the related Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Agreement or the Certificates; provided, however,
that such indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Master Servicer, the prosecution of an enforcement action in respect of any
specific Whole Loan or Whole Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to such Agreement); (ii)
incurred in connection with any breach of a representation, warranty or
covenant made in such Agreement; (iii) incurred by reason of misfeasance, bad
faith or gross negligence in the performance of obligations or duties
thereunder, or by reason of reckless disregard of such obligations or duties;
(iv) incurred in connection with any violation of any state or federal
securities law; or (v) imposed by any taxing authority if such loss, liability
or expense is not specifically reimbursable pursuant to the terms of the
related Agreement. In addition, each Agreement will provide that neither any
Master Servicer nor the Depositor will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its respective
responsibilities under the Agreement and which in its opinion may involve it in
any expense or liability. Any such Master Servicer or the Depositor may,
however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the
Certificateholders, and the Master Servicer or the Depositor, as the case may
be, will be entitled to be reimbursed therefor and to charge the Certificate
Account.
Any person into which the Master Servicer or the Depositor may be merged
or consolidated, or any person resulting from any merger or consolidation to
which the Master Servicer or the Depositor is a party, or any person succeeding
to the business of the Master Servicer or the Depositor, will be the successor
of the Master Servicer or the Depositor, as the case may be, under the related
Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, Events of Default under the related Agreement
will include (i) any failure by the Master Servicer to distribute or cause to
be distributed to Certificateholders, or to remit to the Trustee for
distribution to Certificateholders, any required payment; (ii) any failure by
the Master Servicer duly to
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observe or perform in any material respect any of its other covenants or
obligations under the Agreement which continues unremedied for thirty days
after written notice of such failure has been given to the Master Servicer by
the Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Certificates evidencing not less than 25% of the
Voting Rights; (iii) any breach of a representation or warranty made by the
Master Servicer under the Agreement which materially and adversely affects the
interests of Certificateholders and which continues unremedied for thirty days
after written notice of such breach has been given to the Master Servicer by
the Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Certificates evidencing not less than 25% of the
Voting Rights; and (iv) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain
actions by or on behalf of the Master Servicer indicating its insolvency or
inability to pay its obligations. Material variations to the foregoing Events
of Default (other than to shorten cure periods or eliminate notice
requirements) will be specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Trustee shall,
not later than the later of 60 days after the occurrence of any event which
constitutes or, with notice or lapse of time or both, would constitute an Event
of Default and five days after certain officers of the Trustee become aware of
the occurrence of such an event, transmit by mail to the Depositor and all
Certificateholders of the applicable series notice of such occurrence, unless
such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Certificates
evidencing not less than 51% of the Voting Rights, the Trustee shall, terminate
all of the rights and obligations of the Master Servicer under the Agreement
and in and to the Mortgage Loans (other than as a Certificateholder or as the
owner of any Retained Interest), whereupon the Trustee will succeed to all of
the responsibilities, duties and liabilities of the Master Servicer under the
Agreement (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent mortgage loans, or if the related
Prospectus Supplement so specifies, then the Trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise specified in the related Prospectus Supplement, in the event
that the Trustee is unwilling or unable so to act, it may or, at the written
request of the holders of Certificates entitled to at least 51% of the Voting
Rights, it shall appoint, or petition a court of competent jurisdiction for the
appointment of, a loan servicing institution acceptable to the Rating Agency
with a net worth at the time of such appointment of at least $15,000,000 to act
as successor to the Master Servicer under the Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
any such successor may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation payable to the Master Servicer
under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default involving a failure to distribute a required payment
to Certificateholders described in clause (i) under "Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given to
the Trustee written notice of default and unless the holders of Certificates
evidencing not less than 25% of the Voting Rights have made written request
upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the
Trustee for sixty days has neglected or refused to institute any such
proceeding. The Trustee, however, is under no obligation to exercise any of the
trusts or powers vested in it by any Agreement or to make any investigation of
matters arising thereunder or to institute,
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conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the holders of Certificates covered by
such Agreement, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the parties thereto without the consent
of any of the holders of Certificates covered by the Agreement, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision therein which
may be inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, or (iv) to comply with
any requirements imposed by the Code; provided that such amendment (other than
an amendment for the purpose specified in clause (iv) above) will not (as
evidenced by an opinion of counsel to such effect) adversely affect in any
material respect the interests of any holder of Certificates covered by the
Agreement. Unless otherwise specified in the related Prospectus Supplement,
each Agreement may also be amended by the Depositor, the Master Servicer, if
any, and the Trustee, with the consent of the holders of Certificates affected
thereby evidencing not less than 51% of the Voting Rights, for any purpose;
provided, however, that unless otherwise specified in the related Prospectus
Supplement, no such amendment may (i) reduce in any manner the amount of or
delay the timing of, payments received or advanced on Mortgage Loans which are
required to be distributed on any Certificate without the consent of the holder
of such Certificate, (ii) adversely affect in any material respect the
interests of the holders of any class of Certificates in a manner other than as
described in (i), without the consent of the holders of all Certificates of
such class or (iii) modify the provisions of such Agreement described in this
paragraph without the consent of the holders of all Certificates covered by
such Agreement then outstanding. However, with respect to any series of
Certificates as to which a REMIC election is to be made, the Trustee will not
consent to any amendment of the Agreement unless it shall first have received
an opinion of counsel to the effect that such amendment will not result in the
imposition of a tax on the related Trust Fund or cause the related Trust Fund
to fail to qualify as a REMIC at any time that the related Certificates are
outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Asset or related document and is not
accountable for the use or application by or on behalf of any Master Servicer
of any funds paid to the Master Servicer or its designee or any Special
Servicer in respect of the Certificates or the Assets, or deposited into or
withdrawn from the Certificate Account or any other account by or on behalf of
the Master Servicer or any Special Servicer. If no Event of Default has
occurred and is continuing, the Trustee is required to perform only those
duties specifically required under the related Agreement. However, upon receipt
of the various certificates, reports or other instruments required to be
furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and
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remedies, of the Certificateholders during the continuance of an Event of
Default, (ii) defending or prosecuting any legal action in respect of the
related Agreement or series of Certificates, (iii) being the mortgagee of
record with respect to the Mortgage Loans in a Trust Fund and the owner of
record with respect to any Mortgaged Property acquired in respect thereof for
the benefit of Certificateholders, or (iv) acting or refraining from acting in
good faith at the direction of the holders of the related series of
Certificates entitled to not less than 25% (or such higher percentage as is
specified in the related Agreement with respect to any particular matter) of
the Voting Rights for such series; provided, however, that such indemnification
will not extend to any loss, liability or expense that constitutes a specific
liability of the Trustee pursuant to the related Agreement, or to any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence on the part of the Trustee in the performance of its obligations and
duties thereunder, or by reason of its reckless disregard of such obligations
or duties, or as may arise from a breach of any representation, warranty or
covenant of the Trustee made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as such
under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any series entitled to at
least 51% of the Voting Rights for such series may at any time remove the
Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Assets. Credit Support
may be in the form of the subordination of one or more classes of Certificates,
letters of credit, insurance policies, guarantees, the establishment of one or
more reserve funds or another method of Credit Support described in the related
Prospectus Supplement, or any combination of the foregoing. If so provided in
the related Prospectus Supplement, any form of Credit Support may be structured
so as to be drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one series
of Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such
Credit Support may be terminated or replaced and (d) the material provisions
relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor under
any instrument of Credit Support, including (i) a brief description of its
principal business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to
do business, (iii) if applicable, the identity of regulatory agencies that
exercise primary jurisdiction over the conduct of its business and (iv) its
total assets, and its stockholders' or policyholders' surplus, if applicable,
as of the date specified in the Prospectus Supplement. See "Risk
Factors--Credit Support Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest
from the Certificate Account on any Distribution Date will be subordinated to
such rights of the holders of Senior Certificates. If so provided in the
related Prospectus Supplement, the subordination of a class may apply only in
the event of (or may be limited to) certain types of losses or shortfalls. The
related Prospectus Supplement will set forth information concerning the amount
of subordination of a class or classes of Subordinate Certificates in a series,
the circumstances in which such subordination will be applicable and the
manner, if any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one group
of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of Certificates,
the Whole Loans in the related Trust Fund will be covered for various default
risks by insurance policies or guarantees. A copy
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of any such material instrument for a series will be filed with the Commission
as an exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the "L/C
Bank"). Under a letter of credit, the L/C Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Assets on the
related Cut-off Date or of the initial aggregate Certificate Balance of one or
more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. A copy
of any such instrument for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed with the Commission within
15 days of issuance of the Certificates of the related series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more reserve funds in which cash, a
letter of credit, Permitted Investments, a demand note or a combination thereof
will be deposited, in the amounts so specified in such Prospectus Supplement.
The reserve funds for a series may also be funded over time by depositing
therein a specified amount of the distributions received on the related Assets
as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the
related Prospectus Supplement, reserve funds may be established to provide
limited protection against only certain types of losses and shortfalls.
Following each Distribution Date amounts in a reserve fund in excess of any
amount required to be maintained therein may be released from the reserve fund
under the conditions and to the extent specified in the related Prospectus
Supplement and will not be available for further application to the
Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited to
the related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
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Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund may
be applied to make distributions to Certificateholders and use of investment
earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Certificates,
the MBS in the related Trust Fund and/or the Mortgage Loans underlying such MBS
may be covered by one or more of the types of Credit Support described herein.
The related Prospectus Supplement will specify as to each such form of Credit
Support the information indicated above with respect thereto, to the extent
such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans. See
"Description of the Trust Funds--Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the
instrument in the appropriate public recording office. However, recording does
not generally establish priority over governmental claims for real estate taxes
and assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties--a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a security deed or a deed
to secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. In case the mortgagor under a mortgage is a land
trust, there would be an additional party because legal title to the property
is held by a land trustee under a land trust agreement for the benefit of the
mortgagor. At origination of a mortgage loan involving a land trust, the
mortgagor executes a separate undertaking to make payments on the mortgage
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed
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to secure debt are governed by the express provisions of the mortgage, the law
of the state in which the real property is located, certain federal laws
(including, without limitation, the Soldiers' and Sailors' Civil Relief Act of
1940) and, in some cases, in deed of trust transactions, the directions of the
beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. Unless otherwise specified in the Prospectus Supplement,
the Depositor or the Asset Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are
secured by an interest in a leasehold estate. Such representation and
warranties will be set forth in the Prospectus Supplement if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect
the rents. In most states, hotel and motel room revenues are considered
accounts receivable under the UCC; generally these revenues are either assigned
by the mortgagor, which remains entitled to collect such revenues absent a
default, or pledged by the mortgagor, as security for the loan. In general, the
lender must file financing statements in order to perfect its security interest
in the revenues and must file continuation statements, generally every five
years, to maintain perfection of such security interest. Even if the lender's
security interest in room revenues is perfected under the UCC, the lender will
generally be required to commence a foreclosure or otherwise take possession of
the property in order to collect the room revenues after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service the
mortgage debt if the leases on the property are at below-market rents, or as
the result of excessive maintenance, repair or other obligations which a lender
succeeds to as landlord.
Lenders that actually take possession of the property, however, may incur
potentially substantial risks attendant to being a mortgagee in possession.
Such risks include liability for environmental clean-up costs and other risks
inherent in property ownership. See "Environmental Legislation" below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such
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property is generally pledged or assigned as security to the lender under the
UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such security
interest, file continuation statements generally every five years.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest
of record in the real property and all parties in possession of the property,
under leases or otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. Upon successful
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other officer to conduct a
public sale of the mortgaged property, the proceeds of which are used to
satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may
require the lender to undertake affirmative and expensive actions to determine
the cause of the mortgagor's default and the likelihood that the mortgagor will
be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate mortgagors who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the mortgage is not
monetary, e.g., the mortgagor failed to maintain the mortgaged property
adequately or the mortgagor executed a junior mortgage on the mortgaged
property. The exercise by the court of its equity powers will depend on the
individual circumstances of each case presented to it. Finally, some courts
have been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that a
mortgagor receive notice in addition to statutorily-prescribed minimum notice.
For the most part, these cases have upheld the reasonableness of the notice
provisions or have found that a public sale under a mortgage providing for a
power of sale does not involve sufficient state action to afford constitutional
protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair
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consideration and such sale occurred while the mortgagor was insolvent (or the
mortgagor was rendered insolvent as a result of such sale) and within one year
(or within the state statute of limitations if the trustee in bankruptcy elects
to proceed under state fraudulent conveyance law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the mortgagor and to any other party who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, in some states the trustee must provide notice to any other party
having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. The
mortgagor or junior lienholder may then have the right, during a reinstatement
period required in some states, to cure the default by paying the entire actual
amount in arrears (without acceleration) plus the expenses incurred in
enforcing the obligation. In other states, the mortgagor or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and
vary among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of
trust, except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to
secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's and
the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or bankruptcy
proceedings. Furthermore, a few states require that any environmental
contamination at certain types of properties be cleaned up before a property
may be resold. In addition, a lender may be responsible under
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federal or state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "Environmental Legislation." Generally state
law controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans, if any, that are junior mortgage loans, if the lender
purchases the property the lender's title will be subject to all senior
mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
REO Properties
If title to any Mortgaged Property is acquired by the Trustee on behalf of
the Certificateholders, the Master Servicer or any related Sub-servicer or the
Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property prior to the close of the third calendar year following the
year of acquisition of such Mortgaged Property by the Trust Fund, unless (i)
the Internal Revenue Service grants an extension of time to sell such property
(an "REO Extension") or (ii) it obtains an opinion of counsel generally to the
effect that the holding of the property beyond the close of the third calendar
year after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause any REMIC created pursuant to the Pooling and Servicing
Agreement to fail to qualify as a REMIC under the Code. Subject to the
foregoing, the Master Servicer or any related Sub-servicer or the Special
Servicer will generally be required to solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property. The Master Servicer or any related Sub-servicer or the
Special Servicer may retain an independent contractor to operate and manage any
REO Property; however, the retention of an independent contractor will not
relieve the Master Servicer or any related Sub-servicer or the Special Servicer
of its obligations with respect to such REO Property.
In general, the Master Servicer or any related Sub-servicer or the Special
Servicer or an independent contractor employed by the Master Servicer or any
related Sub-servicer or the Special Servicer at the expense of the Trust Fund
will be obligated to operate and manage any Mortgaged Property acquired as REO
Property in a manner that would, to the extent commercially feasible, maximize
the Trust Fund's net after-tax proceeds from such property. After the Master
Servicer or any related Sub-servicer or the Special Servicer reviews the
operation of such property and consults with the Trustee to determine the Trust
Fund's federal income tax reporting position with respect to the income it is
anticipated that the Trust Fund would derive from such property, the Master
Servicer or any related Sub-servicer or the Special Servicer could determine
(particularly in the case of an REO Property that is a hospitality or
residential health care facility) that it would not be commercially feasible to
manage and operate such property in a manner that would avoid the imposition of
a tax on "net income from foreclosure property," within the meaning of Section
857(b) (4) (B) of the Code (an "REO Tax") at the highest marginal corporate tax
rate (currently 35%). The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property.
Any REO Tax imposed on the Trust Fund's income from an REO Property would
reduce the amount available for distribution to Certificateholders.
Certificateholders are advised to consult their tax advisors regarding the
possible imposition of REO
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Taxes in connection with the operation of commercial REO Properties by REMICs.
See "Certain Federal Income Tax Consequences" herein and "Certain Federal
Income Tax Consequences-REMICs" in the Prospectus.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee have an equity of redemption and may redeem the property by paying
the entire debt with interest. In addition, in some states, when a foreclosure
action has been commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to
be cut off and terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the
mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale price.
In other states, redemption may be authorized if the former mortgagor pays only
a portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The
exercise of a right of redemption would defeat the title of any purchaser from
a foreclosure sale or sale under a deed of trust. Consequently, the practical
effect of the redemption right is to force the lender to maintain the property
and pay the expenses of ownership until the redemption period has expired. In
some states, a post-sale statutory right of redemption may exist following a
judicial foreclosure, but not following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the
related Prospectus Supplement, with respect to a series of Certificates for
which an election is made to qualify the Trust Fund or a part thereof as a
REMIC, the Agreement will permit foreclosed property to be held beyond the
close of the third calendar year following the year of acquisition if the
Internal Revenue Service grants an extension of time within which to sell such
property or independent counsel renders an opinion to the effect that holding
such property for such additional period is permissible under the REMIC
Provisions.
Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
mortgagor. Even if a mortgage loan by its terms provides for recourse to the
mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the mortgagor. In certain other states, the lender has the
option of bringing a personal action against the mortgagor on the debt without
first exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
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enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
mortgagor as a result of low or no bids at the judicial sale.
Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate
if, among other reasons, the ground lessee breaches or defaults in its
obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground leases
that secure Mortgage Loans may not contain some of these protective provisions,
and mortgages may not contain the other protections discussed in the next
paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults
by the mortgagor; the right to cure such defaults, with adequate cure periods;
if a default is not susceptible of cure by the leasehold mortgagee, the right
to acquire the leasehold estate through foreclosure or otherwise; the ability
of the ground lease to be assigned to and by the leasehold mortgagee or
purchaser at a foreclosure sale and for the concomitant release of the ground
lessee's liabilities thereunder; and the right of the leasehold mortgagee to
enter into a new ground lease with the ground lessor on the same terms and
conditions as the old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground
lessor's bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "Bankruptcy Code"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed
by the provisions of the ground lease.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding,
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thus leaving the lender a general unsecured creditor for the difference between
such value and the outstanding balance of the loan. Other modifications may
include the reduction in the amount of each scheduled payment, which reduction
may result from a reduction in the rate of interest and/or the alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or an extension (or reduction) of the final maturity date.
Some courts with federal bankruptcy jurisdiction have approved plans, based on
the particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years. Also, under
federal bankruptcy law, a bankruptcy court may permit a debtor through its
rehabilitative plan to de-accelerate a secured loan and to reinstate the loan
even though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's petition. This may be
done even if the full amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation under
an unexpired lease of the debtor/lessee may not be terminated or modified at
any time after the commencement of a case under the Bankruptcy Code solely on
the basis of a provision in the lease to such effect or because of certain
other similar events. This prohibition on so-called "ipso facto clauses" could
limit the ability of the Trustee for a series of Certificates to exercise
certain contractual remedies with respect to the Leases. In addition, Section
362 of the Bankruptcy Code operates as an automatic stay of, among other
things, any act to obtain possession of property from a debtor's estate, which
may delay a Trustee's exercise of such remedies for a related series of
Certificates in the event that a related Lessee or a related mortgagor becomes
the subject of a proceeding under the Bankruptcy Code. For example, a mortgagee
would be stayed from enforcing a Lease Assignment by a mortgagor related to a
Mortgaged Property if the related mortgagor was in a bankruptcy proceeding. The
legal proceedings necessary to resolve the issues could be time-consuming and
might result in significant delays in the receipt of the assigned rents.
Similarly, the filing of a petition in bankruptcy by or on behalf of a Lessee
of a Mortgaged Property would result in a stay against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the Lease that occurred prior to the filing of the Lessee's petition.
Rents and other proceeds of a Mortgage Loan may also escape an assignment
thereof if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach,
which could adversely affect the security for the related Mortgage Loan. In
addition, pursuant to Section 502(b) (6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of one
year or 15%, not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative,
the lessee may remain in possession of the leasehold for the balance of such
term and for any renewal or extension of such term that is enforceable by the
lessee under applicable nonbankruptcy law. The Bankruptcy Code provides that if
a lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or
extension thereof, any damages occurring after such date
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caused by the nonperformance of any obligation of the lessor under the lease
after such date. To the extent provided in the related Prospectus Supplement,
the Lessee will agree under certain Leases to pay all amounts owing thereunder
to the Master Servicer without offset. To the extent that such a contractual
obligation remains enforceable against the Lessee, the Lessee would not be able
to avail itself of the rights of offset generally afforded to lessees of real
property under the Bankruptcy Code.
In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor, or made directly by the related Lessee, under
the related Mortgage Loan to the Trust Fund. Payments on long-term debt may be
protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in
writing in the limited partnership agreement. This provision may be construed
as an "ipso facto" clause and, in the event of the general partner's
bankruptcy, may not be enforceable. To the extent described in the related
Prospectus Supplement, certain limited partnership agreements of the Mortgagors
may provide that the commencement of a case under the Bankruptcy Code with
respect to the related general partner constitutes an event of withdrawal
(assuming the enforceability of the clause is not challenged in bankruptcy
proceedings or, if challenged, is upheld) that might trigger the dissolution of
the limited partnership, the winding up of its affairs and the distribution of
its assets, unless (i) at the time there was at least one other general partner
and the written provisions of the limited partnership permit the business of
the limited partnership to be carried on by the remaining general partner and
that general partner does so or (ii) the written provisions of the limited
partnership agreement permit the limited partner to agree within a specified
time frame (often 60 days) after such withdrawal to continue the business of
the limited partnership and to the appointment of one or more general partners
and the limited partners do so. In addition, the laws governing general
partnerships in certain states provide that the commencement of a case under
the Bankruptcy Code or state bankruptcy laws with respect to a general partner
of such partnerships triggers the dissolution of such partnership, the winding
up of its affairs and the distribution of its assets. Such state laws, however,
may not be enforceable or effective in a bankruptcy case. The dissolution of a
Mortgagor, the winding up of its affairs and the distribution of its assets
could result in an acceleration of its payment obligation under a related
Mortgage Loan, which may reduce the yield on the related series of Certificates
in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that is
a partnership may provide the opportunity for a trustee in bankruptcy for such
general partner, such general partner as a debtor-in-possession, or a creditor
of such general partner to obtain an order from a court consolidating the
assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the
corporate veil. In such a case, the respective Mortgaged Property, for example,
would become property of the estate of such bankrupt general partner. Not only
would the Mortgaged Property be available to satisfy the claims of creditors of
such general partner, but an automatic stay would apply to any attempt by the
Trustee to exercise remedies with respect to such Mortgaged Property. However,
such an occurrence should not affect the Trustee's status as a secured creditor
with respect to the Mortgagor or its security interest in the Mortgaged
Property.
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JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
To the extent specified in the related Prospectus Supplement, some of the
Mortgage Loans for a series will be secured by junior mortgages or deeds of
trust which are subordinated to senior mortgages or deeds of trust held by
other lenders or institutional investors. The rights of the Trust Fund (and
therefore the related Certificateholders), as beneficiary under a junior deed
of trust or as mortgagee under a junior mortgage, are subordinate to those of
the mortgagee or beneficiary under the senior mortgage or deed of trust,
including the prior rights of the senior mortgagee or beneficiary to receive
rents, hazard insurance and condemnation proceeds and to cause the Mortgaged
Property securing the Mortgage Loan to be sold upon default of the Mortgagor or
trustor, thereby extinguishing the junior mortgagee's or junior beneficiary's
lien unless the Master Servicer or Special Servicer, as applicable, asserts its
subordinate interest in a Mortgaged Property in foreclosure litigation or
satisfies the defaulted senior loan. As discussed more fully below, in many
states a junior mortgagee or beneficiary may satisfy a defaulted senior loan in
full, or may cure such default and bring the senior loan current, in either
event adding the amounts expended to the balance due on the junior loan. Absent
a provision in the senior mortgage, no notice of default is required to be
given to the junior mortgagee unless otherwise required by law.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under the senior mortgage or deed of trust will have the prior
right to collect any insurance proceeds payable under the hazard insurance
policy and any award of damages in connection with the condemnation and to
apply the same to the indebtedness secured by the senior mortgage or deed of
trust. Proceeds in excess of the amount of senior mortgage indebtedness will,
in most cases, be applied to the indebtedness of a junior mortgage or trust
deed. The laws of certain states may limit the ability of mortgagees or
beneficiaries to apply the proceeds of hazard insurance and partial
condemnation awards to the secured indebtedness. In such states, the mortgagor
or trustor must be allowed to use the proceeds of hazard insurance to repair
the damage unless the security of the mortgagee or beneficiary has been
impaired. Similarly, in certain states, the mortgagee or beneficiary is
entitled to the award for a partial condemnation of the real property security
only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinated to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and
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defend any action or proceeding purporting to affect the property or the rights
of the mortgagee or beneficiary under the mortgage or deed of trust. Upon a
failure of the mortgagor or trustor to perform any of these obligations, the
mortgagee or beneficiary is given the right under the mortgage or deed of trust
to perform the obligation itself, at its election, with the mortgagor or
trustor agreeing to reimburse the mortgagee or beneficiary on behalf of the
mortgagor or trustor. All sums so expended by the mortgagee or beneficiary
become part of the indebtedness secured by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute a lease unless the mortgagee or beneficiary executes a
written agreement with the tenant not to disturb the tenant's possession of its
premises in the event of a foreclosure. A senior mortgagee or beneficiary may
refuse to consent to matters approved by a junior mortgagee or beneficiary with
the result that the value of the security for the junior mortgage or deed of
trust is diminished. For example, a senior mortgagee or beneficiary may decide
not to approve the lease or to refuse to grant a tenant a non-disturbance
agreement. If, as a result, the lease is not executed, the value of the
mortgaged property may be diminished.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Of particular concern may be those Mortgaged
Properties which are, or have been, the site of manufacturing, industrial or
disposal activity. Such environmental liabilities may give rise to (i) a
diminution in value of property securing any Mortgage Loan, (ii) limitation on
the ability to foreclose against such property or (iii) in certain
circumstances, as more fully described below, liability for clean-up costs or
other remedial actions, which liability could exceed the value of the principal
balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give rise
to a lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
The presence of hazardous or toxic substances, or the failure to remediate
such property properly, may adversely affect the market value of the property,
as well as the owner's ability to sell or use the real estate or to borrow
using the real estate as collateral. In addition, certain environmental laws
and common law principles govern the responsibility for the removal,
encapsulation or disturbance of asbestos containing materials ("ACMs") when
these ACMs are in poor condition or when a property with ACMs is undergoing
repair, renovation or demolition. Such laws could also be used to impose
liability upon owners and operators of real properties for release of ACMs into
the air that cause personal injury or other damage. In addition to cleanup and
natural resource damages actions brought by federal, state, and local agencies
and private parties, the presence of hazardous substances on a property may
lead to claims of personal injury, property damage, or other claims by private
plaintiffs.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and under the law of certain
states, a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a Mortgaged Property may
become liable in some circumstances either to the government or to private
parties for cleanup costs, even if the lender does not cause or contribute to
the contamination. Liability under some federal or state statutes may not be
limited to the original or unamortized principal balance of a loan or to the
value of the property securing a loan. CERCLA imposes strict, as well as joint
and several, liability on several classes of potentially responsible parties,
including current owners and operators of the property, regardless of whether
they caused or contributed to the contamination. Many states have laws similar
to CERCLA.
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Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
Whether actions taken by a lender would constitute such an encroachment on
the actual management of a facility or property, so as to render the secured
creditor exemption unavailable to the lender has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent.
This scope of the secured creditor exemption has been clarified by the
enactment of the Asset Conservation, Lender Liability and Deposit Insurance
Protection Act of 1996 (the "Asset Conservation Act"), which was signed into
law by President Clinton on September 30, 1996, and which lists permissible
actions that may be undertaken by a lender holding security in a contaminated
facility without exceeding the bounds of the secured creditor exemption,
subject to certain conditions and limitations. The Asset Conservation Act
provides that in order to be deemed to have participated in the management of a
secured property, a lender must actually participate in the operational affairs
of the property or the borrower. The Asset Conservation Act also provides that
a lender will continue to have the benefit of the secured creditor exemption
even if it forecloses on a mortgaged property, purchases it at a foreclosure
sale or accepts a deed-in-lieu of foreclosure provided that the lender seeks to
sell the mortgaged property at the earliest practicable commercially reasonable
time on commercially reasonable terms. The protections afforded lenders under
the Asset Conversion Act are subject to terms and conditions that have not been
clarified by the courts.
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. In addition, the
secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA. CERCLA's jurisdiction extends to the
investigation and remediation of releases of "hazardous substances." The
definition of "hazardous substances" under CERCLA specifically excludes
petroleum products. Therefore, a federal statute of particular significance is
Subtitle I of the Resource Conservation and Recovery Act ("RCRA"), which
governs the operation and management of underground petroleum storage tanks.
Under the Asset Conservation Act, the holders of security interests in
underground storage tanks or properties containing such tanks are accorded
protections similar to the protections accorded to lenders under CERCLA. It
should be noted, however, that liability for cleanup of petroleum contamination
may be governed by state law, which may not provide for any specific protection
for secured creditors.
In a few states, transfer of some types of properties is conditioned upon
clean up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of
foreclosure or otherwise, may be required to cleanup the contamination before
selling or otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold
a lender liable in such cases, unanticipated or uninsurable liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment proof. It is possible
that cleanup costs could become a liability of the Trust Fund and occasion a
loss to Certificateholders in certain circumstances described above if such
remedial costs were incurred.
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Unless otherwise provided in the related Prospectus Supplement, the
Warrantying Party with respect to any Whole Loan included in a Trust Fund for a
particular series of Certificates will represent that a "Phase I Assessment" as
described in and meeting the requirements of the then current version of
Chapter 5 of the Federal National Mortgage Association ("FNMA") Multifamily
Guide has been received and reviewed. In addition, unless otherwise provided in
the related Prospectus Supplement, the related Agreement will provide that the
Master Servicer, acting on behalf of the Trustee, may not acquire title to a
Mortgaged Property or take over its operation unless the Master Servicer has
previously determined, based on a report prepared by a person who regularly
conducts environmental audits, that: (i) such Mortgaged Property is in
compliance with applicable environmental laws, and there are no circumstances
present at the Mortgaged Property relating to the use, management or disposal
of any hazardous substances, hazardous materials, wastes, or petroleum based
materials for which investigation, testing, monitoring, containment, clean-up
or remediation could be required under any federal, state or local law or
regulation; or (ii) if such Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances. This requirement effectively precludes
enforcement of the security for the related Mortgage Note until a satisfactory
environmental inquiry is undertaken or any required remedial action is provided
for, reducing the likelihood that a given Trust Fund will become liable for any
condition or circumstance that may give rise to any environmental claim (an
"Environmental Hazard Condition") affecting a Mortgaged Property, but making it
more difficult to realize on the security for the Mortgage Loan. However, there
can be no assurance that any environmental assessment obtained by the Master
Servicer or a Special Servicer, as the case may be, will detect all possible
Environmental Hazard Conditions or that the other requirements of the
Agreement, even if fully observed by the Master Servicer or Special Servicer,
as the case may be, will in fact insulate a given Trust Fund from liability for
Environmental Hazard Conditions. See "Description of the
Agreements--Realization Upon Defaulted Whole Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely
that any environmental assessments which would have been conducted with respect
to any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warrantying Party will represent and
warrant that, as of the date of initial issuance of the Certificates of a
Series or as of another specified date, no related Mortgaged Property is
affected by a Disqualifying Condition (as defined below). In the event that,
following a default in payment on a Mortgage Loan that continues for 60 days,
(i) the environmental inquiry conducted by the Master Servicer or Special
Servicer, as the case may be, prior to any foreclosure indicates the presence
of a Disqualifying Condition that arose prior to the date of initial issuance
of the Certificates of a Series and (ii) the Master Servicer or the Special
Servicer certify that it has acted in compliance with the Servicing Standard
and has not, by any action, created, caused or contributed to a Disqualifying
Condition the Warrantying Party, at its option, will reimburse the Trust Fund,
cure such Disqualifying Condition or repurchase or substitute the affected
Whole Loan, as described under "Description of the Agreements--Representations
and Warranties; Repurchases." No such person will however, be responsible for
any Disqualifying Condition which may arise on a Mortgaged Property after the
date of initial issuance of the Certificates of the related Series, whether due
to actions of the Mortgagor, the Master Servicer, the Special Servicer or any
other person. It may not always be possible to determine whether a
Disqualifying Condition arose prior or subsequent to the date of the initial
issuance of the Certificates of a Series.
A "Disqualifying Condition" is defined generally as a condition, existing
as a result of, or arising from, the presence of Hazardous Materials (as
defined below) on a Mortgaged Property, such that the Mortgage Loan secured by
the affected Mortgaged Property would be ineligible, solely by reason of such
condition, for purchase by FNMA under the relevant provisions of FNMA's
Multifamily Seller/Servicer Guide in effect as of the date of initial issuance
of the Certificates of such series, including a condition that would constitute
a material violation of applicable federal state or local law in effect as of
their date of initial issuance of the Certificates of such series.
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"Hazardous Materials" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA and RCRA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products, urea formaldehyde and any substances classified as being
"in inventory," "usable work in process" or similar classification which would,
if classified as unusable, be included in the foregoing definition.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the related Mortgaged Property. Certain of these clauses
may provide that, upon an attempted breach thereof by the mortgagor of an
otherwise non-recourse loan, the mortgagor becomes personally liable for the
mortgage debt. The enforceability of due-on-sale clauses has been the subject
of legislation or litigation in many states and, in some cases, the
enforceability of these clauses was limited or denied. However, with respect to
certain loans the Garn-St Germain Depository Institutions Act of 1982 preempts
state constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms subject to certain limited exceptions. Unless otherwise
provided in the related Prospectus Supplement, a Master Servicer, on behalf of
the Trust Fund, will determine whether to exercise any right the Trustee may
have as mortgagee to accelerate payment of any such Mortgage Loan or to
withhold its consent to any transfer or further encumbrance in a manner
consistent with the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
SUBORDINATE FINANCING
Where a mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and
the senior loan does not, a mortgagor may be more likely to repay sums due on
the junior loan than those on the senior loan. Second, acts of the senior
lender that prejudice the junior lender or impair the junior lender's security
may create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior lender.
Moreover, the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a mortgagor for delinquent payments. Certain states
also limit the amounts that a lender may collect from a mortgagor as an
additional charge if the loan is prepaid. The enforceability, under the laws of
a number of states of provisions providing for prepayment fees or penalties
upon, or prohibition of, an involuntary prepayment is unclear, and no assurance
can be given that, at the time a Prepayment Premium is required to be made on a
Mortgage Loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such
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prohibition, will be enforceable under applicable state law. The absence of a
restraint on prepayment, particularly with respect to Mortgage Loans having
higher Mortgage Rates, may increase the likelihood of refinancing or other
early retirements of the Mortgage Loans.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting Title
V would hold that residential first mortgage loans that are originated on or
after January 1, 1980 are subject to federal preemption. Therefore, in a state
that has not taken the requisite action to reject application of Title V or to
adopt a provision limiting discount points or other charges prior to
origination of such mortgage loans, any such limitation under such state's
usury law would not apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state action will be eligible
for inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the mortgagor's counsel
has rendered an opinion that such choice of law provision would be given
effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the mortgagor may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only
for the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the mortgagor to cancel the recorded mortgage
or deed of trust without any payment or prohibiting the lender from
foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages
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on Mortgaged Properties which are owned by the Mortgagor under a condominium
form of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service after the
origination of such mortgagor's Mortgage Loan (including a mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies
to mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
mortgagors who enter military service (including reservists who are called to
active duty) after origination of the related Mortgage Loan, no information can
be provided as to the number of loans that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of any servicer to collect full amounts of interest
on certain of the Mortgage Loans. Any shortfalls in interest collections
resulting from the application of the Relief Act would result in a reduction of
the amounts distributable to the holders of the related series of Certificates,
and would not be covered by advances or, unless otherwise specified in the
related Prospectus Supplement, any form of Credit Support provided in
connection with such Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the servicer to foreclose on an
affected Mortgage Loan during the mortgagor's period of active duty status,
and, under certain circumstances, during an additional three month period
thereafter. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures
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contained in the Comprehensive Crime Control Act of 1984 (the "Crime Control
Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property," including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Cadwalader, Wickersham & Taft, Sidley & Austin or
Latham & Watkins or Brown & Wood LLP or such other counsel as may be specified
in the related Prospectus Supplement, counsel to the Depositor. This summary is
based on laws, regulations, including the REMIC regulations promulgated by the
Treasury Department (the "REMIC Regulations"), rulings and decisions now in
effect or (with respect to regulations) proposed, all of which are subject to
change either prospectively or retroactively. This summary does not address the
federal income tax consequences of an investment in Certificates applicable to
all categories of investors, some of which (for example, banks and insurance
companies) may be subject to special rules. Prospective investors should
consult their tax advisors regarding the federal, state, local and any other
tax consequences to them of the purchase, ownership and disposition of
Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC
election will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Sidley & Austin or Latham & Watkins or
Brown & Wood LLP or Cadwalader, Wickersham & Taft or such other counsel as may
be specified in the related Prospectus Supplement will deliver its opinion that
the Trust Fund will not be classified as an association taxable as a
corporation and that each such Trust Fund will be classified as a grantor trust
under subpart E, Part I of subchapter J of Chapter 1 of Subtitle A of the Code.
In this case, owners of Certificates will be treated for federal income tax
purposes as owners of a portion of the Trust Fund's assets as described below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of Grantor
Trust Certificates. In this case, each Grantor Trust Certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162
or 212 each Grantor Trust Certificateholder will be entitled to deduct its pro
rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late
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payment charges retained by the Master Servicer, provided that such amounts are
reasonable compensation for services rendered to the Trust Fund. Grantor Trust
Certificateholders that are individuals, estates or trusts will be entitled to
deduct their share of expenses as itemized deductions only to the extent such
expenses plus all other Code Section 212 expenses exceed two percent of its
adjusted gross income. In addition, the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount under Code Section 68(b) (which amount will be
adjusted for inflation) will be reduced by the lesser of (i) 3% of the excess
of adjusted gross income over the applicable amount and (ii) 80% of the amount
of itemized deductions otherwise allowable for such taxable year. In general, a
Grantor Trust Certificateholder using the cash method of accounting must take
into account its pro rata share of income as and deductions as and when
collected by or paid to the Master Servicer or, with respect to original issue
discount or certain other income items for which the Certificateholder has made
an election, as such amounts are accrued by the Trust Fund on a constant
interest basis, and will be entitled to claim its pro rata share of deductions
(subject to the foregoing limitations) when such amounts are paid or such
Certificateholder would otherwise be entitled to claim such deductions had it
held the Mortgage Assets directly. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of
income as payment becomes due or is made to the Master Servicer, whichever is
earlier and may deduct its pro rata share of expense items (subject to the
foregoing limitations) when such amounts are paid or such Certificateholder
otherwise would be entitled to claim such deductions had it held the Mortgage
Assets directly. If the servicing fees paid to the Master Servicer are deemed
to exceed reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Master Servicer (or any
person to whom the Master Servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the Mortgage Assets.
The Mortgage Assets would then be subject to the "coupon stripping" rules of
the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement or
otherwise provided below, as to each Series of Certificates, counsel to the
Depositor will have advised the Depositor that:
(i) a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a) (19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans . . . secured by an interest in real property which is . .
. residential property" within the meaning of Code Section 7701(a) (19) (C)
(v), to the extent that the Mortgage Assets represented by that Grantor
Trust Certificate are of a type described in such Code section;
(ii) a Grantor Trust Certificate owned by a real estate investment trust
representing an interest in Mortgage Assets will be considered to represent
"real estate assets" within the meaning of Code Section 856(c) (4) (A), and
interest income on the Mortgage Assets will be considered "interest on
obligations secured by mortgages on real property" within the meaning of
Code Section 856(c) (3) (B), to the extent that the Mortgage Assets
represented by that Grantor Trust Certificate are of a type described in
such Code section;
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a) (3) and
(iv) a Grantor Trust Certificate owned by a financial asset
securitization investment trust will represent "permitted assets" with the
meaning of Code Section 860L(c).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of Government
Securities that constitute "stripped bonds" or "stripped coupons" as those
terms are defined in section 1286 of the Code, and, as a result, such assets
would be subject to the stripped bond provisions of the Code. Under these
rules, such Government Securities are treated as having original issue discount
based on the purchase
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price and the stated redemption price at maturity of each Security. As such,
Grantor Trust Certificateholders would be required to include in income their
pro rata share of the original issue discount on each Government Security
recognized in any given year on an economic accrual basis even if the Grantor
Trust Certificateholder is a cash method taxpayer. Accordingly, the sum of the
income includible to the Grantor Trust Certificateholder in any taxable year
may exceed amounts actually received during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Mortgage Asset based
on each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A
Grantor Trust Certificateholder that acquires an interest in Mortgage Assets at
a premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage
Assets were originated after September 27, 1985. Premium allocable to mortgage
loans originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable
premium is applied to offset interest payments. It is not clear whether a
reasonable prepayment assumption should be used in computing amortization of
premium allowable under Code Section 171. A Certificateholder that makes this
election for a Mortgage Asset or any other debt instrument that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate representing an interest
in a Mortgage Asset or Mortgage Loan acquired at a premium should recognize a
loss if a Mortgage Loan (or an underlying mortgage loan with respect to a
Mortgage Asset) prepays in full, equal to the difference between the portion of
the prepaid principal amount of such Mortgage Loan (or underlying mortgage
loan) that is allocable to the Certificate and the portion of the adjusted
basis of the Certificate that is allocable to such Mortgage Loan (or underlying
mortgage loan). If a reasonable prepayment assumption is used to amortize such
premium, it appears that such a loss would be available, if at all, only if
prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
On December 30, 1997, the Internal Revenue Service (the "IRS") issued
final regulations (the "Amortizable Bond Premium Regulations") dealing with
amortizable bond premium. These regulations, which generally are effective for
bonds issued or acquired on or after March 2, 1998 (or, for holders making an
election for the taxable year that includes March 2, 1998 or any subsequent
taxable year, shall apply to bonds held on or after the first day of the
taxable year of the election). The Amortizable Bond Premium Regulations
specifically do not apply to prepayable debt instruments or any pool of debt
instruments the yield on which may be affected by prepayments, such as the
Trust Fund, which are subject to Section 1272(a) (6) of the Code. Absent
further guidance from the IRS and unless otherwise specified in the related
Prospectus Supplement, the Trustee will account for amortizable bond premium in
the manner described above. Prospective purchasers should consult their tax
advisors regarding amortizable bond premium and the Amortizable Bond Premium
Regulations.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described herein, the special rules of the Code
relating to original issue discount ("OID") (currently Code Sections 1271
through 1273 and 1275) and Treasury regulations issued on January 27, 1994,
under such Sections (the "OID Regulations"), will be applicable to a Grantor
Trust Certificateholder's interest in those Mortgage Assets meeting the
conditions necessary for these sections to apply. Rules regarding periodic
inclusion of OID income are applicable to mortgages of corporations originated
after May 27, 1969, mortgages of noncorporate mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. Such OID could arise by the financing of points
or other charges by the originator of the mortgages in an amount greater than a
statutory de minimis
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exception to the extent that the points are not currently deductible under
applicable Code provisions or are not for services provided by the lender. OID
generally must be reported as ordinary gross income as it accrues under a
constant interest method. See "--Multiple Classes of Grantor Trust
Certificates--Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986 shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the
market discount bond is to be reduced by the amount so treated as ordinary
income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to one of the following methods.
If a Grantor Trust Certificate is issued with OID, the amount of market
discount that accrues during any accrual period would be equal to the product
of (i) the total remaining market discount and (ii) a fraction, the numerator
of which is the OID accruing during the period and the denominator of which is
the total remaining OID at the beginning of the accrual period. For Grantor
Trust Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of
the accrual period. For purposes of calculating market discount under any of
the above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same prepayment
assumption applicable to calculating the accrual of OID will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a Grantor
Trust Certificate purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in
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income as interest, based on a constant yield method for Certificates acquired
on or after April 4, 1994. If such an election were to be made with respect to
a Grantor Trust Certificate with market discount, the Certificateholder would
be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "--Premium" herein.
The election to accrue interest, discount and premium on a constant yield
method with respect to a Certificate is irrevocable without consent of the IRS.
Anti-Abuse Rule. The IRS can apply or depart from the rules contained in
the OID Regulations as necessary or appropriate to achieve a reasonable result
where a principal purpose in structuring a Mortgage Asset, Mortgage Loan or
Grantor Trust Certificate or applying the otherwise applicable rules is to
achieve a result that is unreasonable in light of the purposes of the
applicable statutes (which generally are intended to achieve the clear
reflection of income for both issuers and holders of debt instruments).
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and
interest, or principal only, on all or a portion of the Mortgage Assets (the
"Stripped Bond Certificates"), while the second class of Grantor Trust
Certificates may represent the right to some or all of the interest on such
portion (the "Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess servicing")
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Mortgage Asset principal
balance) or the Certificates are initially sold with a de minimis discount
(assuming no prepayment assumption is required), any non-de minimis discount
arising from a subsequent transfer of the Certificates should be treated as
market discount. The IRS appears to require that reasonable servicing fees be
calculated on a Mortgage Asset by Mortgage Asset basis, which could result in
some Mortgage Assets being treated as having more than 100 basis points of
interest stripped off. See "--Non-REMIC Certificates" and "Multiple Classes of
Grantor Trust Certificates--Stripped Bonds and Stripped Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in Mortgage Assets issued on the day such Certificate
is purchased for purposes of calculating any OID. Generally, if the discount on
a Mortgage Asset is larger than a de minimis amount (as calculated for purposes
of the OID rules) a purchaser of such a Certificate will be required to accrue
the discount under the OID rules of the Code. See "--Non-REMIC Certificates"
and "--Single Class of Grantor Trust Certificates--Original Issue Discount"
herein. However, a purchaser of a Stripped Bond Certificate will be required to
account for any discount on the Mortgage Assets as market discount rather than
OID if either (i) the amount of OID with respect to the Mortgage Assets is
treated as zero under the OID de minimis rule when the Certificate was stripped
or (ii) no more than 100 basis points (including any amount of servicing fees
in excess of reasonable servicing fees) is stripped off of the Trust Fund's
Mortgage Assets. Pursuant to Revenue Procedure 91-49, issued on August 8, 1991,
purchasers of Stripped Bond Certificates using an inconsistent method of
accounting must change their method of accounting and request the consent of
the IRS to the change in their accounting method on a statement attached to
their first timely tax return filed after August 8, 1991.
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The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each Mortgage Asset. Unless otherwise specified in
the related prospectus supplement, all payments from a Mortgage Asset
underlying a Stripped Coupon Certificate will be treated as a single
installment obligation subject to the OID rules of the Code, in which case, all
payments from such Mortgage Asset would be included in the Mortgage Asset's
stated redemption price at maturity for purposes of calculating income on such
Certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of Mortgage
Assets will give rise to a loss to the holder of a Stripped Bond Certificate
purchased at a premium or a Stripped Coupon Certificate. If such Certificate is
treated as a single instrument (rather than an interest in discrete mortgage
loans) and the effect of prepayments is taken into account in computing yield
with respect to such Grantor Trust Certificate, it appears that no loss will be
available as a result of any particular prepayment unless prepayments occur at
a rate sufficiently faster than the assumed prepayment rate so that the
Certificateholder will not recover its investment. However, if such Certificate
is treated as an interest in discrete Mortgage Assets, or if no prepayment
assumption is used, then when a Mortgage Asset is prepaid, the holder of such
Certificate should be able to recognize a loss equal to the portion of the
adjusted issue price of such Certificate that is allocable to such Mortgage
Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type that
make up the Trust Fund. With respect to these Code sections, no specific legal
authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Assets. While Code Section 1286 treats a stripped
obligation as a separate obligation for purposes of the Code provisions
addressing OID, it is not clear whether such characterization would apply with
regard to these other Code sections. Although the issue is not free from doubt,
each class of Grantor Trust Certificates, unless otherwise specified in the
related Prospectus Supplement, should be considered to represent "real estate
assets" within the meaning of Code Section 856(c) (4) (A) and "loans . . .
secured by, an interest in real property which is . . . residential real
property" within the meaning of Code Section 7701(a) (19) (C) (v), and interest
income attributable to Grantor Trust Certificates should be considered to
represent "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c) (3) (B), provided that in each case
the underlying Mortgage Assets and interest on such Mortgage Assets qualify for
such treatment. Prospective purchasers to which such characterization of an
investment in Certificates is material should consult their own tax advisors
regarding the characterization of the Grantor Trust Certificates and the income
therefrom. Grantor Trust Certificates will be "obligation[s] . . . which [are]
principally secured by an interest in real property" within the meaning of Code
Section 860G(a) (3) (A) and "permitted assets" within the meaning of Code
Section 860L(c).
2. Grantor Trust Certificates Representing Interests in Loans Other Than ARM
Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Assets as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984.
Under the OID Regulations, such original issue discount could arise by the
charging of points by the originator of the mortgage in an amount greater than
the statutory de minimis exception, including a payment of points that is
currently deductible by the borrower under applicable Code provisions, or under
certain circumstances, by the presence of "teaser" rates on the Mortgage
Assets. OID on each Grantor Trust Certificate must be included in the owner's
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash attributable to such income. The
amount of
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OID required to be included in an owner's income in any taxable year with
respect to a Grantor Trust Certificate representing an interest in Mortgage
Assets other than Mortgage Assets with interest rates that adjust periodically
("ARM Loans") likely will be computed as described below under "--Accrual of
Original Issue Discount." The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax Reform Act of 1986 (the
"1986 Act"). The OID Regulations generally are effective for debt instruments
issued on or after April 4, 1994, but may be relied upon as authority with
respect to debt instruments, such as the Grantor Trust Certificates, issued
after December 21, 1992. Alternatively, proposed Treasury regulations issued
December 21, 1992 may be treated as authority for debt instruments issued after
December 21, 1992 and prior to April 4, 1994, and proposed Treasury regulations
issued in 1986 and 1991 may be treated as authority for instruments issued
before December 21, 1992. In applying these dates, the issue date of the
Mortgage Assets should be used, or, in the case of Stripped Bond Certificates
or Stripped Coupon Certificates, the date such Certificates are acquired. The
holder of a Certificate should be aware, however, that neither the proposed OID
Regulations nor the OID Regulations adequately address certain issues relevant
to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described below
under "--Accrual of Original Issue Discount," will, unless otherwise specified
in the related Prospectus Supplement, utilize the original yield to maturity of
the Grantor Trust Certificate calculated based on a reasonable assumed
prepayment rate for the mortgage loans underlying the Grantor Trust
Certificates (the "Prepayment Assumption") on the issue date of such Grantor
Trust Certificate, and will take into account events that occur during the
calculation period. The Prepayment Assumption will be determined in the manner
prescribed by regulations that have not yet been issued. In the absence of such
regulations, the Prepayment Assumption used will be the prepayment assumption
that is used in determining the offering price of such Certificate. No
representation is made that any Certificate will prepay at the Prepayment
Assumption or at any other rate. The prepayment assumption contained in the
Code literally only applies to debt instruments collateralized by other debt
instruments that are subject to prepayment rather than direct ownership
interests in such debt instruments, such as the Certificates represent.
However, no other legal authority provides guidance with regard to the proper
method for accruing OID on obligations that are subject to prepayment, and,
until further guidance is issued, the Master Servicer intends to calculate and
report OID under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor
Trust Certificate must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding
the date of disposition. In the case of an original owner, the daily portions
of OID with respect to each component generally will be determined as set forth
under the OID Regulations. A calculation will be made by the Master Servicer or
such other entity specified in the related Prospectus Supplement of the portion
of OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
stated redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of
a Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
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allocable to that accrual period reduced by the amount of any payment other
than a payment of qualified stated interest made at the end of or during that
accrual period. The OID accruing during such accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of OID must be
determined according to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of
an obligation is reduced when the obligation is acquired after its initial
issuance at a price greater than the sum of the original issue price and the
previously accrued original issue discount, less prior payments of principal.
Accordingly, if such Mortgage Assets acquired by a Certificateholder are
purchased at a price equal to the then unpaid principal amount of such Mortgage
Asset, no original issue discount attributable to the difference between the
issue price and the original principal amount of such Mortgage Asset (i.e.
points) will be includible by such holder. Other original issue discount on the
Mortgage Assets (e.g., that arising from a "teaser" rate) would still need to
be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("Stripped ARM Obligations") to holders in a manner it believes is
consistent with the rules described above under the heading "--Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion
of income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("Deferred Interest") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the seller.
Such gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a "capital asset" within the meaning of Code Section 1221,
and will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period
(currently more than one year). Lower capital gains rates generally will apply
to individuals who hold Grantor Trust Certificates for more than 18 months.
It is possible that capital gain realized by holders of one or more
classes of Grantor Trust Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A sale
of a Grantor Trust Certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract
to sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the
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Grantor Trust Certificate is marketed or sold as producing capital gain, or
(iv) other transactions to be specified in Treasury regulations that have not
yet been issued. If the sale or other disposition of a Grantor Trust
Certificate is part of a conversion transaction, all or any portion of the gain
realized upon the sale or other disposition would be treated as ordinary income
instead of capital gain.
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c) (1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for
interest by an applicable tax treaty, unless such income is effectively
connected with a U.S. trade or business of such owner or beneficial owner.
Accrued OID recognized by the owner on the sale or exchange of such a Grantor
Trust Certificate also will be subject to federal income tax at the same rate.
Generally, such payments would not be subject to withholding to the extent that
a Grantor Trust Certificate evidences ownership in Mortgage Assets issued after
July 18, 1984, by natural persons if such Grantor Trust Certificateholder
complies with certain identification requirements (including delivery of a
statement, signed by the Grantor Trust Certificateholder under penalties of
perjury, certifying that such Grantor Trust Certificateholder is not a U.S.
Person and providing the name and address of such Grantor Trust
Certificateholder). To the extent payments to Grantor Trust Certificateholders
that are not U.S. Persons are payments of "contingent interest" on the
underlying Mortgage Assets, or such Grantor Trust Certificateholder is
ineligible for the exemption described in the preceding sentence, the 30%
withholding tax will apply unless such withholding taxes are reduced or
eliminated by an applicable tax treaty and such holder meets the eligibility
and certification requirements necessary to obtain the benefits of such treaty.
Additional restrictions apply to Mortgage Assets where the mortgagor is not a
natural person in order to qualify for the exemption from withholding. If
capital gain derived from the sale, retirement or other disposition of a
Grantor Trust Certificate is effectively connected with a U.S. trade or
business of a Grantor Trust Certificateholder that is not a U.S. Person, such
Certificateholder will be taxed on the net gain under the graduated U.S.
federal income tax rates applicable to U.S. Persons (and, with respect to
Grantor Trust Certificates held by or on behalf of corporations, also may be
subject to branch profits tax). In addition, if the Trust Fund acquires a
United States real property interest through foreclosure, deed in lieu of
foreclosure or otherwise on a Mortgage Asset secured by such an interest (which
for this purpose includes real property located in the United States and the
Virgin Islands), a Grantor Trust Certificateholder that is not a U.S. Person
will potentially be subject to federal income tax on any gain attributable to
such real property interest that is allocable to such holder. Non-U.S. Persons
should consult their tax advisors regarding the application to them of the
foregoing rules.
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof (other than a partnership
that is not treated as a U.S. Person under any applicable Treasury
regulations), an estate the income of which from sources outside the United
States is includible in gross income for federal income tax purposes regardless
of its connection with the conduct of a trade or business within the United
States or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more U.S.
Persons have the authority to control all substantial decisions of the trust.
In addition, certain trusts treated as U.S. Persons before August 20, 1996 may
elect to continue to be so treated to the extent provided in regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information
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as may be deemed necessary or desirable to assist Certificateholders in
preparing their federal income tax returns, or to enable holders to make such
information available to beneficial owners or financial intermediaries that
hold such Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that such
person has not reported all interest and dividend income required to be shown
on its federal income tax return, 31% backup withholding may be required with
respect to any payments to registered owners who are not "exempt recipients."
In addition, upon the sale of a Grantor Trust Certificate to (or through) a
broker, the broker must withhold 31% of the entire purchase price, unless
either (i) the broker determines that the seller is a corporation or other
exempt recipient, or (ii) the seller provides, in the required manner, certain
identifying information and, in the case of a non-U.S. Person, certifies that
such seller is a Non-U.S. Person, and certain other conditions are met. Such as
sale must also be reported by the broker to the IRS, unless either (a) the
broker determines that the seller is an exempt recipient or (b) the seller
certifies its non-U.S. Person status (and certain other conditions are met).
Certification of the registered owner's non-U.S. Person status normally would
be made on IRS Form W-8 under penalties of perjury, although in certain cases
it may be possible to submit other documentary evidence. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax liability.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however "--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions" below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including
the implementation of restrictions on the purchase and transfer of the residual
interests in a REMIC as described below under "Taxation of Owners of REMIC
Residual Certificates," the Code provides that a Trust Fund will not be treated
as a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related Certificates (the "REMIC
Certificates") may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, may be accompanied by sanctions, such as the imposition
of a corporate tax on all or a portion of the REMIC's income for the period in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, Sidley & Austin or Latham & Watkins or
Brown & Wood LLP or Cadwalader, Wickersham & Taft or such other counsel as may
be specified in the related Prospectus Supplement will deliver its opinion
generally to the effect that, under then existing law and assuming compliance
with all provisions of the related Pooling and Servicing Agreement, such Trust
Fund will qualify as a REMIC, and the related Certificates will be considered
to be regular interests ("REMIC Regular Certificates") or a sole class of
residual interests ("REMIC Residual Certificates") in the REMIC. The related
Prospectus Supplement for each Series of Certificates will indicate whether the
Trust Fund will make a REMIC election and whether a class of Certificates will
be treated as a regular or residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation and any "regular interest"
in another REMIC) that is principally secured by an interest in real property
and that is transferred to the REMIC within a prescribed time period in
exchange for regular or residual interests in the REMIC.
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In general, with respect to each Series of Certificates for which a REMIC
election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a) (19) (C); (ii) Certificates held by a real estate
investment trust will constitute "real estate assets" within the meaning of
Code Section 856(c) (4) (A); and (iii) interest on Certificates held by a real
estate investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c) (3) (B).
If less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets.
Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related
Trust Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master
REMIC") for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Sidley & Austin or Latham & Watkins or Brown & Wood LLP or
Cadwalader, Wickersham & Taft or such other counsel as may be specified in the
related Prospectus Supplement, counsel to the Depositor, will deliver its
opinion generally to the effect that, assuming compliance with all provisions
of the related Agreement, the Master REMIC as well as any Subsidiary REMIC will
each qualify as a REMIC, and the REMIC Certificates issued by the Master REMIC
and the Subsidiary REMIC or REMICs, respectively, will be considered to
evidence ownership of regular interests ("REMIC Regular Certificates") or
residual interests ("REMIC Residual Certificates") in the related REMIC within
the meaning of the REMIC provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the Master REMIC will be treated as one REMIC
solely for purposes of determining whether the REMIC Certificates will be (i)
"real estate assets" within the meaning of Section 856(c) (4) (A) of the Code;
(ii) "loans secured by an interest in real property" under Section 7701(a) (19)
(C) of the Code; and (iii) whether the income on such Certificates is interest
described in Section 856(c) (3) (B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may be
issued with OID. Generally, such OID, if any, will equal the difference between
the "stated redemption price at maturity" of a REMIC Regular Certificate and
its "issue price." Holders of any class of Certificates issued with OID will be
required to include such OID in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax Reform Act of 1986 (the
"1986 Act"). Holders of REMIC Regular Certificates (the "REMIC Regular
Certificateholders") should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as
the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The legislative
history of the 1986 Act (the "Legislative History") provides, however, that
Congress intended the regulations to require that the Prepayment Assumption be
the prepayment assumption that is used in determining the initial offering
price of such REMIC Regular Certificates. The Prospectus Supplement for each
Series of REMIC Regular Certificates will specify the Prepayment Assumption to
be used for the purpose of
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determining the amount and rate of accrual of OID. No representation is made
that the REMIC Regular Certificates will prepay at the Prepayment Assumption or
at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price
of a REMIC Regular Certificate is the first price at which a substantial amount
of REMIC Regular Certificates of that class are first sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of REMIC Regular Certificates is sold
for cash on or prior to the date of their initial issuance (the "Closing
Date"), the issue price for such class will be treated as the fair market value
of such class on the Closing Date. The issue price of a REMIC Regular
Certificate also includes the amount paid by an initial Certificateholder for
accrued interest that relates to a period prior to the issue date of the REMIC
Regular Certificate. The stated redemption price at maturity of a REMIC Regular
Certificate includes the original principal amount of the REMIC Regular
Certificate, but generally will not include distributions of interest if such
distributions constitute "qualified stated interest." Qualified stated interest
generally means interest payable at a single fixed rate or qualified variable
rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the REMIC Regular Certificate. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the interval
between payments. Distributions of interest on REMIC Regular Certificates with
respect to which Deferred Interest will accrue will not constitute qualified
stated interest payments, and the stated redemption price at maturity of such
REMIC Regular Certificates includes all distributions of interest as well as
principal thereon.
Where the interval between the issue date and the first Distribution Date
on a REMIC Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount (disregarding
the rate in the first period) and any interest foregone during the first period
is treated as the amount by which the stated redemption price at maturity of
the Certificate exceeds its issue price for purposes of the de minimis rule
described below. The OID Regulations suggest that all interest on a long first
period REMIC Regular Certificate that is issued with non-de minimis OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first Distribution Date on a REMIC Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
interest due on the first Distribution Date in excess of the amount that
accrued during the first period would be added to the Certificates, stated
redemption price at maturity. REMIC Regular Certificateholders should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and
the denominator of which is the stated redemption price at maturity of the
REMIC Regular Certificate. Although currently unclear, it appears that the
schedule of such distributions should be determined in accordance with the
Prepayment Assumption. The Prepayment Assumption with respect to a Series of
REMIC Regular Certificates will be set forth in the related Prospectus
Supplement. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the REMIC
Regular Certificate is held as a capital asset. However, accrual method holders
may elect to accrue all de minimis OID as well as market discount under a
constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to
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take the position that the stated redemption price at maturity of such REMIC
Regular Certificates is the sum of all payments to be made on such REMIC
Regular Certificates determined under the Prepayment Assumption, with the
result that such REMIC Regular Certificates would be issued with OID. The
calculation of income in this manner could result in negative original issue
discount (which delays future accruals of OID rather than being immediately
deductible) when prepayments on the Mortgage Assets exceed those estimated
under the Prepayment Assumption. The IRS might contend, however, that certain
contingent payment rules contained in final regulations issued on June 11,
1996, with respect to original issue discount, should apply to such
Certificates. Although such rules are not applicable to instruments governed by
Code Section 1272(a) (6), they represent the only guidance regarding the
current views of the IRS with respect to contingent payment instruments. These
proposed regulations, if applicable, generally would require holders of Regular
Interest Certificates to take the payments considered contingent interest
payments into income on a yield to maturity basis in accordance with a schedule
of projected payments provided by the Depositor and to make annual adjustments
to income to account for the difference between actual payments received and
projected payment amounts accrued. In the alternative, the IRS could assert
that the stated redemption price at maturity of such REMIC Regular Certificates
should be limited to their principal amount (subject to the discussion below
under "--Accrued Interest Certificates"), so that such REMIC Regular
Certificates would be considered for federal income tax purposes to be issued
at a premium. If such a position were to prevail, the rules described below
under "--Taxation of Owners of REMIC Regular Certificates--Premium" would
apply. It is unclear when a loss may be claimed for any unrecovered basis for a
Super-Premium Certificate. It is possible that a holder of a Super-Premium
Certificate may only claim a loss when its remaining basis exceeds the maximum
amount of future payments, assuming no further prepayments or when the final
payment is received with respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMIC Regular Certificates--Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the "daily portions," as determined below, of the OID that accrues on a REMIC
Regular Certificate for each day a Certificateholder holds the REMIC Regular
Certificate, including the purchase date but excluding the disposition date. In
the case of an original holder of a REMIC Regular Certificate, a calculation
will be made of the portion of the OID that accrues during each successive
period ("an accrual period") that ends on the day in the calendar year
corresponding to a Distribution Date (or if Distribution Dates are on the first
day or first business day of the immediately preceding month, interest may be
treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated
under the Prepayment Assumption) of all remaining payments to be received on
the REMIC Regular Certificates under the Prepayment Assumption and (b) any
payments included in the stated redemption price at maturity received during
such accrual period, and (ii) subtracting from that total the adjusted issue
price of the REMIC Regular Certificates at the beginning of such accrual
period. The adjusted issue price of a REMIC Regular Certificate at the
beginning of the first accrual period is its issue price; the adjusted issue
price of a REMIC Regular Certificate at the beginning of a subsequent accrual
period is the adjusted issue price at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual
period and reduced by the amount of any payment other than a payment of
qualified stated interest made at the end of or during that accrual period. The
OID accrued during an accrual period will then be divided by the number of days
in the period to determine
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the daily portion of OID for each day in the accrual period. The calculation of
OID under the method described above will cause the accrual of OID to either
increase or decrease (but never below zero) in a given accrual period to
reflect the fact that prepayments are occurring faster or slower than under the
Prepayment Assumption. With respect to an initial accrual period shorter than a
full accrual period, the daily portions of OID may be determined according to
an appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID who
purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue
price but less than the stated redemption price at maturity), however, the
daily portion is reduced by the amount that would be the daily portion for such
day (computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for
that REMIC Regular Certificate for all days beginning on the date after the
purchase date and ending on the maturity date computed under the Prepayment
Assumption. A holder who pays an acquisition premium instead may elect to
accrue OID by treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable
rate will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates "--that do not operate in a manner
that significantly accelerates or defers interest payments on such REMIC
Regular Certificates.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--Original Issue Discount and Premium" by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on a
REMIC Regular Certificate that is a weighted average of the net interest rates
on Mortgage Loans as qualified stated interest. In such case, the weighted
average rate used to compute the initial pass-through rate on the REMIC Regular
Certificates will be deemed to be the index in effect through the life of the
REMIC Regular Certificates. It is possible, however, that the IRS may treat
some or all of the interest on REMIC Regular Certificates with a weighted
average rate as taxable under the rules relating to obligations providing for
contingent payments. Such treatment may effect the timing of income accruals on
such REMIC Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market discount or original issue discount) and premium in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--REMIC Regular Certificates--Premium" herein. The election to accrue
interest, discount and premium on a constant yield method with respect to a
Certificate is irrevocable without the consent of the IRS.
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Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such
certificate's stated redemption price at maturity. In particular, under Section
1276 of the Code such a holder generally will be required to allocate each such
distribution first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If
made, such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to which
such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the
market discount bond is to be reduced by the amount so treated as ordinary
income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at
the beginning of the period. For REMIC Regular Certificates issued without OID,
the amount of market discount that accrues during a period is equal to the
product of (a) the total remaining market discount and (b) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the period. For purposes of
calculating market discount under any of the above methods in the case of
instruments (such as the REMIC Regular Certificates) that provide for payments
that may be accelerated by reason of prepayments of other obligations securing
such instruments, the same Prepayment Assumption applicable to calculating the
accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Certificate purchased with market discount. For these purposes,
the de minimis rule referred to above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later
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than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will
be considered to have purchased the REMIC Regular Certificate at a premium and
may elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose.
However, the Legislative History states that the same rules that apply to
accrual of market discount (which rules require use of a Prepayment Assumption
in accruing market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have OID) will also apply in amortizing
bond premium under Code Section 171. The Code provides that amortizable bond
premium will be allocated among the interest payments on such REMIC Regular
Certificates and will be applied as an offset against such interest payment. On
June 27, 1996, the IRS published in the Federal Register proposed regulations
on the amortization of bond premium. The foregoing discussion is based in part
on such proposed regulations. On December 30, 1997, the IRS issued the
Amortizable Bond Premium Regulations, which generally are effective for bonds
acquired on or after March 2, 1998 or, for holders making an election to
amortize bond premium as described above for the taxable year that includes
March 2, 1998 or any subsequent taxable year, will apply to bonds held on or
after the first day of the taxable year in which the election is made. Neither
the proposed regulations nor the final regulations, by their express terms,
apply to prepayable securities described in Section 1272(a) (6) of the Code,
such as the REMIC Regular Certificates. Certificateholders should consult their
tax advisors regarding the possibility of making an election to amortize any
such bond premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all
or a portion of the interest payable on such Certificates must be included in
the stated redemption price at maturity of the Certificates and accounted for
as OID (which could accelerate such inclusion). Interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method by the
holders of such Certificates and, therefore, applying the latter analysis may
result only in a slight difference in the timing of the inclusion in income of
interest on such REMIC Regular Certificates.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption,
or retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption
price at maturity previously received by the seller and by any amortized
premium. Similarly, a holder who receives a payment that is part of the stated
redemption price at maturity of a REMIC Regular Certificate will recognize gain
equal to the excess, if any, of the amount of the payment over an allocable
portion of the holder's adjusted basis in the REMIC Regular Certificate. A
REMIC Regular Certificateholder who receives a final payment that is less than
the holder's adjusted basis in the REMIC Regular Certificate will generally
recognize a loss. Except as provided in the following paragraph and as provided
under "--Market Discount" above, any such gain or loss will be capital gain or
loss, provided that the REMIC Regular Certificate is held as a "capital asset"
(generally, property held for investment) within the meaning of Code Section
1221.
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Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent that such gain does not exceed the excess, if any, of (i) the amount
that would have been includible in such holder's income with respect to the
REMIC Regular Certificate had income accrued thereon at a rate equal to 110% of
the AFR as defined in Code Section 1274(d) determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount actually
includible in such holder's income. Gain from the sale or other disposition of
a REMIC Regular Certificate that might otherwise be capita gain will be treated
as ordinary income if the REMIC Regular Certificate is held as part of a
"conversion transaction" as defined in Code section 1258(c), up to the amount
of interest that would have accrued on the REMIC Regular Certificateholder's
net investment in the conversion transaction at 120% of the appropriate
applicable federal rate under Code section 1274(d) in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as part of such transaction, or if the REMIC Regular Certificate is held as
part of a straddle. Potential investors should consult their tax advisors with
respect to tax consequences of ownership and disposition of an investment in
REMIC Regular Certificates in their particular circumstances.
It is possible that capital gain realized by holders of one or more
classes of REMIC Regular Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A sale
of a REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract
to sell the REMIC Regular Certificate substantially contemporaneously with
acquiring the REMIC Regular Certificate, (ii) the REMIC Regular Certificate is
part of a straddle, (iii) the REMIC Regular Certificate is marketed or sold as
producing capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of
a REMIC Regular Certificate is part of a conversion transaction, all or a
portion of the gain realized upon the sale or other disposition of the REMIC
Regular Certificate would be treated as ordinary income instead of capital
gain.
The Certificates will be "evidences of indebtedness" within the meaning of
Code Section 582(c) (1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning
of each accrual period. In addition, the reports will include information
necessary to compute the accrual of any market discount that may arise upon
secondary trading of REMIC Regular Certificates. Because exact computation of
the accrual of market discount on a constant yield method would require
information relating to the holder's purchase price which the REMIC may not
have, it appears that the information reports will only provide information
pertaining to the appropriate proportionate method of accruing market discount.
The Taxpayer Relief Act of 1997 (the "Act") reduces the maximum rates on
long-term capital gains recognized on capital assets held by individual
taxpayers for more than eighteen months as of the date of disposition (and
would further reduce the maximum rates on such gains in the year 2001 and
thereafter for certain individual taxpayers who meet specified conditions). The
capital gains rate for capital assets held by individual taxpayers for more
than twelve months but not more than eighteen months was not changed by the
Act. The Act does not change the capital gains rates for corporations.
Prospective investors should consult their own tax advisors concerning these
tax law changes.
Accrued Interest Certificates. Certain of the REMIC Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that
ends prior to each such Distribution Date. The period between the Closing Date
for Payment Lag Certificates and their first Distribution Date may or may not
exceed such interval. Purchasers of Payment Lag Certificates for which the
period between the Closing Date and the first Distribution Date does not exceed
such interval could pay upon purchase of the REMIC Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the Distribution Date were interest accrued from Distribution Date to
Distribution Date. If a portion of the
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initial purchase price of a REMIC Regular Certificate is allocable to interest
that has accrued prior to the issue date ("pre-issuance accrued interest") and
the REMIC Regular Certificate provides for a payment of stated interest on the
first payment date (and the first payment date is within one year of the issue
date) that equals or exceeds the amount of the pre-issuance accrued interest,
then the REMIC Regular Certificate's issue price may be computed by subtracting
from the issue price the amount of pre-issuance accrued interest, rather than
as an amount payable on the REMIC Regular Certificate. However, it is unclear
under this method how the OID Regulations treat interest on Payment Lag
Certificates. Therefore, in the case of a Payment Lag Certificate, the Trust
Fund intends to include accrued interest in the issue price and report interest
payments made on the first Distribution Date as interest to the extent such
payments represent interest for the number of days that the Certificateholder
has held such Payment Lag Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of
these rules on an investment in the REMIC Regular Certificates. See
"Pass-Through of Non-Interest Expenses of the REMIC" under "Taxation of Owners
of REMIC Residual Certificates" below.
Effects of Defaults, Delinquencies and Losses. Certain Series of
Certificates may contain one or more classes of Subordinated Certificates, and
in the event there are defaults or delinquencies on the Mortgage Assets,
amounts that would otherwise be distributed on the Subordinated Certificates
may instead be distributed on the Senior Certificates. Subordinated
Certificateholders nevertheless will be required to report income with respect
to such Certificates under an accrual method without giving effect to delays
and reductions in distributions on such Subordinated Certificates attributable
to defaults and delinquencies on the Mortgage Assets, except to the extent that
it can be established that such amounts are uncollectible. As a result, the
amount of income reported by a Subordinated Certificateholder in any period
could significantly exceed the amount of cash distributed to such holder in
that period. The holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of
defaults and delinquencies on the Mortgage Assets.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as an
ordinary loss any loss sustained during the taxable year on account of any such
Certificates becoming wholly or partially worthless, and that, in general,
holders of Certificates that are not corporations should be allowed to deduct
as a short-term capital loss any loss sustained during the taxable year on
account of any such Certificates becoming wholly worthless. Potential investors
and holders of the Certificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Certificates, including any loss resulting from the
failure to recover previously accrued interest or discount income. Special loss
rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a
trade or business within the United States will not be subject to federal
withholding tax if (i) such REMIC Regular Certificateholder does not actually
or constructively own 10 percent or more of the combined voting power of all
classes of equity in the issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certifi-
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cateholder under penalties of perjury, certifying that such REMIC Regular
Certificateholder is a foreign person and providing the name and address of
such REMIC Regular Certificateholder). If a REMIC Regular Certificateholder is
not exempt from withholding, distributions of interest to such holder,
including distributions in respect of accrued OID, may be subject to a 30%
withholding tax, subject to reduction under any applicable tax treaty. If the
interest on a REMIC Regular Certificate is effectively connected with the
conduct by the Non-U.S. REMIC Regular Certificateholder of a trade or business
within the United States, then the Non-U.S. REMIC Regular Certificateholder
will be subject to U.S. income tax at regular graduated rates. Such a Non-U.S.
REMIC Regular Certificateholder also may be subject to the branch profits tax.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual that does not actually or constructively own
10% or more of the combined voting power of all classes of equity in the Issuer
and will not be subject to United States estate taxes. However,
Certificateholders who are non-resident alien individuals should consult their
tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC Residual Certificateholder")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so. In addition, the IRS may assert
that non-U.S Persons that own directly or indirectly, a greater than 10%
interest in any Mortgagor, and foreign corporations that are "controlled
foreign corporations" as to the United States of which such a Mortgagor is a
"United States shareholder" within the meaning of Section 951(b) of the Code,
are subject to United States withholding tax on interest distributed to them to
the extent of interest concurrently paid by the related Mortgagor.
For these purposes, a "U.S. Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in, or under the laws of, the United States or any political subdivision
thereof, an estate the income of which from sources without the United States
is includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business or a trust
as to which (i) a court in the United States is able to exercise primary
supervision over its administration and (ii) one or more U.S. Persons have the
right to control all substantial decisions of the trust.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income
tax returns, or to enable holders to make such information available to
beneficial owners or financial intermediaries that hold such REMIC Regular
Certificates on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments
with respect to any payments to registered owners who are not "exempt
recipients." In addition, upon the sale of a REMIC Regular Certificate to (or
through) a broker, the broker must withhold 31% of the entire purchase price,
unless either (i) the broker determines that the seller is a corporation or
other exempt recipient, or (ii) the seller provides, in the required manner,
certain identifying information and, in the case of a non-U.S. Person,
certifies that such seller is a Non-U.S. Person, and certain other conditions
are met. Such as sale must also be reported by the broker to the IRS, unless
either (a) the broker determines that the seller is an exempt recipient or (b)
the seller certifies its non-U.S. Person status (and certain other conditions
are met). Certification of the registered owner's non-U.S. Person status
normally would be made on IRS Form W-8 under penalties of perjury, although in
certain cases it may be possible to submit other documentary evidence. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
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On October 6, 1997, the Treasury Department issued the New Regulations,
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual
Certificates. The REMIC will not be subject to federal income tax except with
respect to income from prohibited transactions and certain other transactions.
See "--Prohibited Transactions and Other Taxes" below. Instead, each original
holder of a REMIC Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined
by allocating the taxable income of the REMIC for each calendar quarter ratably
to each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder or
cause the REMIC Residual Certificate to have negative "value." Investors should
consult their own tax advisors concerning the federal income tax treatment of a
REMIC Residual Certificate and the impact of such tax treatment on the
after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder
owns such REMIC Residual Certificate. Those daily amounts generally would equal
the amounts that would have been reported for the same days by an original
REMIC Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that
purchased such REMIC Residual Certificate at a price greater than (or less
than) the adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder. See "--Sale or Exchange
of REMIC Residual Certificates" below. It is not clear, however, whether such
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Non-Interest Expenses of the REMIC," other expenses. REMIC
taxable income is generally determined in the same manner as the taxable income
of an individual using the accrual method of accounting, except that (i) the
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limitations on deductibility of investment interest expense and expenses for
the production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, reduced by amortization of any premium on the
Mortgage Loans, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized losses
to the REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificateholders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and original issue discount expense on the REMIC Regular Certificates,
servicing fees on the Mortgage Loans, other administrative expenses of the
REMIC and realized losses on the Mortgage Loans. The requirement that REMIC
Residual Certificateholders report their pro rata share of taxable income or
net loss of the REMIC will continue until there are no Certificates of any
class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent
that the REMIC's basis therein is less than or greater than its principal
balance, respectively. Any such discount (whether market discount or OID) will
be includible in the income of the REMIC as it accrues, in advance of receipt
of the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
may elect under Code Section 171 to amortize any premium on the Mortgage
Assets. Premium on any Mortgage Asset to which such election applies would be
amortized under a constant yield method. It is not clear whether the yield of a
Mortgage Asset would be calculated for this purpose based on scheduled payments
or taking account of the Prepayment Assumption. Additionally, such an election
would not apply to the yield with respect to any underlying mortgage loan
originated on or before September 27, 1985. Instead, premium with respect to
such a mortgage loan would be allocated among the principal payments thereon
and would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be
calculated for this purpose in the same manner as described above with respect
to REMIC Regular Certificates except that the 0.25% per annum de minimis rule
and adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and,
as described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--Sale or Exchange of REMIC Residual
Certificates" below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of such REMIC Residual Certificate to such holder and
the adjusted basis such REMIC Residual Certificate would have in the hands of
an original REMIC Residual Certificateholder, see "--Allocation of the Income
of the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual
Certificate will not be deductible by the holder to the extent that such net
loss exceeds such holder's adjusted basis in such REMIC Residual Certificate.
Any net loss that is not currently deductible by reason of this limitation may
only be used by such REMIC Residual Certificateholder to offset its share of
the REMIC's taxable income in future periods (but not otherwise). The ability
of REMIC Residual Certificateholders that are individuals or closely held
corporations to deduct net losses may be subject to additional limitations
under the Code.
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Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of
the REMIC Residual Certificates. In the case of a single class REMIC, however,
the expenses and a matching amount of additional income will be allocated,
under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is one
that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable Prospectus Supplement, the expenses of the REMIC will
be allocated to holders of the related REMIC Residual Certificates in their
entirety and not to holders of the related REMIC Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in
a REMIC Regular Certificate or a REMIC Residual Certificate directly or through
a pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g. a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "Applicable Amount") will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
the Applicable Amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Accordingly, investment in REMIC Residual Certificates will in general
not be suitable for individuals or for certain pass-through entities, such as
partnerships and S corporations, that have individuals as partners or
shareholders.
Excess Inclusions. A portion of the income on a REMIC Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
will be subject to federal income tax in all events. Thus, for example, an
excess inclusion (i) may not, except as described below, be offset by any
unrelated losses, deductions or loss carryovers of a REMIC Residual
Certificateholder; (ii) will be treated as "unrelated business taxable income"
within the meaning of Code Section 512 if the REMIC Residual Certificateholder
is a pension fund or any other organization that is subject to tax only on its
unrelated business taxable income (see "--Tax-Exempt Investors" below); and
(iii) is not eligible for any reduction in the rate of withholding tax in the
case of a REMIC Residual Certificateholder that is a foreign investor. See
"--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any REMIC
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such REMIC Residual Certificateholder
for that calendar quarter from its REMIC Residual Certificate over (ii) the sum
of the "daily accruals" (as defined below) for all days during the calendar
quarter on which the REMIC Residual Certificateholder holds such REMIC Residual
Certificate. For this purpose, the daily
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accruals with respect to a REMIC Residual Certificate are determined by
allocating to each day in the calendar quarter its ratable portion of the
product of the "adjusted issue price" (as defined below) of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120 percent of the
"Federal long-term rate" in effect at the time the REMIC Residual Certificate
is issued. For this purpose, the "adjusted issue price" of a REMIC Residual
Certificate at the beginning of any calendar quarter equals the issue price of
the REMIC Residual Certificate, increased by the amount of daily accruals for
all prior quarters, and decreased (but not below zero) by the aggregate amount
of payments made on the REMIC Residual Certificate before the beginning of such
quarter. The "federal long-term rate" is an average of current yields on
Treasury securities with a remaining term of greater than nine years, computed
and published monthly by the IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b) (2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to residual certificates
continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special
rule that taxable income cannot be less than excess inclusions. Second, the
amount of any alternative minimum tax net operating loss deductions must be
computed without regard to any excess inclusions. Third, a residual holder's
alternative minimum taxable income for a tax year cannot be less than excess
inclusions for the year. The effect of this last statutory amendment is to
prevent the use of nonrefundable tax credits to reduce a taxpayer's income tax
below its tentative minimum tax computed only on excess inclusions. These rules
are effective for tax years beginning after December 31, 1986, unless a
residual holder elects to have such rules apply only to tax years beginning
after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital
to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
exceeds such adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or
exchange and its adjusted basis in the REMIC Residual Certificate (except that
the recognition of loss may be limited under the "wash sale" rules described
below). A holder's adjusted basis in a REMIC Residual Certificate generally
equals the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC Residual
Certificates will be "evidences of indebtedness" within the meaning of Code
Section 582(c) (1), so that gain or loss recognized from sale of a REMIC
Residual Certificate by a bank
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or thrift institution to which such section applies would be ordinary income or
loss. In addition, a transfer of a REMIC Residual Certificate that is a
"noneconomic residual interest" may be subject to different rules. See "--Tax
Related Restrictions on Transfers of REMIC Residual Certificates--Noneconomic
REMIC Residual Certificates" below.
Except as provided in Treasury regulations yet to be issued, if the seller
of a REMIC Residual Certificate reacquires such REMIC Residual Certificate, or
acquires any other REMIC Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool" (as defined in Code
Section 7701(i) ) during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Code Section 1091. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but, instead,
will increase such REMIC Residual Certificateholder's adjusted basis in the
newly acquired asset.
The Act reduces the maximum rates on long-term capital gains recognized on
capital assets held by individual taxpayers for more than eighteen months as of
the date of disposition (and would further reduce the maximum rates on such
gains in the year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). The capital gains rate for capital assets held by
individual taxpayers for more than twelve months but not more than eighteen
months was not changed by the Act. The Act does not change the capital gains
rates for corporations. Prospective investors should consult their own tax
advisors concerning these tax law changes.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an election
has been made to treat such Trust Fund as a REMIC made after the day on which
such Trust Fund issues all of its interests could result in the imposition of a
tax on the Trust Fund equal to 100% of the value of the contributed property
(the "Contributions Tax"). No Trust Fund for any Series of Certificates will
accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Servicer's, Trustee's or
Depositor's obligations, as the case may be, under the related Agreement for
such Series, such tax will be borne by such Servicer, Trustee or Depositor, as
the case may be, out of its own funds or (ii) the Depositor's obligation to
repurchase a Mortgage Loan, such tax will be borne by the Depositor. In the
event that such Servicer, Trustee or Depositor, as the case may be, fails to
pay or is not required to pay any such tax as provided above, such tax will be
payable out of the Trust Fund for such Series and will result in a reduction in
amounts available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a) (4) (A) (i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
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on such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting
an administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners
of REMIC Residual Certificates--Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS--NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S. Persons"
above) are treated as interest for purposes of the 30% (or lower treaty rate)
United States withholding tax. Amounts distributed to holders of REMIC Residual
Certificates should qualify as "portfolio interest," subject to the conditions
described in "--Taxation of Owners of REMIC Regular Certificates" above, but
only to the extent that the underlying mortgage loans were originated after
July 18, 1984. Furthermore, the rate of withholding on any income on a REMIC
Residual Certificate that is excess inclusion income will not be subject to
reduction under any applicable tax treaties. See "--Taxation of Owners of REMIC
Residual Certificates--Excess Inclusions" above. If the portfolio interest
exemption is unavailable, such amount will be subject to United States
withholding tax when paid or otherwise distributed (or when the REMIC Residual
Certificate is disposed of) under rules similar to those for withholding upon
disposition of debt instruments that have OID. The Code, however, grants the
Treasury Department authority to issue regulations requiring that those amounts
be taken into account earlier than otherwise provided where necessary to
prevent avoidance of tax (for example, where the REMIC Residual Certificates do
not have significant value). See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or
lower treaty rate) withholding will not apply. Instead, the amounts paid to
such non-U.S. Person will be subject
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to U.S. federal income taxation at regular graduated rates. For special
restrictions on the transfer of REMIC Residual Certificates, see "--Tax-Related
Restrictions on Transfers of REMIC Residual Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to
a "disqualified organization." The amount of the tax equals the product of (A)
an amount (as determined under the REMIC Regulations) equal to the present
value of the total anticipated "excess inclusions" with respect to such
interest for periods after the transfer and (ii) the highest marginal federal
income tax rate applicable to corporations. The tax is imposed on the
transferor unless the transfer is through an agent (including a broker or other
middleman) for a disqualified organization, in which event the tax is imposed
on the agent. The person otherwise liable for the tax shall be relieved of
liability for the tax if the transferee furnished to such person an affidavit
that the transferee is not a disqualified organization and, at the time of the
transfer, such person does not have actual knowledge that the affidavit is
false. A "disqualified organization" means (A) the United States, any State,
possession or political subdivision thereof, any foreign government, any
international organization or any agency or instrumentality of any of the
foregoing (provided that such term does not include an instrumentality if all
its activities are subject to tax and, except for FHLMC, a majority of its
board of directors is not selected by any such governmental agency), (B) any
organization (other than certain farmers' cooperatives) generally exempt from
federal income taxes unless such organization is subject to the tax on
"unrelated business taxable income" and (C) a rural electric or telephone
cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity, provided that all partners of an "electing large
partnership" as defined in Section 775 of the Code, are deemed to be
disqualified organizations. The amount of the tax is equal to the product of
(A) the amount of excess inclusions for the taxable year allocable to the
interest held by the disqualified organization and (B) the highest marginal
federal income tax rate applicable to corporations. The pass-through entity
otherwise liable for the tax, for any period during which the disqualified
organization is the record holder of an interest in such entity, will be
relieved of liability for the tax if such record holder furnishes to such
entity an affidavit that such record holder is not a disqualified organization
and, for such period, the pass-through entity does not have actual knowledge
that the affidavit is false. For this purpose, a "pass-through entity" means
(i) a regulated investment company, real estate investment trust or common
trust fund, (ii) a partnership, trust or estate and (iii) certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any person
holding an interest in a pass-through entity as a nominee for another will,
with respect to such interest, be treated as a pass-through entity. Electing
large partnerships (generally, non-service partnerships with 100 or more
members electing to be subject to simplified IRS reporting provisions under
Code sections 771 through 777) will be taxable on excess inclusion income as if
all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate
as a nominee or agent for a disqualified organization and (ii) a covenant by
the proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
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Noneconomic REMIC Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Noneconomic REMIC Residual
Certificate to a "U.S. Person," as defined above, unless no significant purpose
of the transfer is to enable the transferor to impede the assessment or
collection of tax. A Noneconomic REMIC Residual Certificate is any REMIC
Residual Certificate (including a REMIC Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents, (i) the
present value of the expected future distributions on the REMIC Residual
Certificate at least equals the product of the present value of the anticipated
excess inclusions and the highest corporate income tax rate in effect for the
year in which the transfer occurs and (ii) the transferor reasonably expects
that the transferee will receive distributions from the REMIC at or after the
time at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A transferor is presumed not to have such knowledge if (i) the
transferor conducted a reasonable investigation of the transferee and (ii) the
transferee acknowledges to the transferor that the residual interest may
generate tax liabilities in excess of the cash flow and the transferee
represents that it intends to pay such taxes associated with the residual
interest as they become due. If a transfer of a Noneconomic REMIC Residual
Certificate is disregarded, the transferor would continue to be treated as the
owner of the REMIC Residual Certificate and would continue to be subject to tax
on its allocable portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United Sates trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expect that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and
the foreign transferor will continue to be treated as the owner, if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions. The provisions in the REMIC Regulations regarding transfers
of REMIC Residual Certificates that have tax avoidance potential to foreign
persons are effective for all transfers after June 30, 1992. The Pooling and
Servicing Agreement will provide that no record or beneficial ownership
interest in a REMIC Residual Certificate may be transferred, directly or
indirectly, to a non-U.S. Person unless such person provides the Trustee with a
duly completed IRS Form 4224 and the Trustee consents to such transfer in
writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
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CERTAIN ERISA CONSIDERATIONS
GENERAL
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans subject
thereto ("ERISA Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such ERISA Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below,
subject to other applicable federal, state or local law. However, any such
governmental or church plan which is qualified under Section 401(a) of the Code
and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving such Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. In some cases, a civil penalty may be assessed on non-exempt
prohibited transactions pursuant to Section 502(i) of ERISA. Section 4975 of
the Code imposes certain excise taxes on similar transactions between employee
benefit plans and certain other retirement plans and arrangements, subject
thereto including individual retirement accounts or annuities and Keogh plans
and disqualified persons with respect to such plans and arrangements (together
with ERISA Plans, "Plans").
The United States Department of Labor ("Labor") has issued a regulation
(29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships,
trusts and certain other entities in which a Plan makes an "equity investment"
will be deemed for purposes of ERISA and Section 4975 of the Code to be assets
of the Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets
would include an undivided interest in the Mortgage Loans and any other assets
held by the Trust. In such an event, the Depositor, the Master Servicer, any
Sub-Servicer, the Trustee, any insurer of the Mortgage Assets and other
persons, in providing services with respect to the assets of the Trust, may
become fiduciaries subject to the fiduciary responsibility provisions of Title
I of ERISA, or may otherwise become parties in interest or disqualified
persons, with respect to such Plan. In addition, transactions involving such
assets could constitute or result in prohibited transactions under Section 406
of ERISA or Section 4975 of the Code unless such transactions are subject to a
statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts the
assets of an entity from plan assets status as long as the aggregate equity
investment in such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own at least 25% of the value of any class of equity interest
(excluding equity interests held by persons who have discretionary authority or
control with respect to the assets of the entity (or held by affiliates of such
persons)). "Benefit plan investors" are defined as Plans as well as employee
benefit plans not subject to Title I of ERISA (e.g., governmental plans and
foreign plans) and entities whose underlying assets include plan assets by
reason of plan investment in such entities. The 25% limitation must be met with
respect to each class of equity interests, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
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Availability of Underwriter's Exemption for Certificates
Labor has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the "Exemption") which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition,
sale and holding by Plans of certain certificates representing an undivided
interest in certain asset-backed pass-through trusts, with respect to which
Morgan Stanley & Co. Incorporated or any of its affiliates is the sole
underwriter or the manager or co-manager of the underwriting syndicate; and (2)
the servicing, operation and management of such asset-backed pass-through
trusts, provided that the general conditions and certain other conditions set
forth in the Exemption are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets
forth the following general conditions which must be satisfied before a
transaction involving the acquisition, sale and holding of the Certificates or
a transaction in connection with the servicing, operation and management of the
Trust may be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms (including
the price for such Certificates) that are at least as favorable to the
investing Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust with respect to the right to receive
payment in the event of default or delinquencies in the underlying assets
of the Trust;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest generic rating
categories from any of Duff & Phelps Credit Rating Co., Fitch Investors
Service, L.P., Moody's Investors Service, Inc. and Standard & Poor's
Ratings Services;
(4) The Trustee is not an affiliate of the Depositor, any Underwriter,
the Master Servicer, any insurer of the Mortgage Assets, any borrower whose
obligations under one or more Mortgage Loans constitute more than 5% of the
aggregate unamortized principal balance of the assets in the Trust, or any
of their respective affiliates (the "Restricted Group");
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of
all payments made to and retained by the Asset Seller pursuant to the sale
of the Mortgage Loans to the Trust represents not more than the fair market
value of such Mortgage Loans; the sum of all payments made to and retained
by the Master Servicer represent not more than reasonable compensation for
the Master Servicer's services under the Pooling Agreement and
reimbursement of the Master Servicer's reasonable expenses in connection
therewith; and
(6) The Plan investing in the Certificates is an "accredited investor" as
defined in Rule 501(a) (1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended. Before purchasing a
Certificate in reliance on the Exemption, a fiduciary of a Plan should
itself confirm (a) that the Certificates constitute "certificates" for
purposes of the Exemption and (b) that the general conditions and other
requirements set forth in the Exemption would be satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
this regard, purchasers that are insurance companies should determine the
extent to which Prohibited Transaction Class Exemption 95-60 (for certain
transactions involving insurance company general accounts) may be available.
The Prospectus Supplement with respect to a series of Certificates may contain
additional information regarding the application of the
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Exemption, Prohibited Transaction Class Exemption 83-1 (for certain
transactions involving mortgage pool investment trusts), or any other
exemption, with respect to the Certificates offered thereby.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). Generally, only those classes of
Offered Certificates that (i) are rated in one of the two highest rating
categories by one or more Rating Agencies and (ii) are part of a series
representing interests in a Trust Fund consisting of Mortgage Loans or MBS,
provided that such Mortgage Loans (or the Mortgage Loans underlying the MBS)
are secured by first liens on Mortgaged Property and were originated by certain
types of originators as specified in SMMEA, will be "mortgage related
securities" for purposes of SMMEA (the "SMMEA Certificates"). As "mortgage
related securities," the SMMEA Certificates will constitute legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including, but not limited to, depository institutions,
insurance companies, trustees and pension funds) created pursuant to or
existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for such
entities. Pursuant to SMMEA, a number of states enacted legislation, before the
October 4, 1991 cutoff established by SMMEA for such enactments, limiting to
varying extents the ability of certain entities (in particular, insurance
companies) to invest in mortgage related securities, in most cases by requiring
the affected investors to rely solely upon existing state law, and not SMMEA.
Pursuant to Section 347 of the Riegle Community Development and Regulatory
Improvement Act of 1994, which amended the definition of "mortgage related
security" (effective December 31, 1996) to include, in relevant part, Offered
Certificates satisfying the rating, first lien and qualified originator
requirements for "mortgage related securities," but representing interests in a
Trust Fund consisting, in whole or in part, of first liens on one or more
parcels of real estate upon which are located one or more commercial
structures, states were authorized to enact legislation, on or before September
23, 2001, specifically referring to Section 347 and prohibiting or restricting
the purchase, holding or investment by state-regulated entities in such types
of Offered Certificates. Accordingly, investors affected by such legislation,
when and if enacted, will be authorized to invest in SMMEA Certificates only to
the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, the Office of the Comptroller of the Currency (the "OCC") has
amended 12 C.F.R. Part 1 to authorize national banks to purchase and sell for
their own account, without limitation as to a percentage of the bank's capital
and surplus (but subject to compliance with certain general standards in 12
C.F.R. Section 1.5 concerning "safety and soundness" and retention of credit
information), certain "Type IV securities," defined in 12 C.F.R. Section 1.2(1)
to include certain "commercial mortgage-related securities" and "residential
mortgage-related securities." As so defined, "commercial mortgage-related
security" and "residential mortgage-related security" mean, in relevant part,
"mortgage related security" within the meaning of SMMEA, provided that, in the
case of a "commercial mortgage-related security," it "represents ownership of a
promissory note or certificate of interest or participation that is directly
secured by a first lien on one or more parcels of real estate upon which one or
more commercial structures are located and that is fully secured by interests
in a pool of loans to numerous obligors." In the absence of any rule or
administrative interpretation by the OCC defining the term "numerous obligors,"
no representation is made as to whether any class of Offered Certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The National Credit Union
Association
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(the "NCUA") has adopted rules, codified at 12 C.F.R. Part 703, which permit
federal credit unions to invest in "mortgage related securities" under certain
limited circumstances other than stripped mortgage related securities, residual
interests in mortgage related securities, and commercial mortgage related
securities, unless the credit union has obtained written approval from the NCUA
to participate in the "investment pilot program" described in 12 C.F.R. Section
703.140.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "1992 Policy
Statement") of the Federal Financial Institutions Examination Council (the
"FFIEC"). The 1992 Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the Office of Thrift Supervision, and by the NCUA
(with certain modifications), prohibits depository institutions from investing
in certain "high-risk mortgage securities" (including securities such as
certain series or classes of the Offered Certificates), except under limited
circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions. Effective May 26, 1998 (October 1, 1998
in the case of federal credit unions), the 1992 Policy Statement has been
superseded by the FFIEC's "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement").
The 1998 Policy Statement deletes the specific "high-risk mortgage securities"
test, and substitutes general guidelines which depository institutions must
follow in managing risks (including market credit, liquidity, operational
(transaction), and legal risks) applicable to all securities (including
mortgage pass-through securities and mortgage-derivative products) used for
investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates
issued in book-entry form, provisions which may restrict or prohibit
investments in securities which are issued in book-entry form.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
such Offered Certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Except as to the status of certain classes of Offered Certificates
identified in the Prospectus Supplement for a series as "mortgage related
securities" under SMMEA, no representations are made as to the proper
characterization of the Offered Certificates for legal investment purposes
financial institution regulatory purposes, or other purposes or as to the
ability of particular investors to purchase any Offered Certificates under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Offered Certificates)
may adversely affect the liquidity of the Offered Certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors
in determining whether and to what extent the Offered Certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
104
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PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Offered Certificates will
be distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
("Morgan Stanley") acting as underwriter with other underwriters, if any, named
therein. In such event, the Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Offered Certificates agreed
to be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of Offered Certificates, underwriters
may receive compensation from the Depositor or from purchasers of Offered
Certificates in the form of discounts, concessions or commissions. The
Prospectus Supplement will describe any such compensation paid by the
Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Morgan Stanley acting as agent or in some
cases as principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If Morgan Stanley acts as agent in the sale of
Offered Certificates, Morgan Stanley will receive a selling commission with
respect to such Offered Certificates, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
series of Certificates will be disclosed in the related Prospectus Supplement.
To the extent that Morgan Stanley elects to purchase Offered Certificates as
principal, Morgan Stanley may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Offered
Certificates of such series.
The Depositor will indemnify Morgan Stanley and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Morgan Stanley and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Morgan Stanley and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 in connection with reoffers
and sales by them of Offered Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by the Depositor, and
may be sold by the Depositor at any time in private transactions.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Sidley & Austin, New York, New York or Latham & Watkins, New York, New York
or Cadwalader, Wickersham & Taft, New York, New York or Brown & Wood LLP, New
York, New York or such other counsel as may be specified in the related
Prospectus Supplement.
105
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FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating.
106
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INDEX OF PRINCIPAL DEFINITIONS
PAGE(S) ON
WHICH
TERM IS
DEFINED
IN THE
TERM PROSPECTUS
- ---- ----------
1992 Policy Statement.................................................... 104
Accrual Certificates................................................... 9, 31
ACMs...................................................................... 68
Act....................................................................... 90
ADA....................................................................... 73
Amortizable Bond Premium Regulations...................................... 76
Applicable Amount......................................................... 95
ARM Loans............................................................. 24, 80
Asset Conservation Act.................................................... 69
Asset Seller.............................................................. 20
Assets................................................................. 1, 20
Balloon Mortgage Loans.................................................... 16
Bankruptcy Code........................................................... 64
Book-Entry Certificates................................................... 31
Cash Flow Agreement.................................................... 8, 26
Cash Flow Agreements....................................................... 1
Cede................................................................... 3, 38
CERCLA................................................................ 18, 68
Certificate Account....................................................... 42
Certificate Balance........................................................ 8
Certificate Owners........................................................ 38
Certificateholders......................................................... 3
Certificates............................................................... 5
Closing Date.............................................................. 85
Code...................................................................... 11
Commercial Loans.......................................................... 20
Commercial Properties.................................................. 6, 20
Commission................................................................. 3
Contributions Tax......................................................... 97
Cooperatives.............................................................. 21
Covered Trust......................................................... 17, 56
CPR....................................................................... 29
Credit Support...................................................... 1, 7, 26
Crime Control Act......................................................... 74
Cut-off Date.............................................................. 10
Deferred Interest......................................................... 81
Definitive Certificates............................................... 31, 38
Depositor................................................................. 20
Determination Date........................................................ 31
Distribution Date.......................................................... 9
DTC.................................................................... 3, 37
Due Period................................................................ 32
Environmental Hazard Condition............................................ 70
Equity Participations..................................................... 24
ERISA................................................................ 12, 101
ERISA Plans.............................................................. 101
Exchange Act............................................................... 3
Exemption................................................................ 102
FDIC...................................................................... 42
FHLMC..................................................................... 51
FNMA...................................................................... 70
107
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Government Securities............................................... 1, 7, 20
Grantor Trust Certificates................................................ 11
Indirect Participants..................................................... 38
Insurance Proceeds........................................................ 43
IRS....................................................................... 76
Labor.................................................................... 101
L/C Bank.................................................................. 57
Lease................................................................... 3, 6
Lease Assignment........................................................... 1
Legislative History....................................................... 84
Lessee.................................................................. 3, 6
Liquidation Proceeds...................................................... 43
Lock-out Date............................................................. 24
Lock-out Period........................................................... 24
Mark-to-Market Regulations................................................ 95
Master REMIC.............................................................. 84
Master Servicer............................................................ 5
MBS................................................................. 1, 5, 20
MBS Agreement............................................................. 24
MBS Issuer................................................................ 24
MBS Servicer.............................................................. 24
MBS Trustee............................................................... 24
Morgan Stanley........................................................... 105
Mortgage Loans...................................................... 1, 5, 20
Mortgage Notes............................................................ 21
Mortgage Rate.......................................................... 6, 24
Mortgages................................................................. 21
Multifamily Loans......................................................... 20
Multifamily Properties................................................. 5, 20
New Regulations........................................................... 83
Nonrecoverable Advance.................................................... 35
OCC...................................................................... 103
Offered Certificates....................................................... 1
OID................................................................... 74, 76
OID Regulations........................................................... 76
Originator................................................................ 21
Participants.............................................................. 38
Pass-Through Rate...................................................... 8, 33
Payment Lag Certificates.................................................. 90
Permitted Investments..................................................... 42
Plans.................................................................... 101
Prepayment Assumption..................................................... 80
Prepayment Premium........................................................ 24
Prohibited Transactions Tax............................................... 97
Rating Agency............................................................. 12
RCRA...................................................................... 69
Record Date............................................................... 31
Related Proceeds.......................................................... 35
Relief Act................................................................ 73
REMIC..................................................................... 12
REMIC Certificates........................................................ 83
REMIC Regular Certificateholders.......................................... 84
REMIC Regular Certificates........................................ 11, 83, 84
REMIC Regulations......................................................... 74
REMIC Residual Certificateholder.......................................... 92
108
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REMIC Residual Certificates....................................... 11, 83, 84
REO Extension............................................................. 62
REO Tax................................................................... 62
Restricted Group......................................................... 102
RICO...................................................................... 73
Senior Certificates.................................................... 8, 31
Servicing Standard........................................................ 45
SMMEA.................................................................... 103
SMMEA Certificates....................................................... 103
Special Servicer....................................................... 5, 46
Stripped ARM Obligations.................................................. 81
Stripped Bond Certificates................................................ 78
Stripped Coupon Certificates.............................................. 78
Stripped Interest Certificates......................................... 9, 31
Stripped Principal Certificates........................................ 9, 31
Subordinate Certificates............................................... 9, 31
Sub-Servicer.............................................................. 46
Sub-Servicing Agreement................................................... 46
Subsidiary REMIC.......................................................... 84
Super-Premium Certificates................................................ 85
Title V................................................................... 72
Trust Assets............................................................... 2
Trust Fund................................................................. 1
Trustee.................................................................... 5
UCC....................................................................... 38
Voting Rights............................................................. 19
Warrantying Party......................................................... 41
109
<PAGE>
M. The inside back cover of the paper version of the prospectus
supplement contains pictures of the following properties:
(clockwise from upper right)
Quail Springs Mall: Oklahoma City, OK (3 pictures). Photographs show
various interior views of the mall complex.
Courthouse Plaza I: Arlington, VA (2 pictures). Photographs show
external views of the office building.
Ramco-Gershenson Pool:
a) Ridgeview Crossing, Elkin, NC. Photograph shows an
external view of the shopping center.
b) Stonegate Plaza, Kingsport, TN. Photograph shows an
external view of the shopping center.
c) Taylors Square, Greenville, SC. Photograph shows an
external view of the shopping center
Charlestowne Mall: St. Charles, IL (2 pictures). Photographs show
various interior views of the mall complex.
EQR Pool:
a) Ravinia, Greenfield, WI. Photograph shows a portion of the
apartment complex.
b) Woodlands of Brookfield, Brookfield, WI (2 pictures). 1
photograph shows a portion of the apartment complex and 1 photograph
shows an internal view of an apartment.
Glenborough Pool:
a) Woodlands Plaza II, Maryland Heights, MO. Photograph shows
an external view of the building.
b) The Overlook Apartments, Scottsdale, AZ. Photograph shows
an external view of the apartment complex.
c) Riverview Office Tower, Bloomington, MN. Photograph shows
an external view of the office building.
d) 700 South Washington Street, Alexandria, VA. . Photograph
shows an external view of the building.
<PAGE>
INSTRUCTIONS TO INSTALL CD-ROM
ACCESSING APPRAISALS IN ADOBE ACROBAT(1) PDF (PORTABLE DOCUMENT FORMAT)
FOR USERS WITH PRE-INSTALLED ACROBAT READERS
o Insert the disk in the CD-ROM drive and double-click on your CD-ROM drive
icon.
o Please note that the file index.pdf has a listing of all mortgage loans.
Double click on the file index.pdf. Acrobat Reader will launch and display
an index page with a table of contents of the CD-ROM.
o Within index.pdf click on the name of the mortgage loan you wish to review.
o Acrobat Reader will display the contents of the file (appraisal) on the
screen.
o Once in the Acrobat Reader, use the "Help" menu, which is located in the
upper right hand corner of the screen, to learn about features of the
Reader.
FOR USERS WHO NEED TO INSTALL THE ACROBAT READER
o Insert the disk in the CD-ROM drive and double-click on your CD-ROM drive
icon.
o Double click on the "Acrobat" folder.
o If you are a Windows 95 or Windows NT 4.0 user, double-click on the "Win95"
folder. Once inside the folder, double-click on the "Ar32e30.exe" file (the
Acrobat Reader installation program). Follow the instructions of the
installation program.
o If you are a Windows 3.11 user, double-click on the "Win31" folder. Once
inside the folder, double-click on the "Ar16e30.exe" file (the Acrobat
Reader installation program). Follow the instructions of the installation
program.
o Once your reader is installed, go back to the CD-ROM. Please note that the
file index.pdf has a listing of all mortgage loans. Double click on the
file index.pdf. Acrobat Reader will launch and display an index page with a
table of contents of the CD-ROM.
o Within index.pdf click on the name of the mortgage loan you wish to review.
o Acrobat Reader will display the contents of the file (appraisal) on screen.
o Once in the Acrobat Reader, use the "Help" menu, which is located in the
upper right hand corner of the screen, to learn about features of the
Reader.
- ----------
(1) Adobe and Acrobat are registered trademarks of Adobe Systems
Incorporated.
<PAGE>
This CD ROM contains an electronic version of appraisals for the Mortgaged
Properties in PDF format. The appraisals for the Mortgaged Properties were
prepared prior to the date of this Prospectus Supplement. Accordingly, the
information included in such appraisals may not reflect the current economic,
competitive, market and other conditions with respect to the Mortgaged
Properties. The information contained in this CD ROM does not appear elsewhere
in paper form in this Prospectus Supplement and must be considered together
with the information contained elsewhere in this Prospectus Supplement and the
Prospectus. The information contained in this CD ROM has been filed by the
Seller with the Securities and Exchange Commission as part of a Current Report
on Form 8-K, which is incorporated by reference in this Prospectus Supplement,
and is also available through the public reference branch of the Securities and
Exchange Commission. Defined terms used in this CD ROM but not otherwise
defined therein shall have the respective meanings assigned to them in the
paper portion of the Prospectus Supplement and the Prospectus. All of the
information contained in this CD ROM is subject to the same limitations and
qualifications contained in this Prospectus Supplement and the Prospectus.
Prospective investors are strongly urged to read the paper portion of this
Prospectus Supplement and the Prospectus in its entirety prior to accessing
this CD ROM. If this CD ROM was not received in a sealed package, there can be
no assurances that it remains in its original format and should not be relied
upon for any purpose. Prospective investors may contact Cecilia Tarrant of
Morgan Stanley & Co. Incorporated at (212) 761-6028 to receive an original copy
of the CD ROM.
If and when the words "expects," "intends," "anticipates," "estimates" and
analogous expressions are used on the CD-ROM, such statements are subject to a
variety of risks and uncertainties that could cause results to differ
materially from those projected. Such risks and uncertainties include, among
others, general economic and business conditions, competition, changes in
political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, and various other events, conditions
and circumstances, many of which are beyond the control of the Depositor and
the Underwriter, the Trustee, the Fiscal Agent, the Master Servicer, the
Special Servicer, MSMC and the Originators. Any forward-looking statements
speak only as of their date. The Depositor expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statement contained in the CD-ROM to reflect any change in
events, conditions or circumstances on which any such statement is based.
This diskette contains Loan Characteristics/Schedule of Additional
Information for Mortgage Loans in Microsoft Excel (1) Version 7.0 format. The
information contained in this diskette appears elsewhere in paper form in this
Prospectus Supplement and must be considered as part of, and together with, the
information contained elsewhere in this Prospectus Supplement and the
Prospectus. Defined terms used in this diskette but not otherwise defined
therein shall have the respective meanings assigned to them in the paper
portion of the Prospectus Supplement and Prospectus. All of the information
contained in this diskette is subject to the same limitations and
qualifications contained elsewhere in this Prospectus Supplement and the
Prospectus. Prospective investors are strongly urged to read the paper portion
of this Prospectus Supplement and the Prospectus in its entirety prior to
accessing this diskette. If this diskette was not received in a sealed package,
there can be no assurances that it remains in its original format and should
not be relied upon for any purpose. Prospective investors may contact Cecilia
Tarrant of Morgan Stanley & Co. Incorporated at (212) 761-6028 to receive an
original copy of the diskette. Upon opening the Microsoft Excel file contained
on this diskette, a legend will be displayed, which should be read carefully.
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(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
