<PAGE>
[GRAPHIC OF XL2]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 8, 1998)
$695,868,000
(APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-XL2
-------------
Morgan Stanley Capital I Inc. is offering certain classes of its Series
1998-XL2 Commercial Mortgage Pass-Through Certificates, which represent
beneficial ownership interests in a trust. The trust's assets will primarily
be 7 mortgage loans secured by first liens on 41 commercial properties. The
Series 1998-XL2 Certificates are not obligations of Morgan Stanley Capital I
Inc. or any of its affiliates, and neither the certificates nor the underlying
mortgage loans are insured or guaranteed by any governmental agency.
-------------
Morgan Stanley Capital I Inc. will not list the offered certificates on any
national securities exchange or on any automated quotation system of any
registered securities association such as NASDAQ.
-------------
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-24 IN THIS PROSPECTUS SUPPLEMENT AND PAGE 12 OF THE
PROSPECTUS.
-------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CERTIFICATE INITIAL RATED FINAL
PRINCIPAL OR PASS-THROUGH RATE RATINGS DISTRIBUTION
CLASS NOTIONAL AMOUNT(1) RATE DESCRIPTION(2) (DCR/S&P) DATE
- -------------------- --------------------- -------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Class A-1 .......... $ 43,300,000 5.950% Fixed AAA/AAA October 3, 2034
Class A-2 .......... $467,121,000 6.170% Fixed AAA/AAA October 3, 2034
Class X(3) ......... $706,465,702 0.399% WAC/IO(3) AAA/AAAr October 3, 2034
Class B ............ $ 75,945,000 6.661% WAC AA/AA October 3, 2034
Class C ............ $ 42,388,000 6.661% WAC A/A October 3, 2034
Class D ............ $ 45,920,000 6.661% WAC BBB/BBB October 3, 2034
Class E ............ $ 21,194,000 6.661% WAC BBB-/BBB- October 3, 2034
</TABLE>
(Footnotes on page S-2)
-------------
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved the offered certificates or determined if this
prospectus supplement or the accompanying prospectus are truthful or complete.
Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated will purchase the offered certificates
from Morgan Stanley Capital I Inc. and will offer them to the public at
negotiated prices determined at the time of sale. Morgan Stanley & Co.
Incorporated expects to deliver the offered certificates to purchasers on
October 15, 1998. Morgan Stanley Capital I Inc. expects to receive from this
offering approximately 101.1% of the initial principal amount of the offered
certificates, plus accrued interest from October 1, 1998, before deducting
expenses payable by Morgan Stanley Capital I Inc.
This prospectus supplement and prospectus is not an offer to sell these
securities in any state where the offer or sale is not permitted.
-------------
MORGAN STANLEY DEAN WITTER
The date of this Prospectus Supplement is October 8, 1998
<PAGE>
Map of United States showing location of all
the Commercial Mortgage Properties
WA
Spokane
North Town Mall
CA
Los Angeles
Westside Pavilion
TX
Dallas
Grapevine Mills
IN
OH
TN
MS
AL
GA
FL
SC
NC
VA
Arlington
Crystal Park IV
NY
MA
CT
NH
Mall of New Hampshire
Manchester
Single Asset Loans
Edens & Avant Pool I
Edens & Avant Pool II
<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.]
GRAPEVINE MILLS
Grapevine, TX
picture of Grapevine Mills exterior facade
[PICTURE]
EDENS & AVANT POOL I & II [PICTURE]
BISHOPS CORNER, West Hartford, CT
[PICTURE]
exterior views of properties exterior view showing facade of
in Edens & Avant Pool I & II Marshalls
[PICTURE]
KENILWORTH COMMONS, Charlotte, NC
MALL OF NEW HAMPSHIRE exterior view showing facade of
Manchester, NH Harris Teeter
[PICTURE] [PICTURE]
Exterior view of facade view exterior of Filene's
[PICTURE]
view of interior entrance to Filene's
<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.]
WESTSIDE PAVILION
Los Angeles, CA
[PICTURE]
[PICTURE]
view of exterior facade and interior area
NORTHTOWN MALL
Spokane, WA
[PICTURE]
view of exterior facade and interior area
[PICTURE]
CRYSTAL PARK IV
Arlington, VA
views of exterior facade lobby area, and interior area
[PICTURE]
[PICTURE]
[PICTURE]
<PAGE>
- --------
(1) Approximate, subject to adjustment as described herein.
(2) "WAC" means the 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) 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 the Class X Certificates at their Pass-Through Rate on their
Notional Amount. The Notional Amount of the Class X Certificates is
initially $706,465,702, which is equal to the aggregate initial
Certificate Principal Amount of the Class A-1, Class A-2, Class B, Class
C, Class D, Class E and Class F Certificates. See "Description of the
Offered Certificates--General" herein.
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. IF THE TERMS OF THE OFFERED
CERTIFICATES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus supplement and the
prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Significant Definitions" beginning on page S-182 in this prospectus
supplement. The capitalized terms used in the prospectus are defined on the
pages indicated under the caption "Index of Significant Definitions" beginning
on page 94 in the prospectus.
In this prospectus supplement, the terms "Depositor," "we," "us" and "our"
refer to Morgan Stanley Capital I Inc.
-----------------
Until the date that is ninety days after the date of this prospectus
supplement, all dealers that buy, sell or trade the offered certificates,
whether or not participating in this offering, may be required to deliver a
prospectus supplement and the accompanying prospectus. This is in addition to
the dealers' obligation to deliver a prospectus supplement and the accompanying
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
S-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
EXECUTIVE SUMMARY .................................. S-4
RISK FACTORS ....................................... S-24
MORTGAGE POOL CHARACTERISTICS ...................... S-42
General ......................................... S-42
Security for the Mortgage Loans ................. S-42
Certain Mortgage Loan Definitions ............... S-43
Certain Characteristics of the Mortgage Loans S-51
Prepayment and Defeasance Terms ................. S-52
Underwriting Standards .......................... S-57
Additional Information .......................... S-58
DESCRIPTION OF THE MORTGAGED
PROPERTIES AND THE MORTGAGE
LOANS ........................................... S-59
Grapevine Mills: The Borrower; The Property S-59
Grapevine Mills: The Loan ....................... S-67
Edens & Avant Pool I: The Borrower; The
Properties .................................... S-71
Edens & Avant Pool I: The Loan .................. S-76
Mall of New Hampshire: The Borrower; The
Property ...................................... S-81
Mall of New Hampshire: The Loan ................. S-88
Westside Pavilion: The Borrower; The
Property ...................................... S-92
Westside Pavilion: The Loan ..................... S-99
NorthTown Mall: The Borrower; The
Property ...................................... S-103
NorthTown Mall: The Loan ........................ S-109
Edens & Avant Pool II: The Borrower; The
Properties .................................... S-114
Edens & Avant Pool II: The Loan ................. S-120
Crystal Park IV: The Borrower; The Property S-125
Crystal Park IV: The Loan ....................... S-130
DESCRIPTION OF THE OFFERED
CERTIFICATES .................................... S-134
General ......................................... S-134
Distributions ................................... S-135
Subordination ................................... S-142
Appraisal Reductions ............................ S-142
Delivery, Form and Denomination ................. S-143
Book-Entry Registration ......................... S-143
Definitive Certificates ......................... S-145
Transfer Restrictions ........................... S-145
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS .................................. S-147
Yield ........................................... S-147
Yield on the Offered Certificates ............... S-148
Rated Final Distribution Date ................... S-151
Weighted Average Life of Offered Certificates S-151
THE POOLING AGREEMENT .............................. S-155
General ......................................... S-155
Assignment of the Mortgage Loans ................ S-155
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Representations and Warranties; Repurchase ...... S-155
Servicing of the Mortgage Loans; Collection
of Payments ................................... S-156
Advances ........................................ S-158
Accounts ........................................ S-159
Withdrawals From the Collection Account ......... S-160
Successor Manager ............................... S-160
Enforcement of "Due-on-Sale" and
"Due-on-Encumbrance" Clauses .................. S-161
Inspections ..................................... S-162
Evidence as to Compliance ....................... S-162
Certain Matters Regarding the Depositor, the
Master Servicer and the Special Servicer ...... S-162
Events of Default ............................... S-163
Rights Upon Event of Default .................... S-164
Amendment ....................................... S-165
Realization Upon Mortgage Loans;
Modifications ................................. S-165
Optional Termination ............................ S-169
The Trustee ..................................... S-170
Duties of the Trustee ........................... S-171
The Master Servicer ............................. S-171
Servicing Compensation and Payment of
Expenses ...................................... S-172
Special Servicer ................................ S-172
Master Servicer and Special Servicer
Permitted to Buy Certificates ................. S-173
Reports to Certificateholders ................... S-173
CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS .................................. S-174
USE OF PROCEEDS .................................... S-176
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES .................................... S-176
CERTAIN ERISA CONSIDERATIONS ....................... S-177
LEGAL INVESTMENT ................................... S-179
PLAN OF DISTRIBUTION ............................... S-179
EXPERTS ............................................ S-180
VALIDITY OF OFFERED CERTIFICATES ................... S-180
RATINGS ............................................ S-180
INDEX OF SIGNIFICANT DEFINITIONS ................... S-182
Financial Information
Grapevine Mills Property .................. Exhibit A-1
Edens & Avant Pool I (unaudited) .......... Exhibit A-2
Mall of New Hampshire (unaudited) ......... Exhibit A-3
Westside Pavilion (unaudited) ............. Exhibit A-4
NorthTown Mall (unaudited) ................ Exhibit A-5
Representations & Warranties ................. Exhibit B
Form of Report to Certificateholders ......... Exhibit C
Term Sheet ................................... Exhibit D
Mortgaged Properties Characteristics ......... Annex A
</TABLE>
S-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXECUTIVE SUMMARY
This Executive Summary highlights selected information regarding the
offered certificates and underlying mortgage loans. It does not contain all of
the information you need to consider in making your investment decision. TO
UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE OFFERED CERTIFICATES AND THE
UNDERLYING MORTGAGE LOANS, READ THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS CAREFULLY.
CERTIFICATE SUMMARY
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT OF
APPROXIMATE TOTAL
CREDIT SUPPORT CERTIFICATES
--------------------------------------------------------------------
INITIAL
CERTIFICATE
PRINCIPAL RATINGS
CLASS AMOUNT (DCR/S&P)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS X CLASS A-1 $ 43,300,000 (AAA/AAA) 6.13%
$706,465,702 -------------------------------------------------------------------
27.75%(1) (Approximate Notional CLASS A-2 $ 467,121,000 (AAA/AAA) 66.12%
Amount)
(AAA/AAAr)
-------------------------------------------------------------------
17% CLASS B $ 75,945,000 (AA/AA) 10.75%
-------------------------------------------------------------------
11% CLASS C $ 42,388,000 (A/A) 6.00%
-------------------------------------------------------------------
4.5% CLASS D $ 45,920,000 (BBB/BBB) 6.50%
-------------------------------------------------------------------
1.5% CLASS E $ 21,194,000 (BBB-/BBB-) 3.00%
-------------------------------------------------------------------
n/a CLASS F(2) $ 10,597,702 (BB/BB-) 1.50%
-----------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the approximate credit support for the Class A-1 and
Class A-2 Certificates in the aggregate.
(2) Not offered hereby.
The Class Q, Class R and Class LR Certificates are not represented
in this table.
S-4
<PAGE>
CERTIFICATE SUMMARY
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE
PRINCIPAL OR INITIAL
RATINGS(1) NOTIONAL % OF PASS-THROUGH WTD. AVG. PRINCIPAL
CLASS DCR/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 AAA/AAA $ 43,300,000 6.13% Fixed Rate 5.950% 5.44 1-106
- ----- ------------ ------------ ----- ------------------------- ----- ---- -----
A-2 AAA/AAA $467,121,000 66.12% Fixed Rate 6.170% 9.88 106-120
- ----- ------------ ------------ ----- ------------------------- ----- ---- -------
X(5) AAA/AAAr $706,465,702 N/A Interest Only: 0.399% N/A N/A
- ----- ------------ ------------ ----- ----- ----- -------
Weighted Average Coupon
-------------------------
B AA/AA $ 75,945,000 10.75% Weighted Average Coupon 6.661% 9.97 120
- ----- ------------ ------------ ----- ------------------------- ----- ----- -------
C A/A $ 42,388,000 6.00% Weighted Average Coupon 6.661% 9.97 120
- ----- ------------ ------------ ----- ------------------------- ----- ----- -------
D BBB/BBB $ 45,920,000 6.50% Weighted Average Coupon 6.661% 9.97 120
- ----- ------------ ------------ ----- ------------------------- ----- ----- -------
E BBB-/BBB- $ 21,194,000 3.00% Weighted Average Coupon 6.661% 9.97 120
- ----- ------------ ------------ ----- ------------------------- ----- ----- -------
Non-Offered Certificates
- ----------------------------------------------------------------------------------------------------------------------
F BB/BB- $ 10,597,702 1.50% Fixed Rate 5.950% 9.97 120
- ----- ------------ ------------ ----- ------------------------- ----- ----- -------
</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 October 2034.
(2) Approximate, subject to adjustment as described herein.
(3) "Weighted Average Coupon" and "Fixed Rate" are descriptions of the type
of Pass-Through Rates borne by the related Classes and "Interest Only"
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") are based on the assumptions that the Mortgage Loans suffer no
losses and that they are fully paid on their respective Effective
Maturity Dates 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) 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 the Class X Certificates at its Pass-Through Rate and on its
Notional Amount. The Notional Amount of the Class X Certificates is
initially $706,465,702, which is equal to the aggregate initial
Certificate Principal Amount of the Class A-1, Class A-2, Class B, Class
C, Class D, Class E and Class F Certificates. See "Description of the
Offered Certificates--General" herein.
S-5
<PAGE>
MORTGAGE LOAN SUMMARY
<TABLE>
<CAPTION>
CUT-OFF
NUMBER DATE EFFECTIVE FINAL
MORTGAGE OF PRINCIPAL MATURITY MATURITY
LOAN PROPERTIES BALANCE DATE DATE
- ------------------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C>
Grapevine Mills 1 $155,000,000 10/1/08 9/1/32
- ------------------- - ------------ ------- ------
Edens & Avant
Pool I 15 $125,000,000 10/1/08 10/1/28
- ------------------- -- ------------ ------- -------
Mall of New
Hampshire 1 $105,000,000 10/1/08 4/1/28
- ------------------- -- ------------ ------- -------
Westside
Pavilion 1 $100,000,000 7/1/08 7/1/31
- ------------------- -- ------------ ------- -------
NorthTown Mall 1 $ 84,426,244 9/1/08 9/1/28
- ------------------- -- ------------ ------- -------
Edens & Avant
Pool II 21 $ 70,000,000 10/1/08 10/1/28
- ------------------- -- ------------ ------- -------
Crystal Park IV 1 $ 67,039,458 9/1/08 9/1/28
- ------------------- -- ------------ ------- -------
Total/Weighted
Average 41 $706,465,702 N/A N/A
- ------------------- -- ------------ ------- -------
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUT-OFF
DATE CUT-OFF EFFECTIVE
ACTUAL DATE MATURITY
DEBT LOAN- DATE
ORIGINAL SERVICE TO- LOAN-TO-
MORTGAGE AMORTIZATION MORTGAGE COVERAGE VALUE VALUE
LOAN TERM (MONTHS) RATE RATIO(1) RATIO(2) RATIO(2)
- ------------------- --------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Grapevine Mills 360(3) 6.47% 2.17x 61.7% 56.8%
- -------------------- ----- ---- ---- ---- ----
Edens & Avant
Pool I Interest Only(4) 6.20% 2.72x 47.1% 47.1%
- ---------------------------------------- ---- ---- ---- ----
Mall of New
Hampshire 360(5) 6.955% 1.67x 65.2% 57.2%
- ---------------------- ------ ----- ---- ---- ----
Westside
Pavilion 360(6) 6.44% 1.93x 62.5% 57.0%
- ---------------------- ------ ----- ---- ---- ----
NorthTown Mall 360 6.68% 1.73x 58.5% 49.7%
- ---------------------- ------ ----- ---- ---- ----
Edens & Avant
Pool II Interest Only(4) 6.20% 2.90x 48.8% 48.8%
- ----------------------------------------- ----- ---- ---- ----
Crystal Park IV 360 6.51% 1.93x 62.7% 54.0%
- ---------------------------- ----- ---- ---- ----
Total/Weighted
Average N/A 6.49% 2.16x 58.2% 53.2%
- ---------------------------- ----- ---- ---- ----
</TABLE>
(1) Based on Underwritable Cash Flow as defined in "Mortgage Pool
Characteristics--Certain Characteristics of the Mortgage Loans" in this
prospectus supplement. The loan balance used in computing the following
"debt service coverage ratios" are net of any guarantees or letters of
credit.
(2) The loan balance used in computing the "loan-to-value ratios" are net of
any guarantees or letters of credit.
(3) Interest only until September 1, 2002.
(4) Interest-only loan from origination to the loan's "effective maturity
date"; thereafter, principal payments are based on an amortization term
of 240 months.
(5) Interest only until October 1, 1999.
(6) Interest only until July 1, 2001.
S-6
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY.
RELEVANT PARTIES AND DATES
DEPOSITOR.............. Morgan Stanley Capital I Inc., a Delaware
corporation.
MASTER SERVICER........ Midland Loan Services, Inc., a Delaware corporation.
See "The Pooling Agreement--the Master Servicer" in
this prospectus supplement and "Description of the
Agreements--Certain Matters Regarding a Master
Servicer and the Depositor" in the prospectus.
SPECIAL SERVICER....... Initially, Midland Loan Services, Inc., a Delaware
corporation. See "The Pooling Agreement--Special
Servicer" in this prospectus supplement.
TRUSTEE................ Norwest Bank Minnesota, National Association, a
national banking association. See "The Pooling
Agreement--the Trustee" in this prospectus supplement.
CUT-OFF DATE........... October 1, 1998.
CLOSING DATE........... On or about October 15, 1998.
DISTRIBUTION DATE...... The third business day of each month, commencing in
November, 1998.
RECORD DATE............ With respect to each distribution date, the close of
business on the last business day of the preceding
month.
OFFERED SECURITIES
GENERAL................ Morgan Stanley Capital I Inc. is offering the
following 7 classes of Commercial Mortgage
Pass-Through Certificates (collectively, the "Offered
Certificates") as part of Series 1998-XL2:
o Class A-1
o Class A-2
o Class B
o Class C
o Class D
o Class E
o Class X
Series 1998-XL2 will consist of a total of 11
classes, the following 4 of which are not being
offered through this prospectus supplement and the
accompanying prospectus: Class F, Class Q, Class R
and Class LR (collectively, the "Private
Certificates").
The Offered Certificates and the Private Certificates
will represent beneficial ownership interests in a
trust created by Morgan Stanley Capital I Inc. The
trust's assets will primarily be 7 mortgage loans
secured by first liens on 41 commercial properties.
S-7
<PAGE>
PRINCIPAL AND
NOTIONAL AMOUNTS....... Your certificates will have the approximate
aggregate initial principal amount or notional amount
set forth below, subject to a variance of plus or
minus 5%:
<TABLE>
<S> <C> <C>
Class A-1 $ 43,300,000 Principal Amount
Class A-2 $467,121,000 Principal Amount
Class B $ 75,945,000 Principal Amount
Class C $ 42,388,000 Principal Amount
Class D $ 45,920,000 Principal Amount
Class E $ 21,194,000 Principal Amount
Class X $706,465,702 Notional Amount
</TABLE>
The notional amount of the Class X Certificates will
generally be equal to: (i) the sum of the Principal
Amounts of the Class A-1, Class A-2, Class B, Class
C, Class D, Class E and Class F Certificates, plus
(ii) the amount of any unpaid interest on the classes
referred to in clause (i). The Class X Certificates
will receive interest only; they will not be entitled
to distributions of principal.
PASS-THROUGH RATES
A. OFFERED CERTIFICATES
(OTHER THAN CLASS X).. Your certificates will accrue interest at an annual
rate called a "Pass-Through Rate" which is set forth
below (other than for the Class X Certificates).
<TABLE>
<S> <C>
Class A-1 5.95%
Class A-2 6.17%
Class B WAC Rate minus 0.02%
Class C WAC Rate minus 0.02%
Class D WAC Rate minus 0.02%
Class E WAC Rate minus 0.02%
</TABLE>
Interest on the Offered Certificates (including the
Class X Certificates) will be calculated based on a
360-day year consisting of twelve 30-day months (also
referred to herein as a 30/360 basis).
The "WAC Rate" for a particular distribution date is
a weighted average of the mortgage loan interest
rates in effect as of the first day of the preceding
month, minus the annual servicing fee rate of 0.028%
(which includes the Trustee fee rate). The weighting
of this average is based upon the respective
principal balances of the mortgage loans.
B. CLASS X CERTIFICATES. The Pass-Through Rate for the Class X Certificates
will be equal to the weighted average of specified
rates on certain classes of certificates that have
principal amounts. The weighting will be based upon
the respective principal amounts of the classes.
For purposes of calculating the Class X Pass-Through
Rate, the mortgage loan interest rates will not
reflect any default interest rate or any rate
increase occurring after an Effective Maturity Date.
The mortgage loan interest rates will also be
determined without regard to any loan term
modifications agreed to by the Special Servicer or
resulting from the borrower's bankruptcy or
insolvency. In addition, if a mortgage loan does not
accrue interest on a 30/360 basis, its interest rate
for any
S-8
<PAGE>
month that is not a 30-day month will be recalculated
so that the amount of interest that would accrue at
that rate in such month, calculated on a 30/360
basis, will equal the amount of interest that
actually accrues on that loan in that month.
The components used to determine the Class X Mortgage
Pass-Through Rate and the specified rates on those
components are as follows:
<TABLE>
<CAPTION>
<S> <C>
-----------------------------------------------
Class A-1 WAC Rate minus Pass-Through Rate on
Component Class A-1 Certificates
-----------------------------------------------
Class A-2 WAC Rate minus Pass-Through Rate on
Component Class A-2 Certificates
-----------------------------------------------
Class B
Component 0.02%
-----------------------------------------------
Class C
Component 0.02%
-----------------------------------------------
Class D
Component 0.02%
-----------------------------------------------
Class E
Component 0.02%
-----------------------------------------------
Class F WAC Rate minus Pass-Through Rate on
Component Class F Certificates
-----------------------------------------------
</TABLE>
DISTRIBUTIONS
A. AMOUNT AND ORDER
OF DISTRIBUTIONS.. On each distribution date, funds available for
distribution from the mortgage loans, net of specified
trust expenses, will be distributed in the following
amounts and order of priority:
Step 1/Class A and Class X: To interest on Class A
and Class X, pro rata, based on their interest
entitlements.
Step 2/Class A: To the extent of funds available for
principal, to principal on Classes A-1 and A-2, in
that order, until reduced to zero. If each class of
certificates other than Class A has been reduced to
zero, funds available for principal will be
distributed to Classes A-1 and A-2, pro rata, rather
than sequentially.
Step 3/ Class A: After each class of certificates
other than Class A has been reduced to zero, to
reimburse Classes A-1 and A-2, pro rata, for any
previously unreimbursed losses on the mortgage loans
allocable to principal that were previously borne by
those classes, together with interest.
Step 4/Class B: To Class B as follows: (a) to
interest on Class B in the amount of its interest
entitlement; (b) to the extent of funds available for
principal, to principal on Class B until reduced to
zero; and (c) to reimburse Class B for any previously
unreimbursed losses on the mortgage loans allocable
to principal that were previously borne by that
class, together with interest.
Step 5/Class C: To Class C in a manner analogous to
the Class B allocations of Step 4.
Step 6/Class D: To Class D in a manner analogous to
the Class B allocations of Step 4.
Step 7/Class E: To Class E in a manner analogous to
the Class B allocations of Step 4.
S-9
<PAGE>
Step 8/Private Certificates: In the amounts and order
of priority described in "Description of the Offered
Certificates--Distributions--Payment Priorities" in
this prospectus supplement.
B. INTEREST AND
PRINCIPAL
ENTITLEMENTS........ A description of each class' interest entitlement
can be found in "Description of the Offered
Certificates--Distributions" in this prospectus
supplement. As described in such section, there are
circumstances relating to the timing of prepayments in
which a class' interest entitlement for a distribution
date could be less than one full month's interest at
the Pass-Through Rate on the certificate's principal
amount or notional amount.
The amount of principal required to be distributed to
the classes entitled to principal on a particular
distribution date also can be found in "Description
of the Offered Certificates--Distributions" in this
prospectus suppleent.
C. PREPAYMENT
PREMIUMS............ The manner in which any prepayment premiums and
yield maintenance premiums received during a
particular collection period will be allocated to the
Class X Certificates, on the one hand, and the classes
of certificates entitled to principal, on the other
hand, is described in "Description of the Offered
Certificates--Distributions" in this prospectus
supplement.
D. DEFERRED INTEREST... As further described below, the mortgage loans
provide that after a specified date, the mortgage loan
will bear interest at an increased interest rate and
will require certain excess cash flow from the related
mortgaged property or properties to be used to repay
principal on the mortgage loan. The interest that
accrues at the increased rate that is in excess of the
interest that would have accrued at the initial rate
will not be paid until the principal balance of the
mortgage loan has been reduced to zero, but that
unpaid amount of interest will accrue interest at the
increased interest rate (such amount is referred to as
"Deferred Interest)."
SUBORDINATION
A. GENERAL............. The chart below describes the manner in which the
rights of various classes will be senior to the rights
of other classes. Entitlement to receive principal and
interest (other than Deferred Interest) on any
distribution date is depicted in descending order (top
to bottom). The manner in which mortgage loan losses
are allocated is depicted in ascending order (bottom
to top). No principal payments or loan losses will be
allocated to the Class X Certificates.
S-10
<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.]
Chart depicting flow of distributions
[GRAPHIC OF CHART]
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" in this
prospectus supplement.
B. SHORTFALLS IN
AVAILABLE FUNDS.... The following types of shortfalls in available funds
will be allocated in the same manner as mortgage loan
losses: (i) shortfalls resulting from additional
compensation (other than the servicing fee) which the
Master Servicer or Special Servicer is entitled to
receive; (ii) shortfalls resulting from interest on
P&I Advances made by the Master Servicer and the
Trustee (to the extent not covered by default interest
paid by the borrower); (iii) shortfalls resulting from
extraordinary expenses of the trust; (iv) shortfalls
resulting from a reduction of a mortgage loan's
interest rate by a bankruptcy court or from other
unanticipated or default-related expenses of the
trust; and (v) shortfalls in mortgage loan interest as
a result of the timing of prepayments (net of the
Master Servicer's servicing fee payable on the related
distribution date).
See "Description of the Offered Certificates--
Distributions--Payment Priorities" in this prospectus
supplement.
S-11
<PAGE>
THE MORTGAGE POOL
GENERAL................ The trust's primary assets will be 7 mortgage loans,
each evidenced by one or more promissory notes secured
by first mortgages, deeds of trust or similar security
instruments on one or more commercial properties.
As of October 1, 1998 (the "Cut-Off Date"), the
mortgage loans will have the following approximate
characteristics:
<TABLE>
<CAPTION>
<S> <C>
------------------------------------------------
Aggregate Principal Balance $706,465,702
------------------------------------------------
Lowest Mortgage Loan $67,039,458
Principal Balance
------------------------------------------------
Highest Mortgage Loan $155,000,000
Principal Balance
------------------------------------------------
Average Mortgage Loan $100,923,672
Principal Balance
------------------------------------------------
Range of Remaining Terms to 117 to 120
Effective Maturity Date months
------------------------------------------------
Weighted Average Remaining 119 months
Term to Effective Maturity
Date
------------------------------------------------
Range of Mortgage Rates 6.20% to 6.955%
------------------------------------------------
Weighted Average Mortgage 6.49%
Rate
------------------------------------------------
Range of Loan to Value Ratios 47.1% to 65.2%
------------------------------------------------
Weighted Average Loan to 58.2%
Value Ratio
------------------------------------------------
Range of Actual Debt Service 1.67x to 2.90x
Coverage Ratios
------------------------------------------------
Weighted Average Actual Debt 2.16x
Service Coverage Ratio
------------------------------------------------
</TABLE>
The loan balances used in computing these statistics
for the Grapevine Mills, Mall of New Hampshire and
NorthTown loans have been reduced by any guarantees
and letters of credit. See "Description of the
Mortgaged Properties and the Mortgage Loans" in this
prospectus supplement.
S-12
<PAGE>
DESCRIPTION OF THE MORTGAGE LOANS AND MORTGAGED PROPERTIES
A. GRAPEVINE MILLS..... Significant characteristics of this mortgage loan
(all statistics are as of October 1, 1998 unless
otherwise noted):
o PRINCIPAL BALANCE: $155,000,000
o SECURITY: First priority lien encumbering the
Grapevine Mills Mall located in Grapevine, Texas
(the "Grapevine Mills Property").
o ADDITIONAL SECURITY: Two guarantees of up to
$5,000,000 each (for a total of up to
$10,000,000). When the Grapevine Mills Property
reaches certain operating results, the guarantees
will terminate.
o SQUARE FOOTAGE: 315,702 s.f. (Anchor Stores)
(MALL AND COLLATERAL) 382,968 s.f. (Mini-Anchors)
543,099 s.f. (Mall Stores)
---------
1,241,769 s.f. (Total)
o OCCUPANCY (AS OF JUNE 1, 1998): 91%
o ANCHOR STORES: Burlington Coat Factory, JCPenney
and AMC Theatres.
o SELECTED TENANTS: Marshalls, Saks Fifth Avenue,
Bed, Bath & Beyond, Virgin Megastores.
o APPRAISED VALUE (AS OF JULY 17, 1998):
$235,000,000
o LOAN TO VALUE RATIO: 61.7% (assuming the
guarantees described above are applied to pay
principal of the loan).
o DEBT SERVICE COVERAGE RATIO: 2.17x (based on
underwritable cash flow, the initial interest rate
and the current loan balance net of the guarantees
described above).
o SCHEDULED PRINCIPAL BALANCE AS OF EFFECTIVE
MATURITY DATE (OCTOBER 1, 2008): $143,481,582
(assuming the guarantees described above are not
applied to pay principal of the loan).
o INTEREST RATE: 6.47% to October 1, 2008. Increased
to the greater of (i) 8.47% and (ii) 2% plus a
rate based on U.S. Treasury obligations, from
October 1, 2008 (its Effective Maturity Date) to
September 1, 2032.
o MONTHLY PAYMENTS: Interest only to September 1,
2002. $976,649.36 (principal and interest) from
October 1, 2002 to September 1, 2032.
o PREPAYMENTS: Loan may not be voluntarily prepaid
until July 1, 2008 (90 days prior to its Effective
Maturity Date). Beginning 3 years from the closing
date of the loan, the borrower may defease the
loan by substituting U.S. Treasury obligations as
collateral for the loan.
S-13
<PAGE>
B. EDENS & AVANT POOL I. Significant characteristics of this mortgage loan (all
statistics are as of October 1, 1998 unless otherwise
noted):
o PRINCIPAL BALANCE: $125,000,000
o SECURITY: First priority liens encumbering 15
community and neighborhood shopping centers
located in Connecticut, Indiana, Massachusetts,
New York, Ohio and Tennessee (the "Edens & Avant
Pool I Properties").
o SQUARE FOOTAGE: 2,100,452 s.f.
o OCCUPANCY (AS OF APRIL-JUNE, 1998): 97%
o SELECTED TENANTS: Stop & Shop, Finast, Marshalls,
Circuit City, Blockbuster Video, Office Max,
Staples and CVS/Revco.
o AGGREGATE VALUE: $265,582,293 (based on recent
acquisition prices).
o LOAN TO VALUE RATIO: 47.1%
o DEBT SERVICE COVERAGE RATIO: 2.72x (based on
underwritable cash flow and the initial interest
rate).
o SCHEDULED PRINCIPAL BALANCE AS OF EFFECTIVE
MATURITY DATE (OCTOBER 1, 2008): $125,000,000
o INTEREST RATE: 6.20% to October 1, 2008. Increased
to the greater of (i) 8.20% and (ii) 2% plus a
rate based on U.S. Treasury obligations, from
October 1, 2008 (its Effective Maturity Date) to
October 1, 2028.
o MONTHLY PAYMENTS: Interest only to October 1,
2008. $910,021.12 (principal and interest) from
November 1, 2008 to October 1, 2028.
o PREPAYMENTS: Loan may not be voluntarily prepaid
until August 1, 2008 (60 days prior to its
Effective Maturity Date). Beginning 2 years from
the closing date of this securitization, the
borrower may defease all or a portion of the loan
by substituting U.S. Treasury obligations as
collateral for all or a portion of the loan.
o SUBSTITUTION OF PROPERTIES: Borrower may
substitute other properties for any one or more of
the mortgaged properties securing the loan,
provided certain conditions are satisfied. These
conditions include confirmation from the rating
agencies that the ratings on the certificates will
not be affected and satisfaction of debt service
coverage tests.
S-14
<PAGE>
C. MALL OF
NEW HAMPSHIRE........ Significant characteristics of this mortgage loan (all
statistics are as of October 1, 1998 unless otherwise
noted):
o PRINCIPAL BALANCE: $105,000,000
o SECURITY: First priority lien encumbering a
portion of the Mall of New Hampshire located in
Manchester, New Hampshire (the "Mall of New
Hampshire Property").
o ADDITIONAL SECURITY: $10,000,000 letter of credit.
When the Mall of New Hampshire Property reaches
certain operating results, the letter of credit
will terminate.
o SQUARE FOOTAGE: 402,852 s.f. (Anchor Stores)
(MALL) 60,986 s.f. ("Mini-Anchor" Stores)
329,913 s.f. (Mall Stores)
-------
793,751 s.f. (Total)
o COLLATERAL: 329,913 s.f. (Mall Stores)
o MALL STORE OCCUPANCY (AS OF JULY 15, 1998): 91%
o ANCHOR STORES: Filene's, JCPenney and Sears.
o "MINI-ANCHOR" STORES: Best Buy and Kitchens Etc.
(Both expected to open in October, 1998).
o SELECTED TENANTS: B. Dalton, B. Dalton Software,
Bath & Body Works, Limited Express, Victoria's
Secret, Casual Corner, Petite Sophisticate,
Contempo Casual, The Gap and Gap Kids.
o APPRAISED VALUE (AS OF SEPTEMBER 24, 1998):
$145,600,000
o LOAN TO VALUE RATIO: 65.2% (assuming the letter of
credit described above is applied to pay principal
of the loan).
o DEBT SERVICE COVERAGE RATIO: 1.67x (based on
underwritable cash flow, the initial interest rate
and the current loan balance net of the letter of
credit described above):
o SCHEDULED PRINCIPAL BALANCE AS OF EFFECTIVE
MATURITY DATE (OCTOBER 1, 2008): $93,305,773
(assuming the letter of credit described above is
not applied to pay principal of the loan).
o INTEREST RATE: 6.955% to October 1, 2008.
Increased to the greater of (i) 11.955% and (ii)
5% plus a rate based on U.S. Treasury obligations,
from October 1, 2008 (its Effective Maturity Date)
to April 1, 2028.
o MONTHLY PAYMENTS: Interest only to October 1,
1999. $695,397.21 (principal and interest) from
November 1, 1999 to April 1, 2028.
o PREPAYMENTS: Loan may not be voluntarily prepaid
until October 1, 2008 (its Effective Maturity
Date). Beginning 2 years from the closing date of
this securitization, the borrower may defease the
loan by substituting U.S. Treasury obligations as
collateral for the loan.
S-15
<PAGE>
D. WESTSIDE PAVILION... Significant characteristics of this mortgage loan
(all statistics are as of October 1, 1998 unless
otherwise noted):
o PRINCIPAL BALANCE: $100,000,000
o SECURITY: First priority lien encumbering a
portion of the Westside Pavilion located in Los
Angeles, California (the "Westside Pavilion
Property").
o SQUARE FOOTAGE: 401,563 s.f. (Anchor Stores)
(MALL) 354,138 s.f. (Mall Stores)
-------
755,701 s.f. (Total)
o COLLATERAL: 181,563 s.f. (Anchor Stores)
262,160 s.f. (Mall Stores)
-------
443,723 s.f. (Total)
o MALL STORE OCCUPANCY (AS OF MAY 29, 1998): 98.8%
o ANCHOR STORES: Nordstrom, Pavilions and
Robinson's-May.
o SELECTED TENANTS: The Gap, Gap Kids, The Limited,
Victoria's Secret, Nine West and FootLocker.
o APPRAISED VALUE (AS OF JULY 13, 1998):
$160,000,000
o LOAN TO VALUE RATIO: 62.5%
o DEBT SERVICE COVERAGE RATIO: 1.93x (based on
underwritable cash flow and the initial interest
rate)
o SCHEDULED PRINCIPAL BALANCE AS OF EFFECTIVE
MATURITY DATE (JULY 1, 2008): $91,132,625
o INTEREST RATE: 6.44% to July 1, 2008. Increased to
the greater of (i) 8.44% and (ii) 2% plus a rate
based on U.S. Treasury obligations, from July 1,
2008 (its Effective Maturity Date) to July 1,
2031.
o MONTHLY PAYMENTS: Interest only to July 1, 2001.
$628,127.29 (principal and interest) from August
1, 2001 to July 1, 2031.
o PREPAYMENTS: Loan may not be voluntarily prepaid
until July 1, 2008 (its Effective Maturity Date).
Beginning 2 years from the closing date of this
securitization, the borrower may defease the loan
by substituting U.S. Treasury obligations as
collateral for the loan.
S-16
<PAGE>
E. NORTHTOWN MALL...... Significant characteristics of this mortgage loan
(all statistics are as of October 1, 1998 unless
otherwise noted):
o PRINCIPAL BALANCE: Approximately $84,426,244
o SECURITY: First priority lien encumbering a
portion of the NorthTown Mall located in Spokane,
Washington (the "NorthTown Mall Property").
o ADDITIONAL SECURITY: $9,500,000 letter of credit
which will be released when the NorthTown Mall
borrower completes construction of certain
improvements and achieves certain net rents under
leases with acceptable tenants.
o SQUARE FOOTAGE: 541,209 s.f. (Anchor Stores)
(MALL) 411,053 s.f. (Mall Stores)
-------
952,262 s.f. (Total)
o COLLATERAL: 298, 817 s.f. (Anchor Stores)
411,053 s.f. (Mall Stores)
-------
709,870 s.f. (Total)
o MALL STORE OCCUPANCY (AS OF JULY 31, 1998): 77.2%
o ANCHOR STORES: JCPenney, Sears, The Bon Marche,
Emporium and Mervyn's.
o SELECTED TENANTS: FootLocker, The Gap, Disney and
Victoria's Secret.
o PURCHASE PRICE (AS OF AUGUST 6, 1998):
$128,000,000 (subject to earn-out payable by the
parent of the borrower of up to an additional
$17,000,000).
o LOAN TO VALUE RATIO: 58.5% (assuming the letter of
credit described above is applied to pay principal
of the loan).
o DEBT SERVICE COVERAGE RATIO: 1.73x (based on
underwritable cash flow, the initial interest rate
and the current loan balance net of the letter of
credit described above).
o SCHEDULED PRINCIPAL BALANCE AS OF EFFECTIVE
MATURITY DATE (SEPTEMBER 1, 2008): $73,062,731
(assuming the letter of credit described above is
not applied to pay principal of the loan).
o INTEREST RATE: 6.68% to September 1, 2008.
Increased to the greater of (i) 8.68% and (ii) 2%
plus a rate based on U.S. Treasury obligations,
from September 1, 2008 (its Effective Maturity
Date) to September 1, 2028.
o MONTHLY PAYMENTS: $544,139.35 to September 1, 2028
(based on a 30-year amortization schedule and the
initial interest rate).
o PREPAYMENTS: Loan may not be voluntarily prepaid
until September 1, 2008 (its Effective Maturity
Date). Beginning 2 years from the closing date of
this securitization, the borrower may defease the
loan by substituting U.S. Treasury obligations as
collateral for the loan.
S-17
<PAGE>
F. EDENS & AVANT
POOL II................ Significant characteristics of this mortgage loan (all
statistics are as of October 1, 1998 unless otherwise
noted):
o PRINCIPAL BALANCE: $70,000,000
o SECURITY: First priority liens encumbering 21
community and neighborhood shopping centers
located in Alabama, Georgia, Florida, Mississippi,
North Carolina, South Carolina and Virginia (the
"Edens & Avant Pool II Properties").
o SQUARE FOOTAGE: 2,175,884 s.f.
o OCCUPANCY (AS OF MAY-JULY, 1998): 96%
o SELECTED TENANTS: Jitney Jungle, Wal-Mart,
Winn-Dixie, Harris Teeter, K-Mart.
o AGGREGATE VALUE: $143,567,822 (based on recent
acquisition prices).
o LOAN TO VALUE RATIO: 48.8%
o DEBT SERVICE COVERAGE RATIO: 2.90x (based on
underwritable cash flow and the initial interest
rate).
o SCHEDULED PRINCIPAL BALANCE AS OF EFFECTIVE
MATURITY DATE (OCTOBER 1, 2008): $70,000,000
o INTEREST RATE: 6.20% to October 1, 2008. Increased
to the greater of (i) 8.20% and (ii) 2% plus a
rate based on U.S. Treasury obligations, from
October 1, 2008 (its Effective Maturity Date) to
October 1, 2028.
o MONTHLY PAYMENTS: Interest only to October 1,
2008. $509,611.82 (principal and interest) from
November 1, 2008 to October 1, 2028.
o PREPAYMENTS: Loan may not be voluntarily prepaid
until August 1, 2008 (60 days prior to its
Effective Maturity Date). Beginning 2 years from
the closing date of this securitization, the
borrower may defease all or a portion of the loan
by substituting U.S. Treasury obligations as
collateral for all or a portion of the loan.
o SUBSTITUTION OF PROPERTIES: Borrower may
substitute other properties for any one or more of
the mortgaged properties securing the loan,
provided certain conditions are satisfied. These
conditions include confirmation from the rating
agencies that the ratings on the certificates will
not be affected and satisfaction of debt service
coverage tests.
S-18
<PAGE>
G. CRYSTAL PARK IV..... Significant characteristics of this mortgage loan
(all statistics are as of October 1, 1998 unless
otherwise noted):
o PRINCIPAL BALANCE: Approximately $67,039,458
o SECURITY: First priority lien encumbering the fee
interest of the owner and the leasehold estate of
the borrower in an office building located in
Arlington, Virginia (the "Crystal Park IV
Property").
o ADDITIONAL SECURITY: $1,000,000 letter of credit
which will be released when the long-term
unsecured debt rating of the U.S. Airways, Inc.
tenant is rated at least "BB" by S&P and "Ba2" by
Moody's Investors Service.
o NET LEASABLE AREA: Approximately 466,369 s.f.
o OCCUPANCY (AS OF AUGUST 1, 1998): 100%
o MAJOR TENANTS: U.S. Airways, Inc. and Charles E.
Smith Management.
o APPRAISED VALUE (AS OF JULY 7, 1998): $107,000,000
o LOAN TO VALUE RATIO: 62.7%
o DEBT SERVICE COVERAGE RATIO: 1.93x (based on
underwritable cash flow and the initial interest
rate)
o SCHEDULED PRINCIPAL BALANCE AS OF EFFECTIVE
MATURITY DATE (SEPTEMBER 1, 2008): $57,745,712
o INTEREST RATE: 6.51% to September 1, 2008.
Increased to the greater of (i) 10.51% and (ii) 4%
plus a rate based on U.S. Treasury obligations,
from September 1, 2008 (its Effective Maturity
Date) to September 1, 2028.
o MONTHLY PAYMENTS: $424,559.02 to September 1, 2028
(based on a 30-year amortization schedule and the
initial interest rate).
o PREPAYMENTS: Loan may not be voluntarily prepaid
until August 1, 2008 (30 days prior to its
Effective Maturity Date). Beginning 2 years from
the closing date of this securitization, the
borrower may defease the loan by substituting U.S.
Treasury obligations as collateral for the loan.
S-19
<PAGE>
PREPAYMENT PROVISIONS
The following table contains general information regarding the prepayment
provisions of the mortgage loans:
<TABLE>
<CAPTION>
PREPAYMENT
PREPAYMENT FEE/YIELD
FEE/YIELD MAINTENANCE
DEFEASANCE MAINTENANCE PREMIUM
MORTGAGE LOAN LOAN TYPE LOCKOUT PERIOD TO TERM TERM(1) UPON DEFAULT(2)
- ------------------------------- ----------- -------------------- ------------------- ------------- ----------------------
<S> <C> <C> <C> <C> <C>
Grapevine Mills ............... EMD Loan July 1, 2008, 3 From August 12, N/A Grapevine Mills Yield
months prior to 2001 to EMD Maintenance Premium
its EMD
Edens & Avant Interest August 1, 2008, 2 From 2 yrs. after N/A Greater of 1% and
Pool I ....................... Only EMD months prior to Closing Date to Yield Maintenance
Loan(3) its EMD EMD Premium
Mall of New Hampshire ......... EMD Loan October 1, 2008, From 2 yrs. after N/A Greater of 1% and
its EMD Closing Date to Yield Maintenance
EMD Premium
Westside Pavilion ............. EMD Loan July 1, 2008, its From 2 yrs. after N/A Westside Pavilion
EMD Closing Date to Yield Maintenance
EMD Premium
NorthTown Mall ................ EMD Loan September 1, From 2 yrs. after N/A Greater of 1% and
2008, its EMD Closing Date to Yield Maintenance
EMD Premium
Edens & Avant Interest August 1, 2008, 2 From 2 yrs. after N/A Greater of 1% and
Pool II ...................... Only EMD months prior to Closing Date to Yield Maintenance
Loan(3) its EMD EMD Premium
Crystal Park IV ............... EMD Loan August 1, 2008, 1 From 2 yrs. after N/A Greater of 1% and
month prior to its Closing Date to Yield Maintenance
EMD EMD Premium
</TABLE>
(1) All mortgage loans require payment of a prepayment charge if paid as a
result of a loan default at any time that voluntary prepayment is
prohibited. Prepayment charges are generally not required if prepayment is
a result of casualty or condemnation.
(2) A more complete description of the prepayment fee or yield maintenance
premium provisions for each mortgage loan payable in the event of default
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) The Edens & Avant Pool I and Pool II Loans permit the Borrower's parent to
receive up to 5% of the gross income earned on the related properties
prior to the application of Excess Cash Flow to payment of principal on
the related loan.
ADVANCES OF PRINCIPAL AND INTEREST
A. GENERAL............. The Master Servicer is required to advance (each, a
"P&I Advance") delinquent monthly mortgage loan
payments, if it determines that the advance will be
recoverable. The Master Servicer will not be required
to advance interest in excess of a loan's regular
interest rate (without considering any default rate or
any rate increase after an Effective Maturity Date).
The Master Servicer also is not required to advance
prepayment or yield maintenance premiums, or balloon
payments. If an advance is made, the Master Servicer
will not advance its servicing fee, but will advance
the Trustee's fee.
If the Master Servicer fails to make a required P&I
Advance, the Trustee will be required to make the P&I
Advance. The Trustee will be obligated to make a P&I
Advance only if it determines that the Advance will
be recoverable.
See "The Pooling Agreement--Advances" and "--The
Trustee" in this prospectus supplement.
S-20
<PAGE>
B. APPRAISAL REDUCTION
EVENT ADVANCES...... Certain adverse events affecting a mortgage loan,
called "Appraisal Reduction Events," will require the
Special Servicer to obtain a new appraisal on the
related mortgaged property. Based on the appraised
value in such appraisal, it may be necessary to
calculate an "Appraisal Reduction Amount." The amount
required to be advanced in respect of a mortgage loan
that has been subject to an Appraisal Reduction Event
will be reduced so that the Master Servicer will not
be required to advance interest on the Appraisal
Reduction Amount (as described below). Due to the
payment priorities described above, this will reduce
the funds available to pay interest on the most
subordinate class or classes then-outstanding.
See "Description of the Offered
Certificates--Appraisal Reductions" in this
prospectus supplement.
ADDITIONAL ASPECTS OF CERTIFICATES
RATINGS................ The Offered Certificates will not be issued unless
each of the offered classes receives the following
ratings from one or more of Duff & Phelps Credit
Rating Co. ("DCR") and Standard & Poor's Ratings
Services, a division of McGraw Hill Companies ("S&P"):
<TABLE>
<CAPTION>
<S> <C>
----------------------------------
Classes A-1 and A-2 AAA/AAA
----------------------------------
Class B AA/AA
----------------------------------
Class X AAA/AAAr
----------------------------------
Class C A/A
----------------------------------
Class D BBB/BBB
----------------------------------
Class E BBB-/BBB-
----------------------------------
</TABLE>
A rating agency may lower or withdraw a security
rating at any time.
See "Ratings" in this prospectus supplement and the
prospectus for a discussion of the basis upon which
ratings are given, the limitations of and exclusions
from the ratings and the conclusions that may not be
drawn from a rating.
OPTIONAL TERMINATION... On any distribution date on which the aggregate
principal balance of the mortgage loans remaining in
the trust is less than 1% of the aggregate unpaid
balance of the mortgage loans as of the Cut-Off Date,
the Depositor will have the option to purchase all of
the remaining mortgage loans, at the price specified
in this prospectus supplement (and all property
acquired through exercise of remedies in respect of
any mortgage loan). Exercise of this option will
terminate the trust and retire the then-outstanding
certificates.
If the Depositor does not exercise this option,
either of the following, in descending order of
priority, may exercise this option on the same terms
as the Depositor, with the same effect:
o the Master Servicer
o the holders of the Class LR Certificates
representing more than 50% of the Class LR
Certificates.
See "The Pooling Agreement--Optional Termination" in
this prospectus supplement.
DENOMINATIONS.......... The Offered Certificates (other than the Class X
Certificates) will be offered in minimum denominations
of $10,000 initial principal amount. The Class X
Certifi-
S-21
<PAGE>
cates will be offered in minimum denominations of
$100,000 initial notional amount. Investments in
excess of the minimum denominations may be made in
multiples of $1.
REGISTRATION, CLEARANCE AND
SETTLEMENT............. Your certificates will be registered in the name of
CEDE & Co., as nominee of the Depository Trust
Company, and will not be registered in your name. You
will not receive a definitive certificate representing
your interest, except in very limited circumstances
described in this prospectus supplement. As a result,
you will not be a certificateholder of record, and you
will receive distributions on your certificates and
reports relating to distributions only through DTC,
CEDEL or Euroclear or through participants in DTC,
CEDEL or Euroclear.
You may hold your Offered Certificates through: (i)
The Depository Trust Company ("DTC") in the United
States; or (ii) Cedel Bank, S.A. ("CEDEL") or The
Euroclear System ("Euroclear") in Europe. Transfers
within DTC, CEDEL or Euroclear will be made in
accordance with the usual rules and operating
procedures of those systems. Cross-market transfers
between persons holding directly 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" in this prospectus supplement and
"Description of the Certificates--General" in the
prospectus.
We expect that the Offered Certificates will be
delivered in book-entry form through the facilities
of DTC, CEDEL or Euroclear on or about October 15,
1998.
TAX STATUS............. An election will be made to treat a portion of the
Trust as two separate REMICs-- a Lower-Tier REMIC and
an Upper-Tier REMIC--for federal income tax purposes.
In the opinion of counsel, each such portion of the
Trust will qualify for this treatment.
Pertinent federal income tax consequences of an
investment in the Offered Certificates include:
o Each class of Offered Certificates (as well
as the Class F Certificate) will constitute
"regular interests" in the Upper-Tier REMIC.
o The regular interests will be treated as
newly originated debt instruments for federal
income tax purposes.
o Beneficial owners will be required to report
income on the Offered Certificates in
accordance with the accrual method of
accounting.
o The Class B, Class C, Class D and Class E
Certificates (as well as the Class F
Certificates) will represent undivided
beneficial interests in portions of the
Deferred Interest. That portion of the Trust
will be treated as part of a grantor trust
for federal income tax purposes. Deferred
Interest will be reportable as income as it
accrues, commencing after the Effective
Maturity Date of the related Mortgage Loan.
See "Certain Federal Income Tax Consequences" in this
prospectus supplement and "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC
Regular Certificates" in the prospectus.
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<PAGE>
ERISA CONSIDERATIONS... Subject to the satisfaction of important conditions
described under "ERISA Considerations" in this
prospectus supplement and in the accompanying
prospectus, the Class A and Class X Certificates may
be purchased by persons investing assets of employee
benefit plans or individual retirement accounts.
THE CLASS B, CLASS C, CLASS D AND CLASS E
CERTIFICATES MAY NOT BE PURCHASED BY, OR TRANSFERRED
TO, A PLAN OR ANY PERSON INVESTING THE ASSETS OF A
PLAN. (THIS PROHIBITION DOES NOT APPLY TO AN
INSURANCE COMPANY INVESTING ASSETS OF ITS GENERAL
ACCOUNT UNDER CIRCUMSTANCES WHICH WOULD QUALIFY FOR
AN EXEMPTION UNDER PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60.)
LEGAL INVESTMENTS...... The Class A-1, Class A-2, 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: (i) those certificates are rated in one of
the two highest rating categories by one or more
rating agencies; and (ii) the underlying mortgage
loans are secured by real estate. The other classes of
Offered Certificates will not constitute "mortgage
related securities" within the meaning of SMMEA.
Except as to SMMEA status, no representation is made
regarding the proper characterization of the Offered
Certificates for purposes of any applicable legal
investment restrictions, regulatory capital
requirements or other similar purposes. Regulated
entities should consult with their own advisors
regarding these matters.
See "Legal Investment" in this prospectus supplement
and in the accompanying prospectus.
S-23
<PAGE>
RISK FACTORS
You should carefully consider the risks before making an investment
decision. In particular, distributions on your certificates will depend on
payments received on and other recoveries with respect to the mortgage loans.
Therefore, you should carefully consider the risk factors relating to the
mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to your certificates. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair your investment.
If any of the following risks actually occur, your investment could be
materially and adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
MORTGAGE LOANS ARE NONRECOURSE AND ARE NOT INSURED OR GUARANTEED
Other than as described below with respect to the Grapevine Mills loan,
the mortgage loans are generally not insured or guaranteed by any person or
entity.
Each mortgage loan is a nonrecourse loan. If a default occurs, recourse
generally may be had only against the specific properties and other assets that
have been pledged to secure the loan. Payment prior to maturity is consequently
dependent primarily on the sufficiency of the net operating income of the
mortgaged properties. Payment at maturity is dependent primarily upon the
market value of the mortgaged properties or the borrower's ability to refinance
the mortgaged properties.
The Grapevine Mills loan is guaranteed by two separate guarantees, one
from the Simon Property Group, L.P. ("SDG") (formerly known as Simon DeBartolo
Group, L.P.) and the other from The Mills Limited Partnership ("MLP"). Both SDG
and MLP are equity owners of the Grapevine Mills borrower. Both guarantees
cover the full and punctual payment when due of all obligations of the
Grapevine Mills borrower and all obligations of SDG or MLP, itself, as
applicable, under the Grapevine Mills loan documents. The maximum amount that
either SDG or MLP will be required to pay is $5,000,000 each (for a total
guaranteed amount of up to $10,000,000). The guarantees will terminate when
mortgagee receives evidence that the "debt service coverage ratio" for any 12
consecutive calendar months is equal to or exceeds 1.50x. SDG has a credit
rating of its long term senior unsecured debt of BBB+ from S&P.
COMMERCIAL LENDING IS DEPENDENT UPON NET OPERATING INCOME
The mortgage loans are secured by various income-producing commercial
properties. Commercial lending is generally thought to expose a lender to
greater risk than residential one-to-four family lending because it typically
involves larger loans to a single borrower.
The repayment of a commercial loan is typically dependent upon the ability
of the applicable property to produce cash flow. Even the liquidation value of
a commercial property is determined, in substantial part, by the capitalization
of the property's cash flow. However, net operating income can be volatile and
may be insufficient to cover debt service on the loan at any given time.
The net operating income and property value of the mortgaged properties
may be adversely affected by a large number of factors. Some of these factors
relate to the property itself, such as:
o the age, design and construction quality of the property;
o perceptions regarding the safety, convenience and attractiveness
of the property;
o the proximity and attractiveness of competing properties;
o the adequacy of the property's management and maintenance;
o increases in operating expenses;
o an increase in the capital expenditures needed to maintain the
property or make improvements;
o a decline in the financial condition of a major tenant;
o an increase in vacancy rates; and
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<PAGE>
o a decline in rental rates as leases are renewed or entered into
with new tenants.
Others factors are more general in nature, such as:
o national, regional or local economic conditions (including plant
closings, industry slowdowns and unemployment rates);
o local real estate conditions (such as an oversupply of retail
space or office space);
o demographic factors;
o consumer confidence;
o consumer tastes and preferences; and
o retroactive changes in building codes.
The volatility of net operating income will be influenced by many of the
foregoing factors, as well as by:
o the length of tenant leases;
o the creditworthiness of tenants;
o in the case of rental properties, the rate at which new rentals
occur;
o and the property's "operating leverage" (i.e., the percentage of
total property expenses in relation to revenue, the ratio of fixed
operating expenses to those that vary with revenue, and the level
of capital expenditures required to maintain the property and
retain or replace tenants).
A decline in the real estate market or in the financial condition of a
major tenant 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.
SOME MORTGAGED PROPERTIES MAY NOT BE READILY CONVERTIBLE TO ALTERNATIVE USES
Some of the mortgaged properties may not be readily convertible to
alternative uses if those properties were to become unprofitable for any
reason. Converting commercial properties to alternate uses generally requires
substantial capital expenditures. The liquidation value of any such mortgaged
property consequently may be substantially less than would be the case if the
property were readily adaptable to other uses. Zoning or other restrictions
also may prevent alternative use.
PROPERTY VALUE MAY BE ADVERSELY AFFECTED EVEN WHEN CURRENT OPERATING INCOME IS
NOT
Various factors may adversely affect the value of the mortgaged properties
without affecting the properties' current net operating income. These factors
include: changes in governmental regulations, fiscal policy, zoning or tax
laws, potential environmental legislation or liabilities or other legal
liabilities, the availability of refinancing and changes in interest rate
levels or yields required by investors in income producing commercial
properties.
TENANT CONCENTRATION ENTAILS RISK
A deterioration in the financial condition of a tenant can be particularly
significant if a mortgaged property is leased to a single tenant, or a small
number of tenants. Mortgaged properties leased to a single tenant, or a small
number of tenants, also are more susceptible to interruptions of cash flow if a
tenant fails to renew its lease. This is so because: (i) the financial effect
of the absence of rental income may be severe, (ii) more time may be required
to re-lease the space, and (iii) substantial capital costs may be incurred to
make the space appropriate for replacement tenants.
The mortgaged properties contain the following examples of tenant
concentration.
o US Airways, Inc. leases approximately 70.1% of the Crystal Park IV
Property, under leases that are scheduled to expire in 2002 and
2008.
o At the Edens & Avant Pool I Properties, Royal Ahold NV operates 6
stores and The TJX Companies operates 4 Marshalls stores
representing approximately 19.4% and 9.4%, respectively, of
annualized base rent and approximately 16.6% and 6.1%,
respectively, of gross leasable area.
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<PAGE>
o At the Edens & Avant Pool II Properties, Jitney-Jungle Stores of
America, Inc. operates 7 stores, Wal-Mart Stores, Inc. operates 3
stores (although all 3 are current on their rent, 2 properties are
vacant) and Winn-Dixie Stores, Inc. operates 4 stores representing
approximately 10.8%, 9.7% and 9.6%, respectively, of annualized
base rent and approximately 16.3%, 14.0% and 8.4%, respectively,
of gross leasable area.
MORTGAGED PROPERTIES LEASED TO MULTIPLE TENANTS ALSO HAVE RISKS
If a mortgaged property has multiple tenants, re-leasing expenditures may
be more frequent than in the case of mortgaged properties with fewer tenants,
thereby reducing the cash flow available for debt service payments.
Multi-tenanted mortgaged properties also may experience higher continuing
vacancy rates and greater volatility in rental income and expenses
RISKS RELATING TO LOAN CONCENTRATION
The effect of mortgage pool loan losses will be more severe: (i) if the
pool is comprised of a small number of loans, each with a relatively large
principal amount; or (ii) if the losses relate to loans that account for a
disproportionately large percentage of the pool's aggregate principal balance.
Because there are only 7 underlying mortgage loans, losses on any loan may have
a substantial adverse effect on the Offered Certificates. The relative
approximate percentages of the 7 mortgage loans are:
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
MORTGAGE LOAN PRINCIPAL BALANCE(1)
- ------------------------------------------ ---------------------
<S> <C>
Grapevine Mills ........................ 21.9%
Edens & Avant Pool I ................... 17.7
Mall of New Hampshire .................. 14.9
Westside Pavilion ...................... 14.2
NorthTown Mall ......................... 12.0
Edens & Avant Pool II .................. 9.9
Crystal Park IV ........................ 9.5
-----
Total ................................. 100.0%
=====
</TABLE>
--------
(1) Numbers do not total 100% due to rounding.
A concentration of mortgaged property types also can pose increased risks. In
this regard:
o Regional mall properties represent approximately 41.0% of the
aggregate principal balance of the mortgage pool as of the Cut-Off
Date (based on the primary property type for combined
office/retail properties);
o Regional "Mills" mall properties represent 21.9%;
o other retail properties represent 27.6%; and
o office properties represent 9.5%.
Concentrations of mortgage loans with the same borrower or related
borrowers can also pose increased risks. For example, if a person that owns or
controls several mortgaged properties experiences financial difficulty at one
mortgaged property, it could defer maintenance at one mortgaged property in
order to satisfy current expenses with respect to the first mortgaged property,
or it could attempt to avert foreclosure by filing a bankruptcy petition that
might have the effect of interrupting monthly payments of debt service (subject
to the Master Servicer's obligation to make Advances) for an indefinite period
on all of the related mortgage loans. In this regard:
o Edens & Avant Properties Limited Partnership directly and
indirectly owns 100% of the Edens & Avant Pool I borrower and 100%
of the Edens & Avant Pool II borrower. The Edens & Avant Pool I
loan and the Edens & Avant Pool II loan are not cross-defaulted or
cross-collateralized.
GEOGRAPHIC CONCENTRATION ENTAILS RISKS
Concentrations of mortgaged properties in geographic areas may increase
the risk that adverse economic or other developments or a natural disaster
affecting a particular region of the country could increase the frequency and
severity of
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<PAGE>
losses on mortgage loans secured by such mortgaged properties. In recent
periods, several regions of the United States have experienced significant real
estate downturns. Regional economic declines or conditions in regional real
estate markets could adversely affect the income from, and market value of, the
mortgaged properties. Other regional factors--e.g., earthquakes, floods or
hurricanes or changes in governmental rules or fiscal policies--also may
adversely affect the mortgaged properties. For example, mortgaged properties
located in California may be more susceptible to certain hazards (such as
earthquakes) than properties in other parts of the country.
The mortgaged properties are located in 17 states, and there are 7 states
in which 5% or more of the mortgaged properties (based on Cut-Off Date
principal amount) are located. See "Mortgage Pool Characteristics--Certain
Characteristics of the Mortgage Loans" in this prospectus supplement.
RETAIL PROPERTIES HAVE SPECIAL RISKS
Retail properties secure 6 of the underlying mortgage loans. See
"Description of the Mortgaged Properties and the Mortgage Loans--Grapevine
Mills", "--Edens & Avant Pool I", "--Mall of New Hampshire", "--Westside
Pavilion", "--NorthTown Mall" and "--Edens & Avant Pool II" in this prospectus
supplement. The quality and success of a retail property's tenants
significantly affect the property's value. For example, if the sales of retail
tenants were to decline, rents tied to a percentage of gross sales may decline
and those tenants may be unable to pay their rent or other occupancy costs.
The presence or absence of an "anchor tenant" in a shopping center also
can be important, because anchors play a key role in generating customer
traffic and making a center desirable for other tenants. The economic
performance of a retail property will consequently be adversely affected by:
o an anchor tenant's failure to renew its lease;
o termination of an anchor tenant's lease;
o the bankruptcy or economic decline of an anchor tenant or
self-owned anchor; and
o the cessation of the business of a self-owned anchor or of an
anchor tenant (notwithstanding its continued payment of rent).
If anchor stores in a mortgaged property were to close, the related borrower
may be unable to replace those anchors without suffering adverse economic
consequences.
Retail properties also face competition from sources outside a given real
estate market. For example, all of the following compete with more traditional
retail properties for consumer dollars: factory outlet centers; discount
shopping centers and clubs; catalogue retailers; home shopping networks;
internet web sites; and telemarketing. Continued growth of these alternative
retail outlets (which often have lower operating costs) could adversely affect
the rents collectible at the retail properties included in the mortgage pool,
as well as the market value of such properties.
Moreover, additional competing retail properties may be built in the areas
where the retail mortgaged properties are located.
RISKS RELATING TO SPECIFIC RETAIL PROPERTIES
o Certain of the anchor stores of the Mall of New Hampshire, the
Westside Pavilion and the NorthTown Mall are owned by the anchor
stores, rather than the owner of the mortgaged property.
Accordingly, those anchor stores are not included in the mortgaged
property securing the mortgage loan, and the borrower does not
receive rental income from those anchor stores.
o With respect to the Grapevine Mills Property, the lease for
JCPenney, an anchor tenant, permits it to discontinue operations
on the property at any time during the term of the lease. The
lease for Burlington Coat Factory and AMC Theatres, both anchor
tenants at the Grapevine Mills property, permit both such tenants
to discontinue operations on the property at any time after 3
years and 10 years, respectively. These dates are prior to the
Effective Maturity Date of the related loan. In the case of both
JCPenney and Burlington Coat Factory, the Grapevine Mills borrower
may terminate the tenant's lease if the anchor tenant discontinues
its operations at the property.
o The operating covenant under the lease for Nordstrom, an anchor
store at the Westside Pavilion Property, expires in 2005, which is
prior to the final maturity date of the Westside Pavilion loan. In
addition, under
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<PAGE>
the operating agreement for Robinson's-May, another anchor store at
the Westside Pavilion, Robinson's-May is released from its
operating covenant if Nordstrom closes its store.
o The operating agreements or leases, as applicable, for certain
anchor tenants of the Grapevine Mills Property, the Westside
Pavilion Property, and the NorthTown Mall Property, impose certain
obligations for restoration upon an event of casualty or
condemnation. Such requirements will override requirements for
prepayment under the applicable loan. In addition, these anchor
stores are permitted to abate rent or terminate the related lease
or operating covenant upon certain events of casualty or
condemnation.
o The operating agreement for Sears and Mervyn's, anchor tenants of
the NorthTown Mall Property, permit them to discontinue operating
stores at the NorthTown Mall Property prior to the Effective
Maturity Date of the NorthTown Mall loan.
RISKS RELATING TO CO-TENANCY CLAUSES
A number of the anchor stores at the retail mall properties have
co-tenancy clauses in their leases or operating agreements which permit those
anchors to cease operating if certain other stores are not operated at those
locations. See "Description of the Mortgaged Properties and the Mortgage
Loans--Grapevine Mills: The Borrower; The Property"; "--Mall of New Hampshire:
The Borrower; the Property"; "--Westside Pavilion: The Borrower; The Property",
and "--NorthTown Mall: The Borrower, The Property," in this prospectus
supplement. The breach of various other covenants in anchor store leases or
operating agreements also may permit those stores to cease operating.
Certain non-anchor tenants at retail properties also may be permitted to
terminate their leases if certain other stores are not operated or if those
tenants fail to meet certain business objectives. For example:
o A small number of non-anchor leases at the Grapevine Mills
Property permit their respective tenants to terminate their
leases, discontinue operations or reduce their rent to a
percentage of sales upon events such as: (i) certain percentage of
gross leasable area of property is not in operation for a
specified period of time; (ii) certain anchor stores fail to
remain open; or (iii) the tenant fails to achieve certain sales
levels for certain specified years of its lease term.
OFFICE PROPERTIES HAVE SPECIAL RISKS
One of the underlying mortgage loans is secured by an office property. See
"Description of the Mortgaged Properties and the Mortgage Loans--Crystal Park
IV" in this prospectus supplement.
A large number of factors may adversely affect the value of office
properties, including:
o the quality of an office building's tenants;
o the physical attributes of the building in relation to competing
buildings (e.g., age, condition, design, access to transportation
and ability to offer certain amenities, such as sophisticated
building systems);
o the desirability of the area as a business location; and
o the strength and nature of the local economy (including labor
costs and quality, tax environment and quality of life for
employees).
Moreover, the cost of refitting office space for a new tenant is often higher
than the cost of refitting other types of property.
CERTAIN ADDITIONAL RISKS RELATING TO TENANTS
The income from, and market value of, the mortgaged properties leased to
various tenants would be adversely affected if:
o space in the mortgaged properties could not be leased or
re-leased;
o tenants were unable to meet their lease obligations;
o a significant tenant were to become a debtor in a bankruptcy case;
or
o rental payments could not be collected for any other reason.
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<PAGE>
Repayment of the mortgage loans secured by retail and office properties will be
affected by the expiration of leases and the ability of the respective
borrowers to renew the leases or relet the space on comparable terms. Tables
describing the expiration dates of certain leases are set forth under
"Description of the Mortgaged Properties and the Mortgage Loans" in this
prospectus supplement.
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. Moreover,
if a tenant defaults in its obligations to a borrower, the borrower may incur
substantial costs and experience significant delays associated with enforcing
its rights and protecting its investment.
TENANT BANKRUPTCY ENTAILS RISKS
The bankruptcy or insolvency of a major tenant, or a number of smaller
tenants, in retail and office properties may adversely affect the income
produced by a mortgaged property. Under the Bankruptcy Code, a tenant has the
option of assuming or rejecting any unexpired lease. If the tenant rejects the
lease, the landlord's claim for breach of the lease would be a general
unsecured claim against the tenant (absent collateral securing the claim). The
claim would be limited to 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 one year's
rent or 15% of the remaining rent reserved under the lease (but not more than
three years' rent).
There is no assurance that tenants in the mortgaged properties will
continue making timely payments under their leases or that other tenants will
not file for bankruptcy protection in the future.
ENVIRONMENTAL LAWS ENTAIL RISKS
Various environmental laws may make a current or previous owner or
operator of real property liable for the costs of removal or remediation of
hazardous or toxic substances on, under, adjacent to, or in such property.
Those laws often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of the hazardous or toxic substances. For
example, certain laws impose liability for release of asbestos-containing
materials ("ACMs") into the air or require the removal or containment of ACMs.
In some states, contamination of a property may give rise to a lien on the
property to assure the costs of cleanup. In some states, this lien has priority
over the lien of an existing mortgage. Additionally, third parties may seek
recovery from owners or operators of real properties for personal injury
associated with ACMs or other exposure to hazardous substances.
The owner's liability for any required remediation generally is not
limited by law and could accordingly exceed the value of the property and/or
the aggregate assets of the owner. The presence of hazardous or toxic
substances also may adversely affect the owner's ability to refinance using the
property as collateral or to sell the property to a third party. The presence
of, or strong potential for contamination by, hazardous substances consequently
can have a material adverse effect on the value of the property and a
borrower's ability to repay its mortgage loan.
In addition, under certain circumstances, a lender (such as the trust)
could be liable for the costs of responding to an environmental hazard. See
"Legal Matters" in the prospectus.
ENVIRONMENTAL RISKS RELATING TO THE MORTGAGED PROPERTIES
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. In several cases, Phase II site assessments
also have been performed. These assessments were intended to evaluate the
environmental condition of the mortgaged properties and generally included a
site visit, a review of certain records and public information concerning the
mortgaged properties, and the preparation of a written report. Some of the
assessments included sampling or analysis of soil, groundwater or other
environmental media or subsurface investigations. There can be no assurance,
however, that all environmental conditions and risks have been identified in
these environmental assessments.
Certain of the environmental assessments identified environmental
conditions which have impacted, or may impact, some of the mortgaged
properties. Those conditions include 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, historic industrial use, oil
wells, gasoline stations and/or dry cleaning businesses located on or near the
premises. Corrective action, as required
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<PAGE>
by the regulatory agencies, has been undertaken and, in some cases, the related
borrowers have made deposits into environmental reserve accounts or have
assigned rights to existing reserve accounts. However, we cannot assure you
that the reserve amounts will be sufficient to remediate such environmental
conditions or that all such environmental conditions have been identified.
Certain of the mortgaged properties are in the vicinity of sites
containing "leaking underground storage tanks" or other potential sources of
groundwater contamination. Although the owners of those mortgaged properties
and the trust may not have legal liability for contamination from such off-site
sources, the enforcement of rights against third parties may result in
additional transaction costs.
ACMs have been detected through sampling by environmental consultants at
several 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 the property continues to be properly managed. Nonetheless, the value
of a mortgaged property as collateral for the mortgage loan could be adversely
affected.
The environmental assessments 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.
For several mortgaged properties, the site assessments 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 these other
issues would have a material adverse effect on the related mortgaged
properties. Nevertheless, there may be material environmental liabilities of
which the Depositor is unaware. Moreover, there is 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 adversely affected by tenants or other third
parties, or by the condition of land or operations in the vicinity of the
mortgaged properties (such as underground storage tanks).
Before the Special Servicer acquires title to a property on behalf of the
trust or assumes operation of the property, it must obtain an environmental
assessment of the property. This requirement will decrease the likelihood that
the trust will become liable under any environmental law. However, this
requirement may effectively preclude foreclosure until a satisfactory
environmental assessment is obtained (or until any required remedial action is
thereafter taken). There is accordingly some risk that the mortgaged property
will decline in value while this assessment is being obtained. Moreover, there
is no assurance this requirement will effectively insulate the trust from
potential liability under environmental laws.
BORROWER MAY BE UNABLE TO REPAY REMAINING PRINCIPAL BALANCE ON MATURITY DATE
All of the mortgage loans are expected to have substantial remaining
principal balances as of their respective Effective Maturity Dates. All of the
mortgage loans substantially fully amortize by their final maturity. A
borrower's ability to repay a loan on its Effective Maturity Date typically
will depend upon its ability either to refinance the loan or to sell the
mortgaged property at a price sufficient to permit repayment. A borrower's
ability to achieve either of these goals will be affected by a number of
factors, including:
o the availability of, and competition for, credit for commercial
real estate projects;
o the prevailing interest rates;
o the fair market value of the related properties;
o the borrower's equity in the related properties;
o the borrower's financial condition;
o the operating history and occupancy level of the property; and
o the tax laws; and prevailing general and regional economic
conditions.
The availability of funds in the credit markets fluctuates over time.
We cannot assure you that each borrower will have the ability to repay the
remaining principal balances on the Effective Maturity Date. See "Mortgage Pool
Characteristics--Certain Characteristics of the Mortgage Loans" in this
prospectus supplement.
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RISKS RELATING TO BORROWERS THAT ARE NOT SPECIAL-PURPOSE ENTITIES
The business activities of the Grapevine Mills borrower are not limited to
owning the Grapevine Mills Property. See "Description of the Mortgaged
Properties and the Mortgage Loans -- Grapevine Mills Mall" in this prospectus
supplement. The Grapevine Mills borrower is permitted to own and operate an
entity known as Grapevine Mills Development Company, LLC, which does not secure
the Grapevine Mills loan. However, the Grapevine Mills borrower may divest its
interest in this subsidiary. The organizational documents of Grapevine Mills
Developement, LLC contain the representations, warranties and covenants that
are typically used to ensure that an entity will not be consolidated with an
affiliate in the bankruptcy of such affiliate.
Further, the organizational documents of the Grapevine Mills borrower do
not contain the representations, warranties and covenants customarily employed
to ensure that a borrower is a special-purpose entity (such as limitations on
indebtedness and affiliate transactions and restrictions on the borrower's
ability to dissolve, liquidate, consolidate, merge, sell all of its assets or
amend its organizational documents). Such representations, warranties and
covenants are contained in the related loan agreement.
Additionally, the Grapevine Mills borrower does not have an independent
director whose consent would be required to file a voluntary bankruptcy
petition on behalf of such borrower. One of the purposes of an independent
director is to avoid a bankruptcy petition filing which is intended solely to
benefit an affiliate and is not justified by the borrower's own economic
circumstances.
AUTHORITY TO EFFECT OTHER BORROWINGS ENTAILS RISKS
The NorthTown Mall loan permits mezzanine loan financing in connection
with the purchase by the NorthTown Mall borrower of the space currently
occupied by Mervyn's, an anchor tenant on the NorthTown Mall Property which
owns its building. However, such mezzanine loan financing is subject to written
confirmation from the rating agencies that it would not result in a
qualification, downgrade or withdrawal of the then-current ratings of the
Certificates. In addition, substantially all of the mortgage loans permit the
related borrower to incur limited indebtedness in the ordinary course of
business.
When a mortgage loan borrower (or its constituent members) also has one or
more other outstanding loans (even if subordinated or mezzanine loans), the
trust is subjected to additional risk. The borrower may have difficulty
servicing and repaying multiple loans. The existence of another loan generally
also will make it more difficult for the borrower to obtain refinancing of the
mortgage loan and may thereby jeopardize repayment of the mortgage loan.
Moreover, the need to service additional debt may reduce the cash flow
available to the borrower to operate and maintain the mortgaged property.
Additionally, if the borrower (or its constituent members) defaults on the
mortgage loan or any other loan, actions taken by other lenders could impair
the security available to the trust. 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 trust's ability to
foreclose would be automatically stayed, and principal and interest payments
might not be made during the course of the bankruptcy case. The bankruptcy of
another lender also may operate to stay foreclosure by the trust.
BANKRUPTCY PROCEEDINGS ENTAIL CERTAIN RISKS
Under the Bankruptcy Code, the filing of a petition in bankruptcy by or
against a borrower will stay the sale of the real property owned by that
borrower, as well as the commencement or continuation of a foreclosure action.
In addition, if a court determines that the value of the mortgaged property is
less than the principal balance of the mortgage loan it secures, the court may
prevent a lender from foreclosing on the mortgaged property (subject to certain
protections available to the lender). As part of a restructuring plan, a court
also may reduce the amount of secured indebtedness to the then-value of the
mortgaged property. Such an action would make the lender a general unsecured
creditor for the difference between the then-value and the amount of its
outstanding mortgage indebtedness. A bankruptcy court also may: (i) grant a
debtor a reasonable time to cure a payment default on a mortgage loan; (ii)
reduce monthly payments due under a mortgage loan; (iii) change the rate of
interest due on a mortgage loan; or (iv) otherwise alter the mortgage loan's
repayment schedule.
Moreover, 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 the mortgaged property in a manner that would substantially
diminish the position of the junior lien. Additionally, the borrower's trustee
or the borrower, as debtor-in-possession, has certain special powers to avoid,
subordinate or disallow debts. In certain circumstances, the claims of the
trustee may be subordinated to financing obtained by a debtor-in-possession
subsequent to its bankruptcy.
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Under the Bankruptcy Code, the lender will be stayed from enforcing a
borrower's assignment of rents and leases. The Bankruptcy Code also may
interfere with the lender's ability to enforce lockbox requirements. The legal
proceedings necessary to resolve these issues can be time consuming and may
significantly delay the receipt of rents. Rents also may escape an assignment
to the extent they are used by the borrower to maintain the mortgaged property
or for other court authorized expenses.
As a result of the foregoing, the lender's recovery with respect to
borrowers in bankruptcy proceedings may be significantly delayed, and the
aggregate amount ultimately collected may be substantially less than the amount
owed.
ABSENCE OF LOCKBOXES ENTAILS RISKS
Under the Mall of New Hampshire loan the borrower has access to the
lockbox account and may withdraw funds in the account until: (i) there is a
default under the Mall of New Hampshire loan beyond any applicable cure period,
(ii) 60 days prior to the Effective Maturity Date unless the borrower provides
lender with evidence of its ability to repay the Mall of New Hampshire loan on
or before the Effective Maturity Date or (iii) the "debt service coverage
ratio" is less than 1.25x. However, in the case of clause (iii), the borrower
is permitted to regain access to the lockbox account if the "debt service
coverage ratio" equals or exceeds 1.25x for a period of at least six months or
if the borrower deposits additional collateral that effectively reduces debt
service so that the "debt service coverage ratio" is 1.25x or higher.
Under the NorthTown Mall loan, the borrower collects rents prior to
depositing them into the lockbox account until: (i) there is a default under
the NorthTown Mall loan, (ii) 30 days prior to the Effective Maturity Date or
(iii) the "debt service coverage ratio" is less than 1.10x. After the
occurrence of any such event, the tenants of the borrower will be instructed to
deposit rents directly into the lockbox account.
If rental payments are not required to be made directly into a lockbox
account, there is a risk that the borrower will divert those funds.
Neither the Edens & Avant Pool I loan nor the Edens & Avant Pool II Loan
requires the related borrower to cause tenants to pay rent and other payments
into a lockbox account maintained on behalf of the lender unless (i) a default
has occurred and is continuing under the loan, (ii) the Effective Maturity Date
has occurred or (iii) the "debt service coverage ratio" is less than 1.25x.
However, all amounts collected by the borrowers or the managers, as applicable
under such loans are required to be deposited one business day after receipt.
Further, each such borrower has deposited and is at all times required to
maintain with the lender two months of reserves for debt service.
The Westside Pavilion loan does not require the borrower to cause rent and
other payments to be deposited into a lockbox account maintained on behalf of
the lender unless (i) an event of default has occurred and is continuing under
the loan, (ii) the borrower does not deliver, 30 days prior to the Effective
Maturity Date, evidence that it will be able to refinance amounts outstanding
under the loan, (iii) the Effective Maturity Date has occurred or (iv) the
"debt service coverage ratio" is less than 1.35x.
LACK OF SKILLFUL PROPERTY MANAGEMENT ENTAIL RISKS
The successful operation of a real estate project depends upon the
property manager's performance and viability. The property manager is
responsible for:
o responding to changes in the local market;
o planning and implementing the rental structure;
o operating the property and providing building services;
o managing operating expenses; and
o assuring that maintenance and capital improvements are carried out
in a timely fashion.
Properties deriving revenues primarily from short-term sources are generally
more management intensive than properties leased to creditworthy tenants under
long-term leases.
We make no representation or warranty as to the skills of any present or
future managers. Additionally, we cannot assure you that the property managers
will be in a financial condition to fulfill their management responsibilities
throughout the terms of their respective management agreements.
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RISKS OF INSPECTIONS RELATING TO PROPERTY
Licensed engineers inspected the mortgaged properties to assess the
structure, exterior walls, roofing, interior construction, mechanical and
electrical systems and general condition of the site, buildings and other
improvements. However, there is no assurance that all conditions requiring
repair or replacement were identified.
ENGINEERING RISKS RELATING TO SPECIFIC PROPERTIES
o The engineering report for the Edens & Avant Pool I Property known
as Bishop's Corner recommended that repairs be made to a portion
of the property used as a garage. The report estimated that such
repairs would cost approximately $1,642,933. Under the related
loan agreement, a repair escrow has been established in an amount
of $2,670,105 to cover the cost of such expenses as well as for
other repairs related to the Edens & Avant Pool I Properties.
RESERVES TO FUND CAPITAL EXPENDITURES MAY BE INSUFFICIENT
The Mortgage Loans require that certain reserves be funded:
o The Grapevine Mills loan requires a reserve to be funded on a
monthly basis for certain leasing expenses. The Grapevine Mills
loan does not require the establishment of a reserve for capital
expenditure items until September, 2004.
o The Edens & Avant Pool I loan, the NorthTown Mall loan and the
Edens & Avant Pool II loan each require that a reserve for capital
expenditure items and a reserve for certain leasing expenses be
funded on a monthly basis from cash flow of the applicable
mortgaged property or properties.
o The Mall of New Hampshire loan requires that a reserve for capital
expenditure items be funded on a monthly basis from cash flow of
the mortgaged property or properties. However, for so long as the
total deposits in the combined capital expenditure reserve and
rollover reserve exceed $1,000,000, the Mall of New Hampshire
borrower is not required to make further deposits into such
account.
o The Westside Pavilion loan requires reserves for capital
improvements, but not leasing costs, to be funded on an ongoing
monthly basis. However, disbursements from this reserve account
are not subject to an annual budget approved by the lender. The
Westside Pavilion loan does not require the establishment of
reserve accounts for certain leasing costs until a lockbox has
been established for the loan as described above under "Absence of
Lockboxes Entails Risks."
o The Crystal Park IV loan requires a reserve for capital
expenditure items be funded on a monthly basis from cash flow of
the mortgaged property. The Crystal Park IV loan does not require
a reserve for certain leasing rollover expenses until the
occurrence of a bankruptcy or a non-renewal of lease by US
Airways, Inc., a tenant of the Crystal Park IV Property which
leases 70.1% of the gross leaseable area of such property.
We cannot assure you that the reserve amounts will be great enough to
cover the actual costs of the items for which the reserves were established. We
also cannot assure you that cash flow from the properties will be great enough
to fully fund the ongoing monthly reserve requirements.
RISKS OF INADEQUACY OF 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. 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 there can be no assurance that the title insurer will maintain its present
financial strength. Further, there can be no assurance that a title insurer
will not contest claims made upon it.
ABSENCE OR INADEQUACY OF INSURANCE COVERAGE ENTAILS RISKS
The mortgaged properties may suffer casualty losses due to risks which
were not covered by insurance or for which insurance coverage is inadequate. In
addition, certain of the mortgaged properties are located in California and
Texas, states
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that have historically been at greater risk regarding acts of nature (such as
hurricanes, floods and earthquakes) than other states. There is no assurance
borrowers will be able to maintain adequate insurance. Moreover, if
reconstruction or any major repairs are required, changes in laws may
materially affect the borrower's ability to effect such reconstruction or major
repairs or may materially increase the cost thereof.
As a result of any of these factors, the amount available to make
distributions on the Offered Certificates could be reduced.
HAZARDS APPLICABLE TO SPECIFIC PROPERTIES AND INSURANCE COVERAGE FOR CERTAIN
MORTGAGE LOANS
o The building damage insurance, business interruption insurance and
boiler and machinery insurance for the Grapevine Mills Property
are provided by Industrial Risk Investors, which is a syndication
of insurers which have claims paying ability ratings that range
from "BBB" to "AAA" by S&P and "A-" to "A++" by Best's.
o The Mall of New Hampshire is located in a Zone C flood zone. The
Mall of New Hampshire borrower has obtained flood coverage as part
of its property damage insurance in a $50,000,000 annual aggregate
flood limit. The Mall of New Hampshire property's coverage for all
property damage was, as of the closing of the Mall of New
Hampshire loan, provided by Industrial Risk Insurers, which is an
underwriting organization comprised of a number of insurance
companies which have claims paying ability ratings that range from
"A" to "AAA" by S&P, with the majority rated "AAA"; and the
liability coverage is provided by Travelers Indemnity Company,
which has a claims paying ability rating of "A+" by S&P and "A(FSC
xv)" by Best's.
o The Westside Pavilion Property is located in a Zone AO flood
hazard area and a high seismic activity zone in California.
The Westside Pavilion borrower has flood coverage as part of its
building damage insurance limited to $100,000,000 in annual
aggregate damages.
At closing, the Westside Pavilion borrower was required to obtain
earthquake insurance for the Westside Pavilion Property with a
coverage amount of not less than the probable maximum loss of 15%
of the replacement cost of improvements on the Westside Pavilion
Property, which amount was determined by engineering and seismic
analysis as the probable maximum loss on such property. Even if
earthquake insurance premiums increase over time, the Westside
Pavilion borrower is only required to maintain earthquake insurance
in the amount obtainable for a premium price not greater than 140%
of the premium of the earthquake insurance initially purchased in
connection with the Westside Pavilion loan. For a description of
the insurance the borrower has currently obtained, see "Description
of the Mortgage Loans--Westside Pavilion: The Loan" in this
prospectus supplement.
o The Crystal Park Property is located in a Zone C flood zone. The
Crystal Park borrower has obtained flood coverage as part of its
property damage insurance, in a $20,000,000 annual aggregate flood
limit. The Crystal Park property's coverage for property damage,
loss of income and general and excess liability, except for boiler
and machinery, is provided by Travelers Indemnity Company of
Illinois, which has a claims paying ability rating of "A+" by S&P
and "A(FSC xv)" by Best's. The boiler and machinery coverage is
provided by American Motorist Insurance Co., which has a claims
paying ability rating of "A+" by S&P and "A(FSC xv)" by Best's.
The amount of earthquake or flood insurance currently required or provided
may be insufficient to cover damages caused by an earthquake or flood, and such
insurance may not be commercially available in the future. In addition,
earthquake insurance coverage often is not obtainable from "AA" or higher-rated
insurers. The loan documents therefore permit such insurance to be obtained
from lower-rated insurance companies.
BLANKET INSURANCE POLICIES ENTAIL RISKS
Certain of the mortgaged properties are covered by blanket insurance
policies which also cover other properties of the related borrower or its
affiliates. If those policies are drawn on to cover losses on those other
properties, the amount of available insurance coverage would be reduced and
could be insufficient to cover each mortgaged property's insurable risks.
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APPRAISALS AND MARKET STUDIES HAVE CERTAIN LIMITATIONS
In connection with the origination of the applicable mortgage loan,
appraisals were obtained with respect to each of the mortgaged properties
(other than the NorthTown Mall Property and the Edens & Avant Pool I and Pool
II Properties). Market studies were obtained for the NorthTown Mall Property
and the Edens & Avant Pool I and Pool II Properties. The values for the
properties for which market studies were obtained, for purposes of
loan-to-value calculations contained in this prospectus supplement, are the
purchase prices of such properties.
Appraisals represent the analysis and opinion of qualified appraisers.
They are not guarantees of present or future value. Moreover, different
appraisers may reach different conclusions regarding the value of a particular
property. 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.
DIFFERENT TIMING OF MORTGAGE LOAN AMORTIZATION POSES CERTAIN RISKS
As principal payments or prepayments are made on a mortgage loan that is
part of a pool of loans, the pool will be subject to more concentrated risks
with respect to the diversity of mortgaged properties, types of mortgaged
properties and number of borrowers, as described above. Classes that have a
later sequential designation or a lower payment priority are more likely to be
exposed to this concentration risk than are classes with an earlier sequential
designation or higher priority. This is so because principal on the Offered
Certificates is payable in sequential order, and no class entitled to
distribution of principal receives principal until the principal amount of the
preceding class or classes entitled to receive principal have been reduced to
zero.
SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
As described in this prospectus supplement, unless your certificates are
Class A-1, Class A-2 or Class X Certificates, your rights to receive
distributions of amounts collected or advanced on or in respect of the mortgage
loans will be subordinated to those of the holders of the offered certificates
with an earlier alphabetical designation. See "Description of the Offered
Certificates--Distributions--Payment Priorities" and "--Subordination" in this
prospectus supplement and "Risk Factors--Subordination of the Subordinate
Certificates; Effect of Losses on the Assets" in the prospectus.
TAX CONSIDERATIONS RELATING TO FORECLOSURE
If the trust acquires a mortgaged property pursuant to a foreclosure or
deed in lieu of foreclosure, the Special Servicer must retain an independent
contractor to operate the property. Any net income from such operation (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 non-customary service,
will subject the Lower-Tier REMIC to federal tax (and possibly state or local
tax) on such income at the highest marginal corporate tax rate (currently 35%).
In such event, the net proceeds available for distribution to
certificateholders will be reduced. The Special Servicer may permit 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 under another method of operating or net leasing the mortgaged
property.
RISKS RELATING TO ENFORCEABILITY
All of the mortgage loans contain due-on-sale clauses, each of which
permits the lender to accelerate the maturity of the mortgage loan if the
borrower sells, transfers or conveys the related mortgaged property or its
interest in the mortgaged property. All of the Mortgage Loans also include
debt-acceleration clauses, each of which permits the lender to accelerate the
debt upon specified monetary or non-monetary defaults by the borrower. The
courts of all states will enforce acceleration clauses 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 or permit the acceleration of
the indebtedness as a result of a default deemed to be immaterial or if the
exercise of such remedies would be inequitable or unjust or the circumstances
would render the acceleration unconscionable.
Each of the mortgage loans is secured by an assignment of leases and rents
under which the related borrower assigned its right, title and interest as
landlord under the leases on the related mortgaged property and the income
derived from the property to the lender as further security for the related
mortgage loan, while keeping a license to collect rents for so long as there is
no default. In the event the borrower defaults, the license terminates and the
lender is entitled to collect rents. In
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some cases, such assignments may not be perfected as security interests prior
to actual possession of the cash flow. In some cases, state law 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 Mortgage Loans--Leases and Rents" in
the Prospectus.
STATE LAW LIMITATIONS ENTAIL CERTAIN RISKS
Some states (including California and Washington) have laws prohibiting
more than one "judicial action" to enforce a mortgage obligation. Some courts
have construed the term "judicial action" broadly. In the case of a pool loan
secured by mortgaged properties located in multiple states, the Special
Servicer may be required to foreclose first on mortgaged properties located in
states where such "one action" rules apply (and where non-judicial foreclosure
is permitted) before foreclosing on mortgaged properties located in states
where judicial foreclosure is the only permitted method of foreclosure. As a
result, the ability to realize upon the mortgage loans, may be limited by the
application of state laws. Foreclosure actions may also, in certain
circumstances, subject the trust to liability as a "lender-in-possession" or
result in the equitable subordination of the claims of the Trustee to the
claims of other creditors of the borrower. The Special Servicer may take these
state laws into consideration in deciding which remedy to choose following a
default by a borrower.
CALIFORNIA USURY LAW ENTAILS CERTAIN RISKS WITH RESPECT TO WESTSIDE PAVILION
LOAN
Under certain circumstances the interest rate of the Westside Pavilion
loan might violate California usury law. The loan documents for the Westside
Pavilion loan contain choice of law provisions stipulating that New York law
apply to the loan provisions. An opinion letter was obtained from California
counsel of the borrower indicating that courts applying California law should
honor the choice of law provisions with respect to usury 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 the Westside Pavilion loan should not violate the
fundamental policy of California. The Westside Pavilion loan is not usurious
under New York law. Under California law, a lender under a loan that is
usurious loses its right to collect interest on the loan, but keeps its right
to collect principal. The title insurance policy obtained for the Westside
Pavilion loan affirmatively insures the lender against loss or costs if the
Westside Pavilion mortgage is unenforceable as a result of the California usury
law.
LEASEHOLD INTERESTS ENTAIL CERTAIN RISKS
4 of the mortgaged loans are secured, in whole or in part, by ground
leases. See "Description of the Mortgaged Properties and the Mortgage
Loans--Mall of New Hampshire: The Borrower; The Property," "--Westside
Pavilion: The Borrower; The Property," "--Edens & Avant Pool II: The Borrower;
The Property" and "--Crystal Park IV: The Borrower; The Property" in this
prospectus supplement. For example:
o The Mall of New Hampshire loan is secured by, among other things,
a leasehold interest under 2 ground leases for a portion of the
land underlying the Mall of New Hampshire Property which is
currently used exclusively for parking. One of the ground leases
contains 15 extension options of 5 years each. If the borrower
fails to exercise any option to renew this ground lease during the
term of the Mall of New Hampshire loan, the ground lessor has
agreed that the mortgagee will have the right to exercise the
options.
The other ground lease expires on September 20, 2027, which is
before the final maturity date of the loan, and does not have any
renewal rights. This ground lease lacks substantially all of the
lender protections that are commonly required by institutional
lenders. However, the potential risks relating to lack of standard
mortgagee protections in this ground lease have been mitigated by
the following factors: (i) the ground lessor has joined in the
mortgage as required by the ground lease; (ii) the title insurance
policy insures that the mortgage constitutes a valid and
enforceable first lien on the ground lessor's fee interest in the
land that is covered by the ground lease; and (iii) a zoning
opinion letter was obtained from local counsel to the effect that
the loss of the land demised by the ground lease (a) would not
cause the remainder of the Mall of New Hampshire Property to
violate applicable zoning requirements, (b) would result in the
loss of not more than 30 parking spaces and (c) would not prevent
the borrower from rerouting the existing driveways. According to
this opinion letter, the Mall of New Hampshire Property currently
has 3,807 parking spaces which is approximately 253 more than
required.
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o The Edens & Avant Pool II loan is secured in part by ground leases
in the land underlying 3 of the Edens & Avant Pool II Properties.
These ground leases expire in April, 2002, November, 2014 and
September, 2097.
Two of the ground leases securing the Edens & Avant Pool II loan,
relating to the properties known as Baldwin Square and Reservoir
Square, do not have standard mortgagee protections in the case of a
bankruptcy where the borrower rejects the ground leases. The loan
agreement has mitigated the effect of such lack of protections by
requiring the borrower to substitute those properties for two other
properties if the debt service coverage ratio for the loan falls
below 1.25x and subject to certain other requirements. See
"Description of the Mortgaged Properties and The Mortgage
Loans--Edens & Avant Pool II: the Borrower; The Property."
With respect to the third ground lease securing the Edens & Avant
Pool II loan relating to the property known as Magee, the borrower
has exercised a purchase option for the property that will become
effective in one year. Under the purchase option, the borrower has
required the seller of Magee to escrow all monthly ground lease
rental payments that will become due prior to the actual transfer
of the property. The borrower has provided the lender with a lien
on the ground lease escrow in order to insure that such amounts
will be available for the payment of all ground lease rents due
with respect to this property.
o The Westside Pavilion loan is secured by, among other things, a
lease of a portion of the land on the Westside Pavilion Phase II
property which is not secured by the Westside Pavilion loan. Such
leased property is subleased to Nordstrom, an anchor tenant on the
Westside Pavilion Property, as storage space for the Nordstrom
store operated on the Westside Pavilion Property. Such lease is
coterminous with, and does not extend further than, the Nordstrom
lease for the anchor store.
o The Crystal Park IV loan is secured by, among other things, both
the fee interest of the owner and the ground leasehold interest of
the Crystal Park IV borrower in the land underlying the Crystal
Park IV Property under a ground lease that expires in 2084. All
ground lease rents due with respect to this property have been
prepaid to 2084. Pursuant to the related mortgage, the mortgagee
has given the ground lessor for this property certain rights to
cure defaults under the Crystal Park IV loan, and agreed to notify
it of certain defaults simultaneously with the Crystal Park IV
borrower. See "Description of the Mortgaged Properties and the
Mortgage Loans--Crystal Park IV: The Borrower; The Property" in
this prospectus supplement.
Upon the bankruptcy of a lessor or a lessee under a ground lease, the
debtor entity has the right to assume or reject the lease. If a debtor lessor
rejects the lease, the lessee 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). If a debtor lessee/borrower rejects any or all of its
leases, the leasehold lender could succeed to the lessee/borrower's position
under the lease only if the lessor specifically grants the lender such right.
If both the lessor and the lessee/borrowers are involved in bankruptcy
proceedings, the trustee may be unable to enforce the bankrupt
lessee/borrower's right 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.
RISKS RELATING TO CONSTRUCTION AT GRAPEVINE MILLS PROPERTY AND NORTHTOWN MALL
PROPERTY
The Grapevine Mills borrower has ground leased certain portions of
non-income earning portions of the Grapevine Mills Property to its subsidiary,
Grapevine Mills Development Company, L.L.C. The ground lessee intends to
develop these parcels. However, the Grapevine Mills borrower will not receive
the revenues from these parcels. All development on these parcels is required
to comply with all zoning restrictions applicable to these parcels and to the
Grapevine Mills Property, including parking requirements.
As part of the contract of sale for the NorthTown Mall Property, the
seller agreed to construct additional improvements on the NorthTown Mall
Property. The borrower has agreed to pay up to $17,000,000 for this
construction. Price Development Company, Limited Partnership, an equity owner
of the NorthTown Mall borrower, agreed that it will pay the seller for the
price of construction of these additional improvements. Price Development
Company, Limited Partnership has a credit rating of its long term senior
unsecured debt of BBB-- from S&P. The seller has released the NorthTown Mall
borrower from its obligation to pay the seller for the construction, but has
reserved the right to place construction liens on the property. In addition,
Price Development Company, Limited Partnership, has guaranteed to the lender
the timely performance of the construction of such additional improvements.
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There is no assurance that the construction will be completed, that there
will not be delays in construction, or that the 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 loan.
A $9,500,000 letter of credit issued by UBS AG, New York branch, on behalf
of Price Development Company, Limited Partnership, was provided to mortgagee as
escrow security for the completion of such construction. This letter of credit
will not be released until (a) the construction has been completed and (b) the
borrower has entered into leases with Act III Theaters, Barnes & Noble and Old
Navy (or other tenants with equal or higher credit ratings), for terms of at
least 10 years and for rents, in the aggregate, of at least $1,475,000. If the
conditions for release are not met by August, 2000, the borrower is required to
partially defease the loan in an amount of $9,500,000. If the borrower fails to
defease such amount, the trust is required to draw upon the entire amount of
the letter of credit and apply it toward the prepayment of the loan. See
"Description of the Mortgaged Properties and Mortgage Loans--NorthTown Mall:
The Loan" in this prospectus supplement.
Construction, while ongoing, could be disruptive and inconvenient to
customers. This disruption could cause temporary downward pressure on net
operating income of the Grapevine Mills Property or the NorthTown Mall
Property, as applicable. With respect to the NorthTown Mall Property, if Price
Development Company, Limited Partnership fails to pay the costs for the
construction, the portion of the property on which there is construction could
be subject to mechanics' and a materialmen's liens that would be senior to the
lien of the NorthTown Mall loan.
Furthermore, the REMIC provisions of the Code prohibit construction on a
mortgaged property acquired on behalf of the trust through foreclosure or deed
in lieu of foreclosure, 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 the NorthTown Mall
Property were acquired by foreclosure or deed in lieu of foreclosure 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 property might
diminish as a result.
POTENTIAL ABSENCE OF ATTORNMENT PROVISIONS ENTAILS RISKS
In some jurisdictions, if tenant leases are subordinate to liens created
by the mortgage and do not contain attornment provisions (i.e. provisions
requiring the tenant to recognize a successor owner following foreclosure as
landlord under the lease), the leases may terminate upon the transfer of the
property to a foreclosing lender or purchaser at foreclosure. Not all leases
were reviewed to ascertain the existence of attornment or subordination
provisions. Accordingly, if a mortgaged property is located in such a
jurisdiction and is leased to one or more desirable tenants under leases that
are subordinate to the mortgage and do not contain attornment provisions, such
mortgaged property could experience a further decline in value if such tenants'
leases were terminated. This is particularly likely if such tenants were paying
above-market rents or could not be replaced.
If a lease is not subordinate to a mortgage, the trust will not possess
the right to dispossess the tenant upon foreclosure of the mortgaged property
(unless it has otherwise agreed with the tenant). If the lease 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 the lender'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
at the retail properties included in the trust are not subordinate to the
related Mortgage.
RISKS RELATING TO 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 affiliates.
RISKS RELATING TO COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990 ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Borrowers may incur costs 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.
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RISKS RELATING TO CONFLICTS OF INTEREST
Conflicts Between Trustee and Affiliates of Morgan Stanley Mortgage
Capital Inc. Conflicts of interest may arise between the trust and affiliates
of Morgan Stanley Mortgage Capital Inc. that engage in the acquisition,
development, operation, financing and disposition of real estate.
Those conflicts may arise because affiliates of Morgan Stanley Mortgage
Capital Inc. 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, those affiliates may
acquire or sell properties, or finance mortgage loans secured by properties,
which are in the same markets as the mortgaged properties. In such case, the
interests of those affiliates may differ from, and compete with, the interests
of the trust, and decisions made with respect to those assets may adversely
affect the value of the mortgaged properties and therefore the amount and
timing of distributions with respect to the certificates.
Conflicts Between Property Managers and the Mortgage Loan Borrowers.
Substantially all of the property managers for the mortgaged properties (or
their affiliates) manage additional properties, including properties that may
compete with the mortgaged properties. Affiliates of the managers, and certain
of the managers themselves, also may own other properties, including competing
properties. The managers of the mortgaged properties may accordingly experience
conflicts of interest in the management of such mortgaged properties.
RISKS RELATING TO PREPAYMENTS AND REPURCHASES
The yield to maturity on your certificates will depend, in significant
part, upon the rate and timing of principal payments on the mortgage loans. For
this purpose, principal payments include both voluntary prepayments, if
permitted, and involuntary prepayments, such as prepayments resulting from
casualty or condemnation, defaults and liquidations or repurchases upon
breaches of representations and warranties. Because the Notional Amount of the
Class X Certificates is based upon the Principal Amounts of the certificates
with principal amounts, the yield to maturity on the Class X Certificates will
be extremely sensitive to the rate and timing of prepayments of principal.
The investment performance of your certificates may vary materially and
adversely from your expectations if the actual rate of prepayment is higher or
lower than you anticipate.
Voluntary prepayments are permitted in certain limited circumstances, but
in no case earlier than 90 days before a loan's Effective Maturity Date.
Nevertheless, we cannot assure you that the related borrowers will refrain from
prepaying their mortgage loans. Also, we cannot assure you that involuntary
prepayments will not occur.
No yield maintenance charge or prepayment premium will be required 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 addition, if Morgan Stanley Mortgage Capital Inc. repurchases
any mortgage loan from the trust due to breaches of representations or
warranties, the repurchase price paid will be passed through to the holders of
the certificates with the same effect as if the mortgage loan had been prepaid
in part or in full, except that no prepayment premium or yield maintenance
charge would be payable. Such a repurchase may therefore adversely affect the
yield to maturity on your certificates.
RISKS RELATING TO ENFORCEABILITY OF PREPAYMENT PREMIUMS
Provisions requiring yield maintenance charges or prepayment premiums may
not be enforceable in some states and under federal bankruptcy law. Those
provisions also may constitute interest for usury purposes. Accordingly, we
cannot assure you that the obligation to pay a yield maintenance charge or
prepayment premium will be enforceable. Also, we cannot assure you that
foreclosure proceeds will be sufficient to pay an enforceable yield maintenance
charge or prepayment premium. Additionally, although the collateral
substitution provisions related to defeasance do not have the same effect on
the certificateholders as prepayment, we cannot assure you that a court would
not interpret those provisions as requiring a yield maintenance charge or
prepayment premium. In certain jurisdictions those collateral substitution
provisions might therefore be deemed unenforceable under applicable law, or
usurious.
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RISKS RELATING TO BORROWER DEFAULT
The rate and timing of delinquencies or defaults on the mortgage loans
will affect:
o the aggregate amount of distributions on the offered certificates;
o their yield to maturity;
o the rate of principal payments; and
o their weighted average life.
If losses on the mortgage loans exceed the aggregate principal amount of
the classes of certificates subordinated to a particular class, such class will
suffer a loss equal to the full amount of such excess (up to the outstanding
principal amount of such class).
If you calculate your anticipated yield based on assumed rates of default
and losses that are lower than the default rate and losses actually experienced
and such losses are allocable to your certificates, your actual yield to
maturity will be lower than the assumed yield. Under certain extreme scenarios,
such yield could be negative. In general, the earlier a loss borne by you on
your certificates occurs, the greater the effect on your yield to maturity.
Even if losses on the mortgage loans are not borne by your certificates,
those losses may affect the weighted average life and yield to maturity of your
certificates. This may be so because those losses lead to your certificates
having a higher percentage ownership interest in the trust and related
distributions of principal payments on the mortgage loans than would otherwise
have been the case. The effect on the weighted average life and yield to
maturity of your certificates will depend upon the characteristics of the
remaining mortgage loans.
Additionally, delinquencies and defaults on the mortgage loans may
significantly delay the receipt of distributions by you on your certificates,
unless P&I Advances are made to cover delinquent payments or the subordination
of another class of certificates fully offsets the effects of any such
delinquency or default.
RISKS RELATING TO CERTAIN PAYMENTS
To the extent described in this prospectus supplement, the Master
Servicer, the Special Servicer or the Trustee, as applicable, will be entitled
to receive interest on unreimbursed Advances. This interest will generally
accrue from the date on which the related Advance is made or the related
expense is incurred through the date of reimbursement. In addition, under
certain circumstances, including delinquencies in the payment of principal and
interest, a mortgage loan will be specially serviced and the Special Servicer
is entitled to compensation for special servicing activities. The right to
receive interest on Advances or special servicing compensation is senior to the
rights of certificateholders to receive distributions on the offered
certificates.
RISKS OF LIMITED LIQUIDITY AND MARKET VALUE
Your Certificates will not be listed on any securities exchange or traded
on the NASDAQ Stock Market, and there is currently no secondary market for your
certificates. See "Risk Factors--Limited Liquidity" in the prospectus.
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.
INTEREST RATES BASED ON WAC RATE ENTAIL CERTAIN RISKS
The interest rates on the Class B, Class C, Class D and Class E
Certificates are based on a weighted average of the mortgage loan interest
rates, which is calculated based upon the respective principal balances of
those mortgage loans. This "weighted average" rate is further described in this
prospectus supplement under the definition of WAC Rate. All of those
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classes of certificates which are either fully or partially based upon such
"weighted average" rate 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.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
We are aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000 problem" is pervasive and complex; virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause the system to
fail.
We have been advised by each of the Master Servicer, the Special Servicer
and the Trustee that they are committed either to (i) implement modifications
to their respective existing systems to the extent required to cause them to be
year 2000 compliant or (ii) acquire computer systems that are year 2000
compliant in each case prior to January 1, 2000. However, we have not made any
independent investigation of the computer systems of the Special Servicer or
the Trustee. In the event that computer problems arise out of a failure of such
efforts to be completed on time, or in the event that the computer systems of
the Master Servicer, the Special Servicer or the Trustee are not fully year
2000 compliant, the resulting disruptions in the collection or distribution of
receipts on the mortgage loans could materially adversely affect your
investment.
OTHER RISKS
See "Risk Factors" in the Prospectus for a description of certain other
risks and special considerations that may be applicable to your certificates.
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MORTGAGE POOL CHARACTERISTICS
GENERAL
The Trust Fund will consist primarily of 7 Mortgage Loans with an
aggregate principal balance as of the Cut-Off Date, after deducting payments of
principal due on such date, of $706,465,702. 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 1 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 (1) ................. 38
Leasehold Estate ............... 3
</TABLE>
- --------
(1) Mortgage Loans which are secured by a fee and a leasehold interest in a
Mortgaged Property are listed under the Fee Estate heading.
The Mortgaged Properties consist of retail properties and an office
property. 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 (except with respect to the guaranty of the
obligations of the Grapevine Mills Borrower under the Guaranties described
under "Description of the Mortgaged Properties and the Mortgage
Loans--Grapevine Mills: The Loan" herein). To facilitate loan closings, MSMC
engaged Secore Financial Corporation, a Pennsylvania corporation ("Secore"), to
originate all of the Mortgage Loans. Secore is referred to herein as the
"Originator". 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 Norwest Bank Minnesota,
National Association, as Trustee (the "Trustee"), pursuant to the Pooling
Agreement. Midland Loan Services, Inc. ("Midland"), 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
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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.
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/360 Basis" means the calculation of interest on the basis of the
actual number of days elapsed and a 360 day year.
"Actual DSCR" means for any Mortgage Loan (i) as of the Cut-Off Date, (A)
Underwritable Cash Flow divided by (B) Annual Debt Service and (ii) as of the
Effective Maturity Date, (A) Underwritable Cash Flow divided by (B) 12 months
of debt service assuming a balance equal to the Effective Maturity Date
Balance, an interest rate equal to the Initial Interest Rate 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, based on the Monthly
Payment specified in the related Loan Description).
"Adjusted Net Operating Income" means, NOI which has been reduced by
extraordinary revenue items, such as interest income or other income reported
on historical operating statements which was not generated directly from the
operations of the Mortgaged Property, or NOI which has been increased by
extraordinary or one-time expense items, such as significant non-recurring
capital expenditures, or expenses which are considered ancillary to the
operations of the Mortgaged Property.
"Allocated Loan Amount" means for each Mortgaged Property in the Edens &
Avant Pool I and the Edens & Avant Pool II, 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.
"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 following
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.
"Appraised 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 NorthTown Mall Loan, the Edens & Avant
Pool I Loan and the Edens & Avant Pool II Loan, the recent purchase price for
each Mortgaged Property.
"Approved Bank" means, 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 1 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 or NRA as of the same
date for which the NOI of the subject property was calculated.
"Best's" 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 Property or
Properties. Unless otherwise specified in the related Loan Description,
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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 in all material respects and
have been paid for or will be paid for when such disbursement is made.
"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 in
the Edens & Avant Pool I Loan and the Edens Avant Pool II Loan, 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 then
existing, (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,
(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 and (vii) conveyance of the property as to
which Defeasance is effected to an entity other than Borrower.
"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 in all material
respects 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.
"Due Date" means for any Mortgage Loan the date in each month on which the
Monthly Payment is due, without giving effect to any grace period.
Notwithstanding the foregoing, if the Due Date is not a business day (as
defined in such Mortgage Loan), the Mortgage Loan may be paid on the next
business day.
"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 (or 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 Mortgaged Properties means Total 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 paid to the mortgagee to be 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 principal
payment defaults.
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"Effective Maturity Date LTV" or "EMD LTV" means with respect to any EMD
Loan, the Effective Maturity Date Balance for such Mortgage Loan divided by the
aggregate Appraised Value of the Mortgaged Properties securing such Mortgage
Loan as of the Cut-Off Date. Such calculation thus assumes that the appraised
or calculated values of the Mortgaged Properties securing a Mortgage Loan on
the Effective Maturity Date is the same as the Appraised 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.
"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
Interest 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; provided, however, that the Edens
& Avant Pool I and Pool II Loans permit Edens & Avant Properties, Limited
Partnership, the direct and indirect owner of 100% of the equity interest in
each of the Edens & Avant Pool I and Pool II Borrowers, to receive up to 5%
of the gross income earned on the related Mortgaged Properties prior to
application of Excess Cash Flow to payment of principal on the related
Mortgage Loan.
"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 or revenues
less debt service, deposits to Reserve Accounts, and capital and operating
expenses approved by mortgagee.
"Fee" means the owner of a subject property has entitlement to the entire
interest in such property, with unconditional power of disposition.
"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 reasonably acceptable to mortgagee, and (ii) within 45 days after
each calendar quarter, 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 and (b) quarterly and year to date operating statements.
"First Tier Lockbox" as defined under "Two-Tier Lockbox."
"GAAP" means generally accepted accounting principles.
"GLA" or "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, a Lockbox as to which the
related lockbox or cash management agreement requires the borrower to instruct
tenants to deposit rents directly therein.
"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, if
any, 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 at least 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.
"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 the entering into or termination
of 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 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 the Mortgage Loans--The [Name of
Mortgage Loan]--The 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 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
and (ii) as of the Effective Maturity Date, the Effective Maturity Date Balance
divided by the number of square feet in the related Mortgaged Property or
Properties.
"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 Appraised 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, the
Effective Maturity Date Balance 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 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.
S-46
<PAGE>
"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, 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 and (x)
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 voluntary 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.
"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.
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 NOI.
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
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).
S-47
<PAGE>
"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 voluntary 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.
"Refinancing DSCR" with respect to each Mortgage Loan is calculated in the
manner set forth in the footnotes to the table entitled "Certain Loan
Statistics" included in each loan description set forth under the heading
"Description of the Mortgaged Properties and Mortgage Loans." The calculation
of Refinancing DSCR at the Effective Maturity Date assumes that Underwritable
Cash Flow at the Effective Maturity Date will remain the same as current
Underwritable Cash Flow, and that the loan constant set forth therein will be
the loan constant used in a refinancing loan. There can be no assurance that
actual net operating income will not be less or greater than such Underwritable
Cash Flow or as to what the loan constant or debt service would be on a
refinancing loan.
"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 in all material respects 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) unless a Loan Default has occurred and is continuing for the
purposes for which such account was established and (ii) following a Loan
Default which is continuing, 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.
"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 in all material respects 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 or NRA (as provided by the borrower), and in the case of
multifamily properties and hotel properties, the number of apartment units and
hotel rooms, respectively.
"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.
S-48
<PAGE>
"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,
(a) 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, or in case of certain Mortgage
Loans, underwritable cash flow, in each case as defined in the related loan
agreement, thereof and (b) 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, (a) the right to approve each annual budget of the
borrower commencing with the annual period in which the Effective Maturity
Date occurs, and (b) the right to approve any expense that is not budgeted
for in an annual budget as to which the mortgagee's approval is required.
"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 been 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.
"Two-Tier Lockbox" means a 2 Lockbox arrangement where 1 Lockbox (the
"First-Tier Lockbox") is used for receipt of funds, and all funds therein are
swept, when applicable, within a specified period after receipt therein into a
second lockbox (the "Second-Tier Lockbox") from which 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 provided by the related borrower.
(b) Management Fees: Management fees used in the calculation of
Underwritable Cash Flow are generally as follows, except as listed on the
chart below: 4.0%-5.0% of base rent plus percentage rent for retail
properties; and 3.0%-3.5% of Effective Gross Income for the office property.
(c) Capital Reserves: Annual reserves assumed in calculating Underwritable
Cash Flow are $0.15/sf, except as listed on the chart below.
(d) Rollover Expenses: Annual expenses of tenant rollover (i.e., tenant
improvements and leasing commissions) assumptions used in calculating
Underwritable Cash Flow are generally as follows:
S-49
<PAGE>
<TABLE>
<CAPTION>
TENANT
IMPROVEMENTS(1)
------------------
BASE RENT
PER AVG. LEASE RENEWAL NEW RENEWAL
SQUARE FOOT(2) TERM (YRS) PROBABILITY TENANT TENANT
---------------- ------------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Grapevine Mills ............... $ 16.88 10 65% $15 $5
Edens & Avant Pool I .......... $ 11.24 5 65% $ 5 $0
Mall of New Hampshire ......... $ 36.39 10 65% $15 $5
Westside Pavilion ............. $ 27.40 10 65% $15 $5
NorthTown Mall ................ $ 14.70 10 65% $15 $5
Edens & Avant Pool II ......... $ 7.27 5 65% $ 5 $0
Crystal Park IV ............... $ 27.18 10 65% $20 $5
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
LEASING
COMMISSIONS(1)
--------------------
NEW RENEWAL MANAGEMENT CAPITAL
TENANT TENANT FEES RESERVES
---------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Grapevine Mills ............... $ 2.50 $ 1.50 4.5% $ 0.15
Edens & Avant Pool I .......... $ 2.50 $ 1.25 4.0% $ 0.20
Mall of New Hampshire ......... $ 2.50 $ 1.50 4.0% $ 0.15
Westside Pavilion ............. $ 2.50 $ 1.50 5.0% $ 0.15
NorthTown Mall ................ $ 2.50 $ 1.50 4.0% $ 0.15
Edens & Avant Pool II ......... $ 2.50 $ 1.25 4.0% $ 0.20
Crystal Park IV ............... $ 2.50 $ 1.50 3.0% $ 0.24
</TABLE>
- --------
(1) Amounts are per square foot.
(2) Total annual base rent per square foot calculation excludes vacant square
footage.
(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%, except in the case of the Crystal Park IV Property
97%.
(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.
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 determined by MSMC)
for a 12 month period, generally LTM (last 12 months), with respect to a
Mortgaged Property, or group of related Mortgaged Properties, and is defined as
the excess of the total Effective Gross Income or Total Revenue less the
operating expenses incurred for such period. The adjustments described in the
definition of Underwritable Cash Flow under the headings "Revenue," "Management
Fees," "Occupancy," "Real Estate Taxes" and "Expenses" were also used in
calculating Underwritable NOI. 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.
S-50
<PAGE>
"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.
"Yield Maintenance Premium" means for any Mortgage Loan, a Prepayment
Charge equal to the present value as of the date of the prepayment of the
Calculated Payments from the date of the prepayment to the Effective Maturity
Date, 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 amount being prepaid at a rate equal to the positive excess of (i)
the Initial Interest Rate over (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. "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 Crystal Park IV Loan provides the ground
lessor of the Crystal Park IV Property, the ability to cure payment defaults
under the Crystal Park IV Loan. As of the Cut-Off Date, the Mortgage Loans had
the following characteristics:
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Balance .............................................. $706,465,702
Lowest Mortgage Loan Principal Balance ................................... $67,039,458
Highest Mortgage Loan Principal Balance .................................. $155,000,000
Average Mortgage Loan Principal Balance .................................. $100,923,672
Range of Remaining Terms to Effective Maturity Date ...................... 117 to 120 months
Weighted Average Remaining Term to Effective Maturity Date ............... 119 months
Range of Mortgage Rates per annum ........................................ 6.20% to 6.955%
Weighted Average Mortgage Rate ........................................... 6.49%
Range of Cut-Off Date LTVs ............................................... 47.1% to 65.2%
Weighted Average Cut-Off Date LTVs ....................................... 58.2%
Range of Cut-Off Date Actual Debt Service Coverage Ratios ................ 1.67x to 2.90x
Weighted Average Cut-Off Date Actual Debt Service Coverage Ratio ......... 2.16x
</TABLE>
The loan balances used in computing these statistics for the Grapevine
Mills, Mall of New Hampshire and NorthTown loans have been reduced by any
guarantees or letters of credit.
S-51
<PAGE>
The following table sets forth certain general information regarding the
prepayment terms of the Mortgage Loans.
PREPAYMENT AND DEFEASANCE TERMS
<TABLE>
<CAPTION>
MORTGAGE LOAN LOAN TYPE LOCKOUT PERIOD TO
- ------------------------------- ------------------ --------------------
<S> <C> <C>
Grapevine Mills ............... EMD Loan July 1, 2008,
3 months prior to
its EMD
Edens & Avant Interest August 1, 2008,
Pool I ....................... Only EMD Loan(3) 2 months prior to
its EMD
Mall of New Hampshire ......... EMD Loan October 1, 2008,
its EMD
Westside Pavilion ............. EMD Loan July 1, 2008,
its EMD
NorthTown Mall ................ EMD Loan September 1, 2008,
its EMD
Edens & Avant Interest August 1, 2008,
Pool II ...................... Only EMD Loan(3) 2 months prior
to its EMD
Crystal Park IV ............... EMD Loan August 1, 2008,
1 month prior to
its EMD
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PREPAYMENT
PREPAYMENT FEE/YIELD
FEE/YIELD MAINTENANCE
DEFEASANCE MAINTENANCE PREMIUM
MORTGAGE LOAN TERM TERM(1) UPON DEFAULT(2)
- ------------------------------- ----------------- ------------- --------------------------
<S> <C> <C> <C>
Grapevine Mills ............... From August 12, N/A Grapevine Mills
2001 to EMD Yield Maintenance Premium
Edens & Avant From 2 yrs. N/A Greater of 1% and
Pool I ....................... after Closing Yield Maintenance Premium
Date to EMD
Mall of New Hampshire ......... From 2 yrs. N/A Greater of 1% and
after Closing Yield Maintenance Premium
Date to EMD
Westside Pavilion ............. From 2 yrs. N/A Westside Pavilion
after Closing Yield Maintenance Premium
Date to EMD
NorthTown Mall ................ From 2 yrs. N/A Greater of 1% and
after Closing Yield Maintenance Premium
Date to EMD
Edens & Avant From 2 yrs. N/A Greater of 1% and
Pool II ...................... after Closing Yield Maintenance Premium
Date to EMD
Crystal Park IV ............... From 2 yrs. N/A Greater of 1% and
after Closing Yield Maintenance Premium
Date to EMD
</TABLE>
- --------
(1) All Mortgage Loans require payment of a Prepayment Charge if paid as a
result of a Loan Default prior to the end of their Lockout Period.
Prepayment charges are generally not required if prepayment is a result
of casualty or condemnation.
(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) The Edens & Avant Pool I and Pool II Loans permit the Borrower's parent
to receive up to 5% of the gross income earned on the related properties
prior to application of Excess Cash Flow to payment of principal on the
related loan.
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. Other
Mortgage Loans permit prepayments in connection with a casualty or condemnation
to be made on a date other than a Due Date. 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 Originator 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 GAAP.
S-52
<PAGE>
MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
ORIGINAL
TERM TO
ORIGINAL ORIGINAL EFFECTIVE
NUMBER OF PRINCIPAL MORTGAGE AMORTIZATION MATURITY
LOAN NAME PROPERTIES BALANCE RATE TERM (3) DATE (MOS.)
- ---------------------- ------------ --------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Grapevine Mills ...... 1 $155,000,000 6.470% 360 121
Edens & Avant
Pool I .............. 15 125,000,000 6.200 IO 120
Mall of New
Hampshire ........... 1 105,000,000 6.955 360 126
Westside Pavilion..... 1 100,000,000 6.440 360 120
Northtown Mall ....... 1 84,500,000 6.680 360 120
Edens & Avant
Pool II ............. 21 70,000,000 6.200 IO 120
Crystal Park IV ...... 1 67,100,000 6.510 360 120
-- ------------ ----- --- ---
Total/Weighted
Average ............. 41 $706,600,000 6.492% 360 121
== ============ ===== === ===
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
REMAINING PERCENT OF PRINCIPAL
TERM TO CUT-OFF CUT-OFF BALANCE AT
EFFECTIVE EFFECTIVE DATE DATE EFFECTIVE
MATURITY MATURITY STATED PRINCIPAL PRINCIPAL MATURITY APPRAISED
LOAN NAME DATE (MOS.) DATE MATURITY BALANCE BALANCE DATE(5) VALUE
- ---------------------- ------------- ----------- ---------- --------------- ------------ --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Grapevine Mills ...... 120 10/01/08 09/01/32 $155,000,000 21.9% $143,481,582 $ 235,000,000
Edens & Avant
Pool I .............. 120 10/01/08 10/01/28 125,000,000 17.7 125,000,000 265,582,293
Mall of New
Hampshire ........... 120 10/01/08 04/01/28 105,000,000 14.9 93,305,773 145,600,000
Westside Pavilion..... 117 07/01/08 07/01/31 100,000,000 14.2 91,132,625 160,000,000
Northtown Mall ....... 119 09/01/08 09/01/28 84,426,244 12.0 73,062,731 128,000,000
Edens & Avant
Pool II ............. 120 10/01/08 10/01/28 70,000,000 9.9 70,000,000 143,567,822
Crystal Park IV ...... 119 09/01/08 09/01/28 67,039,458 9.5 57,745,712 107,000,000
--- ------------ ----- ------------ --------------
Total/Weighted
Average ............. 119 $706,465,702 100.0% $653,728,424 $1,184,750,115
=== ============ ===== ============ ==============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CURRENT EFFECTIVE
ANNUAL UNDERWRITABLE CUT-OFF MATURITY
DEBT CASH DATE DATE
LOAN NAME SERVICE (1) FLOW DSCR (2) LTV (2) LTV (2)
- ---------------------- ------------- --------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Grapevine Mills ...... $10,167,785 $20,619,033 2.17x 61.7% 56.8%
Edens & Avant
Pool I .............. 7,857,639 21,337,841 2.72 47.1 47.1
Mall of New
Hampshire ........... 7,404,177 11,199,597 1.67 65.2 57.2
Westside Pavilion..... 6,529,444 12,632,326 1.93 62.5 57.0
Northtown Mall ....... 6,529,672 10,028,711 1.73 58.5 49.7
Edens & Avant
Pool II ............. 4,400,278 12,772,222 2.90 48.8 48.8
Crystal Park IV ...... 5,094,708 9,844,213 1.93 62.7 54.0
----------- ----------- ---- ---- ----
Total/Weighted
Average ............. $47,983,703 $98,433,943 2.16x 58.2% 53.2%
=========== =========== ==== ==== ====
</TABLE>
- -------
(1) Interest only payments calculated on an Actual/360 Basis.
(2) Net of $10 MM Letter of Credit for Mall of New Hampshire, $9.5 MM Letter
of Credit for Northtown Mall, and $10 MM Guarantee for Grapevine Mills
(3) Edens & Avant Pools I and II begin a 240 month amortization term at the
Effective Maturity Date. Grapevine Mills, Mall of New Hampshire and
Westside Pavilion have initial interest only periods of 48, 18, and 36
months, respectively.
(4) Numbers may not total 100% due to rounding.
(5) Total principal balance at Effective Maturity Date is $653,728,423.58.
S-53
<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 which indicates Loan Amount Allocation (in $mm)
Grapevine Mills $155.0 21.9%, Edens & Avant Pool I $125.0 17.7%,
Mall of New Hampshire $105.0 14.9%, Westside Pavilion $100.0 14.2%,
Northtown Mall $84.5 12.0%,Crystal Park IV $67.1 9.5%,
Edens & Avant Pool II $70.0 9.9%
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>
Texas .............. 1 $155,000,000 21.9% $20,619,033
New Hampshire....... 1 105,000,000 14.9 11,199,597
California ......... 1 100,000,000 14.2 12,632,326
Washington ......... 1 84,426,244 12.0 10,028,711
Virginia ........... 3 83,077,358 11.8 12,924,404
Massachusetts ...... 5 46,644,000 6.6 7,787,518
Ohio ............... 4 35,887,000 5.1 5,991,384
Connecticut ........ 2 28,761,000 4.1 4,801,924
Mississippi ........ 8 15,440,700 2.2 2,750,702
Georgia ............ 2 14,112,000 2.0 2,452,254
Tennessee .......... 1 8,651,000 1.2 1,912,644
South Carolina ..... 4 8,279,150 1.2 1,466,262
Alabama ............ 2 6,432,450 0.9 1,235,530
North Carolina ..... 2 6,176,100 0.9 1,073,229
Florida ............ 1 3,521,700 0.5 714,054
New York ........... 2 3,233,000 0.5 539,766
Indiana ............ 1 1,824,000 0.3 304,605
- ------------ ----- -----------
Total/Weighted
Average ........... 41 $706,465,702 100.0% $98,433,943
== ============ ===== ===========
</TABLE>
(RESTUBBED TBALE CONTINUED FROM ABOVE)
<TABLE>
<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>
Texas .............. 20.9% $ 235,000,000 19.8% 61.7% 2.17x
New Hampshire....... 11.4 145,600,000 12.3 65.2 1.67
California ......... 12.8 160,000,000 13.5 62.5 1.93
Washington ......... 10.2 128,000,000 10.8 58.5 1.73
Virginia ........... 13.1 143,150,000 12.1 60.0 2.12
Massachusetts ...... 7.9 99,565,306 8.4 47.1 2.72
Ohio ............... 6.1 78,448,496 6.6 47.1 2.72
Connecticut ........ 4.9 60,048,312 5.1 47.1 2.72
Mississippi ........ 2.8 29,572,853 2.5 48.8 2.90
Georgia ............ 2.5 27,579,806 2.3 48.8 2.90
Tennessee .......... 1.9 18,100,000 1.5 47.1 2.72
South Carolina ..... 1.5 16,744,909 1.4 48.8 2.90
Alabama ............ 1.3 12,673,000 1.1 48.8 2.90
North Carolina ..... 1.1 12,032,254 1.0 48.8 2.90
Florida ............ 0.7 8,815,000 0.7 48.8 2.90
New York ........... 0.5 6,532,097 0.6 47.1 2.72
Indiana ............ 0.3 2,888,082 0.2 47.1 2.72
----- -------------- ----- ---- ----
Total/Weighted
Average ........... 100.0% $1,184,750,115 100.0% 58.2% 2.16x
===== ============== ===== ==== ====
</TABLE>
S-54
<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 OMITTED]
Map providing visual of table on previous page
S-55
<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>
45%-50% ........................ 2 $195,000,000 27.6% 6.200% 2.78x 47.7%
55%-60% ........................ 1 84,426,244 12.0 6.680 1.73 58.5
60%-65% ........................ 3 322,039,458 45.6 6.469 2.04 62.1
65%-70% ........................ 1 105,000,000 14.9 6.955 1.67 65.2
----------- ------------ ----- ----- ---- ----
Total/Weighted Average ......... 7 $706,465,702 100.0% 6.492% 2.16x 58.2%
=========== ============ ===== ===== ==== ====
</TABLE>
RANGE OF LOAN-TO-VALUE RATIOS AS OF THE EFFECTIVE MATURITY DATE
<TABLE>
<CAPTION>
PERCENTAGE OF WEIGHTED
EFFECTIVE EFFECTIVE WEIGHTED AVERAGE
MATURITY DATE MATURITY DATE AVERAGE WEIGHTED EFFECTIVE
NUMBER OF PRINCIPAL PRINCIPAL MORTGAGE AVERAGE MATURITY DATE
LOAN TO VALUE RATIO LOANS BALANCE(1) BALANCE RATE DSCR LTV
- -------------------------------- ----------- --------------- --------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
45%-50% ........................ 3 $268,062,731 41.0% 6.331% 2.58x 48.2%
50%-55% ........................ 1 57,745,712 8.8 6.510 2.25 54.0
55%-60% ........................ 3 327,919,980 50.2 6.600 2.16 57.0
----------- ------------ ----- ----- ---- ----
Total/Weighted Average ......... 7 $653,728,424 100.0% 6.482% 2.34x 53.2%
=========== ============ ===== ===== ==== ====
</TABLE>
- --------
(1) Total principal balance at Effective Maturity Date is $653,728,423.58.
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 SQUARE FEET VALUE
- ------------------------------ ------------ ------------ --------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Regional Mall ................ 3 7.3% $289,426,244 41.0% 1,483,506 $ 433,600,000
Community and Neighborhood
Shopping Center ............. 36 87.8 195,000,000 27.6 4,276,336 409,150,115
Regional "Mills" Mall ........ 1 2.4 155,000,000 21.9 1,241,769 235,000,000
Office ....................... 1 2.4 67,039,458 9.5 466,369 107,000,000
-- ----- ------------ ----- --------- --------------
Total/Weighted Average ....... 41 100.0% $706,465,702 100.0% 7,467,980 $1,184,750,115
== ===== ============ ===== ========= ==============
</TABLE>
<TABLE>
<CAPTION>
CUT-OFF
DATE PERCENTAGE
ALLOCATED 1997 OF TOTAL WEIGHTED WEIGHTED
LOAN AMOUNT TOTAL 1997 UNDERWRITABLE UNDERWRITABLE AVERAGE AVERAGE
PROPERTY TYPE PSF REVENUE NOI CASH FLOW CASH FLOW LTV DSCR
- ------------------------------ ------------- -------------- -------------- --------------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Regional Mall ................ $ 195.10 $ 50,405,955 $33,949,962 $33,860,634 34.4% 62.3% 1.78x
Community and Neighborhood
Shopping Center ............. 45.60 46,061,725 33,032,615 34,110,063 34.7 47.7 2.78
Regional "Mills" Mall ........ 124.82 4,921,059 3,866,831 20,619,033 20.9 61.7 2.17
Office ....................... 143.75 14,843,904 10,571,204 9,844,213 10.0 62.7 1.93
--------- ------------ ----------- ----------- ----- ---- ----
Total/Weighted Average ....... $ 94.60 $116,232,643 $81,420,612 $98,433,943 100.0% 58.2% 2.16x
========= ============ =========== =========== ===== ==== ====
</TABLE>
S-56
<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 NorthTown Mall Property, the Edens &
Avant Pool I Properties and the Edens & Avant Pool II Properties. Market
Studies were performed for each of the NorthTown Mall Property, the Edens &
Avant Pool I Properties and the Edens & Avant Pool II Properties. 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 gives an
opinion of value, the market studies do not. LTV figures herein for NorthTown
Mall Loan, the Edens & Avant Pool I Loan and the Edens & Avant Pool II Loan are
based on the recent purchase price paid for each property. See "Risk
Factors--Appraisals and Market Studies Have Certain Limitations" 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 12 months. 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--Environmental Law Entails Risks" and "--Environmental Risks Relating
to the Mortgaged Properties" 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 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--Risks Relating to 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 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.
S-57
<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.
S-58
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
GRAPEVINE MILLS
[PICTURE] [PICTURE]
[PICTURE]
Pictures of Grapevine Mills showing outside view, inside (Brooks Brothers
factory store entrance) and an aerial view
<PAGE>
GRAPEVINE MILLS
[PICTURE]
Floor plan of Grapevine Mills
[PICTURE]
Map indicating the location of Grapevine Mills in the Dallas/Fort Worth area
<PAGE>
DESCRIPTION OF THE MORTGAGED PROPERTIES AND THE MORTGAGE LOANS
GRAPEVINE MILLS: THE BORROWER; THE PROPERTY
The Loan. The Grapevine Mills Loan was originated by Secore and acquired
by MSMC on August 12, 1998. The Grapevine Mills Loan had an original principal
balance of $155,000,000 and has a Cut-Off Date Principal Balance of
$155,000,000. It is secured by a Mortgage (the "Grapevine Mills Mortgage")
encumbering a regional shopping center known as Grapevine Mills, located in
Grapevine, Texas (the "Grapevine Mills Property").
The Borrower. Grapevine Mills Limited Partnership (the "Grapevine Mills
Borrower") is a Delaware limited partnership whose purpose is limited to owning
and operating the Grapevine Mills Property and related activities. The
Grapevine Mills Borrower owns no material assets other than the Grapevine Mills
Property. The Grapevine Mills Borrower's general partners are Grapevine Mills
Operating Company L.L.C. (1%), which is the managing general partner, and Kan
Am USA XV Limited Partnership, a Delaware limited partnership ("Kan Am") (1%),
which is the non-managing general partner. Grapevine Mills Operating Company
L.L.C. is owned equally by (i) The Mills Limited Partnership, a Delaware
limited partnership ("Mills L.P."), which is the operating partnership of The
Mills Corporation (the "Mills REIT") and (ii) Simon Property Group (Texas),
L.P., a Texas limited partnership and is managed, for bankruptcy voting matters
only, by Grapevine Mills Finance Corp., a Delaware corporation. The Grapevine
Mills Borrower's limited partners are (i) Mills L.P. (37%), (ii) Simon Property
Group, L.P. (formerly known as Simon DeBartolo Group, L.P.), a Delaware limited
partnership ("SDG") (37%), which is the operating partnership of Simon Property
Group, Inc. (formerly known as Simon DeBartolo Group, Inc.) (the "SDG REIT"),
and (iii) Kan Am (24%).
The Property. The Grapevine Mills Property was originally opened on
October 30, 1997. The Grapevine Mills Property is a value-retail mall anchored
by Burlington Coat Factory, JCPenney and AMC Theatres, which comprise 315,702
square feet of GLA. Combined with approximately 382,968 square feet of
mini-anchor GLA (e.g., tenants such as Marshalls, Saks Fifth Avenue, and Virgin
Megastore) and mall store GLA of 543,099 square feet, the Grapevine Mills
Property contains approximately 1,241,769 total square feet. The Grapevine
Mills Property is situated on approximately 131.8 acres. The ratio of parking
spaces is 7.0 per 1,000 square feet of GLA. An appraisal completed by Cushman &
Wakefield, Inc. on July 17, 1998, determined a market value of $235,000,000 for
the Grapevine Mills Borrower's ownership interest in the property.
S-59
<PAGE>
The table below summarizes the components of total square feet at the
Grapevine Mills Property as of June 1, 1998.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA(1)
------------ -------------
<S> <C> <C>
Anchor Stores (Borrower-Owned)
Burlington Coat Factory ....................... 100,102 8.1%
JCPenney ...................................... 106,207 8.6
AMC Theatres .................................. 109,393 8.8
------- -----
Total Anchor Stores (Borrower-Owned) ......... 315,702 25.5%
Major Stores
Sports Authority .............................. 48,763 3.9%
Bed, Bath & Beyond ............................ 40,340 3.3
Saks Fifth Avenue ............................. 34,982 2.8
American Wilderness ........................... 32,285 2.6
Sega Gameworks ................................ 32,223 2.6
Marshalls ..................................... 29,397 2.4
Virgin Megastores ............................. 27,490 2.2
Off Rodeo Drive, Beverly Hills ................ 24,203 2.0
Books-A-Million ............................... 23,967 1.9
Old Navy ...................................... 23,329 1.9
Group USA ..................................... 23,257 1.9
Rainforest Cafe ............................... 22,602 1.8
Western Warehouse ............................. 20,130 1.6
------- -----
Total Major Stores ........................... 382,968 30.8%
Mall Stores .................................... 543,099 43.7%
------- -----
Total GLA .................................... 1,241,769 100.0%
========= =====
</TABLE>
- --------
(1) Numbers may not total 100% due to rounding.
Location/Access. The Grapevine Mills Property is located in a central
portion of the Dallas/Ft. Worth area and has access to an extensive regional
freeway system. State Highway 121 traverses the area in a northeast/southwest
direction and intersects several major freeways including Interstate Highway
635 (LBJ Freeway), Interstate Highway 35E (Stemmons Freeway), State Highway 114
(John Carpenter Freeway) and State Highway 183 (Airport Freeway). The
intersection with LBJ Freeway is located approximately one-half mile south of
the subject. The subject is also located approximately two miles north of State
Highway 114 and the Dallas/Fort Worth International Airport. State Highway 121
intersects Stemmons Freeway approximately five miles northeast of the subject
in Lewisville.
Operating History. The following table shows certain information regarding
the operating history of the Grapevine Mills Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
1998 UNDERWRITABLE
1997(1) BUDGET NOI
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues ....................... $ 4,921,059 $ 30,811,218 $ 30,752,515
Expenses ....................... (1,054,228) (9,385,109) (9,385,109)
------------ ------------ ------------
Net Operating Income ......... $ 3,866,831 $ 21,426,109 $ 21,367,406
============ ============ ============
</TABLE>
- --------
(1) For the period beginning November 1, 1997.
(2) Adjusted Net Operating Income for the two months ended December 31, 1997,
has been prepared on the basis the Grapevine Mills Borrower uses for
income tax purposes. Appendix A-1 hereto, is presented in conformity with
generally accepted accounting principles, therefore the Adjusted Net
Operating Income presented above may not match the revenues and expenses
presented in Appendix A-1.
S-60
<PAGE>
Occupancy History. The Grapevine Mills Property opened in October, 1997
and as a result, there is no occupancy history. The occupancy as of June 1,
1998 of mall stores was 91%.
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 has averaged approximately 11.7% to date.
Tenant Sales. The Grapevine Mills Property's projected mall store sales,
anchor store sales and outparcels are summarized as follows(1):
<TABLE>
<CAPTION>
PROJECTED 1998 SALES
------------------------------------
SQUARE TOTAL
FOOTAGE (000S) PER SF
------------ ----------- ----------------------
<S> <C> <C> <C>
Anchor Store Sales
AMC Theatres ...................................... 109,393 $ 13,750 $ 125.69
Burlington Coat Factory ........................... 100,102 12,658 126.45
JCPenney .......................................... 106,207 25,638 241.40
------- -------- ----------
Total Anchor Stores .............................. 315,702 $ 52,046 $ 164.86
Major Store Sales
American Wilderness ............................... 32,285 $ 399 $ 70.95(2)
Bed, Bath & Beyond ................................ 40,340 7,060 175.00
Books-A-Million ................................... 23,967 3,448 143.86
Group USA ......................................... 23,257 2,517 108.23
Marshalls ......................................... 29,397 4,410 150.02
Off Rodeo Drive, Beverly Hills .................... 24,203 3,002 124.03
Old Navy .......................................... 23,329 8,541 366.11
Rainforest Cafe ................................... 22,602 14,919 660.07
Saks Fifth Avenue ................................. 34,982 7,784 222.51
Sega Gameworks .................................... 32,223 5,122 158.95
Sports Authority .................................. 48,763 6,062 124.32
Virgin Megastores ................................. 27,490 6,957 253.07
Western Warehouse ................................. 20,130 3,083 153.15
------- -------- ------------
Total Major Stores ............................... 382,968 $ 73,304 $ 205.73(2)
Mall Sales ......................................... 493,289 $158,654 $ 321.62
Vacant ............................................. 49,810 N/A N/A
------- -------- ------------
Total Mall Store ................................. 543,099 $158,654 $ 321.62(3)
Total Sales -- Anchors and Mall Stores ......... 1,241,769 $284,004 $ 243.72(2)(3)
========= ======== ============
</TABLE>
- --------
(1) Data based solely on the sales figures provided by the Grapevine Mills
Borrower.
(2) PSF numbers reflect that American Wilderness will operate on 5,624 of
square feet for 1998.
(3) Sales per square foot exclude vacant space.
S-61
<PAGE>
Mall Stores. The Grapevine Mills Property tenant base is primarily
comprised of national retailers such as Burlington Coat Factory and JCPenney.
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.
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>
Host Marriott Services ........... Host Marriott-Food Court 33,903 2.7% $ 1,158,890 5.8% $ 34.18
Master Lease
Subleased to:
Chili's Too
Dick Clark's
American Bandstand
Grill
Cold Stone Creamery
Starbucks Coffee
Corner Bakery
Juice Works
Sega Inc. ........................ Sega Gameworks 32,223 2.6 594,244 3.0 18.44
Sports Authority, Inc. ........... Sports Authority 48,763 3.9 582,000 2.9 11.94
Rainforest Cafe .................. Rainforest Cafe 22,602 1.8 565,050 2.8 25.00
Just For Feet .................... Just For Feet 19,920 1.6 517,290 2.6 25.97
Off Rodeo Drive, Beverly Off Rodeo Drive, Beverly
Hills ........................... Hills 24,203 1.9 508,473 2.5 21.01
Virgin, Inc. ..................... Virgin Megastores 27,490 2.2 453,585 2.3 16.50
The Gap, Inc. .................... Gap Outlet 33,098 2.7 397,176 2.0 12.00
Old Navy
Bed, Bath & Beyond, Inc. ......... Bed, Bath & Beyond 40,340 3.2 373,145 1.9 9.25
Group USA ........................ Group USA 23,257 1.9 325,598 1.6 14.00
------ ----- ----------- ----- --------
Total/Weighted Average
(10 Largest) ................... 305,799 24.6% $ 5,475,451 27.2% $ 17.91
Remaining Mall Stores ............ 570,458 45.9 10,984,740 54.6 19.26
Vacant Space ..................... 49,810 4.0 0 0.0 0.00
------- ----- ----------- ----- --------
Total Mall Stores ............... 926,067 74.6% $16,460,191 81.8% $ 18.78(2)
======= ===== =========== ===== ===========
Burlington Coat Factory,
Inc. ............................ Burlington Coat Factory 100,102 8.1% $ 500,510 2.5% $ 5.00
AMC Entertainment Inc. ........... AMC Theatres 109,393 8.8 2,625,432 13.1 24.00
J.C. Penney Co., Inc. ............ JCPenney 106,207 8.6 528,410 2.6 4.98
Total (including
anchors) ....................... 1,241,769 100.0% $20,114,543 100.0% $ 16.88(2)
========= ===== =========== ===== ===========
</TABLE>
- --------
(1) Based on the June 1, 1998 rent roll.
(2) Excludes vacant square footage.
S-62
<PAGE>
Lease Expiration. The following table shows scheduled lease expirations at
the Grapevine Mills Property as of June 1, 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)(3)
<TABLE>
<CAPTION>
CUMULATIVE
NUMBER OF CUMULATIVE ANNUALIZED PERCENT OF PERCENT OF
LEASES EXPIRING PERCENT PERCENT ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION EXPIRING SF OF SF OF SF BASE RENT PER SF BASE RENT BASE RENT
- -------------------- ----------- ------------ --------- ------------ -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ............. 27 49,810 4.0% 4.0% $ 0 $ 0.00 0.0% 0.0%
1998 ............... 2 2,836 0.2 4.2% 82,426 29.06 0.4 0.4%
1999 ............... 2 7,979 0.6 4.9% 135,901 17.03 0.7 1.1%
2000 ............... 9 17,277 1.4 6.3% 473,076 27.38 2.4 3.4%
2001 ............... 9 23,213 1.9 8.1% 526,817 22.69 2.6 6.1%
2002 ............... 59 213,097 17.2 25.3% 4,504,632 21.14 22.4 28.5%
2003 ............... 14 40,189 3.2 28.5% 932,736 23.21 4.6 33.1%
2004 ............... 4 10,802 0.9 29.4% 288,178 26.68 1.4 34.5%
2005 ............... 4 25,336 2.0 31.5% 498,203 19.66 2.5 37.0%
2006 ............... 1 7,514 0.6 32.1% 127,738 17.00 0.6 37.6%
2007 ............... 32 238,482 19.2 51.3% 4,637,730 19.45 23.1 60.7%
2008 ............... 16 155,213 12.5 63.8% 2,439,501 15.72 12.1 72.8%
Thereafter ......... 12 450,021 36.2 100.0% 5,467,605 12.15 27.2 100.0%
-- ------- ----- ----------- -------- -----
Total ............. 191 1,241,769 100.0% $20,114,543 $ 16.88(2) 100.0%
=== ========= ===== =========== =========== =====
</TABLE>
- --------
(1) Data based on the June 1, 1998 rent roll.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
Anchor Stores. The following table shows certain information for each of
the Grapevine Mills Property's anchor tenants (and each respective corporate
parent):
<TABLE>
<CAPTION>
CREDIT RATING OF OPERATING
PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S)(1) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION
- ----------------- ------------------------ ------------------ --------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Burlington Coat Burlington Coat
Factory ........ Factory, Inc. -- / -- 100,102 Collateral 1/31/13 10/29/00 N/A
JCPenney ........ J.C. Penney Co., Inc. A/A2 106,207 Collateral 10/31/12 N/A N/A
AMC Theatres..... AMC Entertainment Inc. BB-/ -- 109,393 Collateral 12/31/17 12/18/07 N/A
</TABLE>
- --------
(1) Ratings as of August 1, 1998. Unless otherwise stated, the parent
company, if different from the anchor store listed, is not a party to or
a guarantor of the anchor store's lease.
Market Overview and Competition. According to the Cushman & Wakefield,
Inc. July 17, 1998 appraisal, the primary trade area of the Grapevine Mills
Property contains approximately 4,379,915 residents as of 1998 with an average
household income of $70,104.
S-63
<PAGE>
The following table shows an overview of the competition to the Grapevine Mills
Property:
<TABLE>
<CAPTION>
APPROXIMATE
DISTANCE FROM
MALL/RETAIL YEAR BUILT/ THE PROPERTY
PROPERTY RENOVATED OWNER (MILES) ANCHORS SIZE (SF)
- ----------------------------- ------------- ---------------------- -------------- ------------------------- ------------
<S> <C> <C> <C> <C> <C>
Subject Property
Grapevine Mills ............ 1997 The Mills Corp./ -- Burlington Coat Factory 100,102
Simon Property JCPenney 106,207
Group AMC 109,393
-------
Total 315,702
Secondary Competition
Vista Ridge Mall ........... 1989 General Growth
Properties/Homart 5 Foley's 180,000
Dillard's 200,000
JCPenney 150,000
Sears 150,000
-------
Total 680,000
Valley View Center ......... 1973 The Macerich Company 15 Foley's 300,196
Dillard's 302,268
JCPenney 220,378
Sears 235,005
-------
Total 1,057,897
Collin Creek Mall .......... 1981 CGR Advisors
of Atlanta/
The Rouse Company 20 Foley's 197,478
Dillard's 176,259
JCPenney 156,772
Sears 161,742
Mervyn's 97,832
---------
Total 790,083
The Parks at Arlington ..... 1988 General Growth
Properties/Homart 20 Foley's 200,000
Dillard's 260,000
JCPenney 150,000
Mervyn's 82,000
Sears 150,000
---------
Total 842,000
Irving Mall ................ 1971 Simon Property Group 5 Dillard's 207,359
JCPenney 176,740
Foley's 183,012
Mervyn's 77,540
Sears 93,645
---------
Total 738,296
Ridgmar Mall ............... 1976 N/A 35 Dillard's 199,000
JCPenney 203,407
Sears 173,579
Neiman-Marcus 120,000
---------
Total 695,986
NorthPark Center ........... 1965 N/A 20 Dillard's 299,543
JCPenney 176,686
Lord & Taylor 125,482
Neiman-Marcus 213,823
---------
Total 815,534
Galleria Mall .............. 1982 Hines International
Limited Partnership 15 Macy's 242,692
Marshall Fields 155,063
Saks Fifth Avenue 108,335
Nordstrom 214,485
---------
Total 720,575
</TABLE>
- --------
Source: Cushman & Wakefield, Inc.
S-64
<PAGE>
Anchor Leases. Pursuant to the lease between the Grapevine Mills Borrower
and J.C. Penney Co., Inc. ("JC Penney"), JCPenney may terminate its lease with
the Grapevine Mills Borrower in the event that (i) any amendment to the Master
Declaration of Easements, Covenants, Conditions and Restrictions dated April
18, 1997 is entered into without the approval of JCPenney, if such amendment
shall, in JCPenney's reasonable judgment, have an adverse effect upon
JCPenney's rights, and (ii) if fewer than 4.5 parking spaces for each 1,000
square feet in the rentable area of the Grapevine Mills Property are available
or fewer than 5 parking spaces for each 1,000 square feet of the premises
demised to JCPenney by the Grapevine Mills Borrower are available. JCPenney has
the right to discontinue the use of the premises demised to JCPenney by the
Grapevine Mills Borrower at any time during the term of the lease; provided,
however, that the Grapevine Mills Borrower shall have the right to terminate
the lease in the event that JCPenney discontinues its use.
Pursuant to a lease between the Grapevine Mills Borrower and Burlington
Factory Warehouse of Grapevine, Inc. ("Burlington"), Burlington may terminate
its lease with the Grapevine Mills Borrower if (i) at least two other stores
which contain at least 50,000 square feet of gross floor area, or (ii) at least
65% of the gross floor area of the shopping center, are not open and operating
for business for a period of 365 consecutive days. Burlington may cease
operating its business following the initial three years of the term of the
lease with the Grapevine Mills Borrower; provided, however, that, Grapevine
Mills Borrower may terminate the lease with Burlington in the event that
Burlington ceases to operate its business.
Pursuant to the lease between Grapevine Mills Borrower and AMC
Entertainment Inc. ("AMC"), AMC may terminate its lease with the Grapevine
Mills Borrower in the event that, after the tenth year of the lease, there has
not been at least 530,000 square feet of floor area in the shopping center
(excluding AMC's facility) open for business for a period of at least 42
months. AMC may cease operations of any or all of its facility after the tenth
anniversary of AMC's opening for business at the Grapevine Mills Property.
Each of the leases with JCPenney and AMC impose certain obligations on the
Grapevine Mills Borrower with respect to casualty and condemnation, which may
require the Grapevine Mills Borrower to restore the Grapevine Mills Property
(and which under the terms of the Grapevine Mills Loan will override provisions
that would otherwise permit mortgagee to cause a prepayment rather than a
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.
Encumbrances. The Grapevine Mills 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 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 Grapevine
Mills Mortgage or terminates upon foreclosure thereof or upon delivery of a
deed in lieu of foreclosure.
Ground Leases. The Grapevine Mills Borrower has entered into separate
ground leases with Grapevine Mills Development Company, L.L.C. (the "Ground
Lessee"), a wholly owned subsidiary of the Grapevine Mills Borrower for four
separate parcels of land (the "Ground Leased Parcels"). The ground leases are
not subordinate to the Grapevine Mills Mortgage. It is the intention of Ground
Lessee to develop the Ground Leased Parcels. None of the revenues derived from
the Ground Leased Parcels and the improvements thereon would accrue to the
Grapevine Mills Borrower.
Environmental Report. A Phase I site assessment, dated July 1, 1998, was
performed on the Grapevine Mills Property. The Phase I site assessment did not
reveal any environmental liability that the Depositor believes would have a
material adverse effect on the Grapevine Mills 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--Environmental Laws Entail Risks"
and "--Environmental Risks Relating to the Mortgaged Properties" herein.
Engineering Report. A Property Condition Report was completed on the
Grapevine Mills Property on July 13, 1998, by a third party due diligence firm.
The Property Condition Report concluded that the Grapevine Mills Property was
generally in good physical condition and identified approximately $2,500 in
deferred maintenance requirements, all of which have been completed.
Property Management. The Grapevine Mills Property is managed by
MillsServices Corp. (the "Grapevine Mills Manager"), which is an affiliate of
the Grapevine Mills Borrower, pursuant to a management agreement dated November
13,
S-65
<PAGE>
1996 (the "Grapevine Mills Management Agreement"). The Grapevine Mills Manager
is owned by Mills Service Corp. which is also an affiliate of the Grapevine
Mills Borrower. The Grapevine Mills Manager receives (a) an annual management
fee of 4% of gross income from the Grapevine Mills Property, (b) leasing
commissions of (i) $2.50/sf of leased space for renewals occurring through the
exercise of an option, and (ii) $3.50/sf of leased space (subject to annual CPI
increases) for leases procured by the Grapevine Mills Manager other than the
initial lease of any space, with a minimum fee of $1,000 and a maximum fee of
$250,000; provided, however, that, if a third-party broker is involved, the
amount of fees payable to the Grapevine Mills Manager in connection with such
lease shall be reduced by the amount of fees paid to such broker up to a
maximum reduction of 50% of the fees otherwise due.
The Grapevine Mills Management Agreement is for a term continuing for so
long as the Grapevine Mills Borrower owns the Grapevine Mills Property. Under
the terms of the Grapevine Mills Loan, any termination or replacement of the
Grapevine Mills Manager or entering into a new management agreement requires
the consent of mortgagee; provided, however that the Grapevine Mills Borrower
may replace the Grapevine Mills Manager without such consent if (i) the new
manager is wholly owned by SDG or Mills L.P., or (ii) it receives 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 an Assignment of Management Agreement and Subordination of
Management Fees among the Grapevine Mills Borrower, the Grapevine Mills Manager
and mortgagee, the Grapevine Mills Manager has agreed (i) that the Grapevine
Mills Management Agreement is subordinate to the Grapevine Mills Loan and (ii)
that mortgagee has the right to terminate the Grapevine Mills Manager and
replace it with a manager selected by mortgagee on or after any Loan Default.
S-66
<PAGE>
GRAPEVINE MILLS: THE LOAN
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $155,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $155,000,000 INITIAL INTEREST RATE: 6.47%
ORIGINATION DATE: August 12, 1998 REVISED INTEREST RATE: Greater of (i) 8.47%
and (ii) Treasury Rate plus 2%.
AMORTIZATION: Interest only through September 1, 2002;
360 months thereafter.
EFFECTIVE MATURITY DATE: October 1, 2008
MATURITY DATE: September 1, 2032 MONTHLY PAYMENT: Interest only through September 1, 2002;
$976,649.36 (principal and interest) thereafter.
EMD BALANCE: $143,481,582 CALL PROTECTION: Lockout to 90 days prior to EMD
</TABLE>
CERTAIN GRAPEVINE MILLS LOAN STATISTICS(1)
<TABLE>
<CAPTION>
LOAN PER LOAN TO VALUE ACTUAL REFINANCING
SQUARE FOOT(2) RATIO(3) DSCR(4) DSCR(5)
---------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Cut-Off Date .................... $117 61.7% 2.17x 1.58x
Effective Maturity Date ......... $107 56.8% 2.35x 1.72x
</TABLE>
- --------
(1) The loan balance used in computing these statistics has been reduced by
the Guaranties (described below under "Security").
(2) Based on the 1,241,769 square feet securing the Grapevine Mills Loan and
the Cut-Off Date Principal Balance or Effective Maturity Date Balance, as
applicable.
(3) Based on the July 17, 1998 Cushman & Wakefield appraised value of
$235,000,000 and the Cut-Off Date Principal Balance or Effective Maturity
Date Balance, as applicable.
(4) Based on (a) Underwritable Cash Flow of $20,619,033 and (b) in the case
of the Cut-Off Date Actual DSCR, actual debt service on the Grapevine
Mills 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 Grapevine Mills Loan assuming a balance equal to the Effective
Maturity Date Balance and a coupon equal to the Grapevine Mills Loan
Initial Interest Rate.
(5) Based on (a) Underwritable Cash Flow of $20,619,033 and (b) in the case
of the Cut-Off Date Refinancing DSCR, an annual debt service payment
equal to 9.00% of the Cut-Off Date Principal Balance of the Grapevine
Mills Loan, and, in the case of the Effective Maturity Date Refinancing
DSCR, an annual debt service payment equal to 9.00% of the Effective
Maturity Date Balance.
S-67
<PAGE>
Security. The Grapevine Mills Loan is a nonrecourse loan (with the
exception of the Guaranties described below), secured by the fee estate of the
Grapevine Mills Borrower in the Grapevine Mills Property and certain related
collateral, including an assignment of leases and rents. Mortgagee is the
insured under a title insurance policy insuring that the Grapevine Mills
Mortgage constitutes a valid and enforceable first lien on the Grapevine Mills
Property, subject to certain exceptions set forth therein.
The Grapevine Mills Loan is guaranteed by (a) that certain Limited
Guaranty of Payment by SDG dated August 12, 1998 and (b) that certain Limited
Guaranty of Payment by Mills, L.P. dated August 12, 1998 (collectively, the
"Guaranties"). Pursuant to the Guaranties, SDG and Mills L.P. each guarantee
the full and punctual payment when due, whether at stated maturity or
otherwise, of all obligations of the Grapevine Mills Borrower and SDG or Mills
L.P., itself, as applicable, now or hereafter existing under the Grapevine
Mills Loan documents, whether for principal, interest, fees, expenses or
otherwise; provided, however, that the maximum amount either SDG or Mills L.P.
shall be required to pay under the Guaranties shall not exceed $5,000,000, for
a total guaranty of up to $10,000,000. The Guaranties shall terminate upon
mortgagee's receipt of evidence that the Debt Service Coverage Ratio for any
twelve (12) consecutive calendar months is equal to or exceeds 1.50x using a
9.0% loan constant.
Payment Terms. The Grapevine Mills Loan is an EMD Loan. However, the
Grapevine Mills Loan requires monthly payments of interest only to September 1,
2002. Its Due Date is the first business 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 Grapevine Mills 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 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 Grapevine Mills
Loan prior to the date that is 90 days prior to the Effective Maturity Date.
From and after such date the Grapevine Mills Loan may be voluntarily prepaid on
any Due Date, in whole until the Effective Maturity Date, and in whole or in
part after the Effective Maturity Date, without payment of a Prepayment Charge.
Principal prepayments on the Grapevine Mills Loan may occur on or after
the date which is 90 days prior to 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 Grapevine Mills Loan
following a Loan Default. Prepayments following a Loan Default require payment
of a Prepayment Charge equal to the amount, if any, which, when added to the
then remaining principal amount of the Grapevine Mills Loan, would be
sufficient to purchase 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
Grapevine Mills Loan on such dates, and provide for payment on the Effective
Maturity Date of the remaining principal balance of the Grapevine Mills Loan
(the "Grapevine Mills Yield Maintenance Premium"). As described below,
prepayments may also be made, without payment of a Prepayment Charge, from
insurance or condemnation proceeds.
Defeasance. Subject to the Defeasance Conditions, commencing on August 12,
2001, the Grapevine Mills Loan permits the release of the Grapevine Mills
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 Grapevine Mills Loan on such dates, and provide for payment
on the Effective Maturity Date of the remaining principal balance of the
Grapevine Mills Loan. Upon any such Defeasance, at the option of mortgagee, the
Grapevine Mills Borrower's obligations under the Grapevine Mills Loan and the
U.S. Obligations securing the Grapevine Mills Loan will be transferred to a
Successor Borrower. Following such Defeasance, the U.S. Obligations will be the
sole security for the Grapevine Mills Loan.
Lockbox and Reserves. Pursuant to the Grapevine Mills Loan, the Grapevine
Mills Borrower has established a Hard Lockbox, which is a One-Tier Lockbox. The
Lockbox Bank is NationsBank, N.A. Amounts in the Lockbox are required to be
applied in accordance with the Lockbox Waterfall at any time after August 12,
1999, in the event that the Debt Service Coverage Ratio for the immediately
preceding 12 full calendar months is less than 1.15x.
The Grapevine Mills Borrower has established (a) a Tax Account, which had
an Initial Reserve Deposit of $2,334,141, and requires a Monthly Reserve
Deposit equal to the Monthly Tax Deposit Amount, and (b) a Rollover Account,
which requires a Monthly Reserve Deposit equal to $16,666.67. Borrower is
required to establish, on or before September 1, 2004, a Capital Reserve
Account, which requires a Monthly Reserve Deposit equal to $15,522.08 on
September 1, 2004 and each Due Date thereafter.
S-68
<PAGE>
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. The Grapevine Mills Borrower is prohibited from transferring the
Grapevine Mills 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 Grapevine Mills 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 Grapevine Mills
Borrower is also prohibited from further encumbering the Grapevine Mills
Property.
The Grapevine Mills Loan prohibits the transfer of any direct or indirect
interest in the Grapevine Mills Borrower unless (i) mortgagee has received
prior written notice and (ii)(a) mortgagee has 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 or
(b) Mills L.P. and SDG each continue to own 25.5% or more of the interests in
Grapevine Mills Borrower and such assignment shall not result in a change of
control in Grapevine Mills Borrower. Notwithstanding anything to the contrary,
transfers of interests in Mills L.P, Mills REIT, SDG and SDG REIT shall be
permitted.
The Grapevine Mills 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 Grapevine Mills Property
which does not exceed, at any time, $1,500,000 and is paid within 60 days of
the date incurred and (ii) inducements to unaffiliated tenants under leases
given in the ordinary course of business, provided, that the proceeds of such
inducements are used solely for the purpose of preparing the demised premises
at the Grapevine Mills Property for occupancy by such tenant or to pay for
other costs relating to tenant's leasing of space at the Grapevine Mills
Property.
Insurance. The Grapevine Mills Borrower is required to maintain for the
Grapevine Mills Property (a) comprehensive all risk insurance with coverage in
an amount at all times sufficient to prevent the Grapevine Mills 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 Grapevine Mills 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 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 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 two of the Rating Agencies (one 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 Grapevine Mills Borrower.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Grapevine Mills Property or a
condemnation affecting the Grapevine Mills Property, the Grapevine Mills
Borrower is obligated, subject to requirements under leases over the Lease
Approval Threshold and certain permitted encumbrances ("Permitted
Encumbrances"), to commence and diligently prosecute to completion the
restoration of the Grapevine Mills Property. So long as there is no default or
Loan Default, if proceeds for the condemnation are (a) equal to or less than
$500,000, such proceeds shall be disbursed to Grapevine Mills Borrower without
condition or (b) greater than $500,000 but less than $1,000,000, such proceeds
shall be disbursed to Grapevine Mills Borrower provided that such funds be used
for the restoration or improvement of the Grapevine Mills Property. If both the
net proceeds of the casualty or condemnation and the costs of restoration are
less than $5,000,000, the Grapevine Mills 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 Grapevine Mills Borrower delivers to mortgagee
a written undertaking to expeditiously commence and complete with due diligence
a restoration of the Grapevine Mills 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 Grapevine Mills Borrower for restoration so long
as (i) there is no Loan Default, (ii) (a) in the case of casualty, if (1) the
proceeds are less than 50% of the outstanding principal balance of the
Grapevine Mills Loan or (2) the Grapevine Mills 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 Grapevine Mills Property is taken, and such land is
located
S-69
<PAGE>
along the perimeter or periphery of the Grapevine Mills Property, (ii) the
Grapevine Mills 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 Grapevine Mills 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, 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 the mortgagee either (i) be
applied to prepay the Grapevine Mills Loan without payment of a Prepayment
Charge or (ii) be disbursed to the Grapevine Mills Borrower for restoration.
All disbursements of net proceeds of a casualty or condemnation in excess of
$5,000,000 shall be made in accordance with the Disbursement Procedures, except
that the Grapevine Mills 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 Grapevine Mills 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 Approval Threshold is $5,000,000. The Grapevine Mills 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 Grapevine Mills Property.
Certain Approval Procedures. Approval of requests for alterations, leases,
zoning reclassifications or expansion purchases will be deemed to have been
granted by mortgagee if (i) mortgagee fails to approve or disapprove, after
approval is requested, the request within 20 business days for zoning
reclassifications or expansion purchases, 15 business days for alterations and
10 business days for leases, (ii) the Grapevine Mills Borrower sends a written
notice of failure to respond and (iii) mortgagee does not approve or disapprove
such request within 10 business days of such notice for zoning
reclassifications or expansion purchases, and 5 business days of such notice
for alterations and leases.
Financial Reporting. The Grapevine Mills Borrower is required to furnish
the Financial Statements to mortgagee; except that (i) annual statements may be
delivered within 120 days after each fiscal year, (ii) quarterly statements are
required to be delivered within 60 days after the end of each calendar quarter
and (iii) Loan DSCR is calculated based on the most recent 4 calendar quarters.
The Grapevine Mills Borrower is also required to deliver quarterly and annual
tenant sales reports received by it and a quarterly net cash flow schedule.
S-70
<PAGE>
EDENS & AVANT POOL I
[PICTURE]
Brookside/Brookway, Bridgeport, CT
exterior view showing Super Stop & Shop
[PICTURE] [PICTURE]
ACTON PLAZA, Acton, MA BISHOPS CORNER, West Hartford's, CT
exterior view Depicting outside of Marshalls
<PAGE>
[PICTURE]
Map indicating location of the properties in Edens & Avant Pool I
<PAGE>
EDENS & AVANT POOL I: THE BORROWER; THE PROPERTIES
The Loan. The Edens & Avant Pool I Loan was originated by Secore and
acquired by MSMC on September 18, 1998. The Edens & Avant Pool I Loan had an
original principal balance and has a Cut-Off Date Principal Balance of
$125,000,000. It is secured by certain Mortgages (collectively, the "Edens &
Avant Pool I Mortgage") encumbering 15 community and neighborhood retail
shopping centers located in Connecticut, Indiana, Massachusetts, New York, Ohio
and Tennessee (each, an "Edens & Avant Pool I Property" and, collectively, the
"Edens & Avant Pool I Properties").
The Borrower. E&A Northeast Limited Partnership (the "Edens & Avant Pool I
Borrower") is a Delaware limited partnership whose purpose is limited to owning
and operating the Edens & Avant Pool I Property and related activities. The
Edens & Avant Pool I Borrower owns no material asset other than the Edens &
Avant Pool I Property and related interests. The Edens & Avant Pool I
Borrower's sole general partner is E&A Northeast LLC (the "Edens & Avant Pool I
General Partner"), a Delaware limited liability company, and the Edens & Avant
Pool I Borrower's sole limited partner is Edens & Avant Properties Limited
Partnership, a Delaware limited partnership. The Edens & Avant Pool I General
Partner's sole managing member is Edens & Avant Northeast, Inc. (the "Edens &
Avant Pool I Managing Member"), a Delaware corporation, and the Edens & Avant
Pool I General Partner's sole other member is Edens & Avant Properties Limited
Partnership. The sole shareholder of the Edens & Avant Pool I Managing Member
is Edens & Avant Properties Limited Partnership. Edens & Avant Properties
Limited Partnership is indirectly owned approximately 90% by the State of
Michigan Retirement System and approximately 10% by a group consisting of
Joseph Edens and other principals and employees of affiliates of the Edens &
Avant Pool I Borrower.
The Properties. The Edens & Avant Pool I Properties securing the Edens &
Avant Pool I Loan are the Edens & Avant Pool I Borrower's fee interest in 15
community and neighborhood retail shopping centers located in Connecticut,
Indiana, Ohio, Massachusetts, New York and Tennessee. The Edens and Avant Pool
I Properties were recently acquired by the Edens and Avant Pool I Borrower. The
Edens & Avant Pool I Properties contain approximately 2,100,452 square feet of
GLA and range in size from approximately 18,100 square feet to 353,191 square
feet of GLA, with an average size of approximately 140,030 square feet. As of
April-June 1998, the average occupancy rate of the Edens & Avant Pool I
Properties was approximately 97.2% and the aggregate annualized base rent was
$22,956,115 or approximately $11.24 per square foot of occupied GLA. The Edens
and Avant Pool I Properties were recently purchased for $265,582,293, which
equates into a 47.1% loan to purchase price ratio. As of April-June 1998, no
single Edens & Avant Pool I Property accounted for more than approximately
16.8% of the total GLA or more than approximately 15.2% of Annualized Base
Rent.
Location. The following table summarizes the locations of the Edens &
Avant Pool I Properties based on square footage of GLA:
<TABLE>
<CAPTION>
TOTAL COMMUNITY PERCENT OF PERCENT OF
STATE CENTER GLA TOTAL GLA GLA LEASED
- -------------------------------------- ----------------- ------------ -----------
<S> <C> <C> <C>
Massachusetts ..................... 744,506 35.4% 99.4%
Ohio .............................. 689,133 32.8 96.9
Connecticut ....................... 282,786 13.5 97.4
Tennessee ......................... 244,992 11.7 97.4
Indiana ........................... 97,560 4.6 100.0
New York .......................... 41,475 2.0 96.2
------- ----- -----
Total/ Weighted Average ......... 2,100,452 100.0% 97.2%
========= ===== =====
</TABLE>
Operating History. The following table shows certain information regarding
the operating history of the Edens & Avant Pool I Properties:
<PAGE>
NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995(1) 1996 1997(2) NOI
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Effective Gross Income ......... $ 23,727,901 $ 27,339,587 $ 31,188,916 $ 31,630,980
Operating Expenses ............. (7,387,106) (9,298,016) (9,830,418) (9,437,117)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 16,340,795 $ 18,041,571 $ 21,358,498 $ 22,193,863
============ ============ ============ ============
</TABLE>
- --------
(1) Operating Statements were not available for Middlesex Plaza. As a result,
they have not been included in the 1995 cash flow analysis.
(2) Fairlawn was significantly expanded and renovated during 1996-7. The year
ending December 31, 1997 did not represent stabilized operations. As a
result, the underwritten cash flow was based on the rent roll in place as
of May 31, 1998 and the 1998 budgeted expenses.
S-71
<PAGE>
Description of Tenants. As of April-June 1998, approximately 67.0% of the
Edens & Avant Pool I Properties GLA was leased to anchor tenants with an area
of at least 15,000 square feet per lease. These anchor tenants include
supermarket, drug store, and value-oriented department, furniture and apparel
stores. Tenants in the Edens & Avant Pool I 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 Edens & Avant Pool I Properties is Royal
Ahold N.V., whose 6 stores consisting of Stop and Shop, Bi-Lo and Finast,
contributed approximately 19.4% of the annualized base rent of the Edens &
Avant Pool I Properties. The 10 largest tenants average approximately 32,365
square feet per lease as of April-June, 1998. No single tenant contributed more
than approximately 9.4% of the annualized base rent of the Edens & Avant Pool I
Properties other than Royal Ahold N.V.
The following table shows certain information regarding the 10 largest
tenants for the Edens & Avant Pool I Properties by Annualized Base Rent
(percentage rent and tenant reimbursement obligations are not included):
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT BY PARENT COMPANY
<TABLE>
<CAPTION>
NO. OF TENANT
TENANT OR TENANT PARENT COMPANY STORE NAME STORES GLA
- ------------------------------------ ------------------- -------- ------------
<S> <C> <C> <C>
Royal Ahold N.V. ................... Stop & Shop 6 349,144
Bi-Lo
Finast
The TJX Companies, Inc. ............ Marshalls 4 128,224
Intercontinental Holding Adams 1 59,016
Company ........................... Bozzuto's
Giant Eagle, Inc. .................. Giant Eagle 1 78,181
Linens n' Things, Inc. ............. Linens n' Things 1 38,100
Circuit City Stores, Inc. .......... Circuit City 1 39,840
Blockbuster Entertainment
Group ............................. Blockbuster Video 4 24,614
Office Max, Inc. ................... Office Max 1 23,400
Staples, Inc. ...................... Staples 1 25,200
CVS Corporation .................... CVS/Revco 5 43,408
------ ----------
Total/Weighted Average
(10 Largest) ...................... 25 809,127
Other Major Tenants (greater
than 5,000 square feet) ........... 57 976,107
Remaining Tenants .................. 126 257,161
Vacant Space ....................... 47 58,057
------ ----------
Total/Weighted Average ............. 255 2,100,452
====== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF TOTAL ANNUALIZED
TOTAL ANNUALIZED ANNUALIZED BASE RENT
TENANT OR TENANT PARENT COMPANY GLA(2) BASE RENT BASE RENT(2) PER SF
- ------------------------------------ ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Royal Ahold N.V. ................... 16.6% $ 4,446,285 19.4% $ 12.73
The TJX Companies, Inc. ............ 6.1 2,162,468 9.4 16.86
Intercontinental Holding 2.8 1,386,876 6.0 23.50
Company ...........................
Giant Eagle, Inc. .................. 3.7 840,446 3.7 10.75
Linens n' Things, Inc. ............. 1.8 762,000 3.3 20.00
Circuit City Stores, Inc. .......... 1.9 496,431 2.2 12.46
Blockbuster Entertainment
Group ............................. 1.2 456,391 2.0 18.54
Office Max, Inc. ................... 1.1 427,050 1.9 18.25
Staples, Inc. ...................... 1.2 403,200 1.8 16.00
CVS Corporation .................... 2.1 395,591 1.7 9.11
----- ------------ ----- --------
Total/Weighted Average
(10 Largest) ...................... 38.5% $11,776,738 51.3% $ 14.55
Other Major Tenants (greater
than 5,000 square feet) ........... 46.5 7,305,796 31.8 7.48
Remaining Tenants .................. 12.2 3,873,581 16.9 15.06
Vacant Space ....................... 2.8 0 0.0 0.00
----- ------------ ----- --------
Total/Weighted Average ............. 100.0% $22,956,115 100.0% $ 11.24(1)
===== ============ ===== ===========
</TABLE>
- --------
(1) Excludes vacant square footage.
(2) Numbers may not total 100% due to rounding.
S-72
<PAGE>
Sales History. The following table shows the 1996 and 1997 sales history
for certain tenants at the Edens & Avant Pool I Properties:(1)
<TABLE>
<CAPTION>
ANNUAL 1996 SALES ANNUAL 1997 SALES
------------------------------- -------------------------------
NO. OF SQUARE
STORE NAME STORES FEET TOTAL PER SF TOTAL PER SF
- ---------------------------------- -------- --------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stop & Shop ...................... 3 183,444 $111,197,786 $ 606.17 $106,216,530 $ 579.01
Finast ........................... 3 165,700 74,487,063 449.53 65,716,754 396.60
Marshalls ........................ 4 128,224 29,385,446 229.17 34,891,265 272.11
Roche Brothers ................... 1 26,943 28,709,286 1,065.56 33,314,745 1,236.49
Marc's ........................... 1 36,396 14,242,545 391.32 16,864,644 463.37
CVS / Revco ...................... 4 36,820 16,858,126 457.85 16,181,283 439.47
- ------- ------------ ---------- ------------ ----------
Total Largest Tenants .......... 16 577,527 $274,880,252 $ 475.96 $273,185,221 $ 473.03
Other Comparable Stores .......... 50 313,662 53,580,011 170.82 55,653,782 177.43
-- ------- ------------ ---------- ------------ ----------
Total/Weighted Average ......... 66 891,189 $328,460,263 $ 368.56 $328,839,003 $ 368.99
== ======= ============ ========== ============ ==========
</TABLE>
- --------
(1) Historical sales figures and square footage amounts are only listed for
tenants reporting sales for full years in both 1996 and 1997.
Lease Expirations. The following table shows scheduled lease expirations
at the Edens & Avant Pool I Properties, assuming none of the tenants renew
their leases, exercise renewal options or terminate their leases prior to the
scheduled expiration date:
LEASE EXPIRATION SCHEDULE(1)(3)
<TABLE>
<CAPTION>
NUMBER OF
LEASES EXPIRING PERCENT OF CUMULATIVE
YEAR OF EXPIRATION EXPIRING SF SF PERCENT OF SF
- -------------------- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Vacant ............. 47 58,057 2.8% 2.8%
Month to Month...... 10 18,485 0.9 3.6%
1998 ............... 10 19,471 0.9 4.6%
1999 ............... 23 86,565 4.1 8.7%
2000 ............... 30 260,324 12.4 21.1%
2001 ............... 24 91,993 4.4 25.5%
2002 ............... 27 220,737 10.5 36.0%
2003 ............... 30 281,915 13.4 49.4%
2004 ............... 8 112,192 5.3 54.7%
2005 ............... 6 32,420 1.5 56.3%
2006 ............... 10 124,952 5.9 62.2%
2007 ............... 8 65,906 3.1 65.4%
2008 ............... 6 90,247 4.3 69.7%
Thereafter ......... 16 637,188 30.3 100.0%
-- ------- -----
Total .............. 255 2,100,452 100.0%
=== ========= =====
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<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...... 319,610 17.29 1.4 1.4%
1998 ............... 264,127 13.57 1.2 2.5%
1999 ............... 675,409 7.80 2.9 5.5%
2000 ............... 1,541,404 5.92 6.7 12.2%
2001 ............... 1,250,259 13.59 5.4 17.6%
2002 ............... 1,867,044 8.46 8.1 25.8%
2003 ............... 2,514,765 8.92 11.0 36.7%
2004 ............... 697,104 6.21 3.0 39.8%
2005 ............... 465,480 14.36 2.0 41.8%
2006 ............... 1,926,121 15.41 8.4 50.2%
2007 ............... 721,176 10.94 3.1 53.3%
2008 ............... 1,187,361 13.16 5.2 58.5%
Thereafter ......... 9,526,255 14.95 41.5 100.0%
----------- -------- -----
Total .............. $22,956,115 $ 11.24(2) 100.0%
=========== =========== =====
</TABLE>
- --------
(1) Data based on the April-June, 1998 rent rolls.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
S-73
<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 Edens & Avant Pool I Properties:
<TABLE>
<CAPTION>
CUT-OFF DATE YEAR
ALLOCATED LOAN TOTAL BUILT/
PROPERTY NAME LOCATION AMOUNT SF RENOVATED OCCUPANCY(7)
- ---------------------------- ----------------- ---------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Fairlawn Town Centre
Shopping Center ........... Fairlawn, OH $ 18,512,000 353,191 1958/70/96 91.3%
Bishops Corner ............. West 16,570,000 123,796 1970 100.0
Hartford, CT
Middlesex Mall ............. Burlington, MA 9,808,000 222,218 1974/1991 97.7
South Bay Center ........... Boston, MA 14,180,000 121,540 1994 100.0
Brookside / Brookway
Shopping Center ........... Bridgeport, CT 12,191,000 158,990 1957 94.8
Winchester Court
Shopping Center ........... Memphis, TN 8,651,000 244,992 1987 97.4
Westown Square
Shopping Center ........... Cleveland, OH 9,806,000 169,059 1987 99.4
Burlington Crossroads ...... Burlington, MA 9,043,000 190,300 1974/1997 100.0
Shrewsbury Crossing
Shopping Center .......... Shrewsbury, MA 7,828,000 74,215 1993 100.0
Buckeye Plaza .............. Cleveland, OH 6,247,000 117,281 1989 96.7
Acton Plaza ................ Acton, MA 5,785,000 136,233 1972/1994 99.2
Eastchester Plaza .......... Eastchester, NY 2,281,000 23,375 1956/1988 92.3
Elkhart Plaza Shopping
Center .................... Elkhart, IN 1,824,000 97,560 1972/1992 100.0
Columbia -- Detroit
Shopping Center ........... Westlake, OH 1,322,000 49,602 1979/1995 100.0
Center at Patchogue ........ Patchogue, NY 952,000 18,100 1991 100.0
-------------- ---------- -----
Total/Weighted Average: $125,000,000 2,100,452 97.2%
============== ========== =====
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOI UNDER- ANNUALIZED
---------------------------------------- WRITABLE ANNUALIZED BASE RENT
PROPERTY NAME 1995 1996 1997 CASH FLOW BASE RENT(7) PSF(6)(7)
- ---------------------------- ------------- ------------- ------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Fairlawn Town Centre
Shopping Center ........... $ 1,449,842 $ 1,307,148 $ 2,365,727 $ 3,090,396 $ 3,481,781 $ 10.79
Bishops Corner ............. 2,473,428 2,334,499 2,982,595 2,766,516 2,817,788 22.76
Middlesex Mall ............. n/a 743,369 1,779,562 1,637,585 1,826,937 8.41
South Bay Center ........... 2,186,597 2,375,611 2,704,560 2,367,435 2,376,885 19.56
Brookside / Brookway
Shopping Center ........... 1,358,595 1,673,000 1,592,147 2,035,408 2,235,660 14.83
Winchester Court
Shopping Center ........... 2,090,946 2,375,241 1,933,339 1,912,644 2,029,331 8.50
Westown Square
Shopping Center ........... 1,497,000 1,592,334 1,660,918 1,637,208 1,813,573 10.79
Burlington Crossroads ...... 1,321,253 1,385,749 1,975,448 1,509,724 1,758,979 9.24
Shrewsbury Crossing
Shopping Center .......... 1,209,000 1,217,564 1,303,931 1,306,974 1,304,816 17.58
Buckeye Plaza .............. 1,096,957 1,167,241 1,004,499 1,043,009 1,083,657 9.56
Acton Plaza ................ 678,176 718,744 885,724 965,800 1,118,700 8.28
Eastchester Plaza .......... 358,436 397,505 408,991 380,790 382,579 17.73
Elkhart Plaza Shopping
Center .................... 295,980 348,879 352,052 304,605 279,513 2.87
Columbia -- Detroit
Shopping Center ........... 231,869 246,779 244,555 220,771 240,916 4.86
Center at Patchogue ........ 92,715 157,908 164,450 158,976 205,000 11.33
------------ ------------ ------------ ------------ ------------ ---------
Total/Weighted Average: $16,340,794 $18,041,571 $21,358,498 $21,337,841 $22,956,115 $ 11.24(6)
============ ============ ============ ============ ============ ==========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRIMARY TENANTS WITH
GREATER THAN
PROPERTY NAME 15,000 SF(7)
- ---------------------------- ---------------------------
<S> <C>
Fairlawn Town Centre
Shopping Center ........... (1)
Bishops Corner ............. Adams/Bozzuto's (2011)
and Marshalls (2006)
Middlesex Mall ............. (2)
South Bay Center ........... (3)
Brookside / Brookway
Shopping Center ........... Stop & Shop (2013),
Staples (2003) and
Marshalls (2008)
Winchester Court
Shopping Center ........... (4)
Westown Square
Shopping Center ........... Finast (2012)
Burlington Crossroads ...... Marshalls (2008),
Michael's (2008) and
Service Merchandise
(2004)
Shrewsbury Crossing
Shopping Center .......... Stop & Shop (2012)
Buckeye Plaza .............. Finast (2010)
Acton Plaza ................ Ames (2003) and Roche
Bros. (2015)
Eastchester Plaza .......... Thriftway (2001)
Elkhart Plaza Shopping
Center .................... Fleet Supply of Elkhart
(2000) and Martin's
Supermarkets (2000)
Columbia -- Detroit
Shopping Center ........... Finast (2003)
Center at Patchogue ........ (5)
Total/Weighted Average:
</TABLE>
- -------
(1) US Post Office (1999), Courtyard (2003), Marc's (2006), Giant Eagle
(2022) and Circuit City (2017).
(2) Demoulas Market Basket (2000), Caldor (2000), Linen N'Things (2017),
Loehmann's (2001) and Joann Fabric Shop (2003).
(3) Marshalls (2014), Office Max (2010), Stop & Shop (2018). Toys R Us,
K-Mart and Home Depot are shadow anchors.
(4) Seessel's, Inc. (2002), K&B store (2007), Samuel's Furniture (2002),
Decor 8 (2002) Stein Mart (2002) and Malco 8 Theatres (2009).
(5) No tenants with greater than 15,000 sf as of May 31, 1998.
(6) Annualized base rent per square foot calculation excludes vacant
square footage.
(7) Based on rent rolls dated between April-June 1998.
S-74
<PAGE>
Environmental Reports. Environmental Site Assessments have been performed
on the Edens & Avant Pool I Properties within the past 12 months. The
Environmental Site Assessments did not reveal any environmental liability that
the Depositor believes would have a material adverse effect on the Edens &
Avant Pool I Borrower's business, assets or results of operations taken as a
whole. Certain minor environmental concerns were identified for which remedial
reserves have been established. See "--Lockbox and Reserves" herein.
Nevertheless, there can be no assurance that all environmental conditions and
risks were identified in such environmental assessments. See "Risk
Factors--Environmental Laws Entail Risks" and "--Environmental Risks Relating
to the Mortgaged Properties" herein.
Engineering Reports. Property Condition Reports were completed on the
Edens & Avant Pool I Properties in June, 1998 by third party due diligence
firms. The Property Condition Reports concluded that the Edens & Avant Pool I
Properties were generally in good physical condition and required $2,155,384
deferred maintenance. At origination of the Edens & Avant Pool I Loan, the
Edens & Avant Pool I Borrower established a deferred maintenance reserve
account.
Property Management. The Edens & Avant Pool I Loan is managed by Edens &
Avant Properties Limited Partnership (the "Edens & Evant Pool I Manager"),
which is an affiliate of the Edens & Avant Pool I Borrower, pursuant to a
management agreement dated September 18, 1998 (the "Edens & Avant Pool I
Management Agreement"). The Edens & Avant Pool I Manager receives an annual
management fee of 4% of gross revenues and leasing commissions of 5% of the
base rent.
The Edens & Avant Pool I Management Agreement is for a term ending
September 18, 1999 with automatic extensions of 1 year each. Pursuant to a
management subordination agreement executed by the Edens & Avant Pool I
Manager, the Edens & Avant Pool I Manager has agreed (i) that the Edens & Avant
Pool I Management Agreement is subordinate to the Edens & Avant Pool I Loan and
(ii) the mortgagee has the right to terminate the Edens & Avant Pool I Manager
and replace it with a manager selected and approved by mortgagee (a) on or
after any Loan Default, (b) on or after any default by Edens & Avant Pool I
Manager under the Edens & Avant Pool I Management Agreement, or for cause,
including gross negligence, willful misconduct or fraud or (c) if the debt
service coverage ratio of the Edens & Avant Pool I Loan falls below 1.25x.
The Edens & Avant Pool I Manager is the limited partner of the Edens &
Avant Pool I Borrower, the shareholder of the Edens Pool I managing member and
the non-managing member of the Edens Pool I General Partner. Edens & Avant Pool
I Manager has approximately 12.5 million square feet of retail shopping center
properties under management.
Mortgagee has agreed to allow Samuels Northeast Management LLC (the
"Samuels Manager") to qualify as a new property manager, provided the Samuels
Manager, within 2 months of the closing date of the loan, enters into a
management subordination agreement with the same terms as those contained in
the management subordination agreement executed by the Edens & Avant Pool I
Manager.
The Samuels Manager is not affiliated with the Edens & Avant Pool I
Borrower. The Samuels Manager has approximately 1.25 million square feet of
retail shopping center properties under management.
Without mortgagee's consent (which may not be unreasonably withheld,
delayed or conditioned), the Edens & Avant Pool I Borrower may not enter into
any new management agreement with any new property manager. If during the term
of the Edens & Avant Pool I Loan, the Edens & Avant Pool I Borrower wishes to
designate another property manager acceptable to mortgagee for all or any of
Edens & Avant Pool I Properties, the Edens & Avant Pool I Borrower must notify
mortgagee and each Rating Agency in writing and obtain from each Rating Agency
written confirmation that the retention of the proposed property manager will
not result in a downgrade, withdrawal or qualification of the then current
rating of the Certificates, provided that Rating Agency approval shall not be
required, for purposes of permitted transfers described under "--Transfer of
Properties and Interest in Borrower; Encumbrance; Other Debt" herein, with
respect to a property manager that (a) is a permitted transferee under clause
(i) of the second paragraph under "--Transfer of Property and Interest in
Borrower; Encumbrance; Other Debt" herein, or (b) is an affiliate of such a
permitted transferee, that on the date of determination manages (for itself or
otherwise) commercial real estate assets containing at least 5,000,000 square
feet of which no less than 25 individual properties, containing no less than
2,500,000 square feet in the aggregate, are comprised of "neighborhood" retail
or "strip" shopping centers.
S-75
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EDENS & AVANT POOL I: THE LOAN
ORIGINAL PRINCIPAL BALANCE: $125,000,000 LOAN TYPE: Interest Only EMD
CUT-OFF DATE PRINCIPAL BALANCE: $125,000,000 INITIAL INTEREST RATE: 6.20%
ORIGINATION DATE: September 18, 1998 REVISED INTEREST RATE: Greater of (i) 8.20% and
(ii) Treasury Rate plus 2%
EFFECTIVE MATURITY DATE: October 1, 2008 AMORTIZATION: 240 months starting at November 1, 2008
MATURITY DATE: October 1, 2028 MONTHLY PAYMENT: Interest only through
October 1, 2008. $910,021.12 (principal and
interest) thereafter
EMD BALANCE: $125,000,000 CALL PROTECTION: Lockout to 60 days prior to EMD
</TABLE>
CERTAIN EDENS & AVANT POOL I LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN TO
LOAN PER VALUE ACTUAL REFINANCING
SQUARE FOOT(1) RATIO(2) DSCR(3) DSCR(4)
---------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Cut-Off Date .................... $60 47.1% 2.72x 1.77x
Effective Maturity Date ......... $60 47.1% 2.72x 1.77x
</TABLE>
- --------
(1) Based on the 2,100,452 square feet securing the Edens & Avant Pool I Loan
and the Cut-Off Date Principal Balance or Effective Maturity Date
Balance, as applicable.
(2) Based on the recent purchase price of $265,582,293 and the Cut-Off Date
Principal Balance or Effective Maturity Date Principal Balance, as
applicable.
(3) Based on (a) Underwritable Cash Flow of $21,337,841 and (b) in the case
of the Cut-Off Date Actual DSCR, actual debt service on the Edens & Avant
Pool 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 Edens & Avant Pool I Loan assuming a balance equal to the Effective
Maturity Date Balance and a coupon equal to the Edens & Avant Pool I Loan
Initial Interest Rate.
(4) Based on (a) Underwritable Cash Flow of $21,337,841 and (b) in the case
of the Cut-Off Date Refinancing DSCR, an annual debt service payment
equal to 9.66% of the Cut-Off Date Principal Balance of the Edens & Avant
Pool I Loan and, in the case of the Effective Maturity Date Refinancing
DSCR, an annual debt service payment equal to 9.66% of the Effective
Maturity Date Balance.
Security. The Edens & Avant Pool I Loan is a nonrecourse loan, secured
only by the fee estates of the Edens & Avant Pool I Borrower in the Edens &
Avant Pool I Properties and certain related collateral, including assignments
of leases and rents. Mortgagee is the insured under title insurance policies
insuring that the Edens & Avant Pool I Mortgages constitute a valid and
enforceable first lien on each of the Edens & Avant Pool I Properties, subject
to certain exceptions set forth therein.
Payment Terms. The Edens & Avant Pool I Loan is an Interest Only EMD Loan.
Its Due Date is the first business 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 Edens & Avant Pool I 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 5% of such unpaid sum and the Default Rate
following a Loan Default is 5% above the then applicable interest rate prior to
the Effective Maturity Date and 3% above the then applicable interest rate
after the Effective Maturity Date, in each case subject to applicable law.
Prepayment. Voluntary prepayment is prohibited under the Edens & Avant
Pool I Loan before the date that is 60 days prior to the Effective Maturity
Date. From and after such date, the Edens & Avant Pool I Loan may be
voluntarily prepaid on any Due Date, in whole or in part, without payment of a
Prepayment Charge upon 30 days written notice.
<PAGE>
Principal prepayments on the Edens & Avant Pool I Loan may occur 60 days
prior to 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 Edens & Avant Pool I Loan following a Loan Default.
Notwithstanding the definition of "EMD Loan", Edens & Avant Properties Limited
Partnership, is entitled to receive 5% of the gross income earned on the Edens
& Avant Pool I Properties prior to application of Excess Cash Flow to payment
of principal on the Edens & Avant Pool I Loan. Prepayments following a Loan
Default require payment of a Prepayment Charge equal to the greater of (a) 1%
of the portion of the principal amount being repaid or (b) the Yield
Maintenance Premium. As described below, prepayments may also be made, without
payment of a Prepayment Charge, from insurance or condemnation proceeds.
S-76
<PAGE>
Defeasance. Subject to the Defeasance Conditions, commencing on the date
that is 2 years after the Closing Date, the Edens & Avant Pool I Loan permits
the release of all of the Edens & Avant Pool I 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 Edens & Avant
Pool I Loan on such dates, and provide for payment on the Effective Maturity
Date of the remaining principal balance of the Edens & Avant Pool I Loan. Upon
any such Defeasance, at the option of the Edens & Avant Pool I Borrower, the
Edens & Avant Pool I Borrower's obligations under the Edens & Avant Pool I Loan
and the U.S. Obligations securing the Edens & Avant Pool I Loan may, or if
mortgagee requests shall, be transferred to a Successor Borrower. Following
such Defeasance, the U.S. Obligations will be the sole security for the Edens &
Avant Pool I Loan.
Subject to the Defeasance Conditions, commencing on the date that is 2
years after the Closing Date, the Edens & Avant Pool I Loan also permits the
release of any of the Edens & Avant Pool I 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 Edens & Avant Pool I Defeased Loan
Amount on such dates and provide for payment on the Effective Maturity Date of
the remaining principal balance of the Edens & Avant Pool I Defeased Loan
Amount. The "Edens & Avant Pool I Defeased Loan Amount" is an amount equal to
125% of the Allocated Loan Amount of the Edens & Avant Pool I Property proposed
to be released. Upon any such substitution, at the option of Edens & Avant Pool
I Borrower, the Edens & Avant Pool I Loan will be divided into two Notes, one
of which will be in a principal amount equal to the Edens & Avant Pool I
Defeased Loan Amount.
Substitution of Properties. During the Substitution Period, the Edens &
Avant Pool I Borrower is permitted to substitute one or more properties (each,
an "Edens & Avant Pool I Substitute Property") for properties which are
collateral for the Edens & Avant Pool I Loan (each, an "Edens & Avant Pool I
Replaced Property"). To qualify as an Edens & Avant Pool I Substitute Property,
the following conditions must be satisfied with respect to such property: (a)
the property must have an appraised fair market value of no less than the
greater of (1) the fair market value of the Edens & Avant Pool I Replaced
Property as of origination and (2) the fair market value of the Edens & Avant
Pool I Replaced Property immediately prior to the substitution (which value may
be evidenced by a then-current arms-length sales price to a third party); (b)
the property must have net operating income of at least 105% of that of the
Edens & Avant Pool I Replaced Property for the immediately preceding 12-month
period; (c) all tenants with more than 25,000 square feet of net rentable
space, any tenant which is the largest supermarket or grocery store and any
tenant which is the largest drug or pharmaceutical store must be occupying
their space, open for business, paying rent not in arrears more than 30 days
and not be in bankruptcy; (d) the average terms remaining under the leases for
more than 10% of the rentable space at the substitute property must be no less
than (i) 5 years from the date of substitution, or (ii) the average of terms
remaining under anchor tenant leases at the Edens & Avant Pool I Replaced
Property; (e) tenants having more than 10% of the rentable space at the
property must have sales for the 3 most recent years of no less than the
average sales of similar retailers at other properties securing the Edens &
Avant Pool I Loan; (f) the Edens & Avant Pool I Borrower must hold the property
free of all encumbrances except permitted encumbrances and easements, covenants
and other title exceptions and tenant leases which do not have a material
adverse effect on the utility or value of the property for its current use; (g)
the Edens & Avant Pool I Borrower must (x) deliver an engineering report
acceptable to the Rating Agencies showing that the property is in reasonably
good repair and (y) deposit 125% of deferred maintenance costs into the
Required Repair Account (as defined below); and (h) the property must comply in
all material respects with all legal requirements and insurance requirements.
In addition, in order to effect a substitution, the following conditions,
among others, must be met: (a) the Rating Agencies must have confirmed in
writing that the credit rating of the Certificates will not be qualified,
downgraded or withdrawn as a result of the substitution; (b) the
representations and warranties in the Edens & Avant Pool I Loan documents
applicable to the Edens & Avant Pool I Replaced Property must be true and
correct as to the Edens & Avant Pool I Substitute Property in all material
respects; (c) the Edens and Avant Pool I Borrower must pay all related costs
and expenses; (d) no Loan Default shall have occurred and be continuing; and
(e) the Edens & Avant Pool I Borrower must deliver certain other closing
documents relating to the Edens & Avant Pool I Substitute Property, including
an officer's certificate, a substitute security instrument and assignment of
leases, a title insurance policy or endorsement to mortgagee's existing title
insurance policy, a current as-built survey, UCC-1 financing statements,
insurance certificates, and certain legal opinions.
The approval of the Rating Agencies is not required for any substitution
if: (a) the NOI of the Edens & Avant Pool I Substitute Property is less than 5%
of the sum of the NOI for all Edens & Avant Pool I Properties, for the 12-month
period immediately preceding the proposed substitution and (b) the aggregate
amount of annual NOI for all Edens & Avant Pool I Substitute Properties
(including the Edens & Avant Pool I Property proposed for substitution)
substituted since origination is less than 15% of the annual NOI for all Edens
& Avant Pool I Properties as of the date of origination of the Edens & Avant
S-77
<PAGE>
Pool I Loan. The Substitution Period commences on the Closing Date and ends on
the Effective Maturity Date. No substitution may be effected if the total
Allocated Loan Amount for all prior substituted properties is equal to 40% or
more of the original principal amount of the Edens & Avant Pool I Loan.
Lockbox and Reserves. Pursuant to the Edens & Avant Pool I Loan, the Edens
& Avant Pool I Borrower has established a Soft Lockbox, which is a Two-Tier
Lockbox. The Lockbox Bank is The National Bank of South Carolina for each tier.
Amounts in the Lockbox are required to be applied in accordance with the
Lockbox Waterfall, except that the amounts are first deposited into separate
property accounts for payment of specific property expenses.
Pursuant to the Edens & Avant Pool I Loan, the Edens & Avant Pool I
Borrower is required to establish a Hard Lockbox, which is a Two-Tier Lockbox
upon the following events: (i) following the occurrence of a Loan Default, (ii)
at the Effective Maturity Date or (iii) if the DSCR falls below 1.25x.
The Edens & Avant Pool I Borrower has established (a) a Debt Service
Account, which had an Initial Reserve Deposit of $1,313,194 and requires a
Monthly Reserve Deposit equal to the Monthly Payment, (b) a Tax Account, which
had an Initial Reserve Deposit of $2,138,978 and requires a Monthly Reserve
Deposit equal to the Monthly Tax Deposit Amount, (c) an Insurance Account,
which had an Initial Reserve Deposit of $31,448 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 $2,670,105, (e) a Capital
Reserve Account, which had an Initial Reserve Deposit of $35,008 and requires a
Monthly Reserve Deposit equal to $17,504, (f) a Rollover Account, which had an
Initial Reserve Deposit of $35,008 and requires a Monthly Reserve Deposit equal
to $17,504 and (g) an Environmental Reserve Account, which had an Initial
Reserve Deposit of $174,125 for the purpose of remediation of the Individual
Properties known as Brookside and Eastchester. A subsequent Phase II
Environmental Site Assessment with respect to Westown Square indicated a lack
of environmental issues and need of any further remediation and mortgagee
subsequently released to the Edens & Avant Pool I Borrower $93,750 from the
Environmental Reserve Account. The Edens & Avant Pool I Borrower is required at
all times to keep two months of reserves in the Debt Service Account, Tax
Account, Insurance Account, the Capital Reserve Account and the Rollover
Account.
The Edens & Avant Pool I Borrower has also assigned to mortgagee its
rights to an escrow in the amount of $370,000 which has been set aside for
environmental remediation work with respect to the Individual Property known as
Fairlawn.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Edens & Avant Pool I Borrower is prohibited from transferring any
Edens & Avant Pool I Property 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, (iii) delivery of a new nonconsolidation opinion, (iv) the
proposed transferee shall be a reputable entity or person of good character,
creditworthy with sufficient financial worth considering the obligations
assured and undertaken, and shall comply in all respects with single purpose
entity provisions and all other applicable criteria of each Rating Agency and
(v) the proposed transferee shall have agreed to assume the obligations of the
Edens & Avant Pool I Borrower under the Edens & Avant Pool I Loan. The Edens &
Avant Pool I Borrower is also prohibited from further encumbering any of the
Edens & Avant Pool I Properties.
The Edens & Avant Pool I Loan generally prohibits the transfer of any
interest in the Edens & Avant Pool I Borrower without the prior written consent
of mortgagee. The consent of mortgagee and the Rating Agencies shall not be
required, however, with respect to the following transfers of direct or
indirect beneficial interests in the Edens & Avant Pool I Borrower, provided
that (a) the Edens & Avant Pool I Borrower shall demonstrate to mortgagee that
the Edens & Avant Pool I Borrower shall remain a single purpose entity, (b) the
Edens & Avant Pool I Borrower shall deliver a nonconsolidation opinion to
mortgagee and (c) unless the transfer is of the nature described in clause
(i)(C) below, the Edens & Avant Pool I Borrower shall certify that no change of
control of the Edens & Avant Pool I Manager shall have occurred except as
approved by mortgagee in writing in its sole discretion: (i) any transfer to
any one or more of the following: (A) an insurance company that has investments
in real estate and real estate-related assets equal in value to at least
$500,000,000 and that has a senior unsecured credit rating by S&P of at least
"AA-" and by Moody's of at least "Aa3", (B) a pension fund that has investments
in real estate and real estate-related assets equal in value to at least
$500,000,000 and that has a senior unsecured credit rating by S&P of at least
"A-" and by Moody's of at least "A3", (C) a real estate investment trust having
a senior unsecured credit rating of at least investment grade, or (D) any
affiliate or subsidiary of the foregoing so long as such affiliate or
subsidiary has the equivalent rating; (ii) any transfer by E&A Affiliates, LP,
a South Carolina limited partnership, of any of its direct or indirect
interests in the Edens & Avant Pool I Borrower to the State of Michigan or any
department or agency thereof ("Michigan") and (iii) any transfer pursuant to
which any direct or indirect interest in the Edens & Avant Pool I Borrower is
sold in connection with one or more offerings of securities that is either
registered or exempt from registration under the Securities Act of 1933,
provided that either (x) Michigan, alone or in combination with one or more
transferees permitted under clause (i) above, or (y) such permitted transferees
described in clause (i) above shall; own at least (A) 40%
S-78
<PAGE>
of all such securities for a period of one year after the issuance thereof; (B)
30% of all such securities for a period of two years after the issuance
thereof; (C) 20% of all such securities for a period of three years after the
issuance thereof; and (D) 10% of all such securities for a period of 4 years
after the issuance thereof.
Any transfers of limited partner interests in the Edens & Avant Pool I
Borrower, other than transfers described in the paragraph above, are permitted
without mortgagee's consent, provided that (i) no event of default shall have
occurred and be continuing, (ii) at least 15 business days' notice shall be
delivered to mortgagee, (iii) the Edens & Avant Pool I Borrower shall remain a
single purpose entity, (iv) no transfer of limited partner, non-managing member
or shareholder interests shall result in any one person (together with members
of his or her immediate family or any affiliates thereof) owning, directly,
indirectly or beneficially, 49% or more of the interest in the Edens & Avant
Pool I Borrower, (v) no such transfer of interest shall result in a change of
control of the Edens & Avant Pool I Borrower or the day to day operations of
the Edens & Avant Pool I Property, (vi) each Rating Agency will confirm in
writing that it will not qualify, reduce or withdraw the ratings applicable to
the Certificates and (vii) the Edens & Avant Pool I Borrower provides such
legal opinions as may be reasonably required by mortgagee and each Rating
Agency. In addition, a transfer shall not require the consent of mortgagee if
such transfer occurs by inheritance, devise or bequest or by operation of law
upon the death of a natural person holding, directly or indirectly, a limited
partner interest in the Edens & Avant Pool I Borrower, provided such transfer
is to an immediate family member of such person or a trust established for the
benefit of such family member.
The Edens & Avant Pool I 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 Edens & Avant Pool I Property
which does not exceed, at any time, $2,200,000 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 contested amount).
Insurance. The Edens & Avant Pool I Borrower is required to maintain for
the Edens & Avant Pool I Properties (a) comprehensive all risk insurance with
coverage in an amount at all times sufficient to prevent the Edens & Avant Pool
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 Edens & Avant Pool I Loan, (b) general liability insurance with
coverage of $1,000,000 per occurrence and with an aggregate limit of not less
than $5,000,000, (c) statutory workers compensation insurance, (d) business
interruption insurance 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 Edens & Avant Pool I Property
located within a federally designated "special flood hazard area," in an amount
equal to the lesser of the outstanding principal amount of the Edens & Avant
Pool I Loan and the maximum limit of coverage available under federal law and
(h) at the 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.
Such coverage may be provided by "cut-through" endorsement with insurers
meeting the requirements set forth in the definition of Insurance Requirements.
If premiums increase to an annual cost which exceeds 130% of the premiums for
the previous year or 150% of the premiums for the first year of the term of the
Edens & Avant Pool I Loan, then the Edens & Avant Pool I Borrower may provide
insurance through a consortium of insurers through which (a) at least 60% of
the coverage is provided by insurers meeting the requirements set forth above
and (b) the remainder of the coverage is provided through insurers meeting the
requirements set forth in the definition of Insurance Requirements, except that
the rating by S&P may not be less than "A" and such insurers must have an
equivalent rating by any other Rating Agency.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of a Edens & Avant Pool I Property or a
condemnation of any portion of a Edens & Avant Pool I Property, the Edens &
Avant Pool I Borrower is obligated to commence and diligently prosecute to
completion the restoration of the affected Edens & Avant Pool I Property.
Proceeds of the casualty or condemnation 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 Edens & Avant Pool I Borrower for restoration so
long as (i) there is no Loan Default, (ii) in the case of casualty or
condemnation, less than the greater of (a) 5% of the Allocated Loan Amount for
such Edens & Avant Pool I Property, or (b) $300,000 worth of improvements is
damaged or destroyed, (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. If such conditions are not
S-79
<PAGE>
met, the net proceeds of a casualty or condemnation may at the option of
mortgagee either (i) be applied to prepay the Edens & Avant Pool I Loan without
payment of a Prepayment Charge or (ii) be disbursed to the Edens & Avant Pool I
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 Edens & Avant Pool I Loan provides the mortgagee with
the Standard Approval Rights regarding budgets, leases and alterations. The
Lease Approval Threshold is 25,000 square feet and the Alteration Approval
Threshold is $6,250,000.
Financial Reporting. The Edens & Avant Pool I Borrower is required to
furnish the Financial Statements to mortgagee.
S-80
<PAGE>
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<PAGE>
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<PAGE>
MALL OF NEW HAMPSHIRE
[PICTURE]
[PICTURE] [PICTURE]
[PICTURE] [PICTURE]
Pictures showing outside facade of JCPenney, interior entrances of JCPenney,
Sears and the Body Shop. View of Mall interior
<PAGE>
[PICTURE]
Floor Plan of Mall of New Hampshire
[PICTURE]
Map indicating location of the Mall of New Hampshire in southern portion of the
state
<PAGE>
MALL OF NEW HAMPSHIRE: THE BORROWER; THE PROPERTY
The Loan. The Mall of New Hampshire Loan was originated by Secore and
acquired by MSMC on March 24, 1998. The Mall of New Hampshire Loan had an
original principal balance and has a Cut-Off Date Principal Balance of
$105,000,000. It is secured by a Mortgage (the "Mall of New Hampshire
Mortgage") encumbering a portion of a regional shopping center known as the
Mall of New Hampshire located in Manchester, New Hampshire (the "Mall of New
Hampshire Property").
The Borrower. MNH Mall L.L.C. (the "Mall of New Hampshire Borrower") is a
New Hampshire limited liability company whose purpose is limited to owning and
operating the Mall of New Hampshire Property and related activities. The Mall
of New Hampshire Borrower owns no material assets other than the Mall of New
Hampshire Property and related interests. The Mall of New Hampshire Borrower is
owned by Stephen R. Karp (50%), Mall Holdings L.L.C. (49%), a New Hampshire
limited liability company owned primarily by Stephen R. Karp, Steven S.
Fischman and trusts for the benefit of their respective family members, and by
Manchester SPE Corporation (1%), a special purpose Delaware corporation formed
solely for the purpose of acting as the manager of the Mall of New Hampshire
Borrower.
The Property. The Mall of New Hampshire Property is comprised of a portion
of the Mall of New Hampshire, an enclosed single-level, 3-anchor, regional mall
located in the city of Manchester, New Hampshire, approximately 40 miles
northwest of downtown Boston, Massachusetts. The Mall of New Hampshire Property
was originally built in 1977, and was substantially renovated and expanded
between 1996 and 1998. The Mall of New Hampshire is anchored by Filene's,
JCPenney and Sears, which comprise 402,852 square feet of GLA. Additionally,
Best Buy and Kitchens Etc. are each expected to open "mini-anchor" stores of
42,037 square feet of GLA and 18,949 square feet of GLA, respectively, in
October, 1998. Combined with approximately 329,913 square feet of mall store
GLA, the Mall of New Hampshire contains approximately 793,751 total square
feet. The Mall of New Hampshire is situated on approximately 70.61 acres and
contains approximately 3,800 parking spaces. The ratio of parking spaces is 4.8
per 1,000 square feet of GLA. An appraisal completed by Cushman & Wakefield,
Inc. on September 24, 1998, determined a market value of $145,600,000 for the
Mall of New Hampshire Property.
The table below summarizes the components of total square feet at the Mall
of New Hampshire as of July 15, 1998.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA(1)
--------- -------------
<S> <C> <C>
Anchor Stores (Anchor-Owned)
Filene's ..................................... 165,000 20.8%
JCPenney ..................................... 101,388 12.8
Sears ........................................ 136,464 17.2
------- -----
Total Anchor Stores (Anchor-Owned) .......... 402,852 50.8%
"Mini-Anchors" (Anchor-Owned)
Best Buy ..................................... 42,037 5.3%
Kitchens Etc. ................................ 18,949 2.4
------- -----
Total "Mini Anchors" (Anchor-Owned) ......... 60,986 7.7%
Mall Store Space .............................. 329,913 41.6
------- -----
Total GLA ................................... 793,751 100.0%
======= =====
</TABLE>
- --------
(1) Numbers may not total 100% due to rounding.
Location/Access. The Mall of New Hampshire Property is located in the city
of Manchester, New Hampshire, which is located 40 miles northwest of Boston,
just off of I-93 on State Route 28 and Interstate 293.
Operating History. The following table shows certain information regarding
the operating history of the Mall of New Hampshire Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
LTM UNDERWRITABLE
1996 1997 JUNE 30, 1998 NOI
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 10,431,201 $ 12,700,097 $ 14,067,265 $ 16,349,280
Expenses ...................... (3,217,269) (4,052,684) (4,116,778) (4,789,619)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 7,213,932 $ 8,647,413 $ 9,950,487 $ 11,559,661
============ ============ ============ ============
</TABLE>
S-81
<PAGE>
Occupancy History. The occupancy history for the mall store space of the
Mall of New Hampshire Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
OCCUPANCY AS OF: PERCENT LEASED
- ---------------------------- ---------------
<S> <C>
July 15, 1998 ............. 91.0%
December 31, 1997 ......... 82.8%
December 31, 1996 ......... 80.3%
December 31, 1995 ......... 88.3%
</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 averaged approximately 14.9% in 1997.
Tenant Sales. The Mall of New Hampshire's historical mall store sales and
anchor store sales are summarized as follows(1):
<TABLE>
<CAPTION>
ANNUAL 1996 SALES ANNUAL 1997 SALES
-------------------------- ----------------------------
SQUARE TOTAL TOTAL
FOOTAGE (000S) PER SF (000S) PER SF
--------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Anchor Store Sales
Filene's(2) ..................................... 165,000 $17,000 $283 $ 33,000 $ 200(4)
Sears(2) ........................................ 136,464 26,000 249 30,000 288(5)
JCPenney(3) ..................................... 101,388 N/A N/A N/A N/A
------- ------- ---- -------- --------
Total Anchor Sales ............................. 402,852 $43,000 N/A $ 63,000 N/A
"Mini-Anchor" Sales
Best Buy(3) ..................................... 42,037 N/A N/A N/A N/A
Kitchens Etc.(3) ................................ 18,949 N/A N/A N/A N/A
------- ------- --------
Total "Mini-Anchor" Sales ...................... 60,986 N/A N/A N/A N/A
Mall Store Sales
Comparable Stores ............................... 119,088 $42,625 $349 $ 44,181 $ 371
Non-Comparable Stores ........................... 180,986 5,695 N/A 29,198 N/A
Vacant .......................................... 29,839 N/A N/A N/A N/A
------- ------- ---- -------- --------
Total Mall Store Sales ......................... 329,913 $48,320 N/A $ 73,379 N/A
Total Sales--Anchors and Mall Stores ......... 793,751 $91,320 $136,379
======= ======= ========
</TABLE>
- --------
(1) Data based on the December 31, 1996 and December 31, 1997 sales report
and summarized only for tenants on July 15, 1998 rent roll. Information
is based solely upon the sales figures provided by the Mall of New
Hampshire Borrower from data provided by tenants. Anchor sales are
estimates by the Mall of New Hampshire Borrower. Square footage is based
on the July 15, 1998 rent roll.
(2) During 1997, Filene's and Sears increased available GLA from 60,000 sf
and 104,262 sf respectively.
(3) JCPenney opened in April, 1998. Best Buy and Kitchens Etc. are both
expected to open in October, 1998.
(4) Sales per square foot for Filene's decreased because of the new
construction, and the expansion of its store size by 105,000 square feet
during 1997.
(5) Expansion of the Sears space was not complete until the end of 1997.
Mall Stores. The Mall of New Hampshire Property tenant base is primarily
comprised of national retailers such as B. Dalton, Disney, The Gap and
Victoria's Secret. 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-82
<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)(3)
<TABLE>
<CAPTION>
TENANT
TENANT OR TENANT PARENT COMPANY STORE NAME GLA
- ------------------------------------ --------------------------------- -----------
<S> <C> <C>
Venator Group, Inc. ................ Foot Locker 15,477
Kids Foot Locker
Afterthoughts Boutique
Lady Foot Locker
Northern Experience (Reflection)
B. Dalton BookSellers .............. B. Dalton 10,038
B. Dalton Software
The Limited, Inc. .................. Bath & Body Works 14,270
Limited Express
Victoria's Secret
Casual Corner Group Inc. ........... Casual Corner 12,232
Petite Sophisticate
Contempo Casuals
The Gap, Inc. ...................... The Gap 9,913
Gap Kids
Levi Strauss & Co. ................. Designs By Levis 8,741
Olympia Sport Center ............... Olympia Sport Center 15,000
Record Town ........................ Record Town 6,926
Eastern Mountain Sports ............ Eastern Mountain Sports 6,945
Eye World .......................... Eye World 4.480
-------
Total/Weighted Average
(10 Largest) .................... 104,022
Remaining Mall Stores .............. 196,052
Vacant Space ....................... 29,839
--------
Total Mall Stores ................ 329,913
========
Filene's ........................... Filene's 165,000
J.C. Penney Co., Inc. .............. JCPenney 101,388
Sears, Roebuck & Co. ............... Sears 136,464
Best Buy Co., Inc. ................. Best Buy 42,037
Kitchens Etc. ...................... Kitchens Etc. 18,949
--------
Total (including anchor and
mini-anchor leases) ............. 793,751
========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF TOTAL ANNUALIZED
% OF ANNUALIZED ANNUALIZED BASE RENT
TENANT OR TENANT PARENT COMPANY TOTAL GLA BASE RENT BASE RENT PER SF
- ------------------------------------ ----------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Venator Group, Inc. ................ 4.7% $ 486,625 4.5% $ 31.44
B. Dalton BookSellers .............. 3.0 443,482 4.1 44.18
The Limited, Inc. .................. 4.3 428,100 3.9 30.00
Casual Corner Group Inc. ........... 3.7 413,001 3.8 33.76
The Gap, Inc. ...................... 3.0 327,129 3.0 33.00
Levi Strauss & Co. ................. 2.6 262,230 2.4 30.00
Olympia Sport Center ............... 4.5 225,000 2.1 15.00
Record Town ........................ 2.1 213,000 2.0 30.75
Eastern Mountain Sports ............ 2.1 208,350 1.9 30.00
Eye World .......................... 1.4 185,000 1.7 41.29
----- ----------- ----- --------
Total/Weighted Average
(10 Largest) .................... 31.5% $ 3,191,917 29.2% $ 30.69
Remaining Mall Stores .............. 59.4% 7,727,846 70.8 39.42
Vacant Space ....................... 9.0 0 0.0 0.00
----- ----------- ----- --------
Total Mall Stores ................ 100.0% $10,919,763 100.0% $ 36.39(2)
===== =========== ===== ===========
Filene's ...........................
J.C. Penney Co., Inc. ..............
Sears, Roebuck & Co. ...............
Best Buy Co., Inc. .................
Kitchens Etc. ......................
Total (including anchor and
mini-anchor leases) .............
</TABLE>
<PAGE>
- --------
(1) Based on the July 15, 1998 rent roll, updated to include newly executed
leases through September 24, 1998.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
S-83
<PAGE>
Mall Store Lease Expirations. The following table shows scheduled lease
expirations of mall store GLA at the Mall of New Hampshire Property as of July
15, 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)(3)
<TABLE>
<CAPTION>
CUMULATIVE
NUMBER OF CUMULATIVE ANNUALIZED PERCENT OF PERCENT OF
LEASES EXPIRING PERCENT PERCENT ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION EXPIRING SF OF SF OF SF BASE RENT PER SF BASE RENT BASE RENT
- -------------------- ----------- ---------- --------- ------------ -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ............. 19 29,839 9.0% 9.0% $ 0 $ 0.00 0.0% 0.0%
1999 ............... 10 22,816 6.9 16.0% 1,035,301 45.38 9.5 9.5%
2000 ............... 4 8,564 2.6 18.6% 386,010 45.07 3.5 13.0%
2001 ............... 3 3,465 1.1 19.6% 263,817 76.14 2.4 15.4%
2002 ............... 2 5,124 1.6 21.2% 209,388 40.86 1.9 17.3%
2003 ............... 5 18,611 5.6 26.8% 732,230 39.34 6.7 24.1%
2004 ............... 4 8,555 2.6 29.4% 317,705 37.14 2.9 27.0%
2005 ............... 7 17,191 5.2 34.6% 703,512 40.92 6.4 33.4%
2006 ............... 4 6,836 2.1 36.7% 413,500 60.49 3.8 37.2%
2007 ............... 23 60,628 18.4 55.1% 1,946,695 32.11 17.8 55.0%
2008 ............... 43 118,186 35.8 90.9% 3,726,345 31.53 34.1 89.1%
Thereafter ......... 9 30,098 9.1 100.0% 1,185,260 39.38 10.9 100.0%
-- ------- ----- ----------- -------- -----
Total ............. 133 329,913 100.0% $10,919,763 $ 36.39(2) 100.0%
=== ======= ===== =========== =========== =====
</TABLE>
- --------
(1) Data based on the July 15, 1998 rent roll, updated to include newly
executed leases through September 24, 1998.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
Anchor Stores. The following table shows certain information for each of
the Mall of New Hampshire's anchor tenants (and each respective corporate
parent):
<TABLE>
<CAPTION>
CREDIT RATING OF OPERATING
PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S)(1) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION
- ---------------- ----------------------- ------------------ --------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Filene's ....... The May Department
Stores Company A+/A2 165,000 Anchor-owned N/A 11/15/11 N/A
JCPenney ....... J.C. Penney Co., Inc. A/A2 101,388 Anchor-owned N/A 4/30/13 N/A
Sears .......... Sears, Roebuck & Co. A-/A2 136,464 Anchor-owned N/A 11/15/11 N/A
</TABLE>
- --------
(1) Ratings as of August 1, 1998. Unless otherwise stated, the parent
company, if different from the anchor store listed, is not a party to or
a guarantor of the anchor store's lease.
Market Overview and Competition. According to the February 16, 1998
Cushman & Wakefield, Inc. appraisal, as of February, 1997, Hillsborough County
(in which the Mall of New Hampshire Property is located), contained
approximately 357,546 residents with a projected average household income of
$64,527. Population growth in the primary trade area from 1980-1997 increased
by 2.0% per annum.
S-84
<PAGE>
The following table shows an overview of the competition to the Mall of
New Hampshire Property:
<TABLE>
<CAPTION>
APPROXIMATE
DISTANCE FROM
YEAR BUILT/ THE PROPERTY
MALL/RETAIL PROPERTY RENOVATED OWNER (MILES) ANCHORS/MALL STORES SIZE (SF)
- ------------------------ ------------- --------------------------- -------------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
Subject Property
Mall of New Hampshire 1977/1998 New England Development -- Filene's 165,000
Sears 136,464
JCPenney 101,388
Best Buy(1) 42,037
Kitchens Etc.(1) 18,949
Mall Stores 329,913
-------
Total 793,751
Competition
Pheasant Lane 1986/1996 New England Development/ 20 Filene's 150,000
SR Weiner & Assoc. JCPenney 105,000
Macy's 120,000
Sears 165,000
Vacant 115,000
Mall Stores 305,000
-------
Total 960,000
Mall at 1991 New England Development 20 Filene's 139,476
Rockingham Park JCPenney 121,106
Macy's 153,388
Sears 200,627
Mall Stores 382,889
-------
Total 997,486
Steeplegate 1990 General Growth Properties 25 JCPenney 61,880
Sears 106,731
Steinbach 51,684
Vacant 55,180
Mall Stores 162,655
-------
Total 438,130
</TABLE>
- --------
Source: Cushman & Wakefield, Inc.
(1) Expected to open in October, 1998.
Operating Agreement. The Second Amended and Restated Construction,
Operating and Reciprocal Easement Agreement (the "Mall of New Hampshire ROA")
dated as of November 15, 1996, by and among the Mall of New Hampshire Borrower,
Sears, Roebuck & Co. ("Sears"), J.C. Penney Properties, Inc. ("Penney"), the
May Department Stores Company ("May") and Mall Parcel L.L.C., which is an
affiliate of the Mall of New Hampshire Borrower, as successor to Lechmere
Realty Limited Partnership ("Mall Parcel"), contains operating covenants
affecting the operation of the anchor stores in the Mall of New Hampshire
Property. Under the Mall of New Hampshire ROA, Sears must operate continuously
under the name "Sears" or such other name as is used to identify the majority
of its department stores in New Hampshire and Maine until November 15, 2011.
Sears may terminate its operating covenant upon the occurrence and failure to
cure of the following: (i) the Mall of New Hampshire Borrower is not operating
in accordance with its operating covenant or materially defaults in its
obligations under the Mall of New Hampshire ROA, (ii) either May or Penney is
in violation of its respective operating covenants or is not obligated to
operate in accordance with its covenants or has ceased retail operation of its
store under its respective name or (iii) less than 65% of minimum floor area of
the mall stores is occupied and open for business as provided
S-85
<PAGE>
under the Mall of New Hampshire ROA. Penney must operate continuously under the
trade name "JCPenney" or such other name as is then used to identify the
majority of the stores operating under the Penney name for a period of 15 years
after the opening of the store. Penney may terminate its operating covenant
upon the occurrence and failure to cure of the following: (i) the Mall of New
Hampshire Borrower is not operating in accordance with its operating covenant
or materially defaults in its obligations under the Mall of New Hampshire ROA
(ii) either May or Sears is in violation of its respective operating covenants
or is not obligated to operate in accordance with its covenants or has ceased
retail operation of its stores under its respective name or (iii) less than 65%
of minimum floor area of the mall stores is occupied and open for business as
provided under the Mall of New Hampshire ROA. May must operate continuously
under the trade name "Filenes" or such other name as is used to identify the
majority of its department stores in the Boston area for a period of 15 years
after the opening of its store. May may terminate its operating covenant upon
the occurrence and failure to cure of the following: (i) the Mall of New
Hampshire Borrower is not operating in accordance with its operating covenant
or materially defaults in its obligations under the Mall of New Hampshire ROA
(ii) either Sears or Penney is in violation of its respective operating
covenants or is not obligated to operate in accordance with its covenants or
has ceased retail operation of its store under its respective name or (iii)
less than 65% of minimum floor area of the mall stores is occupied and open for
business as provided under the Mall of New Hampshire ROA. The Mall of New
Hampshire Borrower is required to continuously operate the Mall of New
Hampshire Property as a shopping center for a term of 15 years after the
opening of the Mall of New Hampshire Property.
Environmental Report. A Phase I site assessment, dated March 11, 1998, was
performed on the Mall of New Hampshire 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--Environmental Laws Entail Risks" and
"--Environmental Risks Relating to the Mortgaged Properties" herein.
Engineering Report. A Property Condition Report was completed on the Mall
of New Hampshire Property on December 3, 1997, by a third-party due diligence
firm. The Property Condition Report concluded that the Mall of New Hampshire
Property was generally in good physical condition and identified approximately
$2,000 in deferred maintenance requirements.
Ground Leases. Two portions of the interest of the Mall of New Hampshire
Borrower in the Mall of New Hampshire Property consist of ground leasehold
interests created under leases with Louis N. Ashkar and John N. Ashkar (the
"Mall of New Hampshire Ground Leases"). The portions of the Mall of New
Hampshire Property demised by the Mall of New Hampshire Ground Leases are
currently used exclusively for parking. The larger of the two Mall of New
Hampshire Ground Leases (the "Large Mall of New Hampshire Ground Lease")
expires on May 31, 2004. The Large Mall of New Hampshire Ground Lease contains
15 extension options of 5 years each. In the event that the Mall of New
Hampshire Borrower fails to exercise any option to renew the Large Mall of New
Hampshire Ground Lease during the term of the Mall of New Hampshire Loan, the
ground lessor thereunder has agreed that mortgagee shall have the right to
exercise such options. Rent is payable under the Large Mall of New Hampshire
Ground Lease at the rate of $3,000 per month for the first 5-year period of the
Large Mall of New Hampshire Ground Lease and increases during each subsequent
5-year period at the rate per month which is the lesser of (i) 120% of the
monthly rent for the immediately preceding 5-year period and (ii) the monthly
rent for the immediately preceding 5-year period increased by the percentage
increase of the consumer price index. The monthly rent payable under the Large
Mall of New Hampshire Ground Lease as of the closing of the Mall of New
Hampshire Loan was $4,289.17. The smaller of the two Mall of New Hampshire
Ground Leases (the "Small Mall of New Hampshire Ground Lease") expires on
September 20, 2027, and contains no extension options. Rent is payable under
the Small Mall of New Hampshire Ground Lease at the rate of $625 per month for
the first 5-year period of the Small Mall of New Hampshire Ground Lease and
increases or decreases during each subsequent 5-year period to reflect changes
in the Wholesale Price Index as published by the Bureau of Labor Statistics of
the United States Department of Labor. The monthly rent payable under the Small
Mall of New Hampshire Ground Lease as of the closing of the Mall of New
Hampshire Loan was $1,428. The Small Mall of New Hampshire Ground Lease lacks
standard mortgagee protections. The potential risks relating to lack of
standard mortgagee protections in the Small Mall of New Hampshire Ground Lease
have been mitigated by the following factors: (i) the ground lessor under the
Small Mall of New Hampshire Ground Lease has joined in the Mall of New
Hampshire Mortgage, (ii) the title insurance policy insures that the Mall of
New Hampshire Mortgage constitutes a valid and enforceable first lien on the
ground lessor's fee interest in the land demised by the Small Mall of New
Hampshire Ground Lease and (iii) a zoning opinion was obtained from local
counsel to the effect that the loss of the land demised by the Small Mall of
New Hampshire Ground Lease (a) would not cause the remainder of the Mall of New
Hampshire Property to violate applicable zoning requirements and (b) would
result in the loss of not more than 30 parking spaces, leaving the total then
remaining at approximately 223 more than required.
S-86
<PAGE>
Property Management. The Mall of New Hampshire Property is managed by NH
Mall Management, L.L.C., a New Hampshire limited liability company (the "Mall
of New Hampshire Manager"), which is an affiliate of the Mall of New Hampshire
Borrower, pursuant to an amended and restated management agreement dated July
1, 1996 (as amended by amendment dated August 1, 1996, the "Mall of New
Hampshire Management Agreement"). The Mall of New Hampshire Manager receives a
management fee of 3.5% of gross rent collected, payable monthly, and leasing
commissions of $8,000 per lease for standard leases and 20% of the gross income
generated by a specialty leasing program for temporary tenants, kiosks and
pushcarts.
The Mall of New Hampshire Management Agreement is for a term ending March
31, 2007 with unlimited automatic extensions of 5 years each. Pursuant to a
management services agreement, the Mall of New Hampshire Manager has employed
WellsPark Group Limited Partnership, a Delaware limited partnership (the "Mall
of New Hampshire Co-Manager") to assist in the management, operation, rental
and leasing of the Mall of New Hampshire Property. The Mall of New Hampshire
Co-Manager is also an affiliate of the Mall of New Hampshire Borrower. Pursuant
to a management subordination agreement executed by the Mall of New Hampshire
Manager and the Mall of New Hampshire Co-Manager, mortgagee has the right to
terminate the Mall of New Hampshire Manager and the Mall of New Hampshire
Co-Manager upon the occurrence of a Loan Default.
The Mall of New Hampshire Co-Manager has approximately 13,000,000 square
feet of retail properties under management.
The Mall of New Hampshire Borrower may terminate the Mall of New Hampshire
Manager at any time and retain a Mall of New Hampshire Approved Manager to
manage the Mall of New Hampshire Property without the consent of mortgagee. The
term "Mall of New Hampshire Approved Manager" means (i) an entity in which
Stephen R. Karp and Steven S. Fischman collectively own, directly or
indirectly, a minimum of 25% of the ownership interests or (ii) a property
manager which, together with its affiliates, manages, exclusive of the Mall of
New Hampshire Property, at least 5 regional malls totaling not less than
3,000,000 square feet in the aggregate.
S-87
<PAGE>
MALL OF NEW HAMPSHIRE: THE LOAN
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $105,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $105,000,000 INITIAL INTEREST RATE: 6.955%.
ORIGINATION DATE: March 24, 1998 REVISED INTEREST RATE: Greater of (i) 11.955% and
(ii) Treasury Rate plus 5%
EFFECTIVE MATURITY DATE: October 1, 2008 AMORTIZATION: 360 months starting November 1, 1999
MATURITY DATE: April 1, 2028 MONTHLY PAYMENT: Interest only to October 1, 1999;
$695,397.21 (principal and interest) thereafter.
EMD BALANCE: $93,305,773 CALL PROTECTION: Lockout to EMD
</TABLE>
CERTAIN MALL OF NEW HAMPSHIRE LOAN STATISTICS(1)
<TABLE>
<CAPTION>
LOAN PER LOAN TO VALUE ACTUAL REFINANCING
SQUARE FOOT(2) RATIO(3) DSCR(4) DSCR(5)
---------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Cut-Off Date .................... $288 65.2% 1.67x 1.31x
Effective Maturity Date ......... $253 57.2% 1.91x 1.49x
</TABLE>
- --------
(1) The loan balance used in computing these statistics has been reduced by
the Mall of New Hampshire Letter of Credit (described below under "--
Security").
(2) Based on the 329,913 square feet securing the Mall of New Hampshire Loan
and the Cut-Off Date Principal Balance or Effective Maturity Date
Balance, as applicable.
(3) Based on September 24, 1998 Cushman & Wakefield, Inc. appraised value of
$145,600,000 and the Cut-Off Date Principal Balance or Effective Maturity
Date Balance, as applicable.
(4) Based on (a) Underwritable Cash Flow of $11,199,597 and (b) in the case
of Cut-Off Date Actual DSCR, actual debt service on the Mall of New
Hampshire 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 Mall of New Hampshire Loan assuming a balance equal to the
Effective Maturity Date Balance and a coupon equal to the Mall of New
Hampshire Loan Initial Interest Rate.
(5) Based on (a) Underwritable Cash Flow of $11,199,597 and (b) in the case
of the Cut-Off Date Refinancing DSCR, an annual debt service payment
equal to 9.00% of the Cut-Off Date Principal Balance of the Mall of New
Hampshire Loan, and, in the case of the Effective Maturity Date
Refinancing DSCR, an annual debt service payment equal to 9.00% of the
Effective Maturity Date Balance.
Security. The Mall of New Hampshire Loan is a nonrecourse loan, secured by
the fee and leasehold estate of the Mall of New Hampshire Borrower in the Mall
of New Hampshire Property and certain related collateral, including an
assignment of leases and rents. Mortgagee is the insured under a title
insurance policy insuring that the Mall of New Hampshire Mortgage constitutes a
valid and enforceable first lien on the Mall of New Hampshire Property, subject
to certain exceptions set forth therein. As additional security for the Mall of
New Hampshire Loan, the Mall of New Hampshire Borrower has delivered a Letter
of Credit in the amount of $10,000,000 (the "Mall of New Hampshire Letter of
Credit"). Provided there has been no Loan Default, the Mall of New Hampshire
Borrower may reduce the Mall of New Hampshire Letter of Credit to an amount
which, when subtracted from the outstanding principal balance of the Mall of
New Hampshire Loan, causes the calculation of the DSCR to equal no less than
1.25x assuming a 9.0% loan constant. Provided there has been no Loan Default,
the Mall of New Hampshire Letter of Credit will be returned to the Mall of New
Hampshire Borrower when the DSCR equals or exceeds 1.25x assuming a 9.0% loan
constant.
Payment Terms. The Mall of New Hampshire Loan is an EMD Loan. However, the
Mall of New Hampshire Loan requires monthly payments of interest only through
October 1, 1999. 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 Mall of New Hampshire 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 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.
S-88
<PAGE>
Prepayment. Voluntary prepayment is prohibited under the Mall of New
Hampshire Loan prior to the Effective Maturity Date. From and after such date
the Mall of New Hampshire Loan may be voluntarily prepaid on any Due Date, in
whole or in part, without payment of a Prepayment Charge.
Principal prepayments on the Mall of New Hampshire Loan may occur from and
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 Mall of New Hampshire Loan following a Loan Default.
Prepayments following a Loan Default require payment of a Prepayment Charge
equal to the greater of (a) 1% of the portion of the principal amount being
repaid or (b) the Yield Maintenance Premium. As described below, prepayments
may also be made, without payment of a Prepayment 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 Mall of New Hampshire Loan permits
the release of the Mall of New Hampshire 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 Mall of New Hampshire
Loan on such dates, and provide for payment on the Effective Maturity Date of
the remaining principal balance of the Mall of New Hampshire Loan. Upon any
such Defeasance, at the option of mortgagee, the Mall of New Hampshire
Borrower's obligations under the Mall of New Hampshire Loan and the U.S.
Obligations securing the Mall of New Hampshire Loan will be transferred to a
Successor Borrower. Following such Defeasance, the U.S. Obligations will be the
sole security for the Mall of New Hampshire Loan.
Lockbox and Reserves. Pursuant to the Mall of New Hampshire Loan, the Mall
of New Hampshire Borrower has established a Hard Lockbox, which is a One-Tier
Lockbox. The Lockbox Bank is BankBoston, N.A. Until (i) the occurrence of Loan
Default, (ii) the occurrence of the date which is 60 days prior to the
Effective Maturity Date unless the Mall of New Hampshire Borrower provides
evidence of its ability to repay the Mall of New Hampshire Loan on or before
the Effective Maturity Date or (iii) the calculation of the Loan DSCR falling
below 1.25x (each a "Mall of New Hampshire Lockbox Trigger Event"), the Mall of
New Hampshire Borrower shall have access to all funds on deposit in the
Lockbox. Upon the occurrence and during the continuance of any Mall of New
Hampshire Lockbox Trigger Event, the Mall of New Hampshire Borrower will not
have access to the funds in the Lockbox, provided that in the event of a Mall
of New Hampshire Lockbox Trigger Event caused by a Loan DSCR below 1.25x, the
Mall of New Hampshire Borrower will regain access to funds in the Lockbox if
the Loan DSCR thereafter equals or exceeds 1.25x for 6 consecutive months or if
the Mall of New Hampshire Borrower deposits additional collateral in an amount
which, when subtracted from the principal balance of the Mall of New Hampshire
Loan, causes the Loan DSCR to equal or exceed 1.25x.
The Mall of New Hampshire Borrower has established (i) a Debt Service
Account, which requires a Monthly Reserve Deposit equal to the Monthly Payment,
(ii) a Required Repair Account, which had an Initial Reserve Deposit of
$1,701,309 and (iii) a combined Capital Reserve Account and Rollover Account,
which requires a Monthly Reserve Deposit of $0.10 per square foot of space at
the Mall of New Hampshire Property; provided that the Mall of New Hampshire
Borrower is not required to make further deposits into the combined Capital
Reserve Account and Rollover Account at any time when the amount on deposit
therein equals or exceeds $1,000,000. The Required Repair Account was
established to ensure the completion of certain renovations to the food court
area of the Mall of New Hampshire Property. In lieu of making any required
Monthly Reserve Deposits, the Mall of New Hampshire Borrower may deposit a
Letter of Credit in accordance with the terms of the Mall of New Hampshire loan
documents.
Additionally, upon the occurrence of a Mall of New Hampshire Impounds
Trigger Event, the Mall of New Hampshire Borrower is required to establish (i)
a Tax Account, which requires a Monthly Reserve Deposit equal to the Monthly
Tax Deposit Amount, (ii) an Insurance Account, which requires a Monthly Reserve
Deposit equal to the Monthly Insurance Deposit Amount and (iii) a Ground Rent
Account, which requires a Monthly Reserve Deposit equal to one-twelfth of the
annual ground rents due under the Mall of New Hampshire Ground Leases. The term
"Mall of New Hampshire Impounds Trigger Event" means any of the following
events: (i) the occurrence of a Loan Default, (ii) the occurrence of the
Effective Maturity Date or (iii) the failure of the Mall of New Hampshire
Borrower to make any payment of taxes, insurance premiums or ground rent on or
before the date such payments are due and payable. Following the occurrence of
a Mall of New Hampshire Impounds Trigger Event, amounts in the Lockbox are
required to be applied in accordance with the Lockbox Waterfall.
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. The Mall of New Hampshire Borrower is prohibited from transferring the
Mall of New Hampshire Property without (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 and (ii) if
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<PAGE>
requested by the Rating Agencies, delivery of a new nonconsolidation opinion,
except that the confirmation by each Rating Agency is not required in
connection with a transfer of the Mall of New Hampshire Property to a Mall of
New Hampshire Approved Transferee. The term "Mall of New Hampshire Approved
Transferee" means a corporation, partnership or limited liability company
meeting SPE criteria and that (i) is owned by a pension fund, account or trust,
an insurance company, a major money center bank, or a real estate investment
trust that has a minimum long-term unsecured debt rating of at least
"BBB-/Baa3" (or the equivalent) by each Rating Agency, or if any such real
estate investment trust is not rated by each Rating Agency, then a minimum
long-term unsecured debt rating of at least "BBB-/Baa3" or its equivalent by
two Rating Agencies (at least one of which shall be S&P), (ii) is controlled by
an entity which, together with its affiliates, exclusive of the Mall of New
Hampshire Property, has a current net worth of at least $150,000,000 and total
assets of at least $300,000,000, or if controlled by a pension fund advisor,
then such advisor has assets under its control of at least $1,500,000,000, and
(iii) controls, or together with its property manager and their respective
affiliates control and/or manage, at least five regional malls totaling not
less than 3,000,000 rentable square feet in the aggregate. The Mall of New
Hampshire Borrower is also prohibited from further encumbering the Mall of New
Hampshire Property.
The Mall of New Hampshire Loan generally prohibits the transfer of any
direct or indirect interest in the Mall of New Hampshire Borrower without (i)
the prior written consent of mortgagee, (ii) if the transfer is not to a Mall
of New Hampshire Approved Transferee, 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) if required by the
Rating Agencies, delivery of a satisfactory nonconsolidation opinion.
Notwithstanding the foregoing, mortgagee's consent is not required with respect
to transfers of direct or indirect beneficial interests in the Mall of New
Hampshire Borrower or the SPE managing member, provided that (a) Stephen R.
Karp and Steven S. Fischman, their immediate family members, or any entity or
trust owned or controlled by, or for the benefit of, Stephen R. Karp, Steven S.
Fischman or their immediate family members at all times directly or indirectly
own not less than 51% of the beneficial interests in the Mall of New Hampshire
Borrower and the SPE managing member or (b) the transferee is a Mall of New
Hampshire Approved Transferee.
The Mall of New Hampshire 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 Mall of
New Hampshire Property which does not exceed, at any time, $1,000,000 and is
paid within 90 days of the date incurred and (ii) equipment leases incurred in
the ordinary course of owning and operating the Mall of New Hampshire Property
with annual payments that do not exceed $250,000 in the aggregate.
Insurance. The Mall of New Hampshire Borrower is required to maintain for
the Mall of New Hampshire Property (a) comprehensive all risk insurance with
coverage in an amount at all times sufficient to prevent the Mall of New
Hampshire Borrower from becoming a co-insurer, but in any event equal to the
full replacement cost of the improvements, (b) general liability insurance with
per occurrence and aggregate limits of not less than $10,000,000, (c) statutory
workers compensation insurance, (d) business interruption insurance to cover 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 cost,
(f) comprehensive boiler and machinery insurance in amounts reasonably required
by mortgagee and (g) at mortgagee's reasonable request, such other insurance
against loss or damage of the kind customarily insured against 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 the Mall of New Hampshire Property or a
condemnation of any portion of the Mall of New Hampshire Property, the Mall of
New Hampshire Borrower is obligated to commence and diligently prosecute to
completion the restoration of the Mall of New Hampshire Property. If both the
net proceeds of the casualty or condemnation and the costs of restoration are
less than $2,500,000, the Mall of New Hampshire Borrower may directly 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 Mall of New Hampshire Borrower for restoration so
long as (i) there is no Loan Default, (ii) (x) in the case of casualty, less
than 25% of the total floor area of the improvements is damaged or destroyed
(other than the improvements on the land demised by the Large Mall of New
Hampshire Ground Lease) and (y) in the case of condemnation, the land taken is
located along the perimeter or periphery of the Mall of New Hampshire Property
and less than 20% of the land constituting the Mall of New Hampshire Property
is taken and no portion of the improvements is the subject of the condemnation
(other than the improvements on the land demised by the Large Mall of New
Hampshire Ground Lease), (iii) after giving effect to the restoration work, the
Loan DSCR shall be no less than 1.1x, and (iv) mortgagee shall be satisfied
that the work of restoration can be completed
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<PAGE>
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
applicable zoning laws. 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 Mall of New Hampshire Loan without payment of a Prepayment Charge
or (ii) be disbursed to the Mall of New Hampshire Borrower for restoration. All
disbursements of net proceeds of a casualty or condemnation shall be made in
accordance with the Disbursement Procedures, except that the 10% casualty
retainage shall be required only for the first half of the restoration work.
Approval Rights. The Mall of New Hampshire Loan provides mortgagee with
the Standard Approval Rights regarding budgets, leases and alterations (except
that with respect to leases over 7,500 square feet which are in default, the
Mall of New Hampshire Borrower may terminate such lease without the consent of
mortgagee). The Lease Approval Threshold is 7,500 square feet and the
Alteration Escrow Threshold is $2,500,000.
Financial Reporting. The Mall of New Hampshire Borrower is required to
furnish the Financial Statements to mortgagee.
S-91
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
WESTSIDE PAVILION
[PICTURE]
[PICTURE] [PICTURE] [PICTURE]
Pictures depicting exterior and interior views of the Westside Pavilion
<PAGE>
[PICTURE]
Floor plan of the Westside Pavilion
[PICTURE]
Map indicating location of the Westside Pavilion in the Los Angeles area
<PAGE>
WESTSIDE PAVILION: THE BORROWER; THE PROPERTY
The Loan. The Westside Pavilion Loan was originated by Secore and acquired
by MSMC on July 1, 1998. The Westside Pavilion Loan had an original principal
balance and has a Cut-Off Date Principal Balance of $100,000,000. It is secured
by a Mortgage (the "Westside Pavilion Mortgage") encumbering the Phase I
portion of a regional shopping center known as the Westside Pavilion, located
in Los Angeles, California (the "Westside Pavilion Property").
The Borrower. Macerich Westside Limited Partnership (the "Westside
Pavilion Borrower") is a California limited partnership whose purpose is
limited to owning and operating the Westside Pavilion Property and related
activities. The Westside Pavilion Borrower owns no material asset other than
the Westside Pavilion Property and related interests. The sole general partner
of the Westside Pavilion Borrower is Macerich Westside GP Corp., a Delaware
corporation (the "Westside GP"), which holds a 1% interest in the Westside
Pavilion Borrower and whose purpose is limited to acting as general partner of
the Westside Pavilion Borrower and related activities. The sole limited partner
of the Westside Pavilion Borrower is The Macerich Partnership, L.P., a Delaware
limited partnership (the "Macerich Operating Partnership") which holds a 99%
interest in the Westside Pavilion Borrower, the general partner of which is The
Macerich Company, a Maryland corporation and a real estate investment trust
(the "Macerich REIT").
The Property. The Westside Pavilion consists of two components. The
original portion of the center (Phase I) was built in 1985 and consists of a
663,723 square foot, three-level enclosed mall anchored by Robinson's-May
(220,000 s.f.), Nordstrom (138,128 s.f.) and Pavilions Market (43,435 s.f.) and
is situated at the southeast corner of Pico and Westwood Boulevards. The second
component of the Westside Pavilion (Phase II) was constructed in 1991 and
consists of a 91,978 square foot, three-level open-air mall situated at the
southwest corner of Pico and Westside Boulevards. The original and expansion
components of Westside Pavilion comprise a total gross leasable area of 755,701
square feet and are connected by a pedestrian bridge on the third level
extending across Westwood Boulevard. The Westside Pavilion is situated on
approximately 15.13 acres and contains 3,334 parking spaces. The ratio of
parking spaces at the Westside Pavilion is 4.40 per 1,000 square feet of total
GLA. An appraisal completed by Cushman & Wakefield, Inc. on July 13, 1998
determined a market value of $160,000,000 for the Westside Pavilion Property.
The table below summarizes the components of total square feet at the
Westside Pavilion as of May 29, 1998.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA(1)
--------- -------------
<S> <C> <C>
Anchor Stores (Borrower-Owned)
- ------------------------------
Nordstrom ..................................... 138,128 18.3%
Pavilions ..................................... 43,435 5.8
------- -----
Total Anchor Stores (Borrower-Owned) ......... 181,563 24.1%
Anchor Stores (Anchor-Owned)
- ----------------------------
Robinson's-May ................................ 220,000 29.1%
Mall Stores
- -----------
Phase I (Borrower-Owned) ...................... 262,160 34.7%
Phase II (Non-Borrower-Owned) ................. 91,978 12.2
------- -----
Total GLA .................................... 755,701 100.0%
======= =====
</TABLE>
- --------
(1) Numbers may not total 100% due to rounding.
Location/Access. The Westside Pavilion Property is located on the westside
of the city of Los Angeles, California. The Westside Pavilion Property has
access from the Santa Monica Freeway (10) and is located approximately .5 miles
east of the San Diego Freeway (405).
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<PAGE>
Operating History. The following table shows certain information regarding
the operating history of the Westside Pavilion:
ADJUSTED NET OPERATING INCOME(1)
<TABLE>
<CAPTION>
LTM UNDERWRITABLE
1996 1997 APRIL 30, 1998 NOI
-------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 23,603,674 $ 23,000,883 $ 23,344,115 $ 20,699,693
Expenses ...................... (9,052,213) (8,414,772) (8,300,056) (7,756,708)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 14,551,461 $ 14,586,111 $ 15,044,059 $ 12,942,985
============ ============ ============ ============
</TABLE>
- --------
(1) Operating history of the Westside Pavilion includes both Phase I and II
components. Underwritable amounts pertain to Phase I only.
Occupancy History. The occupancy history for the mall store space of the
Phase I portion of the Westside Pavilion Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
OCCUPANCY AS OF: PERCENT LEASED
- ---------------------------- ---------------
<S> <C>
May 29, 1998 .............. 98.8%
December 31, 1997 ......... 96.3%
December 31, 1996 ......... 91.1%
</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 16.7% in 1997 after adjustments are made to exclude real
estate taxes allocable to Phase II.
Tenant Sales. The Westside Pavilion's Phase I historical mall store sales
and anchor store sales are summarized as follows(1):
<TABLE>
<CAPTION>
ANNUAL 1996 SALES ANNUAL 1997 SALES
------------------------- ----------------------
SQUARE TOTAL TOTAL
FOOTAGE (000S) PER SF (000S) PER SF
--------- ------------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
Anchor Store Sales
- ------------------
Nordstrom ....................................... 138,128 $ 76,857 $556 $ 73,857 $535
Pavilions ....................................... 43,435 14,866 342 15,463 356
Robinson's-May (Anchor-Owned) ................... 220,000 47,127 214 49,782 226
------- -------- ---- -------- ----
Total Anchor Stores ............................ 401,563 $138,850 $346 $139,102 $346
Mall Store Sales
- ----------------
Comparables ..................................... 186,264 $ 70,092 $376 $ 70,059 $376
Non-Comparable Stores ........................... 72,783 20,924 N/A 22,297 N/A
Vacant .......................................... 3,113 N/A N/A N/A N/A
------- -------- ---- -------- ----
Total Mall Stores .............................. 262,160 $ 91,016 N/A $ 92,356 N/A
Total Sales--Anchors and Mall Stores ......... 663,723 $229,866 $231,458
======= ======== ========
</TABLE>
- --------
(1) Data based on the December 31, 1996 and December 31, 1997 sales reports
and summarized only for tenants on May 29, 1998 rent roll. Information is
based solely upon the figures provided by the Westside Pavilion Borrower
from data provided by the tenants.
<PAGE>
Mall Stores. The Westside Pavilion Property tenant base is primarily
comprised of national retailers such as The Gap, Gap Kids, Disney, The Limited,
Victoria's Secret, Nine West and FootLocker. 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.
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<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)(3)
<TABLE>
<CAPTION>
% OF TOTAL ANNUALIZED
TENANT % OF ANNUALIZED BASE RENT BASE RENT
TENANT OR TENANT PARENT COMPANY STORE NAME GLA TOTAL GLA BASE RENT ANNUALIZED PER SF
- ----------------------------------- ----------------------- ---------- ----------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
The Limited, Inc. ................. Bath & Body Works 42,021 9.5% $ 1,366,828 11.3% $ 32.53
Express
Lane Bryant
Limited
Limited Too
Structure
Victoria's Secret
The Gap, Inc. ..................... Banana Republic 25,848 5.8 1,073,227 8.9 41.52
Banana Republic (Men)
Gap Kids
The Gap
Venator Group, Inc ................ Champs 8,808 2.0 355,474 2.9 40.36
FootLocker
Lady FootLocker
Nine West Group, Inc. ............. Easy Spirit 6,045 1.4 247,761 2.1 40.99
NineWest
Guess ............................. Guess 5,380 1.2 242,100 2.0 45.00
Rampage ........................... Rampage 6,422 1.5 224,770 1.9 35.00
Goldwyn Pavilion Cinemas .......... Goldwyn Pavilion 8,321 1.9 208,025 1.7 25.00
Cinemas
Lechters .......................... Lechters 6,119 1.4 204,655 1.7 33.45
Consolidated Stores, Inc. ......... Kay Bee Toy 3,843 0.9 172,935 1.4 45.00
Waldenbooks ....................... Waldenbooks 6,557 1.5 163,925 1.4 25.00
------ ----- ----------- ----- --------
Total/Weighted Average
(10 Largest) .................... 119,364 26.9% $ 4,259,700 35.3% $ 35.69
Remaining Mall Stores ............. 139,683 31.5 6,943,743 57.5 49.71
Vacant Space ...................... 3,113 0.7 0 0.0 0.00
------- ----- ----------- ----- --------
Total Mall Store ................. 262,160 59.1% $11,203,443 92.8% $ 43.25(2)
Nordstrom, Inc. ................... Nordstrom 138,128 31.1 221,000 1.8 1.60
Safeway, Inc. ..................... Pavilions 43,435 9.8 650,004 5.4 14.96
------- ----- ----------- ----- -----------
Total (including
borrower-owned
anchors) ........................ 443,723 100.0% $12,074,447 100.0% $ 27.40(2)
======= ===== =========== ===== ===========
Phase II Mall Store Space ......... 91,978
The May Department Stores
Company .......................... Robinson's-May 220,000
-------
Total (including all anchors
and Phase II mall stores) 755,701
=======
</TABLE>
- --------
(1) Based on the May 29, 1998 rent roll and applicable lease modifications.
Reflects Phase I only.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
S-94
<PAGE>
Mall Store Lease Expiration. The following table shows scheduled lease
expirations of mall store GLA at the Westside Pavilion Property as of May 29,
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)(3)
<TABLE>
<CAPTION>
CUMULATIVE
CUMULATIVE ANNUALIZED PERCENT OF PERCENT OF
YEAR OF NUMBER EXPIRING PERCENT PERCENT ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
EXPIRATION OF LEASES SF OF SF OF SF BASE RENT PER SF BASE RENT BASE RENT
- -------------------- ----------- ---------- --------- ------------ -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ............. 4 3,113 0.7% 0.7% $ 0 $ 0.00 0.0% 0.0%
1998 ............... 1 581 0.1 0.8% 43,575 75.00 0.4 0.4%
1999 ............... 6 4,640 1.0 1.9% 307,824 66.34 2.5 2.9%
2000 ............... 13 18,600 4.2 6.1% 792,418 42.60 6.6 9.5%
2001 ............... 12 63,258 14.3 20.3% 1,685,853 26.65 14.0 23.4%
2002 ............... 9 14,975 3.4 23.7% 645,437 43.10 5.3 28.8%
2003 ............... 9 10,763 2.4 26.1% 518,362 48.16 4.3 33.1%
2004 ............... 11 25,627 5.8 31.9% 1,063,094 41.48 8.8 41.9%
2005 ............... 18 38,847 8.8 40.7% 1,701,477 43.80 14.1 56.0%
2006 ............... 19 47,038 10.6 51.3% 2,166,780 46.06 17.9 73.9%
2007 ............... 12 37,960 8.6 59.8% 1,491,943 39.30 12.4 86.3%
2008 ............... 12 35,082 7.9 67.7% 1,245,128 35.49 10.3 96.6%
Thereafter ......... 3 143,239 32.3 100.0% 412,556 2.88 3.4 100.0%
-- ------- ----- ----------- -------- -----
Total ............. 129 443,723 100.0% $12,074,447 $ 27.40(2) 100.0%
=== ======= ===== =========== =========== =====
</TABLE>
- --------
(1) Data based on the May 29, 1998 rent roll. Excludes Phase II tenants.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
Anchor Stores: The following table shows certain information for each of
Westside Pavilion's anchor tenants (and each respective corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING OF OPERATING
PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) (1) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION
- -------------------- ----------------- ------------------- --------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nordstrom .......... Nordstrom, Inc. A-/A2 138,128 Collateral 5/31/35 4/30/05 1/1/61
Pavilions .......... Safeway, Inc. A-/A2 43,435 Collateral 12/31/01 N/A N/A
Robinson's-May ..... The May A+/A2 220,000 Anchor-owned N/A 4/30/05 1/1/61
Department
Stores
Company
</TABLE>
- --------
(1) Ratings as of August 1, 1998. Unless otherwise stated, the parent
company, if different from the anchor store listed, is not a party to or
a guarantor of the anchor store's lease.
S-95
<PAGE>
Market Overview and Competition. According to the August 20, 1998 Cushman
& Wakefield, Inc. market study, Los Angeles County (in which the Westside
Pavilion Property is located) contains approximately 9,210,790 residents with
an average household income of $69,138.
<TABLE>
<CAPTION>
APPROXIMATE
DISTANCE FROM
MALL/RETAIL YEAR BUILT/ THE PROPERTY
PROPERTY RENOVATED OWNER (MILES) ANCHORS/MALL STORES SIZE (SF)
- ------------------------- ------------- ------------------- -------------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
Subject Property
- ----------------
Westside Pavilion ...... 1985 The Macerich -- Robinsons-May 220,000
Company Nordstrom 138,128
Pavilions 43,435
Mall Stores
Phase I 262,160
Phase II 91,978
--------
Total 755,701
Competition
- --------------------------
Century City Mall ...... 1964/1987 The RREEF Funds 1.5 Macy's 132,614
Bloomingdale's 222,726
Gelson's Market 37,249
AMC Theatres 49,537
Mall Stores 320,054
--------
Total 762,180
Beverly Center ......... 1982 Taubman 4 Macy's 148,998
Bloomingdale's 157,190
Cineplex Odeon N/A
Mall Stores 575,000
--------
Total 900,000
Santa Monica Place ..... 1980/1990 The Rouse Company 5 Robinson's-May NA
Macy's NA
Mall Stores 300,000
--------
Total 570,000
</TABLE>
- --------
Source: Cushman & Wakefield, Inc.
Operating Agreement and Anchor Leases: The First Amendment and Restatement
of Construction, Operation and Reciprocal Easement Agreement (the "Westside
Pavilion ROA") dated December 1, 1983, as amended, by and among the May
Department Stores Company ("May"), Nordstrom, Inc. ("Nordstrom") and the
Westside Pavilion Borrower's predecessor in interest contains operating
covenants affecting the operation of the anchor stores in the Westside Pavilion
Property. Under the Westside Pavilion ROA, May must operate a department store
under the name May until April 30, 2005. May is released from its operating
covenants upon the earliest to occur of the following: (i) if the Westside
Pavilion Borrower fails to comply with its obligations under the Westside
Pavilion ROA, (ii) if occupancy of the Westside Pavilion Property remains below
60% for twelve consecutive months after notice or (iii) Nordstrom closes. The
Westside Pavilion Borrower is required to continuously operate the Westside
Pavilion Property as a shopping center until April 30, 2005. The Westside
Pavilion ROA terminates on January 1, 2061.
Pursuant to the lease between the Westside Pavilion Borrower's predecessor
in interest and Nordstrom, dated December 1, 1983 (as amended, the "Nordstrom
Lease"), Nordstrom leases its space at the Westside Pavilion Property for a
term of approximately 50 years ending on May 31, 2035, subject to 4 10-year
renewal options and 1 final option of 9 years. The minimum annual rent under
the Nordstrom Lease is $221,000 and in addition, Nordstrom pays percentage rent
of 0.5% on sales up to $35,000,000, 0.4% on sales between $35,000,000 and
$40,000,000, 0.3% on sales between $40,000,000 and $45,000,000, 0.2% on sales
between $45,000,000 and $60,000,000 and 0.1% on sales between $60,000,000 and
$100,000,000.
S-96
<PAGE>
Pursuant to Lease Amendment No. 3 dated July 2, 1992, Nordstrom also subleases
22,500 square feet of storage space in Phase II of the Westside Pavilion with
an annual rental of $450,000. This storage space is the same space leased to
the Westside Pavilion Borrower pursuant to the Westside Pavilion Storage Space
Lease described below. The Nordstrom Lease requires Nordstrom to operate until
2005. Nordstrom has the right to terminate the Nordstrom Lease if (i) the
Westside Pavilion Borrower defaults under certain obligations under the
Nordstrom Lease, (ii) the Westside Pavilion Property is less than 60% occupied
for a period of 12 consecutive months, (iii) the Westside Pavilion ROA is
terminated or (iv) the May Department Store ceases operation for a period of 18
consecutive months.
Each of the Westside Pavilion ROA and the Nordstrom Lease imposes certain
obligations on the Westside Pavilion Borrower with respect to casualty and
condemnation, which may require the Westside Pavilion Borrower to restore the
common areas of the Westside Pavilion Property (and which under the terms of
the Westside Pavilion Loan would most likely require mortgagee to make the
proceeds available for restoration rather than permit mortgagee to cause a
prepayment). 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.
Storage Space Lease. A portion of the interest of the Westside Pavilion
Borrower in the Westside Pavilion consists of a leasehold interest created
under a lease with Macerich Westside Adjacent Limited Partnership (the
"Westside Pavilion Storage Space Lease") for 22,500 square feet of storage
space presently leased to Nordstrom (the "Nordstrom Storage Space") at Phase II
of the Westside Pavilion. The term of the Westside Pavilion Storage Space Lease
expires upon the expiration or earlier termination of the Nordstrom Lease,
which lease is currently scheduled to expire on May 31, 2035, subject to 4
10-year renewal terms and a 9-year renewal term. The Westside Pavilion Storage
Space Lease may be extended in the event that the Nordstrom Lease is extended.
Rent is payable under the Westside Pavilion Storage Space Lease at the rate of
$1.00 per year. The Westside Pavilion Storage Space Lease was entered into to
allow the Westside Pavilion Borrower to receive the rent payable by Nordstrom
for such storage space under the Nordstrom Lease. The Westside Pavilion Storage
Space Lease is encumbered by the Westside Pavilion Mortgage and contains all
typical leasehold mortgagee protective provisions.
Environmental Report. A Phase I site assessment, dated June 1, 1998, was
performed on the Westside Pavilion 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--Environmental Laws Entail Risks" and
"--Environmental Risks Relating to the Mortgaged Properties" herein.
Engineering Report. A Property Condition Report was completed on the
Westside Pavilion Property on June 4, 1998 by a third party due diligence firm.
The Property Condition Report concluded that the Westside Pavilion Property was
generally in good physical condition and identified approximately $314,000 in
deferred maintenance requirements.
Property Management. The Westside Pavilion Loan is managed by Macerich
Property Management Company (the "Westside Pavilion Manager"), which is an
affiliate of the Westside Pavilion Borrower, pursuant to a management agreement
dated as of July 1, 1998 (the "Westside Pavilion Management Agreement"). The
Westside Pavilion Manager receives an annual management fee of 2.5% of all
minimum rents and percentage rents and other income derived from the Westside
Pavilion Property other than tax reimbursements, common area reimbursements,
merchant association dues and promotional fund charges, utility charges payable
by tenants, security deposits, parking expense recoveries, reimbursement for
landlord's work, insurance and condemnation proceeds other than business
interruption insurance, sales proceeds and interest income.
The Westside Pavilion Management Agreement continues until terminated by
either party (a) upon 30 days written notice, (b) upon 15 days notice in the
event of a default by either party, (c) upon the bankruptcy of either party or
(d) immediately in the event of a sale of the Westside Pavilion Property. Under
the terms of the Westside Pavilion Loan, any termination or replacement of the
Westside Pavilion Manager or entering into a new management agreement requires
(i) 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 and (ii) the consent of mortgagee if the replacement manager is
not a Westside Pavilion Qualifying Manager (as hereinafter defined). Pursuant
to a Manager's Consent and Subordination of Management Agreement executed by
the Westside Pavilion Manager, the Westside Pavilion Manager has agreed that
(i) the Westside Pavilion Management Agreement is subordinate to the Westside
Pavilion Loan and (ii) mortgagee has the right to terminate the Westside
Pavilion Manager and replace it with a Westside Pavilion Qualifying Manager (a)
on or after any Loan Default, (b) on or after any default by Westside Pavilion
Manager under the Westside Pavilion Management Agreement beyond any applicable
grace period, (c) if the Westside Pavilion Manager ceases to be a Westside
Pavilion Qualifying Manager or (d) for
S-97
<PAGE>
cause, including gross negligence, willful misconduct or fraud. A "Westside
Pavilion Qualifying Manager" means (i) an affiliate of the Westside Pavilion
Manager or (ii) provided that the Westside Pavilion Borrower shall have
obtained prior written confirmation from the Rating Agencies that management of
the Westside Pavilion Property by such entity will not cause a downgrade,
withdrawal or qualification of the then current rating of the Certificates,
another reputable and experienced professional management corporation or
business entity which manages at least 5 other regional shopping centers
totaling at least 5,000,000 square feet of gross leasable area (including
anchor stores) in the United States.
The Westside Pavilion Manager is owned by The Macerich REIT. The Westside
Pavilion Manager has approximately 22,100,000 square feet of retail properties
under management.
S-98
<PAGE>
<TABLE>
<S> <C>
WESTSIDE PAVILION: THE LOAN
ORIGINAL PRINCIPAL BALANCE: $100,000,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: $100,000,000 INITIAL INTEREST RATE: 6.44%
ORIGINATION DATE: July 1, 1998 REVISED INTEREST RATE: Greater of (i) 8.44%
and (ii) Treasury Rate plus 2%
EFFECTIVE MATURITY DATE: July 1, 2008 AMORTIZATION: 360 months starting August 1, 2001.
MATURITY DATE: July 1, 2031 MONTHLY PAYMENT: Interest only to July 1, 2001; $628,127.29
(principal and interest) thereafter.
EMD BALANCE: $91,132,625 CALL PROTECTION: Lockout to EMD
</TABLE>
CERTAIN WESTSIDE PAVILION LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO VALUE ACTUAL REFINANCING
SQUARE FOOT(1) RATIO(2) DSCR(3) DSCR(4)
---------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Cut-Off Date .................... $225 62.5% 1.93x 1.40
Effective Maturity Date ......... $205 57.0% 2.12x 1.54
</TABLE>
- --------
(1) Based on the 443,723 square feet securing the Westside Pavilion Loan and
the Cut-Off Date Principal Balance or Effective Maturity Date Balance, as
applicable.
(2) Based on July 13, 1998 Cushman & Wakefield of California, Inc. appraised
value of $160,000,000 and the Cut-Off Date Principal Balance or Effective
Maturity Date Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $12,632,326 and (b) in the case
of the Cut-Off Date Actual DSCR, actual debt service on the Westside
Pavilion 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 Westside Pavilion Loan assuming a balance equal to the Effective
Maturity Date Balance and a coupon equal to the Westside Pavilion Loan
Initial Interest Rate.
(4) Based on (a) Underwritable Cash Flow of $12,632,326 and (b) in the case
of the Cut-Off Date Refinancing DSCR, an annual debt service payment
equal to 9.00% of the Cut-Off Date Principal Balance of the Westside
Pavilion Loan, and, in the case of the Effective Maturity Date
Refinancing DSCR, an annual debt service payment equal to 9.00% of the
Effective Maturity Date Balance.
Security. The Westside Pavilion Loan is a nonrecourse loan, secured by the
fee estate of the Westside Pavilion Borrower in the Westside Pavilion Property
and a leasehold interest in the Nordstrom Storage Space pursuant to the
Westside Pavilion Storage Space Lease and certain related collateral, including
an assignment of leases and rents. Mortgagee is the insured under title
insurance policies insuring that the Westside Pavilion Mortgage constitutes a
valid and enforceable first lien on the Westside Pavilion Property and the
Westside Pavilion Storage Space Lease, subject to certain exceptions set forth
therein.
Payment Terms. The Westside Pavilion Loan is an EMD Loan. Its Due Date is
the first business 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 Westside Pavilion Loan is calculated on an Actual/360 Basis.
Payments of interest only are due and payable on each Due Date until July 1,
2001. Commencing on August 1, 2001 until the Effective Maturity Date, constant
monthly payments of $628,127.29 are payable on each Due Date. The Default Rate
following a Loan Default is 3% over the Applicable Interest Rate, subject to
applicable law.
Prepayment. Voluntary prepayment is prohibited under the Westside Pavilion
Loan prior to the Effective Maturity Date. From and after such date, the
Westside Pavilion Loan may be voluntarily prepaid on any Due Date, in whole or
in part, without payment of a Prepayment Charge, on at least 15 business days
prior written notice.
Principal prepayments on the Westside Pavilion Loan may occur on or 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 Westside Pavilion Loan following a Loan Default.
Prepayments following a Loan Default prior to the Effective Maturity Date
require payment of a Prepayment Charge equal to the Westside Pavilion Yield
Maintenance Premium. The "Westside Pavilion Yield Maintenance Premium" means an
amount equal to the aggregate present value of
S-99
<PAGE>
a series of payments each equal to the Westside Prepayment Differential and
payable on each monthly Due Date through and including the Due Date occurring
on the Effective Maturity Date for the Westside Pavilion Loan discounted at the
Westside Reinvestment Yield for the number of months remaining from the
prepayment date to each such monthly Due Date through and including the Due
Date occurring on the Effective Maturity Date for the Westside Pavilion Loan.
The "Westside Prepayment Differential" means an amount equal to (a) the Initial
Interest Rate for the Westside Pavilion Loan minus the Westside Reinvestment
Yield, (b) divided by 12 and (c) multiplied by the outstanding principal amount
due under the Westside Pavilion Loan on such prepayment date. The "Westside
Reinvestment Yield" means an amount equal to the yield on U.S. Treasury
obligations (primary issue) with a maturity date closest to the Effective
Maturity Date of the Westside Pavilion Loan with such yield being based on the
bid price for such issue as published in The Wall Street Journal on the date
that is 14 days prior to the prepayment date and converted to a monthly
compounded nominal yield. As described below, prepayments may also be made,
without payment of a Prepayment 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 Westside Pavilion Loan permits the
release of the Westside Pavilion 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 Westside Pavilion Loan on such
dates, and provide for payment on the Effective Maturity Date of the remaining
principal balance of the Westside Pavilion Loan. Upon any such Defeasance, at
the option of mortgagee, the Westside Pavilion Borrower's obligations under the
Westside Pavilion Loan and the U.S. Obligations securing the Westside Pavilion
Loan will be transferred to a Successor Borrower. Following such Defeasance,
the U.S. Obligations will be the sole security for the Westside Pavilion Loan.
Lockbox and Reserves. Pursuant to the Westside Pavilion Loan, the Westside
Pavilion Borrower is required to establish a Hard Lockbox, which is a Two-Tier
Lockbox, upon the occurrence of any of the following events: (i) a Loan Default
which can be cured by the payment of money only, (ii) if Borrower fails to
deliver to mortgagee, at least 30 days prior to the Effective Maturity Date, a
binding loan commitment from an institutional lender in an amount at least
equal to the then outstanding principal amount of the Westside Pavilion Loan,
together with evidence that all commitment fees associated therewith have been
paid and that there are no conditions to the closing of the refinancing
contemplated by such commitment except for customary closing conditions
acceptable to mortgagee, (iii) on the Effective Maturity Date or (iv) if at any
time the debt service coverage ratio is less than or equal to 1.35x (a
"Westside Pavilion Lockbox Event"). Unless and until any such event occurs, no
Lockbox is required. In addition, if a Loan Default is cured, the Westside
Pavilion Borrower will not be required to continue to maintain a Lockbox,
unless any of the foregoing events shall again occur. The Westside Pavilion
Borrower has agreed to provide notice to all of the tenants of the Westside
Pavilion Property directing them to pay rent to the mortgagee upon receipt of
notice from the mortgagee.
Upon the occurrence of a Westside Pavilion Lockbox Event, the Westside
Pavilion Borrower is required to enter into a Lockbox agreement with mortgagee
in a form required by mortgagee in mortgagee's sole discretion which shall
provide that amounts deposited into the Lockbox shall be collected and
deposited daily by the Lockbox Bank into the Lockbox account and transferred in
immediately available funds by federal wire transfer once every other business
day to a segregated eligible account (the "Westside Pavilion Cash Collateral
Account") which shall be under the sole dominion and control of mortgagee.
Amounts on deposit in the Westside Pavilion Cash Collateral Account shall be
applied by mortgagee in accordance with the Lockbox Waterfall.
The Westside Pavilion Borrower has established a Capital Reserve Account,
which requires a Monthly Reserve Deposit for capital expenditures equal to
one-twelfth of $0.15 per rentable square foot of space exclusive of the space
occupied by Nordstrom and Pavilions. Upon the occurrence and during the
continuance of a Westside Pavilion Lockbox Event, the Westside Pavilion
Borrower is required to establish (a) a combined Tax Account and Insurance
Account which requires a Monthly Reserve Deposit equal to the Monthly Tax
Deposit Amount and the Monthly Insurance Deposit Amount and (b) a Rollover
Account, which requires a Monthly Reserve Deposit equal to $13,000. The
Nordstrom Lease is not subordinate to the Westside Pavilion Mortgage and the
Pavilions food store lease requires it to attorn to a mortgagee that acquires
title to the Westside Pavilion Property.
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. The Westside Pavilion Borrower is prohibited from transferring the
Westside Pavilion Property without (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 and (ii) delivery of a new
nonconsolidation opinion. The Westside Pavilion Borrower is also prohibited
from further encumbering the Westside Pavilion Property.
S-100
<PAGE>
The Westside Pavilion Loan prohibits the transfer of any direct or
indirect interest in the Westside Pavilion Borrower without the prior written
consent of mortgagee provided that mortgagee shall not unreasonably withhold
its consent to transfers of direct or indirect beneficial ownership interests
in the Westside Pavilion Borrower if (i) after giving effect to the proposed
transaction, a Westside Pavilion Permitted Owner (defined below) or an
affiliate of the Westside Pavilion Borrower shall, individually or acting in
concert, be the managing or co-managing general partner of or control the
Westside Pavilion Borrower or shall be the borrower and (ii) the Rating
Agencies confirm in writing that such proposed transaction will not cause a
downgrade, withdrawal or qualification of the then current rating of the
Certificates and (iii) the Westside Pavilion Borrower shall deliver to
mortgagee a satisfactory nonconsolidation opinion. However, so long as the
Westside GP continues to be wholly owned directly or indirectly by the Macerich
REIT or the Macerich Operating Partnership, the sale, exchange, assignment,
conveyance, transfer, encumbrance or issuance of, or grant of a security
interest in, either (x) publicly registered securities issued by and
representing interests with respect to the Macerich REIT or (y) general or
limited partnership interests in the Macerich Operating Partnership, shall not
require either mortgagee's consent or compliance with the foregoing conditions.
"Westside Pavilion Permitted Owner" shall mean the Macerich REIT, the
Macerich Operating Partnership, any entity which is, directly or indirectly, a
wholly owned subsidiary of the Macerich REIT and/or the Macerich Operating
Partnership or an entity that is or that owns or controls or is a general
partner of any of the following persons or entities: (i) a person or entity
which, together with its affiliates, exclusive of the Westside Pavilion
Property, has a current net worth of at least $100 million and total assets of
at least $200 million, (ii) a pension fund, account or trust or an investment
established by such an entity, which has total assets of at least $100 million,
exclusive of the Westside Pavilion Property, and which is managed by a person
or entity which manages at least $200 million in real estate assets exclusive
of the Westside Pavilion Property or (iii) an entity in which any combination
of the persons or entities set forth in clauses (i) or (ii) is a general
partner or controls at least a 25% interest.
The Westside Pavilion 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 Westside Pavilion Property
which is paid within 60 days of the date incurred, (ii) unsecured indebtedness
payable or reimbursable to any tenant on account of work performed at the
Westside Pavilion Property by such tenant (but in no event shall the Westside
Pavilion Borrower be permitted under this provision to enter into a note for
such indebtedness) and (iii) indebtedness relating solely to financing of
capital improvements, tenant improvements or equipment or leasing costs
relating solely to the Westside Pavilion Property which (a) is unsecured, (b)
does not exceed $2,000,000 in the aggregate at any time, (c) the proceeds of
which are not distributed to the Westside Pavilion Borrower or any of its
partners, (d) is evidenced by a note or other written agreement which is
otherwise on terms (other than the interest rate and repayment terms) no less
favorable to the Westside Pavilion Borrower than the terms of the Westside
Pavilion Loan and (e) the terms of which shall require that the principal
amount of such indebtedness be repaid from the operating income, in excess of
operating expenses and debt service on the Westside Pavilion Loan, prior to any
distributions to any partner of the Westside Pavilion Borrower.
Insurance. The Westside Pavilion Borrower is required to maintain for the
Westside Pavilion Property (a) comprehensive all risk insurance with coverage
in an amount at all times sufficient to prevent the Westside Pavilion 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 Westside Pavilion Loan, (b) general liability insurance with coverage of
not less than $10,000,000 combined single limit, (c) statutory workers
compensation insurance, (d) business interruption insurance to cover the loss
of income for at least 180 days after completion of restoration work, (e)
comprehensive boiler and machinery insurance in amounts reasonably required by
mortgagee, (f) flood insurance, if available, with respect to any portion of
the Westside Pavilion Property located within a federally designated "special
flood hazard area," in an amount equal to the lesser of the outstanding
principal amount of the Westside Pavilion Loan and the maximum limit of
coverage available under federal law, (g) earthquake insurance in amounts of
not less than the probable maximum loss (which according to a third party
seismic study is equal to 15% of the replacement cost of the improvements of
Westside Pavilion Property as such replacement cost may be reasonably estimated
by mortgagee), and with such deductibles as are commercially reasonable,
provided, however, that if the cost of renewal or replacement of such
earthquake insurance shall exceed 140% of the initial cost of such earthquake
insurance allocated to the Westside Pavilion Property, the Westside Pavilion
Borrower shall be required to maintain such earthquake insurance only in such
amount as may be purchased for 140% of the initial premium amount and (h) at
mortgagee's reasonable request, such other insurance in such amounts as are
generally available at commercially reasonable premiums and are generally
required by institutional lenders in connection with loans secured by first
class regional shopping centers in the general vicinity of the Westside
Pavilion Property.
S-101
<PAGE>
All insurance policies are required to meet the Insurance Requirements,
except that worker's compensation coverage may be maintained with the
applicable state worker's compensation fund and the Westside Pavilion Borrower
may place the insurance coverage required to meet the Insurance Requirements
with insurers having ratings lower than the ratings prescribed in the Insurance
Requirements provided that a cut-through endorsement in form and substance
approved by mortgagee shall be issued by an insurer with at least an "AA"
rating by S&P provided, however, that if, upon the renewal or replacement of
any insurance policy or change to a different carrier, the cost of maintaining
such insurance with an insurer that is rated "AA" or maintaining a cut-through
endorsement to an insurer that is rated "AA" is commercially unreasonable, the
Westside Pavilion Borrower agrees to maintain such insurance with insurers that
are rated "A" or maintaining a cut-through endorsement to an insurer that is
rated "A".
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Westside Pavilion Property or a
condemnation of any portion of the Westside Pavilion Property, the Westside
Pavilion Borrower is obligated to commence and diligently prosecute to
completion the restoration of the Westside Pavilion Property. If both the net
proceeds of the casualty or condemnation and the costs of restoration are less
than $5,000,000, the Westside Pavilion Borrower may receive and apply such
proceeds; otherwise such proceeds must be paid to mortgagee for dis-bursement
as provided below.
Mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Westside Pavilion Borrower for restoration so
long as (i) there is no Loan Default, (ii) the estimated cost of the
restoration does not exceed the net proceeds available or the Westside Pavilion
Borrower shall deposit with or deliver to mortgagee either cash, U.S. Treasury
securities or a Letter of Credit, each in the amount of the excess of the
estimated cost over the Proceeds available, (iii) upon completion of the
restoration, the Westside Pavilion Property shall be of reasonably equivalent
value and general utility to the Westside Pavilion Property as it was prior to
the damage or destruction, except that in the case of a condemnation, the
restoration of the Westside Pavilion Property shall be made to the extent
reasonably practicable after taking into account the consequences of the
condemnation, (iv) the casualty or condemnation occurs more than 6 months prior
to the Effective Maturity Date and (v) the casualty or condemnation is not a
Westside Pavilion Total Loss. A "Westside Pavilion Total Loss" means (i) with
respect to a casualty or condemnation of the Westside Pavilion Property where
the Westside Pavilion Borrower is not required, under the Westside Pavilion
Major Leases or the Westside Pavilion ROA, to restore such Premises and (ii)
with respect to a condemnation, a permanent condemnation of the entire Westside
Pavilion Property or so much of the Westside Pavilion Property such that it
would be impracticable, even after restoration, to use the Westside Pavilion
Property as an economically viable shopping center.
The Westside Pavilion ROA and the Nordstrom Lease require the Westside
Pavilion Borrower to restore the common areas in the event of casualty or
condemnation. In addition, the Nordstrom Lease provides that condemnation
proceeds with respect to the Nordstrom store are to be used first to restore
the Nordstrom store and the remainder to be divided between Nordstrom and the
Westside Pavilion Borrower based upon the fair-market value of their respective
interests in the premises.
If such conditions are not met, subject to the provisions of the Westside
Pavilion ROA and the Nordstrom Lease, the net proceeds of a casualty or
condemnation may at the option of mortgagee either be (i) applied to prepay the
Westside Pavilion Loan without payment of a Prepayment Charge or (ii) disbursed
to the Westside Pavilion 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 Westside Pavilion Loan provides mortgagee with the
Standard Approval Rights regarding budgets, leases and alterations. The Lease
Approval Threshold is 15,000 square feet and the Alteration Escrow Threshold is
$5,000,000.
Financial Reporting. The Westside Pavilion Borrower is required to furnish
the Financial Statements to mortgagee, except that annual statements are
required to be filed within 120 days after the end of the calendar year and
quarterly statements are required within 60 days after the end of each quarter.
S-102
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
NORTHTOWN MALL
[PICTURE]
[PICTURE] [PICTURE]
Pictures depicting exterior and interior views of the Northtown Mall
<PAGE>
[PICTURE]
Floor plan of Northtown Mall
[PICTURE]
Map indicating location of Northtown Mall in the Spokane area
<PAGE>
NORTHTOWN MALL: THE BORROWER; THE PROPERTY
The Loan. The NorthTown Mall Loan was originated by Secore and acquired by
MSMC on August 4, 1998. The NorthTown Mall Loan had an original principal
balance of $84,500,000 and has a Cut-Off Date Principal Balance of
approximately $84,426,244 secured by a Mortgage (the "NorthTown Mall Mortgage")
encumbering a portion of a regional shopping center known as the NorthTown
Mall, located in Spokane, Washington (the "NorthTown Mall Property").
The Borrower. Price Spokane Limited Partnership (the "NorthTown Mall
Borrower") is a Delaware limited partnership whose purpose is limited to owning
and operating the NorthTown Mall Property and related activities. The NorthTown
Mall Borrower owns no material asset other than the NorthTown Mall Property and
related interests. The sole general partner of the NorthTown Mall Borrower is
Price NT Corp., a Delaware corporation which holds a 1% general partnership
interest in the Borrower and whose purpose is limited to owning the general
partnership interest in the NorthTown Mall Borrower and related activities. The
limited partner of the Borrower is Price Development Company, Limited
Partnership, a Maryland limited partnership (the "Price Operating Partnership")
which holds a 99% limited partnership interest, the general partner of which is
JP Realty, Inc., a Maryland corporation (the "JP REIT").
The Property. The NorthTown Mall was originally built in 1955 and was
renovated and/or expanded in 1985, and 1992-1993. The NorthTown Mall Property
is an enclosed 2--level, 5--anchor, regional mall located in Spokane,
Washington. The NorthTown Mall is anchored by Sears, JCPenney, Emporium,
Mervyn's and The Bon Marche, which comprise 541,209 square feet of GLA in the
aggregate. Together with approximately 411,053 square feet of mall store GLA,
the NorthTown Mall Property contains approximately 952,262 total square feet.
The NorthTown Mall is situated on approximately 34.43 acres and contains 4,088
parking spaces. The ratio of parking spaces is 4.3 per 1,000 square feet of
GLA.
The table below summarizes the components of total square feet at the
NorthTown Mall as of July 31, 1998.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA(1)
--------- -------------
<S> <C> <C>
Anchor Stores (Borrower-Owned)
- ------------------------------
The Bon Marche ................................ 89,207 9.4%
Emporium ...................................... 68,742 7.2
JCPenney ...................................... 140,868 14.8
------- -----
Total Anchor Stores (Borrower-Owned) ......... 298,817 31.4%
Anchor Stores (Anchor-Owned)
- ----------------------------
Sears ......................................... 160,480 16.9%
Mervyn's ...................................... 81,912 8.6
------- -----
Total Anchor Stores (Anchor-Owned) ........... 242,392 25.5%
Mall Stores .................................... 411,053 43.2%
------- -----
Total GLA .................................... 952,262 100.0%
======= =====
</TABLE>
- --------
(1) Numbers may not total 100% due to rounding.
Location/Access. The NorthTown Mall Property is located in Spokane,
Washington at the intersection of U.S. Highway 2/395 and Wellesley Avenue.
S-103
<PAGE>
Operating History. The following table shows certain information regarding
the operating history of the NorthTown Mall Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
LTM UNDERWRITABLE
1996 1997 JUNE 30, 1998 NOI
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 13,737,676 $ 14,704,975 $ 14,448,323 $ 14,669,744
Expenses ...................... (4,027,799) (3,988,537) (3,819,576) (4,251,008)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 9,709,877 $ 10,716,438 $ 10,628,747 $ 10,418,736
============ ============ ============ ============
</TABLE>
Occupancy History. The occupancy history for the mall store space of the
NorthTown Mall Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
OCCUPANCY AS OF: PERCENT LEASED
- ---------------------------- ---------------
<S> <C>
July, 31 1998 ............. 77.2%
December 31, 1997 ......... 72.7%
December 31, 1996 ......... 76.8%
</TABLE>
Occupancy Costs. The ratio of the average occupancy cost per square feet
(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 12.5% in 1997.
Tenant Sales. The NorthTown Mall Property'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
- ------------------
The Bon Marche ................................. 89,207 $ 22,636 $254 $ 21,958 $246
Emporium ....................................... 68,742 6,148 89 6,022 88
JCPenney ....................................... 140,868 24,292 172 23,904 170
------- -------- ---- -------- ----
Total Anchor Stores ........................... 298,817 $ 53,076 $178 $ 51,884 $174
Mall Store Sales
- ----------------
Comparable Stores .............................. 288,260 $ 83,260 $289 $ 81,628 $283
Non-Comparable Stores .......................... 29,003 3,145 N/A 5,962 N/A
Vacant ......................................... 93,790 N/A N/A N/A N/A
------- -------- ---- -------- ----
Total Mall Stores ............................. 411,053 $ 86,405 N/A $ 87,590 N/A
Total Sales--Anchor and Mall Stores ......... 709,870 $139,481 $139,474
======= ======== ========
</TABLE>
- --------
(1) Data based on the December 31, 1996 and December 31, 1997 sales reports
and summarized only for tenants on July 31, 1998 rent roll. Information
is based solely figures provided by the seller of the NorthTown Mall
Property from data provided by tenants. Square footage is based on the
July 31, 1998 rent roll.
(2) JCPenney 1996 sales are based on the sales reporting periods of September
1, 1995 to August 31, 1996.
(3) JCPenney 1997 sales are based on the sales reporting periods of September
1, 1996 to August 31, 1997.
<PAGE>
Mall Stores. The NorthTown Mall Property tenant base is primarily
comprised of national retailers such as FootLocker, The Gap, Disney and
Victoria's Secret. 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-104
<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 TENANTS BASED ON ANNUALIZED BASE RENT BY PARENT COMPANY(1)(3)
<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. ..................... Lane Bryant 43,758 6.2% $ 801,411 8.9% $ 18.31
Lerners New York
Bath & Body Works
Limited Express
Structure
Victoria's Secret
Venator Group, Inc. ................... FootLocker 18,274 2.6 436,172 4.8 23.87
Kids FootLocker
Afterthoughts Boutique
Lady FootLocker
Kinney Shoes
Champs Sports
Bumpers Fun Center .................... Bumpers Fun Center 30,000 4.2 275,000 3.0 9.17
The Gap, Inc. ......................... The Gap 10,695 1.5 267,375 3.0 25.00
Gap Kids
Maurices/Just Petites ................. Maurices/Just Petites 8,881 1.3 159,858 1.8 18.00
B. Dalton Book Sellers ................ B. Dalton 4,465 0.6 133,950 1.5 30.00
Pizzeria Uno .......................... Pizzeria Uno 6,152 0.9 132,000 1.5 21.46
Mariposa .............................. Mariposa 5,155 0.7 105,910 1.2 20.55
Spiegel, Inc. ......................... Eddie Bauer 6,208 0.9 117,952 1.3 19.00
Jay Jacobs ............................ Jay Jacobs 4,996 0.7 109,912 1.2 22.00
------ ----- ---------- ----- --------
Total/Weighted Average
(10 Largest) ........................ 138,584 19.5% $2,539,540 28.0% $ 18.32
Remaining Mall Stores ................. 178,679 25.2 4,924,123 54.4 27.56
Vacant Space .......................... 93,790 13.2 0 0.0 0.00
------- ----- ---------- ----- --------
Total Mall Stores .................... 411,053 57.9% $7,463,663 82.4% $ 23.53(2)
Federated Department Stores, Inc. ..... The Bon Marche 89,207 12.6 400,000 4.4 4.48
Emporium .............................. Emporium 68,742 9.7 516,940 5.7 7.52
J.C. Penney Co., Inc. ................. JCPenney 140,868 19.8 673,952 7.4 4.78
Total (including borrower-owned
anchors) ............................ 709,870 100.0% $9,054,555 100.0% $ 14.70(2)
======== ===== ========== ===== ===========
Sears Roebuck & Co. ................... Sears 160,480
Dayton Hudson Corp. ................... Mervyn's 81,912
--------
Total (including all anchors) ........ 952,262
========
</TABLE>
- --------
(1) Based on July 31, 1998 rent roll.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
S-105
<PAGE>
Lease Expirations. The following table shows scheduled lease expirations
of mall store GLA at the NorthTown Mall Property as of July 31, 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)(3)
<TABLE>
<CAPTION>
CUMULATIVE
NUMBER OF CUMULATIVE ANNUALIZED PERCENT OF PERCENT OF
LEASES EXPIRING PERCENT PERCENT ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION EXPIRING SF OF SF OF SF BASE RENT PER SF BASE RENT BASE RENT
- -------------------- ----------- ---------- --------- ------------ ------------ --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ............. 45 93,970 13.2% 13.2% $ 0 $ 0.00 0.0% 0.0%
Month-to-Month 3 4,828 0.7 13.9% 115,662 23.96 1.3 1.3%
1998 ............... 3 3,135 0.4 14.3% 73,284 23.38 0.8 2.1%
1999 ............... 8 10,072 1.4 15.8% 259,200 25.73 2.9 4.9%
2000 ............... 8 12,883 1.8 17.6% 323,058 25.08 3.6 8.5%
2001 ............... 24 33,341 4.7 22.3% 987,515 29.62 10.9 19.4%
2002 ............... 31 111,164 15.7 37.9% 2,211,945 19.90 24.4 43.9%
2003 ............... 13 19,546 2.8 40.7% 459,803 23.52 5.1 48.9%
2004 ............... 14 38,134 5.4 46.0% 840,280 22.03 9.3 58.2%
2005 ............... 11 17,214 2.4 48.5% 514,237 29.87 5.7 63.9%
2006 ............... 10 21,366 3.0 51.5% 575,366 26.93 6.4 70.2%
2007 ............... 12 34,880 4.9 56.4% 829,487 23.78 9.2 79.4%
2008 ............... 3 10,109 1.4 57.8% 229,500 22.70 2.5 81.9%
Thereafter ......... 4 299,408 42.2 100.0% 1,635,218 5.46 18.1 100.0%
-- ------- ----- ---------- -------- -----
Total ............. 189 709,870 100.0% $9,054,555 $ 14.70(2) 100.0%
=== ======= ===== ========== =========== =====
</TABLE>
- --------
(1) Data based on the July 31, 1998 rent roll.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
Anchor Stores. The following table shows certain information for each of
the NorthTown Mall Property anchors tenants (and each respective corporate
parent):
<TABLE>
<CAPTION>
CREDIT RATING OF OPERATING
PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) (1) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION
- -------------------- ----------------------- ------------------- --------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Bon Marche ..... Federated Department BBB-/ -- 89,207 Collateral 1/31/14 12/31/06 N/A
Stores, Inc.
JCPenney ........... J.C. Penney Co., Inc. A/A2 140,868 Collateral 8/31/11 12/31/06 N/A
Emporium ........... Emporium -- / -- 68,742 Collateral 10/31/11 10/31/11 N/A
Sears .............. Sears, Roebuck & Co. A-/A2 160,480 Anchor-owned 10/03/04 10/4/04 9/27/40
Mervyn's ........... Dayton Hudson Corp. BBB+/A3 81,912 Anchor-owned 10/16/06 10/18/06 9/27/40
</TABLE>
- --------
(1) Ratings as of July, 1998. Unless otherwise stated, the parent company, if
different from the anchor store listed, is not a party to or a guarantor
of the anchor store's lease.
Market Overview and Competition. According to the August 20, 1998 Cushman
& Wakefield, Inc. market study, Spokane (in which the NorthTown Mall Property
is located) contains approximately 412,700 residents with a projected average
household income of $45,229. Population growth in the primary trade area from
1990 to 1998 increased by 13.9%.
S-106
<PAGE>
The following table shows an overview of the competition to the NorthTown
Mall Property.
<TABLE>
<CAPTION>
APPROXIMATE
DISTANCE FROM
MALL/RETAIL YEAR BUILT/ THE PROPERTY
PROPERTY RENOVATED OWNER (MILES) ANCHORS SIZE (SF)
- ------------------------------ ------------- ----------------- -------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Subject Property
NorthTown Mall .............. 1955 JP Realty, Inc. -- The Bon Marche 89,207
1985/1992- Emporium 68,742
1993 JCPenney 140,868
Mervyn's 81,912
Sears 160,480
-------
Total 541,209
Competition
Spokane Valley Mall ......... 1997 JP Realty, Inc. 11 The Bon Marche 114,399
JCPenney 119,705
Sears 212,157
Theatre 45,000
-------
Total 491,261
</TABLE>
- --------
Source: Cushman and Wakefield, Inc.
Directory of Major Malls
NRB Shopping Center Directory
Operating Agreement. The First Amended and Restated Construction,
Operation and Reciprocal Easement Agreement by and between the NorthTown Mall
Borrower's predecessor in interest, Sabey Corporation (the "NorthTown
Developer"); Mervyn's ("Mervyn's") and Sears, Roebuck & Co. ("Sears", and
collectively with Mervyn's, the "NorthTown Mall Majors") dated September 27,
1990 (the "NorthTown Mall ROA") contains operating covenants affecting the
operation of the anchor stores in the NorthTown Mall Property. The NorthTown
Mall Borrower has succeeded to the rights and interests of F&N Acquisition
Corp. under the NorthTown Mall ROA. Under the NorthTown Mall ROA, Sears is
required to operate a department store under the name Sears for 15 consecutive
years. Mervyn's is obligated to remain open for 15 consecutive years beginning
October 18, 1991. Sears and Mervyn's shall each be released from its operation
covenant (a) if NorthTown Mall Borrower fails to cure a default in the
performance of any of its duties after 60 days' notice to cure from the
NorthTown Mall Major to be released, (b) the NorthTown Developer fails to have
occupied at least 65% of the initial planned floor area of Developer Mall
Stores after 12 months' notice to cure from the NorthTown Mall Major to be
released or (c) after December 1, 1991 if at least 2 other department stores
shall have ceased operating in the NorthTown Mall Property after 6 months'
notice to cure given NorthTown Mall Borrower.
The NorthTown Mall Borrower is required to (a) make the Developer Mall
Stores available for use as a complex of retail merchandise and retail service
establishments within the Shopping Center; (b) use all commercially reasonable
efforts to: (i) have the floor area of the Developer Mall Stores occupied and
open for business in its entirety; and (ii) have a balanced and diversified
mixture of retail merchandise and retail service occupants; (c) maintain a
quality of management and operation not less than that generally adhered to in
other first-class enclosed malls in the State of Washington; (d) operate the
NorthTown Mall property under the name "NorthTown Mall"; and (e) maintain the
minimum floor area required by the NorthTown Mall ROA.
Anchor Leases. In addition to Sears and Mervyn's, the NorthTown Mall
Property contains 3 additional anchor stores: JCPenney, The Bon Marche and
Emporium. Pursuant to the lease between the NorthTown Mall Borrower and
Emporium, which terminates in October, 2011, (subject to 4, 5-year renewal
options), Emporium is required to continuously operate. If less than 3 of the
anchor stores are operating or (b) more than 40% of the floor area, excluding
anchors, is not actively being used during normal business hours, the Emporium
has the right to give landlord conditional notice of termination and if the
condition is not cured within 1 year, the Emporium can terminate its lease. In
addition, the Emporium can terminate if the NorthTown Mall ROA is terminated.
Pursuant to the lease between the NorthTown Mall Borrower and J.C. Penney
Co., Inc., which lease terminates in August, 2011, subject to 6, 5-year renewal
options, J.C. Penney Co., Inc. is required to operate under the name Penney or
JCPenney through 2006. If Sears shall cease to operate or if less than 60% of
the floor area of the mall is open for 12 months, J.C. Penney Co., Inc. can
terminate its operating covenants.
S-107
<PAGE>
Pursuant to the lease between the NorthTown Mall Borrower and The Bon,
Inc., which lease terminates in January, 2014, (subject to 2, 10-year renewal
options), The Bon is required to operate under the name The Bon or The Bon
Marche through 2006. The Bon may terminate its operating covenant upon 60 days'
prior notice to the NorthTown Mall Borrower in the event that there are at any
time (i) less than 2 department stores operating at the NorthTown Mall Property
for a period exceeding 12 consecutive months after notice to cure or (ii) less
than 65% of the mall store space is leased to tenants who are open and
operating for a period exceeding 12 months after notice to cure from tenant.
The NorthTown Mall Borrower shall be deemed to have cured the above-described
conditions if the NorthTown Mall Borrower shall have entered into bona fide
leases requiring the tenants thereunder to open and occupy floor area of mall
store spaces sufficient to increase the occupancy of the mall store space
within said 12 month period to more than 65%.
Each of the NorthTown Mall ROA and the leases with JCPenney, Bon Marche
and Emporium impose certain obligations on the NorthTown Mall Borrower with
respect to casualty and condemnation, which may require the NorthTown Mall
Borrower to restore the NorthTown Mall Property (and which under the terms of
the NorthTown Mall Loan documents will override provisions that would otherwise
permit mortgagee to apply proceeds in reduction of the NorthTown Mall Loan
rather than toward a restoration). Such documents 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 May 24 and 28,
1998, was performed on the NorthTown 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 NorthTown 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--Environmental Laws Entail Risks"
and "--Environmental Risks Relating to the Mortgaged Properties" herein.
Engineering Report. A Property Condition Report was completed on the
NorthTown Mall Property on June 2, 1998, by a third party due diligence firm.
The Property Condition Report concluded that the NorthTown Mall Property was
generally in good physical condition and identified approximately $132,300 in
deferred maintenance requirements.
Property Management. The NorthTown Mall Property is managed by Price
Development Company, Limited Partnership (the "NorthTown Mall Manager"), which
is the limited partner of the NorthTown Mall Borrower, pursuant to a management
agreement dated August 4, 1998 (the "NorthTown Mall Management Agreement"). The
NorthTown Mall Manager receives a monthly management fee in an amount equal to
2.5% of the monthly gross operating revenue.
The NorthTown Mall Management Agreement is for a term ending September 1,
2008 and in the event that the NorthTown Mall Loan is extended beyond its
Effective Maturity Date of September 1, 2008, the NorthTown Mall Management
Agreement will automatically be extended to be coterminous with the NorthTown
Mall Loan. The NorthTown Mall Manager and the NorthTown Mall Borrower may
terminate the NorthTown Mall Management Agreement at any time upon 30 days
notice to the other. Under the terms of the NorthTown Mall Loan, any
termination or replacement of the NorthTown Mall Manager or entering into a new
management agreement requires the consent of mortgagee. Pursuant to a
management subordination agreement executed by the NorthTown Mall Manager, the
NorthTown Mall Manager has agreed (i) that the NorthTown Mall Management
Agreement is subordinate to the NorthTown Mall Loan and (ii) that the mortgagee
has the right to terminate the NorthTown Mall Manager and replace it with a
manager selected by the NorthTown Mall Borrower and approved by mortgagee (a)
on or after any Loan Default (and, with respect to a non-monetary Loan Default,
if such non-monetary Loan Default continues for 5 days after notice), (b) at
any time that the NorthTown Mall Manager has engaged in gross negligence, fraud
or willful misconduct, (c) if the debt service coverage ratio of the NorthTown
Mall Loan falls below 1.15x on a quarterly basis for the trailing 4 quarters or
(d) from and after the Effective Maturity Date, provided that in case of (c)
above, the NorthTown Mall Borrower has the right to retain the NorthTown Mall
Manager if, prior to the replacement of the NorthTown Mall Manager, the
NorthTown Mall Borrower provides a Letter of Credit for a portion of the
NorthTown Mall Loan such that the Debt Service Coverage Ratio of 1.15x can be
maintained on the NorthTown Mall Loan net of such additional collateral. Such
additional collateral shall be released to the NorthTown Mall Borrower when the
Debt Service Coverage Ratio equals or exceeds 1.15x for 6 consecutive months
provided no Loan Default has occurred and is continuing.
The NorthTown Mall Manager is the limited partner of the NorthTown Mall
Borrower and is owned by the JP REIT. The NorthTown Mall Manager currently
manages approximately 12,827,075 square feet of commercial space.
S-108
<PAGE>
<TABLE>
<S> <C>
NORTHTOWN MALL: THE LOAN
ORIGINAL PRINCIPAL BALANCE: $84,500,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: Approximately INITIAL INTEREST RATE: 6.68%
$ 84,426,244
ORIGINATION DATE: August 4, 1998 REVISED INTEREST RATE: Greater of (i) 8.68% and (ii)
Treasury Rate plus 2%
EFFECTIVE MATURITY DATE: September 1, 2008 AMORTIZATION: 360 months
MATURITY DATE: September 1, 2028 MONTHLY PAYMENT: $544,139.35 (principal and interest)
EMD BALANCE: $73,062,731 CALL PROTECTION: Lockout to EMD
</TABLE>
CERTAIN NORTHTOWN MALL LOAN STATISTICS(1)
<TABLE>
<CAPTION>
LOAN PER LOAN TO VALUE ACTUAL REFINANCING
SQUARE FOOT(2) RATIO(3) DSCR(4) DSCR(5)
---------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Cut-Off Date .................... $106 58.5% 1.73x 1.49x
Effective Maturity Date ......... $ 90 49.7% 2.04x 1.75x
</TABLE>
- --------
(1) The Loan Balance used in computing these statistics have been reduced by
the Northtown Mall Letter of Credit (described below under "Security").
(2) Based on the 709,870 square feet securing the NorthTown Mall Loan and the
Cut-Off Date Principal Balance or Effective Maturity Date Balance, as
applicable.
(3) Based on the recent purchase price of $128,000,000 and the Cut-Off Date
Principal Balance or Effective Maturity Date Balance, as applicable.
(4) Based on (a) Underwritable Cash Flow of $10,028,711 and (b) in the case
of the Cut-Off Date Actual DSCR, actual debt service on the NorthTown
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 NorthTown Mall Loan assuming a balance equal to the Effective
Maturity Date Balance and a coupon equal to the NorthTown Mall Loan
Initial Interest Rate.
(5) Based on (a) Underwritable Cash Flow of $10,028,711 and (b) in the case
of the Cut-Off Date Refinancing DSCR, an annual debt service payment
equal to 9.00% of the Cut-Off Date Principal Balance of the NorthTown
Mall Loan, and, in the case of the Effective Maturity Date Refinancing
DSCR, an annual debt service payment equal to 9.00% of the Effective
Maturity Date Balance.
Security. The NorthTown Mall Loan is a nonrecourse loan, secured by the
fee estate of the NorthTown Mall Borrower in the NorthTown Mall Property and
certain related collateral, including an assignment of leases and rents.
Mortgagee is the insured under title insurance policies insuring that the
NorthTown Mall Mortgage constitutes a valid and enforceable first lien on the
NorthTown Mall Property, subject to certain exceptions set forth therein.
<PAGE>
As additional collateral for the payment of the NorthTown Mall Loan, the
NorthTown Mall Borrower has delivered to mortgagee a Letter of Credit. in the
amount of $9,500,000 (the "NorthTown Mall Letter of Credit"). The NorthTown
Mall Letter of Credit shall be released by mortgagee to the NorthTown Mall
Borrower upon the NorthTown Mall Borrower's satisfaction of the following
conditions (the "NorthTown Mall Release Conditions"), provided the same shall
have occurred on or before 30 days prior to the date that is 2 years from the
Closing Date (the "Additional Collateral Release Date"): (a) the NorthTown Mall
Borrower shall have completed construction of an addition to the improvements
on the NorthTown Mall Property containing at least 93,000 rentable square feet
of space (the "NorthTown Mall Additional Building") and shall have delivered to
mortgagee a certified copy of a duly issued certificate of occupancy for the
NorthTown Mall Additional Building, (b) NorthTown Mall Borrower shall have
executed leases for space in the NorthTown Mall Additional Building (the
"NorthTown Mall Additional Leases") with each of the tenants known by the trade
names of Act III Theaters, Barnes & Noble and Old Navy or with other tenants
having an equal or higher credit rating from the Rating Agencies as the
foregoing named tenants and reasonably approved by mortgagee for terms of not
less than 10 years each, having a total aggregate net annual rent of not less
than $1,475,000, and otherwise on commercially reasonable terms and conditions
as may be approved by mortgagee in its sole discretion, (c) each such tenant
shall have accepted possession of its space in the NorthTown Mall Additional
Building, shall have begun paying rent to the NorthTown Mall Borrower under its
NorthTown Mall Additional Lease and shall have opened for business to the
public, (d) each such tenant shall have executed and delivered to mortgagee an
estoppel certificate reasonably acceptable to mortgagee, (e) no Loan Default
shall have occurred and be continuing and (f) the obligations and all amounts
due under the contract of sale pursuant to which the NorthTown Mall Borrower
acquired
S-109
<PAGE>
the NorthTown Mall Property shall have been met and paid to the extent due. In
the event that the NorthTown Mall Borrower shall have failed to satisfy the
NorthTown Mall Release Conditions on or prior to the Additional Collateral
Release Date, NorthTown Mall Borrower shall, on the second anniversary of the
Closing Date, partially defease the principal amount of $9,500,000 of the
NorthTown Mall Loan. Upon such defeasance of the NorthTown Mall Loan, the
NorthTown Mall Letter of Credit shall be released to the NorthTown Mall
Borrower. A default by the NorthTown Mall Borrower in so defeasing the
NorthTown Mall Loan shall be a Loan Default and mortgagee shall have the right,
in addition to any other rights mortgagee may have and without accelerating the
NorthTown Mall Loan, to draw upon the NorthTown Mall Letter of Credit and to
apply the NorthTown Mall Letter of Credit to the prepayment of the NorthTown
Mall Loan and the Prepayment Charge payable in connection with such prepayment.
Payment Terms. The NorthTown Mall Loan is an EMD Loan. Interest on the
NorthTown Mall Loan is calculated on an Actual/360 Basis. Its Due Date is the
first business 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. Interest at the Default Rate begins to accrue 5 days after the related Due
Date.
Prepayment. Voluntary prepayment is prohibited under the NorthTown Mall
Loan prior to the Effective Maturity Date. From and after such date, the
NorthTown Mall Loan may be voluntarily prepaid on any Due Date, in whole or in
part, without payment of a Prepayment Charge.
Principal prepayments on the NorthTown Mall Loan may occur from and 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 NorthTown Mall Loan following a Loan Default. Prepayments
following a Loan Default require payment of a Prepayment Charge equal to the
greater of (a) 1% of the portion of the principal amount being repaid or (b)
the Yield Maintenance Premium. As described below, prepayments may also be
made, without payment of a Prepayment 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 NorthTown Mall Loan permits the
release of the NorthTown 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 NorthTown Mall Loan on such dates,
and provide for payment on the Effective Maturity Date of the remaining
principal balance of the NorthTown Mall Loan. Upon any such Defeasance, at the
option of the mortgagee, the NorthTown Mall Borrower's obligations under the
NorthTown Mall Loan and the U.S. Obligations securing the NorthTown Mall Loan
will be transferred to a Successor Borrower. Following such Defeasance, the
U.S. Obligations will be the sole security for the NorthTown Mall Loan.
Lockbox and Reserves. Pursuant to the NorthTown Mall Loan, the NorthTown
Mall Borrower has established a Soft Lockbox, which is a Two-Tier Lockbox. The
Lockbox Bank for the First Tier Lockbox is Washington Trust and the Lockbox
Bank for the Second Tier Lockbox is BankOne Arizona, N.A. Amounts in the
Lockbox are required to be applied in accordance with the Lockbox Waterfall,
except that after the Effective Maturity Date prior to the application on
account of item (vi) of the Lockbox Waterfall, amounts in the Lockbox are
required to be used to fund the payment of interest accruing at the Default
Rate and Late Payment Fees, if any.
The NorthTown Mall 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 $620,526.78, and requires
a Monthly Reserve Deposit equal to the Monthly Tax Deposit Amount, (c) a
Required Repair Account, which had an Initial Reserve Deposit of $170,375, (d)
a Capital Reserve Account, which requires a Monthly Reserve Deposit equal to
$8,873 and (e) a Rollover Account, which requires a Monthly Reserve Deposit
equal to $20,833.33.
Pursuant to the NorthTown Mall Loan, the NorthTown Mall Borrower is
required to convert the Soft Lockbox to a Hard Lockbox, which would continue to
be a Two-Tier Lockbox, upon the following events: (i) following the occurrence
of a Loan Default, (ii) within 30 days of the Effective Maturity Date or (iii)
if the Debt Service Coverage Ratio for the NorthTown Mall Property is less than
1.10x. Unless and until any such event occurs, a Hard Lockbox is not required.
Amounts in the Hard Lockbox are required to be applied in the same manner as
described in the second preceding paragraph in connection with the Soft
Lockbox.
S-110
<PAGE>
Expansion. The NorthTown Mall Borrower has the right to expand the
improvements on the NorthTown Mall Property (a "NorthTown Mall Expansion"),
upon compliance with several conditions including the following: (a) no Loan
Default shall have occurred and be continuing, (b) mortgagee shall have
received (i) confirmation in writing from the Rating Agencies to the effect
that the NorthTown Mall Expansion will not result in a withdrawal,
qualification or downgrade of the respective ratings of the Certificates in
effect immediately prior to the NorthTown Mall Expansion, (ii) an appraisal of
the NorthTown Mall Property indicating an appraised value of the NorthTown Mall
Property after the NorthTown Mall Expansion equal to or greater than the value
of the NorthTown Mall Property prior to the NorthTown Mall Expansion, (iii)
evidence that the NorthTown Mall Expansion and the remainder of the NorthTown
Mall Property following the NorthTown Mall Expansion will comply with all
zoning and land use laws and requirements, and (iv) executed leases for not
less than 50% of the retail space to be constructed as part of the NorthTown
Mall Expansion, (c) the NorthTown Mall Borrower shall have obtained all
approvals required under any leases and operating agreements and shall obtain
any air rights from Sears Roebuck & Co. necessary for same, if any, and (d) the
NorthTown Mall Borrower shall pay all actual third party costs, taxes and
expenses associated with the NorthTown Mall Expansion, including mortgagee's
reasonable attorneys' fees.
Release of a Portion of the Property. In the event the NorthTown Mall
Borrower desires to sell a portion of the NorthTown Mall Property (a "NorthTown
Mall Release Parcel") to the then owner of the parcel of land surrounded by the
NorthTown Mall Property owned by Mervyn's (the "Mervyn's Parcel") in connection
with the expansion of the store located on the Mervyn's Parcel, mortgagee shall
consent to such transfer and release the lien of the mortgage from the
NorthTown Mall Release Parcel, provided, among other requirements: (a) that no
Loan Default shall have occurred and be continuing, (b) the NorthTown Mall
Release Parcel shall contain no more than 75,000 square feet of gross floor
area of the Improvements on the NorthTown Mall Property located immediately
adjacent to the Mervyn's Parcel and/or such additional unimproved land as may
be reasonably required by the NorthTown Mall Borrower in connection with the
expansion of the improvements on the Mervyn's Parcel and (c) mortgagee shall
have received (i) confirmation in writing from the Rating Agencies to the
effect that such release will not result in a withdrawal, qualification or
downgrade of the respective ratings for the Certificates in effect immediately
prior to such release, (ii) a certificate from the NorthTown Mall Borrower
indicating that the debt service coverage ratio with respect to the remaining
NorthTown Mall Property will not be less than the debt service coverage ratio
of the NorthTown Mall Property prior to the release, (iii) an appraisal of the
NorthTown Mall Property indicating an appraised value of the NorthTown Mall
Property after the release equal to or greater than the value of the NorthTown
Mall Property prior to the release and (iv) a redated endorsement to its title
insurance policy indicating that the NorthTown Mall Release Parcel has been
legally subdivided from the remainder of the NorthTown Mall Property.
Acquisition of Additional Property. Mortgagee agrees that the NorthTown
Mall Borrower may acquire additional land and the improvements thereon, if any,
("Additional NorthTown Mall Property"), upon compliance with several conditions
including the following: (a) no Loan Default shall have occurred and be
continuing, (b) mortgagee shall have received (i) a Phase I environmental site
assessment of the Additional NorthTown Mall Property indicating that the
Additional NorthTown Mall Property is in compliance with all environmental laws
and that there are no environmental hazards associated with the Additional
NorthTown Mall Property, (ii) an engineering report indicating that the
property is in compliance with all requirements of laws and that the condition
of the Additional NorthTown Mall Property is equal to or better than the
condition of the NorthTown Mall Property, (iii) confirmation in writing from
the Rating Agencies to the effect that the acquisition of the Additional
NorthTown Mall Property will not result in a withdrawal, qualification or
downgrade of the respective ratings of the Certificates in effect immediately
prior to such acquisition, (iv) a title insurance commitment with respect to
the Additional NorthTown Mall Property, a copy of all easement agreements,
leases and estoppel certificates relating thereto and other documents creating
liens and encumbrances affecting the Additional NorthTown Mall Property and a
survey of the NorthTown Mall Property and the Additional NorthTown Mall
Property, (v) certificates of insurance evidencing that the NorthTown Mall
Borrower has obtained insurance for the Additional NorthTown Mall Property that
complies with the Insurance Requirements and (vi) financial statements and
other financial information relating to the Additional Northtown Mall Property
requested by the Rating Agencies or reasonably requested by mortgagee. The
NorthTown Mall Mortgage and the other NorthTown Mall Loan Documents shall be
modified to spread the lien of the NorthTown Mall Mortgage to encumber the
Additional NorthTown Mall Property. The NorthTown Mall Borrower shall have
obtained all approvals required under any leases and the NorthTown Mall ROA.
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. The NorthTown Mall Borrower is prohibited from transferring the NorthTown
Mall Property without the consent of mortgagee, other than pursuant to a
NorthTown Mall Permitted Transfer (as defined below). The NorthTown Mall
Borrower is also prohibited from further encumbering the NorthTown Mall
Property, except for easements entered into in the ordinary course of business
and easements entered into in connection with the development of the Mervyn's
Parcel and which do not materially and adversely affect the value of the
NorthTown Mall Property.
S-111
<PAGE>
A "NorthTown Mall Permitted Transfer" means a transfer to a NorthTown Mall
Permitted Transferee (defined below) or a NorthTown Mall Affiliated Transferee
(defined below), each of which transfers satisfies several conditions including
the following:
(a) No Loan Default has occurred and remains uncured;
(b) If the transferee is not a NorthTown Mall Affiliated Transferee,
mortgagee shall have received evidence reasonably satisfactory to mortgagee
that such transferee is creditworthy, with sufficient financial worth
considering the obligations assumed and undertaken, as evidenced by financial
statements and other information reasonably requested by mortgagee.
(c) Mortgagee shall have received evidence in writing from the Rating
Agencies to the effect that such transfer will not result in a downgrade,
qualification or withdrawal of the then current ratings of the Certificates;
(d) Mortgagee shall have received such opinions of counsel as may be
reasonably requested by mortgagee (including nonconsolidation opinions) or as
may be requested by any Rating Agency in connection with such sale or transfer;
and
(e) If the transferee is not a NorthTown Mall Affiliated Transferee,
mortgagee shall have received payment of an assumption fee equal to one quarter
of one percent (0.25%) of the original principal amount of the NorthTown Mall
Loan.
A "NorthTown Mall Permitted Transferee" means a corporation, partnership
or limited liability company (i) acceptable to mortgagee in its reasonable
commercial discretion, (ii) that qualifies as a single purpose entity under
criteria established by the Rating Agencies and (iii) whose counsel has
delivered to mortgagee a nonconsolidation opinion acceptable to the Rating
Agencies. A "NorthTown Mall Affiliated Transferee" means any entity in which
the JP REIT directly or indirectly owns not less than a fifty one percent (51%)
voting and beneficial interest.
The NorthTown Mall Loan prohibits the transfer of any direct or indirect
interest in the NorthTown Mall Borrower without the prior written consent of
mortgagee. However, mortgagee's consent is not required with respect to
transfers of direct or indirect beneficial interests in the NorthTown Mall
Borrower if (a) no Loan Default then exists, (b) mortgagee has received
evidence in writing from the Rating Agencies to the effect that such transfer
will not result in a downgrade, qualification or withdrawal of the then current
ratings of the Certificates and (c) in connection with any transfer or series
of transfers in any twelve month period of more than a 10% direct or indirect
interest in the NorthTown Mall Borrower in the aggregate, mortgagee shall have
received such opinions of counsel as may be reasonably requested by Mortgagee
(including nonconsolidation opinions) or as may be requested by any Rating
Agency in connection with such sale or transfer. Notwithstanding the foregoing,
transfers of direct or indirect interests in the NorthTown Mall Borrower shall
be permitted without compliance with clause (b) above provided that following
any such transfer the JP REIT directly or indirectly owns not less than a fifty
one percent (51%) voting and beneficial interest in the NorthTown Mall Borrower
and Price NT Corp.
The NorthTown 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 NorthTown Mall Property which
does not exceed, at any time, $800,000 and is paid within 90 days of the date
incurred.
Notwithstanding the prohibitions on transfers and additional indebtedness
set forth above, the shareholders, partners or members of NorthTown Mall
Borrower shall be permitted to pledge their interests in the NorthTown Mall
Borrower as security for a mezzanine loan to such shareholders, partners or
members without the consent of mortgagee, provided that (a) no Loan Default
then exists, (b) mortgagee shall have received such opinions of counsel as may
be reasonably requested by Mortgagee (including nonconsolidation opinions) or
as may be requested by any Rating Agency in connection with the mezzanine loan
and (c) mortgagee shall have received evidence in writing from the Rating
Agencies to the effect that the terms and conditions of such mezzanine loan and
pledge and all documentation in connection therewith, including, without
limitation, the identity of the mortgagee under the mezzanine loan, the
transferability of the mezzanine loan by the holders thereof, the remedies
available to the mortgagee under the mezzanine loan, and the conditions to the
enforcement of any such remedies, will not result in a qualification, reduction
or withdrawal of any rating initially or then currently assigned or to be
assigned to the Certificates.
Insurance. The NorthTown Mall Borrower is required to maintain for the
NorthTown Mall Property (a) comprehensive all risk insurance with coverage in
an amount at all times sufficient to prevent the NorthTown 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 NorthTown Mall Loan, (b) general liability insurance with coverage,
together with umbrella coverage, of $21,000,000 combined single limit, (c)
statutory workers compensation insurance, (d) business
S-112
<PAGE>
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 in an
amount not less than full replacement value and (f) at the 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.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the NorthTown Mall Property or a
condemnation of all or any portion of the NorthTown Mall Property, the
NorthTown Mall Borrower is obligated to commence and diligently prosecute to
completion the restoration of the NorthTown Mall Property. If both the net
proceeds of the casualty or condemnation and the costs of restoration are less
than $3,500,000 and there is no Loan Default, the NorthTown 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 NorthTown Mall Borrower for restoration so long
as (i) there is no Loan Default, (ii) in the case of casualty, less than 50% of
the total floor area of the improvements is damaged or destroyed, and in the
case of condemnation, less than 30% of the land constituting the NorthTown Mall
Property is taken, and such land is located along the perimeter or periphery of
the NorthTown Mall Property, (iii) leases demising more than 65% 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 two
months before the Effective Maturity Date, (b) the date on which the business
interruption insurance expires or (c) the time required under any lease
demising 20,000 square feet or more (each, a "NorthTown Mall Major Lease"), the
NorthTown Mall ROA or applicable zoning law, provided that so long as there is
no Loan Default outstanding, Mortgagee shall make net proceeds available for
the restoration to the extent required by the NorthTown Mall Borrower to comply
with its obligations to restore under any NorthTown Mall Major Lease. If such
conditions are not met, the net proceeds of a casualty or condemnation may at
the option of the mortgagee either (i) be applied to prepay the NorthTown Mall
Loan without payment of a Prepayment Charge or (ii) be disbursed to the
NorthTown 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 NorthTown Mall Loan provides mortgagee with the
Standard Approval Rights regarding budgets, leases and alterations. The Lease
Approval Threshold is 20,000 square feet and the Alteration Escrow Threshold is
$3,500,000.
Financial Reporting. The NorthTown Mall Borrower is required to furnish
the Financial Statements to the mortgagee, except that quarterly Financial
Statements are required to be submitted within 60 days after the end of each
fiscal quarter (which quarterly Financial Statements are required to include
sales figures for tenants of the NorthTown Mall Property), and annual Financial
Statements are required within 115 days after the end of the fiscal year.
S-113
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EDENS & AVANT POOL II
[PICTURE]
LANDING STATION, Lake Wylie, SC
[PICTURE] [PICTURE]
KENILWORTH COMMONS, Charlotte, NC MOUNTAIN ISLAND, Charlotte, NC
Pictures depicting exterior views of above properties
<PAGE>
[PICTURE]
Map indicating location of properties in Edens & Avant Pool II
<PAGE>
EDENS & AVANT POOL II: THE BORROWER; THE PROPERTIES
The Loan. The Edens & Avant Pool II Loan was originated by Secore and
acquired by MSMC on September 18, 1998. The Edens & Avant Pool II Loan had an
original principal balance and has a Cut-Off Date Principal Balance of
$70,000,000. It is secured by certain Mortgages (collectively, the "Edens &
Avant Pool II Mortgage") encumbering 21 community and neighborhood shopping
centers in Alabama, Georgia, Florida, Mississippi, North Carolina, South
Carolina and Virginia (each, an "Edens & Avant Pool II Property" and,
collectively, the "Edens & Avant Pool II Properties").
The Borrower. E&A Southeast Limited Partnership (the "Edens & Avant Pool
II Borrower") is a Delaware limited partnership whose purpose is limited to
owning and operating the Edens & Avant Pool II Property and related activities.
The Edens & Avant Pool II Borrower owns no material asset other than the Edens
& Avant Pool II Property and related interests. The Edens & Avant Pool II
Borrower's sole general partner is E&A Southeast LLC (the "Edens & Avant Pool
II General Partner"), a Delaware limited liability company, and the Edens &
Avant Pool II Borrower's sole limited partner is Edens & Avant Properties
Limited Partnership, a Delaware limited partnership. The Edens & Avant Pool II
General Partner's sole managing member is Edens & Avant Southeast, Inc. (the
"Edens & Avant Pool II Managing Member"), a Delaware corporation, and the Edens
& Avant Pool II General Partner's sole other member is Edens & Avant Properties
Limited Partnership. The sole shareholder of the Edens & Avant Pool II Managing
Member is Edens & Avant Properties Limited Partnership. Edens & Avant
Properties Limited Partnership is indirectly owned approximately 90% by the
State of Michigan Retirement System and approximately 10% by a group consisting
of Joseph Edens and other principals and employees of affiliates of the Edens &
Avant Pool II Borrower.
The Properties. The Edens & Avant Pool II Properties securing the Edens &
Avant Pool II Loan are the Edens & Avant Pool II Borrower's fee interests in 18
community and neighborhood retail shopping centers located in Alabama, Florida,
Georgia, Mississippi, North Carolina, South Carolina, and Virginia and
leasehold interests in 3 community and neighborhood retail shopping centers
located in Alabama and Mississippi. The Edens and Avant Pool II Properties were
recently acquired by the Edens and Avant Pool II Borrower. The Edens & Avant
Pool II Properties contain approximately 2,175,884 square feet of GLA and range
in size from approximately 25,860 square feet to 305,555 square feet of GLA,
with an average size of approximately 103,614 square feet. As of May-July 1998,
the average occupancy rate of the Edens & Avant Pool II Properties was
approximately 96.1% and the aggregate annualized base rent was $15,203,673 or
approximately $7.27 per square foot of occupied GLA. The Edens and Avant Pool
II Properties were recently purchased for $143,567,822, which equates into a
48.8% loan to purchase price ratio. As of May-July 1998, no single Edens &
Avant Pool II Property accounted for more than approximately 14.0% of the total
GLA, or more than approximately 17.0% of Annualized Base Rent.
Location. The following table summarizes the locations of the Edens &
Avant Pool II Properties based on square footage of GLA:
<TABLE>
<CAPTION>
TOTAL COMMUNITY PERCENT OF PERCENT OF GLA
STATE CENTER GLA TOTAL GLA (1) LEASED
- ---------------------------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
Mississippi ...................... 749,438 34.4% 98.9%
Virginia ......................... 421,645 19.4 93.7
Georgia .......................... 368,755 16.9 98.2
Alabama .......................... 218,384 10.0 83.7
South Carolina ................... 192,695 8.9 99.0
Florida .......................... 113,620 5.2 92.8
North Carolina ................... 111,347 5.1 100.0
------- ----- -----
Total/ Weighted Average ......... 2,175,884 100.0% 96.1%
========= ===== =====
</TABLE>
- --------
(1) Numbers may not total 100% due to rounding.
S-114
<PAGE>
Operating History. The following table shows certain information regarding
the operating history of the Edens & Avant Pool II Properties:
NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995(1) 1996(2) 1997(3) NOI
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Effective Gross Income ......... $ 12,045,719 $ 12,717,892 $14,872,809 $ 17,217,353
Operating Expenses ............. (2,645,914) (2,838,061) (3,198,692) (3,529,108)
------------ ------------ -------------- ------------
Net Operating Income .......... $ 9,399,805 $ 9,879,831 $11,674,117 $ 13,688,245
============ ============ =========== ============
</TABLE>
- --------
(1) Operating Statements were not available for Baldwin Square (opened
January 1998), Cypress Point (hostile acquisition), Gateway Plaza (opened
May 1998), Landing Station (opened 1997), Midway Shopping Center (opened
May 1998), Mountain Island Market Place, and Shields Plaza (opened
December 1996). As a result, they have not been included in the 1995 cash
flow analysis.
(2) Operating Statements were not available for Baldwin Square (opened
January 1998), Cypress Point (hostile acquisition), Gateway Plaza (opened
May 1998), Landing Station (opened 1997), Midway Shopping Center (opened
May 1998), and Shields Plaza (opened December 1996). As a result, they
have not been included in the 1996 cash flow analysis.
(3) Operating Statements were not available for Baldwin Square (opened
January 1998), Gateway Plaza (opened May 1998), and Midway Shopping
Center (opened May 1998). As a result, the seven months annualized budget
of Gateway and Midway Plaza has been presented in the 1997 analysis.
Landing Station has been underwritten based on the 1998 budget. Baldwin
Center has been underwritten based on the annualized seven months ending
July 31, 1998.
Description of Tenants. As of May-July, 1998, approximately 65.6% of the
Edens & Avant Pool II Properties GLA was leased to anchor tenants with an area
of at least 15,000 square feet per lease. These anchor tenants include
supermarket, drug store, and value-oriented department, furniture and apparel
stores. Tenants in the Edens & Avant Pool II 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 Edens & Avant Pool II Properties is
Jitney-Jungle Stores of America, Inc., whose 7 stores contributed approximately
10.8% of the annualized base rent of the Edens & Avant Pool II Properties. The
10 largest tenants average approximately 56,178 square feet per lease. As of
May-July, 1998, no single tenant contributed more than approximately 9.7% of
the annualized base rent of the Edens & Avant Pool II Properties other than
Jitney-Jungle Stores of America, Inc.
The following table shows certain information regarding the ten largest
tenants for the Edens & Avant Pool II Properties by Annualized Base Rent
(percentage rent and tenant reimbursement obligations are not included):
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT BY PARENT COMPANY(4)
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF TOTAL ANNUALIZED
NO. OF TENANT TOTAL ANNUALIZED ANNUALIZED BASE RENT
TENANT OR TENANT PARENT COMPANY STORE NAME STORES GLA GLA BASE RENT BASE RENT PER SF
- ---------------------------------- --------------- -------- ------------ ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jitney-Jungle Stores of Jitney-Jungle
America, Inc.(2) ................ Sack N Save 7 355,438 16.3% $ 1,636,235 10.8% $ 4.60
Wal-Mart Stores(3) ............... Wal-Mart 3 303,598 14.0 1,478,795 9.7 4.87
Winn-Dixie Stores, Inc. .......... Winn-Dixie 4 183,282 8.4 1,452,749 9.6 7.93
Home Depot, Inc. ................. Home Depot 1 107,400 4.9 843,090 5.5 7.85
Ruddick Corporation .............. Harris Teeter 2 76,627 3.5 695,212 4.6 9.07
Supervalu, Inc. .................. Cub Foods 1 76,564 3.5 556,921 3.7 7.27
Kmart Corporation ................ K-Mart 1 107,806 5.0 545,498 3.6 5.06
Farm Fresh, Inc. ................. Farm Fresh 1 53,231 2.4 371,020 2.4 6.97
Royal Ahold N.V. ................. Bi-Lo 1 38,654 1.8 302,661 2.0 7.83
The Kroger Company ............... Kroger 1 45,674 2.1 240,000 1.6 5.25
- ------- ----- ----------- ----- --------
Total/Weighted Average
(10 Largest) ................... 22 1,348,274 62.0% $ 8,122,181 53.4% $ 6.02
Other Major Tenants (greater
than 5,000 square feet) ......... 35 338,378 15.6 2,386,423 15.7 7.05
Remaining Tenants ................ 207 403,334 18.5 4,695,069 30.9 11.64
Vacant Space ..................... 31 85,898 3.9 0 0.0 0.00
--- --------- ----- ----------- ----- --------
Total/Weighted Average .......... 295 2,175,884 100.0% $15,203,673 100.0% $ 7.27(1)
=== ========= ===== =========== ===== ===========
</TABLE>
<PAGE>
- --------
(1) Excludes vacant square footage.
(2) Includes corporate office space at Ellis Isle of 12,500 square feet.
(3) Although all 3 stores are current on their rent, 2 properties are vacant.
(4) Numbers may not total 100% due to rounding.
S-115
<PAGE>
Sales History. The following table shows the 1996 and 1997 sales history
for certain tenants at the Edens & Avant Pool II Properties(1):
<TABLE>
<CAPTION>
ANNUAL 1996 SALES ANNUAL 1997 SALES
------------------------------ ------------------------------
NO. OF SQUARE
STORE NAME STORES FEET TOTAL PER SF TOTAL PER SF
- --------------------------------- -------- --------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jitney Jungle ................... 5 177,938 $ 65,231,941 $ 366.60 $ 59,918,548 $ 336.74
Sack and Save ................... 2 165,000 51,907,139 314.59 50,971,644 308.92
Wal Mart ........................ 1 116,085 45,243,591 389.75 47,004,113 404.91
Home Depot ...................... 1 107,400 31,297,059 291.41 30,621,029 285.11
Bi-Lo ........................... 1 38,654 14,334,712 370.85 16,358,208 423.20
Harris Teeter ................... 1 26,000 14,955,731 575.22 15,112,901 581.27
- ------- ------------ ---------- ------------ ----------
Total Largest Tenants .......... 11 631,077 $222,970,173 $ 353.32 $219,986,443 $ 348.59
Other Comparable Stores ......... 28 292,894 48,119,251 164.29 47,924,367 163.62
-- ------- ------------ ---------- ------------ ----------
Total/Weighted Average ......... 39 923,971 $271,089,424 $ 293.40 $267,910,810 $ 289.96
== ======= ============ ========== ============ ==========
</TABLE>
- --------
(1) Historical sales figures and square footage amounts are only listed for
tenants reporting sales for full years in both 1996 and 1997.
Lease Expirations. The following table shows scheduled lease expirations
at the Edens & Avant Pool II Properties as of May-July, 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(1)(3)(4)
<TABLE>
<CAPTION>
CUMULATIVE
NUMBER OF EXPIRING PERCENT PERCENT
YEAR OF EXPIRATION LEASES EXPIRING SF OF SF OF SF
- ------------------------ ----------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Vacant ................. 31 85,898 3.9% 3.9%
Month to Month ......... 7 10,371 0.5 4.4%
1998 ................... 15 23,819 1.1 5.5%
1999 ................... 50 146,163 6.7 12.2%
2000 ................... 46 134,853 6.2 18.4%
2001 ................... 49 126,293 5.8 24.2%
2002 ................... 25 94,461 4.3 28.6%
2003 ................... 33 132,716 6.1 34.7%
2004 ................... 6 172,451 7.9 42.6%
2005 ................... 4 134,500 6.2 48.8%
2006 ................... 1 5,000 0.2 49.0%
2007 ................... 8 120,273 5.5 54.5%
2008 ................... 8 252,708 11.6 66.2%
Thereafter ............. 14 736,378 33.8 100.0%
-- ------- -----
Total .................. 297 2,175,884 100.0%
=== ========= =====
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<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 ......... 117,639 11.34 0.8 0.8%
1998 ................... 338,592 14.22 2.2 3.0%
1999 ................... 1,317,075 9.01 8.7 11.7%
2000 ................... 1,246,098 9.24 8.2 19.9%
2001 ................... 1,244,904 9.86 8.2 28.0%
2002 ................... 702,153 7.43 4.6 32.7%
2003 ................... 1,146,576 8.64 7.5 40.2%
2004 ................... 688,756 3.99 4.5 44.7%
2005 ................... 436,660 3.25 2.9 47.6%
2006 ................... 55,000 11.00 0.4 48.0%
2007 ................... 833,374 6.93 5.5 53.5%
2008 ................... 1,867,919 7.39 12.3 65.7%
Thereafter ............. 5,208,927 7.07 34.3 100.0%
----------- -------- -----
Total .................. $15,203,673 $ 7.27(2) 100.0%
=========== =========== =====
</TABLE>
- --------
(1) Data is based on the May-July, 1998 rent rolls.
(2) Excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
(4) Includes corporate office space at Ellis Isle of 12,500 square feet.
S-116
<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 Edens & Avant Pool II Properties:
<TABLE>
<CAPTION>
CUT-OFF
DATE YEAR
ALLOCATED TOTAL BUILT OCCUPANCY AS OF
PROPERTY NAME LOCATION LOAN AMOUNT SF/UNITS (RENOVATED) MAY-JULY 1998
- ------------------------- -------------------- ------------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Promenade at Manasas Manassas, VA $11,791,400 303,643 1993 97.5
Marietta Trade Center Marrietta, GA 11,261,250 305,555 1988 100.0
Fulton Crossing Corinth, MS 5,106,150 179,905 1992/95 100.0
Shopping Center
Cypress Point Virginia Beach, VA 4,246,500 118,002 1990 89.9
Shopping Center
Rio Pinar Plaza Orlando, FL 3,521,700 113,620 1984/86 92.8
Baldwin Square Fairhope, AL 3,667,950 139,144 1979/1997 67.3
Shopping Center
Mountain Island Charlotte, NC 3,546,900 73,230 1995 100.0
Market Place
Butler Square Mauldin, SC 3,265,500 80,285 1987 100.0
Shields Plaza Huntsville, AL 2,764,500 79,240 1996/97 100.0
Plantation Point Smyrna, GA 2,850,750 63,200 1988 96.3
Shopping Center
Kennilworth Charlotte, NC 2,629,200 38,117 1988 100.0
Commons
Ellis Isle Jackson, MS 2,552,550 238,091 1973 100.0
Shopping Center
Landing Station Lake Wylie, SC 2,479,650 58,400 1997 95.9
Shopping Center
Old Canton Road Jackson, MS 1,762,000 57,276 1984/1992 100.0
Shopping Center
Reservoir Square Brandon, MS 1,641,000 57,238 1979/87/92 100.0
Shopping Center
Magee Shopping Magee, MS 1,451,000 93,456 1979/1987 91.4
Center
English Village Jackson, MS 1,443,000 33,472 1973/1989 100.0
Shopping Center
Gateway Plaza Conway, SC 1,405,000 28,150 1997 100.0
Midway Plaza Winnsboro, SC 1,129,000 25,860 1997 100.0
Shopping Center
Daniel Lake Jackson, MS 752,000 45,000 1978 100.0
Shopping Center
Village Square Brookhaven, MS 733,000 45,000 1977 100.0
----------- ---------
Shopping Center
Total/Weighted Average $70,000,000 2,175,884
=========== =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOI ANNUALIZED
----------------------------------------- UNDERWRITABLE ANNUALIZED BASE RENT
PROPERTY NAME 1995 1996 1997 CASH FLOW BASE RENT(3) PSF(2)(3)
- ------------------------- ------------- ------------- ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Promenade at Manasas $2,292,711 $2,276,793 $ 2,416,101 $ 2,264,551 $ 2,585,897 $ 8.73
Marietta Trade Center 2,122,388 1,793,780 2,063,814 1,956,808 2,529,669 8.28
Fulton Crossing 825,825 826,375 838,219 887,331 1,023,989 5.69
Shopping Center
Cypress Point N/A N/A 815,499 815,640 934,757 8.81
Shopping Center
Rio Pinar Plaza 625,252 711,101 707,585 714,054 900,036 8.54
Baldwin Square N/A N/A N/A 704,503 761,430 8.13
Shopping Center
Mountain Island N/A 668,357 655,555 616,357 670,050 9.15
Market Place
Butler Square 525,228 643,481 611,022 567,447 674,844 8.41
Shields Plaza N/A N/A 470,906 531,027 599,439 7.56
Plantation Point 515,179 552,100 507,125 495,446 554,244 9.10
Shopping Center
Kennilworth 440,062 456,527 508,362 456,872 489,798 12.85
Commons
Ellis Isle 521,915 358,946 563,970 443,601 664,462 2.79
Shopping Center
Landing Station N/A N/A N/A 436,482 470,700 8.41
Shopping Center
Old Canton Road 337,127 337,007 337,294 321,480 348,967 6.09
Shopping Center
Reservoir Square 370,811 392,075 353,861 299,377 400,794 7.00
Shopping Center
Magee Shopping 203,349 250,606 258,705 264,674 398,982 4.67
Center
English Village 285,259 285,727 286,322 263,218 289,000 8.63
Shopping Center
Gateway Plaza N/A N/A N/A 256,285 313,875 11.15
Midway Plaza N/A N/A N/A 206,048 258,240 9.99
Shopping Center
Daniel Lake 159,478 151,768 104,589 137,253 184,500 4.10
Shopping Center
Village Square 175,221 175,188 175,188 133,768 150,000 3.33
---------- ---------- ----------- ----------- ----------- --------
Shopping Center
Total/Weighted Average $9,399,805 $9,879,831 $11,674,117 $12,772,222 $15,203,673 $ 7.27(2)
========== ========== =========== =========== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRIMARY TENANTS WITH
PROPERTY NAME GREATER THAN 15,000 SF (3)
- ------------------------- -------------------------------
<S> <C>
Promenade at Manasas Wal-Mart (2012) and
Home Depot (2015)
Marietta Trade Center Cub Foods (2008) and
Wal-Mart (2008) (dark)
Fulton Crossing K-Mart (2017) and
Shopping Center Kroger (2012)
Cypress Point Farm Fresh Store (2015)
Shopping Center
Rio Pinar Plaza Publix Supermarkets (2004)
Baldwin Square Winn-Dixie (2016)
Shopping Center
Mountain Island Harris Teeter (2015)
Market Place
Butler Square Bi-Lo (2007)
Shields Plaza Winn-Dixie (2016)
Plantation Point Winn-Dixie (2008)
Shopping Center
Kennilworth Harris Teeter (2008)
Commons
Ellis Isle Sack and Save (2005)
Shopping Center and Wal-Mart (2004) (dark)
Landing Station Winn-Dixie (2017)
Shopping Center
Old Canton Road Jitney Jungle (2009)
Shopping Center
Reservoir Square Jitney Jungle (2007)
Shopping Center
Magee Shopping Jitney Jungle (2007)
Center
English Village Jitney Jungle (2013)
Shopping Center
Gateway Plaza (1)
Midway Plaza (1)
Shopping Center
Daniel Lake Jitney Jungle (2003)
Shopping Center
Village Square Sack and Save (2002)
Shopping Center
Total/Weighted Average
</TABLE>
- -------
(1) No tenants with greater than 15,000 sf as of July 28, 1998.
(2) Annualized base rent per square foot calculation excludes vacant square
footage.
(3) Based on rent rolls dated between May-July, 1998.
S-117
<PAGE>
Environmental Reports. Environmental Site Assessments have been performed
on the Edens & Avant Pool II Properties within the past 12 months. The
Environmental Site Assessments did not reveal any environmental liability that
the Depositor believes would have a material adverse effect on the Edens &
Avant Pool II Borrower's business, assets or results of operations taken as a
whole. Certain minor environmental concerns were identified for which remedial
reserves have been established. See "--Lockbox and Reserves" herein.
Nevertheless, there can be no assurance that all environmental conditions and
risks were identified in such environmental assessments. See "Risk
Factors--Environmental Laws Entail Risks" and "--Environmental Risks Relating
to the Mortgaged Properties" herein.
Engineering Reports. Property Condition Reports were completed on the
Edens & Avant Pool II Properties between February 1998 and August 1998 by third
party due diligence firms. The Property Condition Reports concluded that the
Edens & Avant Pool II Properties were generally in good physical condition and
required $990,590 deferred maintenance. At origination of the Edens & Avant
Pool II Loan, the Edens & Avant Pool II Borrower established a deferred
maintenance reserve account.
Property Management. The Edens & Avant Pool II Loan is managed by Edens &
Avant Properties Limited Partnership (the "Edens & Avant Pool II Manager"),
which is an affiliate of the Edens & Avant Pool II Borrower, pursuant to a
management agreement dated September 18, 1998 (the "Edens & Avant Pool II
Management Agreement"). The Edens & Avant Pool II Manager receives an annual
management fee of 4% of gross revenues and leasing commissions of 5% of the
base rent.
The Edens & Avant Pool II Management Agreement is for a term ending
September 18, 1999 with automatic extensions of one year each. Pursuant to a
management subordination agreement executed by the Edens & Avant Pool II
Manager, the Edens & Avant Pool II Manager has agreed (i) that the Edens &
Avant Pool II Management Agreement is subordinate to the Edens & Avant Pool II
Loan and (ii) the mortgagee has the right to terminate the Edens & Avant Pool
II Manager and replace it with a manager selected and approved by Mortgagee (a)
on or after any Loan Default, (b) on or after any default by Edens & Avant Pool
II Manager under the Edens & Avant Pool II Management Agreement, or for cause,
including gross negligence, willful misconduct or fraud or (c) if the debt
service coverage ratio of the Edens & Avant Pool II Loan falls below 1.25x.
The Edens & Avant Pool II Manager is the limited partner of the Borrower,
the sole shareholder of the Edens Pool II Managing Member and the non-managing
member of the Edens Pool II General Partner. The Edens & Avant Pool II Manager
has approximately 12,500,000 square feet of retail shopping center properties
under management.
Without the mortgagee's consent (which may not be unreasonably withheld,
delayed or conditioned) the Edens & Avant Pool II Borrower may not enter into
any new management agreement with any new property manager. If during the term
of the Edens & Avant Pool II Loan, the Edens & Avant Pool II Borrower wishes to
designate another property manager acceptable to the mortgagee for all or any
Edens & Avant Pool II Property, the Edens & Avant Pool II Borrower must notify
the mortgagee and each Rating Agency in writing and obtain from each Rating
Agency written confirmation that the retention of the proposed property manager
will not result in a downgrade, withdrawal or qualification of the then rating
of the Certificates, provided that Rating Agency approval shall not be
required, for purposes of permitted transfers described under "--Transfer of
Properties and Interest in Borrower; Encumbrance; Other Debt" herein, with
respect to a property manager that (a) is a permitted transferee under clause
(i) of the second paragraph under "--Transfer of Property and Interest in
Borrower; Encumbrance; Other Debt" herein, or (b) is an affiliate of such a
permitted transferee, that on the date of determination manages (for itself or
otherwise) commercial real estate assets containing at least 5,000,000 square
feet of which no less than 25 individual properties, containing no less than
2,500,000 square feet in the aggregate, are comprised of "neighborhood" retail
or "strip" shopping centers.
Ground Lease. The interest of the Edens & Avant Pool II Borrower in the
Magee, Mississippi property ("Magee") consists of a leasehold interest created
under a ground lease with Richard T. McAlpin (the "Magee Ground Lease"). The
term of the Magee Ground Lease expires on November 1, 2014. The Magee Ground
Lease contains 3 5-year extension options. Rent is payable under the Magee
Ground Lease at the rate of $21,780 per year during its initial term.
The Edens & Avant Pool II Borrower is required to acquire the fee interest
in Magee through a purchase option to be exercised in November, 1999. The Edens
& Avant Pool II Borrower has assigned $750,000 in cash and $500,000 in a letter
of credit, to be used towards (a) the acquisition of Magee plus (b) the ground
rent for the period from the date hereof until the fee interest in Magee is
acquired by the Edens & Avant Pool II Borrower.
S-118
<PAGE>
The interest of the Edens & Avant Pool II Borrower in the Reservoir Square
property located in Brandon, Mississippi ("Reservoir Square") consists of a
ground leasehold interest created under a lease with Pearl River Valley Water
Supply District (the "Reservoir Square Ground Lease"). The term of the Ground
Lease expires in August 10, 2002. The Reservoir Square Ground Lease contains 7
extension options of 5 years each. Rent is payable under the Reservoir Square
Ground Lease at the rate of $24,396 per year.
The interest of the Edens & Avant Pool II Borrower in the Baldwin Square
property located in Fairhope, Alabama ("Baldwin Square") consists of a ground
leasehold interests created under a lease with Fairhope Single Tax Corporation
(the "Baldwin Square Ground Lease"). The term of the Baldwin Square Ground
Lease expires in September 11, 2097. The fee interest for the Baldwin Square
Property is owned by a municipality. There is no actual rent due under the
Baldwin Square Ground Lease. Instead of rent, the ground lease payments are
limited to taxes that accrue on such parcel. The taxes levied on such parcel
for the 1998 fiscal year are $51,085. Therefore, rent increases will be the tax
increases that are assessed on such property.
The Reservoir Square Ground Lease and the Baldwin Square Ground Lease lack
some standard mortgagee protections (such as that upon a default by the
borrower, the lessor will enter into a new lease with mortgagee). However, the
Edens & Avant Pool II Loan has mitigated the effect of the lack of such the
Loan provisions by requiring the substitution of such properties by the Edens &
Avant Pool II Borrower with other properties if the Loan DSCR falls below
1.25x, subject to the criteria for an Edens & Avant Pool II Substitute
Property. See "Risk Factors--Leasehold Interests Entail Certain Risks."
S-119
<PAGE>
<TABLE>
<S> <C>
EDENS & AVANT POOL II: THE LOAN
ORIGINAL PRINCIPAL BALANCE: $70,000,000 LOAN TYPE: Interest Only EMD
CUT-OFF DATE PRINCIPAL BALANCE: $70,000,000 INITIAL INTEREST RATE: 6.20%
ORIGINATION DATE: September 18, 1998 REVISED INTEREST RATE: Greater of (i) 8.20% and
(ii) Treasury Rate plus 2%
EFFECTIVE MATURITY DATE: October 1, 2008 AMORTIZATION: Interest only until EMD; 240 months starting
November 1, 2008
MATURITY DATE: October 1, 2028 MONTHLY PAYMENT: Interest only to October 1, 2008; $509,611.82
(principal and interest) thereafter.
EMD BALANCE: $70,000,000 CALL PROTECTION: Lockout until 60 days prior to EMD
</TABLE>
CERTAIN EDENS & AVANT POOL II LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO ACTUAL REFINANCING
SQUARE FOOT(1) VALUE RATIO(2) DSCR(3) DSCR(4)
---------------- ---------------- --------- ------------
<S> <C> <C> <C> <C>
Cut-Off Date .................... $32 48.8% 2.90x 1.89x
Effective Maturity Date ......... $32 48.8% 2.90x 1.89x
</TABLE>
- --------
(1) Based on the 2,175,884 square feet securing the Edens & Avant Pool II
Loan and the Cut-Off Date Principal Balance or Effective Maturity Date
Balance, as applicable.
(2) Based on the recent purchase price of $143,567,822 and the Cut-Off Date
Principal Balance or Effective Maturity Date Principal Balance, as
applicable.
(3) Based on (a) Underwritable Cash Flow of $12,772,222 and (b) in the case
of the Cut-Off Date Actual DSCR, actual debt service on the Edens & Avant
Pool II 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 Edens & Avant Pool II Loan assuming a balance equal to the Effective
Maturity Date Balance and a coupon equal to the Edens & Avant Pool II
Loan Initial Interest Rate.
(4) Based on (a) Underwritable Cash flow of $12,772,222 and (b) in the case
of the Cut-Off Date Refinancing DSCR, an annual debt service payment
equal to 9.66% of the Cut-Off Date Principal Balance of the Edens & Avant
Pool II Loan and, in the case of the Effective Maturity Date Refinancing
DSCR, an annual debt service payment equal to 9.66% of the Effective
Maturity Date Balance.
Security. The Edens & Avant Pool II Loan is a nonrecourse loan, secured
only by the fee and leasehold estates of the Edens & Avant Pool II Borrower in
the Edens & Avant Pool II Properties and certain related collateral, including
assignments of leases and rents. Mortgagee is the insured under title insurance
policies insuring that the Edens & Avant Pool II Mortgages constitute a valid
and enforceable first lien on each of the Edens & Avant Pool II Properties,
subject to certain exceptions set forth therein.
Payment Terms. The Edens & Avant Pool II Loan is an Interest Only EMD
Loan. Interest on the Edens & Avant Pool II Loan is calculated on an Actual/360
Basis. Its Due Date is the first business 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% prior to the Effective Maturity
Date and 3% after the Effective Maturity Date above the then applicable
interest rate, in each case subject to applicable law.
Prepayment. Voluntary prepayment is prohibited under the Edens & Avant
Pool II Loan before the date that is 60 days prior to the Effective Maturity
Date. From and after such date, the Edens & Avant Pool II Loan may be
voluntarily prepaid on any Due Date, in whole or in part, without payment of a
Prepayment Charge upon 30 days written notice.
<PAGE>
Principal prepayments on the Edens & Avant Pool II Loan may occur 60 days
prior to 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 Edens & Avant Pool II Loan following a Loan Default.
Notwithstanding the definition of "EMD Loan", Edens & Avant Properties Limited
Partnership, the direct and indirect owner of 100% of the equity interest in
the Edens & Avant Pool II Borrower, is entitled to receive 5% of the gross
income earned on the Edens & Avant Pool II Properties prior to application of
Excess Cash Flow to payment of principal on the Edens & Avant Pool II Loan.
Prepayments following a Loan Default require payment of a Prepayment Charge
equal to the greater of (a) 1% of the portion of the principal amount
S-120
<PAGE>
being repaid or (b) the Yield Maintenance Premium. As described below,
prepayments may also be made, without payment of a Prepayment 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 Edens & Avant Pool II Loan permits
the release of all of the Edens & Avant Pool II 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 Edens & Avant
Pool II Loan on such dates, and provide for payment on the Effective Maturity
Date of the remaining principal balance of the Edens & Avant Pool II Loan. Upon
any such Defeasance, at the option of the Edens & Avant Pool II Borrower, the
Edens & Avant Pool II Borrower's obligations under the Edens & Avant Pool II
Loan and the U.S. Obligations securing the Edens & Avant Pool II Loan may, or
if mortgagee requests shall, be transferred to a Successor Borrower. Following
such Defeasance, the U.S. Obligations will be the sole security for the Edens &
Avant Pool II Loan.
Subject to the Defeasance Conditions, commencing on the date that is 2
years after the Closing Date, the Edens & Avant Pool II Loan also permits the
release of any of the Edens & Avant Pool II 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 Edens & Avant Pool II Defeased Loan
Amount on such dates and provide for payment on the Effective Maturity Date of
the remaining principal balance of the Edens & Avant Pool II Defeased Loan
Amount. The "Edens & Avant Pool II Defeased Loan Amount" is an amount equal to
125% of the Allocated Loan Amount of the Edens & Avant Pool II Property
proposed to be released. Upon any such substitution, at the option of Edens &
Avant Pool II the Edens & Avant Pool II Loan will be divided into two Notes,
one of which Borrower, will be in a principal amount equal to the Edens & Avant
Pool II Defeased Loan Amount.
Substitution of Properties. During the Substitution Period, the Edens &
Avant Pool II Borrower is permitted to substitute one or more properties (each,
an "Edens & Avant Pool II Substitute Property") for properties which are
collateral for the Edens & Avant Pool II Loan (each, an "Edens & Avant Pool II
Replaced Property"). To qualify as an Edens & Avant Pool II Substitute
Property, the following conditions must be satisfied with respect to such
property: (a) the property must have an appraised fair market value of no less
than the greater of (1) the fair market value of the Edens & Avant Pool II
Replaced Property as of origination, and (2) fair market value of the Edens &
Avant Pool II Replaced Property immediately prior to the substitution (which
value may be evidenced by a then-current, arm's-length sales price to a third
party); (b) the property must have net operating income of at least 105% of
that of the Edens & Avant Pool II Replaced Property for the immediately
preceding 12-month period; (c) all tenants with more than 25,000 square feet of
net rentable space, any tenant which is the largest supermarket or grocery
store, and any tenant which is the largest drug or pharmaceutical store must be
occupying their space, open for business, paying rent not in arrears more than
30 days and not be in bankruptcy; (d) the average terms remaining under the
leases for more than 10% of the rentable space at the substitute property must
be no less than (i) five years from the date of substitution, or (ii) the
average of terms remaining under anchor tenant leases at the Edens & Avant Pool
II Replaced Property; (e) tenants having more than 10% of the rentable space at
the property must have sales for the three most recent years of no less than
the average sales of similar retailers at other properties securing the Edens &
Avant Pool II Loan; (f) the Edens & Avant Pool II Borrower must hold the
property in indefeasible fee or ground leasehold title and the property must be
free of all other encumbrances except permitted encumbrances and easements,
covenants and other title exceptions and tenant leases which do not have a
material adverse effect on utility or value or property for its current use;
(g) the Edens & Avant Pool II Borrower must deliver an environmental report
acceptable to the Rating Agencies showing that the property is free of
hazardous substances; (h) the Edens & Avant Pool II Borrower must (x) deliver
an engineering report acceptable to the Rating Agencies showing that the
property is in reasonably good repair, and (y) deposit 125% of deferred
maintenance costs into the Required Repair Account (as defined below); and (i)
the property must comply in all material respects with all legal requirements
and insurance requirements.
In addition, in order to effect a substitution, the following conditions,
among others, must be met: (a) the Rating Agencies must have confirmed in
writing that the credit rating of the Certificates will not be qualified,
downgraded or withdrawn as a result of the substitution; (b) the
representations and warranties in the Edens & Avant Pool II Loan documents
applicable to the Edens & Avant Pool II Replaced Property must be true and
correct as to the Edens & Avant Pool II Substitute Property in all material
respect; (c) the Edens & Avant Pool II Borrower must pay all related costs and
expenses; (d) no event of default shall have occurred and be continuing; and
(e) the Edens & Avant Pool II Borrower must deliver certain other closing
documents relating to the Edens & Avant Pool II Substitute Property, including
an officer's certificate, a substitute security instrument and assignment of
leases, a title insurance policy or endorsement to the mortgagee's existing
title insurance policy, a current as-build survey, UCC-1 financing statements,
insurance certificates, and certain legal opinions.
S-121
<PAGE>
The approval of the Rating Agencies is not required for any substitution
if: (a) the NOI of the Edens & Avant Pool II Substitute Property is less than
5% of the sum of the NOI for all Edens & Avant Pool II Properties, for the
12-month period immediately preceding the proposed substitution and (b) the
aggregate amount of annual NOI for all Edens & Avant Pool II Substitute
Properties (including Edens & Avant Pool II Property for substitution)
substituted since origination is less than 15% of the annual NOI for all Edens
& Avant Pool II Properties as of the date of origination of the Edens & Avant
Pool II Loan.
The Substitution Period commences on the Closing Date and ends on the
Effective Maturity Date. No substitution may be effected if the total Allocated
Loan Amount for all prior substituted properties is equal to 40% or more of the
original principal amount of the Edens & Avant Pool II Loan.
Lockbox and Reserves. Pursuant to the Edens & Avant Pool II Loan, the
Edens & Avant Pool II Borrower has established a Soft Lockbox, which is a
Two-Tier Lockbox. The Lockbox Bank for each tier is The National Bank of South
Carolina. Amounts in the Lockbox are required to be applied in accordance with
the Lockbox Waterfall, except that the amounts are first deposited into
separate property accounts for payment of specific property expenses.
Pursuant to the Edens & Avant Pool II Loan, the Edens & Avant Pool II
Borrower is required to establish a Hard Lockbox, which is a Two-Tier Lockbox
upon the following events: (i) following the occurrence of a Loan Default, (ii)
at the Effective Maturity Date or (iii) if the DSCR falls below 1.25x.
The Edens & Avant Pool II Borrower has established (a) a Debt Service
Account, which had an Initial Reserve Deposit of $735,389 and requires a
Monthly Reserve Deposit equal to the Monthly Payment (b) a Tax Account, which
had an Initial Reserve Deposit of $1,457,000 and requires a Monthly Reserve
Deposit equal to the Monthly Tax Deposit Amount, (c) an Insurance Account,
which had an Initial Reserve Deposit of $16,192 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 $1,238,238, (e) a Capital
Reserve Account, which had an Initial Reserve Deposit of $36,264 and requires a
Monthly Reserve Deposit equal to $18,132 (f) a Rollover Account, which had an
Initial Reserve Deposit of $36,264 and requires a Monthly Reserve Deposit equal
to $18,132 and (g) a Ground Rent Account, which had an Initial Reserve Deposit
of $7,016 and requires a Monthly Reserve Deposit equal to $3,908. The Edens &
Avant Pool II Borrower is required at all times to keep two months of reserves
in the Debt Service Account, Tax Account, Insurance Account, the Capital
Reserve Account and the Rollover Account. The Edens & Avant Pool II Borrower
has also assigned to mortgagee its rights to an escrow in the amount of $50,000
which has been set aside for environmental remediation work with respect to the
Individual Property known as Marrietta.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Edens & Avant Pool II Borrower is prohibited from transferring any
Edens & Avant Pool II Property without (i) consent of the 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 Edens & Avant Pool II Borrower is also prohibited from further encumbering
any of the Edens & Avant Pool II Properties, (i) the proposed transferee shall
be a reputable entity or person of good character, creditworthy with sufficient
financial worth considering the obligations assured and undertaken, and shall
comply in all respects with single purpose entity provisions and all other
applicable criteria of each Rating Agency and (ii) the proposed transferee
shall have agreed to assume the obligations of the Edens & Avant Pool II
Borrower under the Edens & Avant Pool II Loan.
The Edens & Avant Pool II Loan generally prohibits the transfer of any
interest in the Edens & Avant Pool II Borrower without the prior written
consent of the mortgagee. The consent of the mortgagee and the Rating Agencies
shall not be required, however, with respect to the following transfers of
direct or indirect beneficial interests in the Edens & Avant Pool II Borrower,
provided that (a) the Edens & Avant Pool II Borrower shall demonstrate to the
mortgagee that the Edens & Avant Pool II Borrower shall remain a single purpose
entity, (b) the Edens & Avant Pool II Borrower shall deliver a
non-consolidation opinion to the mortgagee and (c) unless the transfer is of
the nature described in clause (i)(C) below, the Edens & Avant Pool II Borrower
shall certify that no change of control of the Pool Manager shall have occurred
except as approved by the mortgagee in writing in its sole discretion: (i) any
transfer to any one or more of the following: (A) an insurance company that has
investments in real estate and real estate-related assets equal in value to at
least $500,000,000 and that has a senior unsecured credit rating by S&P of at
least "AA-" and by Moody's of at least "Aa3", (B) a pension fund that has
investments in real estate and real estate-related assets equal in value to at
least $500,000,000 and that has a senior unsecured credit rating by S&P of at
least "A-" and by Moody's of at least "A3", (C) a real estate investment trust
having a senior unsecured credit rating of at least investment grade, or (D)
any affiliate or subsidiary of the foregoing so long as such
S-122
<PAGE>
affiliate or subsidiary has the equivalent rating; (ii) any transfer by E&A
Affiliates, LP, a South Carolina limited partnership, of any of its direct or
indirect interests in the Edens & Avant Pool II Borrower to the State of
Michigan or any department or agency thereof ("Michigan"); and (iii) any
transfer pursuant to which any direct or indirect interest in the Edens & Avant
Pool II Borrower is sold in connection with one or more offerings of securities
that is either registered or exempt from registration under the Securities Act
of 1933, provided that either (x) Michigan, alone or in combination with one or
more transferees permitted under clause (i) above, or (y) such permitted
transferees described in clause (i) above, shall: own at least (A) 40% of all
such securities for a period of one year after the issuance thereof; (B) 30% of
all such securities for a period of two years after the issuance thereof; (C)
20% of all such securities for a period of three years after the issuance
thereof; and (D) 10% of all such securities for a period of four years after
the issuance thereof.
In addition, transfers of limited partner interests in the Edens & Avant
Pool II Borrower are permitted without the mortgagee's consent, provided that
(i) no event of default shall have occurred and be continuing, (ii) at least 15
business days' notice shall be delivered to the mortgagee, (iii) the Edens &
Avant Pool II Borrower shall remain a single purpose entity, (iv) no transfer
of limited partner, non-managing member or shareholder interests shall result
in any one person (together with members of his or her immediate family or any
affiliates thereof) owning, directly, indirectly or beneficially, 49% or more
of the interest in the Edens & Avant Pool II Borrower, (v) no such transfer of
interest shall result in a change of control of the Edens & Avant Pool II
Borrower or the day to day operations of the Edens & Avant Pool II Property,
(vi) each Rating Agency will not qualify, reduce or withdraw the ratings
applicable to the Certificates, and (vii) the Edens & Avant Pool II Borrower
provides such legal opinions as may be reasonably required by the mortgagee and
each Rating Agency. In addition, a transfer shall not require the consent of
the mortgagee if such transfer occurs by inheritance, device or bequest or by
operation of law upon the death of a natural person holding, directly or
indirectly, a limited partner interest in the Edens & Avant Pool II Borrower,
provided such transfer is to an immediate family member of such person or a
trust established for the benefit of such family member.
The Edens & Avant Pool II 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 Edens &
Avant Pool II Property which does not exceed, at any time, $1,800,000 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 contested amount).
Insurance. The Edens & Avant Pool II Borrower is required to maintain for
the Edens & Avant Pool II Properties (a) comprehensive all risk insurance with
coverage in an amount at all times sufficient to prevent the Edens & Avant Pool
II 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 Edens & Avant Pool II Loan, (b) general liability insurance with
coverage of $1,000,000 per occurrence and with an aggregate limit of not less
than $5,000,000, (c) statutory workers compensation insurance, (d) business
interruption insurance 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 Edens & Avant Pool II Property
located within a federally designated "special flood hazard area," in an amount
equal to the lesser of the outstanding principal amount of the Edens & Avant
Pool II Loan and the maximum limit of coverage available under federal law and
(h) at the 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.
Such coverage may be provided by "cut-through" endorsement with insurers
meeting the requirements set forth in clauses (x) and (y). If premiums increase
to an annual cost which exceeds 130% of the premiums for the previous year or
150% of the premiums for the first year of the term of the Edens & Avant Pool
II Loan, then the Edens & Avant Pool II Borrower may provide insurance through
a consortium of insurers through which (a) at least 60% of the coverage is
provided by insurers meeting the requirements set forth above, and (b) the
remainder of the coverage is provided through insurers meeting the requirements
set forth above, except that the rating by S&P may not be less than "A" and
such insurers must have an equivalent rating by any other Rating Agency.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of a Edens & Avant Pool II Property or a
condemnation of any portion of a Edens & Avant Pool II Property, the Edens &
Avant Pool II Borrower is obligated to commence and diligently prosecute to
completion the restoration of the affected Edens & Avant Pool II Property.
Proceeds of the casualty or condemnation must be paid to the mortgagee for
disbursement as provided below.
S-123
<PAGE>
The mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Edens & Avant Pool II Borrower for restoration so
long as (i) there is no Loan Default, (ii) in the case of casualty or
condemnation, less than the greater of (a) 5% of the Allocated Loan Amount for
such Edens & Avant Pool II Property, or (b) $300,000 worth of improvements is
damaged or destroyed, (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. If such conditions are not met, the net proceeds of a
casualty or condemnation may at the option of the mortgagee either (i) be
applied to prepay the Edens & Avant Pool II Loan without payment of a
Prepayment Charge or (ii) be disbursed to the Edens & Avant Pool II 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 Edens & Avant Pool II Loan provides the mortgagee
with the Standard Approval Rights regarding budgets, leases and alterations.
The Lease Approval Threshold is 25,000 square feet and the Alteration Approval
Threshold is $3,500,000.
Financial Reporting. The Edens & Avant Pool II Borrower is required to
furnish Financial Statements to mortgagee.
S-124
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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.]
CRYSTAL PARK IV
[PICTURE]
CRYSTAL PARK IV exterior view
[PICTURE]
CHARLES E. SMITH RECEPTION area
<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.]
[PICTURE]
Graphic indicating occupants, by floor, of Crystal Park IV
[PICTURE]
Map indicating location of Crystal Park IV in the Washington D.C./Arlington
region.
<PAGE>
CRYSTAL PARK IV: THE BORROWER; THE PROPERTY
The Loan. The Crystal Park IV Loan was originated by Secore and acquired
by MSMC on August 26, 1998. The Crystal Park IV Loan had an original principal
balance of $67,100,000 and has a Cut-Off Date Principal Balance of
approximately $67,039,458. It is secured by a Mortgage (the "Crystal Park IV
Mortgage") encumbering an office building known as Crystal Park IV, located in
Crystal City, Arlington, Virginia (the "Crystal Park IV Property").
The Borrower. Fourth Crystal Park Associates Limited Partnership (the
"Crystal Park IV Borrower") is a Virginia limited partnership whose purpose is
limited to owning and operating the Crystal Park IV Property and related
activities. The Crystal Park IV Borrower owns no material asset other than the
Crystal Park IV Property and related interests. The sole general partner of the
Crystal Park IV Borrower is CESC Park Four Manager L.L.C. (1%), a Virginia
limited liability company (the "Crystal Park IV G.P."), formed for the limited
purpose of acting as the general partner of the Crystal Park IV Borrower. The
Crystal Park IV G.P. has as its majority member Charles E. Smith Commercial
Realty L.P. (99.999%). The majority limited partnership interests in the
Crystal Park IV Borrower are held by Commonwealth Atlantic Properties Inc.
(49.99%), a Virginia corporation ("CAPI") and Charles E. Smith Commercial
Realty, L.P. (49.01%).
The Property. The Crystal Park IV Property is a "Class-A" office building
constructed in 1988 and located in Crystal City, Arlington, Virginia. The
Crystal Park IV Property contains approximately 466,369 square feet of GLA and
1,122 on-site parking spaces. As of August 1, 1998 the occupancy of the
building was approximately 100%. The major tenants are various operating units
of US Airways, Inc. ("US Air") and Charles E. Smith Residential Realty, Inc.,
Charles E. Smith Commercial Realty, L.P. and their affiliates, which together
lease approximately 95% of the total rentable area. The Crystal Park IV
Property is part of the complex known as Crystal City. An appraisal of the
Crystal Park IV Property completed by Cushman & Wakefield of Washington D.C.,
Inc. on July 7, 1998 determined a market value of $107,000,000.
Major Tenant Information. Various operating units of US Air lease 327,016
square feet of GLA and various affiliates of the Crystal Park IV Manager lease
115,475 square feet of GLA. US Air is a major international airline that has
leased floors 3, 4, 5, 6, 7 and 8 and portions of floors 1, 2, and 9 of the
11-story office building. The lease does not include the parking garage located
under the building. Of the 327,016 square feet that US Air leases, 31,242
square feet terminate in 2002 and the remaining 295,774 square feet terminate
in 2008. The tenant has 2, 5-year renewal options. In the event of a sale, US
Air has a "right of first refusal" to purchase the building.
Location/Access. The Crystal Park IV Property is located in Crystal City,
Virginia in the Arlington, Virginia sub-market. This sub-market is part of
metropolitan Washington, D.C. The subject property is located within 2 miles of
Washington National Airport. Main thoroughfares include Interstate 395 leaving
downtown Washington, D.C., and heading southwesterly toward Interstate 95 and
the Beltway (I-495 which circumnavigates the metropolitan area) south of the
subject neighborhood. U.S. Route 1, Jefferson Davis Highway, is the main
north/south arterial. The most prominent east/west route is Glebe Road. The
Blue and Yellow Lines of the MetroRail system have a station at Crystal City
and at Pentagon City, located to the west, and a stop within National Airport.
This subway line connects with downtown Washington, D.C., about two miles to
the northeast and with the city of Alexandria and the suburbs in Fairfax County
to the south.
Market Overview. The Crystal City/Pentagon City sub-market has
historically had a vacancy of under 5% due to the large amount of government
related tenants. "Class A" space has demonstrated strength in the overall
market, absorbing a large portion of the total market absorption and achieving
strong rent growth. The overall vacancy rate in Crystal City for "Class A"
office space was 1.2% in 1995, 1.2% in 1996, and 2.9% in 1997.
S-125
<PAGE>
COMPETITIVE "CLASS A" SUB-MARKET OFFICE BUILDINGS
RENTAL AND OCCUPANCY SURVEY AS OF 2ND QUARTER 1998(1)
<TABLE>
<CAPTION>
YEAR BUILT/ NO. NET LEASEABLE TYPICAL FLOOR
BUILDING NAME/LOCATION RENOVATED FLOORS AREA SIZE (SF) OCCUPANCY ASKING RENT
- ----------------------------- ------------- -------- --------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Subject Property
Crystal Park Four
2345 Crystal Drive ......... 1988 11 466,369 43,333 100.0% $ 30.00
Competition
One Crystal Gateway
1235 Jefferson Davis
Highway .................... 1980 15 324,823 21,655 94.2 $ 27.50
Two Crystal Gateway
1225 Jefferson Davis
Highway .................... 1982 15 256,400 17,093 96.1 $ 27.00
Three Crystal Gateway
1215 Jefferson Davis
Highway .................... 1983 15 321,800 21,453 90.5 $ 27.50
Four Crystal Gateway
1213 Jefferson Davis
Highway .................... 1985 15 183,672 12,245 94.5 $ 27.00
One Crystal Park
2011 Crystal Drive ......... 1985 11 406,380 36,944 100.0 $ 30.00
Two Crystal Park
2121 Crystal Drive ......... 1986 11 449,346 40,850 100.0 $ 30.00
Three Crystal Park
2231 Crystal Drive ......... 1987 11 450,000 40,909 100.0 $ 30.00
Five Crystal Park
2451 Crystal Drive ......... 1990 11 365,994 33,272 76.4 $ 30.00
400 Army Drive Building
400 Army Drive ............. 1985 10 220,000 22,000 100.0 $ 30.00
Washington Tower @
Pentagon City
1200 South Hayes Street 1989 12 163,866 13,656 100.0 $ 30.00
---- -- ------- ------ ------ -------
Total/Weighted
Average: .................. 314,228 26,008 95.2%(2) $ 28.90
======= ====== ======== =======
</TABLE>
- --------
(1) According to July 7, 1998 Cushman & Wakefield, Inc. appraisal.
(2) Average occupancy increases to 97.5% excluding Five Crystal Park, which
lost a major tenant due to GSA consolidation.
Operating History. The following table shows certain information regarding
the operating history of the Crystal Park IV Property:
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
LTM UNDERWRITABLE
1996 1997 JUNE 30, 1998 NOI
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues ...................... $ 14,535,117 $ 14,843,904 $ 14,958,438 $ 14,791,068
Expenses ...................... (4,167,811) (4,272,700) (4,288,258) (4,291,179)
------------ ------------ ------------ ------------
Net Operating Income ......... $ 10,367,306 $ 10,571,204 $ 10,670,180 $ 10,499,889
============ ============ ============ ============
</TABLE>
S-126
<PAGE>
Occupancy History. The following table shows certain historical
information regarding average occupancy of the Crystal Park IV Property:
<TABLE>
<CAPTION>
OCCUPANCY AS OF: PERCENT LEASED
- ------------------------------ ---------------
<S> <C>
August 1, 1998 ............. 100%
December 31, 1997 .......... 100%
December 31, 1996 .......... 100%
December 31, 1995 .......... 100%
</TABLE>
Major Tenant Summary. The following table shows certain information
regarding certain major tenants of the Crystal Park IV Property:
FIVE LARGEST TENANTS BASED ON ANNUALIZED BASE RENTS BY PARENT COMPANY(1)
<TABLE>
<CAPTION>
TENANT NET % OF TOTAL
LEASABLE NET LEASABLE
TENANT OR TENANT PARENT COMPANY AREA AREA
- -------------------------------------------------------------- ------------ --------------
<S> <C> <C>
US Airways, Inc. ............................................. 327,016 70.1%
Charles E. Smith Residential Realty, Inc., Charles E.
Smith Commercial Realty, L.P., and their affiliates ......... 115,475 24.8
ADI Technology, Inc. ......................................... 9,198 2.0
Booz-Allen & Hamilton Inc. ................................... 3,553 0.8
Via Cucina Restaurant ........................................ 3,000 0.6
------- -----
Total Major Tenants ......................................... 458,242 98.3%
Other Tenants ................................................ 8,127 1.7
Vacant ....................................................... 0 0.0
------- -----
Total Net Rentable Area ..................................... 466,369 100.0%
======= =====
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF TOTAL ANNUALIZED
ANNUALIZED ANNUALIZED BASE RENT
TENANT OR TENANT PARENT COMPANY BASE RENT BASE RENT PER SF
- -------------------------------------------------------------- -------------- ------------ ----------------
<S> <C> <C> <C>
US Airways, Inc. ............................................. $ 8,950,238 70.6% $ 27.37
Charles E. Smith Residential Realty, Inc., Charles E.
Smith Commercial Realty, L.P., and their affiliates ......... 3,014,036 23.8 26.10
ADI Technology, Inc. ......................................... 269,248 2.1 29.27
Booz-Allen & Hamilton Inc. ................................... 99,484 0.8 28.00
Via Cucina Restaurant ........................................ 97,500 0.8 32.50
----------- ----- --------
Total Major Tenants ......................................... $12,430,506 98.1% $ 27.13
Other Tenants ................................................ 246,676 1.9 30.35 (2)
Vacant ....................................................... 0 0.0 0.00
----------- ----- -----------
Total Net Rentable Area ..................................... $12,677,182 100.0% $ 27.18(2)
=========== ====== ===========
</TABLE>
- --------
(1) Based on the August 1, 1998 rent roll. Does not include annualized CPI
escalations of $964,271.
(2) Includes Environmental Center Parking which occupies 1 square foot and
pays an annual rent of $8,400. If this tenant were eliminated, the
Annualized Base Rent per SF for the Other Tenants (parking income only)
would be $28.97 resulting in a Total Annualized Base Rent per sf of
$27.15.
S-127
<PAGE>
Lease Expiration Summary. The following table shows scheduled lease
expirations for the Crystal Park IV Property as of August 1, 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(1)(4)
<TABLE>
<CAPTION>
CUMULATIVE
NUMBER OF CUMULATIVE ANNUALIZED PERCENT OF PERCENT OF
LEASES EXPIRING PERCENT PERCENT ANNUALIZED BASE RENT ANNUALIZED ANNUALIZED
YEAR OF EXPIRATION EXPIRING SF OF SF OF SF BASE RENT PER SF(2) BASE RENT BASE RENT
- ----------------------- ----------- ---------- --------- ------------ -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ................ 0 0 0.0% 0.0% $ 0 $ 0.00 0.0% 0.0%
1998 .................. 2 0 0.0 0.0% 50 0.00 0.0 0.0%
1999 .................. 8 23,568 5.1 5.1% 491,799 20.87 3.9 3.9%
2000 .................. 2 2,263 0.5 5.5% 68,246 30.16 0.5 4.4%
2001 .................. 1 2,901 0.6 6.2% 81,228 28.00 0.6 5.1%
2002 .................. 6 40,617 8.7 14.9% 1,146,148 28.22 9.0 14.1%
2003 .................. 0 0 0.0 14.9% 0 0.00 0.0 14.1%
2004 .................. 1 101,246 21.7 36.6% 2,809,549 27.75 22.2 36.3%
2005 .................. 0 0 0.0 36.6% 0 0.00 0.0 36.3%
2006 .................. 0 0 0.0 36.6% 0 0.00 0.0 36.3%
2007 .................. 0 0 0.0 36.6% 0 0.00 0.0 36.3%
2008 .................. 1 295,774 63.4 100.0% 8,080,162 27.32 63.7 100.0%
Thereafter ............ 0 0 0.0 100.0% 0 0.00 0.0 100.0%
- ------- ----- ----------- -------- -----
Total Weighted Average 21 466,369 100.0% $12,677,182 $ 27.18(3) 100.0%
== ======= ===== =========== =========== =====
</TABLE>
- --------
(1) Based on the August 1, 1998 rent roll. Does not include annualized CPI
escalations of $964,271.
(2) $50 Base Rent reflects antenna on roof of building.
(3) Excludes vacant square footage.
(4) Numbers may not total 100% due to rounding.
Ground Lease. The interest of the Crystal Park IV Borrower in the Crystal
Park IV Property consists of a leasehold interest created under a ground lease
(the "Crystal Park IV Ground Lease") with CAPI (the "Crystal Park IV Ground
Lessor"). The term of the Crystal Park IV Ground Lease expires in 2081. Rent is
payable under the Crystal Park IV Ground Lease at the rate of $1.00 per year,
said rent having been prepaid for the entire term of the Crystal Park IV Ground
Lease. The Crystal Park IV Ground Lessor has joined in the Crystal Park IV
Mortgage for the purpose of subordinating its fee interest in the Crystal Park
IV Property thereby permitting mortgagee to sell, at foreclosure sale, the fee
title to the property free and clear of the interests now owned by the Crystal
Park IV Borrower and the Crystal Park IV Ground Lessor under the Crystal Park
IV Ground Lease.
Pursuant to the terms of the Crystal Park IV Ground Lease, the Crystal
Park IV Ground Lessor has also agreed (i) to provide mortgagee with notice of
and the right to cure defaults of the Crystal Park IV Borrower under the
Crystal Park IV Ground Lease for a period of 30 days after the Crystal Park IV
Borrower's cure period, (ii) to provide 45 days notice of any termination of
the Crystal Park IV Ground Lease, (iii) with respect to security instruments to
which the Crystal Park IV Ground Lessor has not joined in or subordinated its
fee interest in the Crystal Park IV Property, that the lease may not be
terminated while mortgagee is diligently pursuing its remedies under the
Crystal Park IV 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
Crystal Park IV Ground Lessor terminates the Crystal Park IV Ground Lease due
to bankruptcy or other defaults that cannot be readily cured by mortgagee.
Pursuant to the Crystal Park IV Mortgage, mortgagee has given the Crystal
Park IV Ground Lessor certain rights to cure defaults under the Crystal Park IV
Loan. In the event of a default by the Crystal Park IV Borrower, mortgagee
shall give or cause to be given to the Crystal Park IV Ground Lessor written
notice of the Crystal Park IV Borrower's default and the Crystal Park IV Ground
Lessor shall have a period of 30 days from mortgagee's delivery of such written
notice to cure such default; provided, however, that if the cure period
afforded to the Crystal Park IV Borrower is longer than 30 days, the Crystal
Park IV Ground Lessor shall have such longer cure period in which to cure the
default. All cure periods of the Crystal Park IV Borrower's and the Crystal
Park IV Ground Lessor shall run concurrently and not consecutively.
If the Crystal Park IV Borrower is in default and such default continues
beyond any applicable cure period, or if the Crystal Park IV Borrower is
adjudged a bankrupt, mortgagee shall not institute foreclosure proceedings so
long as the Crystal Park IV Ground Lessor (i) pays, or causes to be paid, to
mortgagee all installments of interest and principal then due and
S-128
<PAGE>
as and when due thereafter, (ii) pays prior to delinquency, or reimburses
mortgagee within 5 days following receipt of written demand from mortgagee, for
all impositions, taxes, and other amounts from time to time owing, (iii) takes
reasonable steps to promptly cure such other defaults as may relate to the
Crystal Park IV Property (other than a default by the Crystal Park IV Borrower
under the Crystal Park IV Ground Lease or a termination of the Crystal Park IV
Ground Lease) and completes the cure of same unless (a) any such default is
incapable of cure by the Crystal Park IV Ground Lessor notwithstanding the good
faith efforts of the Crystal Park IV Ground Lessor, and (b) such default, if
not cured, will not result in a downgrade, qualification or withdrawal of the
initial, or, if higher, then current respective ratings in effect immediately
prior to the occurrence of such default for the Certificates and (iv) within 3
months after the occurrence of the default notifies mortgagee in writing that
it will assume or cause its designee to assume the balance of the Crystal Park
IV Loan at the same interest rate and upon the same terms and conditions as are
provided for in the Crystal Park IV Loan Documents.
Environmental Report. A Phase I Environmental Site Assessment was
completed on the Crystal Park IV Property on July 2, 1998. 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--Environmental Laws Entail Risks"
and "--Environmental Risks Relating to the Mortgaged Properties" herein.
Engineering Report. A Property Condition Report was completed on the
Crystal Park IV Property on June 16, 1998 by a third party due diligence firm.
The Property Condition Report concluded that the Crystal Park IV Property was
generally in good physical condition and identified no deferred maintenance
requirements.
Property Management. The Crystal Park IV Property is managed by Charles E.
Smith Real Estate Services L.P. (the "Crystal Park IV Manager"), which is an
affiliate of the Crystal Park IV Borrower, pursuant to a management agreement
dated March 1, 1987 (the "Crystal Park IV Management Agreement"), as amended.
The Crystal Park IV Manager receives a monthly management fee of 3% of the
monthly gross income and, effective as of March 1, 1998, leasing commissions of
2% of all gross income collected from the leases negotiated or extended during
the term of the Crystal Park IV Management Agreement.
The Crystal Park IV Management Agreement is for a yearly term and renews
on an annual basis unless terminated by 90 days notice given prior to the end
of any year by either party. Under the terms of the Crystal Park IV Loan, any
termination or replacement of the Crystal Park IV Manager or entering into a
new management agreement requires the consent of mortgagee. The Crystal Park IV
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 Crystal
Park IV Property to a bona fide purchaser, in each case upon payment to the
Crystal Park IV Manager of all management fees earned and accrued and
reimbursement of all amounts expended on behalf of the Crystal Park IV Property
plus, in the event of a termination upon the sale of all or a majority interest
in the Crystal Park IV Property to a bona fide purchaser (but not a foreclosure
sale by mortgagee), a termination fee in an amount equal to the management fee
which would have been collected from the Crystal Park IV Property for 1 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
Crystal Park IV Loan, the Crystal Park IV Borrower is required to replace the
Crystal Park IV Manager (except within the 9-month period following a US Air
Bankruptcy Event (hereinafter defined)) with an entity acceptable to mortgagee
in the event that the Loan DSCR falls below 1.10x, the Crystal Park IV Manager
is managing the Crystal Park IV Property in a manner which is inconsistent with
the management standards of other management companies managing properties
comparable to the Crystal Park IV Property and located in the Greater
Washington, D.C. Metropolitan Area and the Crystal Park IV Borrower has failed
to deliver a Letter of Credit to mortgagee which in mortgagee's determination
provides for a Loan DSCR of 1.10x net of such Letter of Credit. Such Letter of
Credit shall be released if at any time the Loan DSCR equals or exceeds 1.10x
for 6 consecutive months.
Pursuant to an Assignment of Management Agreement and Subordination of
Management Fees executed by the Crystal Park IV Borrower and mortgagee and
acknowledged and consented to by the Crystal Park IV Manager, the Crystal Park
IV Manager has agreed (i) that any management fees due to the Crystal Park IV
Manager will be subordinate to amounts due under the Crystal Park IV Loan and
(ii) mortgagee has the right to terminate the Crystal Park IV Manager on or
after any Loan Default.
The Crystal Park IV Manager is owned by Charles E. Smith Commercial
Realty, L.P., an affiliate of the Crystal Park IV Borrower, and is the largest
office property manager in the metropolitan Washington D.C. area, with
approximately 20,000,000 square feet of commercial space under management.
S-129
<PAGE>
<TABLE>
<S> <C>
CRYSTAL PARK IV: THE LOAN
ORIGINAL PRINCIPAL BALANCE: $67,100,000 LOAN TYPE: EMD
CUT-OFF DATE PRINCIPAL BALANCE: Approximately $67,039,458 INITIAL INTEREST RATE: 6.51%
ORIGINATION DATE: August 26, 1998 REVISED INTEREST RATE: Greater of (i) 10.51% and
(ii) Treasury Rate plus 4%
EFFECTIVE MATURITY DATE: September 1, 2008 AMORTIZATION: 360 months
MATURITY DATE: September 1, 2028 MONTHLY PAYMENT: $424,559.02 (principal and interest)
EMD BALANCE: $57,745,712 CALL PROTECTION: Lockout to 1 month prior to EMD
</TABLE>
CERTAIN CRYSTAL PARK IV LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO ACTUAL REFINANCING
SQUARE FOOT(1) VALUE RATIO(2) DSCR(3) DSCR(4)
---------------- ---------------- --------- ------------
<S> <C> <C> <C> <C>
Cut-Off Date .................... $144 62.7% 1.93x 1.63x
Effective Maturity Date ......... $124 54.0% 2.25x 1.89x
</TABLE>
- --------
(1) Based on the 466,369 square feet securing the Crystal Park IV Loan and
the Cut-Off Date Principal Balance or Effective Maturity Date Balance, as
applicable.
(2) Based on the Cushman & Wakefield, Inc. appraised value of $107,000,000
and the Cut-Off Date Principal Balance or Effective Maturity Date
Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow of $9,844,213 and (b) in the case of
the Cut-Off Date Actual DSCR, actual debt service on the Crystal Park IV
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
Crystal Park IV Loan assuming a balance equal to the Effective Maturity
Date Balance and a coupon equal to the Crystal Park IV Loan Initial
Interest Rate.
(4) Based on (a) Underwritable Cash Flow of $9,844,213 and (b) in the case of
the Cut-Off Date Refinancing DSCR, an annual debt service payment equal
to 9.00% of the Cut-Off Date Principal Balance of the Crystal Park IV
Loan, and, in the case of the Effective Maturity Date Refinancing DSCR,
an annual debt service payment equal to 9.00% of the Effective Maturity
Date Balance.
Security. The Crystal Park IV Loan is a nonrecourse loan, secured by the
leasehold estate of the Crystal Park IV Borrower in the Crystal Park IV
Property, the fee estate of the Crystal Park IV Ground Lessor in the Crystal
Park IV Property and certain related collateral, including an assignment of
leases and rents. Mortgagee is the insured under a title insurance policy
insuring that the Crystal Park IV Mortgage constitutes a valid and enforceable
first lien on the Crystal Park IV Property, subject to certain exceptions set
forth therein.
As additional collateral for the payment of the Crystal Park IV Loan, the
Crystal Park IV Borrower has delivered to mortgagee a Letter of Credit in the
amount of $1,000,000 issued by Nationsbank, N.A., for the account of Charles E.
Smith Commercial Realty, L.P., in favor of mortgagee (the "Crystal Park IV
Letter of Credit"). The long term, senior, unsecured debt of Nationsbank, N.A.
is currently rated "AA-" by S&P. The Crystal Park IV Borrower is required to
maintain the Crystal Park IV Letter of Credit at all times during which the
rating for the long term senior unsecured debt obligations of US Air is less
than "BB" as determined by S&P and below "Ba2" as determined by Moody's
Investors Service. The long term, senior, unsecured debt of USAir was rated, as
of the closing date of the loan, "B" by S&P and "B1" by Moody's Investors
Service. The Crystal Park IV Borrower may substitute such Crystal Park IV
Letter of Credit with a payment guaranty (the "Crystal Park IV Payment
Guaranty") in an amount of $1,000,000 and in a form and content acceptable to
the mortgagee and the Rating Agencies in their sole and absolute discretion.
The provider of such Crystal Park IV Payment Guaranty must at all times have a
senior unsecured debt obligation rating of "BBB" or higher as determined by the
Rating Agencies. Such Crystal Park IV Letter of Credit or Crystal Park IV
Payment Guaranty, as applicable, may be drawn upon at any time during a Loan
Default.
Payment Terms. The Crystal Park IV Loan is an EMD Loan. Its Due Date is
the first business 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 Crystal Park IV 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 an amount equal to 5% of such unpaid amount and the Default Rate following a
Loan Default is 5%, in each case subject to applicable law.
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<PAGE>
Prepayment. Voluntary prepayment is prohibited under the Crystal Park IV
Loan prior to the date that is 1 month prior to the Effective Maturity Date.
From and after such date, the Crystal Park IV Loan may be voluntarily prepaid
on any Due Date, in whole or in part, without payment of a Prepayment Charge.
Principal prepayments on the Crystal Park IV Loan may occur one month
prior to 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 Crystal Park IV Loan following a Loan Default. Prepayments
following a Loan Default require payment of a Prepayment Charge equal to the
greater of (a) 1% of the portion of the principal amount being repaid or (b)
the Yield Maintenance Premium. As described below, prepayments may also be
made, without payment of a Prepayment 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 Crystal Park IV Loan permits the
release of the Crystal Park IV 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 Crystal Park IV Loan on such dates,
and provide for payment on the Effective Maturity Date of the remaining
principal balance of the Crystal Park IV Loan. Upon any such Defeasance, at the
option of either mortgagee or the Crystal Park IV Borrower the Crystal Park IV
Borrower's obligations under the Crystal Park IV Loan and the U.S. Obligations
securing the Crystal Park IV Loan will be transferred to a Successor Borrower.
Following such Defeasance, the U.S. Obligations will be the sole security for
the Crystal Park IV Loan.
Lockbox and Reserves. Pursuant to the Crystal Park IV Loan, the Crystal
Park IV Borrower has established a Hard Lockbox, which is a One-Tier Lockbox.
The Lockbox Bank is PNC Bank. Amounts in the Lockbox are required to be applied
in accordance with the Lockbox Waterfall.
The Crystal Park IV Borrower has established (a) a Debt Service Account,
which requires a Monthly Reserve Deposit equal to the Monthly Payment, (b) a
Tax Account, which requires a Monthly Reserve Deposit equal to the Monthly Tax
Deposit Amount, (c) an Insurance Account, which requires a Monthly Reserve
Deposit equal to the Monthly Insurance Deposit Amount, (d) a Capital Reserve
Account, which requires a Monthly Reserve Deposit equal to $15,545.63 and (e) a
Rollover Account, which requires a Monthly Reserve Deposit equal to all net
cash flow derived from the Crystal Park IV Property (in excess of the Monthly
Payment) upon the happening of a USAir Bankruptcy Event or the USAir
Non-Renewal (each defined below) (until the amount in the Rollover Account is
equal to $6,000,000). In lieu of making deposits into the Rollover Account, the
Crystal Park IV Borrower may obtain a payment guaranty in an amount of
$6,000,000 and in a form and content acceptable to the mortgagee and the Rating
Agencies in their sole discretion. The provider of such payment guaranty must
at all times have a senior unsecured debt obligation rating of "BBB" or higher
as determined by the Rating Agencies.
A "USAir Bankruptcy Event" shall mean the occurrence of the appointment of
a receiver, liquidator or trustee for USAir or if USAir shall be adjudicated
bankrupt or insolvent, or if any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law, or any similar federal or state
law, shall be filed by or against, consented to, or acquiesced in by, USAir. A
"USAir Non-Renewal" shall mean the failure to occur of one or both of (i) the
delivery to mortgagee, on or before March 1, 2007, of written evidence from
USAir of USAir's decision to renew its lease (either pursuant to existing
renewal terms or other terms acceptable to mortgagee) and (ii) the delivery to
mortgagee, on or before April 30, 2007, of all documentation necessary to
effect the renewal of the USAir lease, as aforesaid, including without
limitation, an estoppel certificate from USAir to mortgagee setting forth the
terms of said renewal and being otherwise in form, content and substance
reasonably acceptable to mortgagee.
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. The Crystal Park IV Borrower is prohibited from transferring the Crystal
Park IV Property without (i) consent of the 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, except that mortgagee's
consent shall not be required with respect to a sale, conveyance or transfer
(but not mortgage, encumbrance, pledge or assignment) of Crystal Park IV Ground
Lessor's interest in the Crystal Park IV Property, subject in all events to the
lien of the Crystal Park IV Mortgage and neither mortgagee's consent nor Rating
Agency confirmation will be required (however, a new nonconsolidation opinion
will be required) in connection with any transfer of the Crystal Park IV
Property to (i) an entity, the beneficial interests of which are held
collectively in an amount equal to 51% or greater by Robert H. Smith, Robert P.
Kogod and/or their respective spouses, children and spouses of children, or
(ii) to an entity, the beneficial interests of which are controlled by another
entity which is a publicly traded company (including a real estate investment
trust) (x) having a Market Capitalization of at least $1,300,000,000, (y)
having a Debt-to-Market Capitalization Ratio (after taking into account the
subject transfer) of less than
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50%, and (z) which owns (not taking into account the subject transfer) at least
10 office buildings (each being at least four (4) stories in height) consisting
of an aggregate of at least 5,000,000 square feet of net rentable space, all as
determined by mortgagee in its reasonable discretion. The Crystal Park IV
Borrower is prohibited from further encumbering the Crystal Park IV Property.
"Market Capitalization" shall mean as of any date of determination, the product
of (i) the number of issued and outstanding shares of the common stock of the
applicable publicly traded company and (ii) the market price per share,
"Debt-to-Market Capitalization Ratio" shall mean the percentage determined by
dividing (a) the aggregate indebtedness of the applicable entity by (b) the
Market Value of the applicable entity and multiplying the quotient by 100%.
"Market Value" shall mean, with respect to any entity, the aggregate fair
market values of all assets of such entity, as reasonably determined by
mortgagee based upon such appraisals and historical performance information
with respect to such assets of such entity as mortgagee may request from the
Crystal Park IV Borrower.
The Crystal Park IV Loan prohibits the transfer of any direct or indirect
interest in the Crystal Park IV Borrower without the prior written consent of
mortgagee, provided that mortgagee's consent shall not be withheld if (a) after
giving effect to such transfer and all prior transfers, the Crystal Park IV
Borrower's affiliates hold more than 10% of the ownership interest in the
Crystal Park IV Borrower, (b) mortgagee receives a non-consolidation opinion
acceptable to mortgagee in its reasonable discretion and (c) mortgagee has
received a confirmation in writing from the Rating Agencies that such transfer
will not result in a downgrading, withdrawal or qualification of the initial,
or, if higher then current respective ratings in effect immediately prior to
such transfer of ownership interests for the Certificates. Notwithstanding the
foregoing, transfers of limited partner interests in the Crystal Park IV
Borrower shall be permitted provided that the transferee thereof is, as of the
Closing Date, the beneficial owner of the Crystal Park IV G.P. and mortgagee
receives a non-consolidation opinion acceptable to mortgagee in its reasonable
discretion.
The Crystal Park IV 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 Crystal Park IV Property which
does not exceed, at any time, $2,000,000 and is paid within 90 days of the date
incurred.
Insurance. The Crystal Park IV Borrower is required to maintain for the
Crystal Park IV Property (a) comprehensive all risk insurance with coverage in
an amount at all times sufficient to prevent the Crystal Park IV 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 Crystal Park IV Loan, (b) general liability insurance with coverage of
$25,000,000 per occurrence, (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 the
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 minimum required rating of the claims paying ability of the
insurer is "A+").
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Crystal Park IV Property or a
condemnation of all or any portion of the Crystal Park IV Property, the Crystal
Park IV Borrower is obligated to commence and diligently prosecute to
completion the restoration of the Crystal Park IV Property. If both the net
proceeds of the casualty or condemnation and the costs of restoration are less
than $2,000,000, the Crystal Park IV Borrower may receive and apply such
proceeds; otherwise such proceeds must be paid to the mortgagee for
disbursement as provided below.
The mortgagee is required to make the net proceeds of a casualty or
condemnation available to the Crystal Park IV 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 Crystal Park
IV Property is taken, and such land is located along the perimeter or periphery
of the property, (iii) leases requiring payment of annual rent equal to 60% of
the gross revenues received by the Crystal Park IV Borrower during the 12 month
period preceding such casualty or condemnation remain in full force and effect
during and after restoration without abatement of rent, (iv) if at any time the
net proceeds or the undisbursed portion thereof shall not in mortgagee's
opinion be sufficient to pay the full balance of estimated costs of completion
of restoration, the Crystal Park IV Borrower shall deposit the amount of the
deficiency with the mortgagee and (v) 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. If such conditions are not met, the net
proceeds of a casualty or condemnation may at the option of the mortgagee
either (i) be
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applied to prepay the Crystal Park IV Loan without payment of a Prepayment
Charge or (ii) be disbursed to the Crystal Park IV Borrower for restoration.
All disbursements of net proceeds of a casualty or condemnation shall be made
in accordance with the Disbursement Procedures (except that the retainage shall
only be 5% of the costs actually incurred).
Approval Rights. The Crystal Park IV Loan provides the mortgagee with the
Standard Approval Rights regarding budgets, leases and alterations. The Lease
Approval Threshold is 42,000 square feet, the Alteration Escrow Threshold is 5%
of the then outstanding principal balance of the Crystal Park IV Loan and
alterations may not be undertaken without mortgagee's consent in the event that
the alterations might have a material adverse effect on (i) the Crystal Park IV
Borrower's financial condition, (ii) the value of the Crystal Park IV Property,
or (iii) the net cash flow with respect to the Crystal Park IV Borrower.
Financial Reporting. The Crystal Park IV Borrower is required to furnish
the Financial Statements to the mortgagee, except that the annual financial
statements of the Crystal Park IV Borrower are not required to be delivered to
mortgagee until 120 days following the end of each fiscal year of the Crystal
Park IV Borrower and quarterly, delivery of rent rolls, year-to-date operating
statements and Loan DSCR calculations are required within 45 days following the
end of each quarter.
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DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement and will
consist of 11 classes (each, a "Class") to be designated as the Class A-1
Certificates and the Class A-2 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 X
Certificates, the Class Q Certificates, the Class R Certificates and the Class
LR Certificates. The Class F, 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 Interest Reserve 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 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 B, Class C, Class
D, Class E and Class F 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 ......... $ 43,300,000
Class A-2 ......... 467,121,000
Class B ........... 75,945,000
Class C ........... 42,388,000
Class D ........... 45,920,000
Class E ........... 21,194,000
Class F ........... 10,597,702
Class X ........... 706,465,702
</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 B, Class C,
Class D, Class E and Class F 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 7 components, the "Class A-1 Component", the "Class A-2 Component",
the "Class B Component", the "Class C Component", the "Class D Component", the
"Class E Component" and the "Class F Component", each of which will have a
notional amount (each, a "Component Notional Amount") equal to the Certificate
Principal Amount of the related Class of Certificates and will be reduced by
distributions 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 Class A-1, Class A-2, Class B, Class C,
Class D, Class E and Class F Certificates.
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DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the third Business Day of each month, commencing in November, 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 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) for the Distribution
Date occurring in each March, the "Withheld Amounts" as described under "--The
Pooling Agreement--Accounts--Interest Reserve Account" and required to be
deposited in the Lower-Tier Distribution Account pursuant to the Pooling
Agreement, (iii) 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 (iv) 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;
(h) Deferred Interest;
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(i) with respect to the Mortgage Loans having Mortage Rates below 6.61%,
and any Distribution Date occurring in each February or any January
occurring in a year which is not a leap year, an amount equal to one day of
interest on the Stated Principal Balance of each such Mortgage Loan as of
the Due Date occurring in the month preceding the month in which such
Distribution Date occurs at the related Mortgage Rate to the extent such
amounts are to be deposited in the Interest Reserve Account and held for
future distribution;
(j) 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
(k) 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. 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.
"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 November 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 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 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.
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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.
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 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
5.95%.
The Pass-Through Rate on the Class A-2 Certificates will be equal to
6.17%.
The Pass-Through Rate on the Class B Certificates is equal to the WAC Rate
minus 0.02%.
The Pass-Through Rate on the Class C Certificates is equal to the WAC Rate
minus 0.02%.
The Pass-Through Rate on the Class D Certificates is equal to the WAC Rate
minus 0.02%.
The Pass-Through Rate on the Class E Certificates is equal to the WAC Rate
minus 0.02%.
The Pass-Through Rate on the Class F Certificates is equal to 5.95%.
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 B Component, the Class C
Component, the Class D Component, the Class E Component and the Class F
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 B Component is a per annum
rate equal to 0.02%. The Pass-Through Rate on the Class C Component is a per
annum rate equal to 0.02%. The Pass-Through Rate on the Class D Component is a
per annum rate equal to 0.02%. The Pass-Through Rate on the Class E Component
is a per annum rate equal to 0.02%. The Pass-Through Rate on the Class F
Component is a per annum rate equal to the WAC Rate minus the Pass-Through Rate
on the Class F Certificates.
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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 B, Class C,
Class D, Class E, Class F 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; provided, however, that with respect to each Interest Reserve
Loan (as defined herein), (i) the Mortgage Rate for the Collection Period
preceding the Due Dates in (a) January and February in each year that is not a
leap year or (b) in February only in each year that is a leap year will be
determined net of the Withheld Amounts and (ii) the Mortgage Rate for the
Collection Period preceding the Due Dates in March for each related Interest
Reserve Loan will be determined after taking into account the addition of the
Withheld Amounts with respect to each such Mortgage Loan.
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 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 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 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.
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
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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 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 and, second, to the Class A-2 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 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 and Class A-2 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 and
Class A-2 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 and Class A-2 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 both 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.
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 and Class E 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, Class Q
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.
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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: 14% to the Class B Certificates, 18% to the Class
C Certificates, 20% to the Class D Certificates, 24% to the Class E
Certificates and 24% to the Class F 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 F Certificates; second, to the Class E Certificates; third, to the
Class D Certificates; fourth, to the Class C Certificates; fifth, to the Class
B Certificates and, finally, pro rata, to the Class A-1 and Class A-2,
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, 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 B, Class C and
Class D Certificates resulting from allocations of Realized Losses. Excess
Prepayment Interest Shortfalls will be allocated to reduce the interest
entitlement of the Classes of Certificates in the following order of priority:
first, to the Class F Certificates; second, to the Class E Certificates; third,
to the Class D Certificates; fourth, to the Class C Certificates; fifth, to the
Class B Certificates; and finally to the Class A-1, Class A-2 and Class X
Certificates, pro rata.
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)
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
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 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
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following order of priority: first, to the Class F Certificates; second, to the
Class E Certificates; third, to the Class D Certificates; fourth, 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 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 and Class F 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 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 F Certificates; second, to the Class E Certificates;
third, to the Class D Certificates; fourth, to the Class C Certificates; fifth,
to the Class B Certificates; and, finally, to the Class A-1 and Class A-2
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 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 (or such longer period of
time, not to exceed 30 days, provided that the Special Servicer is diligently
proceeding in accordance with the Servicing Standard to obtain such appraisal),
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.
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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 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
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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 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.
S-144
<PAGE>
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.
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, Class D and Class E 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 Section III of 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
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<PAGE>
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.
S-146
<PAGE>
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 X, Class B, Class C, Class D and Class E
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 B, Class C,
Class D, Class E and Class F 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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<PAGE>
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 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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<PAGE>
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. Grapevine Mills $155,000,000 120 407 0.028% $20,619,033
2. Edens & Avant Pool I $125,000,000 120 360 0.028% $21,337,841
3. Mall of New Hampshire $105,000,000 120 354 0.028% $11,199,597
4. Westside Pavilion $100,000,000 117 393 0.028% $12,632,326
5. NorthTown Mall $ 84,426,244 119 359 0.028% $10,028,711
6. Edens & Avant Pool II $ 70,000,000 120 360 0.028% $12,772,222
7. Crystal Park IV $ 67,039,458 119 359 0.028% $ 9,844,213
</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 October 15, 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) each Mortgage Loan bears interest at
the related Mortgage Rate as described herein; (xii) the Offered Certificates
bear interest at the related Pass-Through Rates as described herein; and (xiii)
unless otherwise specified in the Scenarios described below, the Mortgage Loans
do not prepay (assumptions (i) through (xiii) 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 are prepaid in full ("Scenario 1") on their respective Effective Maturity
Dates. 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>
100-00 6.017% 6.017%
100-04 5.988% 5.988%
100-08 5.960% 5.960%
100-12 5.932% 5.932%
100-16 5.904% 5.904%
100-20 5.876% 5.876%
100-24 5.848% 5.848%
100-28 5.820% 5.820%
101-00 5.792% 5.792%
</TABLE>
CLASS A-2
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE 1 2
- ---------------- ---------- -----------
<S> <C> <C>
99-00 6.385% 6.386%
99-04 6.367% 6.368%
99-08 6.350% 6.351%
99-12 6.332% 6.333%
99-16 6.315% 6.315%
99-20 6.297% 6.298%
99-24 6.280% 6.280%
99-28 6.262% 6.263%
100-00 6.245% 6.245%
</TABLE>
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<PAGE>
CLASS B
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE 1 2
- ---------------- ---------- -----------
<S> <C> <C>
100-0 6.619% 6.621%
100-4 6.602% 6.604%
100-8 6.584% 6.586%
100-12 6.567% 6.568%
100-16 6.549% 6.551%
100-20 6.532% 6.533%
100-24 6.514% 6.515%
100-28 6.497% 6.498%
101-00 6.480% 6.480%
</TABLE>
CLASS C
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE 1 2
- ---------------- ---------- -----------
<S> <C> <C>
98-00 6.904% 6.909%
98-04 6.886% 6.891%
98-08 6.868% 6.873%
98-12 6.850% 6.855%
98-16 6.832% 6.837%
98-20 6.814% 6.819%
98-24 6.796% 6.801%
98-28 6.779% 6.783%
99-00 6.761% 6.765%
</TABLE>
CLASS D
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE 1 2
- ---------------- ---------- -----------
<S> <C> <C>
83-00 9.309% 9.314%
83-04 9.287% 9.292%
83-08 9.264% 9.270%
83-12 9.242% 9.247%
83-16 9.220% 9.225%
83-20 9.198% 9.203%
83-24 9.176% 9.181%
83-28 9.154% 9.159%
84-00 9.132% 9.137%
</TABLE>
CLASS E
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE 1 2
- ---------------- ---------- -----------
<S> <C> <C>
89-00 8.284% 8.289%
89-04 8.264% 8.269%
89-08 8.243% 8.249%
89-12 8.223% 8.228%
89-16 8.203% 8.208%
89-20 8.183% 8.188%
89-24 8.162% 8.168%
89-28 8.142% 8.147%
90-00 8.122% 8.127%
</TABLE>
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<PAGE>
CLASS X
<TABLE>
<CAPTION>
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE 1 2
- ---------------- ------------ ------------
<S> <C> <C>
1-26 10.490% 10.296%
1-27 10.049% 9.852%
1-28 9.619% 9.419%
1-29 9.200% 8.998%
1-30 8.792% 8.587%
1-31 8.394% 8.186%
2-00 8.006% 7.795%
2-01 7.627% 7.414%
2-02 7.257% 7.041%
</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 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 2
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 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.
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<PAGE>
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 ......... 100% 100%
October 3, 1999 ......... 96% 96%
October 3, 2000 ......... 91% 91%
October 3, 2001 ......... 84% 84%
October 3, 2002 ......... 74% 74%
October 3, 2003 ......... 60% 60%
October 3, 2004 ......... 46% 46%
October 3, 2005 ......... 30% 30%
October 3, 2006 ......... 13% 13%
October 3, 2007 ......... 0% 0%
October 3, 2008 ......... 0% 0%
Weighted Average Life
(in years) .............. 5.44 5.44
</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 ......... 100% 100%
October 3, 1999 ......... 100% 100%
October 3, 2000 ......... 100% 100%
October 3, 2001 ......... 100% 100%
October 3, 2002 ......... 100% 100%
October 3, 2003 ......... 100% 100%
October 3, 2004 ......... 100% 100%
October 3, 2005 ......... 100% 100%
October 3, 2006 ......... 100% 100%
October 3, 2007 ......... 100% 100%
October 3, 2008 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.88 9.75
</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 B
<TABLE>
<CAPTION>
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
- --------------------------- ---------- ---------
<S> <C> <C>
Initial Percent ......... 100% 100%
October 3, 1999 ......... 100% 100%
October 3, 2000 ......... 100% 100%
October 3, 2001 ......... 100% 100%
October 3, 2002 ......... 100% 100%
October 3, 2003 ......... 100% 100%
October 3, 2004 ......... 100% 100%
October 3, 2005 ......... 100% 100%
October 3, 2006 ......... 100% 100%
October 3, 2007 ......... 100% 100%
October 3, 2008 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.97 9.85
</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).
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 ......... 100% 100%
October 3, 1999 ......... 100% 100%
October 3, 2000 ......... 100% 100%
October 3, 2001 ......... 100% 100%
October 3, 2002 ......... 100% 100%
October 3, 2003 ......... 100% 100%
October 3, 2004 ......... 100% 100%
October 3, 2005 ......... 100% 100%
October 3, 2006 ......... 100% 100%
October 3, 2007 ......... 100% 100%
October 3, 2008 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.97 9.91
</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).
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<PAGE>
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 ......... 100% 100%
October 3, 1999 ......... 100% 100%
October 3, 2000 ......... 100% 100%
October 3, 2001 ......... 100% 100%
October 3, 2002 ......... 100% 100%
October 3, 2003 ......... 100% 100%
October 3, 2004 ......... 100% 100%
October 3, 2005 ......... 100% 100%
October 3, 2006 ......... 100% 100%
October 3, 2007 ......... 100% 100%
October 3, 2008 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.97 9.97
</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).
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS E
<TABLE>
<CAPTION>
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
- --------------------------- ---------- ---------
<S> <C> <C>
Initial Percent ......... 100% 100%
October 3, 1999 ......... 100% 100%
October 3, 2000 ......... 100% 100%
October 3, 2001 ......... 100% 100%
October 3, 2002 ......... 100% 100%
October 3, 2003 ......... 100% 100%
October 3, 2004 ......... 100% 100%
October 3, 2005 ......... 100% 100%
October 3, 2006 ......... 100% 100%
October 3, 2007 ......... 100% 100%
October 3, 2008 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.97 9.97
</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 E 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 October 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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<PAGE>
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. 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. 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 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
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<PAGE>
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
and the Special 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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<PAGE>
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 or Prepayment Charges. 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. With respect to any
Property Advances to pay delinquent real estate taxes, in the event that the
Master Servicer reasonably anticipates that such taxes will be paid by the
related borrower prior to the close of business on the penalty date, the Master
Servicer will be allowed to delay payment of such tax until the earlier of (i)
five business days after the Master Servicer has determined that such tax bill
has not been paid by the related borrower or (ii) forty-five days past such
penalty date. In addition, the Special Servicer may be obligated to make
certain Property Advances with respect to Specially Serviced Mortgage Loans.
Any Property Advances made by the Special Servicer will be reimbursed by the
Master Servicer on a monthly basis and such reimbursement will be treated as
Property Advance by the Master Servicer.
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).
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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 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.
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" 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.
Interest Reserve Account. The Trustee will establish and maintain an
Interest Reserve Account ("Interest Reserve Account") in the name of the
Trustee for the benefit of the holders of the Certificates. On each
Distribution Date occurring in any February and on any Distribution Date
occurring in any January which occurs in a year which is not a leap year, the
Trustee will be required to deposit (based on information provided by the
Master Servicer or the Special Servicer), in respect of each Mortgage Loan
having a Mortgage Rate less than or equal to 6.61% (the "Interest Reserve
Loans"), into the Interest Reserve Account, an amount equal to one day's
interest collected on the Stated Principal Balance of such Mortgage Loan as of
the Due Date occurring in the month preceding the month in which such
Distribution Date occurs at the related Mortgage Rate, to the extent a full
Monthly Payment or P&I Advance is made in respect thereof (all amounts so
deposited in any consecutive January and February, "Withheld Amounts"). On each
Distribution Date occurring in March, the Trustee will be required to withdraw
from the Interest Reserve Account an amount equal to the Withheld Amounts from
the preceding January and February, if any, and deposit such amount into the
Lower-Tier Distribution Account.
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.
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The Lockboxes, the Collection Account, the Interest Reserve 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 DCR 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 on deposit in the Collection Account, the Lockboxes, the Interest
Reserve Account, 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, and (D) to the Interest Reserve Account an amount required to be withheld
as described under "--Accounts--Interest Reserve Account;" (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
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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
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 downgrade, qualification or withdrawal 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
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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 50% 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 October, 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, 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 March 31 of each year, beginning March 31, 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 March 31 of each year,
beginning March 31, 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.
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The Pooling Agreement also provides that the holders of a majority of the
Percentage Interests in the Directing Class may, at their election, remove and
replace the Special Servicer, provided that certain conditions are satisfied
including obtaining the written confirmation of each of the Rating Agencies
that such removal and replacement will not cause a qualification, withdrawal or
downgrading of the then current ratings assigned to the Certificates.
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 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, the Master Servicer or the Special
Servicer may be merged or consolidated, or any person resulting from any merger
or consolidation to which the Depositor, the Master Servicer or the Special
Servicer is a party, or any person succeeding to the business of the Depositor,
the Master Servicer or the Special Servicer, will be the successor of the
Depositor, the Master Servicer or the Special 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, the Master Servicer or the
Special 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 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,
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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 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 DCR and S&P 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.
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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 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) 2.9% 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 B, Class C, Class D, Class E and Class
F 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 (or such longer period
of time, not to exceed 30 days, provided that the Special Servicer is
diligently proceeding, in accordance with the Servicing Standard to obtain such
appraisal), the Special Servicer will be required to
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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 upon or comparably convert the related Mortgaged
Property 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 3 years prior to the Rated Final
Distribution Date or beyond the date that is ten years prior to expiration of
any ground lease with respect to a Mortgage Loan. If such borrower fails to
make an Extended Monthly Payment during the 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.
The mortgagee is required to give notice to the Crystal Park IV Ground
Lessor of a Loan Default under the Crystal Park IV Loan, and the Crystal Park
IV Ground 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--Crystal Park IV: The Borrower; 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
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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.
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 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
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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 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 the Depositor, Servicer, Special Servicer, any borrower, any manager
of a Mortgaged Property, any independent contractor engaged by the Special
Servicer, or any known affiliate of any of them (collectively, an "Interested
Person"), or is determined to be a fair price by the Trustee (based upon, among
other things, updated independent appraisals received by the Trustee), if the
highest offeror is an Interested Person. 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, 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.
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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 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).
Notwithstanding the foregoing, the Special Servicer will not be required to act
contrary to the Servicing Standard. 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.
The Master Servicer or the Special Servicer, as applicable, and consistent
with the Servicing Standard, 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 Treasury Regulations
Section 1.860G-2(b) (and the Master Servicer or the Special Servicer, as
applicable, may rely upon an Opinion of Counsel in making such determination),
(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. In addition, any material
modification, waiver or amendment that is made by the Master Servicer will
require the previous consent of the Special Servicer, who shall grant or
withhold such consent in accordance with the Servicing Standard. 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
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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, 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
Norwest Bank Minnesota, National Association ("Norwest Bank") will act as
Trustee of the Trust Fund pursuant to the Pooling Agreement. Norwest Bank, a
direct, wholly owned subsidiary of Norwest Corporation, is a national banking
association originally chartered in 1872 and is engaged in a wide range of
activities typical of a national bank. Norwest Bank's principal office is
located at Norwest Center, Sixth and Marquette, Minneapolis, Minnesota
55479-0113. Certificate transfer services are conducted at Norwest Bank's
offices in Minneapolis. Norwest Bank otherwise conducts its trustee and
securities administration services at its offices in Columbia, Maryland. Its
address there is 11000 Broken Land Parkway, Columbia, Maryland 21044-3562. In
addition, Norwest Bank maintains a trust office in New York located at 3 New
York Plaza, New York, New York 10004. Certificateholders and other interested
parties should direct their inquiries to the New York office. The telephone
number is (212) 515-5240. See "Description of the Agreements--The Trustee,"
"--Duties of the Trustee," "--Certain Matters Regarding the Trustee" and
"--Resignation and Removal of the Trustee" in the Prospectus.
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 successor
trustee is not rated at least "AA" by DCR and S&P, 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
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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), 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, Interest Reserve 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., a Delaware corporation ("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.
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Midland is a real estate financial services company which provides loan
servicing and asset management for large pools of commercial and mutifamily
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 July 31, 1998, Midland was responsible for the servicing of
approximately 12,600 commercial and mutifamily loans with an aggregate
principal balance of approximately $29.6 billion, the collateral for which is
located in 50 states, Puerto Rico and the District of Columbia. With respect to
such loans, approximately 10,250 loans with an aggregate principal balance of
approximately $20.5 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-originated 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 0.028%, (the "Servicing
Fee Rate") and (ii) the Stated 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 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)
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 will be entitled to receive, as
additional servicing compensation, to the extent permitted by applicable law
and the related Mortgage Loans, any late payment charges, loan service
transaction fees, beneficiary statement charges or similar items (but not
including any yield maintenance charge or prepayment premiums), and a portion
of any assumption fees, loan modification fees and extension fees, 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
Midland 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.
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 the holders of a majority
of the Percentage Interests in the Directing Class (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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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 0.15% 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 0.75% 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 0.75% 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) by 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.
In addition, the Special Servicer will be entitled to a portion of any
assumption fees, loan modification fees and extension fees.
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 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. Such requirements
shall be deemed to be satisfied to the extent such information is provided
pursuant to applicable requirements of the Code in force from time to time. See
"Description of the Certificates--Reports to Certificateholders" in the
Prospectus.
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The Trustee will make available each month, to any interested party,
certain information regarding the Mortgage Loans via the Trustee's internet
website, electronic bulletin board and fax-on-demand service. In addition, the
Trustee will also make certain Mortgage Loan information as presented in the
CSSA loan setup file and CSSA loan periodic update file formats, as well as
this Prospectus Supplement and the Pooling Agreement available to any
Certificateholder, any Certificate Owner, the Rating Agencies, the parties to
the Pooling Agreement or any other interested party via the Trustee's internet
website. The Trustee's internet website will initially be located at
"www.securitieslink.net/cmbs". The Trustee's electronic bulletin board may be
accessed by calling (301) 815-6620, and its fax-on-demand service may be
accessed by calling (301) 815-6610. For assistance with regard to the above
mentioned services, investors may call (301) 815-6600.
In connection with providing access to the Trustee's internet website, the
Trustee may require registration and the acceptance of a disclaimer. The
Trustee shall not be liable for the dissemination of information in accordance
with the Pooling Agreement.
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.
Absent manifest error, none of the Master Servicer, the Special Servicer
or the Trustee shall be responsible for the accuracy or completeness of any
information supplied to it by a Borrower or third party that is included in any
reports, statements, materials or information prepared or provided by the
Master Servicer, the Special Servicer or the Trustee, as applicable.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans in Texas (approximately 21.9% of the Mortgage Loans by Cut-Off
Date Allocated Loan Amount), New Hampshire (approximately 14.9% of the Mortgage
Loans by Cut-Off Date Allocated Loan Amount), California (approximately 14.2%
of the Mortgage Loans by Cut-Off Date Allocated Loan Amount), Virginia
(approximately 11.8% of the Mortgage Loans by Cut-Off Date Allocated Loan
Amount), and Washington (approximately 12.0% 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.
Texas, New Hampshire, California, Virginia, Washington 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.
Texas Law. Under Texas law, a deed of trust customarily is foreclosed by
non-judicial process; judicial process is generally not used. 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, at least 21 days notice prior to foreclosure is required
and foreclosure sales must be held on the first Tuesday of a calendar month.
Absent contrary provisions in the loan documents, 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, provided that the loan affidavit is timely and properly
perfected.
New Hampshire Law. A mortgage deed is the method of perfecting a security
interest in real estate in New Hampshire. There are several methods that can be
used to foreclose on the mortgage, the most preferable being the foreclosure
under the Statutory Power of Sale which requires that the mortgage specifically
contain such right. Assuming Statutory Power of
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Sale is available to a mortgagee, the foreclosure process requires that legal
notice, containing certain provisions as required by statute, be sent out to
the owner and mortgagee at least twenty-five (25) days prior to the sale, that
all other lienholders which are of record at least thirty (30) days prior to
the sale be sent such notice at least 21 days prior (with additional
requirements needing to be met for federal liens) and that notice be published
in a newspaper of general circulation for three (3) consecutive weeks, with the
first publication being not less than 20 days prior to the date of sale.
Additional notice may be required for compliance with the Soldier's and
Sailor's Act.
The foreclosure sale is by public auction, generally held on the premises
being conveyed unless provided otherwise in the mortgage. The sale must be
commercially reasonable, pursuant to New Hampshire case law, and the
foreclosure deed, together with an affidavit reciting compliance with the
statute must be recorded within 60 days of the date of sale in order to perfect
the sale free from liens of any additional attaching creditors. Failure to
comply with all statutory provisions of foreclosure may render the sale
invalid.
California Law. 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.
Virginia Law. Foreclosure of the lien of a deed of trust in Virginia
typically and most efficiently is accomplished by a non-judicial trustee's sale
under a power of sale provision in the deed of trust. Judicial foreclosure also
can be, but seldom is, used. In a non-judicial foreclosure, public notice of
the trustee's sale, containing certain information, must be given for the time
period prescribed in the deed of trust, but subject to statutory minimums.
After such notice, the trustee may sell the real estate. In a judicial
foreclosure, after notice to all interested parties, a full hearing and
judgment in favor of the lienholder, the court orders a foreclosure sale to be
conducted by a sheriff or court-appointed commissioner in chancery. In either
type of foreclosure sale, the borrower has no right to redeem the property. A
deficiency judgment for a recourse loan may be obtained. Further, under
Virginia law, for certain circumstances and for certain time periods, a
lienholder has the statutory right to obtain a court-appointed receiver, either
with or without notice of the borrower, to collect, protect and disburse the
real property's rents and revenues, and otherwise to maintain and preserve the
real property, pursuant to the court's instructions.
Washington Law. In Washington, it is most common to foreclose a deed of
trust by a non-judicial trustee's sale. Non-judicial foreclosure is available
only if the property is not used principally for agricultural purposes, either
at the time the deed of trust is granted or at the time of foreclosure. The
non-judicial foreclosure process requires a preliminary 30-day notice of
default and a subsequent 90-day notice of sale. The notice of sale must be
posted on the premises and published twice in a local newspaper. The trustee's
sale cannot be held sooner than 190 days after the date of default.
Washington has a "one action" rule that prohibits non-judicial foreclosure
during the pendency of any action that seeks satisfaction of an obligation
secured by the deed of trust, with the exception of actions for the appointment
of a receiver or to enforce any other lien or security interest granted to
secure the obligation secured by the deed of trust.
Non-judicial foreclosure has the effect of satisfying the entire
obligation secured by the deed of trust, including any cross-collateralized
obligations and any obligations of the grantor contained in separate documents
that are the "substantial equivalent" of obligations secured by the deed of
trust. Limited exceptions to the "anti-deficiency" rule allow post-foreclosure
actions against the grantor within one year after the date of foreclosure to
collect misapplied rents, insurance or condemnation proceeds, or to recover for
waste committed against the property.
In Washington, a lender may elect to foreclose a deed of trust judicially
as a mortgage and preserve the right to a deficiency judgment against the
grantor. There is a one-year redemption period from the date of sale following
a judicial foreclosure. The redemption period may be reduced to eight months if
the foreclosure complaint waives any deficiency judgment against the grantor.
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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 and Class F
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 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 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.
The preceding three sentences do not apply to a beneficial owner's interest in
the Offered Certificates (other than the Class A-1, Class A-2 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 accrued by the Trust Fund,
commencing after the Effective Maturity Dates on the related Mortgage Loans.
It is anticipated that the regular interests represented by the Class A-1
and Class B Certificates will be issued at a premium, that the Class A-2 and
Class C Certificates will be issued with de minimis original issue discount and
that the Class D and Class E Certificates will be issued with 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
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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 accrue original issue
discount or 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.
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, Class D and Class E
Certificates (the "Subordinated Offered Certificates") is restricted. See
"Description of the Offered Certificates--Transfer Restrictions" herein.
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;
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(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 Investors Service ("Moody's"), S&P, Fitch
IBCA, Inc. ("Fitch") or 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:
(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
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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, CLASS D AND CLASS E 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
SECTION III OF 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 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 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 101.1% of the
initial aggregate Certificate Principal Amount of the Offered Certificates,
plus accrued interest, if any, from October 1, 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.
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--Risks Relating to Conflicts of Interest" 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.
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<PAGE>
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 effected 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).
EXPERTS
The financial statements of Grapevine Mills Limited Partnership at
December 31, 1997 and 1996, and for the years then ended, appearing in this
Prospectus Supplement to the Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
Cushman & Wakefield, Inc. and O. Marshall Dodds Co., 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 firm
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 Appraiser 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 and Class A-2 Certificates be rated "AAA" by each of DCR
and S&P; (ii) the Class B Certificates be rated "AA" by each of DCR and S&P;
(iii) the Class C Certificates be rated "A" by each of DCR and S&P; (iv) the
Class D Certificates be rated "BBB" by each of DCR and S&P; (v) the Class E
Certificates be rated "BBB-" by each DCR and S&P; (vi) the Class X Certificates
be rated "AAA" by DCR and "AAAr" by S&P. S&P assigns the additional symbol of
"r" to highlight classes of securities that S&P believes may experience high
volatility or high variability in expected returns due to non-credit risks;
however, the absence of an "r" symbol should not be taken as an indication that
a Class will exhibit no volatility or variability in total return. 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
S-180
<PAGE>
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. The Class X Certificate notional amount upon which interest is
calculated is reduced by the allocation of Realized Losses and prepayments,
whether voluntary or involuntary. The rating does not address the timing or
magnitude of reductions of such notional amount, but only the obligation to pay
interest timely on the notional amount as so reduced from time to time.
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-181
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<S> <C>
30/360 Basis ............................... S-43
ACMs ....................................... S-29
Actual DSCR ................................ S-43
Actual/360 Basis ........................... S-43
ADA ........................................ S-38
Additional Collateral Release Date ......... S-109
Additional NorthTown Mall Property ......... S-111
Adjusted Net Operating Income .............. S-43
Advance Rate ............................... S-159
Advances ................................... S-158
Allocated Loan Amount ...................... S-43
Alteration Escrow Threshold ................ S-43
AMC ........................................ S-65
Annual Debt Service ........................ S-43
Annualized Base Rent ....................... S-43
Appraisal Reduction Amount ................. S-142
Appraisal Reduction Event .................. S-142
Appraised Value ............................ S-43
Appraisers ................................. S-180
Approved Bank .............................. S-43
Average Base Rent Per Square Foot .......... S-43
Baldwin Square ............................. S-119
Baldwin Square Ground Lease ................ S-119
Best's ..................................... S-43
Big Five ................................... S-45
Burlington ................................. S-65
Calculated Payments ........................ S-51
CAPI ....................................... S-125
Capital Expenditures Account ............... S-43
CEDEL ...................................... S-22
CEDEL Participants ......................... S-144
Certificate Owners ......................... S-145
Certificate Registrar ...................... S-143
Certificateholder .......................... S-143
Class ...................................... S-134
Class A Certificates ....................... S-134
Class A-1 Component ........................ S-134
Class A-2 Component ........................ S-134
Class B Component .......................... S-134
Class C Component .......................... S-134
Class D Component .......................... S-134
Class E Component .......................... S-134
Class F Component .......................... S-134
Class Prepayment Percentage ................ S-140
Class Q Distribution Account ............... S-159
Closing Date ............................... S-7
Collection Account ......................... S-159
Collection Period .......................... S-136
Commission ................................. S-171
</TABLE>
S-182
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Comparable Store ................................... S-44
Component Notional Amount .......................... S-134
Cross-over Date .................................... S-140
Crystal Park IV Borrower ........................... S-125
Crystal Park IV Ground Lease ....................... S-128
Crystal Park IV Ground Lessor ...................... S-128
Crystal Park IV Letter of Credit ................... S-130
Crystal Park IV Management Agreement ............... S-129
Crystal Park IV Manager ............................ S-129
Crystal Park IV Mortgage ........................... S-125
Crystal Park IV Payment Guaranty ................... S-130
Crystal Park IV Property ........................... S-19, S-125
Cut-Off Date ....................................... S-12
Cut-Off Date Allocated Loan Amount ................. S-44
DCR ................................................ S-21
Debt Service Account ............................... S-44
Debt Service Coverage Ratio ........................ S-44
Debt-to-Market Capitalization Ratio ................ S-132
Default Interest ................................... S-136
Default Rate ....................................... S-44, S-136
Defeasance ......................................... S-44
Defeasance Conditions .............................. S-44
Deferred Interest .................................. S-44, S-45, S-136
Deferred Interest Distribution Account ............. S-159
Definitive Certificate ............................. S-143
Department ......................................... S-177
Depositor .......................................... S-7
Depositories ....................................... S-143
Directing Class .................................... S-169
Disbursement Procedures ............................ S-44
Discount Rate ...................................... S-51, S-140
Distribution Date .................................. S-135
DSCR ............................................... S-44
DTC ................................................ S-22
Due Date ........................................... S-44
Economic Occupancy ................................. S-44
Edens & Avant Pool I Borrower ...................... S-71
Edens & Avant Pool I Defeased Loan Amount .......... S-77
Edens & Avant Pool I General Partner ............... S-71
Edens & Avant Pool I Management Agreement .......... S-75
Edens & Avant Pool I Managing Member ............... S-71
Edens & Avant Pool I Mortgage ...................... S-71
Edens & Avant Pool I Properties .................... S-14, S-71
Edens & Avant Pool I Property ...................... S-71
Edens & Avant Pool I Replaced Property ............. S-77
Edens & Avant Pool I Substitute Property ........... S-77
Edens & Avant Pool II Borrower ..................... S-114
Edens & Avant Pool II Defeased Loan Amount ......... S-121
Edens & Avant Pool II General Partner .............. S-114
Edens & Avant Pool II Management Agreement ......... S-118
Edens & Avant Pool II Manager ...................... S-118
</TABLE>
S-183
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Edens & Avant Pool II Managing Member ............. S-114
Edens & Avant Pool II Mortgage .................... S-114
Edens & Avant Pool II Properties .................. S-18, S-114
Edens & Avant Pool II Property .................... S-114
Edens & Avant Pool II Replaced Property ........... S-121
Edens & Avant Pool II Substitute Property ......... S-121
Edens & Evant Pool I Manager ...................... S-75
Effective Gross Income ............................ S-44
Effective Maturity Date ........................... S-44
Effective Maturity Date Balance ................... S-44
Effective Maturity Date LTV ....................... S-45
Eligible Bank ..................................... S-160
EMD ............................................... S-44
EMD Loan .......................................... S-45
EMD LTV ........................................... S-45
Environmental Reserve Account ..................... S-45
ERISA ............................................. S-177
Euroclear ......................................... S-22
Euroclear Participants ............................ S-144
Event of Default .................................. S-163, S-164
Excess Cash Flow .................................. S-45
Excess Prepayment Interest Shortfall .............. S-141
Excess Rate ....................................... S-136
Extended Monthly Payment .......................... S-166
Fee ............................................... S-45
Financial Statements .............................. S-45
First Tier Lockbox ................................ S-45
First-Tier Lockbox ................................ S-49
Fitch ............................................. S-178
Fixed Voting Rights Percentage .................... S-165
Form 8-K .......................................... S-58
FSA ............................................... S-180
GAAP .............................................. S-45
GLA ............................................... S-45
Grapevine Mills Borrower .......................... S-59
Grapevine Mills Management Agreement .............. S-66
Grapevine Mills Manager ........................... S-65
Grapevine Mills Mortgage .......................... S-59
Grapevine Mills Property .......................... S-13, S-59
Grapevine Mills Yield Maintenance Premium ......... S-68
Gross Leasable Area ............................... S-45
Ground Leased Parcels ............................. S-65
Ground Lessee ..................................... S-65
Guaranties ........................................ S-68
Hard Lockbox ...................................... S-45
holder ............................................ S-143
Holders ........................................... S-145
Indirect Participants ............................. S-144
Initial Interest Rate ............................. S-45
Initial Reserve Deposit ........................... S-45
Insurance Account ................................. S-45
</TABLE>
S-184
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Insurance Requirements ............................... S-46
Interest Accrual Amount .............................. S-137
Interest Distribution Amount ......................... S-137
Interest Only EMD Loan ............................... S-46
Interest Reserve Loans ............................... S-159
Interest Shortfall ................................... S-137
Interested Person .................................... S-168
JC Penney ............................................ S-65
JP REIT .............................................. S-103
Kan Am ............................................... S-59
Large Mall of New Hampshire Ground Lease ............. S-86
Late Payment Fee ..................................... S-46
Lease Approval Threshold ............................. S-46
Leasehold ............................................ S-46
Letter of Credit ..................................... S-46
LIBOR ................................................ S-46
Liquidation Fee ...................................... S-173
Loan Default ......................................... S-46
Loan Description ..................................... S-46
Loan DSCR ............................................ S-46
Loan Per Square Foot/Unit ............................ S-46
Loan Sale Agreement .................................. S-42
Loan to Value Ratio .................................. S-46
Lockbox .............................................. S-46
Lockbox Bank ......................................... S-47
Lockbox Waterfall .................................... S-47
Lockout Period ....................................... S-47
Lower-Tier Distribution Account ...................... S-159
Lower-Tier Regular Interests ......................... S-176
Lower-Tier REMIC ..................................... S-176
LTM .................................................. S-47
LTV .................................................. S-46
Macerich Operating Partnership ....................... S-92
Macerich REIT ........................................ S-92
Magee ................................................ S-118
Magee Ground Lease ................................... S-118
Mall of New Hampshire Approved Manager ............... S-87
Mall of New Hampshire Approved Transferee ............ S-90
Mall of New Hampshire Borrower ....................... S-81
Mall of New Hampshire Co-Manager ..................... S-87
Mall of New Hampshire Ground Leases .................. S-86
Mall of New Hampshire Impounds Trigger Event ......... S-89
Mall of New Hampshire Letter of Credit ............... S-88
Mall of New Hampshire Lockbox Trigger Event .......... S-89
Mall of New Hampshire Management Agreement ........... S-87
Mall of New Hampshire Manager ........................ S-87
Mall of New Hampshire Mortgage ....................... S-81
Mall of New Hampshire Property ....................... S-15, S-81
Mall of New Hampshire ROA ............................ S-85
Mall Parcel .......................................... S-85
Market Capitalization ................................ S-132
</TABLE>
S-185
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Market Value ................................. S-132
Master Servicer .............................. S-7
Master Servicer Remittance Date .............. S-158
Maturity Date ................................ S-47
May .......................................... S-85, S-96
Mervyn's ..................................... S-107
Mervyn's Parcel .............................. S-111
Mezzanine Debt ............................... S-47
Michigan ..................................... S-78
Midland ...................................... S-42, S-171
Mills REIT ................................... S-59
MLP .......................................... S-24
Monthly Insurance Deposit Amount ............. S-47
Monthly Payment .............................. S-47, S-136
Monthly Reserve Deposit ...................... S-47
Monthly Tax Deposit Amount ................... S-47
Moody's ...................................... S-178
Mortgage ..................................... S-42
Mortgage Rate ................................ S-138
Mortgaged Property ........................... S-42
Negative Adjustment .......................... S-177
Net Default Interest ......................... S-136
Net Mortgage Rate ............................ S-138
Net Operating Income ......................... S-47
Net Rentable Area ............................ S-47
Net REO Proceeds ............................. S-136
NOI .......................................... S-47
Non-Comparable Store ......................... S-47
Nordstrom .................................... S-96
Nordstrom Lease .............................. S-96
Nordstrom Storage Space ...................... S-97
NorthTown Developer .......................... S-107
NorthTown Mall Additional Building ........... S-109
NorthTown Mall Additional Leases ............. S-109
NorthTown Mall Affiliated Transferee ......... S-112
NorthTown Mall Borrower ...................... S-103
NorthTown Mall Expansion ..................... S-111
NorthTown Mall Letter of Credit .............. S-109
NorthTown Mall Major Lease ................... S-113
NorthTown Mall Majors ........................ S-107
NorthTown Mall Management Agreement .......... S-108
NorthTown Mall Manager ....................... S-108
NorthTown Mall Mortgage ...................... S-103
NorthTown Mall Permitted Transfer ............ S-112
NorthTown Mall Permitted Transferee .......... S-112
NorthTown Mall Property ...................... S-17, S-103
NorthTown Mall Release Conditions ............ S-109
NorthTown Mall Release Parcel ................ S-111
NorthTown Mall ROA ........................... S-107
Norwest Bank ................................. S-170
Note ......................................... S-42
</TABLE>
S-186
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Notional Amount ........................ S-134
NRA .................................... S-47
OCC .................................... S-48
Occupancy .............................. S-48
Occupancy Costs ........................ S-48
Offered Certificates ................... S-7
One-Tier Lockbox ....................... S-48
Original Principal Balance ............. S-48
Originator ............................. S-42
Participants ........................... S-143
Pass-Through Rate ...................... S-8, S-137
Penney ................................. S-85
Percentage Interest .................... S-135
Permitted Encumbrances ................. S-69
Permitted Investments .................. S-160
P&I Advance ............................ S-20, S-158
Plan ................................... S-145, S-177
Pooling Agreement ...................... S-155
Prepayment Charge ...................... S-48
Prepayment Charge Period ............... S-48
Prepayment Interest Shortfall .......... S-141
Price Operating Partnership ............ S-103
Principal Balance Certificates ......... S-134
Principal Distribution Amount .......... S-138
Principal Prepayments .................. S-136
Principal Window ....................... S-5
Private Certificates ................... S-7, S-134
Property Advances ...................... S-158
Property Condition Reports ............. S-57
psf .................................... S-48
Rated Final Distribution Date .......... S-151
Refinancing DSCR ....................... S-48
Regular Certificates ................... S-138
Rehabilitation Fee ..................... S-173
Release H.15 ........................... S-140
REO Account ............................ S-134
REO Mortgage Loan ...................... S-138
REO Property ........................... S-134
Repurchase Price ....................... S-156
Required Repair Account ................ S-48
Reserve Account ........................ S-48
Reservoir Square ....................... S-119
Reservoir Square Ground Lease .......... S-119
Restricted Group ....................... S-178
Revised Interest Rate .................. S-48
Rollover Account ....................... S-48
Rules .................................. S-144
Sales per SF ........................... S-48
Samuels Manager ........................ S-75
Scenario 1 ............................. S-149
SDG .................................... S-24, S-59
</TABLE>
S-187
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SDG REIT ................................................ S-59
Sears ................................................... S-85, S-107
Second Tier Lockbox ..................................... S-48
Second-Tier Lockbox ..................................... S-49
Secore .................................................. S-42
Servicing Compensation .................................. S-135
Servicing Fee ........................................... S-172
Servicing Fee Rate ...................................... S-172
Servicing Standard ...................................... S-156
SF/Units ................................................ S-48
Similar Law ............................................. S-145, S-177
Small Mall of New Hampshire Ground Lease ................ S-86
SMMEA ................................................... S-23
Soft Lockbox ............................................ S-48
S&P ..................................................... S-21
Special Servicer ........................................ S-7, S-172
Special Servicer's Appraisal Reduction Estimate ......... S-142
Special Servicing Fee ................................... S-173
Specially Serviced Mortgage Loan ........................ S-157
Standard Approval Rights ................................ S-49
Stated Principal Balance ................................ S-138
Subordinated Offered Certificate ........................ S-145
Subordinated Offered Certificates ....................... S-145, S-177
Substitution Period ..................................... S-49
Successor Borrower ...................................... S-49
Successor Manager ....................................... S-161
Tax Account ............................................. S-49
Terms and Conditions .................................... S-145
Total (or Gross) Potential Rent ......................... S-49
Total Revenue ........................................... S-49
Treasury Rate ........................................... S-140
Trustee ................................................. S-7, S-42
Trustee Fee ............................................. S-170
Trustee Fee Rate ........................................ S-170
Two-Tier Lockbox ........................................ S-49
Underwritable Cash Flow ................................. S-49
Underwritable NOI ....................................... S-50
Unscheduled Payments .................................... S-136
Updated Appraisal ....................................... S-166
Upper-Tier Distribution Account ......................... S-159
Upper-Tier REMIC ........................................ S-176
US Air .................................................. S-125
U.S. Obligations ........................................ S-51
Voting Rights ........................................... S-165
WAC Rate ................................................ S-8, S-138
Weighted Average Life ................................... S-5
Westside GP ............................................. S-92
Westside Pavilion Borrower .............................. S-92
Westside Pavilion Cash Collateral Account ............... S-100
Westside Pavilion Lockbox Event ......................... S-100
Westside Pavilion Management Agreement .................. S-97
</TABLE>
S-188
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Westside Pavilion Manager ........................... S-97
Westside Pavilion Mortgage .......................... S-92
Westside Pavilion Permitted Owner ................... S-101
Westside Pavilion Property .......................... S-16, S-92
Westside Pavilion Qualifying Manager ................ S-98
Westside Pavilion ROA ............................... S-96
Westside Pavilion Storage Space Lease ............... S-97
Westside Pavilion Total Loss ........................ S-102
Westside Pavilion Yield Maintenance Premium ......... S-99
Westside Prepayment Differential .................... S-100
Westside Reinvestment Yield ......................... S-100
Yield Maintenance Premium ........................... S-51
Yield Maintenance Treasury Rate ..................... S-51
</TABLE>
S-189
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXHIBIT A-1
GRAPEVINE MILLS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996
with Report of Independent Auditors and six months
ended June 30, 1998 and 1997 (unaudited)
A-1-1
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ......... A-1-1
Financial Statements
Balance Sheets ......................... A-1-2
Statements of Operations ............... A-1-3
Statements of Partners' Equity ......... A-1-4
Statements of Cash Flows ............... A-1-5
Notes to Financial Statements .......... A-1-6-12
</TABLE>
A-1-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Grapevine Mills Limited Partnership
We have audited the accompanying balance sheets of Grapevine Mills Limited
Partnership (the "Partnership") as of December 31, 1997 and 1996, and the
related statements of operations, partners' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Grapevine Mills Limited
Partnership as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Washington, D.C.
September 3, 1998
A-1-3
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- JUNE 30,
1997 1996 1998
---------------- ------------- ---------------
<S> <C> <C> <C>
ASSETS (UNAUDITED)
Income producing property:
Land and improvements ............................. $ 24,045,066 $ -- $ 25,187,907
Building and improvements ......................... 105,469,630 -- 109,248,844
Equipment ......................................... 3,929,053 -- 4,496,301
Accumulated depreciation .......................... (641,260) -- (2,461,262)
------------ ----------- ------------
Total income producing property .................... 132,802,489 -- 136,471,790
Construction in progress ........................... 2,395,759 32,905,622 196,619
------------ ----------- ------------
Total real estate and development assets ........... 135,198,248 32,905,622 136,668,409
Cash and cash equivalents .......................... 17,184,837 4,189,635 4,773,175
Accounts receivable ................................ 1,975,198 -- 2,470,295
Due from Special Assessment District ............... -- 1,163,349 --
Notes receivable from affiliate .................... 4,164,289 4,654,418 8,005,448
Accrued interest receivable ........................ 57,597 201,331 260,277
Deferred leasing and other charges, net ............ 33,535,080 -- 36,308,499
Other assets ....................................... 33,803 -- 13,521
------------ ----------- ------------
Total assets ..................................... $192,149,052 $43,114,355 $188,499,624
============ =========== ============
LIABILITIES AND PARTNERS' EQUITY
Note payable ....................................... $112,095,814 $10,121,971 $130,596,925
Note payable -- affiliate .......................... -- 25,934,254 --
Accounts payable and accrued liabilities ........... 13,131,982 4,984,986 2,911,871
Accrued interest ................................... 495,271 573,446 492,076
Amounts retained on construction contracts ......... 6,618,250 -- 430,880
Amounts due to affiliates .......................... 2,099,559 200,538 76,458
Other liabilities .................................. 1,344,079 -- 1,230,989
------------ ----------- ------------
Total liabilities .................................. 135,784,955 41,815,195 135,739,199
Partners' equity ................................... 56,364,097 1,299,160 52,760,425
------------ ----------- ------------
Total liabilities and partners' equity ........... $192,149,052 $43,114,355 $188,499,624
============ =========== ============
</TABLE>
See accompanying notes.
A-1-4
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
1997 1996 1998 1997
------------- ---------- -------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Minimum rents ......................... $2,960,150 $ -- $10,031,160 $ --
Recoveries from tenants ............... 897,536 -- 4,137,880 --
Percentage rent ....................... 90,036 -- 177,670 --
Interest income ....................... 1,175,569 299,160 520,972 538,156
Other ................................. 734,572 -- 1,020,657 --
---------- -------- ----------- --------
5,857,863 299,160 15,888,339 538,156
EXPENSES:
Salaries .............................. 363,882 -- 1,068,918 --
Taxes ................................. 82,363 -- 1,541,434 --
Maintenance ........................... 268,456 -- 1,095,144 --
Utilities ............................. 112,664 -- 403,341 --
Management fees ....................... 107,753 -- 454,026 --
Insurance ............................. 23,472 -- 100,621 --
Depreciation and amortization ......... 1,376,637 -- 4,621,075 --
Interest .............................. 899,996 -- 3,631,887 --
Other ................................. 87,107 -- 180,643 --
---------- -------- ----------- --------
3,322,330 -- 13,097,089 --
---------- -------- ----------- --------
Net income ............................. $2,535,533 $299,160 $ 2,791,250 $538,156
========== ======== =========== ========
</TABLE>
See accompanying notes.
A-1-5
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
------------- --------------- --------------
<S> <C> <C> <C>
Percentage of ownership ................................ 2.00% 98.00% 100.00%
==== ===== ======
Partners' equity at January 1, 1996 .................... $ -- $ -- $ --
Contributions ......................................... 40,000 960,000 1,000,000
Net income ............................................ 11,966 287,194 299,160
---------- ------------ ------------
Partners' equity at December 31, 1996 .................. 51,966 1,247,194 1,299,160
Contributions ......................................... 1,120,000 54,139,000 55,259,000
Distributions ......................................... (51,067) (2,678,529) (2,729,596)
Net income ............................................ 51,242 2,484,291 2,535,533
---------- ------------ ------------
Partners' equity at December 31, 1997 .................. 1,172,141 55,191,956 56,364,097
Distributions (unaudited) ............................. (129,299) (6,265,623) (6,394,922)
Net income (unaudited) ................................ 57,380 2,733,870 2,791,250
---------- ------------ ------------
Partners' equity at June 30, 1998 (unaudited) ......... $1,100,222 $ 51,660,203 $ 52,760,425
========== ============ ============
</TABLE>
See accompanying notes.
A-1-6
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1997 1996 1998 1997
------------- ----------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ............................... $2,535,533 $299,160 $2,791,250 $538,156
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 1,376,637 -- 4,621,075 --
Provision for bad debt ........................... -- -- 53,376 --
Other changes in assets and liabilities:
Accounts receivable ............................. (1,975,198) -- (548,471) --
Operating accounts payable and accrued
liabilities .................................... 1,121,845 -- 1,371,257 --
Accrued interest receivable ..................... 143,734 (201,331) (202,680) (432,637)
Other assets .................................... (33,803) -- 20,282 --
Other liabilities ............................... 1,344,079 -- (113,090) 2,398,745
---------- -------- --------- ---------
Net cash provided by operating activities ............ 4,512,827 97,829 7,992,999 2,504,264
INVESTING ACTIVITIES:
Investment in real estate and development
assets ............................................. (102,933,886) (22,783,651) (3,290,164) (38,336,195)
Deferred leasing and other charges .................. (34,270,457) -- (5,574,493) --
Due from Special Assessment District ................ 1,163,349 (1,163,349) -- 1,163,349
Increase/(decrease) in development accounts
payable and accrued liabilities .................... 7,025,151 4,984,986 (11,591,369) 9,445,440
Amounts retained on construction contracts .......... 6,618,250 -- (6,187,370) 2,571,163
Decrease/(increase) in notes receivable --
affiliates ......................................... 490,129 (4,654,418) (3,841,159) (6,244,494)
(Increase)/decrease in accrued interest payable (78,175) 573,446 (3,195) --
------------ ----------- ----------- -----------
Net cash used in investing activities ................ (121,985,639) (23,042,986) (30,487,750) (31,400,737)
FINANCING ACTIVITIES:
Proceeds from note payable .......................... 112,095,814 -- 18,501,111 --
Repayment of note payable ........................... (10,121,971) -- -- (3,914,486)
Proceeds from note payable -- affiliate ............. -- 25,934,254 -- --
Repayment of note payable -- affiliate .............. (25,934,254) -- -- (25,934,254)
Increase/(decrease) in amounts due to affiliate ..... 1,899,021 200,538 (2,023,100) --
Contributions ....................................... 55,259,000 1,000,000 -- 55,507,098
Distributions ....................................... (2,729,596) -- (6,394,922) (391,815)
------------ ----------- ----------- -----------
Net cash provided by financing activities ............ 130,468,014 27,134,792 10,083,089 25,266,543
------------ ----------- ----------- -----------
Net increase/(decrease) in cash and cash
equivalents ......................................... 12,995,202 4,189,635 (12,411,662) (3,629,930)
Cash and cash equivalents, beginning of year ......... 4,189,635 -- 17,184,837 4,189,635
------------ ----------- ----------- -----------
Cash and cash equivalents, end of year ............... $ 17,184,837 $ 4,189,635 $ 4,773,175 $ 559,705
============== ============= ============= =============
</TABLE>
See accompanying notes.
A-1-7
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(INFORMATION AS OF AND FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements comprise the accounts of Grapevine Mills Limited
Partnership (the "Partnership"), a Delaware limited partnership. The
Partnership was formed pursuant to a limited partnership agreement executed
November 13, 1996 and subsequently amended and restated in April 1997,
effective January 1, 1996, between Kan Am USA XV Limited Partnership ("Kan Am
XV"), The Mills Limited Partnership ("MLP"), Simon DeBartolo Group, L.P.
("Simon"), and Grapevine Mills Operating Company, L.L.C. ("GMOC," owned 50%
each by MLP and Simon).
The primary purpose of the Partnership is the development and operation of
Grapevine Mills, a super-regional, value, and entertainment oriented mall
("Grapevine Mills") located in Tarrant County, Texas. The grand opening of
approximately 1.1 million square feet of the mall occurred in October 1997. An
additional 0.17 million square feet has opened subsequent to the grand opening
and an additional 0.25 million square feet is currently under development.
2. ACCOUNTING POLICIES
The significant accounting policies of the Partnership are as follows:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and highly liquid investments with
an original maturity of three months or less.
INCOME RECOGNITION
The Partnership, as lessor, has retained substantially all the risks and
benefits of ownership and accounts for its leases as operating leases. Minimum
rent from income producing property is recognized on a straight-line basis over
the terms of the respective leases. For the year ended December 31, 1997, the
Partnership recognized percentage rents on an accrual basis. In May 1998, the
Emerging Issues Task Force of the Financial Accounting Standards Board issued
EITF 98-9 "Accounting for Contingent Rent in Interim Financial Periods". The
provisions of EITF 98-9 preclude the Partnership from accruing percentage rent
until the tenants' sales have reached the break points stipulated in the
respective tenant leases. The Partnership implemented EITF 98-9 for the six
months ended June 30, 1998. Recoveries from tenants for real estate taxes and
other operating expenses are recognized as revenue in the period the applicable
costs are incurred.
INCOME PRODUCING PROPERTY
Income producing property is stated at the lower of cost or fair value and
includes development costs, land acquisition and improvements, building
improvements, on-site construction salaries, and fees paid to affiliates and
third parties for development of the project. The Partnership capitalizes
property taxes and interest during construction to the extent such assets
qualify for capitalization. Total interest of approximately $767,000,
$2,073,000 and $1,547,000 was capitalized during the six months ended June 30,
1998 and the years ended December 31, 1997 and 1996, respectively. Maintenance
and repairs are charged to expense as incurred. Depreciation expense is
computed using the straight-line method over the estimated useful lives of the
assets as follows:
Building and improvements ......... 40 years
Land improvements ................. 20 years
Equipment ......................... 5-7 years
Depreciation expense was approximately $1,820,000, $0, $641,000 and $0 for the
six months ended June 30, 1998 and 1997 and the years ended December 31, 1997
and 1996, respectively.
DEFERRED LEASING AND OTHER CHARGES
Leasing charges are deferred and amortized over a straight-line basis over
the terms of the related leases. Amortization expense was approximately
$2,802,000, $0, $735,000 and $0 for the six months ended June 30, 1998 and 1997
and the years ended December 31, 1997 and 1996, respectively. Accumulated
amortization was approximately $3,537,000, $735,000, and $0 at June 30, 1998
and December 31, 1997 and 1996, respectively.
A-1-8
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Partnership is not subject to Federal or State income taxes. Results
of operations of the Partnership are included proportionately in the Federal
and State income tax returns of the individual partners; therefore, no
provisions for income taxes are included in the accompanying financial
statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements include all adjustments, consisting of
normal recurring accruals, which the Partnership considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1998. All significant intercompany accounts and
transactions have been eliminated in consolidation.
3. NOTE PAYABLE
In connection with the purchase of land during 1996 from Rosewood Property
Company ("Rosewood"), a portion of the purchase price of approximately $21.5
million was financed through a note payable of $10,121,971 to Rosewood. This
transaction has been treated as non-cash investing and financing activity for
the 1996 statement of cash flows. The note, which was repaid in January 1997,
bore interest at the prime rate (8.25% at December 31, 1996).
In April 1997 the Partnership entered into a construction loan agreement
to borrow up to $155,000,000, of which $112,095,814 was outstanding at December
31, 1997. The initial loan period is for four years after draws commence, with
an option to extend for one additional year. The interest rate is LIBOR plus a
varying percentage amount or the prime interest rate. LIBOR and Prime were
5.72% and 8.25% at December 31, 1997, respectively. This construction loan was
repaid in August 1998 (Note 8).
Total interest paid, including interest on the note payable -- affiliate
(Note 6), was approximately $3,632,000, $202,000, $3,051,000 and $974,000 for
the six months ended June 30, 1998 and 1997 and the years ended December 31,
1997 and 1996, respectively.
4. CITY OF GRAPEVINE SPECIAL ASSESSMENT DISTRICT
In connection with the development of Grapevine Mills, a special
assessment district was created by the City of Grapevine (the "City"). The City
issued $28,915,000 of bonds in October 1996 for infrastructure improvements
related to Grapevine Mills. The bonds will be repaid through a direct annual ad
valorem tax based on the assessed value of the property.
5. PARTNERSHIP AGREEMENT
The Partnership agreement requires construction period preference payments
equal to 9% of each partner's capital account until completion of the project,
as defined. Thereafter, cash distributions, based on net ordinary cash flow of
the property, as defined, are required to pay cumulative unpaid construction
period preference payments, cumulative unpaid prior period priority returns, as
defined, current period priority returns, and distributions based on ownership
interests. Distributions are recorded when paid. Unpaid preferences at June 30,
1998 were approximately $1,262,000, which were paid in July 1998. Unpaid
preferences at December 31, 1997 were approximately $1,293,000, which were paid
in January 1998. There were no unpaid preferences at December 31, 1996.
Under terms of the partnership agreement, following the tenth anniversary
of the grand opening of Grapevine Mills, GMOC or Kan Am XV may exercise a
buy/sell provision under which Kan Am XV would sell its interest in the
Partnership to GMOC for an amount equal to the amount that it would receive if
Grapevine Mills were sold for its appraised value, as defined.
A-1-9
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED PARTY TRANSACTIONS
In 1996, the Partnership borrowed $25,934,254 and issued a note to
Mills-Kan Am Columbus/Sawgrass Mills Limited Partnership ("Columbus/Sawgrass"),
which is owned by an affiliate of Kan Am XV and MLP. The note bore interest at
9%. Interest incurred and capitalized in 1996 was approximately $1,147,000, of
which approximately $573,000 was accrued at December 31, 1996. In 1997, the
Partnership repaid the note, including interest incurred and capitalized during
the year of approximately $716,000.
The Partnership, concurrent with the purchase of land from Rosewood (Note
3), funded the purchase of land by Grapevine Mills Residual Limited Partnership
(the "Residual"), an affiliate of the partners of the Partnership, and received
a note for approximately $4.7 million. In 1997, the Partnership advanced
additional funds to the Residual of approximately $6.8 million for the purchase
of another tract of land and received approximately $7.3 million in principal
repayments. In 1998, the Partnership advanced additional funds to the Residual
of approximately $3.8 million to fund development activity. The note bears
interest at 9% and the Partnership recognized interest income of approximately
$203,000, $430,000, $906,000 and $201,000, for the six months ended June 30,
1998 and 1997 and the years ended December 31, 1997 and 1996, respectively, of
which approximately $260,000, $634,000, $58,000 and $201,000 was accrued at
June 30, 1998 and 1997 and December 31, 1997 and 1996, respectively.
The Partnership reimbursed MLP during 1996 for its predevelopment and
development costs incurred on the project prior to Partnership formation of
approximately $3 million.
MillsServices Corp. ("MSC"), an affiliate of certain partners of the
Partnership, provides development and leasing services for the Partnership and
is reimbursed for costs incurred. Total costs related to these services were
approximately $553,000, $3,515,000, $12,686,000 and $384,000 for the six months
ended June 30, 1998 and 1997 and the years ended December 31, 1997 and 1996,
respectively, all of which have been capitalized. In addition, during the six
months ended June 30, 1998 and the year ended December 31, 1997 the Partnership
has incurred and capitalized approximately $3,800,000 and $3,850,000,
respectively, of development, leasing and financing fees for services rendered
by MS Management Associates, Inc. ("MS"), an affiliate of Simon, of which
approximately $63,000 and $1,317,000, was accrued at June 30, 1998 and December
31, 1997, respectively.
MSC also provides management services to the Partnership for a recurring
management fee, equal to 4% of gross rents received, which totaled
approximately $454,000, $0 and $108,000 for the six months ended June 30, 1998
and 1997 and the year ended December 31, 1997.
Amounts due to affiliates represent amounts owed to MSC for costs incurred
on behalf of the Partnership and leasing and financing fees owed to MS.
7. LEASING
The Partnership is the lessor of Grapevine Mills which is classified as
income-producing property in the accompanying statements. The non-cancelable
leases expire on various dates through the year 2017 and require monthly
payments of minimum rents. A majority of the leases require the tenants to
reimburse the Partnership for a substantial portion of the operating expenses
of Grapevine Mills. In addition, some of the leases provide for rents equal to
percentages of gross revenues of the tenants in excess of specified amounts.
A-1-10
<PAGE>
GRAPEVINE MILLS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments to be received under non-cancelable leases
as of December 31, 1997 representing 91% of the square footage of Grapevine
Mills, are as follows:
1998 ....................... $ 18,822,000
1999 ....................... 19,017,000
2000 ....................... 18,788,000
2001 ....................... 18,142,000
2002 ....................... 17,227,000
Subsequent to 2002 ......... 101,950,000
------------
$193,946,000
============
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Partnership could realize on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash equivalents, accounts receivable, the note payable, accounts payable,
and other liabilities are carried at amounts which reasonably approximate their
fair value.
Disclosures about fair market value of financial instruments are based on
pertinent information available to management as of December 31, 1997. Although
management is not aware of any factors that would significantly affect the
reasonable fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and current
estimates of fair value may differ significantly from the amounts presented
herein.
9. CONTINGENCIES
The Partnership is party to various legal actions which result from
operating activities. Management believes that these actions will not have a
material adverse affect on the Partnership.
10. SUBSEQUENT EVENT
In August 1998, the Partnership refinanced the construction loan (Note 3)
from the proceeds of a $155,000,000 permanent loan. The loan matures September
1, 2032. The interest rate is 6.47% through September 1, 2002 and the greater
of (i) 8.47% or (ii) the U.S. Treasury rate plus 200 basis points thereafter.
YEAR 2000 ISSUE (UNAUDITED)
The Partnership has recognized the need to ensure that its systems,
equipment and operations will not be adversely impacted by the change to
calendar year 2000. As such, the Partnership has taken steps to identify
potential areas of risks and has begun addressing these in its planning,
purchasing and daily operations. The total cost of converting all internal
systems, equipment and operations for the year 2000 has not been fully
quantified, but it is not expected to be a material cost to the Partnership.
However, no such estimates can be made as to the potential adverse impact
resulting from the failure of third party service providers, tenants and
vendors to prepare for the year 2000.
A-1-11
<PAGE>
EXHIBIT A-2
SUMMARIZED FINANCIAL INFORMATION FOR
EDENS & AVANT POOL I PROPERTIES
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
($000S)
------------------
<S> <C>
Gross Revenues from Operations ........................................................... $31,189
Operating Expenses ....................................................................... 9,830
-------
Gross Operating Profit ................................................................... $21,358
Fixed Expenses ........................................................................... 55
-------
Income from Operations, Exclusive of Interest Income, Depreciation and Financial Expenses $21,303
=======
</TABLE>
A-2
<PAGE>
EXHIBIT A-3
SUMMARIZED FINANCIAL INFORMATION FOR
MALL OF NEW HAMPSHIRE PROPERTY
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
($000S)
-------------------
<S> <C>
Gross Revenues from Operations ......................... $ 10,220
Operating Expenses ..................................... 3,918
----------
Gross Operating Profit ................................. $ 6,302
Fixed Expenses ......................................... 36
----------
Income from Operations, Exclusive of Interest
Income, Depreciation and Financial Expenses ........... $ 6,267
==========
Total Assets ........................................... $ 24,944
==========
Total Liabilities ...................................... $ 37,743
Total Owner's Equity (Deficiency). ..................... (12,799)
----------
Total Liabilities & Owner's Equity (Deficiency) ........ $ 24,944
==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
($000S) ($000S) ($000S)
------------------- ------------------- -----------------
<S> <C> <C> <C>
Gross Revenues from Operations ......................... $ 10,431 $ 12,700 $ 7,485
Operating Expenses ..................................... 3,217 4,053 2,647
---------- --------- ---------
Gross Operating Profit ................................. $ 7,214 $ 8,647 $ 4,838
Fixed Expenses ......................................... 287 4,524 486
---------- --------- ---------
Income from Operations, Exclusive of Interest
Income, Depreciation and Financial Expenses ........... $ 6,927 $ 4,123 $ 4,352
========== ========= =========
Total Assets ........................................... $ 50,900 $ 66,711 $ 69,431
========== ========= =========
Total Liabilities ...................................... $ 89,471 $ 106,075 $ 108,908
Total Owner's Equity (Deficiency). ..................... (38,570) (39,364) (39,477)
---------- --------- ---------
Total Liabilities & Owner's Equity (Deficiency) ........ $ 50,900 $ 66,711 $ 69,431
========== ========= =========
</TABLE>
A-3
<PAGE>
EXHIBIT A-4
SUMMARIZED FINANCIAL INFORMATION FOR
WESTSIDE PAVILION PROPERTY (PHASE I)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
($000S) ($000S)
------------------- -----------------
<S> <C> <C>
Gross Revenues from Operations ....................................... $21,554 $11,148
Operating Expenses ................................................... 6,895 3,298
------- -------
Gross Operating Profit ............................................... $14,660 $ 7,850
Fixed Expenses ....................................................... 214 312
------- -------
Income from Operations, Exclusive of Interest Income, Depreciation and
Financial Expenses .................................................. $14,446 $ 7,538
======= =======
</TABLE>
NOTES:
Gross Revenues from Operations excludes base rent and recoveries from
Phase II tenants. Total revenues for Westside Pavilion Phases I & II were
$23,000,884 and $11,896,663 for the operating year ended December 31, 1997 and
six months ended June 30, 1998. Phase I accounted for 94% ($21,554,461 of the
$23,000,884) of total revenue for the year ended December 31, 1997 and 94%
($11,148,298 of the $11,896,663) of total revenue for the six months ended June
30, 1998.
Operating Expenses represents the combined Westside Pavilion Phase I & II
operating expenses for the year ended December 31, 1997 and six months ended
June 30, 1998 reduced by certain deductions for Phase II real estate taxes,
insurance and common area maintenance. Total expenses for Westside Pavilion
Phases I & II were $8,774,774 and $4,194,955 for the operating year ended
December 31, 1997 and six months ended June 30, 1998. Phase I accounted for 79%
($6,894,585 of the $8,774,774) of total expenses for the year ended December
31, 1997 and 79% ($3,298,368 of the $4,194,955) of total expenses for the six
months ended June 30, 1998.
Phase II real estate taxes, insurance and common area maintenance expenses
were derived according to the following methodologies:
-- Real estate tax expense was based on the 1997/1998 real estate tax
bills.
-- Insurance expense was computed using a GLA allocation method, assuming
that Phase II represented approximately 17% of the total Westside Pavilion
property. Historical insurance bills were not available.
-- Common area maintenance expense was based on the 1998 operating budget.
Phase II common area maintenance expenses of $1,192,495 and $552,296 were
calculated for the year ended December 31, 1997 and the six months ended
June 30, 1998.
Fixed Expenses were based on a building improvement report provided by the
Westside Pavilion Borrower. All fixed expenses were assumed to be related to
Phase I.
A-4
<PAGE>
EXHIBIT A-5
SUMMARIZED FINANCIAL INFORMATION FOR
NORTHTOWN MALL PROPERTY
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
($000S) ($000S)
------------------- -----------------
<S> <C> <C>
Gross Revenues from Operations ....................................... $14,816 $11,148
Operating Expenses ................................................... 4,261 3,298
------- -------
Gross Operating Profit ............................................... $10,555 $ 7,850
Fixed Expenses ....................................................... 227 --
------- -------
Income from Operations, Exclusive of Interest Income, Depreciation and
Financial Expenses .................................................. $10,328 $ 7,850
======= =======
</TABLE>
A-5
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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 Morgan Stanley Mortgage
Capital 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 I to
the 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) The Mortgage Loan Seller 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) The Mortgage Loan Seller 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 and there is no
valid defense, counterclaim, or right of rescission or right of
set-off or abatement available to any mortgagor under the Mortgage
Loan documents;
(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 the Mortgage Loan Seller, 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 the Mortgage Loan Seller, 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)
and none of which relate to matters on the survey of the related
Mortgaged Property which are material. To the actual knowledge of
the Mortgage Loan Seller, no material claims have been made under
such title policy;
(vii) As of the date of origination of the Mortgage Loan there were no,
and to the best knowledge of the Mortgage Loan Seller 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 and there
is no subordinate debt secured by the Mortgaged Property except as
disclosed in the Prospectus Supplement;
(viii) (A) Each building or other improvement located on any Mortgaged
Property was insured by a fire and extended perils insurance
policy, issued by an insurer or reinsured by an insurer meeting
the requirements of the Mortgage
B-1
<PAGE>
Loan documents, in an amount not less than the replacement cost of
the Mortgaged Property; each Mortgaged Property was 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 the Mortgage Loan Seller, based solely on the Mortgage
Loan Seller's review of the report prepared by the engineer who
inspected the structure, exterior walls, roofing, interior
construction, mechanical and electrical systems and general
conditions of the site, buildings and other improvements with
respect to the Mortgage Loan (which report indicated, where
appropriate, a variety of deferred maintenance items and
recommended capital improvements with respect to such Mortgaged
Property, as well as the estimated cost of such items and
improvements and the most recent visual inspection (as 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. The Mortgage Loan Seller 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 the Mortgage Loan Seller'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
the Mortgage Loan Seller'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) The Mortgage Loan Seller 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;
B-2
<PAGE>
(xvii) The proceeds of the Mortgage Loan have been fully disbursed and
there is no requirement for future advances thereunder and the
Mortgage Loan Seller 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 as to disbursement of any escrow funds
therefor have been complied with;
(xviii) The Mortgage Loan Seller 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 and is not convertible into an equity
interest in the borrower;
(xxi) No fraudulent acts were committed by the Mortgage Loan Seller 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;
(xxiii) To the extent required under applicable law, the Mortgage Loan
Seller 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 the Mortgage Loan Seller, there is no
material default, breach, violation or event of acceleration
existing under any of the Mortgage Loan documents and the Mortgage
Loan Seller 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) (A) 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. The Mortgage Loan
Seller has reviewed each such report and update. (B) the Mortgage
Loan Seller, 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. The Mortgage Loan Seller 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. (C) the Mortgage Loan Seller 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 and,
to the best of the Mortgage Loan Seller's knowledge, the mortgagor
is not a debtor in a state or federal bankruptcy or insolvency
proceeding;
(xxviii) To the best of the Mortgage Loan Seller'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 could materially affect the mortgagor's performance of
its obligations under the Mortgage Loan documents;
B-3
<PAGE>
(xxix) The servicing and collection practices used by the Mortgage Loan
Seller, and to the best of the Mortgage Loan Seller'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 the best of the
Mortgage Loan Seller'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, Rents and Profits, 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;
(xxxiv) Based on the Mortgage Loan Seller's review of the 100-year flood
plain map provided by FEMA, 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 the Mortgage Loan Seller'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 the Mortgage Loan Seller.
B-4
<PAGE>
(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 ten 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 interest 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, and (B) the fair market value of such
real property, as evidenced by an appraisal conducted within 12
months of the origination of the Mortgage Loan, or as determined
by the Mortgage Loan Seller 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 cross-collateralized with such Mortgage Loan, in which event
the computation described in (I) and (II) shall be made on an
aggregate basis);
(xxxvii) To the best knowledge of the Mortgage Loan Seller, 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;
B-5
<PAGE>
(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, Rents and Profits,
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, Rents and Profits 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 hereunder (except for Mortgage Loans, if any,
which are cross-collateralized with other Mortgage Loans being
conveyed to the Depositor or subsequent transferee hereunder and
identified on the Mortgage Loan Schedule);
(xli) To the Mortgage Loan Seller'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;
(xlii) Each Mortgage Loan requires that the borrower comply with all
legal requirements applicable to it and the Mortgaged Property;
and
(xliii) No Mortgage Loan is a loan in which the originator paid the
borrower a premium in exchange for a higher Mortgage Rate ("Buy-up
Loan").
B-6
<PAGE>
SCHEDULE 1 TO EXHIBIT B
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
GRAPEVINE MILLS
<TABLE>
<CAPTION>
<S> <C>
REPRESENTATION EXCEPTION
- ---------------- ----------
None.
</TABLE>
EDENS & AVANT POOL I
<TABLE>
<CAPTION>
<S> <C>
REPRESENTATION EXCEPTION
- ---------------- ----------
None.
</TABLE>
MALL OF NEW HAMPSHIRE
<TABLE>
<CAPTION>
<S> <C>
REPRESENTATION EXCEPTION
- ------------------------- ---------------------------------------------------------------
(xxxv) (E) The Small Mall of New Hampshire Ground Lease does not provide
the protections to the mortgagee set forth in this subsection.
(F) The Small Mall of New Hampshire Ground Lease does not provide
the protections to the mortgagee set forth in this subsection.
(G) The Small Mall of New Hampshire Ground Lease expires, with no
further renewals, on September 20, 2027.
(H) The Small Mall of New Hampshire Ground Lease does not provide
the protections to the mortgagee set forth in this subsection.
(I) The Small Mall of New Hampshire Ground Lease does not provide
the protections to the mortgagee set forth in this subsection.
(J) The Small Mall of New Hampshire Ground Lease does not provide
the protections to the mortgagee set forth in this subsection.
</TABLE>
WESTSIDE PAVILION
<TABLE>
<CAPTION>
<S> <C>
REPRESENTATION EXCEPTION
- ---------------------- ----------------------------------------------------------------------
(viii) The Westside Pavilion Borrower may obtain the insurance coverage
required to meet the insurance requirements from insurers having
ratings lower than the ratings prescribed in the insurance
requirements section of the mortgage, provided that a cut-through
endorsement in form and substance approved by mortgagee shall be
issued by an insurer with at least an "AA" rating by S&P provided,
that if, upon the renewal or replacement of any insurance policy or
change to a different carrier, the cost of maintaining such insurance
with an insurer that is rated "AA" or maintaining a cut-through
endorsement with an insurer that is rated "AA" is commercially
unreasonable, the Westside Pavilion Borrower agrees to maintain
such insurance with insurers that are rated "A" or maintaining
cut-through endorsement with an insurer that is rated "A".
(xxxiv) The Westside Pavilion Property is located in a special flood hazard
area. The Westside Pavilion Borrower is required to maintain flood
insurance in an amount equal to the maximum available National
Flood Insurance Program coverage.
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(xxxv) (G) A portion of the Westside Pavilion Property consisting of a storage
space is leased to Nordstrom and held by the Borrower pursuant to a
ground lease. The ground lease expires upon the expiration or earlier
termination of the Nordstrom Lease, which is currently scheduled to
expire on December 1, 2033 which extends is not less than 10 years
beyond the maturity date of the Mortgage Loan, subject to four ten
year renewal terms.
(J) The Westside Pavilion ground lease imposes material restrictions on
subletting.
</TABLE>
NORTHTOWN MALL
<TABLE>
<CAPTION>
<S> <C>
REPRESENTATION EXCEPTION
- ---------------- ----------
None.
</TABLE>
EDENS & AVANT POOL II
<TABLE>
<CAPTION>
<S> <C>
REPRESENTATION EXCEPTION
- ------------------------- ------------------------------------------------------------------------
(xxxv) (E) Reservoir Square Shopping Center -- The ground lease does not
provide specifically the protections to the mortgagee set forth in this
subsection.
Baldwin Square -- The ground lease does not provide specifically the
protections to the mortgagee set forth in this subsection.
(F) Reservoir Square Shopping Center -- The ground lease does not
provide specifically the protections to the mortgagee set forth in this
subsection.
Baldwin Square -- The ground lease does not provide specifically the
protections to the mortgagee set forth in this subsection.
(H) Reservoir Square Shopping Center -- The ground lease provides that
lessor may terminate if the tenant is judicially declared bankrupt.
Baldwin Square -- The ground lease does not specifically provide the
protections to the mortgagee set forth in this subsection.
(I) Reservoir Square Shopping Center -- The ground lease does not
specifically provide the protections to the mortgagee set forth in this
subsection.
Baldwin Square -- The ground lease does not specifically provide the
protections to the mortgagee set forth in this subsection.
Magee Shopping Center -- The ground lease provides that all
insurance shall be paid to the ground lessee (borrower) and all
proceeds should be applied to repair or restoration of the property.
The leasehold mortgage pledges all insurance proceeds to mortgagee
to be either: (a) retained in payment of the outstanding debt, or (b)
paid directly to Borrower for diligent prosecution of the repair and
restoration of the property. In addition, mortgagee does not retain the
right to disburse the proceeds as repair and restoration progresses.
</TABLE>
CRYSTAL PARK IV
<TABLE>
<CAPTION>
<S> <C>
REPRESENTATION EXCEPTION
- ---------------- ----------
None.
</TABLE>
B-8
<PAGE>
EXHIBIIT C
FORM OF REPORT TO CERTIFICATEHOLDERS
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
DISTRIBUTION DATE STATEMENT
TABLE OF CONTENTS
STATEMENT SECTIONS PAGE(S)
Certificate Distribution Detail 2
Certificate Factor Detail 3
Reconciliation Detail 4
Other Required Information 5
Ratings Detail 6
Current Mortgage Loan and Property Stratification Tables 7
Mortgage Loan Detail 8
Principal Prepayment Detail 9
Historical Detail 10
Delinquency Loan Detail 11
Specially Serviced Loan Detail 12 - 13
Modified Loan Detail 14
Liquidated Loan Detail 15
UNDERWRITER
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Contact: General Information Number
Phone Number: (212) 761-4700
MASTER SERVICER
Midland Loan Services, Inc.
210 West 10th Street
Kansas City, MO 64105
Contact: Brad Hauger
Phone Number: (816) 435-5175
SPECIAL SERVICER
Midland Loan Services, Inc.
210 West 10th Street
Kansas City, MO 64105
Contact: Brad Hauger
Phone Number: (816) 435-5175
This report has been compiled from information provided to Norwest by various
third parties, which may include the Servicer, Master Servicer, Special
Servicer and others. Norwest has not independently confirmed the accuracy of
information received from these third parties and assumes no duty to do so.
Norwest expressly disclaims any responsibility for the accuracy or completeness
of information furnished by third parties.
Copyright 1997, Norwest Bank Minnesota, N. A. Page 1 of 15
C-1
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
CERTIFICATE DISTRIBUTION DETAIL
<TABLE>
<CAPTION>
Realized loss/
Additional Current
Pass-Through Original Beginning Principal Interest Prepayment Trust Fund Total Ending Subordination
Class CUSIP Rate Balance Balance Distribution Distribution Penalties Expenses Distribution Balance Level (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
A-2 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
B 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
C 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
D 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
E 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
F 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
Q 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
R 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
LR 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00%
Totals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
<TABLE>
<CAPTION>
Original Beginning Ending
Pass-Through Notional Notional Interest Prepayment Total Notional
Class CUSIP Rate Amount Amount Distribution Penalties Distribution Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
X 0.000000% 0.00 0.00 0.00 0. 00 0.00 0.00
</TABLE>
(1) Calculated by taking (A) the sum of the ending certificate balance of all
classes less (B) the sum of (i) the ending certificate balance of the
designated class and (ii) the ending certificate balance of all classes which
are not subordinate to the designated class and dividing the result by (A).
Copyright 1997, Norwest Bank Minnesota, N.A. Page 2 of 15
C-2
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
CERTIFICATE FACTOR DETAIL
<TABLE>
<CAPTION>
Realized Loss/
Beginning Principal Interest Prepayment Additional Trust Ending
Class CUSIP Balance Distribution Distribution Penalties Fund Expenses Balance
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
A-2 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
B 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
C 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
D 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
E 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
F 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
Q 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
R 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
LR 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000 0.00000000
</TABLE>
Beginning Ending
Notional Interest Prepayment Notional
Class CUSIP Amount Distribution Penalties Amount
- -------------------------------------------------------------------------------
X 0.00000000 0.00000000 0.00000000 0.00000000
Copyright 1997, Norwest Bank Minnesota, N.A. Page 3 of 15
C-3
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
RECONCILIATION DETAIL
ADVANCE SUMMARY
P & I Advances Outstanding 0.00
Servicing Advances Outstanding 0.00
Reimbursement for Interest on Advances 0.00
paid from general collections
SERVICING FEE BREAKDOWNS
Current Period Accrued Servicing Fees 0.00
Less Delinquent Servicing Fees 0.00
Less Reductions to Servicing Fees 0.00
Plus Servicing Fees for Delinquent Payments Received 0.00
Plus Adjustments for Prior Servicing Calculation 0.00
Total Servicing Fees Collected 0.00
CERTIFICATE INTEREST RECONCILIATION
<TABLE>
<CAPTION>
Interest Excess Realized Previously Unpaid Distribution Distributable Remaining
Accrual Prepayment Losses/ Interest(including Certificate Certif. Interest Interest Unpaid
Class Amount Interest Shortfall Expense Losses interest thereon) Interest Adjustment Distribution Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A-2 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
X 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
D 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
E 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
F 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Totals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
Copyright 1997, Norwest Bank Minnesota, N.A. Page 4 of 15
C-4
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
OTHER REQUIRED INFORMATION
Available Funds 0.00
Aggregate Number of Outstanding Loans 0
Aggregate Unpaid Principal Balance of Loans 0.00
Aggregate Stated Principal Balance of Loans 0.00
Aggregate Amount of Servicing Fee 0.00
Aggregate Amount of Special Servicing Fee 0.00
Aggregate Amount of Trustee Fee 0.00
Aggregate Trust Fund Expenses 0.00
Specially Serviced Loans not Delinquent
Number of Outstanding Loans 0
Aggregate Unpaid Principal Balance 0.00
Appraisal Reduction Amount
Appraisal Date Appraisal
Loan Reduction Reduction
Number Amount Effected
- -----------------------------------------------------
- -----------------------------------------------------
Total
- -----------------------------------------------------
Copyright 1997, Norwest Bank Minnesota, N.A. Page 5 of 15
C-5
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
RATINGS DETAIL
Original Ratings Current Ratings (1)
-----------------------------------------------------
Class CUSIP DCR Fitch Moody's S&P DCR Fitch Moody's S&P
- -------------------------------------------------------------------------------
A-1
A-2
X
B
C
D
E
F
- -------------------------------------------------------------------------------
NR - Designates that the class was not rated by the above agency at the
time of original issuance.
X - Designates that the above rating agency did not rate any classes in
this transaction at the time of original issuance.
N/A - Data not available this period.
1) For any class not rated at the time of original issuance by any particular
rating agency, no request has been made subsequent to issuance to obtain rating
information, if any, from such rating agency. The current ratings were obtained
directly from the applicable rating agency within 30 days of the payment date
listed above. The ratings may have changed since they were obtained. Because
the ratings may have changed, you may want to obtain current ratings directly
from the rating agencies.
Duff & Phelps Credit Rating Co.
55 East Monroe Street
Chicago, Illinois 60603
(312) 368-3100
Fitch IBCA, Inc.
One State Street Plaza
New York, New York 10004
(212) 908-0500
Moody's Investors Service
99 Church Street
New York, New York 10007
(212) 553-0300
Standard & Poor's Rating Services
26 Broadway
New York, New York 10004
(212) 208-8000
Copyright 1997, Norwest Bank Minnesota, N.A. Page 6 of 15
C-6
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
STATE (3)
% of
# of Scheduled Agg. WAM Weighted
State Props. Balance Bal. (2) WAC Avg DSCR (1)
- --------------------------------------------------------------------
- ----------------------------------------------------------------------
Totals
- ----------------------------------------------------------------------
PROPERTY TYPE (3)
% of
Property # of Scheduled Agg. WAM Weighted
Type Props. Balance Bal. (2) WAC Avg DSCR (1)
- --------------------------------------------------------------------
- -----------------------------------------------------------------------
Totals
- -----------------------------------------------------------------------
(1) Debt Service Coverage Ratios are calculated as described in the prospectus,
values are updated periodically as new NOI figures become available from
borrowers on an asset level. The Trustee makes no representations as to the
accuracy of the data provided by the borrower for this calculation.
(2) WAM is calculated based upon the Effective Maturity Date.
(3) Data in this table was calculated by allocating pro-rata the current loan
information to the properties based upon the Cut-off Date Balance of the
related mortgage loan as disclosed in the offering document.
Copyright 1997, Norwest Bank Minnesota, N.A. Page 7 of 15
C-7
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
<TABLE>
<CAPTION>
MORTGAGE LOAN DETAIL
Latest
Effective Beginning Ending Paid Financial Res. Mod.
Loan Loan Interest Principal Gross Origination Maturity Maturity Scheduled Scheduled Thru Statement Strat. Code
Number ODCR Name Payment Payment Coupon Date Date Date Balance Balance Date Date DSCR (2) (3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Totals
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Collateral Type Code
MF - Multi-Family
RT - Retail
HC - Health Care
IN - Industrial
WH - Warehouse
OF - Office
MU - Mixed Use
LO - Lodging
SS - Self Storage
MH - Mobile Home Park
(2) Resolution Strategy Code
1 - Modification
2 - Foreclosure
3 - Bankruptcy
4 - Extension
5 - Note Sale
6 - DPO
7 - REO
8 - Resolved
9 - Pending Return to Master Servicer
10 - Deed In Lieu Of Foreclosure
(3) Modification Code
1 - Maturity Date Extension
2 - Amortization Change
3 - Principal Write-Off
4 - Combination
Copyright 1997, Norwest Bank Minnesota, N.A. Page 8 of 15
C-8
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
PRINCIPAL PREPAYMENT DETAIL
<TABLE>
<CAPTION>
Principal Prepayment Amount Prepayment Penalties
Offering Document ----------------------------------- ------------------------------------------------
Loan Number Cross-Reference Payoff Amount Curtailment Amount Prepaayment Premium Yield Maintenance Premium
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Totals
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Copyright 1997, Norwest Bank Minnesota, N.A. Page 9 of 15
C-9
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
HISTORICAL DETAIL
<TABLE>
<CAPTION>
Delinquencies
- --------------------------------------------------------------------------------------------
Distribution 30-59 Days 60-89 Days 90 Days or more Foreclosure REO Modifications
Date # Balance # Balance # Balance # Balance # Balance # Balance
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
<CAPTION>
Prepayments Rate and Maturities
- ------------------------------------------------------------------------
Distribution Curtailments Payoff Next Weighted Avg.
Date # Amount # Amount Coupon Remit WAM
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------
</TABLE>
Note: Foreclosure and REO Totals are excluded from the delinquencies aging
categories.
Copyright 1997, Norwest Bank Minnesota, N.A. Page 10 of 15
C-10
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
DELINQUENCY LOAN DETAIL
<TABLE>
<CAPTION>
Offering # of Current Outstanding Status of Resolution
Loan Document Months Paid Through P&I P&I Mortgage Strategy Servicing
Number Cross-Reference Delinq. Date Advances Advances** Loan (1) Code (2) Transfer Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Totals
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Current Outstanding
Loan Foreclosure Servicing Servicing REO
Number Date Advances Advances Bankruptcy Date Date
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------
Totals
- ---------------------------------------------------------------------
</TABLE>
(1) Status of Mortgage Loan
A - Payment Not Received But Still in
Grace Period
B - Late Payment But Less
Than 1 Month Delinquent
0 - Current
1 - One Month Delinquent
2 - Two Months Delinquent
3 - Three Or More Months Delinquent
4 - Assumed Scheduled Payment
(Performing Matured Balloon)
7 - Foreclosure
9 - REO
<PAGE>
(2) Resolution Strategy Code
1 - Modification
2 - Foreclosure
3 - Bankruptcy
4 - Extension
5 - Note Sale
6 - DPO
7 - REO
8 - Resolved
9 - Pending Return
to Master Servicer
10 - Deed In Lieu Of
Foreclosure
** Outstanding P & I Advances include the current period advance
Copyright 1997, Norwest Bank Minnesota, N.A. Page 11 of 15
C-11
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
SPECIALLY SERVICED LOAN DETAIL - PART 1
<TABLE>
<CAPTION>
Offering Servicing Resolution Net
Distribution Loan Document Transfer Strategy Scheduled Property Interest Actual Operating
Date Number Cross Reference Date Code (1) Balance Type (2) State Rate Balance Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Remaining
Distribution NOI Note Maturity Amortization
Date Date DSCR Date Date Term
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------
</TABLE>
(1) Resolution Strategy Code
1 - Modification
2 - Foreclosure
3 - Bankruptcy
4 - Extension
5 - Note Sale
6 - DPO
7 - REO
8 - Resolved
9 - Pending Return
to Master Servicer
10 - Deed In Lieu Of Foreclosure
(2) Property Type Code
MF - Multi-Family
RT - Retail
HC - Health Care
IN - Industrial
WH - Warehouse
MH - Mobile Home Park
OF - Office
MU - Mixed Use
LO - Lodging
SS - Self Storage
OT - Other
Copyright 1997, Norwest Bank Minnesota, N.A. Page 12 of 15
C-12
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
SPECIALLY SERVICED LOAN DETAIL-PART 2
<TABLE>
<CAPTION>
Distribution Loan Document Strategy Inspection Appraisal Appraisal Other REO
Date Number Cross-Reference Code (1) Date Phase 1 Date Date Value Property Revenue Comment
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Resolution Strategy Code
1 - Modification
2 - Foreclosure
3 - Bankruptcy
4 - Extension
5 - Note Sale
6 - DPO
7 - REO
8 - Resolved
9 - Pending Return
to Master Servicer
10 - Deed In Lieu Of Foreclosure
Copyright 1997, Norwest Bank Minnesota, N.A. Page 13 of 15
C-13
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
MODIFIED LOAN DETAIL
<TABLE>
<CAPTION>
Offering
Loan Document Pre-Modification
Number Cross Reference Balance Modification Date Modification Description
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------------
</TABLE>
Copyright 1997, Norwest Bank Minnesota, N.A. Page 14 of 15
C-14
<PAGE>
[NORWEST BANKS LOGO]
NORWEST BANK MINNESOTA, N.A.
CORPORATE TRUST SERVICES
3 NEW YORK PLAZA, 15TH FLOOR
NEW YORK, NY 10004
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
For Additional Information, please contact
Leslie Gaskill
(212) 515-5254
Reports Available on the World Wide Web
@ www.securitieslink.net/cmbs
PAYMENT DATE: 11/4/98
RECORD DATE: 10/30/98
LIQUIDATED LOAN DETAIL
<TABLE>
<CAPTION>
Final Recovery Offering Gross Proceeds Aggregate
Loan Determination Document Appraisal Appraisal Actual Gross as a % of Liquidation
Number Date Cross-Reference Date Value Balance Proceeds Actual Balance Expenses*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Current Total
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Total
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net Net Proceeds Repurchased
Loan Liquidation as a % of Realized by Seller
Number Proceeds Actual Balance Loss (Y/N)
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Current Total
- ----------------------------------------------------------------------------
Cumulative Total
- ----------------------------------------------------------------------------
</TABLE>
* Aggregate liquidation expenses also include outstanding P & I advances and
unpaid fees (servicing, trustee, etc.).
Copyright 1997, Norwest Bank Minnesota, N.A. Page 15 of 15
C-15
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXHIBIT D
[MORGAN STANLEY DEAN WITTER LOGO]
MORGAN STANLEY
Real Estate Debt Capital Markets
Mortgage/Asset Backed Capital Markets
CMBS NEW ISSUE
TERM SHEET
---------------------------------------------
$706.5 MM
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates
Series 1998-XL2
---------------------------------------------
XL2
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 Seller 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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
<TABLE>
<CAPTION>
OVERVIEW OF THE CERTIFICATES
- --------------------------------------------------------------------------------------------------------------------------------
Expected Final Anticipated
Amount(1)(2) Ratings Subordination Average Life Principal Distribution Pass-Through
Class ($MM) (DCR/S&P) % (yrs)(3) Window(3)(4) Date(3) Rate(5) (6)
- --------------------------------------------------------------------------------------------------------------------------------
Public Certificates:
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $43.3 AAA/AAA 27.75% 5.44 1-106 8/03/07 Fixed
A-2 467.1 AAA/AAA 27.75 9.88 106-120 10/03/08 Fixed
X 706.5 AAA/AAAr - - 1-120 10/03/08 Variable
B 75.9 AA/AA 17.0 9.97 120 10/03/08 WAC - Fixed Strip
C 42.4 A/A 11.0 9.97 120 10/03/08 WAC - Fixed Strip
D 45.9 BBB/BBB 4.5 9.97 120 10/03/08 WAC - Fixed Strip
E 21.2 BBB-/BBB- 1.5 9.97 120 10/03/08 WAC - Fixed Strip
PRIVATE CERTIFICATES:
- ---------------------
F 10.6 BB/BB- - 9.97 120 10/03/08 Fixed
- --------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Approximate, in the case of each such Class, subject to a permitted variance of plus or minus 5%.
(2) Class X Notional Amount is equal to the sum of all Certificate Principal Amounts outstanding from time to time.
(3) Based on Modeling Assumptions and Scenario 1, each as defined in the Prospectus Supplement.
(4) Principal Window is the period (expressed in terms of months and commencing with the month of the first Distribution
Date) during which distributions of principal are expected to be made to the holders of each designed Class in
accordance with the Modeling Assumptions.
(5) In the case of A-1, A-2, and F classes, interest will accrue at a fixed rate, in the case of B, C, D and E classes,
interest will accrue at the Weighted Average Net Mortgage Rate for such Distribution Date less a fixed interest
strip. The Pass Through rate for class X is described on page 4 of this term sheet.
(6) Subject to change at pricing.
</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 Seller 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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
I. ISSUE CHARACTERISTICS
ISSUE TYPE: The Class A-1, A-2, X, B, C, D and E Certificates
will be offered publicly through a Prospectus
Supplement (and accompanying Prospectus) to be
dated October 8, 1998, and the class F will be
privately placed (pursuant to Rule 144A under the
Securities Act of 1933, as amended) pursuant to a
Private Placement Memorandum to be dated October 8,
1998.
COLLATERAL: The collateral consists of approximately $706.5
million pool of 7 fixed rate commercial mortgage
loans.
SECURITIES ISSUED: $706,465,702 monthly pay, multi-class sequential
pay, commercial mortgage REMIC pass-through
certificates, including seven principal and
interest Classes (Classes A-1, A-2, B, C, D, E and
F) and an interest-only Class (Class X) whose
Notional Amount consists of seven separate strip
components, each corresponding to the Class A-1,
A-2, B, C, D, E and F Certificates.
DEPOSITOR: Morgan Stanley Capital I Inc.
LEAD MANAGER: Morgan Stanley & Co. Incorporated
MASTER SERVICER: Midland Loan Services, Inc.
SPECIAL SERVICER: Midland Loan Services, Inc.
TRUSTEE/FISCAL AGENT: Norwest Bank Minnesota, National Association
PRICING DATE: On or about October 8, 1998
EXPECTED CLOSING DATE: On or about October 15, 1998
DISTRIBUTION DATES: The 3rd business day of each month, commencing
November, 1998
MINIMUM DENOMINATIONS: $10,000 for Public Certificates (other than the
Class X Certificates); $100,000 for all other
Certificates. DTC, Euroclear and Cedel, same day
funds, with accrued interest
SETTLEMENT TERMS: DTC, Euroclear and Cedel, same day funds, with
accrued interest
LEGAL/REGULATORY STATUS: Class A-1, A-2 and X Certificates are expected to
be eligible for exemptive relief under ERISA. The
remaining Principal Balance Certificates can be
purchased by an insurance company general account
under PTE 95-60. Class A-1, A-2, X and B
Certificates are expected to be SMMEA eligible so
long as they are rated in the two highest rating
categories and the loans are secured by real
estate.
RISK FACTORS: THE CERTIFICATES INVOLVE A DEGREE OF RISK AND MAY
NOT BE SUITABLE FOR ALL INVESTORS. SEE THE "RISK
FACTORS" SECTION OF THE PROSPECTUS SUPPLEMENT,
PROSPECTUS AND PRIVATE PLACEMENT MEMORANDUM
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 Seller 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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
II. STRUCTURE CHARACTERISTICS
ANTICIPATED PASS-THROUGH RATES: Class A-1: Fixed
Class A-2: Fixed
Class B: WAC - Fixed Strip
Class C: WAC - Fixed Strip
Class D: WAC - Fixed Strip
Class E: WAC - Fixed Strip
Class F Fixed
Class X: The Pass-Through Rate on the
Class X Certificates on each
Distribution Date will equal, in
general, the weighted average of
the Class X Component Rates for
the respective Principal Balance
Certificates for such
Distribution Date. The Class X
Component Rate in respect of the
Class A-1, A-2, B, C, D, E and F
Certificates will, in general,
equal the excess, if any, of the
Weighted Average Net Mortgage
Rate over the Pass-Through rates
applicable to the Class A-1, A-2
B, C, D, E and F Certificates.
The Pass-Through Rate for each
class of Principal Balance
Certificates for any
Distribution Date will not
exceed the Weighted Average Net
Mortgage Rate for such
Distribution Date.
INTEREST DISTRIBUTIONS: Each Class of Certificates will be
entitled on each Distribution Date to
interest accrued at its Pass-Through Rate
on the outstanding Certificate Principal
Amount or Notional Amount of such Class,
as applicable.
PRINCIPAL DISTRIBUTIONS: Principal will be distributed on each
Distribution Date to the most senior
Class (i.e., the Class with the earliest
alphabetical/numerical Class designation)
of the Principal Balance Certificates
outstanding, until its Certificate
Principal Amount is reduced to zero
(sequential order). If, due to losses,
the Certificate Principal Amounts of the
Class B through Class F Certificates are
reduced to zero, payments of principal to
the Class A-1 and A-2 Certificates will
be made on a pro rata basis.
CREDIT ENHANCEMENT: Each class of Certificates (other than
Classes A-1, A-2 and X) will be
subordinated to all other Classes with an
earlier alphabetical Class designation.
ADVANCING: The Master Servicer, the Trustee and the
Fiscal Agent (in that order) will each be
obligated to make P&I Advances and
Servicing Advances, including delinquent
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 Seller 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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
property taxes and insurance, but only to
the extent that such Advances are deemed
recoverable.
REALIZED LOSSES AND EXPENSE LOSSES: Realized Losses and trust fund expenses,
if any, will be allocated to the Class F,
Class E, Class D, Class C and Class B
Certificates, in that order, and then to
Classes A-1 and A-2 pro rata, in each
case reducing amounts payable thereto.
Any interest shortfall of any Class of
Certificates will result in unpaid
interest for such Class which, together
with interest thereon compounded monthly
at one-twelfth the applicable Class
Pass-Through Rate, will be payable funds.
PREPAYMENT INTEREST SHORTFALLS: For any Distribution Date, any Net
Aggregate Prepayment Interest Shortfall
not offset, as applicable, by the
Servicing Fee for such Distribution Date,
will generally be allocated to the Class
F, Class E, Class D, Class C and Class B
Certificates, in that order, and then to
Classes A-1 and A-2 pro rata, in each
case reducing amounts payable thereto.
APPRAISAL REDUCTIONS: Any appraisal reduction generally will be
created in the amount, if any, by which
the Principal Balance of a Specially
Serviced Mortgage Loan (plus other
amounts overdue in connection with such
loan) exceeds 90% of the appraised value
of the related Mortgaged Property. The
Appraisal Reduction Amount will reduce
proportionately the amount of P&I
Advanced for such loan, which reduction
will be borne, in general, by a reduction
of interest distributable to the mos
Certificate outstanding.
DIRECTING CLASS: The Directing Class will generally be the
most subordinate Class of Certificates
outstanding at any time. The Pooling
Agreement provides that holders of
Certificates evidencing greater than 50%
of the Percentage Interests of the
Directing Class may replace the Special
Servicer provided that each Rating Agency
confirms that such replacement will not
cause a qualification, withdrawal or
downgrading of the then-current ratings
assigned to any Class of Certificates.
SPECIAL SERVICER: In general, the Special Servicer has the
right to modify the terms of a Specially
Serviced Mortgage Loan if it determines
that such modification would be in the
best interests of the Certificateholders,
provided that the Special Servicer
generally may not extend the maturity
date of a Mortgage Loan beyond two years
prior to the Final Rated Distribution
Date.
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 Seller 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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
OPTIONAL TERMINATION: The Depositor, then the Master Servicer,
then the holder of a majority of the LR
Certificates will have the option to
purchase, in whole but not in part, the
remaining assets of the Trust on or after
the Distribution Date on which the
aggregate Certificate Principal Amount of
all Classes of Certificates then
outstanding is less than or equal to 1%
of the initial Pool Balance. Such
purchase price will generally be at a
price equal to the unpaid aggregate
Schedul plus accrued and unpaid interest
and unreimbursed Servicing Advances.
REPORTS TO CERTIFICATEHOLDERS: The Trustee will prepare and deliver
monthly Certificateholder Reports. The
Special Servicer will prepare and deliver
to the Trustee monthly reports
summarizing the status of each Specially
Serviced Mortgage Loan. The Master
Servicer and Special Servicer will
prepare and deliver to the Trustee an
annual report setting forth certain
information with respect to each Mortgage
Loan, as available. Each of the reports
will be available to the
Certificateholders upo regarding the
Mortgage Loans will be available
electronically.
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 Seller 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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
- -------------------------------------------------------------------------------
BOND STRUCTURE Class X
Component
- -------------------------------------------------------------------------------
Class A-1 AAA/AAA $43.3MM
Fixed
- -------------------------------------------------------------------------------
Class A-2 AAA/AAA $467.1MM
Fixed
- -------------------------------------------------------------------------------
Class B AA/AA WAC - Fixed Strip $75.9MM
- -------------------------------------------------------------------------------
Class C A/A WAC - Fixed Strip $42.4MM
- -------------------------------------------------------------------------------
Class D BBB/BBB WAC - Fixed Strip $45.9MM
- -------------------------------------------------------------------------------
Class E BBB-/BBB- WAC - Fixed Strip $21.2MM
- -------------------------------------------------------------------------------
Class F BB/BB- Fixed $10.6MM
- -------------------------------------------------------------------------------
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 Seller 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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
The Class A-1, A-2 B, C, D, E and F Certificates are monthly pay, multi-class,
sequential pay REMIC commercial mortgage pass-through certificates. All Classes
of Certificates derive their cash flows from the entire pool of Mortgage Loans.
PRIORITY OF CASH FLOWS
C CLASS X
A (NOTIONAL
S PRINCIPAL)
H A-1
A-2
F
L B
O
W C
D
E
F
0 20 40 60 80 100 120 MONTHS
REMAINING TERM TO EFFECTIVE MATURITY DATE
GRAPEVINE MILLS 120
EDENS & AVANT POOL I 120
MALL OF NEW HAMPSHIRE 120
WESTSIDE PAVILLION 117
NORTH TOWN MALL 119
EDENS & AVANT POOL II 120
CRYSTAL PARK IV 119
0 20 40 60 80 100 120 MONTHS
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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
COLLATERAL CHARACTERISTICS
--------------------------
<TABLE>
<S> <C>
Cut-Off Date Principal Balance: (as of October 1, 1998) $706,465,702
Number of Mortgage Loans: 7
Number of Mortgaged Properties: 41
Weighted Average Coupon: 6.49%
Weighted Average Cut-Off Date LTV: 58.2%
Weighted Average LTV at Effective Maturity Date: 53.2%
Weighted Average DSCR: 2.16x
Weighted Average Original Amortization Term (Months): 360
Weighted Average Original Term to Effective Maturity Date (Months): 121
Weighted Average Remaining Term to Effective Maturity Date (Months): 119
Weighted Average Seasoning (Months): 2
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage Principal
Cut-Off of Cut-Off Balance at Cut-Off
Date Date Effective Date
Principal Principal Maturity LTV(2)
LOAN NAME Balance Balance Coupon Date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Grapevine Mills $155,000,000 21.9% 6.470% $143,481,582 61.7%
Edens & Avant Pool I 125,000,000 17.7 6.200 125,000,000 47.1
Mall of New Hampshire 105,000,000 14.9 6.955 93,305,773 65.2
Westside Pavilion 100,000,000 14.2 6.440 91,132,625 62.5
NorthTown Mall 84,426,244 12.0 6.680 73,062,731 58.5
Edens & Avant Pool II 70,000,000 9.9 6.200 70,000,000 48.8
Crystal Park IV 67,039,458 9.5 6.510 57,745,712 62.7
$706,465,702 100.0% 6.492% $653,728,424 58.2%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Original Remaining
Effective Term to Term to
Maturity Original Effective Effective
Date Amortization Maturity Maturity
LOAN NAME LTV(2) DSCR(2)(3) Term(4) Date Date
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Grapevine Mills 56.8% 2.17x 360 121 120
Edens & Avant Pool I 47.1 2.72 IO 120 120
Mall of New Hampshire 57.2 1.67 360 126 120
Westside Pavilion 57.0 1.93 360 120 117
NorthTown Mall 49.7 1.73 360 120 119
Edens & Avant Pool II 48.8 2.90 IO 120 120
Crystal Park IV 54.0 1.93 360 120 119
53.2% 2.16x 360 121 119
</TABLE>
- -------------------------------------------------------------------------------
Notes: (1) Numbers may not total 100% due to rounding.
(2) Grapevine Mills, Mall of New Hampshire and NorthTown Mall Loan
Balances have been reduced by credit enhancements of $10,000,000
(Guarantee), $10,000,000 (Letter of Credit) and $9,500,000 (Letter
of Credit) respectively for credit statistic calculations. Values
for Edens & Avant Pools I and II and NorthTown Mall are based on
recent acquisitions prices.
(3) Based on Underwritable Net Cash Flow and actual debt service
adjusted for credit enhancements.
(4) Weighted Average Original Amortization Term excludes Edens & Avant
Pools I and II. Edens and Avant Pools I and II begin a 240 month
amortization term at their Effective Maturity Dates. Grapevine
Mills, Mall of New Hampshire and Westside Pavilion have initial
interest only periods of 48, 18 and 36 months respectively.
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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
<TABLE>
<CAPTION>
LOAN FEATURES
- -----------------------------------------------------------------------------------------------------------------------------------
Bankruptcy- Funded
Removal of Capital Lock Box/ Cross Remote Tax and
Call Principal Property Reserve Sweep Collateralization Borrowing Insurance
Loan Name Protection(1) Repayment Manager Accounts Account (Pools Only) Entity Escrow
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edens & Avant Pool I Defeasance(2) Effective Maturity Yes Yes Yes(5) Yes Yes Yes
Edens & Avant Pool II Defeasance(2) Effective Maturity Yes Yes Yes(5) Yes Yes Yes
Grapevine Mills Defeasance(3) Effective Maturity Yes Yes Yes N/A Yes(8) Yes(9)
Mall of New Hampshire Defeasance Effective Maturity Yes Yes Yes(7) N/A Yes Yes(10)
Westside Pavilion Defeasance Effective Maturity Yes Yes Yes(6) N/A Yes Yes(10)
NorthTown Mall Defeasance Effective Maturity Yes Yes Yes(5) N/A Yes Yes(10)
Crystal Park IV Defeasance(4) Effective Maturity Yes Yes Yes N/A Yes Yes
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Locked out for 24 months after securitization with defeasance until the Effective Maturity Date except as noted
below.
(2) Prepayable 60 days prior to the Effective Maturity Date.
(3) Prepayable 90 days prior to the Effective Maturity Date. Locked out for 36 months after securitization with
defeasance until the Effective Maturity Date.
(4) Prepayable one month prior to the Effective Maturity Date.
(5) Soft Lock-Box, Borrower to deposit all amounts received in connection with the properties within 1 business day of
its receipt thereof.
(6) Springing Lock-Box, based upon a DSCR test, an Event of Default, or on the Effective Maturity Date.
(7) Hard Lock-Box, but Borrower has access to the account unless certain trigger events occur.
(8) Borrowing entity does not have an independent director.
(9) Tax escrow only.
(10) Springing funding of taxes and/or insurance based upon a DSCR test, an Event of Default, or on the Effective
Maturity Date.
</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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
<TABLE>
<CAPTION>
PROPERTY OVERVIEW
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing Entity/ Property Year Built/
Loan Name Location Sponsor Type Renovated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edens & Avant Pool I Eastern U.S. State of Michigan Retirement System/Edens & Avant Anchored Retail Various
Edens & Avant Pool II Southeastern U.S. State of Michigan Retirement System/Edens & Avant Anchored Retail Various
Grapevine Mills Grapevine, TX Simon DeBartolo Group/Mills Corporation Regional "Mills" Mall 1997
(Dallas/Ft. Worth)
Mall of New Hampshire Manchester, NH New England Development Regional Mall 1977/1996-
1998
Westside Pavilion Los Angeles, CA The Macerich Company Regional Mall 1985
NorthTown Mall Spokane, WA JP Realty, Inc. Regional Mall 1955/1985/
1992-1993
Crystal Park IV Arlington, VA Charles E. Smith Office 1988
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cut-Off Date
Loan Loan PSF/ Appraised
Loan Name Amount Square Feet Per Unit(2) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Grapevine Mills $155,000,000 1,241,769 $ 117 $235,000,000
Edens & Avant Pool I 125,000,000 2,100,452 60 265,582,293(3)
Mall of New Hampshire 105,000,000 329,913 288 145,600,000
Westside Pavilion 100,000,000 443,723 225 160,000,000
NorthTown Mall 84,426,244 709,870 106 128,000,000(3)
Edens & Avant Pool II 70,000,000 2,175,884 32 143,567,822(3)
Crystal Park IV 67,039,458 466,369 144 107,000,000
TOTAL/WEIGHTED AVERAGE $706,465,702 7,467,980 $ 95 $1,184,750,115
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) Square feet represents collateral square feet only.
(2) Grapevine Mills, Mall of New Hampshire and NorthTown Mall Loan
Balances have been reduced by credit enhancements of $10,000,000
(Guarantee), $10,000,000 (Letter of Credit) and $9,5000,000 (Letter
of Credit) respectively.
(3) Based on recent acquisition prices.
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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
<TABLE>
<CAPTION>
GEOGRAPHIC DIVERSIFICATION
- -------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF WEIGHTED
NUMBER CUT-OFF DATE TOTAL CUT-OFF TOTAL WEIGHTED PERCENTAGE OF AVERAGE
OF ALLOCATED DATE ALLOCATED UNDERWRITABLE UNDERWRITABLE AVERAGE APPRAISED TOTAL APPRAISED CUT-OFF
STATE PROPERTIES LOAN AMOUNT LOAN AMOUNT CASH FLOW CASH FLOW(1) DSCR(2) VALUE(3) VALUE(3) DATE LTV
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TX 1 $155,000,000 21.9% $20,619,033 20.9% 2.17x $235,000,000 19.8% 61.7%
NH 1 105,000,000 14.9 11,199,597 11.4 1.67 145,600,000 12.3 65.2
CA 1 100,000,000 14.2 12,632,326 12.8 1.93 160,000,000 13.5 62.5
VA 3 83,077,358 11.8 12,924,404 13.1 2.12 143,150,000 12.1 60.0
WA 1 84,426,244 12.0 10,028,711 10.2 1.73 128,000,000 10.8 58.5
MA 5 46,644,000 6.6 7,787,518 7.9 2.72 99,565,306 8.4 47.1
OH 4 35,887,000 5.1 5,991,384 6.1 2.72 78,448,496 6.6 47.1
CT 2 28,761,000 4.1 4,801,924 4.9 2.72 60,048,312 5.1 47.1
MS 8 15,440,700 2.2 2,750,702 2.8 2.90 29,572,853 2.5 48.8
GA 2 14,112,000 2.0 2,452,254 2.5 2.90 27,579,806 2.3 48.8
TN 1 8,651,000 1.2 1,912,644 1.9 2.72 18,100,000 1.5 47.1
SC 4 8,279,150 1.2 1,466,262 1.5 2.90 16,744,909 1.4 48.8
AL 2 6,432,450 0.9 1,235,530 1.3 2.90 12,673,000 1.1 48.8
NC 2 6,176,100 0.9 1,073,229 1.1 2.90 12,032,254 1.0 48.8
FL 1 3,521,700 0.5 714,054 0.7 2.90 8,815,000 0.7 48.8
NY 2 3,233,000 0.5 539,766 0.5 2.72 6,532,097 0.6 47.1
IN 1 1,824,000 0.3 304,605 0.3 2.72 2,888,082 0.2 47.1
-- ------------ ----- ----------- ----- ---- -------------- ----- ----
TOTAL 41 $706,465,702 100.0% $98,433,943 100.0% 2.16x $1,184,750,115 100.0% 58.2%
== ============ ===== =========== ===== ==== ============== ===== ====
===============================================================================================================================
Notes: (1) Numbers may not total 100% due to rounding.
(2) Based on Underwritable Net Cash Flow and actual debt service adjusted for credit enhancements.
(3) Grapevine Mills, Mall of New Hampshire and NorthTown Mall Loan Balances have been reduced by credit enhancements of
$10,000,000 (Guarantee), $10,000,000 (Letter of Credit) and $9,500,000 (Letter of Credit) respectively for credit
statistic calculations. Values for Edens & Avant Pools I and II and NorthTown Mall are based on recent acquisitions
prices.
</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>
- -------------------------------------------------------------------------------
XL2 1998
LARGE LOAN STRUCTURAL TERM SHEET
- -------------------------------------------------------------------------------
$706.5 MM (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-XL2
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]
Office
9.5%
Regional "Mills" Mall
21.9%
Regional Mall
41.0%
Anchored Retail
27.6%
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENTAGE OF PERCENTAGE PERCENTAGE AVERAGE
CUT-OFF DATE TOTAL CUT-OFF OF TOTAL WEIGHTED OF TOTAL CUT-OFF
NUMBER OF ALLOCATED DATE ALLOCATED UNDERWRITTEN UNDERWRITTEN AVERAGE APPRAISED APPRAISED DATE
PROPERTY TYPE PROPERTIES LOAN AMOUNT LOAN AMOUNT CASH FLOW CASH FLOW(1) DSCR(2) VALUE(3) VALUE(3) LTV
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Regional Mall 3 $289,426,244 41.0% $33,860,634 34.4% 1.78x $433,600,000 36.6% 62.3%
Anchored Retail 36 195,000,000 27.6 34,110,063 34.7 2.78 409,150,115 34.5 47.7
Regional "Mills"
Mall 1 155,000,000 21.9 20,619,033 20.9 2.17 235,000,000 19.8 61.7
Office 1 67,039,458 9.5 9,844,213 10.0 1.93 107,000,000 9.0 62.7
TOTAL 41 $706,465,702 100.0% $98,433,943 100.0% 2.16x $1,184,750,115 100.0% 58.2%
==================================================================================================================================
Notes: (1) Numbers may not total 100% due to rounding.
(2) Based on Underwritable Net Cash Flow and actual debt service adjusted for credit enhancements.
(3) Grapevine Mills, Mall of New Hampshire and NorthTown Mall Loan Balances have been reduced by credit enhancements of
$10,000,000 (Guarantee), $10,000,000 (Letter of Credit) and $9,500,000 (Letter of Credit) respectively for credit
statistic calculations. Values for Edens & Avant Pools I and II and NorthTown Mall are based on recent acquisitions
prices.
</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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN GRAPEVINE MILLS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN INFORMATION
- -------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $155,000,000 $155,000,000
ORIGINATION DATE: August 12, 1998
INTEREST RATE: 6.47%
AMORTIZATION: Interest only until September 1, 2002; 360 months
thereafter (beginning October 1, 2002).
HYPERAMORTIZATION: After the Effective Maturity Date, the interest
rate increases to the greater of 8.47% or the then
current U.S. Treasury rate plus 2.0%. 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, 2008
MATURITY DATE: September 1, 2032
BORROWER/SPONSOR: A single-purpose entity controlled by the Mills
Corporation (37.5%) and the Simon DeBartolo Group
(37.5%). Borrowing entity does not have an
independent director on its board.
CALL PROTECTION: 3-year lockout from the closing date with U.S.
Treasury defeasance thereafter. Loan prepayable at
par beginning 90 days prior to the Effective
Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) if the DSCR for
the loan falls below 1.15x, (ii) for cause, or
(iii) upon an Event of Default, or (iv) after the
Effective Maturity Date.
UP FRONT RESERVES: Simon DeBartolo Group L.P. and The
Mills Limited Partnership have guaranteed
$10,000,000 of the loan amount ($5 MM each) until
the time the property NOI provides a 1.50x DSCR
using a 9.0% constant on a trailing 12 month
basis.
GENERAL MONTHLY RESERVES: 1/12 of annual Property Taxes, Tenant Rollover
Reserve of $16,667 ($200,000 annually), Capital
Reserves of $0.15 psf per annum beginning in year
6.
COLLECTION ACCOUNT: Hard Lock-Box
CROSS-COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPERTY INFORMATION
- -------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Regional "Mills" Mall
LOCATION: Grapevine, Texas (Dallas/Ft. Worth)
YEAR BUILT/RENOVATED: 1997
THE COLLATERAL: Single-level, four-anchor regional "Mills" mall
with a total GLA of 1,241,769 s.f., anchor space
of 315,702 s.f., major space (mini-anchor) of
382,968 s.f., and mall store space of 543,099 s.f.
Collateral consists of anchor, major and mall
store space for a total of 1,241,769 s.f.
Anchors include JC Penney (106,207 s.f.),
Burlington Coat Factory (100,102 s.f.), and AMC
Theatres (109,393 s.f.).
PROPERTY
MANAGEMENT: The Mills Corporation
PERCENT OF MALL STORE SPACE
LEASED AS OF JUNE 1, 1998: 91%
COMPARABLE STORE AVERAGE
OCCUPANCY COST AS OF
JUNE 1, 1998: 11.7%
1998 BUDGETED NET OPERATING
INCOME(1): $21,426,109
UNDERWRITABLE NET
CASH FLOW: $20,619,033
APPRAISED VALUE: $235,000,000
APPRAISED BY: Cushman & Wakefield, Inc.
APPRAISAL DATE: July 17, 1998
CUT-OFF DATE EMD(2)
LOAN/SF(3): $117 $107
LTV(3): 61.7% 56.8%
DSCR(3) (4): 2.17x 2.35x
Notes: (1) Grapevine Mills opened in October, 1997.
(2) Effective Maturity Date
(3) Loan Amount used for calculations is net of the $10,000,000
guarantee
(4) Based on Underwritable Net Cash Flow and Actual Debt Service
- -------------------------------------------------------------------------------
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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN GRAPEVINE MILLS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST MALL STORE TENANTS AND ANCHOR LEASES BASED ON
ANNUALIZED BASE RENT BY PARENT COMPANY(1)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
% OF % OF TOTAL ANNUALIZED
TENANT OR TENANT TENANT TOTAL ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY STORE NAME GLA GLA BASE RENT BASE RENT PER SF
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Host Marriott Services Host Marriott-Food Court
Master Lease 33,903 2.7% $1,158,890 5.8% $34.18
Subleased to:
Chili's Too
Dick Clark's American
Bandstand Grill
Cold Stone Creamery
Starbucks Coffee
Corner Bakery
Juice Works
Sega Inc. Sega Gameworks 32,223 2.6 594,244 3.0 18.44
Sports Authority, Inc. Sports Authority 48,763 3.9 582,000 2.9 11.94
Rainforest Cafe Rainforest Cafe 22,602 1.8 565,050 2.8 25.00
Just For Feet Just For Feet 19,920 1.6 517,290 2.6 25.97
Off Rodeo Drive, Beverly Hills Off Rodeo Drive, Beverly Hills 24,203 1.9 508,473 2.5 21.01
Virgin, Inc. Virgin Megastores 27,490 2.2 453,585 2.3 16.50
The Gap, Inc. Gap Outlet 33,098 2.7 397,176 2.0 12.00
Old Navy
Bed Bath & Beyond, Inc. Bed Bath & Beyond 40,340 3.2 373,145 1.9 9.25
Group USA Group USA 23,257 1.9 325,598 1.6 14.00
--------- ----- ----------- ----- ------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 305,799 24.6% $5,475,451 27.2% $17.91
Remaining Mall Stores 570,458 45.9 10,984,740 54.6 19.26
Vacant Space 49,810 4.0 -- 0.0 0.0
--------- ----- ----------- ----- ------
TOTAL (EXCLUDING ANCHORS) 926,067 74.6% $16,460,191 81.8% $18.78(2)
========= ===== =========== ===== ======
Burlington Coat Factory, Inc. Burlington Coat Factory 100,102 8.1 500,510 2.5 5.00
AMC Inc. American Multi-Cinema 109,393 8.8 2,625,432 13.1 24.00
J.C. Penney, Co., Inc. JCPenney 106,207 8.6 528,410 2.6 4.98
--------- ----- ----------- ----- ------
TOTAL (INCLUDING ANCHORS) 1,241,769 100.0% $20,114,543 100.0% $16.88(2)
========= ===== =========== ===== ======
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on the June 1, 1998 rent roll.
(2) Total annual base rent per square foot excludes vacant square footage.
(3) 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.
15
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN GRAPEVINE MILLS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT RATING OF OPERATING
PARENT COMPANY(1) ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Burlington Coat Factory Burlington Coat Factory, Inc. - / - 100,102 Collateral 1/31/13 10/29/00 N/A
JCPenney J.C. Penney Co., Inc. A/A2 106,207 Collateral 10/31/12 N/A N/A
AMC Theatres AMC Entertainment Inc. BB-/ - 109,393 Collateral 12/31/17 12/18/07 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Note: (1) Ratings as of August 1, 1998. Unless otherwise stated, the parent company, if different from the anchor store
listed, is not a party to or a guarantor of the anchor store's lease.
</TABLE>
<TABLE>
<CAPTION>
LEASE EXPIRATION SCHEDULE(1)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENT OF CUMULATIVE
NUMBER OF ANNUALIZED TOTAL PERCENT OF
LEASES EXPIRING PERCENT OF CUMULATIVE ANNUALIZED BASE RENT PER ANNUALIZED TOTAL ANNUALIZED
YEAR EXPIRATION EXPIRING SF TOTAL SF % OF SF BASE RENT SF BASE RENT BASE RENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 27 49,810 4.0% 4.0% $ - $ - 0.0% 0.0%
1998 2 2,836 0.2 4.2% 82,426 29.06 0.4 0.4%
1999 2 7,979 0.6 4.9% 135,901 17.03 0.7 1.1%
2000 9 17,277 1.4 6.3% 473,076 27.38 2.4 3.4%
2001 9 23,213 1.9 8.1% 526,817 22.69 2.6 6.1%
2002 59 213,097 17.2 25.3% 4,504,632 21.14 22.4 28.5%
2003 14 40,189 3.2 28.5% 932,736 23.21 4.6 33.1%
2004 4 10,802 0.9 29.4% 288,178 26.68 1.4 34.5%
2005 4 25,336 2.0 31.5% 498,203 19.66 2.5 37.0%
2006 1 7,514 0.6 32.1% 127,738 17.00 0.6 37.6%
2007 32 238,482 19.2 51.3% 4,637,730 19.45 23.1 60.7%
2008 16 155,213 12.5 63.8% 2,439,501 15.72 12.1 72.8%
Thereafter 12 450,021 36.2 100.0% 5,467,605 12.15 27.2 100.0%
--- --------- ----- ----------- -------- -----
TOTAL 191 1,241,769 100.0% $20,114,543 $16.88(2) 100.0%
=== ========= ===== =========== ======== =====
===================================================================================================================================
Notes: (1) Data based on the June 1, 1998 Rent Roll.
(2) Total annual rent per square foot excludes vacant square feet.
(3) 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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN GRAPEVINE MILLS
- -------------------------------------------------------------------------------
SALES ANALYSIS(1)
- -------------------------------------------------------------------------------
PROJECTED 1998 SALES
--------------------
SQUARE TOTAL
FOOTAGE (000S) PER SF
--------- -------- -------
Anchor Stores
American Multi-Cinema 109,393 $13,750 $125.69
Burlington Coat Factory 100,102 12,658 126.45
JCPenney 106,207 25,638 241.40
--------- -------- -------
TOTAL ANCHOR STORES 315,702 $52,046 $164.86
Major Store
American Wilderness 32,285 $399 $70.95(2)
Bed Bath & Beyond 40,340 7,060 175.00
Books-A-Million 23,967 3,448 143.86
Group USA 23,257 2,517 108.23
Marshalls 29,397 4,410 150.02
Off Rodeo Drive, Beverly Hills 24,203 3,002 124.03
Old Navy 23,329 8,541 366.11
Rainforest Cafe 22,602 14,919 660.07
Saks Fifth Avenue 34,982 7,784 222.51
Sega Gameworks 32,223 5,122 158.95
Sports Authority 48,763 6,062 124.32
Virgin Megastores 27,490 6,957 253.07
Western Warehouse 20,130 3,083 153.15
--------- -------- -------
TOTAL MAJOR STORE SALES 382,968 $73,304 $205.73(2)
Mall Stores
Mall Stores 493,289 $158,654 $321.62
Vacant 49,810 N/A N/A
--------- -------- -------
TOTAL MALL STORE 543,099 $158,654 $321.62(3)
TOTAL SALES - ANCHORS, MAJORS AND MALL 1,241,769 $284,004 $243.72(2)(3)
--------- -------- -------
STORES
- -------------------------------------------------------------------------------
Notes: (1) Projected sales provided by the Mills Corporation. Square footage
is based on the June 1, 1998 rent roll.
(2) Sales per square foot for American Wilderness, Total Majors and
Total Mall & Anchors reflect that American Wilderness has only been
operating on 5,624 of square feet.
(3) Sales per square foot exclude vacant space.
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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN EDENS & AVANT POOL I
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN INFORMATION
- -------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $125,000,000 $125,000,000
ORIGINATION DATE: September 18, 1998
INTEREST RATE: 6.20%
AMORTIZATION: Interest only until Effective Maturity Date
HYPERAMORTIZATION: After the Effective Maturity Date, the interest
rate increases to the greater of 8.20% or the then
current U.S. Treasury rate plus 2.0%. 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, 2008
MATURITY DATE: October 1, 2028
BORROWER/SPONSOR: A single purpose, bankruptcy-remote entity wholly
owned by the State of Michigan Retirement System
and Edens & Avant, Inc. principals and family
members.
CALL PROTECTION: 2-year lockout from the date of securitization
with U.S. Treasury defeasance thereafter. Loan
prepayable at par beginning 60 days prior to the
Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) if the DSCR for
the loan falls below 1.25x, (ii) for cause, (iii)
upon an event of default or (iv) six months after
the Effective Maturity Date.
UP FRONT RESERVES: 2 months of all required escrows to be funded at
closing for the term of the loan. Immediate
deferred maintenance escrow TBD.
GENERAL MONTHLY RESERVES: 1/12 of annual Property Taxes and Insurance,
Capital Reserves of $.20 psf per annum.
COLLECTION ACCOUNT: Soft Lock-Box- Borrower to deposit all amounts
received in connection with the properties within
1 business day of its receipt thereof. Springs to
Hard Lock-Box if DSCR drops to 1.25x.
CROSS-COLLATERALIZATION/
DEFAULT: Cross-collateralized and cross-defaulted.
MEZZANINE LOANS: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPERTY INFORMATION
- -------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Portfolio
PROPERTY TYPE: Anchored Retail
LOCATION: STATE PERCENT
Massachusetts 37.3%
Ohio 28.7
Connecticut 23.0
Other States 11.0
YEAR BUILT/RENOVATED: Between 1956 and 1997
THE COLLATERAL: 15 anchored-retail shopping centers with a total
GLA of 2,100,452 s.f.
PROPERTY MANAGEMENT: Edens & Avant, Inc./Samuels
PERCENT OF POOL LEASED AS
OF APRIL-JUNE 1998: 97%
1997 NET OPERATING INCOME: $21,358,498
UNDERWRITABLE NET CASH
FLOW: $21,337,841
RECENT PURCHASE PRICE: $265,582,293
MARKET STUDY PERFORMED
BY(1): Cushman & Wakefield
MARKET STUDY DATE: August, 1998
CUT-OFF DATE EMD(2)
LOAN/SF: $60 $60
LTV(3): 47.1% 47.1%
DSCR(4): 2.72x 2.72x
1996 1997
SALES PSF(5): $357 $363
Notes: (1) One property had an appraisal performed by O. Marshall Dodds in
June, 1998.
(2) Effective Maturity Date
(3) Value based on recent purchase price
(4) Based on Underwritable Net Cash Flow and Actual Debt Service
(5) Available Comparable 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.
18
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN EDENS & AVANT POOL I
- -------------------------------------------------------------------------------
PROPERTY SUMMARY TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
OCCUPANCY
ALLOCATED AS OF
LOAN YEAR BUILT/ APRIL-JUNE,
PROPERTY NAME LOCATION AMOUNT SF RENOVATED 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fairlawn Town Fairlawn, OH $18,512,000 353,191 1958/70/96 91.3%
Centre Shopping
Center
Bishops Corner West Hartford, CT 16,570,000 123,796 1970 100.0
South Bay Center Boston, MA 14,180,000 121,540 1994 100.0
Brookside/Brookway Bridgeport, CT 12,191,000 158,990 1957 94.8
Shopping Center
Winchester Court Memphis, TN 8,651,000 244,992 1987 97.4
Shopping Center
Middlesex Mall Burlington, MA 9,808,000 222,218 1974/1991 97.7
Westown Square Cleveland, OH 9806,000 169,059 1987 99.4
Shopping Center
Burlington Burlington, MA 9,043,000 190,300 1974/1997 100.0
Crossroads
Shrewsbury Shrewsbury, MA 7,828,000 74,215 1993 100.0
Crossing Shopping
Center
Buckeye Plaza Cleveland, OH 6,247,000 117,281 1989 96.7
Acton Plaza Acton, MA 5,785,000 136,233 1972/1994 99.2
Eastchester Plaza Eastchester, NY 2,281,000 23,375 1956/1988 92.3
Elkhart Plaza Elkhart, IN 1,824,000 97,560 1972/1992 100.0
Columbia-Detroit Westlake, OH 1,322,000 49,602 1979/1995 100.0
Center at Patchogue Patchogue, NY 952,000 18,100 1991 100.0
------------ --------- ----
TOTALS $125,000,000 2,100,452 97.2%
============ ========= ====
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ANNUALIZED ANNUALIZED
BASE RENT BASE RENT
AS OF PSF AS OF PRIMARY TENANTS WITH
APRIL-JUNE, APRIL-JUNE, 15,000 SF OR GREATER
PROPERTY NAME UCF 1998 1998(6) AS OF APRIL-JUNE 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fairlawn Town $3,090,396 $3,481,781 $ 10.79 (1)
Centre Shopping
Center
Bishops Corner 2,766,516 2,817,788 22.76 Adams/Bozzuto's (2011) and Marshalls
(2006)
South Bay Center 2,367,435 2,376,885 19.56 (2)
Brookside/Brookway 2,035,408 2,235,660 14.83 Stop & Shop (2013), Staples (2003)
Shopping Center and Marshalls (2008)
Winchester Court 1,912,644 2,029,331 8.50 (3)
Shopping Center
Middlesex Mall 1,637,585 1,826,937 8.41 (4)
Westown Square 1,637,208 1,813,573 10.79 Finast (2012)
Shopping Center
Burlington 1,509,724 1,758,979 9.24 Marshalls (2008), Michael's (2008)
Crossroads and Service Merchandise (2004)
Shrewsbury 1,306,974 1,304,816 17.58 Stop & Shop (2012)
Crossing Shopping
Center
Buckeye Plaza 1,043,009 1,083,657 9.56 Finast (2010)
Acton Plaza 965,800 1,118,700 8.28 Ames (2003) and Roche Bros. (2015)
Eastchester Plaza 380,790 382,579 17.73 Thriftway (2001)
Elkhart Plaza 304,605 279,513 2.87 Fleet Supply of Elkhart (2000) and
Martin's Supermarkets (2000)
Columbia-Detroit 220,771 240,916 4.86 Finast (2003)
Center at Patchogue 158,976 205,000 11.33 (5)
----------- ----------- -------
TOTALS $21,337,841 $22,956,115 $ 11.24(6)
=========== =========== =======
====================================================================================================
</TABLE>
Notes: Major tenants and lease expirations:
(1) US Post Office (1999), Courtyard (2003), Marc's (2006), Giant Eagle
(2022) and Circuit City (2017)
(2) Marshalls (2014), Office Max (2010), Stop & Shop (2018), Toys R Us,
K-Mart and Home Depot are shadow anchors.
(3) Seessel's, Inc. (2002), K & B Store (2007), Samuel's Furniture
(2002), Decor 8 (2002) Stein Mart (2002) and Malco 8 Theatres
(2009)
(4) Demoulas Market Basket (2000), Caldor (2000), Linens n' Things
(2017), Loehmann's (2001) and Joann Fabric Shop (2003)
(5) Blockbuster (6,000 s.f. expires 2001)
(6) Annualized base rent per square foot excludes vacant square
footage.
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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN EDENS & AVANT POOL I
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT(1)(3)
- -------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
% OF % OF TOTAL BASE
TENANT OR TENANT NO. OF TENANT TOTAL ANNUALIZED ANNUALIZED RENT
PARENT COMPANY STORE NAME STORES GLA GLA(1) BASE RENT BASE RENT PER SF
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Royal Ahold NV Stop & Shop 6 349,144 16.6% $4,446,285 19.4% $12.73
Bi-Lo
Finast
The TJX Companies Marshalls 4 128,224 6.1 2,162,468 9.4 16.86
Intercontinental Holding Company Adams/Bozzuto's 1 59,016 2.8 1,386,876 6.0 23.50
Giant Eagle Inc. Giant Eagle 1 78,181 3.7 840,446 3.7 10.75
Linens n' Things Inc. Linens n' Things 1 38,100 1.8 762,000 3.3 20.00
Circuit City Stores, Inc. Circuit City 1 39,840 1.9 496,431 2.2 12.46
Blockbuster Entertainment Group Blockbuster Video 4 24,614 1.2 456,391 2.0 18.54
Office Max Inc. Office Max 1 23,400 1.1 427,050 1.9 18.25
Staples, Inc. Staples 1 25,200 1.2 403,200 1.8 16.00
CVS Corporation CVS/Revco 5 43,408 2.1 395,591 1.7 9.11
--- --------- ----- ----------- ----- ------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 25 809,127 38.5% $11,776,738 51.3% $14.55
Other Major Tenants (greater than 57 976,107 46.5 7,305,796 31.8 7.48
5,000 square feet)
Remaining Tenants 126 257,161 12.2 3,873,581 16.9 15.06
Vacant Space 47 58,057 2.8 0 0.0 0.00
--- --------- ----- ----------- ----- ------
TOTAL/WEIGHTED AVERAGE 255 2,100,452 100.0% $22,956,115 100.0% $11.24(2)
=== ========= ===== =========== ===== ======
- -------------------------------------------------------------------------------------------------------------------------------
Note: (1) Data based on the most recent available Rent Roll (April-June, 1998).
(2) Total annual base rent per square foot excludes vacant square footage.
(3) 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.
20
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN EDENS & AVANT POOL I
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LEASE EXPIRATION SCHEDULE(1)(3)
- ----------------------------------------------------------------------------------------------------------------------------------
PERCENT OF CUMULATIVE
NUMBER OF ANNUAL TOTAL PERCENT OF
LEASES EXPIRING PERCENT OF CUMULATIVE ANNUALIZED BASE RENT ANNUALIZED TOTAL ANNUALIZED
YEAR EXPIRATION EXPIRING SF TOTAL SF % OF SF BASE RENT PER SF BASE RENT BASE RENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 47 58,057 2.8% 2.8% $ - - 0.0% 0.0%
M-T-M 10 18,485 0.9 3.6% 319,610 $ 17.29 1.4 1.4%
1998 10 19,471 0.9 4.6% 264,127 13.57 1.2 2.5%
1999 23 86,565 4.1 8.7% 675,409 7.80 2.9 5.5%
2000 30 260,324 12.4 21.1% 1,541,404 5.92 6.7 12.2%
2001 24 91,993 4.4 25.5% 1,250,259 13.59 5.4 17.6%
2002 27 220,737 10.5 36.0% 1,867,044 8.46 8.1 25.8%
2003 30 281,915 13.4 49.4% 2,514,765 8.92 11.0 36.7%
2004 8 112,192 5.3 54.7% 697,104 6.21 3.0 39.8%
2005 6 32,420 1.5 56.3% 465,480 14.36 2.0 41.8%
2006 10 124,952 5.9 62.2% 1,926,121 15.41 8.4 50.2%
2007 8 65,906 3.1 65.4% 721,176 10.94 3.1 53.3%
2008 6 90,247 4.3 69.7% 1,187,361 13.16 5.2 58.5%
Thereafter 16 637,188 30.3 100.0% 9,526,255 14.95 41.5 100.0%
--- --------- ----- ----------- --------- -----
TOTAL 255 2,100,452 100.0% $22,956,115 $ 11.24(2) 100.0%
=== ========= ===== =========== ========= =====
- ----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Data based on the most recent available Rent Roll (April-June, 1998).
(2) Total annual base rent per square foot excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
</TABLE>
<TABLE>
<CAPTION>
LARGEST TENANTS (OVER $12MM IN 1997 SALES) BASED ON
AVAILABLE COMPARABLE STORE 1996 AND 1997 SALES HISTORY
- -----------------------------------------------------------------------------------------------------------
ANNUAL 1996 SALES ANNUAL 1997 SALES
NO. OF SQUARE ----------------------- -----------------------
STORE NAME STORES FEET TOTAL (000S) PER SF TOTAL (000S) PER SF
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stop and Shop 3 183,444 $111,198 $606 $106,217 $579
Finast 3 165,700 74,487 450 65,717 397
Marshalls 4 128,224 29,385 229 34,891 272
Roche Bros. 1 26,943 28,709 1,066 33,315 1,236
Marc's 1 36,396 14,243 391 16,865 463
CVS/Revco 4 36,820 16,858 458 16,181 439
-- ------- -------- ---- -------- ----
TOTAL LARGEST TENANTS 16 577,527 274,880 $476 $273,186 $473
OTHER COMPARABLE STORES 50 313,662 53,580 171 55,654 177
-- ------- -------- ---- -------- ----
GRAND TOTAL 66 891,189 $328,460 $369 $328,840 $369
== ======= ======== ==== ======== ====
- -----------------------------------------------------------------------------------------------------------
</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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN MALL OF NEW HAMPSHIRE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN INFORMATION
- -------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $105,000,000 $105,000,000
ORIGINATION DATE: March 24, 1998
INTEREST RATE: 6.955%
AMORTIZATION: Interest only until October 1, 1999; 360 months
thereafter (beginning November 1, 1999).
HYPERAMORTIZATION: After the Effective Maturity Date, the interest
rate increases to the greater of 11.955% or the
then current U.S. Treasury rate plus 5.0%. All
excess cash flow is used to reduce the outstanding
principal balance; the additional 5% interest
accrues interest at the increased rate and is
deferred until the principal balance is zero.
EFFECTIVE MATURITY DATE: October 1, 2008
MATURITY DATE: April 1, 2028
BORROWER/SPONSOR: A special purpose bankruptcy-remote entity wholly
owned by the principals of New England
Development, Inc.
CALL PROTECTION: 2-year lockout from the date of securitization
with U.S. Treasury defeasance thereafter. Loan
prepayable at par beginning on the Effective
Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated upon (i) an Event of
Default or (ii) bankruptcy or insolvency of the
property manager.
UP FRONT RESERVES: $10,000,000 Letter of Credit, reduced upon
achieving a 1.25x DSCR at a 9% loan constant
based on annualized trailing six month operating
history (adjusted for seasonal items).
GENERAL MONTHLY RESERVES: Capital Expenditures and Tenant Rollover Reserve
of $1.20 psf per annum or to a maximum of
$1,000,000 at any one time. Springing reserves for
Ground Rent, Property Taxes, and Insurance, if
DSCR falls below 1.25x, or upon an Event of
Default.
COLLECTION ACCOUNT: Hard Lock-Box
CROSS-COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPERTY INFORMATION
- -------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Regional Mall
LOCATION: Manchester, New Hampshire
YEAR BUILT/EXPANDED: 1977/1996-1998
THE COLLATERAL: Single-level, four-anchor regional mall with a
total GLA of 793,751 s.f., anchor and mini-anchor
space of 463,838 s.f., and mall store space of
329,913 s.f. Collateral consists of mall store
space for a total of 329,913 s.f..
Anchors and Mini-anchors include: JC Penney
(101,388 s.f.), Filene's (165,000 s.f.), Sears
(136,464 s.f.) and a space to be occupied by Best
Buy (42,037 s.f.) and Kitchens, Etc (18,949 s.f.).
PROPERTY
MANAGEMENT: WellsPark Group
PERCENT OF MALL STORE SPACE
LEASED AS OF JULY 15, 1998: 91%
COMPARABLE STORE AVERAGE
OCCUPANCY COST AS OF
JULY 15, 1998: 14.9%
LTM JUNE, 1998 NET
OPERATING INCOME: $9,950,487
UNDERWRITABLE NET
CASH FLOW: $11,199,597
APPRAISED VALUE: $145,600,000
APPRAISED BY: Cushman & Wakefield, Inc.
APPRAISAL DATE: September 24, 1998
CUT-OFF DATE EMD(1)
LOAN/SF(2): $288 $253
LTV(2): 65.2% 57.2%
DSCR(2) (3): 1.67x 1.91x
1996 1997
MALL STORE SALES PSF(4): $349 $371
Notes: (1) Effective Maturity Date
(2) Loan Amount used for calculations net of the $10,000,0000 Letter of
Credit
(3) Based on Underwritable Net Cash Flow and Actual Debt Service
(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.
22
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN MALL OF NEW HAMPSHIRE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST MALL STORE TENANTS AND ANCHOR LEASES BASED ON
ANNUALIZED BASE RENT BY PARENT COMPANY(1)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
% % OF TOTAL ANNUALIZED BASE
TENANT OR TENANT TENANT OF TOTAL ANNUALIZED ANNUALIZED RENT
PARENT COMPANY STORE NAME GLA GLA BASE RENT BASE RENT PER SF
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Venator Group, Inc. FootLocker 15,477 4.7% $486,625 4.5% $31.44
Kids FootLocker
Afterthoughts Boutique
Lady FootLocker
Northern Exposure
B. Dalton BookSellers B. Dalton 10,038 3.0 443,482 4.1 44.18
B. Dalton Software
The Limited Inc Bath & Body Works 14,270 4.3 428,100 3.9 30.00
Limited Express
Victoria's Secret
Casual Corner Group Inc. Casual Corner 12,232 3.7 413,001 3.8 33.76
Petite Sophisticate
Contempo Casuals
The Gap, Inc The Gap 9,913 3.0 327,129 3.0 33.00
Gap Kids
Levi Strauss & Co. Design By Levis 8,741 2.6 262,230 2.4 30.00
Olympia Sport Center Olympia Sport Center 15,000 4.5 225,000 2.1 15.00
Record Town Record Town 6,926 2.1 213,000 2.0 30.75
Eastern Mountain Sports Eastern Mountain Sports 6,945 2.1 208,350 1.9 30.00
Eye World Eye World 4,480 1.4 185,000 1.7 41.29
------- ----- ----------- ----- --------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 104,022 31.5% $3,191,917 29.2% $30.69
Remaining Mall Stores 196,052 59.4 7,727,846 70.8 39.42
Vacant Space 29,839 9.0 0 0.0 0.00
------- ----- ----------- ----- --------
TOTAL (EXCLUDING ANCHORS) 329,913 100.0% $10,919,763 100.0% $36.39(2)
======= ===== =========== ===== ========
Filene's Filene's 165,000
JC Penney Co., Inc. JCPenney 101,388
Sears Roebuck & Co. Sears 136,464
Best Buy Co., Inc. Best Buy 42,037
Kitchens Etc.. Kitchens Etc. 18,949
-------
TOTAL (INCLUDING ANCHORS) 793,751
=======
- -----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on the July 15, 1998 rent roll.
(2) Total annualized base rent per square foot excludes vacant square footage and rent.
(3) 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.
23
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN MALL OF NEW HAMPSHIRE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT RATING OF OPERATING
PARENT COMPANY(1) ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Filene's The May Department A+/A2 165,000 Anchor-owned N/A 11/15/11 N/A
Stores Company
JCPenney JC Penney Co., Inc. A/A2 101,388 Anchor-owned N/A 4/30/13 N/A
Sears Sears Roebuck & Co. A-/A2 136,464 Anchor-owned N/A 11/15/11 N/A
- ----------------------------------------------------------------------------------------------------------------------
Note: (1) Ratings as of August 1, 1998. Unless otherwise stated the parent company, if different from the anchor
store listed, is not a party to or a guarantor of the anchor store's lease.
</TABLE>
<TABLE>
<CAPTION>
MALL STORE LEASE EXPIRATION SCHEDULE(1)(3)
- ----------------------------------------------------------------------------------------------------------------------------
PERCENT OF CUMULATIVE
NUMBER OF ANNUALIZED TOTAL PERCENT OF
YEAR LEASES EXPIRING PERCENT OF CUMULATIVE ANNUALIZED BASE RENT PER ANNUALIZED TOTAL ANNUALIZED
EXPIRATION EXPIRING SF TOTAL SF % OF SF BASE RENT SF BASE RENT BASE RENT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 19 29,839 9.0% 9.0% $ - $ - 0.0% 0.0%
1999 10 22,816 6.9 16.0% 1,035,301 45.38 9.5 9.5%
2000 4 8,564 2.6 18.6% 386,010 45.07 3.5 13.0%
2001 3 3,465 1.1 19.6% 263,817 76.14 2.4 15.4%
2002 2 5,124 1.6 21.2% 209,388 40.86 1.9 17.3%
2003 5 18,611 5.6 26.8% 732,230 39.34 6.7 24.1%
2004 4 8,555 2.6 29.4% 317,705 37.14 2.9 27.0%
2005 7 17,191 5.2 34.6% 703,512 40.92 6.4 33.4%
2006 4 6,836 2.1 36.7% 413,500 60.49 3.8 37.2%
2007 23 60,628 18.4 55.1% 1,946,695 32.11 17.8 55.0%
2008 43 118,186 35.8 90.9% 3,726,345 31.53 34.1 89.1%
Thereafter 9 30,098 9.1 100.0% 1,185,260 39.38 10.9 100.0%
--- ------- ----- ----------- -------- -----
TOTAL 133 329,913 100.0% $10,919,763 $36.39(2) 100.0%
=== ======= ===== =========== ======== =====
- ----------------------------------------------------------------------------------------------------------------------------
Notes: (1) Data based on the July 15, 1998 Rent Roll.
(2) Total annual base rent per square foot excludes vacant square footage.
(3) 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.
24
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN MALL OF NEW HAMPSHIRE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES ANALYSIS(1)
- ---------------------------------------------------------------------------------------------------
ANNUAL 1996 SALES ANNUAL 1997 SALES
SQUARE --------------------- -----------------------
FOOTAGE TOTAL (000S) PER SF TOTAL (000S) PER SF
------- ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C>
Anchor Stores
Filene's(2) 165,000 $17,000 $283 $33,000 $200(4)
Sears(2) 136,464 26,000 $249 30,000 $288(5)
JCPenney(3) 101,388 N/A N/A N/A N/A
------- ------------ ------ ------------ ------
TOTAL ANCHOR STORE 402,852 $43,000 N/A $63,000 N/A
"Mini Anchor" Sales
Best Buy(3) 42,037 N/A N/A N/A N/A
Kitchens Etc.(3) 18,949 N/A N/A N/A N/A
------- ------------ ------ ------------ ------
TOTAL "MINI ANCHOR" SALES 60,986 N/A N/A N/A N/A
Mall Stores
Comparable Store 119,088 $42,625 $349 $44,181 $371
Non-Comparable Store 180,986 5,695 N/A 29,198 N/A
Vacant 29,839 N/A N/A N/A N/A
------- ------------ ------ ------------ ------
TOTAL MALL STORE 329,913 $48,320 N/A $73,379 N/A
TOTAL SALES - ANCHOR AND MALL STORES 793,751 $91,320 $136,379
======= ============ ============
- ---------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) Data based on the December 31, 1996 and December 31, 1997 sales
report and summarized only for tenants on the July 15, 1998 rent
roll. Information is based solely on figures provided by The Mall
of New Hampshire Borrower from data provided by tenants. Square
footage is based on the July 15, 1998 rent roll.
(2) During 1997, Filene's and Sears significantly increased available
GLA. Filene's and Sears' available GLA for 1996 was 60,000 sf and
104,262 sf respectively.
(3) JCPenney opened in April, 1998. Best Buy and Kitchens Etc. are both
expected to open in October 1998.
(4) Sales per square foot for Filene's decreased because of the new
construction during 1997.
(5) Expansion of the Sears space was not complete until the end of
1997.
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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN WESTSIDE PAVILION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN INFORMATION
- -------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $100,000,000 $100,000,000
ORIGINATION DATE: July 1, 1998
INTEREST RATE: 6.44%
AMORTIZATION: Interest only until July 1, 2001; 360 months
thereafter (beginning August 1, 2001).
HYPERAMORTIZATION: After the Effective Maturity Date, the interest
rate increases to the greater of 8.44% or the then
current U.S. Treasury rate plus 2.0%. 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: July 1, 2008
MATURITY DATE: July 1, 2031
BORROWER/SPONSOR: A single purpose, bankruptcy-remote entity wholly
owned by The Macerich Company and its operating
partnership.
CALL PROTECTION: 2-year lockout from the date of securitization
with U.S. Treasury defeasance thereafter. Loan
prepayable at par beginning on the Effective
Maturity Date.
REMOVAL OF Management may be terminated (i) for cause or
PROPERTY MANAGER: (ii) upon an Event of Default.
UP FRONT RESERVES: None
GENERAL MONTHLY RESERVES: Capital Expenditure Reserve equal to $ .15 p.s.f.
per annum of shop space per year. Springing
reserves for Property Taxes, Insurance and Tenant
Rollover, if DSCR falls below 1.35x, upon a
monetary Event of Default, or at the Effective
Maturity Date.
COLLECTION ACCOUNT: Springing Hard Lock-Box if DSCR falls below 1.35x,
upon Event of Default; or on the Estimated Maturity
Date
CROSS-COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPERTY INFORMATION
- -------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Regional Mall
LOCATION: Los Angeles, California
YEAR BUILT/RENOVATED: 1985
THE COLLATERAL: Phase I of a three-level, two-anchor, two-phase
regional mall with a total GLA of 755,701 s.f.,
anchor space of 401,563 s.f. and mall store space
of 354,138 s.f. Collateral consists of 262,160
s.f. of Phase I in-line space plus the Nordstrom
and Pavilions anchor spaces for a total of 443,723
s.f.
Anchors include: Robinson-May (220,000 s.f.),
Nordstrom (138,128 s.f.) and Pavilions (43,435
s.f.)
PROPERTY
MANAGEMENT: The Macerich Property Management Company
PERCENT OF MALL STORE SPACE
LEASED AS OF MAY 29, 1998: 98.8%
COMPARABLE STORE AVERAGE
OCCUPANCY COST AS OF
MAY 29, 1998(1): 16.7%
LTM APRIL, 1998 NET
OPERATING INCOME: NAV
UNDERWRITABLE NET
CASH FLOW: $12,632,326
APPRAISED VALUE: $160,000,000 (Collateral only)
APPRAISED BY: Cushman & Wakefield, Inc.
APPRAISAL DATE: July 13, 1998
CUT-OFF DATE EMD(2)
LOAN/SF: $225 $205
LTV: 62.5% 57.0%
DSCR(3): 1.93x 2.12x
1996 1997
MALL STORE SALES PSF(4): $376 $376
Notes: (1) Excludes Phase II taxes being paid by Phase I tenants.
(2) Effective Maturity Date
(3) Based on Underwritable Net Cash Flow and Actual Debt Service
(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.
26
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN WESTSIDE PAVILION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST MALL STORE TENANTS AND ANCHOR LEASES BASED ON
ANNUALIZED BASE RENT BY PARENT COMPANY(1)(2)(4)
- -------------------------------------------------------------------------------------------------------------------------------
% OF % OF TOTAL
TENANT OR TENANT TENANT TOTAL ANNUALIZED 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. Bath & Body Works 42,021 9.5% $1,366,828 11.3% $32.53
Express
Lane Bryant
Limited
Limited Too
Structure
Victoria's Secret
The Gap, Inc. Banana Republic 25,848 5.8 1,073,227 8.9 41.52
Banana Republic (Men)
Gap Kids
The Gap
Venator Group, Inc. Champs 8,808 2.0 355,474 2.9 40.36
Foot Locker
Lady FootLocker
Nine West Group, Inc. Easy Spirit 6,045 1.4 247,761 2.1 40.99
NineWest
Guess Guess 5,380 1.2 242,100 2.0 45.00
Rampage Rampage 6,422 1.5 224,770 1.9 35.00
Goldwyn Pavilion Cinemas Goldwyn Pavilion Cinemas 8,321 1.9 208,025 1.7 25.00
Lechters Lechters 6,119 1.4 204,655 1.7 33.45
Consolidated Stores, Inc. Kay Bee Toy 3,843 0.9 172,935 1.4 45.00
Waldenbooks Waldenbooks 6,557 1.5 163,925 1.4 25.00
------- ----- ----------- ----- ------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 119,364 26.9% $4,259,700 35.3% $35.69
Remaining Mall Stores 139,683 31.5 6,943,743 57.5 49.71
Vacant Space 3,113 0.7 0 0.0 0.00
------- ----- ----------- ----- ------
TOTAL (EXCLUDING ANCHORS) 262,160 59.1% $11,203,443 92.8% $43.25(3)
Nordstrom Nordstrom 138,128 31.1 221,000 1.8 1.60
Safeway Inc. Pavilions 43,435 9.8 650,004 5.4 14.96
------- ----- ----------- ----- ------
TOTAL (EXCLUDING NON-OWNED ANCHORS) 443,723 100.0% $12,074,447 100.0% $27.40(3)
======= ===== =========== ===== ======
The May Department Stores Company Robinsons-May 220,000
Phase II Mall Store Space 91,978
TOTAL (INCLUDING NON-OWNED-ANCHORS) 755,701
=======
- -------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on the May 29, 1998 lease status report and applicable lease modifications.
(2) Reflects Phase I only.
(3) Total annual base rent per square foot excludes vacant square footage.
(4) 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.
27
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN WESTSIDE PAVILION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT RATING OF OPERATING
PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S)(1) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION
- -------------------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nordstrom Nordstrom, Inc. A-/A2 138,128 Collateral 5/31/35 4/30/05 1/1/61
Robinsons-May The May Department Stores A+/A2 220,000 Anchor-owned N/A 4/30/05 1/1/61
Company
Pavilions Safeway, Inc. A-/A2 43,435 Collateral 12/31/01 N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Ratings as of August 1, 1998. Unless otherwise stated the parent company, if different from the anchor store listed,
is not a party to or a guarantor of the anchor store's lease.
</TABLE>
<TABLE>
<CAPTION>
LEASE EXPIRATION SCHEDULE(1)(3)
- ------------------------------------------------------------------------------------------------------------------------
PERCENT OF CUMULATIVE
NUMBER OF ANNUALIZED TOTAL PERCENT OF
YEAR LEASES EXPIRING PERCENT OF CUMULATIVE ANNUALIZED BASE RENT PER ANNUALIZED TOTAL ANNUALIZED
EXPIRATION EXPIRING SF TOTAL SF % OF SF BASE RENT SF BASE RENT BASE RENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 4 3,113 0.7% 0.7% $ - $ - 0.0% 0.0%
1998 1 581 0.1 0.8% 43,575 75.00 0.4 0.4%
1999 6 4,640 1.0 1.9% 307,824 66.34 2.5 2.9%
2000 13 18,600 4.2 6.1% 792,418 42.60 6.6 9.5%
2001 12 63,258 14.3 20.3% 1,685,853 26.65 14.0 23.4%
2002 9 14,975 3.4 23.7% 645,437 43.10 5.3 28.8%
2003 9 10,763 2.4 26.1% 518,362 48.16 4.3 33.1%
2004 11 25,627 5.8 31.9% 1,063,094 41.48 8.8 41.9%
2005 18 38,847 8.8 40.7% 1,701,477 43.80 14.1 56.0%
2006 19 47,038 10.6 51.3% 2,166,780 46.06 17.9 73.9%
2007 12 37,960 8.6 59.8% 1,491,943 39.30 12.4 86.3%
2008 12 35,082 7.9 67.7% 1,245,128 35.49 10.3 96.6%
Thereafter 3 143,239 32.3 100.0% 412,556 $2.88 3.4 100.0%
--- ------- ----- ----------- ------ -----
TOTAL 129 443,723 100.0% $12,074,447 $27.40(2) 100.0%
=== ======= ===== =========== ====== =====
- ------------------------------------------------------------------------------------------------------------------------
Notes: (1) Data based on the May 29, 1998 Rent Roll, excludes Phase II tenants.
(2) Total annual base rent per square foot excludes vacant square footage.
(3) 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.
28
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN WESTSIDE PAVILION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PHASE I SALES ANALYSIS(1)
- --------------------------------------------------------------------------------------------------
ANNUAL 1996 SALES ANNUAL 1997 SALES
SQUARE --------------------- ---------------------
FOOTAGE TOTAL (000S) PER SF TOTAL (000S) PER SF
------- ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C>
Anchor Stores
Nordstrom 138,128 $76,857 $556 $73,857 $535
Pavilions 43,435 14,866 342 15,463 356
Robinsons-May 220,000 47,127 214 49,782 226
------- ------------ ------ ------------ ------
TOTAL ANCHOR STORE 401,563 $138,850 $346 $139,102 $346
Mall Stores
Comparables 186,264 $70,092 $376 $70,059 $376
Non-Comparable Stores 72,783 20,924 N/A 22,297 N/A
Vacant 3,113 N/A N/A N/A N/A
------- ------------ ------ ------------ ------
TOTAL MALL STORES 262,160 $91,016 N/A $92,356 N/A
TOTAL SALES - ANCHORS AND MALL STORES 663,723 $229,866 $231,458
======= ============ ============
- --------------------------------------------------------------------------------------------------
</TABLE>
Note: (1) Data based on the December 31, 1996 and December 31, 1997 sales
report and summarized only for tenants on the May 29, 1998 rent
roll. Information is based solely upon the figures provided by the
Westside Pavilion Borrower from data provided by the tenants.
Square footage is based on the May 29, 1998 rent roll.
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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN NORTHTOWN MALL
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN INFORMATION
- -------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $84,500,000 $84,426,244
ORIGINATION DATE: August 4, 1998
INTEREST RATE: 6.68%
AMORTIZATION: 360 Months
HYPERAMORTIZATION: After the Effective Maturity Date, the interest
rate increases to the greater of 8.68% or the then
current U.S. Treasury rate plus 2.0%. 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: September 1, 2008
MATURITY DATE: September 1, 2028
BORROWER/SPONSOR: A single purpose, bankruptcy-remote entity wholly
owned by Price Development Company and JP Realty,
Inc.
CALL PROTECTION: 2-year lockout from the date of securitization
with U.S. Treasury defeasance thereafter. Loan
prepayable at par beginning on the Effective
Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) if DSCR falls
below 1.15x, (ii) for cause, or (iii) upon an
Event of Default.
UP FRONT RESERVES: (a) $9,500,000 Letter of Credit which will be
released upon completion of an expansion parcel
containing at least 93,00 s.f. and Borrower's
obtaining $1.475 MM in net annual rents from
tenants acceptable to Lender.
(b) Required Repair Fund: $170,375.00.
(c) Tax Account: $620,526.00.
GENERAL MONTHLY RESERVES: 1/12 of annual Property Taxes and Insurance,
Capital Reserves of $8,873 and Tenant Rollover
Reserve of $20,833 ($250,00 per annum) up to a
maximum of $750,000 at any one time.
COLLECTION ACCOUNT: Soft Lock-Box Springs to a Hard Lock-Box if
coverage drops to 1.10x, upon an Event of Default,
or at the Effective Maturity Date.
CROSS-COLLATERALIZATION/ N/A
DEFAULT:
MEZZANINE LOANS: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPERTY INFORMATION
- -------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Regional Mall
LOCATION: Spokane, Washington
YEAR BUILT/RENOVATED: 1955/1985/1992-1993
THE COLLATERAL: Two-level, five-anchor regional mall with a total
GLA of 952,262 s.f., anchor space of 541,209 s.f.
and mall store space of 411,053 s.f. Collateral
consists of mall store space plus the JCPenney,
Emporium, and Bon Marche space for a total of
709,870 s.f.
Anchors include: Sears (160,480 s.f.), JCPenney
(140,868 s.f.), Mervyn's (81,912 s.f.), The Bon
Marche (89,207 s.f.) and Emporium (68,742 s.f.).
PROPERTY
MANAGEMENT: Price Development Company
PERCENT OF MALL STORE SPACE
LEASED AS OF JULY 31, 1998: 77.2%
COMPARABLE STORE AVERAGE
OCCUPANCY COST AS OF
JULY, 1998: 12.5%
LTM JUNE, 1998 NET
OPERATING INCOME: $10,628,747
UNDERWRITABLE NET
CASH FLOW: $10,028,711
RECENT PROPERTY PURCHASE
PRICE: $128,000,000
MARKET STUDY PERFORMED BY: Cushman & Wakefield
MARKET STUDY DATE: August 20, 1998
CUT-OFF DATE EMD(1)
LOAN/SF(2): $106 $90
LTV(2): 58.5% 49.7%
DSCR(2) (3): 1.73x 2.04x
1996 1997
MALL STORE SALES PSF(4): $289 $283
Notes: (1) Effective Maturity Date
(2) Loan Amount used for calculations is net of the $9,500,000
Letter of Credit
(3) Based on Underwritable Net Cash Flow and Actual Debt Service
(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.
30
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN NORTHTOWN MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST MALL STORE TENANTS AND ANCHOR LEASES BASED ON
ANNUALIZED BASE RENT BY PARENT COMPANY(1)(3)
- -----------------------------------------------------------------------------------------------------------------
% OF % OF TOTAL ANNUALIZED
TENANT OR TENANT TENANT TOTAL ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY STORE NAME GLA GLA BASE RENT BASE RENT PER SF
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Limited, Lane Bryant 43,758 6.2% $801,411 8.9% $18.31
Inc. Lerners
Bath & Body Works
Limited Express
Structure
Victoria's Secret
Venator Group, Kinney Shoes 18,274 2.6 436,172 4.8 23.87
Inc. Champs Sports
FootLocker
Kids Footlocker
Afterthoughts Boutique
Lady FootLocker
Bumpers Fun Bumpers Fun Center 30,000 4.2 275,000 3.0 9.17
Center
The Gap, Inc. The Gap 10,695 1.5 267,375 3.0 25.00
Gap Kids
Maurices/Just Maurices/Just Petites 8,881 1.3 159,858 1.8 18.00
Petites
B. Dalton Book B. Dalton 4,465 0.6 133,950 1.5 30.00
Sellers
Pizzeria Uno Pizzeria Uno 6,152 0.9 132,000 1.5 21.46
Mariposa Mariposa 5,155 0.7 105,910 1.2 20.55
Spiegel, Inc. Eddie Bauer 6,208 0.9 117,952 1.3 19.00
Jay Jacobs Jay Jacobs 4,996 0.7 109,912 1.2 22.00
------- ----- ---------- ----- ------
TOTAL/WEIGHTED 138,584 19.5% $2,539,540 28.0% $18.32
AVERAGE (10
LARGEST)
Remaining Mall 178,679 25.2 4,924,123 54.4 27.56
Stores
Vacant Space 93,790 13.2 0 0.0 0.00
------- ----- ---------- ----- ------
TOTAL 411,053 57.9% $7,463,663 82.4% $23.53(2)
(EXCLUDING
ANCHORS)
Federated Bon Marche 89,207 12.6 400,000 4.4 4.48
Department
Stores, Inc.
Emporium Emporium 68,742 9.7 516,940 5.7 7.52
J.C. Penney JCPenney 140,868 19.8 673,952 7.4 4.78
Co., Inc. ------- ----- ---------- ----- ------
TOTAL 709,870 100.0% $9,054,555 100.0% $14.70(2)
======= ===== ========== ===== ======
(EXCLUDING
NON-OWNED
ANCHORS)
Sears Roebuck & Sears 160,480
Co.
Dayton Hudson Mervyn's 81,912
Corp. ------
TOTAL 952,262
(INCLUDING =======
LEASED ANCHORS)
- -----------------------------------------------------------------------------------------------------------------
Note: (1) Based on the July 31, 1998 Rent Roll
(2) Total annual base rent per square foot excludes vacant square footage.
(3) 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.
31
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN NORTHTOWN MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT RATING OPERATING
OF PARENT COMPANY(1) ANCHOR-OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) GLA COLLATERAL EXPIRATION EXPIRATION TERMINATION
- ----------------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bon Marche Federated Department BBB-/ - 89,207 Collateral 1/31/14 12/31/06 N/A
Stores, Inc.
JCPenney J.C. Penney Co., Inc. A/A2 140,868 Collateral 8/31/11 12/31/06 N/A
Sears Sears Roebuck & Co. A-/A2 160,480 Anchor-owned 10/03/04 10/04/04 9/27/40
Mervyn's Dayton Hudson Corp. BBB+/A3 81,912 Anchor-owned 10/16/06 10/18/06 9/27/40
Emporium Emporium - / - 68,742 Collateral 10/31/11 10/31/11 N/A
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: (1) Ratings as of July 1998. Unless otherwise stated, the parent
company is different from the anchor store listed, is not a party
to or a guarantor of the anchor store's lease.
<TABLE>
<CAPTION>
LEASE EXPIRATION SCHEDULE(1)(3)
- -------------------------------------------------------------------------------------------------------------------------------
PERCENT OF CUMULATIVE
NUMBER OF ANNUALIZED TOTAL PERCENT OF
YEAR LEASES EXPIRING PERCENT OF CUMULATIVE ANNUALIZED BASE RENT PER ANNUALIZED TOTAL ANNUALIZED
EXPIRATION EXPIRING SF TOTAL SF % OF SF BASE RENT SF BASE RENT BASE RENT
- --------------------------- ----------- ---------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 45 93,790 13.2% 13.2% $ - $ - 0.0% 0.0%
MTM 3 4,828 0.7 13.9% 115,662 23.96 1.3 1.3%
1998 3 3,135 0.4 14.3% 73,284 23.38 0.8 2.1%
1999 8 10,072 1.4 15.8% 259,200 25.73 2.9 4.9%
2000 8 12,883 1.8 17.6% 323,058 25.08 3.6 8.5%
2001 24 33,341 4.7 22.3% 987,515 29.62 10.9 19.4%
2002 31 111,164 15.7 37.9% 2,211,945 19.90 24.4 43.9%
2003 13 19,546 2.8 40.7% 459,803 23.52 5.1 48.9%
2004 14 38,134 5.4 46.0% 840,280 22.03 9.3 58.2%
2005 11 17,214 2.4 48.5% 514,237 29.87 5.7 63.9%
2006 10 21,366 3.0 51.5% 575,366 26.93 6.4 70.2%
2007 12 34,880 4.9 56.4% 829,487 23.78 9.2 79.4%
2008 3 10,109 1.4 57.8% 229,500 22.70 2.5 81.9%
Thereafter 4 299,408 42.2 100.0% 1,635,218 5.46 18.1 100.0%
--- ------- ----- ---------- ------ -----
TOTAL 189 709,870 100.0% $9,054,555 $14.70(2) 100.0%
=== ======= ===== ========== ====== =====
- -------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Data based on the July 31, 1998 Rent Roll.
(2) Total annual base rent per square foot excludes vacant square footage and rent.
(3) 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.
32
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN NORTHTOWN MALL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES ANALYSIS(1)
- ------------------------------------------------------------------------------------------------
ANNUAL 1996 SALES ANNUAL 1997 SALES
SQUARE -------------------- ---------------------
FOOTAGE TOTAL (000S) PER SF TOTAL (000S) PER SF
------- ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C>
Anchor Stores
Bon Marche 89,207 $22,636 $254 $21,958 $246
Emporium 68,742 6,148 89 6,022 88
JCPenney (2)(3) 140,868 24,292 172 23,904 170
------- ------------ ------ ------------ ------
TOTAL ANCHOR STORE 298,817 $53,076 $178 $51,884 $174
Mall Stores
Comparable Store 288,260 $83,260 $289 $81,628 $283
Non-Comparable Store 29,003 3,145 N/A 5,962 N/A
Vacant 93,790 N/A N/A N/A N/A
------- ------------ ------ ------------ ------
TOTAL MALL STORES 411,053 $86,405 N/A $87,590 N/A
TOTAL SALES - ANCHOR AND MALL STORES 709,870 $139,481 $139,474
======= ============ ============
- ------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) Data based on the December 31, 1996 and December 31, 1997 sales
report and summarized only for tenants on July 31, 1998 rent roll.
Information is based solely on figures provided by the seller of
The NorthTown Property from data provided by tenants. Square
footage is based on the July 31, 1998 rent roll.
(2) JCPenney 1996 sales are based on the sales reporting of
September 1, 1995 to August 31, 1996.
(3) JCPenney 1997 sales are based on the sales reporting periods of
September 1, 1996 to August 31, 1997.
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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN EDENS & AVANT POOL II
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN INFORMATION
- -------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $70,000,000 $70,000,000
ORIGINATION DATE: September 18, 1998
INTEREST RATE: 6.20%
AMORTIZATION: Interest only until Effective Maturity Date
HYPERAMORTIZATION: After the Effective Maturity Date, the interest
rate increases to the greater of 8.20% or the then
current U.S. Treasury rate plus 2.0%. 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, 2008
MATURITY DATE: October 1, 2028
BORROWER/SPONSOR: A single purpose, bankruptcy-remote entity wholly
owned by the State of Michigan Retirement System
and Edens & Avant, Inc. principals and family
members.
CALL PROTECTION: 2-year lockout from the date of securitization
with U.S. Treasury defeasance thereafter. Loan
prepayable at par beginning 60 days prior to the
Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) if the DSCR falls
below 1.25x, (ii) for cause, (iii) upon Event of
Default or (iv) six months after the Effective
Maturity Date.
UP FRONT RESERVES: 2 months of all required escrows to be funded at
closing for the term of the loan. Immediate
deferred maintenance escrow TBD.
GENERAL MONTHLY RESERVES: 1/12 of annual Property Taxes and Insurance,
Capital Reserves of $.20 psf per annum.
COLLECTION ACCOUNT: Soft Lock-Box- Borrower to deposit all amounts
received in connection with the properties within
1 business day of its receipt thereof. Springs to
Hard Lock-Box if DSCR drops to 1.25x.
CROSS-COLLATERALIZATION/
DEFAULT: Cross-collateralized and cross-defaulted.
MEZZANINE LOANS: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPERTY INFORMATION
- -------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Portfolio
PROPERTY TYPE: Anchored Retail
LOCATION: STATE PERCENT
Virginia 22.9%
Mississippi 22.1
Georgia 20.2
South Carolina 11.8
Other States 23.0
YEAR BUILT/RENOVATED: Between 1973 and 1997
THE COLLATERAL: 21 anchored-retail shopping centers with a total
GLA of 2,175,884 s.f.
PROPERTY MANAGEMENT: Edens & Avant, Inc.
PERCENT OF POOL LEASED AS
OF MAY-JULY, 1998: 96%
1997 NET OPERATING INCOME: $11,674,117
UNDERWRITABLE NET
CASH FLOW: $12,772,222
RECENT PURCHASE PRICE: $143,567,822
MARKET STUDY PERFORMED
BY(1): Cushman & Wakefield
MARKET STUDY DATE: August, 1998
CUT-OFF DATE EMD(2)
LOAN/SF: $32 $32
LTV(3): 48.8% 48.8%
DSCR(4): 2.90x 2.90x
1996 1997
SALES PSF(5): $293 $290
Notes: (1) Four properties had appraisals performed by O. Marshall Dodds from
March through June, 1998.
(2) Effective Maturity Date
(3) Value based on recent purchase price
(4) Based on Underwritable Net Cash Flow and Actual Debt Service
(5) Available Comparable 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 Seller 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>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN EDENS & AVANT POOL II
- -------------------------------------------------------------------------------
PROPERTY SUMMARY TABLE(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
OCCUPANCY
ALLOCATED AS OF
LOAN YEAR BUILT/ MAY-JULY,
PROPERTY NAME LOCATION AMOUNT SF RENOVATED 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Promenade at Manassas Manassas, VA $11,791,400 303,643 1993 97.5%
Marrietta Trade Center Marrietta, GA 11,261,250 305,555 1988 100.0
Fulton Crossing Corinth, MS 5,106,150 179,905 1992/95 100.0
Shopping Center
Cypress Point Virginia Beach, 4,246,500 118,002 1990 89.9
Shopping Center VA
Rio Pinar Plaza Orlando, FL 3,521,700 113,620 1984/86 92.8
Baldwin Square Fairhope, AL 3,667,950 139,144 1979/1997 67.3
Shopping Center
Mountain Island Charlotte, NC 3,546,900 73,230 1995 100.0
Market Place
Butler Square Mauldin, SC 3,265,500 80,285 1987 100.0
Shields Plaza Huntsville, AL 2,764,500 79,240 1996/97 100.0
Plantation Point Smyrna, GA 2,850,750 63,200 1988 96.3
Shopping Center
Kenilworth Commons Charlotte, NC 2,629,200 38,117 1988 100.0
Ellis Isle Shopping Jackson, MS 2,552,550 238,091 1973 100.0
Center
Landing Station Lake Wylie, SC 2,479,650 58,400 1997 95.9
Shopping Center
Old Canton Road Jackson, MS 1,762,000 57,276 1984/1992 100.0
Shopping Center
Reservoir Square Brandon, MS 1,641,000 57,238 1979/1987/92 100.0
Shopping Center
Magee Shopping Center Magee, MS 1,451,000 93,456 1979/1987 91.4
English Village Jackson, MS 1,443,000 33,472 1973/1989 100.0
Shopping Center
Gateway Plaza Conway, SC 1,405,000 28,150 1997 100.0
Midway Plaza Shopping Winnsboro, SC 1,129,000 25,860 1997 100.0
Center
Daniel Lake Shopping Jackson, MS 752,000 45,000 1978 100.0
Center
Village Square
Shopping Center Brookhaven, MS 733,000 45,000 1977 100.0
----------- --------- ----
TOTALS $70,000,000 2,175,884 96.1%
=========== ========= ====
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ANNUALIZED ANNUALIZED
BASE RENT BASE RENT
AS OF PSF AS OF PRIMARY TENANTS WITH
MAY-JULY, MAY- JULY, 15,000 SF OR GREATER
PROPERTY NAME UCF 1998 1998(2) AS OF MAY-JULY, 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Promenade at Manassas $2,264,551 $2,585,897 $ 8.73 WalMart (2012) and Home Depot (2015)
Marrietta Trade Center 1,956,808 2,529,669 8.28 Cub Foods (2008) and WalMart (2008)
(dark)
Fulton Crossing 887,331 1,023,989 5.69 K-Mart (2017) and Kroger (2012)
Shopping Center
Cypress Point 815,640 934,757 8.81 Farm Fresh Store (2015)
Shopping Center
Rio Pinar Plaza 714,054 900,036 8.54 Publix Supermarkets (2004)
Baldwin Square 704,503 761,430 8.13 Winn-Dixie (2016)
Shopping Center
Mountain Island 616,357 670,050 9.15 Harris Teeter (2015)
Market Place
Butler Square 567,447 674,844 8.41 Bi-Lo (2007)
Shields Plaza 531,027 599,439 7.56 Winn-Dixie (2016)
Plantation Point 495,446 554,244 9.10 Winn-Dixie (2008)
Shopping Center
Kenilworth Commons 456,872 489,798 12.85 Harris Teeter (2008)
Ellis Isle Shopping 443,601 664,462 2.79 Sack `N Save (2005) and WalMart
Center (2004) (dark)
Landing Station 436,482 470,700 8.41 Winn-Dixie (2017)
Shopping Center
Old Canton Road 321,480 348,967 6.09 Jitney Jungle (2009)
Shopping Center
Reservoir Square 299,377 400,794 7.00 Jitney Jungle (2007)
Shopping Center
Magee Shopping Center 264,674 398,982 4.67 Jitney Jungle (2007)
English Village 263,218 289,000 8.63 Jitney Jungle (2013)
Shopping Center
Gateway Plaza 256,285 313,875 11.15 (3)
Midway Plaza Shopping 206,048 258,240 9.99 (3)
Center
Daniel Lake Shopping 137,253 184,500 4.10 Jitney Jungle (2003)
Center
Village Square
Shopping Center 133,768 150,000 3.33 Sack `N Save (2002)
----------- ----------- --------
TOTALS $12,772,222 $15,203,673 $ 7.27
=========== =========== ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) Data based on the most recent available Rent Roll (May-July, 1998).
(2) Annualized base rent per square foot excludes vacant square
footage.
(3) Anchored by Wal-Mart which is not part of collateral.
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 Seller 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.
35
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN EDENS & AVANT POOL II
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT(1)(3)
- ----------------------------------------------------------------------------------------------------------------------------------
% OF % OF TOTAL
TENANT OR TENANT NO. OF TENANT TOTAL ANNUALIZED ANNUALIZED ANNUALIZED BASE
PARENT COMPANY STORE NAME STORES GLA (SF) GLA BASE RENT BASE RENT RENT PER SF
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jitney-Jungle Stores of America, Jitney Jungle 7 355,438 16.3% $1,636,235 10.8% $4.60
Inc.(4) Sack `N Save
Wal-Mart Stores, Inc. (5) WalMart 3 303,598 14.0 1,478,795 9.7 4.87
Winn-Dixie Stores, Inc. Winn-Dixie 4 183,282 8.4 1,452,749 9.6 7.93
The Home Depot, Inc. Home Depot 1 107,400 4.9 843,090 5.5 7.85
Ruddick Corporation Harris Teeter 2 76,627 3.5 695,212 4.6 9.07
Supervalu, Inc. Cub Foods 1 76,564 3.5 556,921 3.7 7.27
K-Mart Corporation K-Mart 1 107,806 5.0 545,498 3.6 5.06
Farm Fresh, Inc. Farm Fresh 1 53,231 2.4 371,020 2.4 6.97
Royal Ahold NV Bi-Lo 1 38,654 1.8 302,661 2.0 7.83
The Kroger Co. Kroger 1 45,674 2.1 240,000 1.6 5.25
--- --------- ----- ----------- ----- -----
TOTAL/WEIGHTED
AVERAGE (10 LARGEST) 22 1,348,274 62.0% $8,122,181 53.4% $6.02
Other Major Tenants (greater 35 338,378 15.6 2,386,423 15.7 7.05
than 5,000 square feet)
Remaining Tenants 207 403,334 18.5 4,695,069 30.9 11.64
Vacant Space 31 85,898 3.9 0 0.0 0.00
--- --------- ----- ----------- ----- -----
TOTAL/WEIGHTED AVERAGE 295 2,175,884 100.0% $15,203,673 100.0% $7.27(2)
=== ========= ===== =========== ===== =====
- ----------------------------------------------------------------------------------------------------------------------------------
Note: (1) Data based on the most recent available Rent Roll (May-July, 1998).
(2) Total annual base rent per square foot excludes vacant square footage.
(3) Numbers may not total 100% due to rounding.
(4) Includes corporate office space at Ellis Isle of 12,500 square feet.
(5) Although all 3 stores are current on their rent, 2 properties are vacant.
</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 Seller 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.
36
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN EDENS & AVANT POOL II
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
LEASE EXPIRATION SCHEDULE(1)(3)(4)
- ----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
NUMBER OF ANNUAL PERCENT OF PERCENT OF
LEASES EXPIRING PERCENT OF CUMULATIVE ANNUALIZED BASE RENT ANNUALIZED BASE ANNUALIZED
YEAR EXPIRATION EXPIRING SF TOTAL SF % OF SF BASE RENT PER SF RENT BASE RENT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 31 85,898 3.9% 3.9% $ - $ - 0.0% 0.0%
M-T-M 7 10,371 0.5 4.4% 117,639 11.34 0.8 0.8%
1998 15 23,819 1.1 5.5% 338,592 14.22 2.2 3.0%
1999 50 146,163 6.7 12.2% 1,317,075 9.01 8.7 11.7%
2000 46 134,853 6.2 18.4% 1,246,098 9.24 8.2 19.9%
2001 49 126,293 5.8 24.2% 1,244,904 9.86 8.2 28.0%
2002 25 94,461 4.3 28.6% 702,153 7.43 4.6 32.7%
2003 33 132,716 6.1 34.7% 1,146,576 8.64 7.5 40.2%
2004 6 172,451 7.9 42.6% 688,756 3.99 4.5 44.7%
2005 4 134,500 6.2 48.8% 436,660 3.25 2.9 47.6%
2006 1 5,000 0.2 49.0% 55,000 11.00 0.4 48.0%
2007 8 120,273 5.5 54.5% 833,374 6.93 5.5 53.5%
2008 8 252,708 11.6 66.2% 1,867,919 7.39 12.3 65.7%
Thereafter 14 736,378 33.8 100.0% 5,208,927 7.07 34.3 100.0%
--- --------- ----- ----------- -------- -----
TOTAL 297 2,175,884 100.0% $15,203,673 $ 7.27(2) 100.0%
=== ========= ===== =========== ======== =====
- ----------------------------------------------------------------------------------------------------------------------------
Notes: (1) Data based on the most recent available Rent Roll (May-July, 1998).
(2) Total annual base rent per square foot excludes vacant square footage and rent.
(3) Numbers may not total 100% due to rounding.
(4) Includes corporate office space at Ellis Isle of 12,500 square feet.
</TABLE>
<TABLE>
<CAPTION>
LARGEST TENANTS (OVER $11 MM IN 1997 SALES) BASED ON
AVAILABLE COMPARABLE STORE 1996 AND 1997 SALES HISTORY
- --------------------------------------------------------------------------------------------------
ANNUAL 1996 SALES ANNUAL 1997 SALES
NO. OF SQUARE --------------------- ----------------------
STORE NAME STORES FEET TOTAL (000S) PER SF TOTAL (000S) PER SF
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jitney Jungle 5 177,938 $65,232 $367 $59,919 $337
Sack `N Save 2 165,000 51,907 315 50,972 309
WalMart 1 116,085 45,244 390 47,004 405
Home Depot 1 107,400 31,297 291 30,621 285
Bi Lo 1 38,654 14,335 371 16,358 423
Harris Teeter 1 26,000 14,956 575 15,113 581
-- ------- -------- ---- -------- ----
TOTAL LARGEST TENANTS 11 631,077 222,971 $353 $219,987 $349
OTHER COMPARABLE STORES 28 292,894 48,119 164 47,924 164
-- ------- -------- ---- -------- ----
GRAND TOTAL 39 923,971 $271,090 $293 $267,911 $290
== ======= ======== ==== ======== ====
- --------------------------------------------------------------------------------------------------
</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 Seller 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.
37
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN CRYSTAL PARK IV
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN INFORMATION
- -------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $67,100,000 $67,039,458
ORIGINATION DATE: August 26, 1998
INTEREST RATE: 6.51%
AMORTIZATION: 360 Months
HYPERAMORTIZATION: After the Effective Maturity Date, the interest
rate increases to the greater of 10.51% or the
then current U.S. Treasury rate plus 4.0%. All
excess cash flow is used to reduce the outstanding
principal balance; the additional 4% interest
accrues interest at the increased rate and is
deferred until the principal balance is zero.
EFFECTIVE MATURITY DATE: September 1, 2008
MATURITY DATE: September 1, 2028
BORROWER/SPONSOR: The borrowing entity is a special purpose
bankruptcy-remote entity controlled by the
principals of Charles E. Smith Commercial Realty.
CALL PROTECTION: 2-year lockout from the date of securitization
with U.S. Treasury defeasance thereafter. Loan
prepayable at par beginning one month prior to the
Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: Management may be terminated (i) if the DSCR for
the Loan falls below 1.10x, (ii) for cause, (iii)
upon an Event of Default or (iv) after the
Effective Maturity Date.
UP FRONT RESERVES: Tenant Rollover Reserve Fund: $1 MM Letter of
Credit required for as long as S&P's and Moody's
ratings of U.S. Airways, Inc.'s unsecured debt are
less than "BB" and "Ba2," respectively.
USAIR ESCROW: All property cash flow (capped at $6 MM) will be
escrowed starting upon the earlier occur of 3/1/07
and a USAir bankruptcy reserved for potential
tenant improvements and leasing commission costs
for the USAir lease rollover.
GENERAL MONTHLY RESERVES: 1/12 of annual Property Taxes, Capital Reserves of
$15,545.63.
COLLECTION ACCOUNT: Hard Lock-Box
CROSS-COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROPERTY INFORMATION
- -------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Class A Office Building
LOCATION: Arlington, Virginia
YEAR BUILT/RENOVATED: 1988
THE COLLATERAL: 11 office floors, 4 below grade parking garage
levels and 1 penthouse mechanical level with
466,369 s.f. of Net Rentable Area, which includes
3,000 s.f. of restaurant space and 815 s.f. of
retail space.
Major Tenants: US Airways, Inc.; Charles E. Smith
Mgmt; Booz Allen Hamilton Inc. and ADI Technology
PROPERTY
MANAGEMENT: Charles E. Smith Commercial Realty, LP
PERCENT OF SPACE LEASED AS
OF AUGUST 1, 1998: 100%
LTM JUNE, 1998 NET
OPERATING INCOME: $10,670,180
UNDERWRITABLE NET
CASH FLOW: $9,844,213
APPRAISED VALUE: $107,000,000
APPRAISED BY: Cushman & Wakefield
APPRAISAL DATE: July 7, 1998
CUT-OFF DATE EMD(1)
LOAN/SF: $144 $124
LTV: 62.7% 54.0%
DSCR(2): 1.93x 2.25x
Notes: (1) Effective Maturity Date
(2) Based on Underwritable Net Cash Flow and Actual Debt Service.
- -------------------------------------------------------------------------------
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 Seller 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.
38
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN CRYSTAL PARK IV
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIVE LARGEST TENANTS BASED ON ANNUALIZED BASE RENTS BY PARENT COMPANY(1)
- ------------------------------------------------------------------------------------------------------------------
TENANT PERCENT % OF TOTAL
TENANT OR TENANT NET LEASABLE OF TOTAL ANNUALIZED ANNUALIZED ANNUALIZED BASE
PARENT COMPANY AREA GLA BASE RENT BASE RENT RENT PER SF
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US Airways, Inc.. 327,016 70.1% $8,950,238(2) 70.6% $27.37
Charles E. Smith Mgmt Inc. 115,475 24.8 3,014,036 23.8 26.10
ADI Technology, Inc. 9,198 2.0 269,248 2.1 29.27
Booz-Allen & Hamilton, Inc. 3,553 0.8 99,484 0.8 28.00
Via Cucina Restaurant 3,000 0.6 97,500 0.8 32.50
------- ----- ----------- ----- ------
TOTAL MAJOR TENANTS 458,242 98.3% $12,430,506 98.1% $27.13
Other Tenants 8,127 1.7 246,676 1.9 30.35(2)
Vacant Space - - - - -
------- ----- ----------- ----- ------
TOTAL NET RENTABLE AREA 466,369 100.0% $12,677,182 100.0% $27.18(3)
======= ===== =========== ===== ======
- ------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on the August 1, 1998 Rent Roll and does not include annualized CPI escalations of $964,271.
(2) Includes $400,140 from a signed lease which begins on October 1, 1998.
(3) Includes Environmental Center Parking which occupies 1 square foot and pays an annual rent of $8,400.
If this tenant were eliminated, the Annualized Base Rent per SF for the Other Tenants would be $29.32,
not $30.35, resulting in a Total Annualized Base Rent per SF of $27.16, not $27.18.
</TABLE>
- -------------------------------------------------------------------------------
HISTORICAL OCCUPANCY
- -------------------------------------------------------------------------------
OCCUPANCY PERIOD/DATE: PERCENT LEASED
- -------------------------------------------------------------------------------
August 1, 1998 100%
December 31, 1997 100%
December 31, 1996 100%
December 31, 1995 100%
- -------------------------------------------------------------------------------
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 Seller 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.
39
<PAGE>
- -------------------------------------------------------------------------------
XL2 1998 COLLATERAL TERM SHEET:
LARGE LOAN CRYSTAL PARK IV
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LEASE EXPIRATION SCHEDULE(1)(4)
- ----------------------------------------------------------------------------------------------------------------------------------
PERCENT CUMULATIVE
NUMBER OF PERCENT CUMULATIVE ANNUALIZED OF TOTAL PERCENT OF TOTAL
YEAR OF LEASES EXPIRING OF PERCENT ANNUALIZED BASE RENT ANNUALIZED BASE ANNUALIZED
EXPIRATION EXPIRING SF TOTAL SF OF TOTAL SF BASE RENT PER SF RENT BASE RENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant 0 - 0.0% 0.0% $ - $ - 0.0% 0.00%
1998(2) 2 - 0.0 0.0% 50 - 0.0 0.0%
1999 8 23,568 5.1 5.1% 491,799 20.87 3.9 3.9%
2000 2 2,263 0.5 5.5% 68,246 30.16 0.5 4.4%
2001 1 2,901 0.6 6.2% 81,228 28.00 0.6 5.1%
2002 6 40,617 8.7 14.9% 1,146,148 28.22 9.0 14.1%
2003 0 - 0.0 14.9% - - 0.0 14.1%
2004 1 101,246 21.7 36.6% 2,809,549 27.75 22.2 36.3%
2005 0 - 0.0 36.6% - - 0.0 36.3%
2006 0 - 0.0 36.6% - - 0.0 36.3%
2007 0 - 0.0 36.6% - - 0.0 36.3%
2008 1 295,774 63.4 100.0% 8,080,162 27.32 63.7 100.0%
Thereafter 0 - 0.0 100.0% - - 0.0 100.0%
-- ------- ----- ----------- ------ -----
TOTAL 21 466,369 100.0% $12,677,182 $27.18(3) 100.0%
== ======= ===== =========== ====== =====
- ----------------------------------------------------------------------------------------------------------------------------------
Notes: (1) Based on the August 1, 1998 Rent Roll and does not include annualized CPI escalations of $964,271.
(2) $50 Base Rent reflects antenna on roof of building.
(3) Total annual base rent per square foot excludes vacant square footage.
(4) 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 Seller 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.
40
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE PROPERTY
LOAN PROJECT NAME TYPE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Grapevine Mills Regional "Mills" Mall
- ---------------------------------------------------------------------------------------------
Edens & Avant Pool I Anchored Retail
- ---------------------------------------------------------------------------------------------
Fairlawn Town Centre Shopping Center Anchored Retail
Bishops Corner Anchored Retail
South Bay Center Anchored Retail
Brookside/Brookway Shopping Center Anchored Retail
Winchester Court Shopping Center Anchored Retail
Middlesex Mall Anchored Retail
Westown Square Shopping Center Anchored Retail
Burlington Crossroads Anchored Retail
Shrewsbury Crossing Shopping Center Anchored Retail
Buckeye Plaza Anchored Retail
Acton Plaza Anchored Retail
Eastchester Plaza Anchored Retail
Elkhart Plaza Shopping Center Anchored Retail
Columbia Detroit Shopping Center Anchored Retail
Center at Patchogue Anchored Retail
- ---------------------------------------------------------------------------------------------
Mall of New Hampshire Regional Mall
- ---------------------------------------------------------------------------------------------
Westside Pavillion(1) Regional Mall
- ---------------------------------------------------------------------------------------------
Northtown Mall Regional Mall
- ---------------------------------------------------------------------------------------------
Edens & Avant Pool II Anchored Retail
- ---------------------------------------------------------------------------------------------
Promenade at Manassas Anchored Retail
Marietta Trade Center Anchored Retail
Fulton Crossing Shopping Center Anchored Retail
Cypress Point Shopping Center Anchored Retail
Rio Pinar Plaza Anchored Retail
Baldwin Square Shopping Center Anchored Retail
Mountain Island Market Place Anchored Retail
Butler Square Shopping Center Anchored Retail
Shields Plaza Shopping Center Anchored Retail
Plantation Point Shopping Center Anchored Retail
Kenilworth Commons Anchored Retail
Ellis Isle Shopping Center Anchored Retail
Landing Station Shopping Center Anchored Retail
Old Canton Road Shopping Center Anchored Retail
Reservoir Square Shopping Center Anchored Retail
Magee Shopping Center Anchored Retail
English Village Shopping Center Anchored Retail
Gateway Plaza Anchored Retail
Midway Plaza Shopping Center Anchored Retail
Daniel Lake Shopping Center Anchored Retail
Village Square Shopping Center Anchored Retail
- ---------------------------------------------------------------------------------------------
Crystal Park IV Office
- ---------------------------------------------------------------------------------------------
</TABLE>
Note:
(1) Operating history of the Westside Pavilion includes both Phase I and
II components. Underwritable amounts pertain to Phase I only.
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE
LOAN PROJECT NAME ADDRESS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Grapevine Mills Northwest corner of State Highway 121 and State Highway 26
- -----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool I
- -----------------------------------------------------------------------------------------------------------------------------------
Fairlawn Town Centre Shopping Center 125 Fairlawn Plaza Drive
Bishops Corner 333 North Main Street
South Bay Center 8 Allstate Road
Brookside/Brookway Shopping Center 4485-4553 Main Street
Winchester Court Shopping Center 6600-6740 Winchester Road
Middlesex Mall 43 Middlesex Turnpike
Westown Square Shopping Center 10604-10950 Lorain Avenue
Burlington Crossroads 34 Cambridge Street
Shrewsbury Crossing Shopping Center 529-571 Boston Turnpike
Buckeye Plaza 11301-11501 Buckeye Road
Acton Plaza 291-307 Main Street
Eastchester Plaza 375 White Plains Road
Elkhart Plaza Shopping Center 1620-1712 S. Nappanee Street
Columbia Detroit Shopping Center 1502 Columbia Road
Center at Patchogue 479 Main Street
- -----------------------------------------------------------------------------------------------------------------------------------
Mall of New Hampshire 1500 South Willow Street
- -----------------------------------------------------------------------------------------------------------------------------------
Westside Pavillion(1) 10800-10850 Pico Boulevard
- -----------------------------------------------------------------------------------------------------------------------------------
Northtown Mall 4750 North Division Street
- -----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool II
- -----------------------------------------------------------------------------------------------------------------------------------
Promenade at Manassas Corner of Sudley and Balls Ford Rd.
Marietta Trade Center 200 Cobb Parkway South
Fulton Crossing Shopping Center 104 US Highway 72 West
Cypress Point Shopping Center 928 Diamond Springs Road
Rio Pinar Plaza 500 S. Chickasaw Trail
Baldwin Square Shopping Center 199 Hwy 96
Mountain Island Market Place 3300 Mt. Holly-Huntersville Road
Butler Square Shopping Center 201-273 West Butler Ave, @ Cary Drive
Shields Plaza Shopping Center 1338 Winchester Road
Plantation Point Shopping Center 2350 Spring Rd. @ Cambell Rd.
Kenilworth Commons 1235 East Blvd. @ Kenilworth Ave.
Ellis Isle Shopping Center 1770-1775 Ellis Avenue
Landing Station Shopping Center Hwy 274
Old Canton Road Shopping Center 6240 Old Canton Road
Reservoir Square Shopping Center 1905-1927 Spillway Road
Magee Shopping Center 705-709 Hwy 49 Bypass
English Village Shopping Center 902-912 E. Fortification Street
Gateway Plaza 2709 US Hwy 501
Midway Plaza Shopping Center 236-244 Hwy 321
Daniel Lake Shopping Center 3366 Terry Road
Village Square Shopping Center 364 Monticello Street
- -----------------------------------------------------------------------------------------------------------------------------------
Crystal Park IV 2345 Crystal Drive
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE YEAR BUILT/
LOAN PROJECT NAME CITY STATE ZIP CODE RENOVATED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Grapevine Mills Grapevine TX 76051 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool I
- ----------------------------------------------------------------------------------------------------------------------------------
Fairlawn Town Centre Shopping Center Fairlawn OH 44333 1958/1970/1996
Bishops Corner West Hartford CT 06117 1970
South Bay Center Boston MA 02125 1994
Brookside/Brookway Shopping Center Bridgeport CT 06606 1957
Winchester Court Shopping Center Memphis TN 38115 1987
Middlesex Mall Burlington MA 01803 1974 (1991)
Westown Square Shopping Center Cleveland OH 44111 1987
Burlington Crossroads Burlington MA 01803 1974 (1997)
Shrewsbury Crossing Shopping Center Shrewsbury MA 01545 1993
Buckeye Plaza Cleveland OH 44104 1989
Acton Plaza Acton MA 01720 1972 (1994)
Eastchester Plaza Eastchester NY 10709 1956 (1988)
Elkhart Plaza Shopping Center Elkhart IN 46516 1972 (1992)
Columbia Detroit Shopping Center Westlake OH 44145 1979 (1995)
Center at Patchogue Patchogue NY 11772 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Mall of New Hampshire Manchester NH 03103 1977/1996-98
- ----------------------------------------------------------------------------------------------------------------------------------
Westside Pavillion(1) Los Angeles CA 90064 1985
- ----------------------------------------------------------------------------------------------------------------------------------
Northtown Mall Spokane WA 99207 1955/1985/1992-1993
- ----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool II
- ----------------------------------------------------------------------------------------------------------------------------------
Promenade at Manassas Manassas VA 20109 1993
Marietta Trade Center Marietta GA 30062 1988
Fulton Crossing Shopping Center Cornith MS 38834 1992/95
Cypress Point Shopping Center Virginia Beach VA 23455 1990
Rio Pinar Plaza Orlando FL 32825 1984/86
Baldwin Square Shopping Center Fairhope AL 36532 1979 (1997)
Mountain Island Market Place Charlotte NC 28216 1995
Butler Square Shopping Center Mauldin SC 29662 1987
Shields Plaza Shopping Center Huntsville AL 35811 1996/97
Plantation Point Shopping Center Smyrna GA 30080 1988
Kenilworth Commons Charlotte NC 28203 1988
Ellis Isle Shopping Center Jackson MS 39204 1973
Landing Station Shopping Center Lake Wylie SC 29710 1997
Old Canton Road Shopping Center Jackson MS 39211 1984 (1992)
Reservoir Square Shopping Center Brandon MS 39042 1979 (1987/92)
Magee Shopping Center Magee MS 39111 1979 (1987)
English Village Shopping Center Jackson MS 39202 1973 (1989)
Gateway Plaza Conway SC 29526 1997
Midway Plaza Shopping Center Winnsboro SC 29180 1997
Daniel Lake Shopping Center Jackson MS 39212 1978
Village Square Shopping Center Brookhaven MS 39601 1977
- ----------------------------------------------------------------------------------------------------------------------------------
Crystal Park IV Crystal City VA 22202 1988
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF DATE
MORTGAGE TOTAL OCCUPANCY ALLOCATED
LOAN PROJECT NAME SF/UNITS OCCUPANCY AS OF DATE LOAN AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Grapevine Mills 1,241,769 91% 6/1/98 155,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool I 2,100,452 97% 4/98 - 6/98 125,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Fairlawn Town Centre Shopping Center 353,191 91% 5/31/98 18,512,000
Bishops Corner 123,796 100% 5/31/98 16,570,000
South Bay Center 121,540 100% 5/31/98 14,180,000
Brookside/Brookway Shopping Center 158,990 95% 6/30/98 12,191,000
Winchester Court Shopping Center 244,992 97% 6/1/98 8,651,000
Middlesex Mall 222,218 98% 5/31/98 9,808,000
Westown Square Shopping Center 169,059 99% 6/30/98 9,806,000
Burlington Crossroads 190,300 100% 5/31/98 9,043,000
Shrewsbury Crossing Shopping Center 74,215 100% 5/31/98 7,828,000
Buckeye Plaza 117,281 97% 5/31/98 6,247,000
Acton Plaza 136,233 99% 5/31/98 5,785,000
Eastchester Plaza 23,375 92% 5/31/98 2,281,000
Elkhart Plaza Shopping Center 97,560 100% 4/1/98 1,824,000
Columbia Detroit Shopping Center 49,602 100% 5/31/98 1,322,000
Center at Patchogue 18,100 100% 5/31/98 952,000
- -----------------------------------------------------------------------------------------------------------------------------------
Mall of New Hampshire 329,913 91% 7/15/98 105,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Westside Pavillion(1) 443,723 99% 5/29/98 100,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Northtown Mall 709,870 77% 7/31/98 84,426,244
- -----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool II 2,175,884 96% 5/98 - 7/98 70,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Promenade at Manassas 303,643 98% 5/1/98 11,791,400
Marietta Trade Center 305,555 100% 7/1/98 11,261,250
Fulton Crossing Shopping Center 179,905 100% 7/1/98 5,106,150
Cypress Point Shopping Center 118,002 90% 7/14/98 4,246,500
Rio Pinar Plaza 113,620 93% 7/1/98 3,521,700
Baldwin Square Shopping Center 139,144 67% 7/30/98 3,667,950
Mountain Island Market Place 73,230 100% 6/1/98 3,546,900
Butler Square Shopping Center 80,285 100% 7/20/98 3,265,500
Shields Plaza Shopping Center 79,240 100% 7/1/98 2,764,500
Plantation Point Shopping Center 63,200 96% 7/20/98 2,850,750
Kenilworth Commons 38,117 100% 7/20/98 2,629,200
Ellis Isle Shopping Center 238,091 100% 6/1/98 2,552,550
Landing Station Shopping Center 58,400 96% 6/1/98 2,479,650
Old Canton Road Shopping Center 57,276 100% 6/1/98 1,762,000
Reservoir Square Shopping Center 57,238 100% 6/1/98 1,641,000
Magee Shopping Center 93,456 91% 6/1/98 1,451,000
English Village Shopping Center 33,472 100% 6/1/98 1,443,000
Gateway Plaza 28,150 100% 7/28/98 1,405,000
Midway Plaza Shopping Center 25,860 100% 7/28/98 1,129,000
Daniel Lake Shopping Center 45,000 100% 6/1/98 752,000
Village Square Shopping Center 45,000 100% 6/1/98 733,000
- -----------------------------------------------------------------------------------------------------------------------------------
Crystal Park IV 466,369 100% 8/1/98 67,039,458
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF 1996 1997
MORTGAGE APPRAISED DATE TOTAL TOTAL
LOAN PROJECT NAME VALUE LTV REVENUE REVENUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Grapevine Mills 235,000,000 61.7% - 4,921,059
- -----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool I 265,582,293 47.1% 27,339,587 31,188,916
- -----------------------------------------------------------------------------------------------------------------------------------
Fairlawn Town Centre Shopping Center 42,426,352 47.1% 2,181,472 3,347,980
Bishops Corner 33,703,809 47.1% 3,454,189 4,012,389
South Bay Center 28,755,293 47.1% 4,719,564 4,616,953
Brookside/Brookway Shopping Center 26,344,503 47.1% 2,405,952 2,404,938
Winchester Court Shopping Center 18,100,000 47.1% 2,934,606 2,433,513
Middlesex Mall 21,785,408 47.1% 1,168,459 2,766,409
Westown Square Shopping Center 20,062,883 47.1% 2,210,496 2,386,524
Burlington Crossroads 20,321,079 47.1% 2,099,543 2,744,794
Shrewsbury Crossing Shopping Center 15,325,014 47.1% 1,518,040 1,587,083
Buckeye Plaza 12,835,421 47.1% 1,613,313 1,607,114
Acton Plaza 13,378,512 47.1% 1,312,761 1,533,045
Eastchester Plaza 4,552,423 47.1% 624,422 626,991
Elkhart Plaza Shopping Center 2,888,082 47.1% 510,703 511,590
Columbia Detroit Shopping Center 3,123,840 47.1% 331,593 356,211
Center at Patchogue 1,979,674 47.1% 254,474 253,382
- ---------------------------------------------------------------------------------------------------------------------------------
Mall of New Hampshire 145,600,000 65.2% 10,431,201 12,700,097
- ---------------------------------------------------------------------------------------------------------------------------------
Westside Pavillion(1) 160,000,000 62.5% 23,603,674 23,000,883
- ---------------------------------------------------------------------------------------------------------------------------------
Northtown Mall 128,000,000 58.5% 13,737,676 14,704,975
- ---------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool II 143,567,822 48.8% 12,717,892 14,872,809
- ---------------------------------------------------------------------------------------------------------------------------------
Promenade at Manassas 28,400,000 48.8% 2,874,629 3,066,705
Marietta Trade Center 21,450,000 48.8% 2,335,468 2,723,536
Fulton Crossing Shopping Center 9,500,000 48.8% 927,055 950,831
Cypress Point Shopping Center 7,750,000 48.8% - 1,072,483
Rio Pinar Plaza 8,815,000 48.8% 1,063,499 1,059,491
Baldwin Square Shopping Center 7,290,000 48.8% - -
Mountain Island Market Place 7,136,522 48.8% 800,936 791,350
Butler Square Shopping Center 6,521,683 48.8% 781,639 780,096
Shields Plaza Shopping Center 5,383,000 48.8% - 524,743
Plantation Point Shopping Center 6,129,806 48.8% 686,484 668,072
Kenilworth Commons 4,895,732 48.8% 586,137 620,066
Ellis Isle Shopping Center 4,600,000 48.8% 799,741 792,539
Landing Station Shopping Center 5,263,478 48.8% - -
Old Canton Road Shopping Center 3,775,000 48.8% 348,967 348,967
Reservoir Square Shopping Center 3,250,000 48.8% 468,958 432,465
Magee Shopping Center 3,200,000 48.8% 341,115 344,514
English Village Shopping Center 2,547,853 48.8% 311,063 312,000
Gateway Plaza 2,723,202 48.8% - -
Midway Plaza Shopping Center 2,236,546 48.8% - -
Daniel Lake Shopping Center 1,300,000 48.8% 210,281 203,031
Village Square Shopping Center 1,400,000 48.8% 181,920 181,920
- -----------------------------------------------------------------------------------------------------------------------------------
Crystal Park IV 107,000,000 62.7% 14,535,117 14,843,904
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1997
MORTGAGE TOTAL TOTAL Underwritable
LOAN PROJECT NAME NOI NOI Cash Flow DSCR Fee/Leashold
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Grapevine Mills - 3,866,831 20,619,033 2.17 Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool I 18,041,571 21,358,498 21,337,841 2.72 Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Fairlawn Town Centre Shopping Center 1,307,148 2,365,727 3,090,396 2.72 Fee
Bishops Corner 2,334,499 2,982,595 2,766,516 2.72 Fee
South Bay Center 2,375,611 2,704,560 2,367,435 2.72 Fee
Brookside/Brookway Shopping Center 1,673,000 1,592,147 2,035,408 2.72 Fee
Winchester Court Shopping Center 2,375,241 1,933,339 1,912,644 2.72 Fee
Middlesex Mall 743,369 1,779,562 1,637,585 2.72 Fee
Westown Square Shopping Center 1,592,334 1,660,918 1,637,208 2.72 Fee
Burlington Crossroads 1,385,749 1,975,448 1,509,724 2.72 Fee
Shrewsbury Crossing Shopping Center 1,217,564 1,303,931 1,306,974 2.72 Fee
Buckeye Plaza 1,167,241 1,004,499 1,043,009 2.72 Fee
Acton Plaza 718,744 885,724 965,800 2.72 Fee
Eastchester Plaza 397,505 408,991 380,790 2.72 Fee
Elkhart Plaza Shopping Center 348,879 352,052 304,605 2.72 Fee
Columbia Detroit Shopping Center 246,779 244,555 220,771 2.72 Fee
Center at Patchogue 157,908 164,450 158,976 2.72 Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Mall of New Hampshire 7,213,932 8,647,413 11,199,597 1.67 Fee/Leashold
- -----------------------------------------------------------------------------------------------------------------------------------
Westside Pavillion(1) 14,551,461 14,586,111 12,632,326 1.93 Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Northtown Mall 9,709,877 10,716,438 10,028,711 1.73 Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Edens & Avant Pool II 9,879,831 11,674,117 12,772,222 2.90 Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Promenade at Manassas 2,276,793 2,416,101 2,264,551 2.90 Fee
Marietta Trade Center 1,793,780 2,063,814 1,956,808 2.90 Fee
Fulton Crossing Shopping Center 826,375 838,219 887,331 2.90 Fee
Cypress Point Shopping Center - 815,499 815,640 2.90 Fee
Rio Pinar Plaza 711,101 707,585 714,054 2.90 Fee
Baldwin Square Shopping Center - - 704,503 2.90 Leasehold
Mountain Island Market Place 668,357 655,555 616,357 2.90 Fee
Butler Square Shopping Center 643,481 611,022 567,447 2.90 Fee
Shields Plaza Shopping Center - 470,906 531,027 2.90 Fee
Plantation Point Shopping Center 552,100 507,125 495,446 2.90 Fee
Kenilworth Commons 456,527 508,362 456,872 2.90 Fee
Ellis Isle Shopping Center 358,946 563,970 443,601 2.90 Fee
Landing Station Shopping Center - - 436,482 2.90 Fee
Old Canton Road Shopping Center 337,007 337,294 321,480 2.90 Fee
Reservoir Square Shopping Center 392,075 353,861 299,377 2.90 Leasehold
Magee Shopping Center 250,606 258,705 264,674 2.90 Leasehold
English Village Shopping Center 285,727 286,322 263,218 2.90 Fee
Gateway Plaza - - 256,285 2.90 Fee
Midway Plaza Shopping Center - - 206,048 2.90 Fee
Daniel Lake Shopping Center 151,768 104,589 137,253 2.90 Fee
Village Square Shopping Center 175,188 175,188 133,768 2.90 Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Crystal Park IV 10,367,306 10,571,204 9,844,213 1.93 Fee
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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
October 8, 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.
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
2
<PAGE>
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.
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.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUPPLEMENT ............................................... 2
AVAILABLE INFORMATION ............................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ................... 3
SUMMARY OF PROSPECTUS ............................................... 5
RISK FACTORS ........................................................ 12
DESCRIPTION OF THE TRUST FUNDS ...................................... 18
USE OF PROCEEDS ..................................................... 23
YIELD CONSIDERATIONS ................................................ 24
THE DEPOSITOR ....................................................... 27
DESCRIPTION OF THE CERTIFICATES ..................................... 28
DESCRIPTION OF THE AGREEMENTS ....................................... 35
DESCRIPTION OF CREDIT SUPPORT ....................................... 50
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES .......... 52
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ............................. 66
STATE TAX CONSIDERATIONS ............................................ 89
CERTAIN ERISA CONSIDERATIONS ........................................ 89
LEGAL INVESTMENT .................................................... 91
PLAN OF DISTRIBUTION ................................................ 92
LEGAL MATTERS ....................................................... 93
FINANCIAL INFORMATION ............................................... 93
RATING .............................................................. 93
INDEX OF PRINCIPAL DEFINITIONS ...................................... 94
</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, 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
5
<PAGE>
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 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."
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(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 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
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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
(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 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 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.
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<PAGE>
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 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.
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<PAGE>
(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.
(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.
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<PAGE>
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
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
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<PAGE>
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, 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."
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<PAGE>
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.
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
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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."
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
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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 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."
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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. Moreoever, the presence of hazardous
or toxic substances, or the failure to remediate such property, may adversely
affect the owner or operator's ability to borrow using such property as
collateral. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and other federal law, 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 damage or threat was
caused by a prior owner. A lender also risks such liability on foreclosure of
the mortgage under certain circumstances. 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
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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 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. Multifamily Property may include mixed commercial and residential
structures and may include
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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.
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
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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 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.
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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 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
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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.
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
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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."
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 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.
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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 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."
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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.
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
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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."
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.
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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 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:
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(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 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
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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 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.
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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 (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;
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(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) 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;
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(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;
(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;
(xxii) and 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 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
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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,
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
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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.
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.
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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.
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
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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;
(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";
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(xi) 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;
(xii) and 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 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;
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(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;
(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 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
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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 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."
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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
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
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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.
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
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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."
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
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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 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.
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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 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, conduct or defend
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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 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
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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 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
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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.
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.
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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 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,
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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 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.
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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 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
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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 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
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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 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
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
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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, 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.
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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 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.
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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.
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
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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 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
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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 other federal law and
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.
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 or under state law. 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.
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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.
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.
"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
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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 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
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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 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
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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 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.
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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 Brown & Wood LLP or Cadwalader, Wickersham & Taft 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, 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 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
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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 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
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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 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
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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 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
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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.
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 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
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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
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
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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 generally be long-term capital gain if the Grantor Trust Certificate
has been owned for more than one year. Long-term capital gains of individuals
are subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally
subject to ordinary income tax rates. The use of capital losses is limited.
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 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
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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 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.
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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, 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.
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, 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.
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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 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
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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 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
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an 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 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.
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
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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 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
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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.
Such capital gain or loss will generally be long-term capital gain or loss
if the REMIC Regular Certificate was held for more than one year. Long-term
capital gains of individuals are subject to reduced maximum tax rates while
capital gains recognized by individual on capital assets held less than twelve
months are generally subject to ordinary income tax rates. The use of capital
losses is limited.
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
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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.
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 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
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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 Certificateholder 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
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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 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
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
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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.
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.
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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 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.
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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. Such capital gain or loss will
generally be long-term capital gain or loss if the REMIC Regular Certificate
was held for more than one year. Long-term capital gains of individuals are
subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally
subject to ordinary income tax rates. The use of capital losses is limited.
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 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.
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.
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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 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.
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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 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
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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.
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.
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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.
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,
subject thereto 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 final
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 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.
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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 insitutions,
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, on or
before the October 3, 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
concerning "safety and soundness" and retention of credit information in 12
C.F.R. Section 1.5), 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 Administration ("NCUA") has adopted rules,
codified at 12 C.F.R. Section 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 Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement")
of the Federal Financial Institutions Examination Council (the "FFIEC"), 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 effective May 26, 1998, and by the NCUA, effective October 1, 1998.
The 1998 Policy Statement sets forth general guidelines which
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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. Until October 1,
1998, federal credit unions will still be subject to the FFIEC's now-superseded
"Supervisory Policy Statement on Securities Activities" dated January 28, 1992,
as adopted by the NCUA with certain modifications, which prohibited depository
institutions from investing in certain "high-risk mortgage securities," except
under limited circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions.
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 to be 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.
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
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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 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.
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.
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INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
1986 Act ..................................... 75
Accrual Certificates ......................... 8, 28
ACMs ......................................... 60
ADA .......................................... 64
Amortizable Bond Premium Regulations ......... 68
Applicable Amount ............................ 84
ARM Loans .................................... 21, 70
Asset Conservation Act ....................... 61
Asset Seller ................................. 18
Assets ....................................... 1, 18
Balloon Mortgage Loans ....................... 15
Bankruptcy Code .............................. 57
Book-Entry Certificates ...................... 28
Cash Flow Agreement .......................... 7, 23
Cash Flow Agreements ......................... 1
Cede ......................................... 3, 34
CERCLA ....................................... 17, 61
Certificate Account .......................... 37
Certificate Balance .......................... 7
Certificate Owners ........................... 34
Certificateholders ........................... 3
Certificates ................................. 5
Closing Date ................................. 75
Code ......................................... 10
Commercial Loans ............................. 18
Commercial Properties ........................ 5, 18
Commission ................................... 2
Contributions Tax ............................ 86
Cooperatives ................................. 19
Covered Trust ................................ 16, 50
CPR .......................................... 26
Credit Support ............................... 1, 7, 23
Crime Control Act ............................ 65
Cut-off Date ................................. 8
Deferred Interest ............................ 72
Definitive Certificates ...................... 28, 34
Depositor .................................... 18
Determination Date ........................... 28
Distribution Date ............................ 8
DTC .......................................... 3, 33
Due Period ................................... 29
Environmental Hazard Condition ............... 62
Equity Participations ........................ 22
ERISA ........................................ 10, 89
ERISA Plans .................................. 89
Exchange Act ................................. 3
Exemption .................................... 90
FDIC ......................................... 37
FFIEC ........................................ 91
</TABLE>
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<TABLE>
<S> <C>
FHLMC ............................... 45
FNMA ................................ 62
Government Securities ............... 1, 6, 18
Grantor Trust Certificates .......... 9
Indirect Participants ............... 34
Insurance Proceeds .................. 38
IRS ................................. 68
Labor ............................... 89
L/C Bank ............................ 51
Lease ............................... 3, 5
Lease Assignment .................... 1
Legislative History ................. 75
Lessee .............................. 3, 5
Liquidation Proceeds ................ 38
Lock-out Date ....................... 22
Lock-out Period ..................... 22
Mark-to-Market Regulations .......... 83
Master REMIC ........................ 74
Master Servicer ..................... 5
MBS ................................. 1, 5, 18
MBS Agreement ....................... 22
MBS Issuer .......................... 22
MBS Servicer ........................ 22
MBS Trustee ......................... 22
Morgan Stanley ...................... 92
Mortgage Loans ...................... 1, 5, 18
Mortgage Notes ...................... 19
Mortgage Rate ....................... 6, 21
Mortgages ........................... 19
Multifamily Loans ................... 18
Multifamily Properties .............. 5, 18
NCUA ................................ 91
New Regulations ..................... 73
Nonrecoverable Advance .............. 31
OCC ................................. 91
Offered Certificates ................ 1
OID ................................. 66, 68
OID Regulations ..................... 68
Originator .......................... 19
Participants ........................ 33
Pass-Through Rate ................... 7, 29
Payment Lag Certificates ............ 80
Permitted Investments ............... 38
Plans ............................... 89
Prepayment Assumption ............... 71
Prepayment Premium .................. 22
Prohibited Transactions Tax ......... 85
Rating Agency ....................... 11
RCRA ................................ 61
Record Date ......................... 28
Related Proceeds .................... 31
</TABLE>
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<TABLE>
<S> <C>
Relief Act ............................... 65
REMIC .................................... 10
REMIC Certificates ....................... 74
REMIC Regular Certificateholders ......... 75
REMIC Regular Certificates ............... 9, 74
REMIC Regulations ........................ 66
REMIC Residual Certificateholder ......... 81
REMIC Residual Certificates .............. 9, 74
REO Extension ............................ 55
REO Tax .................................. 56
Restricted Group ......................... 90
RICO ..................................... 65
Senior Certificates ...................... 8, 28
Servicing Standard ....................... 40
SMMEA .................................... 91
SMMEA Certificates ....................... 91
Special Servicer ......................... 5, 41
Stripped ARM Obligations ................. 72
Stripped Bond Certificates ............... 69
Stripped Coupon Certificates ............. 69
Stripped Interest Certificates ........... 8, 28
Stripped Principal Certificates .......... 8, 28
Subordinate Certificates ................. 8, 28
Sub-Servicer ............................. 41
Sub-Servicing Agreement .................. 41
Subsidiary REMIC ......................... 74
Super-Premium Certificates ............... 76
Title V .................................. 64
Trust Assets ............................. 2
Trust Fund ............................... 1
Trustee .................................. 5
UCC ...................................... 33
Voting Rights ............................ 17
Warrantying Party ........................ 36
</TABLE>
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INSTRUCTIONS TO INSTALL CD-ROM
ACCESSING APPRAISALS IN ADOBE ACROBAT1 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 either in paper form or by
means of its EDGAR system as part of Current Reports on Form 8-K, which are
incorporated by reference in this Prospectus Supplement, and are 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 Marc Childress of Morgan Stanley & Co. Incorporated at
(212) 761-7212 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 Master Servicer, the Special Servicer, MSMC
and the Originator. 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 Marc
Childress of Morgan Stanley & Co. Incorporated at (212) 761-7212 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.
- --------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
