<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 033-46723-02
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. OFFERS TO
BUY THESE SECURITIES MAY NOT BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL
PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES, IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 26, 1997)
$705,484,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
AS DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-XL1
The Series 1997-XL1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will consist of fourteen classes (each a "Class"), designated
as the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates, Class X Certificates, Class B Certificates, Class C
Certificates, Class D Certificates, Class E Certificates, Class F
Certificates, Class G Certificates, Class H Certificates, Class Q
Certificates, Class R Certificates and Class LR Certificates. Only the Class
A-1, Class A-2, Class A-3, Class X, Class B, Class C, Class D, Class E and
Class F Certificates (collectively, the "Offered Certificates") are offered
hereby; the Class G, Class H, Class Q, Class R and Class LR Certificates
(collectively, the "Private Certificates") are not offered hereby. It is a
condition to their issuance that the respective Classes of Offered
Certificates be assigned ratings by Fitch Investors Service, L.P. ("Fitch"),
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Service ("S&P" and, together with "Fitch and Moody's the "Rating Agencies")
as set forth in the table below.
The Certificates will represent beneficial ownership interests in a trust
fund (the "Trust Fund") to be created by Morgan Stanley Capital I Inc. (the
"Depositor"). The Trust Fund will consist primarily of a pool (the "Mortgage
Pool") of 12 mortgage loans, with original terms to maturity of not more than
30 years (the "Mortgage Loans"), secured by first liens on 104 commercial
properties (the "Mortgaged Properties"). The Mortgaged Properties include
retail properties, multifamily properties, office properties and hotel
properties. The Mortgage Loans were originated or acquired by Morgan Stanley
Mortgage Capital Inc. ("MSMC"). See "Mortgage Pool Characteristics--General"
herein. The characteristics of the Mortgage Loans and the Mortgaged
Properties are more fully described under "Mortgage Pool Characteristics" and
"Description of the Mortgaged Properties and the Mortgage Loans" herein.
The master servicer of the Mortgage Loans will be GMAC Commercial Mortgage
Corporation (in such capacity, the "Master Servicer"). The obligations of the
Master Servicer with respect to the Certificates will be limited to its
contractual servicing obligations and the obligation under certain
circumstances to make Advances (as defined herein) in respect of the Mortgage
Loans. See "The Pooling Agreement--Advances" herein. The Master Servicer will
not act as an insurer or credit enhancer of the Mortgage Pool. If the Master
Servicer fails to make a required Advance, LaSalle National Bank (the
"Trustee"), as acting or successor Master Servicer, acting in accordance with
the servicing standard set forth in the Pooling Agreement, will be required
to make such Advance. If the Trustee fails to make a required Advance, ABN
AMRO Bank N.V., as the fiscal agent of the Trustee (the "Fiscal Agent"),
acting in accordance with the servicing standard set forth in the Pooling
Agreement, will be required to make such Advance.
SEE "RISK FACTORS" BEGINNING ON PAGE S-35 HEREIN AND "RISK FACTORS" BEGINNING
ON PAGE 13 IN THE PROSPECTUS FOR CERTAIN FACTORS TO BE CONSIDERED IN
PURCHASING THE OFFERED CERTIFICATES.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, MSMC, THE MASTER SERVICER, THE SPECIAL SERVICER, THE TRUSTEE, THE
UNDERWRITER, THE FISCAL AGENT OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued on page S-3)
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
INITIAL CERTIFICATE INITIAL RATED FINAL
PRINCIPAL OR PASS-THROUGH EXPECTED RATINGS DISTRIBUTION
CLASS NOTIONAL AMOUNT (1) RATE(2) DESCRIPTION (3)(FITCH/MOODYS/S&P) DATE
- --------------- ------------------- -------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Class A-1 ...... $238,000,000 6.70% Fixed AAA/Aaa/AAA October 3, 2030
Class A-2 ...... $ 64,000,000 6.85% Fixed(4) AAA/Aaa/AAA October 3, 2030
Class A-3 ...... $226,171,000 6.95% Fixed(4) AAA/Aaa/AAA October 3, 2030
Class X(5) ..... $754,531,157 1.17% WAC/IO AAA/Aaa/NR October 3, 2030
Class B ........ $ 22,636,000 6.94% WAC AAA/Aaa/AA+ October 3, 2030
Class C......... $ 22,636,000 6.99% WAC AA+/Aa1/AA October 3, 2030
Class D ........ $ 45,271,000 7.07% WAC A+/A2/A October 3, 2030
Class E ........ $ 45,271,000 7.17% WAC BBB/Baa2/BBB October 3, 2030
Class F ........ $ 41,499,000 7.42% WAC BBB-/NR/NR October 3, 2030
</TABLE>
(Footnotes on page S-3)
- -----------------------------------------------------------------------------
The Offered Certificates will be purchased by Morgan Stanley & Co.
Incorporated (the "Underwriter") from the Depositor and will be offered by
the Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Offered Certificates will be % of the
initial aggregate Certificate Principal Amount of the Offered Certificates,
plus accrued interest, if any, from October 1, 1997 before deducting expenses
payable by the Depositor.
The Offered Certificates are offered by the Underwriter subject to prior
sale, when, as and if issued, delivered to and accepted by the Underwriter.
It is expected that delivery of the Offered Certificates will be made in
book-entry form through the facilities of The Depository Trust Company
("DTC") in the United States and Cedel Bank, S.A. ("CEDEL") and The Euroclear
System ("Euroclear") in Europe, on or about October , 1997 against payment
therefor in immediately available funds.
MORGAN STANLEY DEAN WITTER
The date of this Prospectus Supplement is October , 1997.
<PAGE>
INSIDE FRONT COVER
[GRAPHICS OR IMAGE MATERIAL OMITTED]
Photographs of the following properties: 605 Third Avenue, Clusters of
Whitehall, Dreher Plaza, Three Fountains Plaza, Trenholm Plaza, North Shore
Towers, Embassy Suites Palm Beach Garden, Radisson Plaza, Newark/Freemont
Hilton, Mansion Grove Apartments, Fashion Mall - Keystone at the Crossing
<PAGE>
(continuation of cover page)
- ------------
(1) Approximate, subject to adjustment as described herein.
(2) The initial Pass-Through Rates set forth in the table are subject to
change in connection with initial pricing of the Offered Certificates.
See "Description of the Offered Certificates -- Distributions" herein.
(3) "WAC" means weighted average coupon as described herein and "Fixed"
means fixed rate coupon. "WAC" and "Fixed" are descriptions of the type
of Pass-Through Rates borne by the related Classes and "IO" designates
that the related Class is entitled only to distributions of interest.
(4) In no event shall the Pass-Through Rate on the Class A-2 or Class A-3
Certificates exceed the WAC Rate (as defined herein).
(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 such Class of Certificates at the Pass-Through
Rate thereof on the Notional Amount thereof. The Notional Amount of the
Class X Certificates is initially $754,531,157, which is equal to the
aggregate initial Certificate Principal Amount of the Class A-1, Class
A-2, Class A-3, Class B, Class C, Class D, Class E, Class F, Class G
and Class H Certificates. See "Description of the Offered
Certificates--General" herein.
Distributions on the Offered Certificates will be made, to the extent of
Available Funds (as defined herein), on the third Business Day of each month,
beginning on November 5, 1997 (each, a "Distribution Date"). As more fully
described herein, distributions allocable to interest on the Certificates on
each Distribution Date will be based on the pass-through rate for the
respective Class (the "Pass-Through Rate") and the aggregate principal
balance (the "Certificate Principal Amount") or notional balance (the
"Notional Amount"), as applicable, of such Class outstanding immediately
prior to such Distribution Date. Distributions in respect of principal of the
Offered Certificates will be made as described herein under "Description of
the Offered Certificates--Distributions--Payment Priorities."
The yield to maturity on each Class of the Offered Certificates will be
sensitive to, and the yield to maturity on the Class X Certificates will be
extremely sensitive to, the rate and timing of principal payments (including
both voluntary and involuntary prepayments, delinquencies, defaults and
liquidations) on the Mortgage Loans and payments with respect to repurchases
thereof that have the effect of reducing the Certificate Principal Amount or
Notional Amount, as the case may be, of such Class. The yield to investors,
in particular the investors in subordinate Classes, will be sensitive to the
timing and magnitude of delinquencies and losses on the Mortgage Loans. The
rights of the holders of the Class B, Class C, Class D, Class E, and Class F
Certificates to receive distributions of principal and interest will be
subordinated to such rights of the holders of Certificates with an earlier
sequential designation (and the Class X Certificates with respect to payments
of interest). In addition, with respect to any Class of Certificates entitled
to principal distributions, to the extent losses on the Mortgage Loans exceed
the principal amount of all Classes of Certificates subordinate to such
Class, such Class will bear a loss equal to the amount of such excess up to
an amount equal to the remaining principal amount thereof. No representation
is made as to the rate, timing or magnitude of any such event with respect to
any of the Mortgage Loans or as to the anticipated yield to maturity of any
Offered Certificate. See "Yield, Prepayment and Maturity Considerations"
herein.
Elections will be made to treat designated portions of the Trust Fund
(such portions of the Trust Fund, the "Trust REMICs"), exclusive of the
Reserve Accounts, Lock Box Accounts, the Cash Collateral Accounts, the
Deferred Interest, the Default Interest, the Deferred Interest Distribution
Account and the Class Q Distribution Account (each as defined herein), and
the Trust REMICs, in the opinion of counsel, will qualify, as two separate
"real estate mortgage investment conduits" (each, a "REMIC" or,
alternatively, the "Upper-Tier REMIC" and the "Lower-Tier REMIC",
respectively) for federal income tax purposes. The Class A-1, Class A-2,
Class A-3, Class X, Class B, Class C, Class D, Class E, Class F, Class G and
Class H Certificates will represent "regular interests" in the Upper-Tier
REMIC. The Class R and Class LR Certificates will constitute the sole Classes
of "residual interests" in the Upper-Tier REMIC and the Lower-Tier REMIC,
respectively. In addition, the Class B, Class C, Class D, Class E, Class F,
Class G and Class H Certificates will also represent undivided beneficial
interests in designated portions of the Deferred Interest, which portion of
the Trust Fund will be treated as part of a grantor trust for federal income
tax purposes. The Offered Certificates, together with the Class G and Class H
Certificates, are sometimes collectively referred to herein as the "Regular
Certificates". See "Certain Federal Income Tax Consequences" herein and
"Certain Federal Income Tax Consequences" in the Prospectus.
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF THE DEPOSITOR'S CERTIFICATES AND ARE BEING
OFFERED PURSUANT TO ITS PROSPECTUS DATED SEPTEMBER 26, 1997, OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE
S-3
<PAGE>
INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN
FULL. SALES OF THE OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL JANUARY , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT
RELATES. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES, INCLUDING
SHORT-COVERING TRANSACTIONS IN SUCH CERTIFICATES, AND THE IMPOSITION OF A
PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION" HEREIN AND "PLAN OF DISTRIBUTION" IN
THE PROSPECTUS.
There is currently no secondary market for the Offered Certificates. The
Underwriter currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so. There can be no assurance that
such a market will develop or, if it does develop, that it will continue. See
"Plan of Distribution" herein.
The distribution of this Prospectus Supplement dated October , 1997 and
the Prospectus dated September 26, 1997, and the offer or sale of
Certificates may be restricted by law in certain jurisdictions. Persons into
whose possession this Prospectus Supplement and the Prospectus or any
Certificates come must inform themselves about, and observe, any such
restrictions. In particular, there are restrictions on the distribution of
this Prospectus Supplement and the Prospectus and the offer or sale of
Certificates in the United Kingdom. See "Plan of Distribution" herein.
S-4
<PAGE>
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
EXECUTIVE SUMMARY......................................................................... S-8
SUMMARY OF PROSPECTUS SUPPLEMENT.......................................................... S-11
RISK FACTORS.............................................................................. S-35
The Mortgage Loans....................................................................... S-35
Conflicts of Interest.................................................................... S-57
The Offered Certificates................................................................. S-57
MORTGAGE POOL CHARACTERISTICS............................................................. S-61
General.................................................................................. S-61
Security for the Mortgage Loans.......................................................... S-61
Certain Characteristics of the Mortgage Loans............................................ S-62
Underwriting Standards................................................................... S-73
Additional Information................................................................... S-74
DESCRIPTION OF THE MORTGAGED PROPERTIES AND THE MORTGAGE LOANS ........................... S-75
605 Third Avenue......................................................................... S-75
Edens & Avant Pool....................................................................... S-89
Ashford Financial Pool................................................................... S-105
Mansion Grove Apartments................................................................. S-122
North Shore Towers....................................................................... S-134
Fashion Mall............................................................................. S-142
Yorktown Shopping Center................................................................. S-155
Grand Kempinski Hotel.................................................................... S-163
Arrowhead Towne Center................................................................... S-176
Mark Centers Pool........................................................................ S-185
Westgate Mall............................................................................ S-197
Westshore Mall........................................................................... S-208
DESCRIPTION OF THE OFFERED CERTIFICATES................................................... S-222
General.................................................................................. S-222
Distributions............................................................................ S-223
Subordination............................................................................ S-230
Appraisal Reductions..................................................................... S-231
Delivery, Form and Denomination.......................................................... S-231
Book-Entry Registration.................................................................. S-232
Definitive Certificates.................................................................. S-233
Transfer Restrictions.................................................................... S-234
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS............................................. S-235
Yield.................................................................................... S-235
Yield on the Offered Certificates........................................................ S-236
Rated Final Distribution Date............................................................ S-241
Weighted Average Life of Offered Certificates............................................ S-241
S-5
<PAGE>
PAGE
---------
THE POOLING AGREEMENT..................................................................... S-250
General.................................................................................. S-250
Assignment of the Mortgage Loans......................................................... S-250
Representations and Warranties; Repurchase............................................... S-250
Servicing of the Mortgage Loans; Collection of Payments.................................. S-251
Advances................................................................................. S-252
Accounts................................................................................. S-254
Withdrawals From the Collection Account.................................................. S-255
Successor Manager........................................................................ S-255
Enforcement of "Due-on-Sale" and "Due-on-Encumbrance" Clauses............................ S-256
Inspections.............................................................................. S-257
Evidence as to Compliance................................................................ S-257
Certain Matters Regarding the Depositor, the Master Servicer and the Special Servicer ... S-257
Events of Default........................................................................ S-258
Rights Upon Event of Default............................................................. S-259
Amendment................................................................................ S-260
Realization Upon Mortgage Loans; Modifications........................................... S-260
Optional Termination; Optional Mortgage Loan Purchase.................................... S-264
The Trustee.............................................................................. S-265
Duties of the Trustee.................................................................... S-266
The Fiscal Agent......................................................................... S-266
Duties of the Fiscal Agent............................................................... S-267
The Master Servicer...................................................................... S-267
Servicing Compensation and Payment of Expenses........................................... S-267
Special Servicer......................................................................... S-268
Master Servicer and Special Servicer Permitted to Buy Certificates....................... S-269
Reports to Certificateholders............................................................ S-269
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS............................................... S-270
USE OF PROCEEDS........................................................................... S-272
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................................... S-272
ERISA CONSIDERATIONS...................................................................... S-273
LEGAL INVESTMENT.......................................................................... S-275
PLAN OF DISTRIBUTION...................................................................... S-275
EXPERTS................................................................................... S-276
VALIDITY OF OFFERED CERTIFICATES.......................................................... S-276
RATINGS................................................................................... S-276
INDEX OF SIGNIFICANT DEFINITIONS.......................................................... S-278
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Financial Information
605 Third Avenue Property................ Exhibit A-1
Edens & Avant Pool Properties ........... Exhibit A-1
Representations and Warranties ........... Exhibit B
Form of Report to Certificateholders .... Exhibit C
Preliminary Term Sheet ................... Exhibit D
Mortgaged Properties Characteristics .... Annex A
</TABLE>
S-7
<PAGE>
EXECUTIVE SUMMARY
Prospective investors are advised to carefully read, and should rely
solely on, the detailed information appearing elsewhere in this Prospectus
Supplement and the Prospectus relating to the Offered Certificates in making
their investment decision. The following Executive Summary does not include
all relevant information relating to the securities and collateral described
herein, particularly with respect to the risks and special considerations
involved with an investment in such securities and is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the Prospectus. Prior to making any investment
decision, a prospective investor should carefully review this Prospectus
Supplement and the Prospectus. Capitalized terms used and not otherwise
defined herein have the respective meanings assigned to them in this
Prospectus Supplement and the Prospectus.
CERTIFICATE SUMMARY
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENT OF
CREDIT SUPPORT TOTAL
CERTIFICATES
<CAPTION>
------------ -------------- -----------------
INITIAL
CERTIFICATE
PRINCIPAL RATINGS
CLASS AMOUNT (FITCH/MOODY'S/S&P)
-------------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
CLASS X CLASS A-1 $238,000,000 (AAA/Aaa/AAA) 31.5%
$754,531,157
(Approximate Notional
Amount)
(AAA/Aaa/NR)
----------- -------------- ---------------
CLASS A-2 $ 64,000,000 (AAA/Aaa/AAA) 8.5%
----------- -------------- ---------------
CLASS A-3 $226,171,000 (AAA/Aaa/AAA) 30.0%
30.0%(1)
----------- -------------- ---------------
27.0% CLASS B $ 22,636,000 (AAA/Aaa/AA+) 3.0%
----------- -------------- ---------------
24.0% CLASS C $ 22,636,000 (AA+/Aa1/AA) 3.0%
----------- -------------- ---------------
18.0% CLASS D $ 45,271,000 (A +/A2/A 6.0%
----------- -------------- ---------------
12.0% CLASS E $ 45,271,000 (BBB/Baa2/BBB) 6.0%
----------- -------------- ---------------
6.5% CLASS F $ 41,499,000 (BBB-/NR/NR) 5.5%
----------- -------------- ---------------
3.0% CLASS G(2) $ 26,408,000 (BB/Ba3/BB) 3.5%
----------- -------------- ---------------
n/a CLASS H(2) $ 22,639,157 (B-/B2/B) 3.0%
--------------------- ----------- -------------- ---------------
</TABLE>
(1) Represents the approximate credit support for the Class A-1,
Class A-2 and Class A-3 Certificates in the aggregate.
(2) Not offered hereby.
The Class Q, Class R and Class LR Certificates are not
represented in this table.
S-8
<PAGE>
CERTIFICATE SUMMARY
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE
RATINGS(1) PRINCIPAL OR INITIAL
FITCH/MOODY'S/ NOTIONAL % OF PASS-THROUGH WTD. AVG. PRINCIPAL
CLASS S&P AMOUNT TOTAL DESCRIPTION RATE(2) LIFE(3)(YRS.) WINDOW(3)
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Offered Certificates
- -----------------------------------------------------------------------------------------------------------------
A-1 AAA/Aaa/AAA $238,000,000 31.5% Fixed Rate 6.70% 5.58 1-86
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
A-2 AAA/Aaa/AAA $ 64,000,000 8.5% Fixed Rate 6.85% 8.74 86-110
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
A-3 AAA/Aaa/AAA $226,171,000 30.0% Fixed Rate 6.95% 9.51 110-119
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
Interest Only:
X AAA/Aaa/NR $754,531,157 n/a Weighted Average Coupon 1.17% n/a n/a
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
B AAA/Aaa/AA+ $ 22,636,000 3.0% Weighted Average Coupon 6.94% 9.88 119
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
C AA+/Aa1/AA $ 22,636,000 3.0% Weighted Average Coupon 6.99% 9.88 119
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
D A+/A2/A $ 45,271,000 6.0% Weighted Average Coupon 7.07% 9.93 119-120
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
E BBB/Baa2/BBB $ 45,271,000 6.0% Weighted Average Coupon 7.17% 9.96 120
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
F BBB-/NR/NR $ 41,499,000 5.5% Weighted Average Coupon 7.42% 9.96 120
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
Non-Offered Certificates
- -----------------------------------------------------------------------------------------------------------------
G BB/Ba3/BB $ 26,408,000 3.5% Fixed Rate 6.70% 9.96 120
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
H B-/B2/B $ 22,639,157 3.0% Fixed Rate 6.70% 9.96 120
- ------- -------------- -------------- ------- ----------------------- -------------- ------------ -----------
</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 2030.
(2) The initial Pass-Through Rates set forth in this table are approximate
and subject to change in connection with the initial pricing of the
Offered Certificates. See "Description of the Offered
Certificates--Distributions" herein.
(3) The weighted average life ("Weighted Average Life") and period during
which distributions of principal would be received (the "Principal
Window") set forth in the foregoing table with respect to each Class of
Certificates are based on the assumptions that there are no losses on
the Mortgage Loans, no extensions of maturity dates of Mortgage Loans
that do not have Effective Maturity Dates, prepayment in full of
Mortgage Loans having Effective Maturity Dates on such 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.
S-9
<PAGE>
MORTGAGE LOAN SUMMARY
<TABLE>
<CAPTION>
CUT-OFF
DATE EFFECTIVE FINAL ORIGINAL CUT-OFF
MORTGAGE NO. PRINCIPAL MATURITY MATURITY AMORTIZATION MORTGAGE DATE EMD
LOAN PROPERTIES BALANCE DATE DATE TERM (MONTHS) RATE DSCR(1) LTV LTV(2)
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
605 Third Interest
Avenue 1 $120,000,000 10/1/07 10/1/27 Only(3) 7.917% 2.04x 66.7% 58.3%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Edens & Avant
Pool 63 $ 82,750,000 n/a 8/31/07 Interest Only(4) 7.300% 3.35x 36.8% 36.8%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Ashford
Financial
Pool 15 $ 73,537,438 1/21/07 2/1/17 240 8.600% 2.16x 50.9% 36.4%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Mansion Grove
Apartments 1 $ 72,862,226 7/1/07 7/1/27 360 8.350% 1.39x 61.7% 54.7%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
North Shore
Towers 1 $ 70,280,966 n/a 12/1/04 360 9.320%(5) 2.83x 20.1% 18.4%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Fashion Mall 1 $ 64,864,238 6/13/07 7/1/27 360 7.850% 1.73x 55.9% 49.1%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Yorktown
Shopping
Center 1 $ 57,304,459 n/a 7/1/04 300 8.250% 1.33x 48.0% 40.8%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Grand
Kempinski
Hotel 1 $ 55,000,000 10/1/07 10/1/22 300 8.630% 1.73x 61.1% 50.1%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Arrowhead
Towne Center 1 $ 48,899,962 n/a 1/1/02 360 8.600% 1.79x 46.6% 44.4%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Mark Centers
Pool 17 $ 45,449,576 10/31/06 11/1/21 300 8.840% 1.50x 63.8% 53.3%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Westgate Mall 1 $ 42,681,517 n/a 12/1/06 300 9.250% 1.20x 65.7% 55.2%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Westshore Mall 1 $ 20,900,775 3/1/04 3/1/27 360 8.070% 1.68x 63.3% 58.9%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
Total/Weighted
Average 104 $754,531,157 n/a n/a n/a n/a 2.00x 52.7% 45.5%
- -------------- ------------ -------------- ----------- ---------- ---------------- ----------- ------- --------- -------
</TABLE>
- ------------
The terms "Effective Maturity Date", "DSCR", "EMD LTV" and "Cut-Off Date LTV"
are defined in this Prospectus Supplement in the explanatory notes set forth
prior to the tables under "Mortgage Pool Characteristics".
(1) Based on Underwritable Cash Flow.
(2) The North Shore Towers Loan, the Edens & Avant Pool Loan, the Arrowhead
Towne Center Loan, the Westgate Mall Loan and the Yorktown Shopping
Center Loan do not have Effective Maturity Dates. The date used to
calculate the EMD LTV for such Mortgage Loans is their stated maturity
date.
(3) Interest-only loan from origination to the related Effective Maturity
Date; thereafter principal payments are based on amortization term of
240 months. The EMD LTV with respect to the 605 Third Avenue Loan takes
into account the application of payments under the Third Avenue
Principal Amortization Letters of Credit. See "Description of the
Mortgaged Properties and the Mortgage Loans--605 Third Avenue: The
Loan" herein.
(4) Interest-only loan with balloon payment at related stated maturity
date.
(5) The interest rate on the North Shore Towers Loan that will be payable
to the Trust Fund will be 6.75% per annum, which is net of the Hancock
Retained Interest (as defined herein).
S-10
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary
are defined elsewhere in this Prospectus Supplement or in the Prospectus. An
Index of Significant Definitions included at the end of this Prospectus
Supplement sets forth the pages on which the definitions of certain principal
terms appear.
TITLE OF CERTIFICATES ......... Morgan Stanley Capital I Inc., Commercial
Mortgage Pass-Through Certificates, Series
1997-XL1 (the "Certificates").
CERTIFICATE PRINCIPAL AMOUNT
AND NOTIONAL AMOUNT ........... Each Class of Offered Certificates has the
approximate aggregate initial Certificate
Principal Amount or Notional Amount set
forth on the cover page of this Prospectus
Supplement, subject to a variance of plus or
minus 5%. The Offered Certificates, together
with the Private Certificates, will be
issued pursuant to a Pooling and Servicing
Agreement to be dated as of the Cut-Off Date
(the "Pooling Agreement") among the
Depositor, the Master Servicer, the Special
Servicer, the Trustee and the Fiscal Agent.
DEPOSITOR ..................... Morgan Stanley Capital I Inc., a Delaware
corporation (the "Depositor"), an affiliate
of Morgan Stanley Mortgage Capital Inc., a
New York corporation ("MSMC"), and Morgan
Stanley & Co. Incorporated (the
"Underwriter"). See "The Depositor" in the
Prospectus.
MASTER SERVICER ............... GMAC Commercial Mortgage Corporation, a
California corporation (in such capacity,
the "Master Servicer"), will serve as the
master servicer of the Mortgage Loans. The
Master Servicer will appoint John Hancock
Mutual Life Insurance Company, a
Massachusetts corporation ("John Hancock"),
as subservicer with respect to the North
Shore Towers Loan, and Trowbridge,
Kieselhorst & Co. Inc., a California
corporation ("Trowbridge") as subservicer
with respect to the Mansion Grove Loan.
Notwithstanding the existence of any
subservicing agreement, the Master Servicer
shall remain primarily liable for the
servicing of the Mortgage Loans. See "The
Pooling Agreement--The Master Servicer"
herein and "Description of the
Agreements--Certain Matters Regarding a
Master Servicer and the Depositor" in the
Prospectus.
SPECIAL SERVICER .............. Initially, GMAC Commercial Mortgage
Corporation will be appointed special
servicer (in such capacity, the "Special
Servicer"). See "The Pooling
Agreement--Special Servicer" herein.
TRUSTEE ....................... LaSalle National Bank, a national banking
association (the "Trustee"). See "The
Pooling Agreement--The Trustee" herein.
FISCAL AGENT .................. ABN AMRO Bank N.V., a Netherlands banking
corporation (the "Fiscal Agent"), and the
indirect corporate parent of the Trustee.
See "The Pooling Agreement--The Fiscal
Agent" herein.
CUT-OFF DATE .................. October 1, 1997.
CLOSING DATE .................. On or about October , 1997.
DISTRIBUTION DATE ............. The third Business Day of each month,
commencing on November 5, 1997.
S-11
<PAGE>
"Business Day" means any day other than a
Saturday, a Sunday or any day on which
banking institutions in the City of New
York, New York, the cities in which the
principal servicing offices of the Master
Servicer or the Special Servicer are
located, or the city in which the corporate
trust office of the Trustee is located, are
authorized or obligated by law, executive
order or governmental decree to be closed.
RECORD DATE ................... With respect to each Distribution Date and
each Class of Offered Certificates, the
close of business on the last day of the
month immediately preceding the month in
which such Distribution Date occurs, or if
such day is not a Business Day, the
immediately preceding Business Day.
INTEREST ACCRUAL PERIOD ....... With respect to any Distribution Date and
with respect to each Class of Certificates,
the calendar month immediately preceding the
month in which such Distribution Date
occurs.
RATED FINAL DISTRIBUTION DATE . As to each Class of Offered Certificates,
the Distribution Date in October 2030, which
is the Distribution Date occurring three
years after the latest maturity date of any
Mortgage Loan.
DUE DATE ...................... With respect to any Mortgage Loan, the first
day of each month, and with respect to any
Distribution Date, the Due Date occurring in
the month in which such Distribution Date
occurs.
COLLECTION PERIOD ............. With respect to a Distribution Date and each
Mortgage Loan, the period beginning on the
day after the Due Date in the month
preceding the month in which such
Distribution Date occurs (or, with respect
to the first Distribution Date, the day
after the Cut-Off Date) and ending at the
close of business on the Due Date in the
month in which such Distribution Date
occurs.
DENOMINATIONS ................. The Offered Certificates (other than the
Class X Certificates) will be issuable in
registered form, in minimum denominations of
$10,000 initial Certificate Principal Amount
and multiples of $1 in excess thereof and
the Class X Certificates will be issuable in
registered form, in minimum denominations of
$100,000 initial Notional Amount and
multiples of $1 in excess thereof.
CLEARANCE AND SETTLEMENT ...... Holders of Offered Certificates may hold
their Certificates through any of The
Depository Trust Company ("DTC") (in the
United States) and Cedel Bank, S.A.
("CEDEL") and The Euroclear System
("Euroclear") (in Europe). Transfers within
DTC, CEDEL or Euroclear, as the case may be,
will be in accordance with the usual rules
and operating procedures of the relevant
system. Transfers between persons holding
directly or indirectly through DTC, CEDEL or
Euroclear will be effected in DTC through
the relevant Depositories of CEDEL or
Euroclear. The Depositor may elect to
terminate the book-entry system through DTC
with respect to all or any portion of any
Class of the Offered Certificates. See
"Description of the Offered
Certificates--Delivery, Form and
Denomination", "--Book-Entry Registration"
and "--Definitive Certificates" herein and
"Description of the Certificates--General"
in the Prospectus.
THE MORTGAGE POOL ............. The "Mortgage Pool" will consist of 12
Mortgage Loans, each evidenced by one or
more promissory notes (each, a "Note")
secured by first mortgages, deeds of trust
or similar security instruments (each, a
"Mortgage") on one or more commercial
properties (the "Mortgaged Properties"). See
"Description of the Mortgaged
S-12
<PAGE>
Properties and the Mortgage Loans" herein.
The Mortgage Loans will be acquired by the
Depositor on or before the Closing Date. In
connection with its acquisition of the
Mortgage Loans, the Depositor will be the
beneficiary of or will be assigned (and will
in turn assign to the Trustee for the
benefit of the holders of the Certificates)
certain rights in respect of certain
representations and warranties described
herein. See "Description of the Mortgage
Pool Characteristics--General" and "The
Pooling Agreement--Representations and
Warranties; Repurchase".
As of the Cut-Off Date, the Mortgage Loans
will have the following approximate
characteristics:
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Balance.............................. $754,531,157
Lowest Mortgage Loan Principal Balance................... $20,900,775
Highest Mortgage Loan Principal Balance.................. $120,000,000
Average Mortgage Loan Principal Balance.................. $62,877,596
Range of Remaining Terms to Effective
Maturity Date or Final Maturity Date, as applicable ... 51 to 120 months
Weighted Average Remaining Term to Effective
Maturity Date or Final Maturity Date, as applicable .... 105 months
Range of Mortgage Rates.................................. 7.3% to 9.32%(1)
Weighted Average Mortgage Rate........................... 8.34%
Range of Cut-Off Date LTV Ratios......................... 20.1% to 66.7%
Weighted Average Cut-Off Date LTV Ratio.................. 52.7%
Range of Debt Service Coverage Ratios.................... 1.20x to 3.33x
Weighted Average Debt Service Coverage Ratio............. 2.00x
</TABLE>
(1) The interest rate on the North Shore
Towers Loan that will be payable to the
Trust Fund will be net of the Hancock
Retained Interest (as defined herein),
and will be equal to 6.75% per annum.
DESCRIPTION OF THE MORTGAGE LOANS
AND MORTGAGED PROPERTIES
A. 605 THIRD AVENUE ........... The "605 Third Avenue Loan" has a principal
balance as of the Cut-Off Date of
approximately $120,000,000 and is evidenced
by a Note issued by 605 Third Avenue LLC, a
New York limited liability company (the
"Third Avenue Borrower"). The 605 Third
Avenue Loan is secured by a first priority
mortgage lien encumbering a 43 story office
building located in New York, New York and
an adjacent 7 story parking garage (the
"Third Avenue Property"). The Third Avenue
Borrower is indirectly owned 50% each by the
Fisher family and National Bulk Carriers,
Inc., which is controlled by the estate of
Daniel Ludwig.
The Third Avenue Property consists of a 43
story office building (the "Third Avenue
Building"), with a gross leaseable area
("GLA") of approximately 984,447 square
feet, a net rentable area of approximately
946,369 square feet and an adjacent 7 story
parking garage with 750 parking spaces,
located at 605 Third Avenue in Manhattan.
The occupancy rate of the Third Avenue
Building as of June 30, 1997 was 98.0%.
Major tenants include John Wiley & Sons,
Inc., a publishing company, Neuberger &
Berman, a financial services company, Grant
Thornton, an accounting firm, and ESPN,
Inc., a sports broadcasting network. An
appraisal dated August 1, 1997 determined a
value for the Third Avenue Property of
approximately $180,000,000, resulting in a
Cut-Off Date LTV of approximately 66.7%. The
DSCR based on Underwritable Cash Flow for
the Third Avenue Property as of the Cut-off
Date is approximately 2.04x.
The 605 Third Avenue Loan bears interest at
a fixed rate per annum equal to 7.917% (the
"Third Avenue Initial Interest Rate") to but
not including October 1,
S-13
<PAGE>
2007 (the "Third Avenue Effective Maturity
Date") and has a final maturity date of
October 1, 2027 (the "Third Avenue Maturity
Date"). The 605 Third Avenue Loan requires
monthly payments of interest only of
$791,700 through the payment date next
following the Third Avenue Effective
Maturity Date and 240 constant monthly
payments of principal and interest (which
shall be determined by mortgagee such that
the principal amount of the Third Avenue
Loan will be fully amortized on the Third
Avenue Maturity Date) during the period
commencing on the second payment date
following the Third Avenue Effective
Maturity Date and ending on the Third Avenue
Maturity Date. From and after the Third
Avenue Effective Maturity Date, the 605
Third Avenue Loan will bear interest at an
increased rate (see "Description of the
Mortgaged Properties and the Mortgage
Loans--605 Third Avenue: The Loan--Payment
Terms") (the "Third Avenue Revised Interest
Rate"). After the Third Avenue Effective
Maturity Date, all interest accrued at the
excess of the Third Avenue Revised Interest
Rate over the Third Avenue Initial Interest
Rate will be deferred, will bear interest at
the Third Avenue Revised Interest Rate and
will not be paid until after the principal
balance of the 605 Third Avenue Loan has
been reduced to zero (such deferred interest
and interest thereon, the "Third Avenue
Deferred Interest").
From and after 2 years after the Closing
Date until the Third Avenue Effective
Maturity Date, the Third Avenue Borrower may
deposit U.S. Treasury obligations as
substitute collateral for the Third Avenue
Property, as more fully described herein.
Voluntary prepayment of the 605 Third Avenue
Loan is prohibited prior to the period
commencing 90 days prior to the Third Avenue
Effective Maturity Date. Thereafter, the 605
Third Avenue Loan may be prepaid without
payment of a yield maintenance or prepayment
premium. Security for the 605 Third Avenue
Loan includes letters of credit (the "Third
Avenue Principal Amortization Letters of
Credit"), of which $5,000,000 in face amount
were provided on the date of origination of
the 605 Third Avenue Loan and an additional
$10,000,000 in face amount are required to
be provided in annual increments of
$1,666,666.67 on September 10 of each year
commencing in 1998 and ending in 2003. The
Third Avenue Principal Amortization Letters
of Credit may be applied to repay the 605
Third Avenue Loan if it is not repaid by the
Third Avenue Effective Maturity Date or
there is an event of default thereunder. The
scheduled principal balance of the 605 Third
Avenue Loan on the Third Avenue Effective
Maturity Date will be approximately
$105,000,000 (assuming application of the
Third Avenue Principal Amortization Letters
of Credit on the Third Avenue Effective
Maturity Date).
<PAGE>
B. EDENS & AVANT POOL ......... The "Edens & Avant Pool Loan" has a
principal balance as of the Cut-Off Date of
approximately $82,750,000 and is evidenced
by a Note issued by Edens & Avant Financing
Limited Partnership, a Delaware limited
partnership (the "Edens & Avant Pool
Borrower"). The Edens & Avant Pool Loan is
secured by first priority mortgage liens
encumbering 54 community and neighborhood
retail shopping centers, 7 freestanding
retail stores and 2 office buildings located
in South Carolina, North Carolina, Georgia
and Tennessee (collectively, the "Edens &
Avant Pool Properties"). The Edens & Avant
Pool Borrower is indirectly owned by the
State of Michigan Retirement System (83.5%)
and Joseph Edens and other principals and
employees of affiliates of the Edens & Avant
Pool Borrower (16.5%).
The Edens & Avant Pool Properties contain
approximately 4,439,655 square feet of GLA.
As of April 8, 1997, the weighted average
occupancy rate of the Edens & Avant Pool
Properties was approximately 91%. The
aggregate calculated value for the Edens &
Avant Pool Properties, based on
Underwritable Cash Flow of $20,253,312 and a
9.0% capitalization rate, was approximately
$225,036,809, result-
S-14
<PAGE>
ing in a Cut-Off Date LTV of approximately
36.8%. The DSCR based on Underwritable Cash
Flow for the Edens & Avant Pool Properties
as of the Cut-Off Date is approximately
3.35x.
The Edens & Avant Pool Loan bears interest
at a fixed rate per annum equal to 7.30%
(the "Edens & Avant Pool Interest Rate")
through and including August 31, 2007 (the
"Edens & Avant Pool Maturity Date"). The
Edens & Avant Pool Loan requires monthly
payments of interest only of $503,395.83 and
payment of the remaining principal balance
on the Edens & Avant Pool Maturity Date.
From and after 2 years after the Closing
Date, the Edens & Avant Pool Borrower may
deposit U.S. Treasury obligations as
substitute collateral for the Edens & Avant
Pool Properties, as more fully described
herein. Voluntary prepayment of the Edens &
Avant Pool Loan is prohibited prior to the
period commencing 60 days prior to the Edens
& Avant Pool Maturity Date. Thereafter, the
Edens & Avant Pool Loan may be prepaid
without payment of a yield maintenance or
prepayment premium. The Edens & Avant Pool
Loan permits the Edens & Avant Borrower to
substitute other properties for any one or
more of the Mortgaged Properties securing
the Edens & Avant Pool Loan provided that
certain conditions are satisfied.
C. ASHFORD FINANCIAL POOL ..... The "Ashford Financial Pool Loan" has a
principal balance as of the Cut-Off Date of
approximately $73,537,438 and is evidenced
by two Notes issued by 15 Delaware limited
partnerships (collectively, the "Ashford
Borrowers"). The Ashford Financial Pool Loan
is secured by first priority mortgage liens
encumbering 14 hotels and 1 office building
located in California, Florida,
Massachusetts, Nebraska, New Jersey, New
York, Texas and Virginia (collectively, the
"Ashford Pool Properties"). The Ashford
Borrowers are indirectly owned 33 1/3% each
by the Fisher Brothers, Gordon Getty and
George Soros.
The Ashford Pool Properties contain an
aggregate of 2,923 rooms and each hotel is
franchised by Hilton, Embassy Suites,
Radisson, Holiday Inn, Ramada or Howard
Johnson. The 1 office building property
contains approximately 93,773 square feet of
GLA. The weighted average occupancy rate of
the hotels included in the Ashford Pool
Properties for the year ended December 31,
1996 was approximately 66.3%, the weighted
average daily room rate ("ADR") for such
year was approximately $70.03 and the
weighted average revenue per available room
("RevPAR") for such year was approximately
$46.43. Appraisals dated as of January 1,
1997 determined an aggregate value for the
Ashford Pool Properties of approximately
$144,450,000, resulting in a Cut-Off Date
LTV of approximately 50.9%. The DSCR based
on Underwritable Cash Flow for the Ashford
Pool Properties as of the Cut-Off Date is
approximately 2.16x.
The Ashford Financial Pool Loan bears
interest at a fixed rate per annum equal to
8.60% (the "Ashford Initial Interest Rate")
to but not including January 21, 2007 (the
"Ashford Effective Maturity Date") and has a
final maturity date of February 1, 2017 (the
"Ashford Maturity Date"). From and after the
Ashford Effective Maturity Date, the Ashford
Financial Pool Loan will bear interest at an
increased rate (see "Description of the
Mortgaged Properties and the Mortgage
Loans--Ashford Financial Pool: The
Loan--Payment Terms") (the "Ashford Revised
Interest Rate"). The Ashford Financial Pool
Loan requires 240 equal monthly payments of
principal and interest of $651,251.25 (based
on a 240 month amortization schedule and the
Ashford Initial Interest Rate). After the
Ashford Effective Maturity Date, all
interest accrued at the excess of the
Ashford Revised Interest Rate over the
Ashford Initial Interest Rate will be
deferred, will bear interest at the
S-15
<PAGE>
Ashford Revised Interest Rate and will not
be paid until after the principal balance of
the Ashford Financial Pool Loan has been
reduced to zero (such deferred interest and
interest thereon, the "Ashford Deferred
Interest").
From and after 2 years after the Closing
Date, the Ashford Borrower may deposit U.S.
Treasury obligations as substitute
collateral for the Ashford Pool Properties,
as more fully described herein. Voluntary
prepayment of the Ashford Financial Pool
Loan is prohibited prior to the period
commencing 60 days prior to the Ashford
Effective Maturity Date. Thereafter, the
Ashford Financial Pool Loan may be prepaid
without payment of a yield maintenance or
prepayment premium. The scheduled principal
balance of the Ashford Financial Pool Loan
on the Ashford Effective Maturity Date will
be approximately $52,574,915.
D. MANSION GROVE APARTMENTS ... The "Mansion Grove Loan" has a principal
balance as of the Cut-Off Date of
approximately $72,862,226 and is evidenced
by a Note issued by Lick Mill Creek
Apartments, a California limited partnership
(the "Mansion Grove Borrower"). The Mansion
Grove Loan is secured by a first priority
mortgage lien encumbering an 876 unit
residential complex located in Santa Clara,
California (the "Mansion Grove Property").
The Mansion Grove Borrower is owned by
Sanford N. Diller and Helen P. Diller, as
trustees of the DNS Trust (89%), the Wagner
Family Trust (6%) and the Kroll Family Trust
(5%).
The Mansion Grove Property consists of 24
three-story buildings, one cottage
containing a two-bedroom unit used as a
leasing office, an approximately 5,800
square foot recreation facility, a 1,124
space parking garage and 501 surface parking
spaces. The occupancy rate of the Mansion
Grove Property as of June 26, 1997 was
approximately 97%. An appraisal dated April
9, 1997 determined a value for the Mansion
Grove Property of approximately
$118,000,000, resulting in a Cut-Off Date
LTV of approximately 61.7%. The DSCR based
on Underwritable Cash Flow for the Mansion
Grove Property as of the Cut-Off Date is
approximately 1.39x.
The Mansion Grove Loan bears interest at a
fixed rate per annum equal to 8.35% (the
"Mansion Grove Initial Interest Rate") to
but not including July 1, 2007 (the "Mansion
Grove Effective Maturity Date") and has a
final maturity date of July 1, 2027 (the
"Mansion Grove Maturity Date"). From and
after the Mansion Grove Effective Maturity
Date, the Mansion Grove Loan will bear
interest at an increased rate (see
"Description of the Mortgaged Properties and
the Mortgage Loans--Mansion Grove
Apartments: The Loan--Payment Terms") (the
"Mansion Grove Revised Interest Rate"). The
Mansion Grove Loan requires 360 equal
monthly payments of principal and interest
of $553,565.02 (based on a 360-month
amortization schedule and the Mansion Grove
Initial Interest Rate). After the Mansion
Grove Effective Maturity Date, all interest
accrued at the excess of the Mansion Grove
Revised Interest Rate over the Mansion Grove
Initial Interest Rate will be deferred, will
bear interest at the Mansion Grove Revised
Interest Rate, and will not be paid until
after the principal balance of the Mansion
Grove Loan has been reduced to zero (such
deferred interest and interest thereon, the
"Mansion Grove Deferred Interest").
Voluntary prepayment of the Mansion Grove
Loan is prohibited prior to July 1, 2002.
Thereafter, the Mansion Grove Loan may be
prepaid, upon payment of a yield maintenance
premium, up to 90 days prior to the Mansion
Grove Effective Maturity Date, and
thereafter without payment of a yield
maintenance premium. The scheduled principal
balance of the Mansion Grove Loan on the
Mansion Grove Effective Maturity Date will
be approximately $64,491,537.
S-16
<PAGE>
E. NORTH SHORE TOWERS ........ The "North Shore Towers Loan" has a
principal balance as of the Cut-Off Date of
approximately $70,280,966 and is evidenced
by a Note issued by North Shore Towers
Apartments Incorporated, a New York
corporation (the "North Shore Towers
Borrower"). The North Shore Towers Loan is
secured by a first priority mortgage lien
encumbering a residential cooperative
apartment complex located in Floral Park,
New York (the "North Shore Towers
Property"). The North Shore Towers Borrower
is owned approximately 84% by
tenant-shareholders and approximately 16% by
the original sponsor, Three Towers Holding,
Inc.
The North Shore Towers Property consists of
three 33-story cooperative apartment
buildings with 1,844 residential apartments
(of which 295 are owned by the original
sponsor), a 2,374 space parking garage and a
"residents only" country club. The units
owned by the sponsor are subject to rent
stabilization; however, the rental income
from those units is currently sufficient in
most cases to cover maintenance costs. The
buildings are connected by a below-ground
arcade that stretches approximately one
quarter mile and contains commercial space.
A marketability study dated July 14, 1997
determined a value for the North Shore
Towers Property as of June 30, 1997 of
approximately $350,000,000, resulting in a
Cut-Off Date LTV of approximately 20.1%. The
DSCR based on Underwritable Cash Flow for
the North Shore Towers Property as of the
Cut-Off Date is approximately 2.83x.
The North Shore Towers Loan bears interest
at a fixed rate per annum equal to 9.32%
(the "North Shore Towers Interest Rate")
through December 1, 2004 (the "North Shore
Towers Maturity Date"). The North Shore
Towers Loan was acquired by MSMC pursuant to
an agreement pursuant to which John Hancock
Mutual Life Insurance Company has retained a
portion of the interest thereon accruing at
the rate of 2.57% per annum (the "Hancock
Retained Interest"), and is acting as
subservicer of the North Shore Towers Loan.
Accordingly, the interest rate payable to
the Trust Fund on the North Shore Towers
Loan will be 6.75% (the "North Shore Towers
Net Interest Rate"). The North Shore Towers
Loan requires 120 equal monthly payments of
principal and interest of $593,498.89 (based
on a 360-month amortization schedule and the
North Shore Towers Interest Rate) and
payment of the remaining principal balance
on the North Shore Towers Maturity Date.
Voluntary prepayment of the North Shore
Towers Loan is permitted at any time upon
payment of a yield maintenance premium up to
3 months prior to the North Shore Towers
Maturity Date, and thereafter without
payment of a yield maintenance or prepayment
premium. John Hancock is entitled to
approximately 77.9% of any yield maintenance
premium received on the North Shore Towers
Loan. The scheduled principal balance of the
North Shore Towers Loan on the North Shore
Towers Maturity Date will be approximately
$64,482,117.
<PAGE>
F. FASHION MALL ............... The "Fashion Mall Loan" has a principal
balance as of the Cut-Off Date of
approximately $64,864,238 and is evidenced
by a Note issued by Galahad Real Estate
Corporation, a Delaware corporation (the
"Fashion Mall Borrower"). The Fashion Mall
Loan is secured by a first priority mortgage
lien encumbering a regional mall located in
Indianapolis, Indiana (the "Fashion Mall
Property"). The Fashion Mall Borrower is
owned 100% by Pendragon Real Estate
Corporation which, in turn, is owned 100% by
the Shell Pensions Trust Ltd., United
Kingdom, as trustee of the Shell
Contributory Pension Fund.
The Fashion Mall Property consists of The
Fashion Mall--Keystone at the Crossing, a
regional mall located in suburban
Indianapolis, Indiana, containing
approximately 682,912 square feet of GLA.
Approximately 88% of the mall store space
was leased as of May 31, 1997. Anchor stores
at the Fashion Mall Property
S-17
<PAGE>
are Parisian and Jacobson's, and significant
mall store tenants include The Limited,
Victoria's Secret, Banana Republic, The Gap,
Coach, Talbots, Williams-Sonoma, Pottery
Barn and Abercrombie & Fitch. An appraisal
dated March 18, 1997 determined a value for
the Fashion Mall Property of approximately
$116,000,000, resulting in a Cut-Off Date
LTV of approximately 55.9%. The DSCR based
on Underwritable Cash Flow for the Fashion
Mall Property as of the Cut-Off Date is
approximately 1.73x.
The Fashion Mall Loan bears interest at a
fixed rate per annum equal to 7.85% (the
"Fashion Mall Initial Interest Rate") to but
not including June 13, 2007 (the "Fashion
Mall Effective Maturity Date") and has a
final maturity date of July 1, 2027 (the
"Fashion Mall Maturity Date"). From and
after the Fashion Mall Effective Maturity
Date, the Fashion Mall Loan will bear
interest at an increased rate (see
"Description of the Mortgaged Properties and
the Mortgage Loans--Fashion Mall: The
Loan--Payment Terms") (the "Fashion Mall
Revised Interest Rate"). The Fashion Mall
Loan requires 360 equal monthly payments of
principal and interest of $470,167.67 (based
on a 30-year amortization schedule and the
Fashion Mall Initial Interest Rate). After
the Fashion Mall Effective Maturity Date,
all interest accrued at the excess of the
Fashion Mall Revised Interest Rate over the
Fashion Mall Initial Interest Rate will be
deferred, will bear interest at the Fashion
Mall Revised Interest Rate and will not be
paid until after the principal balance of
the Fashion Mall Loan has been reduced to
zero (such deferred interest and interest
thereon, the "Fashion Mall Deferred
Interest"). Voluntary prepayment of the
Fashion Mall Loan is prohibited prior to the
second anniversary of the Closing Date.
Thereafter, the Fashion Mall Loan may be
prepaid upon payment of a yield maintenance
premium up to 90 days prior to the Fashion
Mall Effective Maturity Date, and thereafter
without payment of a yield maintenance
premium. The scheduled principal balance of
the Fashion Mall Loan on the Fashion Mall
Effective Maturity Date will be
approximately $56,941,015.
G. YORKTOWN SHOPPING CENTER ... The "Yorktown Shopping Center Loan" has a
principal balance as of the Cut-Off Date of
approximately $57,304,459 and is evidenced
by a Note issued by Yorktown Joint Venture,
an Illinois general partnership (the
"Yorktown Shopping Center Borrower"). The
Yorktown Shopping Center Loan is secured by
a first priority lien encumbering certain
mall store space in a regional mall located
in Lombard, Illinois (the "Yorktown
Property"). The Yorktown Shopping Center
Borrower is owned by the Estate of E.D.
Pehrson, et. al. (52.00%), the Rogers
Brothers (21.00%), Pehrson Yorktown
Investments, L.P. (14.06%), Carroll Yorktown
Investments, L.P. (8.44%), Joel B. Wilder
(3.50%) and Sumner Schein (1.00%).
The Yorktown Property consists of 480,539
square feet of mall store space and mall
periphery space in Yorktown Shopping Center,
a regional mall located in Lombard,
Illinois. The Yorktown Shopping Center
contains a total of approximately 1,305,907
square feet of GLA (including 825,368 square
feet of self-owned anchor stores).
Approximately 91.7% of the mall store space
in Yorktown Shopping Center was leased as of
June 30, 1997. Anchor stores at the Yorktown
Shopping Center are JC Penney, Carson Pirie
Scott & Co., Von Maur and Montgomery Ward,
and significant mall store tenants include
The Limited, Structure, Victoria's Secret,
Express, The Disney Store and The Gap. An
appraisal completed on September 9, 1997
determined an aggregate value for the
Yorktown Property of approximately
$119,500,000, resulting in a Cut-Off Date
LTV of approximately 48%. The DSCR based on
Underwritable Cash Flow for the Yorktown
Property as of the Cut-Off Date is
approximately 1.33x.
S-18
<PAGE>
The Yorktown Shopping Center Loan bears
interest at a fixed rate per annum equal to
8.25% (the "Yorktown Shopping Center
Interest Rate") to but not including July 1,
2004 (the "Yorktown Shopping Center Maturity
Date"). The Yorktown Shopping Center Loan
requires 120 equal monthly payments of
principal and interest of $473,000 (based on
a 300 month amortization schedule and the
Yorktown Shopping Center Interest Rate) and
payment of the remaining principal balance
on the Yorktown Shopping Center Maturity
Date. Voluntary prepayment of the Yorktown
Shopping Center Loan is prohibited prior to
July 1, 1999. Thereafter, the Yorktown
Shopping Center Loan may be prepaid in full
only upon payment of a yield maintenance
premium up to 90 days prior to the Yorktown
Shopping Center Maturity Date, and
thereafter without payment of a yield
maintenance premium. The scheduled principal
balance of the Yorktown Shopping Center Loan
on the Yorktown Shopping Center Maturity
Date will be approximately $48,765,713.
H. GRAND KEMPINSKI HOTEL ...... The "Grand Kempinski Loan" has a principal
balance as of the Cut-Off Date of
approximately $55,000,000 and is evidenced
by a Note issued by Registry Dallas
Associates Limited Partnership, a Delaware
limited partnership (the "Grand Kempinski
Borrower"). The Grand Kempinski Loan is
secured by a first priority mortgage lien
encumbering a luxury convention hotel
located in Dallas, Texas (the "Grand
Kempinski Property").
The Grand Kempinski Property consists of the
Grand Kempinski Hotel, a four-star luxury
convention hotel with 528 rooms, 6 food and
beverage facilities, 76,000 square feet of
meeting space, 2 swimming pools and a health
club located in Dallas, Texas. The average
occupancy rate for the Grand Kempinski
Property for the year ended June 30, 1997
was 70%, the ADR for such period was
$110.99, and the RevPar for such period was
$77.58. An appraisal dated April 1, 1997
determined a value for the Grand Kempinski
Property of approximately $90,000,000,
resulting in a Cut-Off Date LTV of
approximately 61.1%. The DSCR based on
Underwritable Cash Flow for the Grand
Kempinski Property as of the Cut-Off Date is
approximately 1.73x.
The Grand Kempinski Loan bears interest at a
fixed rate per annum equal to 8.63% (the
"Grand Kempinski Initial Interest Rate") to
but not including October 1, 2007 (the
"Grand Kempinski Effective Maturity Date")
and has a final maturity date of October 1,
2022 (the "Grand Kempinski Maturity Date").
From and after the Grand Kempinski Effective
Maturity Date, the Grand Kempinski Loan will
bear interest at an increased rate (see
"Description of the Mortgaged Properties and
the Mortgage Loans--Grand Kempinski Hotel:
The Loan--Payment Terms") (the "Grand
Kempinski Revised Interest Rate"). The Grand
Kempinski Loan requires 300 equal monthly
payments of principal and interest of
$447,703.56 (based on a 25 year amortization
schedule and the Grand Kempinski Initial
Interest Rate). After the Grand Kempinski
Effective Maturity Date, all interest
accrued at the excess of the Grand Kempinski
Revised Interest Rate over the Grand
Kempinski Initial Interest Rate will be
deferred, will bear interest at the Grand
Kempinski Revised Interest Rate and will not
be paid until after the principal balance of
the Grand Kempinski Loan has been reduced to
zero (such deferred interest and interest
thereon, the "Grand Kempinski Deferred
Interest"). Voluntary prepayment of the
Grand Kempinski Loan is prohibited prior to
September 11, 2000. Thereafter, the Grand
Kempinski Loan may be prepaid upon payment
of a yield maintenance premium, up to the
Grand Kempinski Effective Maturity Date, and
thereafter without payment of a yield
maintenance premium. The scheduled principal
balance of the Grand Kempinski Loan on the
Grand Kempinski Effective Maturity Date will
be approximately $45,114,370.
S-19
<PAGE>
I. ARROWHEAD TOWNE CENTER .... The "Arrowhead Towne Center Loan" has a
principal balance as of the Cut-Off Date of
approximately $48,899,962 and is evidenced
by a Note issued by New River Associates, an
Arizona general partnership (the "Arrowhead
Borrower"). The Arrowhead Towne Center Loan
is secured by a first priority mortgage lien
encumbering certain mall store space in a
super-regional mall located in Glendale,
Arizona (the "Arrowhead Property"). The
Arrowhead Borrower is indirectly owned 33
1/3% each by Westcor Realty Limited
Partnership, General Growth Properties Inc.
and JCP Realty Inc.
The Arrowhead Property consists of 394,297
square feet of mall store space in Arrowhead
Towne Center, a super-regional retail
shopping center located in Glendale,
Arizona. The Arrowhead Towne Center contains
a total of 1,132,244 square feet (including
737,947 square feet of self-owned anchor
stores and 394,297 square feet of mall store
GLA). Approximately 89.2% of the mall store
space in Arrowhead Towne Center was leased
as of June 30, 1997. Anchor stores at the
Arrowhead Towne Center are Dillard's, JC
Penney, Mervyn's, Montgomery Ward and
Robinson's-May, and significant mall store
tenants include The Limited, Eddie Bauer,
Gymboree, Bombay Company and The Gap. An
appraisal dated September 4, 1997 determined
a value for the Arrowhead Property of
approximately $105,000,000, resulting in a
Cut-Off Date LTV of approximately 46.6%. The
DSCR based on Underwritable Cash Flow for
the Arrowhead Property as of the Cut-Off
Date is approximately 1.79x.
The Arrowhead Towne Center Loan bears
interest at a fixed rate per annum equal to
8.60% (the "Arrowhead Interest Rate") to but
not including January 1, 2002 (the
"Arrowhead Maturity Date"). The Arrowhead
Towne Center Loan requires 84 equal monthly
payments of principal and interest of
$388,000 (based on a 30 year amortization
schedule and the Arrowhead Interest Rate)
and payment of the remaining principal
balance on the Arrowhead Maturity Date.
Voluntary prepayment of the Arrowhead Towne
Center Loan is permitted at any time upon
payment of a yield maintenance premium up to
4 months prior to the Arrowhead Maturity
Date, and thereafter without payment of a
yield maintenance premium. The scheduled
principal balance of the Arrowhead Towne
Center Loan at the Arrowhead Maturity Date
will be approximately $46,597,454.
J. MARK CENTERS POOL .......... The "Mark Centers Pool Loan" has a principal
balance as of the Cut-Off Date of
approximately $45,449,576 and is evidenced
by a Note issued by 10 limited partnerships
(collectively, the "Mark Centers Pool
Borrowers"). The Mark Centers Pool Loan is
secured by a first priority mortgage lien
encumbering 17 community and neighborhood
retail shopping centers located in
Pennsylvania, Alabama, Florida, Georgia, New
York, South Carolina and Virginia
(collectively, the "Mark Centers Pool
Properties"). The Mark Centers Pool
Borrowers are all 100% owned by Mark Centers
Limited Partnership, the operating
subsidiary of Mark Centers Trust, a publicly
traded REIT.
The Mark Centers Pool Properties consist of
17 community and neighborhood retail
shopping centers, containing an aggregate of
approximately 2,317,463 square feet of GLA.
The average occupancy rate for the Mark
Centers Pool Properties was 93% as of June
30, 1997. Appraisals dated from May 5, 1996
to July 11, 1996 determined an aggregate
value for the Mark Centers Pool Properties
of approximately $71,200,000, resulting in a
Cut-Off Date LTV of approximately 63.8%. The
DSCR based on Underwritable Cash Flow for
the Mark Centers Pool Properties as of the
Cut-Off Date is approximately 1.50x.
S-20
<PAGE>
The Mark Centers Pool Loan bears interest
at a fixed rate per annum equal to 8.84%
(the "Mark Centers Pool Initial Interest
Rate") to but not including October 31, 2006
(the "Mark Centers Pool Effective Maturity
Date") and has a final maturity date of
November 1, 2021 (the "Mark Centers Pool
Maturity Date"). From and after the Mark
Centers Pool Effective Maturity Date, the
Mark Centers Pool Loan will bear interest at
an increased rate (see "Description of the
Mortgaged Properties and the Mortgage
Loans--Mark Centers Pool: The Loan--Payment
Terms") (the "Mark Centers Pool Revised
Interest Rate"). The Mark Centers Pool Loan
requires 300 equal monthly payments of
principal and interest of $380,421.23 (based
on a 25 year amortization schedule and the
Mark Centers Pool Initial Interest Rate).
After the Mark Centers Pool Effective
Maturity Date, all interest accrued at the
excess of the Mark Centers Pool Revised
Interest Rate over the Mark Centers Pool
Initial Interest Rate will be deferred, will
bear interest at the Mark Centers Revised
Interest Rate and will not be paid until
after the principal balance of the Mark
Centers Pool Loan has been reduced to zero
(such deferred interest and interest
thereon, the "Mark Centers Pool Deferred
Interest"). Voluntary prepayment of the Mark
Centers Pool Loan is prohibited prior to
November 1, 1999. Thereafter, the Mark
Centers Pool Loan may be prepaid upon
payment of a yield maintenance premium up to
180 days prior to the Mark Centers Pool
Effective Maturity Date, and thereafter
without payment of a yield maintenance
premium. The scheduled principal balance of
the Mark Centers Pool Loan on the Mark
Centers Pool Effective Maturity Date will be
approximately $37,962,282.
K. WESTGATE MALL .............. The "Westgate Mall Loan" has a principal
balance as of the Cut-Off Date of
approximately $42,681,517 and is evidenced
by a Note issued by Westgate Joint Venture,
an Ohio general partnership (the "Westgate
Mall Borrower"). The Westgate Mall Loan is
secured by a first priority lien encumbering
certain mall store space in a shopping mall
located in Fairview Park, Ohio (the
"Westgate Mall Property"). The Westgate Mall
Borrower is owned by JG Westgate Ltd., a
subsidiary of the Richard E. Jacobs Group
(80%), Boykin Westgate Co. (10%), and
certain family trusts (10%).
The Westgate Mall Property consists of
617,222 square feet of space in Westgate
Mall, a regional mall located in Fairview
Park, Ohio consisting of mall store space
(225,553 square feet), periphery space
(67,343 square feet) and the fee interest in
the land of certain ground-lease tenants.
The Westgate Mall contains a total of
approximately 789,222 square feet (including
172,000 square feet of self-owned anchor
stores). Approximately 88.5% of the mall
store space in Westgate Mall was leased as
of June 30, 1997. Anchor stores at the
Westgate Mall are Dillard's North, Dillard's
South and Kohl's, and significant mall store
tenants include Ann Taylor, The Gap, The
Limited, Lane Bryant, The Bombay Company and
Waldenbooks. An appraisal dated September
18, 1997 determined an aggregate value for
the Westgate Mall Property of approximately
$65,000,000, resulting in a Cut-Off Date LTV
of approximately 65.7%. The DSCR based on
Underwritable Cash Flow for the Westgate
Mall Property as of the Cut-Off Date is
approximately 1.20x.
<PAGE>
The Westgate Mall Loan bears interest at a
fixed rate per annum equal to 9.25% (the
"Westgate Mall Interest Rate") to but not
including December 1, 2006 (the "Westgate
Mall Maturity Date") and payment of the
remaining principal balance on the Westgate
Mall Maturity Date. The Westgate Mall Loan
requires 120 equal monthly payments of
principal and interest of $368,442.60 (based
on a 300 month amortization schedule and the
Westgate Mall Interest Rate). Voluntary
prepayment of the Westgate Mall Loan is
prohibited prior to December 1, 2000.
Thereafter, the
S-21
<PAGE>
Westgate Mall Loan may be prepaid upon
payment of a yield maintenance premium up to
three months prior to the Westgate Mall
Maturity Date, and thereafter without
payment of a yield maintenance premium. The
scheduled principal balance of the Westgate
Mall Loan on the Westgate Mall Maturity Date
will be $35,890,982.
L. WESTSHORE MALL ............. The "Westshore Mall Loan" has a principal
balance as of the Cut-Off Date of
approximately $20,900,775 and is evidenced
by a Note issued by Westshore Properties
L.L.C., a Delaware limited liability company
(the "Westshore Mall Borrower"). The
Westshore Mall Loan is secured by a first
priority lien encumbering certain community
mall space and shopping center space located
in Holland, Michigan (the "Westshore Mall
Property"). The Westshore Mall Borrower is
owned indirectly by Wilmorite, Inc. (15%)
and by Ivanhoe (85%), the retail real estate
group of the Canadian pension fund Caisse de
Depot et Placement du Quebec.
The Westshore Mall Property consists of
393,949 square feet, consisting of mall
store space (143,034 square feet), mall
anchor stores (213,817 total square feet),
non-anchor community shopping center space
(26,087 square feet), and ground leases for
two periphery spaces (11,011 square feet) in
the Westshore Mall, a regional mall and
community shopping center located in
Holland, Michigan. Approximately 95.3% of
the mall store space in the Westshore Mall
was leased as of June 30, 1997. Anchor
stores at the Westshore Mall are JC Penney,
Sears, Younkers and Steketee's and Target at
the community shopping center. Significant
mall store tenants include The Limited, Lane
Bryant, Bath and Body Works, Foot Locker,
Paul Harris and Waldenbooks. An appraisal
completed on December 31, 1996 determined an
aggregate value for the Westshore Mall
Property of approximately $33,000,000,
resulting in a Cut-Off Date LTV of
approximately 63.3%. The DSCR based on
Underwritable Cash Flow for the Westshore
Mall Property as of the Cut-Off Date is
approximately 1.68x.
The Westshore Mall Loan bears interest at a
fixed rate per annum equal to 8.07% (the
"Westshore Mall Initial Interest Rate") to
but not including March 1, 2004 (the
"Westshore Mall Effective Maturity Date")
and has a final maturity date of March 1,
2027 (the "Westshore Mall Maturity Date").
From and after the Westshore Mall Effective
Maturity Date, the Westshore Mall Loan will
bear interest at an increased rate (see
"Description of the Mortgaged Properties and
the Mortgage Loans--Westshore Mall: The
Loan--Payment Terms") (the "Westshore Mall
Revised Interest Rate"). The Westshore Mall
Loan requires 360 equal monthly payments of
principal and interest of $155,116.56 (based
on a 30 year amortization schedule and the
Westshore Mall Initial Interest Rate). After
the Westshore Mall Effective Maturity Date,
all interest accrued at the excess of the
Westshore Mall Revised Interest Rate over
the Westshore Mall Initial Interest Rate
will be deferred, will bear interest at the
Westshore Mall Revised Interest Rate and
will not be paid until after the principal
balance of the Westshore Mall Loan has been
reduced to zero (such deferred interest and
interest thereon, the "Westshore Mall
Deferred Interest").
From and after two years after the Closing
Date, the Westshore Mall Borrower may
deposit U.S. Treasury obligations as
substitute collateral for the Westshore Mall
Property, as more fully described herein.
Voluntary prepayment of the Westshore Mall
Loan is prohibited prior to March 1, 2002.
Thereafter, the Westshore Mall Loan may be
prepaid upon payment of a yield maintenance
premium up to 90 days prior to the Westshore
Mall Effective Maturity Date, and thereafter
without
S-22
<PAGE>
payment of a yield maintenance premium. The
scheduled principal balance of the Westshore
Mall Loan on the Westshore Mall Effective
Maturity Date will be approximately
$19,438,469.
M. ORIGINATORS ................ To facilitate loan closings, MSMC engaged
Secore Financial Corporation, a Pennsylvania
corporation ("Secore") to originate the
Edens & Avant Pool Loan, the Fashion Mall
Loan, the 605 Third Avenue Loan, the Grand
Kempinski Loan, the Mark Centers Pool Loan,
the Ashford Financial Pool Loan, the Mansion
Grove Loan and the Westshore Mall Loan. John
Hancock originated the North Shore Towers
Loan. Teacher's Insurance and Annuity
Association of America, a New York
corporation ("TIAA"), originated the
Arrowhead Town Center Loan, the Westgate
Mall Loan and the Yorktown Shopping Center
Loan. Secore, John Hancock and TIAA are
collectively referred to herein as the
"Originators". MSMC will make certain
representations and warranties with respect
to the Mortgage Loans.
N. GENERAL .................... For a further description of the Mortgage
Loans and Mortgaged Properties, see
"Description of the Mortgaged Properties and
the Mortgage Loans" and "Mortgage Pool
Characteristics" herein.
S-23
<PAGE>
O. PREPAYMENT PROVISIONS ..... The following table sets forth certain
information regarding the prepayment
provisions of the Mortgage Loans.
PREPAYMENT TERMS
<TABLE>
<CAPTION>
PREPAYABLE
PREPAYABLE WITH PREPAYMENT PREPAYMENT
MORTGAGE LOAN LOAN TYPE LOCKOUT PERIOD WITH DEFEASANCE PENALTY WITHOUT PENALTY
- -------------------------- ------------- --------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
605 Third Avenue .......... EMD Origination to 90 2 Yrs. from NA From 90 days
days prior to securitization prior to EMD
EMD to EMD
Edens & Avant Pool ........ Balloon Origination to 60 From N/A From 60 days
days prior to October, prior to Maturity
Maturity Date 1999 Date
Ashford Financial Pool .... EMD Origination to 60 From N/A From 60 days
days prior to October, prior to EMD
EMD 1999
Mansion Grove Apartments .. EMD Origination to N/A July 1, 2002 From 90 days
July 1, 2002 to 90 days prior to EMD
prior to EMD
North Shore Towers ........ Balloon None N/A Origination to From 90 days
90 days prior prior to Maturity
to Maturity Date
Date
Fashion Mall .............. EMD Origination to N/A October, From 90 days
October, 1999 1999 to 90 prior to EMD
days prior to
EMD
Yorktown Shopping Center . Balloon Origination to N/A July, 1999 to From 90 days
July, 1999 90 days prior prior to Maturity
to Maturity Date
Date
Grand Kempinski
Hotel .................... EMD Origination to N/A September, From EMD
September, 2000 2000 to EMD
Arrowhead Towne
Center ................... Balloon None N/A Origination to From 120 days
120 days prior to Maturity
prior to Date
Maturity Date
Mark Centers Pool.......... EMD Origination to N/A November 1, From 180 days
November 1, 1999 to 180 prior to EMD
1999 days prior to
EMD
Westgate Mall ............. Balloon Origination to N/A December 1, From 90 days
December 1, 2000 to 90 prior to Maturity
2000 days prior to Date
Maturity Date
Westshore Mall ............ EMD Origination to 2 Yrs. from March 1, From 90 days
March 1, 2002 securitization 2002, to 90 prior to EMD
to EMD days prior to
EMD
</TABLE>
S-24
<PAGE>
THE OFFERED CERTIFICATES ..... The Class A-1 Certificates will have an
initial Certificate Principal Amount of
$238,000,000.
The Class A-2 Certificates will have an
initial Certificate Principal Amount of
$64,000,000.
The Class A-3 Certificates will have an
initial Certificate Principal Amount of
$226,171,000.
The Class A-1, Class A-2 and Class A-3
Certificates are collectively referred to
herein as the "Class A Certificates". The
Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E, Class F, Class G
and Class H Certificates are collectively
referred to herein as the "Principal Balance
Certificates".
The Class X Certificates will have an
initial Notional Amount of approximately
$754,531,157. The Notional Amount of the
Class X Certificates will generally be equal
to the sum of the Certificate Principal
Amounts of the Class A-1, Class A-2, Class
A-3, Class B, Class C, Class D, Class E,
Class F, Class G and Class H Certificates,
plus the amount of any unpaid Interest
Shortfall on such Classes.
The Class B Certificates will have an
initial Certificate Principal Amount of
$22,636,000.
The Class C Certificates will have an
initial Certificate Principal Amount of
$22,636,000.
The Class D Certificates will have an
initial Certificate Principal Amount of
$45,271,000.
The Class E Certificates will have an
initial Certificate Principal Amount of
$45,271,000.
The Class F Certificates will have an
initial Certificate Principal Amount of
$41,499,000.
THE PRIVATE CERTIFICATES ...... The Class G Certificates will have an
initial Certificate Principal Amount of
$26,408,000.
The Class H Certificates will have an
initial Certificate Principal Amount of
$22,639,157.
The Class Q, Class R and Class LR
Certificates will not have Certificate
Principal Amounts or Notional Amounts.
The Class G, Class H, Class Q, Class R and
Class LR Certificates are not offered
hereby.
PASS-THROUGH RATES ............ The per annum rate at which interest accrues
(the "Pass-Through Rate") on each Class of
Offered Certificates during any Interest
Accrual Period will be as follows:
The Pass-Through Rate on the Class A-1
Certificates will be 6.70% per annum.
The Pass-Through Rate on the Class A-2
Certificates will be 6.85% per annum,
provided, however, in no event will the
Class A-2 Pass-Through Rate exceed the WAC
Rate.
The Pass-Through Rate on the Class A-3
Certificates will be 6.95% per annum,
provided, however, in no event will the
Class A-3 Pass-Through Rate exceed the WAC
Rate.
S-25
<PAGE>
The Pass-Through Rate on the Class X
Certificates will be a per annum rate equal
to the weighted average of the Pass-Through
Rates on the Class A-1 Component, the Class
A-2 Component, the Class A-3 Component, the
Class B Component, the Class C Component,
the Class D Component, the Class E
Component, the Class F Component, the Class
G Component, and the Class H Component,
weighted on the basis of their respective
Component Notional Amounts. The Pass-Through
Rate on the Class A-1 Component is a per
annum rate equal to the WAC Rate minus the
Pass-Through Rate on the Class A-1
Certificates. The Pass-Through Rate on the
Class A-2 Component is a per annum rate
equal to the WAC Rate minus the Pass-Through
Rate on the Class A-2 Certificates. The
Pass-Through Rate on the Class A-3 Component
is a per annum rate equal to the WAC Rate
minus the Pass-Through Rate on the Class A-3
Certificates. The Pass-Through Rate on the
Class B Component is a per annum rate equal
to 1.13%. The Pass-Through Rate on the Class
C Component is a per annum rate equal to
1.08%. The Pass-Through Rate on the Class D
Component is a per annum rate equal to
1.00%. The Pass-Through Rate on the Class E
Component is a per annum rate equal to
0.90%. The Pass-Through Rate on the Class F
Component is a per annum rate equal to
0.65%. The Pass-Through Rate on the Class G
Component is a per annum rate equal to the
WAC Rate minus the Pass-Through Rate on the
Class G Certificates. The Pass-Through Rate
on the Class H Component is a per annum rate
equal to the WAC Rate minus the Pass-Through
Rate on the Class H Certificates.
The Pass-Through Rate on the Class B
Certificates is a per annum rate equal to
the WAC Rate minus 1.13%.
The Pass-Through Rate on the Class C
Certificates is a per annum rate equal to
the WAC Rate minus 1.08%.
The Pass-Through Rate on the Class D
Certificates is a per annum rate equal to
the WAC Rate minus 1.00%.
The Pass-Through Rate on the Class E
Certificates is a per annum rate equal to
the WAC Rate minus 0.90%.
The Pass-Through Rate on the Class F
Certificates is a per annum rate equal to
the WAC Rate minus 0.65%.
The Pass-Through Rate on the Class G
Certificates will be 6.70% per annum.
The Pass-Through Rate on the Class H
Certificates will be 6.70% per annum.
Calculations of interest on the Offered
Certificates will be made on the basis of a
360-day year consisting of twelve 30-day
months.
The "WAC Rate" for any Distribution Date is
the weighted average of the Net Mortgage
Rates in effect for the Mortgage Loans as of
their Due Date in the month preceding the
month in which such Distribution Date occurs
weighted on the basis of their respective
Stated Principal Balances on such Due Date.
The "Net Mortgage Rate" with respect to any
Mortgage Loan is a per annum rate equal to
the related Mortgage Rate in effect from
time to time minus the Servicing Fee Rate
and, in the case of the North Shore Towers
Loan, minus the Hancock Retained Interest.
However, for purposes of calculating
Pass-Through Rates, the Net Mortgage Rate
for any Mortgage Loan shall be determined
without regard to any modification, waiver
or amendment of the terms of such Mortgage
Loan, whether agreed to by the Special
Servicer or resulting from a bankruptcy,
insolvency or similar proceeding involving
the related borrower.
S-26
<PAGE>
The "Mortgage Rate" with respect to any
Mortgage Loan is the per annum rate in
effect from time to time at which interest
accrues on such Mortgage Loan as stated in
the related Note, in each case without
giving effect to the 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.
DISTRIBUTIONS ................. On each Distribution Date prior to the
Cross-over Date (as defined below), the
Available Funds for such Distribution Date,
as further described under "Description of
the Offered Certificates--Distributions"
herein, will be distributed in the following
amounts and order of priority:
First, pro rata, in respect of interest, to
the Class A-1, Class A-2, Class A-3 and
Class X Certificates, up to an amount equal
to, and pro rata as among such Classes in
accordance with, the Interest Distribution
Amounts of such Classes;
Second, to the Class A Certificates, in
reduction of their respective Certificate
Principal Amounts in the following order:
first, to the Class A-1 Certificates,
second, to the Class A-2 Certificates and
third, to the Class A-3 Certificates, in
each case up to an amount equal to the
lesser of (i) the Certificate Principal
Amount thereof and (ii) the Principal
Distribution Amount for such Distribution
Date;
Third, to the Class B Certificates, in
respect of interest, up to an amount equal
to the aggregate Interest Distribution
Amount of such Class;
Fourth, to the Class B Certificates, in
reduction of the Certificate Principal
Amount thereof, up to an amount equal to the
Principal Distribution Amount less the
portion of the Principal Distribution Amount
distributed pursuant to all prior clauses,
until the Certificate Principal Amount
thereof is reduced to zero;
Fifth, to the Class B Certificates, an
amount equal to the aggregate of
unreimbursed Realized Losses previously
allocated to such Class, plus interest
thereon at the Pass-Through Rate for such
Class compounded monthly from the date the
related Realized Loss was allocated to such
Class;
<PAGE>
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
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<PAGE>
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;
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; and
Eighteenth, to the Private Certificates in
the amounts and order of priority described
under "Description of the
Certificates--Distributions--Payment
Priorities" herein.
On each Distribution Date occurring on and
after the Cross-over Date, regardless of the
allocation of principal payments described
in priority second in the preceding
sentence, an amount equal to the aggregate
of the Principal Distribution Amounts will
be distributed, first, to the Class A-1
Certificates, Class A-2 Certificates and
Class A-3 Certificates, pro rata, based on
their respective Certificate Principal
Amounts, in reduction of their respective
Certificate Principal Amounts until the
Certificate Principal Amount of each such
Class is reduced to zero; and second, to the
Class A-1 Certificates, Class A-2
Certificates and Class A-3 Certificates, for
unreimbursed amounts of Realized Losses
previously allocated to such Classes, pro
rata, in accordance with the amount of such
unreimbursed Realized Losses previously
allocated to each such Class. The
"Cross-over Date" is the Distribution Date
on which the Certificate Principal Amount of
each of the Principal Balance Certificates
other than the Class A Certificates has been
reduced to zero. The Class X Certificates
will not be entitled to any distributions of
principal.
The "Interest Distribution Amount" with
respect to any Distribution Date and each
Class of Offered Certificates will equal (A)
the sum of (i) the Interest Accrual Amount
for such Distribution Date and (ii) the
Interest Shortfall, if any, for such
Distribution Date, less (B) the amount of
any Excess Prepayment Interest Shortfall
allocated to such Class as described under
"--Subordination" below. The "Interest
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<PAGE>
Accrual Amount", with respect to any
Distribution Date and any Class of Principal
Balance Certificates, is equal to interest
for the related Interest Accrual Period at
the Pass-Through Rate for such Class on the
related Certificate Principal Amount of such
Class, and with respect to any Distribution
Date and the Class X Certificates is equal
to interest for the related Interest Accrual
Period at the Pass-Through Rate for such
Class for such Interest Accrual Period on
the applicable Notional Amount of such
Class.
An "Interest Shortfall" with respect to any
Distribution Date for any Class of Offered
Certificates is the sum of (a) the excess,
if any, of (i) the Interest Distribution
Amount for such Class for the immediately
preceding Distribution Date, over (ii) all
distributions of interest (other than any
Deferred Interest) made with respect to such
Class of Certificates on the immediately
preceding Distribution Date, and (b) to the
extent permitted by applicable law, (i)
other than in case of the Class X
Certificates, one month's interest on any
such excess at the Pass-Through Rate
applicable to such Class of Certificates for
the current Distribution Date, and (ii) in
the case of the Class X Certificates, one
month's interest on any such excess at the
WAC Rate for such Distribution Date.
For purposes of calculating the Interest
Accrual Amount for any Class of Offered
Certificates and any Distribution Date, any
reduction of Certificate Principal Amount or
Notional Amount, as applicable, as a result
of distributions to such Class or any
related Class, respectively, and reductions
in Certificate Principal Amount or Notional
Amount, as applicable, as a result of the
occurrence and allocations of Realized
Losses on the Distribution Date occurring in
the related Interest Accrual Period shall be
deemed to have been made on the first day of
such Interest Accrual Period.
The "Principal Distribution Amount" for any
Distribution Date is equal to the sum for
all Mortgage Loans, without duplication of
(i) the principal component of all Monthly
Payments (other than Balloon Payments) due
on the Due Date immediately preceding such
Distribution Date (if received, or advanced
by the Master Servicer, Trustee or Fiscal
Agent, 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, Trustee or Fiscal Agent, in
respect of such Distribution Date) with
respect to the Mortgage Loans, (iii) the
principal component of any payment
(including any Balloon Payment) on any
Mortgage Loan received or applied on or
after the maturity date thereof in the
related Collection Period, (iv) the portion
of Unscheduled Payments allocable to
principal of any Mortgage Loan received or
applied during the related Collection
Period, net of the principal portion of any
unreimbursed P&I Advances related to such
Mortgage Loan, and (v) the principal portion
of the Repurchase Price with respect to each
Mortgage Loan received or applied during the
related Collection Period from the Trust
Fund.
<PAGE>
Any Prepayment Premiums (net, in the case of
the North Shore Towers Loan, of any portion
of such Prepayment Premium required to be
paid to John Hancock in connection with the
Hancock Retained Interest) received will be
distributed to the holders of the Class X,
Class A-1, Class A-2, Class A-3, Class B,
Class C, Class D, Class E and Class F
Certificates in the manner and priority
described in "Description of the Offered
Certificates--Distributions--Prepayment
Premiums".
Any Deferred Interest received with respect
to the Mortgage Loans will be distributed in
the following percentages to holders of the
following Classes: 5% to
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<PAGE>
the Class B Certificates, 7% to the Class C
Certificates, 15% to the Class D
Certificates, 15% to the Class E
Certificates, 17% to the Class F
Certificates, 19% to the Class G
Certificates and 22% to the Class H
Certificates.
Except as described in this paragraph, the
holders of the Class Q, Class R and Class LR
Certificates will not be entitled to
distributions of interest or principal. The
holders of the Class Q Certificates will be
entitled to distributions of Net Default
Interest to the extent set forth in the
Pooling Agreement. The holders of the Class
R Certificates will be entitled to receive
any Available Funds remaining in the
Upper-Tier Distribution Account on any
Distribution Date after all distributions
with respect to the Regular Certificates on
such Distribution Date have been made. The
Class LR Certificateholders will be entitled
to receive any funds remaining in the
Lower-Tier Distribution Account on any
Distribution Date after all distributions
with respect to the regular interests in the
Lower-Tier REMIC on such Distribution Date
have been made. The Class LR
Certificateholders will also be entitled to
receive the proceeds of the remaining assets
in the Lower-Tier REMIC, if any, after the
Certificate Principal Amounts of the Regular
Certificates have been reduced to zero and
the holders of the Regular Certificates have
received all other distributions to which
they are entitled. It is not anticipated
that there will be any assets remaining in
the Lower-Tier REMIC on such date.
See "Description of the Offered
Certificates--Distributions".
P&I ADVANCES .................. The Master Servicer is required to make an
advance (each, a "P&I Advance") in respect
of delinquent Monthly Payments on the
Mortgage Loans, subject to the limitations
described herein. P&I Advances will
generally equal the delinquent portion of
the Monthly Payment as specified in the
related Note (with interest calculated at
the Net Mortgage Rate plus the Trustee Fee
Rate). The Master Servicer will not be
required to advance Default Interest,
Deferred Interest, Prepayment Premiums or
Balloon Payments. The amount required to be
advanced in respect of any Distribution Date
and any delinquent Monthly Payments on a
Mortgage Loan that has been subject to an
Appraisal Reduction Event (as defined
herein) will equal (i) the amount required
to be advanced by the Master Servicer
without giving effect to the related
Appraisal Reduction Amount, less (ii) the
product of (a) the amount required to be
advanced by the Master Servicer in respect
of delinquent payments of interest without
giving effect to the related Appraisal
Reduction Amount and (b) a fraction, the
numerator of which is the Appraisal
Reduction Amount and the denominator of
which is the Stated Principal Balance of
such Mortgage Loan as of the last day of the
related Collection Period. If the Master
Servicer fails to make a required P&I
Advance, the Trustee, as acting or successor
Master Servicer, acting in accordance with
the Servicing Standard, will be required to
make the P&I Advance, and if the Trustee
fails to make a required P&I Advance, the
Fiscal Agent will be required to make such
P&I Advance, each subject to a determination
of recoverability. See "The Pooling
Agreement--Advances" herein.
<PAGE>
SUBORDINATION ................. Except as described below, as a means of
providing a certain amount of protection to
the holders of the Class A and Class X
Certificates against losses associated with
delinquent and defaulted Mortgage Loans, the
rights of the holders of the Class B, Class
C, Class D, Class E, Class F, Class G and
Class H Certificates to receive
distributions of interest (other than
Deferred Interest) and principal, as
applicable, will be subordinated to such
rights of the holders of the Classes of the
Class A and Class X Certificates. The Class
B Certificates will likewise be protected by
the subordination of the Class C, Class D,
Class E, Class F, Class G and Class H
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<PAGE>
Certificates. The Class C Certificates will
be likewise protected by the subordination
of the Class D, Class E, Class F, Class G
and Class H Certificates. The Class D
Certificates will be likewise protected by
the subordination of the Class E, Class F,
Class G and Class H Certificates. The Class
E Certificates will likewise be protected by
the subordination of the Class F, Class G
and Class H Certificates. The Class F
Certificates will likewise be protected by
the subordination of the Class G and Class H
Certificates. The Class G Certificates will
likewise be protected by the subordination
of the Class H Certificates. This
subordination will be effected in two ways:
(i) by the preferential right of holders of
a Class of Certificates to receive on any
Distribution Date the amounts of interest
(other than Deferred Interest) and principal
distributable in respect of such
Certificates on such date prior to any
distribution being made on such Distribution
Date in respect of any Classes of
Certificates subordinate thereto and (ii) by
the allocation of Realized Losses, first, to
the Class H Certificates; second, to the
Class G Certificates; third, to the Class F
Certificates; fourth, to the Class E
Certificates; fifth, to the Class D
Certificates; sixth to the Class C
Certificates; seventh, to the Class B
Certificates; and finally, to the Class A-1,
Class A-2 and Class A-3 Certificates, pro
rata, based on their respective outstanding
Certificate Principal Amounts. No other form
of credit enhancement will be available for
the benefit of the holders of the Offered
Certificates. See "Description of the
Offered Certificates" herein.
Shortfalls in Available Funds resulting from
Servicing Compensation other than the
Servicing Fee, interest on Advances (to the
extent not covered by Default Interest),
extraordinary expenses of the Trust Fund, a
reduction of the interest rate of a Mortgage
Loan by a bankruptcy court or other
unanticipated or default-related expenses of
the Trust Fund for which there is no
corresponding collection from the borrower
will be allocated in the same manner as
Realized Losses. Shortfalls in Available
Funds resulting from Excess Prepayment
Interest Shortfalls will be allocated to
reduce the interest entitlement of each
Class of Certificates, pro rata, based upon
the amount of interest which would otherwise
be distributable to each Class. See
"Description of the Offered
Certificates--Distributions--Payment
Priorities" herein.
OPTIONAL TERMINATION; OPTIONAL
MORTGAGE LOAN PURCHASE ........ The Depositor, and if the Depositor does not
exercise the option, the Master Servicer
and, if neither the Master Servicer nor the
Depositor exercises the option, the holders
of the Class LR Certificates representing
greater than a 50% Percentage Interest of
the Class LR Certificates, will have the
option to purchase, at the purchase price
specified herein, all of the Mortgage Loans,
and all property acquired through exercise
of remedies in respect of any Mortgage Loan,
remaining in the Trust Fund, and thereby
effect the termination of the Trust Fund and
early retirement of the then outstanding
Certificates, on any Distribution Date on
which the aggregate Stated Principal Balance
of the Mortgage Loans remaining in the Trust
Fund is less than 1% of the aggregate Stated
Principal Balance of the Mortgage Loans as
of the Cut-Off Date.
See "The Pooling Agreement--Optional
Termination; Optional Mortgage Loan
Purchase" herein.
<PAGE>
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES .................. The Trust Fund will include two separate
real estate mortgage investment conduits
(each, a "REMIC"). One REMIC (the
"Lower-Tier REMIC") will hold the Mortgage
Loans and any related property. Collections
in the Lower-Tier REMIC will be used to make
payments of principal and interest on
regular interests in the Lower-Tier REMIC
held by the second REMIC (the "Upper-Tier
REMIC"), and
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<PAGE>
which in turn are used to make distributions
on the Certificates (other than the Class LR
and Class Q Certificates), which represent
interests in the Upper-Tier REMIC. For ease
of presentation, distributions will
generally be described herein as if made
directly from collections on the Mortgage
Loans to the holders of the Certificates.
Elections will be made to treat each of the
Lower-Tier REMIC and the Upper-Tier REMIC as
REMICs and in the opinion of counsel, each
will qualify as a REMIC for federal income
tax purposes. The Class A-1, Class A-2,
Class A-3, Class X, Class B, Class C, Class
D, Class E, Class F, Class G and Class H
Certificates (collectively, the "Regular
Certificates") will represent "regular
interests" in the Upper-Tier REMIC, and the
Class R and Class LR Certificates
(collectively, the "Residual Certificates")
will be designated as the sole Classes of
"residual interests" in the Upper-Tier REMIC
and Lower-Tier REMIC, respectively. In
addition, the Class B, Class C, Class D,
Class E, Class F, Class G and Class H
Certificates also represent undivided
beneficial interests in portions of the
Deferred Interest, which portions of the
Trust Fund will be treated as part of a
grantor trust for federal income tax
purposes. Furthermore, the Class Q
Certificates will represent the right to
receive Net Default Interest, which portion
of the Trust Fund will be treated as part of
the grantor trust for federal income tax
purposes.
The regular interests represented by the
Offered Certificates will be treated as
newly originated debt instruments for
federal income tax purposes. Beneficial
owners will be required to report income
thereon in accordance with the accrual
method of accounting. Although not free from
doubt, it is anticipated that the Class X
Certificates will be treated as issued with
original issue discount for income tax
purposes in an amount equal to the excess of
all distributions of interest expected to be
received thereon over their issue price,
including accrued interest. [It is
anticipated that the Class Certificates
will be issued with original issue discount
for federal income tax purposes in an amount
equal to the excess of the initial
Certificate Principal Amounts thereof over
their respective issue prices (including
accrued interest). It is also anticipated
that the regular interests represented by
the Class Certificates will be issued at
a premium and that the regular interests
represented by the Class Certificates
will be issued with de minimis original
issue discount for federal income tax
purposes.] See "Certain Federal Income Tax
Consequences" herein and "Certain Federal
Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates" in the
Prospectus. Although not free from doubt, it
is anticipated that any Prepayment Premiums
allocable to the Offered Certificates will
be ordinary income to a Certificateholder as
such amounts accrue. See "Certain Federal
Income Tax Consequences" herein.
<PAGE>
ERISA CONSIDERATIONS .......... The United States Department of Labor has
issued to the Underwriter an individual
prohibited transaction exemption, Prohibited
Transaction Exemption 90-24 (the
"Exemption"), which generally exempts from
the application of certain of the prohibited
transaction provisions of Sections 406 and
407 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
and the excise taxes imposed by Sections
4975(a) and (b) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the
civil penalties imposed by 502(i) of ERISA,
transactions relating to the purchase, sale
and holding of pass-through certificates,
such as the Offered Certificates, by
employee benefit plans and certain other
retirement arrangements, including
individual retirement accounts and Keogh
plans, which are subject to Title I of ERISA
and/or Section 4975 of the Code (each of
which is hereinafter referred to as a
"Plan"), collective investment funds in
which
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<PAGE>
such Plans are invested, and insurance
companies using assets of separate accounts
or general accounts which include assets of
Plans (or which are deemed pursuant to ERISA
to include assets of Plans) and the
servicing and operation of mortgage pools
such as the Mortgage Pool, provided that
certain conditions are satisfied. See "ERISA
Considerations" herein and in the
Prospectus.
The Underwriter believes that the conditions
to the applicability of the Exemption will
generally be met with respect to the Class
A-1, Class A-2, Class A-3 and Class X
Certificates (the "Senior Offered
Certificates"), other than possibly those
conditions which are dependent on facts
unknown to the Underwriter or which it
cannot control, such as those relating to
the circumstances of the Plan purchaser or
the Plan fiduciary making the decision to
purchase any such Class of Certificates.
However, before purchasing an Offered
Certificate, a fiduciary of a Plan should
make its own determination as to the
availability of the exemptive relief
provided by the Exemption or the
availability of any other exemption and
whether the conditions of any such exemption
will be applicable to the Offered
Certificates.
The Exemption does not apply to the purchase
or holding of Certificates by Plans
sponsored by the Depositor, the Underwriter,
the Trustee, the Master Servicer, any
obligor with respect to Mortgage Loans
included in the Trust Fund constituting more
than five percent of the aggregate
unamortized principal balance of the assets
in the Trust Fund, or any affiliate of such
parties (the "Restricted Group"). 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 Certificates.
THE CLASS B, CLASS C, CLASS D, CLASS E AND
CLASS F CERTIFICATES ARE SUBORDINATE TO ONE
OR MORE OTHER CLASSES OF CERTIFICATES, AND,
ACCORDINGLY, SUCH CERTIFICATES MAY NOT BE
PURCHASED BY OR TRANSFERRED TO A PLAN OR ANY
PERSON ACTING ON BEHALF OF OR INVESTING THE
ASSETS OF ANY SUCH PLAN, UNLESS SUCH PERSON
IS AN INSURANCE COMPANY INVESTING THE ASSETS
OF ITS GENERAL ACCOUNT UNDER CIRCUMSTANCES
WHEREBY THE PURCHASE AND HOLDING OF ANY SUCH
CERTIFICATE WOULD BE EXEMPT FROM THE
PROHIBITED TRANSACTION PROVISIONS OF ERISA
AND THE CODE UNDER PROHIBITED TRANSACTION
CLASS EXEMPTION 95-60.
RATINGS ....................... It is a condition to the issuance of the
Offered Certificates that (i) each of the
Class A-1, Class A-2 and Class A-3
Certificates be rated "AAA" by Fitch
Investors Service, L.P. ("Fitch"), "Aaa" by
Moody's Investors Service, Inc. ("Moody's")
and "AAA" by Standard & Poor's Ratings
Service ("S&P", and collectively with Fitch
and Moody's, the "Rating Agencies"); (ii)
the Class B Certificates be rated "AAA" by
Fitch, "Aaa" by Moody's and "AA+" by S&P;
(iii) the Class C Certificates be rated
"AA+" by Fitch, "Aa1" by Moody's and "AA" by
S&P; (iv) the Class D Certificates be rated
"A+" by Fitch, "A2" by Moody's and "A" by
S&P; (v) the Class E Certificates be rated
"BBB" by Fitch, "Baa2" by Moody's and "BBB"
by S&P; (vi) the Class F Certificates be
rated "BBB-" by Fitch; and (vii) the Class X
Certificates be rated "AAA" by Fitch and
"Aaa" by Moody's. The ratings on the Offered
Certificates address the likelihood of the
timely receipt by holders thereof of all
distributions of interest to which they are
entitled and, except in the case of the
Class X Certificates, the ultimate
distribution of principal by the Rated Final
Distribution Date. A security rating is not
a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning
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<PAGE>
Rating Agency. A security rating does not
address the frequency of prepayments (both
voluntary and involuntary) or the
possibility that Certificateholders might
receive a lower than anticipated yield, nor
does a security rating address the
likelihood of receipt of Prepayment
Premiums, Deferred Interest or Default
Interest or the tax treatment of the
Certificates. A security rating does not
represent any assessment of the yield to
maturity that investors may experience or
the possibility that the holders of the
Class X Certificates might not fully recover
their initial investment in the event of
delinquencies or defaults, rapid prepayments
(both voluntary and involuntary), or the
application of Realized Losses. As described
herein, the amounts payable with respect to
the Class X Certificates consist only of
interest. If all of the Mortgage Loans were
to prepay in the initial month, with the
result that the Class X Certificateholders
receive only a single month's interest and
thus suffer a nearly complete loss of their
investment, all amounts "due" to such
holders will nevertheless have been paid,
and such result is consistent with the
rating received on the Class X Certificates.
See "Ratings" herein and "Yield
Considerations" in the Prospectus.
LEGAL INVESTMENT .............. The Class A-1, Class A-2, Class A-3, Class
X, Class B and Class C Certificates will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended
("SMMEA"), so long as such Certificates are
rated in one of the two highest rating
categories by one or more Rating Agencies
and the Mortgage Loans are secured by real
estate. THE OTHER CLASSES OF OFFERED
CERTIFICATES WILL NOT CONSTITUTE "MORTGAGE
RELATED SECURITIES" WITHIN THE MEANING OF
SMMEA. As a result, the appropriate
characterization of the Offered Certificates
under various legal investment restrictions,
and thus the ability of investors subject to
these restrictions to purchase the Offered
Certificates of any Class, may be subject to
significant interpretative uncertainties. In
addition, institutions whose investment
activities are subject to review by federal
or state regulatory authorities may be or
may become subject to restrictions on the
investment by such institutions in certain
forms of mortgage backed securities.
Investors should consult their own legal
advisors to determine the extent to which
the Offered Certificates may be purchased by
such investors. See "Legal Investment"
herein and in the Prospectus.
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<PAGE>
RISK FACTORS
Prospective holders of Offered Certificates should consider, among other
things, the following factors in connection with the purchase of the Offered
Certificates.
THE MORTGAGE LOANS
Borrower Default; Nonrecourse Mortgage Loans. The Mortgage Loans are not
insured or guaranteed, in whole or in part, by any governmental entity, by
any private mortgage or other insurer, or by the Depositor, MSMC, the Master
Servicer, the Special Servicer, the Trustee, the Underwriter, the Fiscal
Agent or any of their respective subsidiaries, shareholders, partners,
directors, officers, employees or other affiliates.
Each Mortgage Loan is a nonrecourse loan as to which, in the event of a
default under such Mortgage Loan, recourse generally may be had only against
the specific properties and other assets that have been pledged to secure the
Mortgage Loan. See "Description of the Mortgaged Properties and the Mortgage
Loans" herein. Consequently, payment on each Mortgage Loan prior to maturity
is dependent primarily on the sufficiency of the net operating income of the
related Mortgaged Property, and at maturity (whether at scheduled maturity,
if applicable, or, in the event of a default under the related Mortgage Loan,
upon the acceleration of such maturity) upon the then market value of the
related Mortgaged Property or the ability of the related borrower to
refinance the Mortgaged Property.
Limitations with Respect to Representations and Warranties. MSMC will make
certain limited representations and warranties regarding the Mortgage Loans,
and such representations and warranties will be assigned by the Depositor to
the Trustee for the benefit of the Certificateholders. See "The Pooling
Agreement--Representations and Warranties; Repurchase" herein and Exhibit B
hereto for a summary of such representations and warranties. A material
breach of such representations and warranties that is not cured within a
specified time period may, under certain circumstances described herein,
obligate MSMC to repurchase the defective Mortgage Loan.
It is possible that one or more Mortgage Loans may contain defects without
giving rise to an obligation to repurchase on the part of MSMC. If MSMC is
required to but does not cure or remedy a breach of a representation or
warranty, payments on the Offered Certificates may be substantially less than
such payments would be if MSMC had cured or remedied such a breach. In
addition, in the event that MSMC repurchases a Mortgage Loan, the Repurchase
Price will be passed through to the holders of certain Classes of
Certificates with the same effect as if such Mortgage Loan had been prepaid
in full (but without any prepayment premium or yield maintenance charge),
which may adversely affect the yield to maturity on such Certificates. See
"--The Offered Certificates--Special Prepayment, Yield and Loss
Considerations" below.
The obligation of MSMC to repurchase a Mortgage Loan may constitute the
sole remedy available to holders of Certificates or the Trustee for a breach
of a representation or warranty by MSMC. None of the Depositor, the Master
Servicer, the Special Servicer, the Trustee, the Underwriter or the Fiscal
Agent will be obligated to purchase a Mortgage Loan if MSMC defaults on its
obligation to repurchase or cure, and no assurance can be given that MSMC
will fulfill such obligations. If such obligation is not met with respect to
a breach that would cause a Mortgage Loan not to be a "qualified mortgage"
under the REMIC provisions of the Code, the Upper-Tier REMIC and Lower-Tier
REMIC may be disqualified as REMICs. See "The Pooling
Agreement--Representations and Warranties; Repurchase" herein.
Commercial Lending Generally. The Mortgage Loans are secured by regional
mall properties, other retail properties, multifamily properties, office
properties and hotel properties. Commercial lending is generally viewed as
exposing a lender to a greater risk of loss than residential one-to-four
family lending since it typically involves larger loans to a single borrower
than residential one-to-four family lending. Lenders typically look to the
debt service coverage ratio of a loan secured by income-producing property as
an important measure of the risk of default on such a loan. See
"--Concentration of Mortgage Loans and Mortgaged Property Types".
Commercial property values and net operating income are subject to
volatility, and net operating income may be sufficient or insufficient to
cover debt service on the related Mortgage Loan at any given time. The
repayment of loans secured by income-producing properties is typically
dependent upon the successful operation of the related real estate project,
the business operated by the tenants and the creditworthiness of such tenants
(i.e., the ability of the applicable property to produce net operating
income) rather than upon the liquidation value of the underlying real estate.
The volatility of property values and net operating income depends upon a
number of factors, including (i) the volatility of property revenue,
determined primarily by (a) the length of tenant lease commitments, (b) the
creditworthiness of tenants, (c) in the case of retail properties
characterized by rentals based all or in part on tenant sales, the volume of
those sales, (d) in the case
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of hotel properties, the continued existence, reputation and financial
strength of the franchisor or hotel manager and the public perception of the
franchise or chain service mark, and (e) the variability of other property
revenue sources; and (ii) the property's "operating leverage," which
generally refers to (a) the percentage of total property operating expenses
in relation to property revenue, (b) the breakdown of property operating
expenses between those that are fixed and those that vary with revenue and
(c) the level of capital expenditures required to maintain the property and
retain or replace tenants. Even when the current net operating income is
sufficient to cover debt service, there can be no assurance that this will
continue to be the case in the future. The net operating income and value of
the Mortgaged Properties may be adversely affected by a number of factors,
including, but not limited to, national, regional and local economic
conditions (which may be adversely impacted by plant closings, industry
slowdowns and other factors); local real estate conditions (such as an
oversupply of retail space, office space or housing); changes or continued
weakness in specific industry segments; perceptions by prospective tenants
and, in the case of retail properties, retailers and shoppers, of the safety,
convenience, condition, services and attractiveness of the property; the
proximity and availability of competing alternatives to the Mortgaged
Property; the willingness and ability of the property's owner to provide
capable management and adequate maintenance; demographic factors; consumer
confidence, unemployment rates, customer tastes and preferences; retroactive
changes to building or similar codes; and increases in operating expenses
(such as energy costs).
Net operating income from a real estate project may be reduced, and the
borrower's ability to repay the loan impaired, as a result of, among other
things, an increase in vacancy rates for the project, a decline in rental
rates as leases are renewed or entered into with new tenants, an increase in
operating expenses of the project and/or an increase in capital expenditures
needed to maintain the project and make improvements required by tenants. In
the case of Mortgage Loans that are secured by Mortgaged Properties leased to
a single tenant, or with high tenant concentrations, a deterioration in the
financial condition of such tenant, resulting in a failure to pay rent, may
have a disproportionately greater effect on the net operating income from
such Mortgaged Properties than would be the case with respect to Mortgaged
Properties with multiple tenants. Mortgage Loans secured by Mortgaged
Properties leased to a single tenant or to a small number of tenants are also
more susceptible to interruptions of cash flow if such tenants decide not to
renew their leases, since the impact of such a decision is proportionately
greater, the time required to re-lease the space may be longer and greater
capital costs may be incurred in making the space appropriate for replacement
tenants than would be the case with Mortgaged Properties having a larger
number of relatively smaller tenants. For example, John Wiley & Sons, Inc.,
Neuberger & Berman Management, Grant Thornton L.L.P. and ESPN, Inc., in the
aggregate, lease approximately 50% of the Third Avenue Property GLA under
leases that are scheduled to expire in the years 2003, 2007, 1999 and 2004,
respectively. In addition, 7 of the 63 Edens & Avant Pool Properties
(representing approximately 1.8% of the Allocated Loan Amount of the Edens &
Avant Pool Loan) are each leased to a single tenant. In the case of the
Mortgage Loans secured by Mortgaged Properties having multiple tenants,
expenditures for re-leasing may be more frequent than would be the case with
respect to Mortgaged Properties with single tenants, thereby reducing cash
flow available for debt service payments. In addition, multi-tenanted
Mortgaged Properties may experience higher continuing vacancy rates and
greater volatility in rental income and expenses than single-tenanted
Mortgaged Properties.
The age, construction quality and design of a particular property may
affect the occupancy level as well as the rents that may be charged for
individual leases. The effects of poor construction quality will increase
over time in the form of increased maintenance and capital improvements
needed to maintain the property. Even good construction will deteriorate over
time if the property managers do not schedule and perform adequate
maintenance in a timely fashion. If, during the terms of the Mortgage Loans,
competing properties of a similar type are built in the areas where the
Mortgaged Properties are located or similar properties in the vicinity of the
Mortgaged Properties are substantially updated and refurbished, the value and
net operating income of such Mortgaged Properties could be reduced.
Additionally, some of the Mortgaged Properties may not readily be
convertible to alternative uses if such Mortgaged Properties were to become
unprofitable due to competition, age of the improvements, decreased demand,
regulatory changes or other factors. The conversion of commercial properties
to alternate uses generally requires substantial capital expenditures. Thus,
if the operation of any such Mortgaged Properties becomes unprofitable such
that the borrower becomes unable to meet its obligations on the related
Mortgage Loan, the liquidation value of any such Mortgaged Property may be
substantially less, relative to the amount owing on the related Mortgage
Loan, than would be the case if such Mortgaged Property were readily
adaptable to other uses.
A decline in the real estate market, in the financial condition of a major
tenant or a general decline in the local, regional or national economy will
tend to have a more immediate effect on the net operating income of
properties with short-term revenue sources and may lead to higher rates of
delinquency or defaults. Historical operating results of the Mortgaged
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Properties may not be comparable to future operating results. In addition,
other factors may adversely affect the Mortgaged Properties' value without
affecting their current net operating income, including changes in
governmental regulations, fiscal policy and zoning or tax laws; potential
environmental legislation or liabilities or other legal liabilities; the
availability of refinancing; and changes in interest rate levels. There is no
assurance that the value of any Mortgaged Property during the term of the
related Mortgage Loan will equal or exceed the appraised value used in
connection with the origination of such Mortgage Loan.
Other retail centers, office buildings, hotels and multifamily apartment
buildings located in the areas of the Mortgaged Properties compete with the
Mortgaged Properties of the same types to attract retailers, customers and
tenants. Increased competition could adversely affect income from and the
market value of the Mortgaged Properties.
The availability of credit for borrowers to refinance the Mortgage Loans
or sell Mortgaged Properties will be significantly dependent upon economic
conditions in the markets where the Mortgaged Properties are located, as well
as the willingness and ability of lenders to make such loans. Such lenders
typically include banks, insurance companies, finance companies and real
estate investment trusts. The availability of funds in the credit markets
changes over time and there can be no assurance that the availability of such
funds will increase above, or will not contract below, current levels. In
addition, the availability of assets similar to the Mortgaged Properties and
the competition for available credit may affect the ability of potential
purchasers to obtain financing for the acquisition of the Mortgaged
Properties. The ability of the Trust Fund to make distributions to the
Certificateholders will depend significantly on the ability of the borrowers
to refinance the Mortgage Loans or sell the Mortgaged Properties.
Concentration of Mortgage Loans and Mortgaged Property Types. The 605
Third Avenue Loan and the Edens & Avant Pool Loan represent approximately
15.9% and 11.0%, respectively, of the aggregate principal balance of the
Mortgage Loans as of the Cut-Off Date. Each of the other Mortgage Loans
represents less than 10% of the Cut-Off Date aggregate principal balance.
Regional mall properties, multifamily properties, office properties, hotel
properties, and other retail properties represent approximately 31.1%,
19.00%, 16.90%, 16.60% and 16.50%, respectively, 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).
A mortgage pool consisting of fewer loans, each having a relatively higher
outstanding principal balance, may result in losses that are more severe,
relative to the size of the pool, than would be the case if the pool
consisted of a greater number of mortgage loans each having a relatively
smaller outstanding principal balance. In addition, the concentration of any
mortgage pool in one or more loans that have outstanding principal balances
that are substantially larger than the other mortgage loans in such pool can
result in losses that are substantially more severe, relative to the size of
the pool, than would be the case if the aggregate balance of the pool were
more evenly distributed among the mortgage loans in such pool. Because there
are only 12 Mortgage Loans, losses on any one Mortgage Loan may have a
substantial negative effect on the Offered Certificates.
The 605 Third Avenue Borrower is indirectly owned 50% by members of the
Fisher Family; members of the Fisher Family also have a 33 1/3% indirect
ownership interest in the Ashford Financial Pool Borrower.
Geographic Concentration. Repayments by borrowers and the market value of
the Mortgaged Properties could be adversely affected by economic conditions
generally or in regions where the Mortgaged Properties are located,
conditions in the real estate markets where the Mortgaged Properties are
located, changes in governmental rules and fiscal policies, acts of nature,
including earthquakes, floods and hurricanes (which may result in uninsured
losses), and other factors which are beyond the control of the borrowers. The
Mortgaged Properties are located in 19 states. The economy of any state or
region in which a Mortgaged Property is located may be adversely affected to
a greater degree than that of other areas of the country by certain
developments affecting industries concentrated in such state or region.
Moreover, in recent periods, several regions of the United States have
experienced significant downturns in the market value of real estate. For
example, improvements on Mortgaged Properties located in California may be
more susceptible to certain types of special hazards not fully covered by
insurance (such as earthquakes) than properties located in other parts of the
country. In addition, the economy of the State of California would be
adversely affected to a greater degree than that of other areas of the
country by certain developments affecting industries concentrated in that
state. A decline in the general economic condition in regions in which
Mortgaged Properties securing a significant portion of the Mortgage Loans are
located could result in a decrease in commercial property, housing or
consumer demand in the region and the income from and market value of the
Mortgaged Properties may be adversely affected. See the table entitled
"Mortgaged Properties by Location" under "Mortgage Pool
Characteristics--Certain Characteristics of the Mortgage Loans," for a
description of the geographic location of the Mortgaged Properties. All of
the Mortgaged Properties securing the Edens & Avant Pool Loan are located in
the southeastern region, particularly South
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Carolina, North Carolina, Georgia and Tennessee. In addition, although the
Edens & Avant Pool Loan is secured by 63 Mortgaged Properties, 44 of such
Mortgaged Properties are located in South Carolina. 10 of the 17 Mortgaged
Properties securing the Mark Centers Pool Loan are located in Pennsylvania.
The table below sets forth the states in which a significant percentage of
the Mortgaged Properties are located and, except as set forth in the table
below, no state contains more than 5% (by Cut-Off Date Allocated Loan Amount)
of the Mortgaged Properties.
SIGNIFICANT GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
NUMBER OF ALLOCATED ALLOCATED WEIGHTED AVERAGE
STATE PROPERTIES LOAN AMOUNT LOAN AMOUNT DSCR
- --------------- ------------ -------------- --------------- ----------------
<S> <C> <C> <C> <C>
New York ....... 6 $199,500,169 26.40% 2.32
California...... 3 94,577,979 12.50% 1.57
Texas........... 2 68,226,868 9.00% 1.81
Indiana......... 1 64,864,238 8.60% 1.73
South Carolina 45 62,865,695 8.30% 3.27
Illinois ....... 1 57,304,459 7.60% 1.33
Arizona ........ 1 48,899,962 6.50% 1.79
Ohio ........... 1 42,681,517 5.70% 1.20
</TABLE>
The aggregate principal balance of the Mortgage Loans secured by Mortgaged
Properties in each state was calculated based on the Cut-Off Date Allocated
Loan Amount of each Mortgaged Property, as described below under "Mortgage
Pool Characteristics--Certain Characteristics of the Mortgage Loans".
Risks Associated With Retail Properties. The Edens & Avant Pool
Properties, the Mark Centers Pool Properties, the Arrowhead Property, the
Fashion Mall Property, the Westgate Mall Property, the Westshore Mall
Property and the Yorktown Property are retail properties. The value of retail
properties is significantly affected by the quality of the tenants as well as
fundamental aspects of real estate, such as location and market demographics.
The correlation between the success of tenant businesses and property value
may be more direct with respect to retail properties than other types of
commercial property because a significant component of the total rent paid by
retail tenants is often tied to a percentage of gross sales. Whether a retail
property is "anchored" or "unanchored" is also an important distinction.
Anchor tenants in shopping centers traditionally have been a major factor in
the public's perception of a shopping center. The anchors at a shopping
center play an important part in generating customer traffic and making a
center a desirable location for other tenants. Certain of the properties
representing anchor stores in the Yorktown Property, the Westgate Mall
Property and the Arrowhead Property are owned by the anchor stores and not by
the owner of such Mortgaged Property. Accordingly, the property on which such
stores are located is not included in the Mortgaged Property securing the
Mortgage Loan, and the borrower under such Mortgage Loan does not receive
rental income from such anchor stores. 3 of the self-owned anchors in the
Yorktown Property (JC Penney, Carson, Pirie, Scott & Co. and Montgomery Ward)
have operating agreements, pursuant to which such anchor stores have agreed
to maintain a retail store at the Yorktown Property, which have expired and
Dillard's, an anchor store in the Westgate Mall Property, has an operating
agreement which is scheduled to expire prior to the Maturity Date for the
Westgate Mall Loan. All of the tenant anchors in the Westshore Mall Property
(JC Penney, Younkers, Steketee's and Sears), representing approximately 45.1%
of the GLA of such property, have leases which are scheduled to expire prior
to the Effective Maturity Date for the Westshore Mall Loan.
The failure of an anchor tenant to renew its lease, the termination of an
anchor tenant's lease, the bankruptcy or economic decline of an anchor
tenant, or the cessation of the business of a self-owned anchor or an anchor
tenant (notwithstanding its continued payment of rent) can have a material
negative effect on the economic performance of a retail property. Montgomery
Ward & Co., the parent company of Montgomery Ward, a self-owned anchor in
each of the Yorktown Property, the Arrowhead Property and one of the Mark
Centers Pool Properties (Northside Plaza), is in bankruptcy. The anchor
stores, however, are currently operating, but no assurance can be given that
they will continue to do so. Ames, which operates two stores that comprise
4.8% of the GLA at the Mark Centers Pool Properties, is also in bankruptcy.
Woolworth, which leases 10.4% of the GLA securing the Yorktown Shopping
Center Loan, has announced that it is closing all Woolworth stores.
Woolworth's no longer occupies leased mall store space of 49,850 square feet,
but according to the Yorktown Borrower, it is current on rental payments.
Woolworth's rent of $3.24 PSF per annum is less than average mall store base
rent PSF of $19.57 PSF exclusive of vacant square footage, month to month
tenants and Woolworths as of the June 30, 1997 rent
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roll. There is also a Woolworth Store at 25th Street Plaza, one of the Mark
Centers Pool Properties. One anchor tenant in the Mark Centers Pool
Properties (Bi-Lo, located in Ames Plaza) is currently closed (although rent
payments are current) and two Wal-Mart's (anchor tenants in the Edens & Avant
Pool Properties) are currently closed, but are in the process of being
replaced. There can be no assurance that if other anchor stores in the
Mortgaged Properties were to close the related borrower would be able to
replace such anchors in a timely manner or without incurring additional costs
and adverse economic effects. See "Description of the Mortgaged Properties
and the Mortgage Loans" herein. See also "--Risks Relating to Tenants;
Reserves" below. Furthermore, the correlation between the success of tenant
businesses and property value is increased when the property is a single
tenant property. Several of the anchor stores at the retail mall properties
have co-tenancy clauses which permit such anchors to cease operating if
certain other stores are not operated at such properties. For example, at the
Fashion Mall Property, the Parisian store has the right to cease operation at
the property if the Jacobson's store ceases operation at the property. At the
Yorktown Property the operating covenant for the Von Maur store permits such
store to cease operation if another anchor ceases operation with no intention
to reopen and no acceptable replacement is found within 18 months. At the
Arrowhead Towne Center, the operating covenants for each of the anchor stores
(Dillard's, JC Penney, Robinson's-May, Montgomery Ward and Mervyn's) permit
such anchor store to cease operations if two other such stores cease or fail
to operate as required by such covenants and such failure continues for six
continuous months. At the Westgate Mall Property, the Kohl's store may cease
operation after July 28, 2005 if no other department store is then operating
at the property. At the Westshore Mall Property, the lease for the Sears
Roebuck & Co. store requires at least one of J.C. Penney Co., Inc and
Younkers to be open and operating, and if a failure to meet such covenant is
not cured within 12 months, Sears may terminate its lease. The lease for the
JC Penney Store at the Westshore Mall requires at least two of Sears,
Steketee's and Younkers to be open and operating or JC Penney may terminate
its operating covenant. Anchor store leases and operating agreements contain
various other covenants regarding usage of the applicable property, the
breach of which may permit the store to cease operating.
Unlike office properties, retail properties also face competition from
sources outside a given real estate market. Factory outlet centers, discount
shopping centers and clubs, video shopping networks, catalogue retailers,
home shopping networks, direct mail and telemarketing all compete with more
traditional retail properties for consumer dollars. Continued growth of these
alternative retail outlets (which are often characterized by lower operating
costs) could adversely affect the rents collectible at the retail properties
included in the Mortgage Pool. Increased competition could adversely affect
income from and market value of the Mortgaged Properties.
Additional competing retail properties may be built in the areas where the
retail properties are located. For example, in the case of the Westshore
Mall, a new mall is being developed in Grandeville, Michigan, approximately
30 minutes from the Westshore Mall, with proposed anchors to include
Hudson's, Sears and JC Penney. The new mall is expected to provide
substantial competition for the Westshore Mall. With respect to the Fashion
Mall Property, mall store sales declined from $372 per square foot in 1995 to
$359 per square foot in 1996 after Circle Center, a competing mall, was
opened in 1995.
Risks Associated With Multifamily Properties. The Mansion Grove Loan is
secured by a multifamily property located in the City of Santa Clara. The
North Shore Towers Loan is secured by a multifamily property located in the
Borough of Queens in the City of New York; however, it is operated as a
co-operative and only approximately 16% of the North Shore Towers Property is
still owned and rented by the sponsor. Significant factors determining the
value and successful operation of a multifamily property include the location
of the property, the rental rate in relation to the size of the apartment,
the physical attributes of the apartment building (such as its age and
appearance) and state and local regulations affecting such property. In
addition, the successful operation of an apartment building will depend upon
other factors, such as its reputation, the ability of management to provide
adequate maintenance and insurance and the types of services it provides.
There are a number of multifamily rental properties located in the vicinity
of the Mansion Grove Property and the North Shore Towers Property and in the
Santa Clara and Queens market that compete with the Mansion Grove Property
and the North Shore Towers Property, respectively. In addition, apartments
comparable to the apartments in the Mansion Grove Property and the North
Shore Towers Property are available for purchase in condominium or
cooperative apartment buildings in Santa Clara and Queens, respectively.
Adverse economic conditions, either local or national, may limit the
amount of rent that can be charged and may result in a reduction in timely
rent payments or a reduction in occupancy levels. Occupancy and rent levels
may also be affected by construction of additional housing units and national
and local politics, including current or future rent stabilization and rent
control laws and agreements. In addition, the level of mortgage interest
rates may encourage tenants to purchase rather than lease housing. The
location and construction quality of a particular building may affect the
occupancy level as well as the rents that may be charged for individual
units. The characteristics of a neighborhood may change over time or in
relation to newer developments.
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Risks Associated with Cooperative Apartment Buildings. The North Shore
Towers Loan, representing approximately 9.3% of the Cut-Off Date Principal
Balance, is secured by a lien on real property improved with a cooperative
apartment building located in the State of New York. To convert ownership of
the apartment building to cooperative ownership, the ownership interest in
the land and building was transferred by Three Towers Holding, Inc., the
sponsor of the conversion (the "sponsor") to the North Shore Towers Borrower.
The North Shore Towers Borrower then issued shares of stock that were
allocated among the apartment units. Each "purchaser" of an apartment unit
(the "tenant-stockholder") received the shares allocable to such purchaser's
unit and a "proprietary lease" that permitted such purchaser to reside in the
unit. The governing documents provide that the cooperative shares and the
related proprietary lease are inseparable. The proprietary lease and
additional governing documents require the tenant-stockholders to pay,
according to their proportionate interests in the North Shore Towers
Borrower, monthly maintenance charges that are used to pay debt service on
the building's mortgage, taxes, utilities, repair and maintenance expenses
and other costs of building operation. If a tenant-stockholder fails to make
its maintenance payments, the North Shore Towers Borrower has the right to
terminate the proprietary lease, re-acquire the related cooperative shares
and apply the proceeds of any resale thereof to the arrearages.
The conversion of the apartment building to cooperative ownership was
accomplished pursuant to a "non-eviction" plan. Under current New York law, a
sponsor which obtains subscriptions to "purchase" units from at least 15% of
the building's tenants may convert the building to cooperative ownership
pursuant to a "non-eviction" plan, with the non-subscribing tenants retaining
the right to continue in possession of their units as subtenants of the
units' new "owner." At the closing of the sale of the building to the North
Shore Towers Borrower, shares allocable to the units occupied by
non-purchasing tenants or to vacant units were issued to the sponsor, which
may sell those shares to investors or retain them. 1,549 of the units have
been sold and all, except 6 of these units are owner-occupied; the remaining
295 units are held by the sponsor. The non-occupying sponsor will be required
to pay the monthly maintenance charges under each related proprietary lease
even if there is "negative carry," i.e., if the unit does not produce rental
income sufficient to cover such charges. Any such negative carry may have an
impact on the sponsor's ability to contribute its share of the cooperative's
maintenance payments. The failure of the sponsor to make maintenance payments
may affect the financial condition of the North Shore Towers Borrower and
impact the ability of the North Shore Towers Borrower to service the North
Shore Towers Loan. If any unit occupied by a non-purchasing tenant is subject
to local rent control or rent stabilization laws, such tenant (and, in
certain circumstances, certain relatives and members of the household) will
generally be entitled to occupy the unit indefinitely and the rent that may
be charged generally will be limited to amounts below prevailing market
rents. Accordingly, "negative carry," on a unit may continue indefinitely and
may increase if rental increases permitted by law do not keep pace with
increased maintenance charges. The aggregate rental income currently received
by the sponsor is more than the aggregate of the current maintenance charges
for the related units.
If the North Shore Towers Borrower defaults on the North Shore Towers
Loan, the mortgagee can foreclose upon such loan and, if desired, terminate
all of the proprietary leases. By foreclosing the mortgage and terminating
all the proprietary leases, the mortgagee extinguishes the equity of the
tenant-stockholders in the real estate derived from their ownership of the
North Shore Towers Borrower. However, the mortgagee or purchaser at
foreclosure will take the building subject to the rights of "non-owner"
tenants in possession of rent-controlled or rent-stabilized units. In
addition, following foreclosure, proprietary lessees may be entitled to
remain in occupancy of their respective apartments at rents that are
regulated by the applicable jurisdiction and such rents may be substantially
below market rents. A recent New York case, Federal Home Loan Mortgage
Corporation v. New York Division of Housing and Community Renewal, 87 N.Y.2d
325, 332 (1995) has held that "units in a rent stabilized building that was
converted to cooperative ownership revert to units subject to the [New York
City] Rent Stabilization Law [(see, NYC Admin. Code Section 26.501, et.
seq.)], upon the foreclosure of the cooperative's underlying mortgage and the
return of the building to operation as rental housing." The decision,
however, did not resolve the uncertainty as to the appropriate rent level,
i.e., stabilized rents as of conversion, stabilized rents as of conversion
plus rent stabilization increases, stabilized rents as if the building were
new construction, or the tenant-stockholder's former maintenance payment. The
New York State Division of Housing and Community Renewal (the "DHCR") has not
issued regulations as to the appropriate rent level if the fee mortgage were
foreclosed. However, the DHCR has taken the position that there is some
potential for a rollback of the rent such tenant-stockholders would pay to
less than what they had been paying under their proprietary leases.
The law is not clear whether to successfully foreclose on a mortgage
encumbering a cooperative building the mortgagee need only name the
cooperative corporation as a defendant in the foreclosure action or must also
join each tenant-stockholder. If each tenant-stockholder is not joined as a
defendant in the action, the cooperative corporation may seek to dismiss the
foreclosure action by arguing that all necessary parties to such action have
not been named. If all the
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tenant-stockholders are joined as defendants in the action there is a risk
that if one or more of them were to file for bankruptcy protection, the
entire foreclosure action could be stayed unless the claim against such
tenant-stockholder were severed from the main foreclosure action or the
automatic stay was lifted. These procedural issues may contribute to
uncertainty and delays in the foreclosure process.
Other secured lenders that have lent money to tenant-stockholders to
finance the acquisition of their respective cooperative units will have a
lien on the related proprietary leases and the related unit owner's shares in
the North Shore Towers Borrower. If the mortgagee moves to foreclose on the
fee mortgage, such tenant-stockholders and other secured lenders may raise
defenses and counterclaims to the mortgagee's foreclosure action. Such
defenses and counterclaims may delay the conclusion of the foreclosure
action.
Risks Associated With Hotels. The Ashford Financial Pool Loan and the
Grand Kempinski Loan are secured by 14 hotels and 1 hotel, respectively.
Various factors, including location, quality and franchise or hotel
management company affiliation affect the economic performance of a hotel.
Adverse economic and social conditions, either local, regional or national,
may limit the amount that can be charged for a room and may result in a
reduction in occupancy levels. The construction of competing hotels or
resorts can have similar effects. To meet competition in the industry and to
maintain economic values, continuing expenditures must be made for
modernizing, refurbishing, and maintaining existing facilities prior to the
expiration of their anticipated useful lives. Because hotel rooms generally
are rented for short periods of time, hotels tend to respond more quickly to
adverse economic conditions and competition than do other commercial
properties. Furthermore, the financial strength and capabilities of the owner
and operator of a hotel may have an impact on such hotel's quality of service
and economic performance. Additionally, the hotel and lodging industry is
generally seasonal in nature and this seasonality can be expected to cause
periodic fluctuations in a hotel property's room and other hotel revenues,
occupancy levels, room rates and operating expenses. The demand for
particular accommodations may also be affected by changes in travel patterns
caused by changes in access, energy prices, strikes, relocation of highways,
the construction of additional highways and other factors.
The Mortgaged Property securing the Grand Kempinski Loan is managed by
Kempinski International, Inc. The Grand Kempinski Borrower has executed an
agreement with the Intercontinental Corporation to take over management of
the Grand Kempinski Property. Under this agreement, as executed,
Inter-Continental Hotels Corporation will assume management on November 1,
1997. 2 of the Mortgaged Properties securing the Ashford Financial Pool Loan
are franchises of Hilton Inns, Inc., 1 of such Mortgaged Properties is a
franchise of Radisson Hotels International, Inc., 1 of such Mortgaged
Properties (operating as an Embassy Suites) is a franchise of Promos Hotels,
Inc., 2 of such Mortgaged Properties are franchises of Holiday Inn
Franchising, Inc., 3 of such Mortgaged Properties are franchises of Ramada
Franchise Systems, Inc., and 5 of such Mortgaged Properties are franchises of
Howard Johnson International, Inc. The performance of any hotel property
which is affiliated with a franchise or hotel management company depends in
part on the continued existence, reputation and financial strength of the
franchisor or hotel management company, the public perception of the
franchise or hotel chain service mark and the duration of the franchise
licensing or management agreements. Franchise licensing agreements may impose
certain affirmative obligations on the owners or operators of the Mortgaged
Properties with respect to the operation of such properties. The franchise
agreements for 5 of the Ashford Pool Properties terminate between 2001 and
2005, prior to the Effective Maturity Date of the Ashford Financial Pool
Loan. Upon a termination of the franchise for such hotels, it is possible
that a replacement franchise would require significantly higher fees. The
transferability of franchise license agreements is restricted and, in the
event of a foreclosure on any Mortgaged Property, the mortgagee or its agent
as operator of the Mortgaged Property would not have the right to use the
franchise license without the franchisor's consent. Conversely, a mortgagee,
in the case of certain Mortgage Loans, may be unable to remove a franchisor
or a hotel management company that it desires to replace following a
foreclosure. Moreover, any provision in a franchise agreement or management
agreement providing for termination because of a bankruptcy of a franchisor
or manager will generally not be enforceable. No assurance can be given that
the Trust Fund could renew a franchise or management agreement or obtain a
new franchise or management contract. Further, in the event of a foreclosure
on a Mortgaged Property, it is unlikely that the Trustee on behalf of the
Trust Fund or a purchaser of such Mortgaged Property would be entitled to the
rights under any liquor license for such Mortgaged Property and such party
would be required to apply in its own right for such license or licenses.
There can be no assurance that a new license could be obtained. See "--Liquor
License Considerations" herein.
Risks of Concentration of Tenants and Hotel Affiliations. Retail and
office properties may be adversely affected if there is an economic decline
in the business operated by their tenants. The risk of such an adverse effect
is increased if there is a significant concentration of tenants or
concentration of tenants in a particular business or industry. For example,
at the Mark
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Centers Pool Properties, K-Mart operates 3 stores representing approximately
8.2% of annualized base rent and approximately 12.6% of GLA. At the Edens &
Avant Pool Properties, Food Lion operates 26 stores representing
approximately 17.1% of annualized base rent and approximately 16.2% of GLA.
In addition, The Limited and its affiliated stores represent approximately
15% of mall store GLA.
Similarly, to the extent that a Mortgage Loan is secured by properties
affiliated with one hotel chain, such loans may be affected by an economic
decline or a decline in the public's perception of such hotel chain. 5 of the
Mortgaged Properties securing the Ashford Financial Pool Loan are hotels that
are operated as Howard Johnson's hotels under management by Remington
Employers Corporation and 3 of the Mortgaged Properties securing the Ashford
Financial Pool Loan are hotels that are operated as Ramada Inns hotels under
management by Remington Hospitality, Inc. The Mortgaged Property securing the
Grand Kempinski Loan is a hotel that is currently operated as a Kempinski
hotel under management by Kempinski International, Inc.; however, the Grand
Kempinski Borrower has executed an agreement with Inter-Continental Hotels
Corporation pursuant to which Inter-Continental Hotels Corporation has agreed
to assume the management of the Grand Kempinski Property effective November
1, 1997. See "Description of the Mortgaged Properties and the Mortgage
Loans--Ashford Financial Pool: The Borrowers; The Properties" and "--Grand
Kempinski Hotel: The Borrower; The Property."
Risks Associated With Office Properties. The 605 Third Avenue Loan is
secured by an office property, the Edens & Avant Pool Loan is secured by 63
properties, including 2 office buildings, and the Ashford Financial Pool Loan
is secured by 1 office property (as well as 14 hotels). Significant factors
determining the value of office properties are the quality of the tenants in
the building, the physical attributes of the building in relation to
competing buildings and the strength and stability of the market area as a
desirable business location. Office properties may be adversely affected if
there is an economic decline in the business operated by the tenants. The
risk of such an adverse effect is increased if revenue is dependent on a
single tenant or if there is a significant concentration of tenants in a
particular business or industry. See "--Commercial Lending Generally." For
example, John Wiley & Sons, Inc., Neuberger & Berman Management, Grant
Thornton, L.L.P. and ESPN, Inc., in the aggregate, lease approximately 50% of
the Third Avenue Property GLA under leases that are scheduled to expire in
years 2003, 2007, 1999, and 2004, respectively.
Office properties are also subject to competition with other office
properties in the same market. Competition is affected by a property's age,
condition, design (e.g., floor sizes and layout), access to transportation
and ability to offer certain amenities to its tenants, including
sophisticated building systems (such as fiber-optic cables, satellite
communications or other base building technological features). The success of
an office property also depends on the local economy. A company's decision to
locate office headquarters in a given area, for example, may be affected by
such factors as labor cost and quality, tax environment and quality of life
issues such as schools and cultural amenities. The local economy will impact
on an office property's ability to attract stable tenants on a consistent
basis. In addition, the cost of refitting office space for a new tenant is
often more costly than for other property types.
Risks Relating to Tenants; Reserves. Income from, and the market value
of, the Mortgaged Properties would be adversely affected if space in the
Mortgaged Properties could not be leased or re-leased, if tenants were unable
to meet their lease obligations, if a significant tenant were to become a
debtor in a bankruptcy case under Title 11 of the United States Code (the
"Bankruptcy Code"), or if for any other reason rental payments could not be
collected. Any tenant may, from time to time, experience a downturn in its
business, which may weaken its financial condition and result in a reduction
or failure to make rental payments when due. For example, with respect to
Mortgaged Properties that contain retail space, if tenants' sales were to
decline, percentage rents may decline and tenants may be unable to pay their
rent or other occupancy costs. If a tenant defaults in its obligations to a
borrower, the borrower may experience delays in enforcing its rights as
lessor and may incur substantial costs and experience significant delays
associated with protecting its investment, including costs incurred in
renovating and reletting the property.
Repayment of the Mortgage Loans secured by retail and office properties
will be affected by the expiration of space leases and the ability of the
respective borrowers to renew the leases or relet the space on comparable
terms. Tables containing information regarding the expiration dates of
certain leases are set forth under "Description of the Mortgaged Properties
and the Mortgage Loans" herein. Even if vacated space is successfully relet,
the costs associated with reletting, including tenant improvements and
leasing commissions, could be substantial and could reduce cash flow from the
Mortgaged Properties.
2 of the Mortgage Loans required reserves to be established upon the
closing of the loan to fund identified capital expenditure items and certain
leasing costs. 4 of the Mortgage Loans require that reserves be funded on a
monthly basis from
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cash flow of the applicable Mortgaged Property or Properties which may be
used by the applicable borrower to fund ongoing capital improvements and
leasing costs, while an additional 4 Mortgage Loans require reserves for
capital improvements, but not leasing costs, to be funded on an ongoing
monthly basis. There can be no assurance that the reserve amounts established
at the closing of a loan will be sufficient to offset the actual costs of the
items for which the reserves were established, or that cash flow from the
properties will be sufficient in the future to fully fund the ongoing monthly
reserve requirements or that such ongoing monthly reserves will be sufficient
to offset the future capital expenditure and leasing costs of the properties.
See "Description of the Mortgaged Properties and the Mortgage Loans" herein
for a discussion of the reserve accounts for each Mortgage Loan.
The bankruptcy or insolvency of a major tenant or a number of smaller
tenants in retail and office properties may have an adverse impact on the
Mortgaged Properties affected and the income produced by such Mortgaged
Properties. Under the Bankruptcy Code, a tenant has the option of assuming or
rejecting or, subject to certain conditions, assuming and assigning to a
third party, any unexpired lease. If the tenant assumes its lease, the tenant
must cure all defaults under the lease and provide the landlord with adequate
assurance of its future performance under the lease. If the tenant rejects
the lease, the landlord's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim
against the tenant. The amount of the claim would be limited to the amount
owed for the unpaid rent reserved under the lease for the periods prior to
the bankruptcy petition (or earlier surrender of the leased premises) which
are unrelated to the rejection, plus the greater of one year's rent or 15% of
the remaining rent reserved under the lease (but not to exceed three years'
rent). If the tenant assigns its lease, the tenant must cure all defaults
under the lease and the proposed assignee must demonstrate adequate assurance
of future performance under the lease.
Montgomery Ward & Co., the parent company of Montgomery Ward, an anchor at
each of the Arrowhead Property, the Yorktown Property and one of the Mark
Centers Pool Properties (Northside Plaza), is in bankruptcy. Montgomery Ward
comprises approximately 12.7% of the total square feet at the Yorktown
Shopping Center (including self-owned anchors). Ames, which operates two
stores that comprise approximately 4.8% of the GLA at the Mark Centers Pool
Properties, is in bankruptcy.
No assurance can be given that tenants in the Mortgaged Properties will
continue making payments under their leases or that other tenants will not
file for bankruptcy protection in the future or, if any tenants so file, that
they will continue to make rental payments in a timely manner.
Risk Associated With Lack of Special Purpose Requirements for
Borrower. The loan documents and organizational documents of the North Shore
Towers Borrower, the Arrowhead Borrower, the Yorktown Borrower and the
Westgate Mall Borrower do not properly limit the purpose of such borrowers to
owning their respective properties. For example, the Yorktown Borrower is
permitted to own and operate a contiguous property known as the Yorktown
Convenience Center, which does not secure the Yorktown Shopping Center Loan.
Further, the loan documents and organizational documents 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,
affiliate transactions and the conduct of other businesses, restrictions on
the borrower's ability to dissolve, liquidate, consolidate, merge or sell all
of its assets and restrictions on amending its organizational documents). The
North Shore Towers Borrower does not have an independent director whose
consent would be required to file a voluntary bankruptcy petition on behalf
of such borrower. Neither the Arrowhead Borrower, the Yorktown Borrower or
the Westgate Mall Borrower, nor any entity having an interest in any such
borrower, has an independent director whose consent would be required to file
a voluntary bankruptcy petition on behalf of any such borrower. The purpose
of an independent director of the borrower or a special-purpose entity having
an interest in the borrower, is to avoid a bankruptcy petition filing on
behalf of the borrower when an entity having an interest in the borrower is
insolvent, but the borrower is not.
Risks Associated With Mortgage Loans not Originated for
Securitization. None of the Arrowhead Towne Center Loan, the Westgate Mall
Loan, the North Shore Towers Loan or the Yorktown Shopping Center Loan were
originated for securitization, and therefore they lack certain provisions
which are customary in loans originated for securitization. None of these
Mortgage Loans have any lockbox arrangement. In addition, these Mortgage
Loans do not require the related borrower to maintain adequate reserves for
certain expenses such as capital expenditures, tenant improvements and
insurance premiums. For example, the North Shore Towers Borrower is required
only to maintain a reserve for real estate taxes. The Arrowhead Borrower, the
Yorktown Borrower and the Westgate Mall Borrower are required only to
maintain reserves for taxes and insurance and if any deficiencies in
maintenance are found upon a survey instituted by the mortgagee, to deposit
certain sums with the mortgagee for such repairs. In addition, under each of
the Arrowhead Towne Center Loan, the
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Westgate Mall Loan, the North Shore Towers Loan and the Yorktown Shopping
Center Loan, the mortgagee does not have the right to terminate the related
manager upon the occurrence of certain events. In addition, except for the
Arrowhead Towne Center Loan, such loans do not require mortgagee approval of
a replacement manager. See "Description of the Mortgaged Properties and the
Mortgage Loans--North Shore Towers: The Borrower; The Property--Property
Management"; "--Arrowhead Town Center: The Borrower; The Property--Property
Management"; "--Westgate Mall: The Borrower; The Property--Property
Management"; and "--Yorktown Shopping Center: The Borrower; The
Property--Property Management" herein.
Environmental Law Considerations. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner
or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under, adjacent to, or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's
liability therefor generally is not limited under such circumstances and
could exceed the value of the property and/or the aggregate assets of the
owner. In addition, the presence of hazardous or toxic substances, or the
failure to properly remediate such property, may adversely affect the owner's
or operator's ability to refinance using such property as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances
may also be liable for the costs of removal or remediation of such substances
at the disposal or treatment facility. Certain laws impose liability for
release of asbestos-containing materials ("ACMs") into the air or require the
removal or containment of ACMs, and third parties may seek recovery from
owners or operators of real properties for personal injury associated with
ACMs or other exposure to chemicals or other hazardous substances. For all of
these reasons, the presence of, or strong potential for contamination by,
hazardous substances at, on, under, adjacent to, or in a property can
materially adversely affect the value of the property and a borrower's
ability to repay its Mortgage Loan.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the
Trust Fund) may be liable, as an "owner" or "operator," for the costs of
responding to a release or threat of a release of hazardous substances on or
from a borrower's property if (i) agents or employees of a lender are deemed
to have participated in the management of the borrower or (ii) the lender
actually takes possession of a borrower's property or control of its
operations as, for example, through the appointment of a receiver. If a
lender is or becomes liable for clean-up costs, it may bring an action for
contribution against the current owners or operators, the owners or operators
at the time of on-site disposal activity or any other party who contributed
to the environmental hazard, but such persons or entities may be bankrupt or
otherwise judgment proof.
Although recently enacted legislation clarifies the activities in which a
lender may engage without becoming subject to liability under CERCLA and
similar federal laws, such legislation has no applicability to state
environmental law. See "Certain Legal Aspects of Mortgage Loans and the
Leases--Environmental Legislation" in the Prospectus. Similarly, certain
states (including California) may have anti-deficiency legislation and other
statutes requiring the lender to exhaust its security before bringing a
personal action against the borrower and may curtail the lender's ability to
recover from its borrower the environmental clean-up and other related costs
and liabilities incurred by the lender. Notwithstanding the anti-deficiency
laws, however, some states, such as California, have exceptions for
environmentally impaired real property. Moreover, any such action against a
borrower may be adversely affected by the limitations on recourse in the loan
documents. See "Certain Legal Aspects of the Mortgage Loans," below.
All of the Mortgaged Properties have been subject to recent environmental
site assessments, including Phase I site assessments or updates of previously
performed Phase I site assessments, and in several cases, Phase II site
assessments (together, the "Environmental Site Assessments"). Such
assessments were intended to evaluate the environmental condition of and
potential environmental liabilities associated with the Mortgaged Properties
and included a visual observation of the Mortgaged Properties during a site
visit, a review of certain records concerning the Mortgaged Properties and
publicly available information concerning known conditions at the Mortgaged
Properties or in the vicinity of the Mortgaged Properties, consideration of
the likely presence of ACMs or radon gas in the buildings on the Mortgaged
Properties and of polychlorinated biphenyls ("PCBs") in the electrical
transformers, a discussion of the presence of underground or above-ground
storage tanks, and the preparation of a written report. Some of the
Environmental Site Assessments included sampling or analysis of soil,
groundwater or other environmental media or subsurface investigations. There
can be no assurance that all environmental conditions and risks have been
identified in such environmental assessments.
Certain of the Environmental Site Assessments identified environmental
conditions which have impacted or may impact some of the Mortgaged
Properties, including the presence of ACMs, leaks from chemical storage tanks
and on-site spills.
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Certain Mortgaged Properties presently have or formerly had landfills, waste
disposal areas, factories, oil wells, gasoline stations and/or dry cleaning
businesses located on or near the premises. Corrective action, as required by
regulatory agencies, has been undertaken, and in some cases, the related
borrowers have made deposits into environmental reserve accounts for such
corrective actions. However, there can be no assurance that the reserve
amounts in such reserve accounts will be sufficient to remediate such
environmental conditions or that all such environmental conditions have been
identified.
Certain of the Mortgaged Properties are in the vicinity of sites
containing "leaking underground storage tanks" ("LUSTs") or other potential
sources of groundwater contamination. The Environmental Site Assessments
generally do not anticipate that the borrower will have to undertake remedial
investigations or actions at these sites. Further, CERCLA and many state
environmental laws provide for a third-party defense that generally would
preclude liability for a party whose property is contaminated by off-site
sources. In addition, in its final "Policy Toward Owners of Property
Containing Contaminated Aquifers," dated May 24, 1995, the United States
Environmental Protection Agency (the "EPA") stated its position that, with
respect to federal enforcement actions and subject to certain conditions
specified therein, where hazardous substances have come to be located on or
in a property solely as a result of subsurface migration in an aquifer from a
source or sources outside the property, the EPA will not take enforcement
actions against the owner of such property to require the performance of
remediation actions or the payment of remediation costs. However, though the
owners of such Mortgaged Properties and the Trust Fund may not be liable for
such contamination, enforcement of the related borrower's or the Trust Fund's
rights against third parties may result in additional transaction costs and
the presence of such contamination or potential contamination may affect the
related borrower's ability to refinance using such property as collateral or
to sell the property to a third party.
ACMs have been detected through sampling by environmental consultants at
several Mortgaged Properties and suspected at others. ACMs found or suspected
at these Mortgaged Properties are not expected to present a significant risk
as long as it continues to be properly managed. Nonetheless, the value of a
Mortgaged Property as collateral for the Mortgage Loan could be adversely
affected by the presence of ACMs. The Third Avenue Property contains ACMs
which the consultant estimates will cost between $2,400,000 and $3,000,000 to
abate over the next several years as part of tenant improvements. The Third
Avenue Borrower will be reserving over $25,000,000 for tenant improvements,
including ACMs abatement, over this time period. An asbestos operation and
management program is in place at the Third Avenue Property.
The Mansion Grove Property is currently undergoing soil and groundwater
remediation pursuant to a Remedial Action Plan approved by the California
Department of Toxic Substances Control ("DTSC"). The site was formerly used
in the production of certain chemical compounds and for solvent recycling and
reclamation by a previous owner of the site, Imcera Corporation (now known as
Mallinckrodt), and as a result has been designated as a "Superfund" site.
Pursuant to a court order and settlement agreements among Mallinckrodt, the
borrower and the site developer, Mallinckrodt has assumed sole responsibility
for all federal, state and local agency directives in responding to
contamination on or from the Mansion Grove Property. As a result, the Mansion
Grove Borrower currently does not have any obligations with respect to this
clean-up of the Mansion Grove Property. The Remedial Action Plan calls for a
soil vapor extraction and treatment system ("SVE") to remediate soils and six
groundwater extraction wells to treat groundwater. The SVE system has
operated for 5 years and is expected to accomplish cleanup within the next
two years at a cost of $110,000 per year. The groundwater treatment has
operated for 18 months and will continue for up to 30 years at a cost of
$215,000 per year. Mallinckrodt is a publicly-traded corporation rated "Baa2"
by Moody's and "A-" by S&P, and has provided financial assurance satisfactory
to the State of California that it has the financial resources necessary to
continue to pay for annual remediation costs. With the exception of the
Remedial Action Plan, the Depositor is not aware of any other corrective
actions, pending lawsuits or other claims related to the contamination at the
Mansion Grove Property.
For several Mortgaged Properties, the Environmental Site Assessments also
recommend limited further investigations or minor repairs; however, based on
the information currently available to the Depositor and reviews performed by
the Depositor's environmental consultants, the Depositor does not believe any
of such other issues would have a material adverse effect on the related
Mortgaged Properties.
The Pooling Agreement requires that the Special Servicer obtain an
Environmental Site Assessment of a Mortgaged Property prior to acquiring
title thereto on behalf of the Trust Fund or assuming its operation. Such
requirement may effectively preclude enforcement of the security for the
related Note until a satisfactory Environmental Site Assessment is obtained
(or until any required remedial action is thereafter taken), but will
decrease the likelihood that the Trust Fund will become liable under any
environmental law. However, there can be no assurance that the requirements
of the Pooling
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Agreement will effectively insulate the Trust Fund from potential liability
under environmental laws. See "The Pooling Agreement--Realization Upon
Mortgage Loans; Modifications--Standards for Conduct Generally in Effecting
Foreclosure or the Sale of Defaulted Loans" herein and "Certain Legal Aspects
of the Mortgage Loans and the Leases--Environmental Legislation" in the
Prospectus.
The Environmental Site Assessments of the Mortgaged Properties have not
revealed any environmental liability that the Depositor believes would have a
material adverse effect on the borrowers' businesses, assets or results of
operations taken as a whole. Nevertheless, it is possible that the
Environmental Site Assessments do not reveal all environmental liabilities or
that there are material environmental liabilities of which the Depositor is
unaware. Moreover, there can be no assurance that (i) future laws, ordinances
or regulations will not impose any material environmental liability or (ii)
the current environmental condition of the Mortgaged Properties will not be
affected by tenants, by the condition of land or operations in the vicinity
of the Mortgaged Properties (such as the presence of underground storage
tanks), or by other parties.
Limitations of Appraisals and Market Studies. Appraisals were obtained
with respect to each of the Mortgaged Properties (other than the North Shore
Towers Property and the Edens & Avant Pool Properties) prior to the
origination of the applicable Mortgage Loan. A marketability study was
obtained with respect to the North Shore Towers Property. In general,
appraisals represent the analysis and opinion of qualified appraisers and are
not guarantees of present or future value. One appraiser may reach a
different conclusion than the conclusion that would be reached if a different
appraiser were appraising such property. Moreover, appraisals seek to
establish the amount a typically motivated buyer would pay a typically
motivated seller and, in certain cases, may have taken into consideration the
purchase price paid by the borrower. Such amount could be significantly
higher than the amount obtained from the sale of a Mortgaged Property under a
distress or liquidation sale. Information regarding the appraised values of
the Mortgaged Properties presented under "Mortgage Pool Characteristics"
herein is not intended to be a representation as to the past, present or
future market values of the Mortgaged Properties. With respect to the Edens &
Avant Pool Properties, the aggregate calculated value of $225,036,809 was
determined by MSMC using Underwritable Cash Flow of $20,253,312 and a 9.0%
capitalization rate. See "Description of the Mortgaged Properties and the
Mortgage Loans--Edens & Avant Pool: The Borrower; The Properties" herein.
Risk of Different Timing of Mortgage Loan Amortization. If and as
principal payments or prepayments are made on a Mortgage Loan, the remaining
Mortgage Pool will be subject to more concentrated risk with respect to the
diversity of Mortgaged Properties, types of Mortgaged Properties and
Mortgaged Property characteristics and with respect to the number of
borrowers. Because principal on the Offered Certificates is generally payable
in sequential order, and generally no Class entitled to distributions of
principal receives principal until the Certificate Principal Amount of the
preceding Class or Classes so entitled has been reduced to zero, Classes that
have a later sequential designation (other than the Class A-1 Certificates as
described under "Description of the Offered Certificates--Distributions"
herein) are more likely to be exposed to the risk of concentration discussed
in the preceding sentence than Classes with higher priority.
Effective Maturity Date and Stated Maturity Date Principal Balances. All
of the Mortgage Loans are expected to have substantial remaining principal
balances as of their respective Effective Maturity Dates or stated maturity
dates, as applicable. See "Mortgage Pool Characteristics--Certain
Characteristics of the Mortgage Loans" and "Description of the Mortgaged
Properties and the Mortgage Loans" herein. No representation or warranty is
made by the Depositor as to the ability of any of the related borrowers to
make required Mortgage Loan payments on a full and timely basis or as to
whether a borrower will repay or have the ability to repay the remaining
principal at the Effective Maturity Dates or stated maturity dates of these
Mortgage Loans. Mortgage Loans like the North Shore Towers Loan, the Edens &
Avant Pool Loan, the Arrowhead Town Center Loan and the Yorktown Shopping
Center Loan with substantial remaining principal balances at their stated
maturity involve greater degrees of risk at stated maturity than fully
amortizing loans. The ability of a borrower to repay a loan on its respective
Effective Maturity Date or maturity date, as applicable, typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property at a price sufficient to permit the borrower to repay the
loan on the Effective Maturity Date or stated maturity date, as the case may
be. The ability of a borrower to accomplish either of these goals will be
affected by a number of factors at the time of attempted refinancing or sale,
including the level of available mortgage credit, the prevailing interest
rates, the fair market value of the related properties, the borrower's equity
in the related properties, the financial condition of the borrower and
operating history and occupancy level of the Mortgaged Property, tax laws,
prevailing general and regional economic conditions and the availability of
credit for commercial real estate projects.
Other Financing. The non-managing members of the Third Avenue Borrower are
borrowers under a loan (the "Third Avenue Mezzanine Loan") originated by
Secore and purchased on its origination date and currently held by an
affiliate of
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the Third Avenue Borrower, secured by such non-managing members' membership
interests in the Third Avenue Borrower and the stock of the managing members
of the Third Avenue Borrower. The limited partner of the Grand Kempinski
Borrower is the borrower under a loan (the "Grand Kempinski Mezzanine Loan,"
and, together with the Third Avenue Mezzanine Loan, the "Mezzanine Loans")
originated by Secore and purchased on its origination date and currently held
by MSMC secured by such limited partner's partnership interest in the Grand
Kempinski Borrower and the stock of the general partner of the Grand
Kempinski Borrower. The Mezzanine Loans require that the Third Avenue
Borrower and the Grand Kempinski Borrower, respectively, distribute to their
non-managing members or limited partner, as applicable, for payment of their
Mezzanine Loan, all property cash flow in excess of amounts due on the
related Mortgage Loan, reserves and property expenses. In the event that
there is a default under a Mezzanine Loan, the lender thereunder is entitled
to foreclose on the ownership interests in the related Mortgage Loan borrower
and its managing member or general partner, as applicable, pledged to it,
subject to the requirement that the Rating Agencies shall have confirmed in
writing that such foreclosure will not result in the qualification, downgrade
or withdrawal of the ratings then assigned to the Certificates. Upon any such
foreclosure, the lender under the Mezzanine Loan or its transferee in a sale
pursuant to the Uniform Commercial Code will become the new owner of the
applicable Mortgage Loan borrower. Each Mezzanine Loan is transferable to
certain institutional buyers.
The Yorktown Shopping Center Loan permits the Yorktown Borrower to incur
subordinated indebtedness secured by the Yorktown Property, upon specific
request to the mortgagee and after full disclosure of the terms and
conditions of a proposed financing consistent with the following criteria:
(a) the net operating income of the Yorktown Shopping Center Property exceeds
125% of the sum of the debt service attributable to both the Yorktown
Shopping Center Loan and the proposed secondary financing; (b) the occupancy
rate is at least 85%; (c) the proposed secondary financing is provided by a
financial institution with total net assets of $5 billion or more; (d) there
is no default; (e) the outstanding indebtedness under the Yorktown Shopping
Center Loan when combined with the amount of the proposed financing does not
exceed 90% of the appraised value of the Yorktown Property; and (f) the
documents for the secondary financing are in form and content satisfactory to
the lender and provide for subordination to the lender and certain other
conditions to protect the lender's interest in the Yorktown Property. A title
search of the Yorktown Property did not disclose any additional debt secured
by the Yorktown Property; however there can be no assurance such debt does
not exist.
The Yorktown Shopping Center Loan, Arrowhead Towne Center Loan, Westgate
Mall Loan and Northshore Towers Loan prohibit additional liens on the related
Mortgaged Property (other than as provided above with respect to the Yorktown
Shopping Center Loan) but do not prohibit the borrower from incurring
additional indebtedness. The Yorktown Borrower is the borrower under a
mortgage loan of approximately $300,000, which is secured by a mortgage on
Yorktown Convenience Center, a shopping center adjacent to (but not included
in) the Yorktown Property which is owned by the Yorktown Borrower. The
Westshore Mall Loan permits the Westshore Mall Borrower to incur subordinated
unsecured debt to affiliates, subject to certain conditions.
Where the borrower under a Mortgage Loan or its constituent members also
has one or more other loans (even if subordinated or mezzanine loans), the
Trust Fund is subjected to additional risk. The Borrower may have difficulty
servicing and repaying multiple loans. The existence of another loan (even if
a subordinated loan or a mezzanine loan) generally will also make it more
difficult for the borrower to obtain refinancing of the Mortgage Loan, and
thereby may jeopardize repayment of the Mortgage Loan. Further, the need to
service additional debt may reduce the cash flow available to the borrower to
operate and maintain the Mortgaged Property.
If the borrower or its constituent members defaults on the Mortgage Loan
and/or any other loan or loans, the existence of such other loans and actions
taken by other lenders could impair the security available to the Trust Fund
and could interfere with or delay the taking of action by the Trust Fund. If
the other lender files an involuntary petition for bankruptcy against the
borrower, the ability of the Trust Fund to take certain actions such as
foreclosure could be automatically stayed and principal and interest payments
might not be made during the course of a bankruptcy case. The bankruptcy of
another lender may also operate to stay foreclosure or similar proceedings by
the Trust Fund.
If another loan secured by the Mortgaged Property is in default, even if
the Mortgage Loan is not in default, absent an agreement to the contrary, the
other lender may foreclose on the property, thereby causing either a delay in
payments and/or an involuntary repayment of the Mortgage Loan prior to
maturity. The Trust Fund may also be subject to the costs and administrative
burdens of involvement in foreclosure proceedings or related litigation.
With respect to each Mezzanine Loan, foreclosure by the related lender
will be on the ownership interests in the related borrower rather than on the
related Mortgaged Property. Such a foreclosure, however, will result in a
change in control of
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the borrower and ownership of the borrower by an entity which may have
interests in conflict with the Trust Fund. While such risk is mitigated by
the requirement of Rating Agency approval of such foreclosure, there can be
no assurance that such foreclosure would not have an adverse effect on the
related Mortgage Loan. Further, the lender under each Mezzanine Loan has the
right to cure a default by the borrower under the related Mortgage Loan.
Prior to the lapse of the Mezzanine Lender's cure period, the mortgagee may
not accelerate the related Mortgage Loan or foreclose the related Mortgaged
Loan Property. Further, with respect to each Mezzanine Loan, the Mezzanine
Lender is permitted to cure payment defaults on an ongoing basis until the
date that is six months after the Effective Maturity Date. Accordingly, the
risk exists that the property will decline in value during the time that the
Mezzanine Lender is exercising its cure rights, thereby lessening the
recovery on any ultimate foreclosure.
Additionally, substantially all of the Mortgage Loans generally permit the
related borrower to incur limited indebtedness incurred in the ordinary
course of business. The existence of such other indebtedness could adversely
affect the financial viability of the related borrowers. See also "Certain
Legal Aspects of the Mortgage Loans and the Leases--Subordinate Financing" in
the Prospectus.
Limitations on Lock Boxes. The North Shore Towers Loan, the Arrowhead
Towne Center Loan, the Westgate Mall Loan and the Yorktown Shopping Center
Loan do not require the related borrower to cause rent and other payments to
be made into a lock box account maintained on behalf of the mortgagee. Under
each of the Mansion Grove Loan, the Westshore Mall Loan, the Edens & Avant
Pool Loan and the Ashford Financial Pool Loan, rent checks and other payments
are permitted to be sent first to the applicable property manager who is then
required to deposit such payments into an account, and under the Grand
Kempinski Loan and the Fashion Mall Loan, credit card receivables, rent
checks and other payments are required to be sent first to the borrower's
respective collection account, and deposits therein are transferred, in each
such case, by wire on a daily basis (or on a bi-weekly basis in the case of
the Ashford Financial Pool Loan) to a cash collateral account maintained on
behalf of the mortgagee. Further, under the Mansion Grove Loan, unless an
event of default thereunder has occurred, there is no requirement that
amounts in the lock box account be retained to provide for debt service on
the Mansion Grove Loan; instead amounts in such account are released to the
Mansion Grove Borrower once certain reserves have been funded. If rental
payments are not required to be made directly into a lock box account, there
is a risk that the borrower will divert such funds. See "Description of the
Mortgaged Properties and the Mortgage Loans--North Shore Towers: The
Loan--Lockbox and Reserves", "--Mansion Grove: The Loan--Lockbox and
Reserves," "--Edens & Avant Pool: The Loan--Lockbox and Reserves",
"--Arrowhead Towne Center: The Loan--Lockbox and Reserves", "--Westgate Mall:
The Loan--Lockbox and Reserves," "--Yorktown Shopping Center: The
Loan--Lockbox and Reserves", "--Mark Centers Pool: The Loan--Lockbox and
Reserves," "--Grand Kempinski Hotel: The Loan--Lockbox and Reserves" and
"--Fashion Mall: The Loan--Lockbox and Reserves" herein.
Bankruptcy Limitations on Lenders. Under the Bankruptcy Code, the filing
of a petition in bankruptcy by or against a borrower will stay the exercise
of a power of sale and the commencement or continuation of a foreclosure
action against the real property owned by that borrower. The resulting delay
may be significant. In addition, a court which determines the value of a
mortgaged property to be less than the principal balance of the loan it
secures may (subject to certain protections available to the lender) stop a
lender from foreclosing on the mortgaged property and, as a part of a
restructuring plan, reduce the amount of secured indebtedness to the value of
the mortgaged property as it exists at the time of the proceeding (leaving
the lender as a general unsecured creditor for the difference between that
value and the amount of its outstanding mortgage indebtedness). A bankruptcy
court may also grant a debtor a reasonable time to cure a payment default,
reduce monthly payments due under a mortgage loan, change the rate of
interest due on a mortgage loan or otherwise alter the mortgage loan's
repayment schedule.
Creditors of borrowers in bankruptcy are also generally prohibited from
taking any action to obtain repayment of a loan while the bankruptcy case is
pending. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienholder may stay the senior
lienholder from taking action to foreclose on such junior lien. In addition,
the borrower's trustee or the borrower, as debtor-in-possession, has certain
special powers to avoid, subordinate or disallow debts. Even if a claim
against a debtor is not avoided or subordinated, the Trustee's recovery with
respect to borrowers in bankruptcy proceedings may be significantly delayed,
and the aggregate amount ultimately collected on such Mortgage Loans may be
substantially less than the amount owed. In certain circumstances, the claims
of the Trustee may be subordinated to financing obtained by a
debtor-in-possession subsequent to its bankruptcy.
The Bankruptcy Code may also interfere with or affect the ability of the
Trustee to enforce an assignment by a borrower of rents and leases related to
the mortgaged property if the related borrower is in a bankruptcy proceeding.
Under Section
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362 of the Bankruptcy Code, the mortgagee will be stayed from enforcing the
assignment, and the legal proceedings necessary to resolve the issue can be
time consuming and may result in significant delays in the receipt of the
rents. Rents may also escape an assignment thereof (i) to the extent such
rents are used by the borrower to maintain the mortgaged property or for
other court authorized expenses or (ii) to the extent other collateral may be
substituted for the rents.
The ability of the borrowers to repay the Mortgage Loans is, in many
cases, dependent on leases of the Mortgaged Properties. To the extent a
borrower's ability to make payment on a Mortgage Loan is dependent upon a
lease of the related Mortgaged Property, such ability may be impaired by the
commencement of a bankruptcy proceeding relating to a lessee under such
lease. See "--Risks Relating to Tenants; Reserves."
As a result of the foregoing factors, the amount and timing of receipts
with respect to the Mortgage Loans may be materially adversely affected.
Tax Considerations Related to Foreclosure. If the Trust Fund were to
acquire a Mortgaged Property subsequent to a default on the related Mortgage
Loan pursuant to a foreclosure or deed in lieu of foreclosure, the Special
Servicer would be required to retain an independent contractor to operate and
manage the Mortgaged Property. Any net income from such operation and
management, other than qualifying "rents from real property," or any rental
income based on the net profits of a tenant or sub-tenant or allocable to a
service that is non-customary in the area and for the type of property
involved, will subject the Lower-Tier REMIC to federal (and possibly state or
local) tax on such income at the highest marginal corporate tax rate
(currently 35%), thereby reducing net proceeds available for distribution to
Certificateholders. The Pooling Agreement provides that the Special Servicer
will be permitted to cause the Lower-Tier REMIC to earn "net income from
foreclosure property" that is subject to tax if it determines that the net
after-tax benefit to Certificateholders is greater than another method of
operating or net leasing the Mortgaged Property. See "Certain Federal Income
Tax Consequences--REMICs--Prohibited Transactions and Other Taxes" in the
Prospectus. See "Certain Federal Income Tax Consequences" herein.
Management. The successful operation of a real estate project is dependent
on the performance and viability of the property manager of such project.
Different property types vary as to the extent a property manager is involved
in property marketing and operations on a daily basis. Properties deriving
revenues primarily from short-term sources are generally more management
intensive than properties leased to creditworthy tenants under long-term
leases. The property manager is responsible for responding to changes in the
local market, planning and implementing the rental structure, including
establishing levels of rent payments, and advising the borrower so that
maintenance and capital improvements can be carried out in a timely fashion.
There is no assurance regarding the performance of any operators or managers
or persons who may become operators or managers upon the expiration or
termination of management agreements or following any default or foreclosure
under a Mortgage Loan. In addition, third party property managers are
typically operating companies and, unlike limited-purpose entities, may not
be restricted from incurring debt and other liabilities in the ordinary
course of business or otherwise. Consequently, there can be no assurance that
the property managers will at all times be in a financial condition to
continue to fulfill their management responsibilities under the related
management agreements throughout the terms thereof. See "--Conflicts of
Interest--Conflicts Between Managers and the Borrowers".
Enforceability. All of the Mortgages include debt-acceleration clauses,
which permit the mortgagee to accelerate the debt upon a monetary or
nonmonetary default of the borrower. The courts of all states will enforce
clauses providing for acceleration in the event of a material payment default
after the giving of appropriate notices. The equity courts of any
jurisdiction, however, may refuse to permit the foreclosure of a mortgage or
deed of trust when an acceleration of the indebtedness would be inequitable
or unjust or the circumstances would render the acceleration unconscionable.
All of the Mortgage Loans on Mortgaged Properties that have tenants are
secured by an assignment of leases and rents pursuant to which the borrower
typically assigns its right, title and interest as landlord under the leases
on the related Mortgaged Property and the income derived therefrom to the
mortgagee as further security for the related Mortgage Loan, while retaining
a license to collect rents for so long as there is no default. In the event
the borrower defaults, upon the election of and (in certain cases) notice by
the mortgagee, the license terminates and the mortgagee is entitled to
collect rents. In certain jurisdictions, such assignments may not be
enforceable unless the mortgagee complies with applicable state law for
taking actual possession of the property or the cash by the mortgagee until
the mortgagee secures the appointment of a receiver before achieving a
priority relative to other persons with interests in the rents related to the
Mortgaged Property. In addition, if bankruptcy or similar proceedings are
commenced by or in respect of the borrower, the mortgagee's ability to
collect the rents may be adversely affected. See "Certain Legal Aspects of
the Mortgage Loans and the Leases" in the Prospectus.
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State Law Limitations on Remedies. Several jurisdictions (including
California) have laws that prohibit more than one "judicial action" to
enforce a mortgage obligation, and some courts have construed the term
"judicial action" broadly. Accordingly, the Pooling Agreement will require
the Master Servicer or Special Servicer, as applicable, to obtain advice of
counsel prior to enforcing any of the Trust Fund's rights under any of the
Mortgage Loans that include properties where the rule could be applicable. In
addition, with respect to any Mortgage Loan, the Master Servicer or Special
Servicer, as applicable, may be required to foreclose first on the Mortgaged
Properties securing such Mortgage Loan located in states where such "one
action" rules apply (and where non-judicial foreclosure is permitted) before
foreclosing on properties located in states where judicial foreclosure is the
only permitted method of foreclosure. See "Certain Legal Aspects of Mortgage
Loans and the Leases--Foreclosure" in the Prospectus.
As a result of the foregoing considerations, among others, the ability of
the Master Servicer or the Special Servicer, as applicable, to realize upon
the Mortgage Loans, may be limited by the application of state laws. Such
actions may also, in certain circumstances, subject the Trust Fund to
liability as a "mortgagee-in-possession" or result in the equitable
subordination of the claims of the Trustee to the claims of other creditors
of the borrower. Under the terms of the Pooling Agreement, the Master
Servicer or the Special Servicer, as applicable, may take these state laws
into consideration in deciding which remedy to choose following a default by
a borrower.
Leasehold Interests. The interest of the Fashion Mall Borrower in the land
underlying the Fashion Mall Property is a ground leasehold interest. See
"Description of the Mortgaged Properties and the Mortgage Loans--Fashion
Mall: The Borrower; The Property--Ground Leases" herein. The North Shore
Towers Loan is secured by, among other things, a ground leasehold interest in
the land underlying an approximately 4.47 acre portion of the North Shore
Towers Property (consisting of the first hole of the golf club, part of the
tennis court and an entrance roadway). See "Description of the Mortgaged
Properties and the Mortgage Loans--North Shore Towers: The Borrower, The
Property--Ground Leases" herein. The Edens & Avant Pool Loan is secured by,
among other things, ground leasehold interests in all or a portion of the
land underlying 4 of the Edens & Avant Pool Properties (the "Edens & Avant
Pool Ground Leases"). See "Description of the Mortgaged Properties and the
Mortgage Loans--Edens & Avant Pool: The Borrower, The Properties--Ground
Leases" herein. The Mark Centers Pool Loan is secured by, among other things,
ground leasehold interests in all or a portion of the land underlying 11 of
the Mark Centers Pool Properties (the "Mark Centers Pool Ground Leases"). See
"Description of the Mortgaged Properties and the Mortgage Loans--Mark Centers
Pool: The Borrowers, the Properties--Ground Leases" herein. The Ashford
Financial Pool Loan is secured by, among other things, ground leasehold
interests in all or a portion of the land underlying 3 of the Ashford Pool
Properties (the "Ashford Financial Pool Ground Leases"). See "Description of
the Mortgaged Properties and the Mortgage Loans--Ashford Pool: The Borrowers,
The Properties--Howard Johnson Plaza Saddle Brook", "--Howard Johnson
Westbury" and "--Radisson Plaza Fort Worth" herein. The Howard Johnson
Westbury hotel included in the Ashford Pool Properties is owned in fee by the
related Ashford Borrower; however, such borrower has ground leased such
property to a third party, which in turn subleased such property back to the
borrower. Such sublease lacks substantially all mortgagee protections that
are commonly required by institutional lenders, including the right to cure a
default by the tenant and to acquire a new lease. As a result, if the Ashford
Borrower or its sublessor were to default on its obligations under its ground
sublease, the Trust Fund's interest in such subleasehold interest could be
forfeited. The Mortgage on such property covers the Ashford Borrower's fee
interest as well as its subleasehold interest. Accordingly, if the
subleasehold interest were to be terminated, the Trust Fund would still
retain a Mortgage on the fee. However, the fee interest would remain subject
to the primary ground lease; accordingly the Ashford Borrower and its
mortgagee would receive income only from ground rent and not from hotel room
rentals. In order to mitigate the risks arising from the lack of mortgagee
protections, the Ashford Financial Pool Loan requires that the ground rent
for such lease for each year be paid in advance by the Ashford Borrower at
the beginning of such year and the Ashford Borrower was required to establish
a reserve fund containing six months rent under such ground lease, to be
applied to pay such ground rent if necessary. In addition, the Ashford
Financial Pool Loan is evidenced by two Notes, one (in the amount of
$2,500,000) evidencing the portion of the Ashford Financial Pool Loan that
relates to the Howard Johnson Westbury property (the "Ashford Westbury Note")
and one (in the amount of $72,000,000) relating to the other Ashford Pool
Properties (the "Ashford Multistate Note"). The Ashford Multistate Note is
not cross-defaulted to the Ashford Westbury Note.
On the bankruptcy of a lessor or a lessee under a ground lease, the debtor
entity has the right to assume or reject the lease. Pursuant to Section
365(h) of the Bankruptcy Code, a lessee whose lease is rejected by a debtor
lessor has the right to remain in possession of its leased premises under the
rent reserved in the lease for the term of the lease (including renewals). In
the event of a lessee/borrower bankruptcy in which such debtor rejects any or
all of its leases, the leasehold mortgagee would have the right to succeed to
the lessee/borrower's position under the lease only if the lessor had
specifically
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granted the mortgagee such right. In the event of concurrent bankruptcy
proceedings involving the lessor and the lessee/borrower, the Trustee may be
unable to enforce the bankrupt lessee/borrower's obligation to refuse to
treat a ground lease rejected by a bankrupt lessor as terminated. In such
circumstances, a lease could be terminated notwithstanding lender protection
provisions contained therein or in the mortgage.
Considerations Relating to Engineering Matters. The residential units at
the Mansion Grove Property have been finished with hardboard siding. The
Mansion Grove Borrower has experienced problems with the siding, including
curvature and buckling, which could have a negative effect on the appeal of
the Mansion Grove Property to renters, and if not fixed, may ultimately
create safety issues. The engineering report for the Mansion Grove Loan
estimated that 15% of the siding would need to be replaced over a period of
time at a cost of approximately $666,000. Pursuant to the Mansion Grove Loan,
the Mansion Grove Borrower is required to escrow an amount equal to $400 per
unit or $350,000 annually for capital improvements which may be available to
replace the siding. However, the Mansion Grove Borrower is under no
obligation to use such reserves to pay for replacement of the siding. The
Mansion Grove Borrower has initiated litigation against the manufacturer of
the siding for the purpose of recovering the costs of such replacement and
damages.
The North Shore Towers Property maintains its own energy plant (which
supplies electricity, hot water, heat and air conditioning), and does not
receive electricity, hot water, heat or air conditioning from any other
source. Consequently, a breakdown of such energy plant could have a material
negative effect on the viability of the North Shore Towers Property. The
North Shore Towers Borrower has such energy plant inspected annually.
According to the study conducted by a consulting engineer in December 1996
and reported as Supplementary Information to the Audited Financial Statements
of the North Shore Towers Borrower dated as of December 31, 1996, the energy
plant will require repairs and maintenance having an aggregate cost of
$4,000,000 during the next 4 to 7 years. The North Shore Towers Borrower
maintains reserve funds which as of December 31, 1996, contained
approximately $7,794,189, for capital improvements, repairs and maintenance,
which may be applied toward repairs and maintenance to the energy plant.
However, such reserve funds do not secure the North Shore Towers Loan, nor
does the mortgagee control their application or use.
Risks Relating to Letter of Credit Collateral. Security for the 605 Third
Avenue Loan includes the Third Avenue Principal Amortization Letters of
Credit, of which $5,000,000 in face amount were provided on the date of the
origination of the 605 Third Avenue Loan and an additional $10,000,000 in
face amount are required to be provided in annual increments of $1,666,666.67
on September 10 of each year commencing in 1998 and ending in 2003. In a
bankruptcy proceeding, the obligation of the Third Avenue Borrower to provide
the additional amount of Third Avenue Principal Amortization Letters of
Credit could be avoided as a preference if the Third Avenue Borrower were to
be insolvent within the applicable period (typically 90 days) prior to
transferring any such letter of credit. The Third Avenue Borrower has been
structured to be a bankruptcy remote entity; however, as is the case with any
entity operating a business, there can be no assurance that it will not
become insolvent. Certain other Mortgage Loans provide for letters of credit
to be supplied as additional collateral upon certain events such as a decline
in DSCR during the first twelve months of the loan; such obligations may also
be avoidable if the related borrower is insolvent as described above.
However, in either such event the Trustee would have the right to draw upon
any Third Avenue Principal Amortization Letter of Credit, or any such other
letters of credit, as applicable, provided to it prior to the applicable
preference period to the extent the conditions to such drawing on the related
Mortgage Loan were satisfied.
Zoning Compliance; Inspections. The zoning ordinance (the "Zoning
Ordinance") under which the Grand Kempinski Hotel was built requires on its
face 1,438 parking spaces. A City of Addison informal policy relating to
hotel parking requirements, which MSMC was informed de facto supersedes the
Zoning Ordinance in the city's practical enforcement of parking requirements,
would require 1,019 spaces. The Grand Kempinski Hotel has 860 parking spaces.
Nevertheless, the City of Addison has confirmed in writing that it does not
consider the Grand Kempinski Hotel to be non-conforming because of parking
issues, and an unqualified certificate of occupancy has been issued and is in
effect for the Hotel.
The Zoning Ordinance also permitted the Grand Kempinski Hotel's height to
be either 117 feet, "or as approved by [the] FAA." The hotel, with antenna,
is 192 feet tall. However, the city has no documentation regarding the FAA
approval height. The city has delivered a letter stating that the structure's
height is acceptable and does not encroach onto air traffic. The property is
not in a deed-restriction zone where height is specifically limited by the
FAA, and there are taller buildings in the proximity of the hotel.
Inspections of the Mortgaged Properties were conducted in connection with
the origination of the Mortgage Loans by licensed engineers to assess the
structure, exterior walls, roofing, interior construction, mechanical and
electrical systems and
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general condition of the site, buildings and other improvements located on
the Mortgaged Properties. There can be no assurance that all conditions
requiring repair or replacement were identified in such inspections. See
"Mortgage Pool Characteristics--Underwriting Standards--Property Condition
Assessments" herein for further information regarding the inspections on the
Mortgaged Properties.
Availability of Earthquake, Flood and Other Insurance. Although the
Mortgaged Properties are required to be insured against certain risks, there
is a possibility of casualty loss with respect to each Mortgaged Property for
which insurance proceeds may not be adequate (such as floods or earthquakes)
or which may result from risks not covered by insurance (such as supplemental
hurricane insurance). In addition, certain of the Mortgaged Properties are
located in California and Texas, which are states that have been historically
at greater risk to acts of nature (such as hurricanes, floods and
earthquakes) than properties located in other states. There can be no
assurance borrowers have complied or will in the future be able to comply
with requirements to maintain adequate insurance with respect to the
Mortgaged Properties. As with all real estate, if reconstruction (for
example, following fire or other casualty) or any major repair or improvement
is required to the property, changes in laws and governmental regulations may
be applicable and may materially affect the cost to, or ability of, the
borrower to effect such reconstruction, major repair or improvement. As a
result of the occurrence of any of these events, the amount realized with
respect to the Mortgage Loans, and the amount available to make distributions
on the Certificates, could be reduced.
The Edens & Avant Pool Properties known as Capital Square, Crossroads
Shopping Center, Edisto Village, Lawndale Village, Northside-Clinton,
Shoppers Port, Trenholm Plaza and Woodbury Plaza are located in federally
designated flood zones. The Edens & Avant Pool Borrower is required to
maintain flood insurance, if available at rates comparable to rates for
comparable properties, with respect to any part of the Edens & Avant Pool
Properties located within a federally designated hazard zone in an amount
equal to the lesser of the Allocated Loan Amount for the applicable Edens &
Avant Pool Property and the maximum limit of coverage available and windstorm
insurance with limits and deductibles as are generally required for similar
properties in the same geographic area. The Edens & Avant Pool Borrower has
obtained property damage insurance for the Edens & Avant Pool Properties in
the amount of $233,455,724 (subject to a $10,000,000 sublimit for flood and
earthquake damage). Property damage insurance is subject to a $2,500
deductible for all losses except losses caused by flood and/or earthquake in
which case the deductible increases to $50,000. All required insurance is
provided by the sole insurer Fireman's Fund Insurance with cut-thru
endorsement to America Reinsurance Corporation, which has a claims paying
ability rating of "AAA" by S&P and "A+g(FSC XII)" by Best's.
Two of the Ashford Pool Properties are located in California. The Ashford
Borrowers are required to maintain, with respect to any Ashford Pool
Properties that are located in California, earthquake coverage with such
limits and deductibles as are generally required by institutional lenders for
similar properties in the geographic area where the Ashford Pool Properties
are located, but in any event at least equal to the lesser of the Allocated
Loan Amount for the applicable Ashford Pool Property and the maximum limit of
coverage available with respect to such property. The Ashford Pool Properties
located in St. Petersburg, Florida and Woburn, Massachusetts are each located
in part in Zone "A" flood zones; in part in Zone B flood zones and in part in
Zone C flood zones. The Ashford Pool Property located in Palm Beach, Florida
is located in a Zone B flood zone. The Ashford Pool Properties located in
Westbury, New York, Beverly Hills, California, Newark, California, Clark, New
Jersey and Commack, New York, are located in Zone C flood zones. The Ashford
Borrowers are required to maintain, if any improvement is located within an
area designated as "flood prone" or a "special flood hazard area," flood
insurance if available, in an amount equal to the lesser of the Allocated
Loan Amount for the applicable Ashford Pool Property and the maximum limit of
coverage available with respect to the applicable Ashford Pool Property,
acceptable to the mortgagee; provided, however, that if flood insurance shall
be unavailable from private carriers, flood insurance provided by the federal
or state government, if available. The Ashford Borrowers have obtained
property damage insurance for the Ashford Pool Properties in the amount of
$545,110,470 per occurrence (subject to a $50,000,000 sublimit for flood and
earthquake damage and a $20,000,000 sublimit for high hazard flood zone A
properties) and rent loss insurance in the amount of $95,119,026. Property
damage and rental loss insurance are subject to the following deductibles:
(a) $10,000 for any loss (b) $25,000 for any loss caused by flood damage (c)
$25,000 for any loss caused by a non-California earthquake and (d) for any
California building included in the Ashford Pool Properties, the greater of
5% of the value of such building or $250,000. Insurance in the amount of
$5,000,000 for losses incurred in connection with a building located in flood
zone A, $25,000,000 for losses caused by all other floods, $25,000,000 for
losses caused by a non-California earthquake and $2,500,000 for losses caused
by a California earthquake is provided by Zurich Insurance Co., which has a
claims paying ability rating of "AA" by S&P and "A+p(FSC XV)" by Best's.
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The Mansion Grove Property is located in California in a high seismic
activity zone. The Mansion Grove Borrower has obtained property damage
insurance for the Mansion Grove Property in the amount of $46,494,000
(subject to a $40,000,000 sublimit for flood and earthquake damage), and rent
loss insurance in the amount of $13,178,057. Property damage insurance and
rent loss insurance are subject to a deductible of $10,000 for any one loss
except flood and earthquake damage in which case the deductible shall be the
greater of 5% of the Mansion Grove Property's insured value or $100,000.
Flood and earthquake damage insurance is provided by primary insurers,
Lexington Insurance Co., which has a claims paying ability rating of "AAA" by
S&P and "A++(FSC XII)" by Best's, Landmark Insurance Co., which has a claims
paying ability rating of "AAA" by S&P and "A++g(FSC XV)" by Best's and Mutual
Office of America Co. (CNA Underwriters Insurance Co.), which has a claims
paying ability rating of "A+" by S&P and "A(FSC XV)" by Best's. If a flood
and/or earthquake occurs and losses are less than $10,000,000 these primary
insurers shall each contribute respectively $5,000,000, $1,500,000 and
$3,500,000. If a flood and/or earthquake occurs and losses are incurred: in
excess of $10,000,000 an additional $10,000,000 will be provided by Allianz
Underwriters Insurance Co., which has a claims paying ability rating of "A"
by S&P and "Ap(FSC VIII)" by Best's, RLI Insurance Co., which has a claims
paying ability rating of "BBB" by S&P and "Ag(FSC VIII)" by Best's and
Hartford Fire Insurance Co., which has a claims paying ability rating of
"AA+" by S&P and "A+pu(FSC XV)" by Best's each will pay respectively
$4,500,000, $5,000,000 and $500,000; in excess of $20,000,000 an additional
$10,000,000 will be provided by Pacific Insurance Co., which has a claims
paying ability rating of "AA+" by S&P and "A-p(FSC XIV)" by Best's, St Paul
Surplus Lines Co., which has a claims paying ability rating of "AAA" by S&P
and "A+p(FSC XV)" by Best's and Gen Star Indemnity Insurance Co., which has a
claims paying ability rating of "AAA" by S&P and "A++(FSC IX)" by Best's each
will pay respectively $5,000,000, $2,000,000 and $3,000,000; in excess of
$30,000,000 an additional $5,000,000 will be provided by Guaranty National
Insurance Co. of California, which has a claims paying ability rating of
"BBB" by S&P and "Ar(FSC VIII)" by Best's; in excess of $35,000,000 an
additional $5,000,000 will be provided by Essex Insurance Co., which has a
claims paying ability rating of "A" by S&P and "R(FSC VI)" by Best's.
The Mark Centers Pool Property known as Ames Plaza in Coal, Pennsylvania
is located in a Zone AE flood zone; the Mark Centers Pool Property known as
Kings Fairground in Danville, Virginia is located in a Zone A-10 flood zone;
the Mark Centers Pool Property known as Northside Mall in Dothan, Alabama is
located in part in a 100 year flood zone; the Mark Centers Pool Properties
known as New Smyrna Plaza, New Smyrna and Kingston Plaza, Kingston,
Pennsylvania are located in Zone B flood zones and the Mark Centers Pool
Properties known as Plaza 15 in Lewisburg, Pennsylvania, Monroe Plaza in
Stroudsberg, Pennsylvania, Martintown Plaza in North Augusta, South Carolina
and Troy Plaza in Troy, New York are located in Zone C flood zones. The New
Smyrna Plaza, New Smyrna, Florida, is located in an area subject to
windstorm. The Mark Centers Pool Borrower is required to maintain flood
insurance, if available, with respect to any of the Mark Centers Pool
Properties located within a federally designated flood hazard zone in an
amount equal to the lesser of the Allocated Loan Amount for the applicable
Mark Centers Pool Property and the maximum limit of coverage available, and
with respect to New Smyrna Plaza only, windstorm insurance coverage with such
limits and deductibles as are generally required by institutional lenders for
similar properties in the geographic area where such Mark Centers Pool
Property is located, in any event at least equal to the lesser of the
Allocated Loan Amount for such Mark Centers Pool Property and the maximum
limit of coverage available with respect to such Mark Centers Pool Property.
The Mark Centers Pool Loan requires the Mark Centers Pool Borrower to obtain
the insurance described above from insurance carriers having claims paying
abilities rated (x) not less than "A" by S&P and "A" or its equivalent by one
or more of the other Rating Agencies and (y) not less than "A" by Best's with
a financial size category of not less than IX. The Mark Centers Pool Borrower
has obtained property damage insurance for the Mark Centers Pool Property in
the amount of $299,979,939 (subject to a $5,000,000 sublimit for flood and
earthquake damage with additional underlying National Flood Insurance Program
Protection purchased where required in the amount of $500,000 per building
and a $50,000,000 sublimit for any boiler or machinery damage), and rental
loss insurance in an amount equal to actual loss sustained. Property damage
and rent loss insurance are subject to a deductible of $25,000 for loss due
to flood and $5000 for every other loss. Insurance for property damage and
rent loss are provided by Fidelity & Guaranty Insurance Company, which has a
claims paying ability rating of "A" by S&P and "Ar(FSC XIII)" by Best's.
Certain Mortgage Loans have insurance requirements, or the borrowers are
maintaining insurance policies that vary from those typically required for
loans originated for securitization. For example, the Yorktown Borrower is
generally required to maintain such general liability and casualty insurance
as may be reasonably required from time to time by mortgagee, insuring
against loss or damage by, or abatement of rental income resulting from,
fire, earthquake, boiler explosion, perils insured against under extended
coverage insurance, vandalism, malicious mischief, sprinkler leakage and such
other hazards, casualties and contingencies (including, but not limited to,
war risk insurance, if available) in such amounts and for such periods and by
such companies as may be required by the mortgagee, and will pay when due any
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premium on such insurance. The Yorktown Borrower shall also carry and
maintain such liability and indemnity insurance (including without limitation
water damage insurance and the so-called assumed and contractual liability
coverage) as mortgagee may require from time to time in form, amount and with
companies satisfactory to mortgagee. All insurance shall be carried by
companies approved by the mortgagee. The Yorktown Borrower has obtained
property damage insurance for the Yorktown Property in the amount of
$105,165,503 (subject to a $100,000,000 sublimit for flood and earthquake
damage), rent loss insurance in the amount of $8,000,000 and public/excess
liability insurance in the amount of $25,000,000. Property damage and rent
loss insurance are subject to a deductible of $25,000 for flood and
earthquake damage and $10,000 for all other losses. Insurance is provided as
follows: (1) insurance for property damage and rent loss insurance is
provided by Kemper National Insurance, which has a claims paying ability
rating of "A" by S&P and "A(FSC XIV)" by Best's and (2) general/excess
liability insurance is provided solely by Crum & Forster Commercial
Insurance, which has a claims paying ability rating of "A" by S&P and "Ar(FSC
XI)" by Best's.
The Arrowhead Borrower is generally required to maintain such general
liability and casualty insurance as may be reasonably required from time to
time by mortgagee, insuring against loss or damage by, or abatement of rental
income resulting from, fire, earthquake, boiler explosion, perils insured
against under extended coverage insurance, vandalism, malicious mischief and
sprinkler leakage and such other hazards, casualties and contingencies
(including but not limited to, war risk insurance, if such war risk insurance
is available at reasonable rates) in such amounts and for such periods as may
be reasonably required by mortgagee, and is required to pay when due any
premium on such insurance. All such insurance shall be carried by companies
approved by mortgagee; provided, that any such company shall be deemed
approved if it has a Best's rating of AX or better, is licensed in Arizona
and has actively been in business for at least five years. The Arrowhead
Borrower has obtained property damage insurance for the Arrowhead Property in
the amount of $32,600,000 (subject to a $25,000,000 sublimit for flood and
earthquake damage and a $50,000,000 sublimit for boiler and machinery
damage), rent loss insurance in the amount of $13,013,000 and public/excess
liability insurance in the amount of $52,000,000. Property damage insurance
is subject to a deductible of $25,000 for flood and earthquake damage and
$5,000 for all other damage. Insurance is provided as follows: (1) property
damage and rent loss insurance are provided by Travelers Indemnity, which has
a claims paying ability rating of "A+" by S&P and "A++(FSC XV)" by Best's and
(2) general/excess liability insurance is provided by Federal Insurance Co.,
which has a claims paying ability rating of "AAA" by S&P and "Ap(FSC XV)" by
Best's.
The Westgate Mall Borrower is obligated to insure the Westgate Mall
Property "against loss or damage by and abatement of rental income resulting
from fire and such other hazards, casualties, and contingencies (including,
but not limited to war risk insurance, if available, and earthquake and sink
hole insurance) in such amounts (but never less than the full replacement
costs) and for such periods as the mortgagee reasonably requires, but not in
amounts exceeding any limitations imposed by law." The Westgate Mall Borrower
is also obligated to "carry and maintain such liability and indemnity
insurance (including, but not limited to, water damage and so called assumed
and contractual liability insurance) as the mortgagee requires from time to
time. The Westgate Mall Borrower has obtained property damage insurance for
the Westgate Mall Property in the amount of $1,312,212,000 (subject to a
$100,000,000 sublimit for flood and earthquake damage), rent loss insurance
in the amount of $583,219,000 and public/excess liability insurance in the
amount of $200,000,000. Property damage and rent loss insurance are subject
to a deductible of $25,000 for all losses. Insurance is provided as follows:
(1) property damage and rent loss insurance are provided by Protection Mutual
Insurance Co., which has a claims paying ability rating of "BBB" by S&P and
"A+(FSC IX)" by Best's and (2) general/excess liability insurance is provided
primarily by National Union Fire Insurance, which has a claims paying ability
rating of "AAA" by S&P and "A++g(FSC XV)" by Best's.
The Westshore Mall Property's general/excess liability insurance is
provided by Lumberman Mutual Casualty Co., which has a claims paying ability
rating of "A+" by S&P and "Ap(FSC XIV)" by Best's. The 605 Third Avenue Loan
permits the Third Avenue Borrower to obtain insurance from Travelers and/or
Aetna so long as they maintain a claims-paying-ability rating by S&P of not
less than "A+" and its equivalent by any other Rating Agency.
There can be no assurance that the amount of earthquake or flood insurance
currently required or provided would be sufficient to cover damages caused by
an earthquake or flood, or that such insurance will be commercially available
in the future. In addition, earthquake insurance coverage is often not
obtainable from "AA" or higher-rated insurers and the loan documents permit
such insurance to be obtained from such lower rated insurance companies.
Costs of Compliance with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. To the extent the Mortgaged Properties do
not comply with the ADA, the borrowers are likely to incur costs of
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complying with the ADA. In addition, noncompliance could result in the
imposition of fines by the federal government or an award of damages to
private litigants. In connection with the origination of the related loan,
property inspection reports were obtained which included limited information
regarding compliance with the ADA. There can be no assurance that the related
Mortgaged Properties will comply with the ADA in all respects once the
related conditions are remedied, that such property-inspection reports
identified all risks or conditions relating to the ADA or that amounts
reserved (if any) are sufficient to pay such costs. The Ashford Financial
Pool Loan and the Fashion Mall Loan require that certain alterations be made
to the related Mortgaged Properties to bring them into compliance with the
ADA, and provide that it is an event of default if such alterations are not
completed by a specified date. The Ashford Borrower has informed MSMC that it
has made all alterations required to be made by the date hereof in accordance
with the agreed schedule for such alterations. The Fashion Mall Borrower has
informed MSMC that its required alterations are in progress and will be
completed by the required date. No reserves for costs associated with
complying with the ADA were established or required to be funded under either
loan.
Limited Cross-Guarantees or Cross-Collateralization; Limitations on
Enforceability of Cross-Collateralization. The Mark Centers Pool Loan and
Ashford Financial Pool Loan are each comprised of the obligations of the
general borrowers thereunder, each of which owns at least one of the related
Mortgaged Properties. All the Mark Centers Pool Borrower Entities have
executed a single Mortgage pursuant to which the lien on all of the Mortgaged
Properties owned by the Mark Centers Pool Borrower secures the entire
indebtedness under the Mark Centers Pool Loan and the lien on each Mortgaged
Property secures both the amount of indebtedness allocated to such Mortgaged
Property and the amount of indebtedness allocated to each other Mortgaged
Property subject to the Mortgage. Each Mortgage of an Ashford Borrower
secures a Note in the amount of the indebtedness allocated to the Mortgaged
Property in Jericho, New York (the Howard Johnson Westbury), and another Note
in the amount of the indebtedness allocated to the remaining Mortgaged
Properties. See "--Leasehold Interests" above. These provisions are designed
to achieve "cross-collateralization," i.e., all of the Mark Centers Pool
Properties and Ashford Pool Properties are to be security for all or any part
of the related Notes.
The Depositor makes no representation that the foregoing
cross-collateralization arrangements are enforceable. Such arrangements could
be challenged as fraudulent conveyances by creditors of the related borrower
in an action brought outside a bankruptcy case, or, if such borrower were to
become a debtor in a bankruptcy case, by such borrower. Generally, under
federal and most state fraudulent conveyance statutes, the incurring of an
obligation or the transfer of property or an interest in property (including
the granting of a lien) by a person will be subject to avoidance under
certain circumstances if the person did not receive fair consideration or
reasonably equivalent value in exchange for such obligation or transfer and
(a) was insolvent or was rendered insolvent by such obligation or transfer,
(b) was engaged in business or a transaction, or was about to engage in
business or a transaction, for which any property remaining with the person
was an unreasonably small capital, or (c) intended to, or believed that it
would incur, debts that would be beyond the person's ability to pay as such
debts matured. Accordingly, a lien granted by a Mark Centers Pool Borrower
Entity or an Ashford Borrower to secure repayment of the Mark Centers Pool
Loan or the Ashford Financial Pool Loan, respectively, could be avoided if a
court were to determine that (a) such borrower was insolvent at the time of
granting the lien, was rendered insolvent by the granting of the lien or was
left with inadequate capital, or was not able to pay its debts as they
matured and (b) such borrower did not, when it allowed its Mortgaged Property
or Properties to be encumbered by a lien securing the entire indebtedness
represented by the Mark Centers Pool Loan or the Ashford Financial Pool Loan,
as the case may be, receive fair consideration or reasonably equivalent value
for pledging its Mortgaged Property or Properties for the benefit of the
other Mark Centers Pool Borrower Entities or Ashford Borrowers, as the case
may be. Among other things, a legal challenge to the granting of the liens by
a Mark Centers Pool Borrower Entity or an Ashford Borrower may focus on the
benefits realized by such Mark Centers Pool Borrower or Ashford Borrower from
the respective Mortgage Loan proceeds, as well as the overall
cross-collateralization. If a court were to find or conclude that the
granting of the liens associated with the Mark Centers Pool Loan or the
Ashford Financial Pool Loan was an avoidable fraudulent conveyance with
respect to a particular borrower, that court could subordinate all or part of
the Mark Centers Pool Loan or the Ashford Financial Pool Loan, as the case
may be, to existing or future indebtedness of that borrower, recover payments
made under the respective Mortgage Loan, or take other actions detrimental to
the holders of the Certificates, including under certain circumstances,
invalidating the Mark Centers Pool Loan or the Ashford Financial Pool Loan or
the Mortgages securing such loans.
Special Tax Assessments Affecting the Arrowhead Property. The Arrowhead
Towne Center Borrower is party to a Development Agreement with the City of
Glendale (the "City") pursuant to which the borrower is required to pay
semi-annual assessments by the City in connection with the repayment of bonds
which were issued by the city to fund certain improvements on public land
located near the Arrowhead Property. As is the case with other tax
assessments, pursuant to local tax law the City's right to payment thereof is
secured by a lien on the Arrowhead Property which is prior to the lien of the
mortgagee.
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In conjunction with the Development Agreement, the City agreed to
reimburse the Arrowhead Borrower in an amount equal to 95.1515% of the
assessments paid by the Arrowhead Borrower which relate to reimbursable
off-site costs, as defined. Such payments to be made by the City are based on
the amount of privilege license taxes collected by the City on retail sales,
rental and construction activities during the preceding six-month period,
limited to 66% of annual collections. Any amounts not paid to the Arrowhead
Borrower by the City (due to declines in tax collections or otherwise) will
accumulate in a short-fall account and will earn interest at the prime rate.
The Arrowhead Borrower's initial assessment and, accordingly, the City's
first reimbursement payment to the Arrowhead Borrower began in June 1994.
Under the terms of the agreement, semi-annual assessment and reimbursement
payments will continue until the full assessed amount has been paid in full,
or until June 2014.
The notes to the financial statements of the Arrowhead Borrower for its
1996 fiscal year stated "Management believes that approximately $16,881,000
remains to be assessed to the [Arrowhead Borrower], of which approximately
$14,925,000 will be subject to reimbursement by the City. The amount not
reimbursed by the City will be subject to reimbursement by the tenants of
Arrowhead Towne Center. During 1996 and 1995 the [Arrowhead Borrower] was
reimbursed by the City for all assessments paid ($1,424,000 in 1996 and
$1,454,000 in 1995)." The Development Agreement contains an acknowledgment by
the City and the Developer that pursuant to Arizona law the City cannot
legally commit to expend funds in any year prior to the year in which the
expenditure is to be made; however, the City agreed to use its best
reasonable efforts, subject to applicable law, to include in its budget for
each year an amount sufficient to make its reimbursement payments. There can
be no assurance that the City will make such an allocation of its budget,
that the applicable tax revenues will be sufficient to make reimbursement
payments to the Arrowhead Borrower or that tenants will make any such
reimbursements not made by the City.
Risks Associated with Blanket Insurance Policies. Certain of the Mortgaged
Properties are covered by blanket insurance policies which also cover other
properties of the related borrower or its affiliates. In the event that such
policies are drawn on to cover losses on such other properties, the amount of
insurance coverage available under such policies would thereby be reduced and
could be insufficient to cover each Mortgaged Property's insurable risks.
Attornment Considerations. Some of the operating leases and tenant leases,
including the anchor tenant leases, contain provisions that require the
tenant to attorn to (that is, recognize as landlord under the lease) a
successor owner of the Mortgaged Property following foreclosure. Some of the
leases may be either subordinate to the liens created by the Mortgages or
contain a provision that requires the tenant to subordinate the lease if the
mortgagee agrees to enter into a non-disturbance agreement. Not all leases
were reviewed to ascertain the existence of attornment or subordination
provisions. In some jurisdictions, if tenant leases are subordinate to the
liens created by the mortgage and such leases do not contain attornment
provisions, such leases may terminate upon the transfer of the property to a
foreclosing lender or purchaser at foreclosure. Accordingly, in the case of
the foreclosure of a Mortgaged Property located in such a jurisdiction and
leased to one or more desirable tenants under leases that do not contain
attornment provisions, such Mortgaged Property could experience a further
decline in value if such tenants' leases were terminated (e.g., particularly
if such tenants were paying above-market rents or could not be replaced). If
a Mortgage is subordinate to a lease, the Trust Fund will not (unless it has
otherwise agreed with the tenant) possess the right to dispossess the tenant
upon foreclosure of the Mortgaged Property, and if the lease contains
provisions inconsistent with the Mortgage (e.g., provisions relating to
application of insurance proceeds or condemnation awards) or which could
affect the enforcement of mortgagee's rights (e.g., a right of first refusal
to purchase the property), the provisions of the lease will take precedence
over the provisions of the Mortgage. Certain of the anchor leases and other
leases at the retail properties included in the Trust Fund are not
subordinate to the related Mortgage.
Liquor License Considerations. Several of the Mortgaged Properties which
are hotel properties have liquor licenses. The liquor licenses for such
Mortgaged Properties may be held by the property manager or operator, as the
case may be (or an affiliate thereof) rather than by the related borrower. In
addition, some states do no permit liquor licenses to be held other than by a
natural person and, consequently liquor licenses for hotel properties located
in such jurisdictions are held by an individual affiliated with the related
borrower or manager. Furthermore, the applicable laws and regulations
relating to such licenses generally prohibit the transfer of such licenses to
any person. In the event of a foreclosure of a hotel property, it is unlikely
that the Trustee (or Master Servicer) or purchaser in any such sale would be
entitled to the rights under the liquor license for such hotel property and
such party would be required to apply in its own right for such a license.
There can be no assurance that a new liquor license could be obtained.
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. There can be no assurance that such litigation may not have a
material adverse effect on distribution to Certificateholders.
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CONFLICTS OF INTEREST
General. The potential for various conflicts of interest exists with
respect to the offering of the Certificates, including conflicts of interests
among certain of the borrowers, the property or asset managers, the Depositor
and Morgan Stanley & Co. Incorporated, in its capacity as the Underwriter.
Conflicts Between Affiliates of MSMC and the Trust Fund. Conflicts of
interest between affiliates of MSMC, Morgan Stanley & Co. Incorporated and
the Depositor that engage in the acquisition, development, operation,
financing and disposition of real estate, on the one hand, and the Trust
Fund, on the other hand, may arise because such affiliates will not be
prohibited in any way from engaging in business activities similar to or
competitive with those of the borrowers.
Affiliates of MSMC, Morgan Stanley & Co. Incorporated and the Depositor
intend to continue to actively acquire, develop, operate, finance and dispose
of real estate-related assets in the ordinary course of their business.
During the course of their business activities, affiliates of the Depositor
may acquire, own or sell properties or finance mortgage loans secured by
properties which are in the same markets as the Mortgaged Properties. In such
a case, the interests of such affiliates may differ from and compete with the
interests of the Trust Fund, and decisions made with respect to such assets
may adversely affect the amount and timing of distributions with respect to
the Certificates.
Conflicts Between Managers and the Borrowers. Substantially all of the
third party and borrower affiliated property managers for the Mortgaged
Properties (or their affiliates) manage additional properties, including
properties that may compete with the Mortgaged Properties. Moreover,
affiliates of the managers, and certain of the managers themselves, may also
own or manage other properties, including competing properties. Accordingly,
the managers of the Mortgaged Properties may experience conflicts of interest
in the management of such Properties.
THE OFFERED CERTIFICATES
Special Prepayment, Yield and Loss Considerations. The yield to maturity
on the Offered Certificates will depend, among other things, on the rate and
timing of principal payments (including both voluntary prepayments, in the
case of the Mortgage Loans that permit voluntary prepayment, and involuntary
prepayments, such as prepayments resulting from casualty or condemnation,
defaults and liquidations) on the Mortgage Loans and the allocation thereof
to reduce the Certificate Principal Amounts of the Principal Balance
Certificates. In addition, in the event of any repurchase of a Mortgage Loan
by MSMC from the Trust Fund under the circumstances described under "The
Pooling Agreement--Representations and Warranties; Repurchase" herein, the
Repurchase Price paid would be passed through to the holders of the
Certificates with the same effect as if such Mortgage Loan had been prepaid
in part or in full (except that no prepayment premium or yield maintenance
charge would be payable with respect to any such repurchase). In addition,
with respect to any Class of Offered Certificates, to the extent losses on
the Mortgage Loans exceed the aggregate Certificate Principal Amount of the
Classes of Certificates subordinated to such Class, such Class will bear a
loss equal to the amount of such excess up to an amount equal to the
outstanding Certificate Principal Amount thereof. No representation is made
as to the anticipated rate of prepayments (voluntary or involuntary) or rate
or amount of liquidations or losses on the Mortgage Loans or as to the
anticipated yield to maturity of any Offered Certificate. See "Yield,
Prepayment and Maturity Considerations--Yield" herein.
The Notional Amount of the Class X Certificates is based upon the
Certificate Principal Amounts of the Class A-1, Class A-2, Class A-3, Class
B, Class C, Class D, Class E, Class F, Class G and Class H Certificates.
Therefore, the yield to maturity on the Class X Certificates will be
extremely sensitive to the rate and timing of prepayments of principal
(including both voluntary and involuntary prepayments, delinquencies,
defaults and liquidations) on the Mortgage Loans and any repurchase with
respect to breaches of representations and warranties with respect to the
Mortgage Loans to the extent such payments of principal are allocated to each
such Class in reduction of the Certificate Principal Amount thereof. Although
the payment of a Prepayment Premium is required in connection with a
voluntary prepayment of certain of the Mortgage Loans, there can be no
assurance that the related Borrowers would refrain from prepaying such
Mortgage Loans due to the existence of such a Prepayment Premium, or that
such Prepayment Premiums would be held to be enforceable if challenged. The
rate at which voluntary prepayments occur on the Mortgage Loans will be
affected by a variety of factors, including, without limitation, the terms of
the Mortgage Loans, the length of any Prepayment 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.
No Mortgage Loan (other than the Mark Centers Pool Loan, which permits
voluntary prepayment without payment of a yield maintenance premium during
the period commencing 180 days prior to the Effective Maturity Date) permits
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voluntary prepayment without payment of a yield maintenance premium earlier
than 120 days prior to the related Effective Maturity Date (or in the case of
the North Shore Towers Loan, the Edens & Avant Loan, the Arrowhead Towne
Center Loan, the Westgate Mall Loan and the Yorktown Shopping Center Loan,
prior to their respective maturity dates). See "Description of the Mortgaged
Properties and the Mortgage Loans". However, there is no assurance that
involuntary prepayments will not occur or that the restrictions contained in
the related Mortgage Loans would ultimately be enforceable in legal
proceedings. The rate at which voluntary prepayments occur on the Mortgage
Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans (including the length of time
during which the Mortgage Loans may not be voluntarily prepaid (each a
"Prepayment Lockout Period"), Defeasance Lockout Periods and yield
maintenance charges and/or prepayment premiums applicable to the Mortgage
Loans and by the extent to which the Master Servicer or Special Servicer, as
the case may be, is able to enforce such provisions), the level of prevailing
interest rates, the availability of mortgage credit, the occurrence of
casualties or natural disasters and economic, demographic, tax, legal and
other factors.
Because approximately 77.9% of any Prepayment Premium payable in
connection with a prepayment of the North Shore Towers Loan is required to be
paid to John Hancock in connection with the Hancock Retained Interest, a
Certificateholder entitled to receive an allocation of the Prepayment Premium
in connection with a prepayment of the North Shore Towers Loan will receive
less of such Prepayment Premium than would have been the case if John Hancock
were not entitled to a portion of such Prepayment Premium. This entitlement
of John Hancock will adversely affect such Certificateholder's yield to
maturity.
No yield maintenance charge or prepayment premium will be required under
the Mortgage Loans for prepayments in connection with a casualty or
condemnation unless, in the case of most of the Mortgage Loans, an event of
default has occurred and is continuing.
In the event that insurance or condemnation proceeds are applied to
amounts due under the Mansion Grove Loan upon the occurrence of certain
circumstances described in "Description of the Mortgaged Properties and the
Mortgage Loans--Mansion Grove Apartments: The Loan--Prepayment" and
"--Condemnation and Casualty" herein and the resulting outstanding principal
amount of the Mansion Grove Loan is less than or equal to $10,000,000, the
Mansion Grove Borrower is permitted to prepay such outstanding principal
amount without payment of any yield maintenance or prepayment premium.
Provisions requiring yield maintenance charges or prepayment premiums may
not be enforceable in some states and under federal bankruptcy law, and may
constitute interest for usury purposes. Accordingly, no assurance can be
given that the obligation to pay a yield maintenance charge or prepayment
premium will be enforceable under applicable state or federal law or, if
enforceable, that the foreclosure process will be sufficient to pay such
yield maintenance charge or prepayment premium. Additionally, although the
collateral substitution provisions related to defeasance are not intended to
be, and do not have the same effect on the Certificateholders as prepayment
there can be no assurance that a court would not interpret such provisions as
requiring a yield maintenance charge or prepayment premium and thus not
enforceable under applicable law or as being usurious. See "Certain Legal
Aspects of the Mortgage Loans and the Leases--Applicability of Usury Laws" in
the Prospectus.
In general, if an Offered Certificate is purchased by an investor at a
premium and principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, to the extent that the required yield
maintenance charge and/or prepayment premium, if any, are not received by
such investor, such investor's actual yield to maturity may be lower than
that assumed at the time of purchase. Conversely, if an Offered Certificate
is purchased at a discount and principal distributions thereon occur at a
rate slower than that assumed at the time of purchase, the investor's actual
yield to maturity may be lower than that assumed at the time of purchase.
Pursuant to the agreement (the "Hancock Agreement") under which MSMC
acquired the North Shore Towers Loan from John Hancock, unless a North Shore
Towers Credit Event (as defined herein) has occurred, John Hancock has the
right to approve any material modification to any economic or priority terms
of the North Shore Towers Loan, which approval must not be unreasonably
withheld. Such restriction could limit the Master Servicer's or Special
Servicer's ability to maximize the recovery on the North Shore Towers Loan
and could result in Realized Losses being incurred. In addition, if the North
Shore Towers Loan is modified or restructured and the interest rate is
reduced, pursuant to the Hancock Agreement, the Monthly Payments must first
be applied to interest and such interest is required to be allocated to John
Hancock and the Trust Fund pro rata.
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Each Mortgage Loan (other than the North Shore Towers Loan, the Edens &
Avant Pool Loan, the Arrowhead Towne Center Loan, the Westgate Mall Loan and
the Yorktown Shopping Center Loan which do not have Effective Maturity Dates)
requires that commencing on the first Due Date after the related Effective
Maturity Date, certain cash flow in excess of that required for debt service
and other items with respect to the related Mortgaged Properties (as
described more fully herein "Excess Cash Flow") will be applied towards the
payment of principal until the principal balance of the related Mortgage Loan
has been reduced to zero. Each Mortgage Loan (other than the North Shore
Towers Loan, the Edens & Avant Pool Loan, the Arrowhead Towne Center Loan,
the Westgate Mall Loan and the Yorktown Shopping Center Loan) also provides
that principal outstanding after the related Effective Maturity Date will
bear interest at a revised rate (the "Revised Interest Rate") which will be
higher than the rate previously in effect (the "Initial Interest Rate").
While interest at the Initial Interest Rate accrues and is payable on a
current basis on such loans, interest at the excess of the Revised Interest
Rate over the Initial Interest for such loans ("Deferred Interest") will be
deferred and will be paid only after the outstanding principal balance of the
related loan has been paid in full. The foregoing features, to the extent
applicable, are designed to increase the likelihood that such Mortgage Loans
will be prepaid by the borrower on the applicable Effective Maturity Date;
however no assurance can be given that any Mortgage Loan will be repaid on
its applicable Effective Maturity Date.
See "Yield, Prepayment and Maturity Considerations" and "Certain Federal
Income Tax Consequences" herein and "Yield Considerations" and "Certain
Federal Income Tax Consequences" in the Prospectus.
Effect of Borrower Defaults. The aggregate amount of distributions on the
Offered Certificates, the yield to maturity of the Offered Certificates, the
rate of principal payments on the Offered Certificates and the weighted
average life of the Offered Certificates will be affected by the rate and the
timing of delinquencies and defaults on the Mortgage Loans. If a purchaser of
an Offered Certificate of any Class calculates its anticipated yield based on
an assumed rate of default and amount of losses on the Mortgage Loans that is
lower than the default rate and amount of losses actually experienced and
such losses are allocable to such Class of Certificates, such purchaser's
actual yield to maturity will be lower than that so calculated and could,
under certain extreme scenarios, be negative. The timing of any loss on a
liquidated Mortgage Loan will also affect the actual yield to maturity of the
Offered Certificates to which all or a portion of such loss is allocable,
even if the rate of defaults and severity of losses are consistent with an
investor's expectations. In general, the earlier a loss borne by an investor
occurs, the greater is the effect on such investor's yield to maturity.
As and to the extent described herein, the Master Servicer, the Special
Servicer, the Trustee or the Fiscal Agent, as applicable, will be entitled to
receive interest on unreimbursed Advances. Such interest will generally
accrue from (and including) the date on which the related Advance is made or
the related expense incurred through the date of reimbursement, less any
amount of interest previously paid in respect thereof. The Master Servicer's,
the Special Servicer's, the Trustee's or the Fiscal Agent's right, as
applicable, to receive such payments of interest is prior to the rights of
Certificateholders to receive distributions on the Offered Certificates and,
consequently, may result in losses being allocated to the Offered
Certificates that would not otherwise have resulted absent the accrual of
such interest. In addition, certain circumstances, including delinquencies in
the payment of principal and interest, will result in a Mortgage Loan being
specially serviced. The Special Servicer is entitled to compensation for
special servicing activities which may result in losses being allocated to
the Offered Certificates that would not otherwise have resulted. See "The
Pooling Agreement--Special Servicer" herein.
Even if losses on the Mortgage Loans are not borne by an investor in a
particular Class of Offered Certificates, such losses may affect the weighted
average life and yield to maturity of such Certificates. Losses on the
Mortgage Loans, to the extent not allocated to such Class of Offered
Certificates, may result in a higher percentage ownership interest evidenced
by such Certificates than would otherwise have resulted absent such loss. The
consequent effect on the weighted average life and yield to maturity of the
Offered Certificates will depend upon the characteristics of the remaining
Mortgage Loans.
Delinquencies and defaults on the Mortgage Loans may significantly delay
the receipt of payments by the holder of an Offered Certificate, to the
extent that Advances or the subordination of another Class of Certificates
does not fully offset the effects of any such delinquency or default.
Related Parties May Purchase Certificates. Related parties, including the
Master Servicer, the Special Servicer or affiliates of the borrowers may
purchase all or part of one or more Classes of Certificates. A purchase by
the Master Servicer or Special Servicer, as the case may be, could cause a
conflict between such entity's duties pursuant to the Pooling Agreement and
its interest as a holder of a Certificate, especially to the extent that
certain actions or events have a disproportionate effect on one or more
Classes of Certificates. The Pooling Agreement provides that the Mortgage
Loans shall be administered in accordance with the Servicing Standard without
regard to ownership of any Certificate by the Master Servicer, the Special
Servicer or any affiliate thereof.
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<PAGE>
Book-Entry Registration. Each Class of Offered Certificates will be
initially represented by one or more certificates registered in the name of
Cede & Co., as the nominee for DTC, and will not be registered in the names
of the related holders of Certificates or their nominees. As a result,
holders of Offered Certificates will not be recognized as
"Certificateholders" for certain purposes. Hence, those beneficial owners
will be able to exercise the rights of holders of Certificates only
indirectly through DTC, Cedel Bank, S.A. ("CEDEL") and The Euroclear System
("Euroclear") and their participating organizations. See "Description of the
Offered Certificates--Delivery, Form and Denomination" and "--Book-Entry
Registration" herein. A beneficial owner holding a Certificate through the
book-entry system will be entitled to receive the reports and notices
described under the Pooling Agreement (to the extent that its name and
address has been provided to the Certificate Registrar) only through the
facilities of DTC, CEDEL and Euroclear and their respective participants
(except that the reports will be made available directly from the Trustee
upon request). Additionally, certain information made available on the
monthly reports to Certificateholders can be retrieved via facsimile through
LaSalle National Bank's ASAP System by calling (312) 904-2200, and requesting
statement number 284.
Limited Liquidity and Market Value. There is currently no secondary market
for the Offered Certificates. While the Underwriter has advised the Depositor
that it currently intends to make a secondary market in the Offered
Certificates, it is under no obligation to do so. Accordingly, there can be
no assurance that a secondary market for the Offered Certificates will
develop. Moreover, if a secondary market does develop, there can be no
assurance that it will provide holders of Offered Certificates with liquidity
of investment or that it will continue for the life of the Offered
Certificates. The Offered Certificates will not be listed on any securities
exchange. Lack of liquidity could result in a substantial decrease in the
market value of the Offered Certificates. In addition, the market value of
the Offered Certificates at any time may be affected by many factors,
including then prevailing interest rates, and no representation is made by
any person or entity as to the market value of any Offered Certificate at any
time.
Pass-Through Rate Considerations. The Pass-Through Rates on the Class B,
Class C, Class D, Class E and Class F Certificates are based on the WAC Rate
of the Mortgage Loans and the Pass-Through Rate on the Class A-2, Class A-3
and Class X Certificates will be partially based upon the WAC Rate of the
Mortgage Loans, and all of such Classes will be affected by disproportionate
principal payments, prepayments, defaults and other unscheduled payments on
the Mortgage Loans. Because certain Mortgage Loans will amortize their
principal more quickly than others, such rate will fluctuate over the life of
such Classes of Certificates. See "Yield, Prepayment and Maturity
Considerations--Yield" herein.
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MORTGAGE POOL CHARACTERISTICS
GENERAL
The Trust Fund will consist primarily of 12 Mortgage Loans with an
aggregate principal balance as of the Cut-Off Date, after deducting payments
of principal due on such date, of $754,531,157. 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 one or more
promissory notes (each, a "Note") and secured by one or more mortgages, deeds
of trust or other similar security instruments (each, a "Mortgage") creating
a first lien on the related borrower's fee and/or leasehold estate in one or
more commercial or multifamily 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 ............................. 84
Leasehold Estate ....................... 14
Borrower's Fee and Leasehold Estate(1) 6
</TABLE>
- ------------
(1) "Borrower's Fee and Leasehold Estate" means that the borrower's
interest in the Mortgaged Property consists of a fee interest in a
portion of the property and a leasehold interest in the remaining
portion.
The Mortgaged Properties consist of retail properties, hotel properties,
multifamily properties and office buildings. All of the Mortgage Loans are
non-recourse loans so that, in the event of a borrower default on any
Mortgage Loan, recourse is limited to the Mortgaged Property or Mortgaged
Properties securing such Mortgage Loan, as well as such limited other assets
as may have been specifically pledged to secure such Mortgage Loan, and not
against the borrower's other assets or any assets of the borrower's
affiliates. To facilitate loan closings, MSMC engaged Secore Financial
Corporation, a Pennsylvania corporation, to originate the Ashford Financial
Pool Loan, the Edens & Avant Pool Loan, the Fashion Mall Loan, the 605 Third
Avenue Loan, the Grand Kempinski Loan, the Mansion Grove Loan, the Mark
Centers Pool Loan, and the Westshore Pool Loan. John Hancock Mutual Life
Insurance Company, a Massachusetts corporation ("John Hancock"), originated
the North Shore Towers Loan which amends and consolidates various loans
originated by Chase Manhattan Mortgage and Realty Trust ("Chase Realty") and
its successors and assigns in October 1972 and September 1983. Teacher's
Insurance and Annuity Association, a New York corporation ("TIAA"),
originated the Arrowhead Town Center Loan, the Westgate Mall Loan and the
Yorktown Shopping Center Loan. Secore, John Hancock and TIAA are collectively
referred to herein as the "Originators". The Depositor will purchase the
Mortgage Loans on or before the Closing Date from MSMC pursuant to the Loan
Sale Agreement (the "Loan Sale Agreement") between MSMC and the Depositor.
The Depositor will cause the Mortgage Loans in the Mortgage Pool to be
assigned to LaSalle National Bank, as Trustee (the "Trustee"), pursuant to
the Pooling Agreement. GMAC Commercial Mortgage Corporation, 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
and the establishment and
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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 (such accounts,
"Reserve Accounts").
Each Mortgage constitutes a first lien on the related Mortgaged
Properties, subject generally only to (i) liens for real estate and other
taxes and special assessments and (ii) covenants, conditions, restrictions,
rights of way, easements and other encumbrances, whether or not of public
record as of the date of recording of the related Mortgage, all of which were
determined to have been acceptable to the related Originator or MSMC in
connection with the origination of the related Mortgage Loan.
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day of
each month, or, if such day is not a business day, the next business day. The
Arrowhead Towne Center Loan and Yorktown Shopping Center Loan each has a
grace period of five calendar days from the due date for payment of principal
and interest. The Westgate Mall Loan has a grace period of five calendar days
from the date of mailing or actual communication of notice to the borrower
for payment of principal and interest. The Westshore Mall Loan has a one
business day grace period for payment of principal and interest. The 605
Third Avenue Loan and Grand Kempinski Loan provide the mortgagee under the
related Mezzanine Loan a two Business Day period after notice to cure any
payment default. Prior to the maturity date thereof, the Westgate Mall Loan
and the Yorktown Shopping Center Loan do not accrue default interest
following an event of default thereunder until the loan is accelerated. As of
the Cut-Off Date, the Mortgage Loans had the following characteristics:
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Balance ............................................$754,531,157
Lowest Mortgage Loan Principal Balance ................................. $20,900,775
Highest Mortgage Loan Principal Balance ................................ $120,000,000
Average Mortgage Loan Principal Balance ................................ $62,877,596
Range of Remaining Terms to Effective Maturity Date/Maturity .......... 51 to 120 months
Weighted Average Remaining Term to Effective Maturity Date/Maturity ... 105 months
Range of Mortgage Rates per annum ...................................... 7.3% to 9.32%(1)
Weighted Average Mortgage Rate ......................................... 8.34%
Range of Cut-Off Date Loan-to-Appraised Value ("LTV") Ratios .......... 20.1% to 66.7%
Weighted Average Cut-Off Date LTV Ratios ............................... 52.7%
Range of Debt Service Coverage Ratios .................................. 1.20x to 3.33x
Weighted Average Debt Service Coverage Ratio ........................... 2.00x
</TABLE>
- ------------
(1) The portion of the Mortgage Rate on the North Shore Towers Loan payable
to the Trust Fund will be net of the Hancock Retained Interest (as
defined herein) and will be equal to 6.75% per annum.
Seven of the Mortgage Loans (the "EMD Mortgage Loans" identified in the
following table by the symbol "EMD") contain a provision whereby after a
certain date (each, an "Effective Maturity Date") principal outstanding on
the related Mortgage Loan will bear interest at an increased rate (the
"Revised Interest Rate") which will be higher than the rate (the "Initial
Interest Rate") previously in effect. The Revised Interest Rate may be the
greater of a specified percentage plus the Initial Interest Rate or such
percentage plus a rate based on the then current comparable Treasury rate;
provided, however in no case will the Revised Interest Rate be greater than
5% plus the Initial Interest Rate. While interest at the Initial Interest
Rate accrues and is payable on a current basis on such loans, interest at the
excess of the Revised Interest Rate over the Initial Interest for such loans
("Deferred Interest") will be deferred and will be paid only after the
outstanding principal balance of the related Mortgage Loan has been paid in
full. Commencing on the first Due Date (or, in the case of the 605 Third
Avenue Loan, second Due Date) after the related Effective Maturity Date,
certain cash flow in excess of that required for debt service and other items
with respect to the related Mortgaged Properties (as described more fully
herein "Excess Cash Flow") will be applied towards the payment of principal
until the principal balance of the related Mortgage Loan has been reduced to
zero. A balloon payment would be required to pay off an EMD Mortgage Loan on
the Effective Maturity Date; however all of the EMD Mortgage Loans, if not
prepaid at their Effective Maturity Date, are scheduled to fully amortize by
their stated final maturity date.
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<PAGE>
The following table sets forth certain information regarding the
prepayment terms of the Mortgage Loans.
PREPAYMENT TERMS
<TABLE>
<CAPTION>
PREPAYABLE
PREPAYABLE WITH PREPAYMENT PREPAYMENT
MORTGAGE LOAN LOAN TYPE LOCKOUT PERIOD WITH DEFEASANCE PENALTY WITHOUT PENALTY
- ----------------------- ------------- --------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
605 Third Avenue ....... EMD Origination to 90 2 yrs. from NA From 90 days
days prior to securitization prior to EMD
EMD to EMD
Edens & Avant Pool...... Balloon Origination to 60 From N/A From 60 days
days prior to October, prior to Maturity
Maturity Date 1999 Date
Ashford Financial Pool . EMD Origination to 60 From N/A From 60 days
days prior to October, prior to EMD
EMD 1999
Mansion Grove EMD Origination to N/A July 1, 2002 From 90 days
Apartments ............ July 1, 2002 to 90 days prior to EMD
prior to EMD
North Shore Towers .... Balloon None N/A Origination to From 90 days
90 days prior prior to Maturity
to Maturity Date
Date
Fashion Mall ........... EMD Origination to N/A October, From 90 days
October, 1999 1999 to 90 prior to EMD
days prior to
EMD
Yorktown Shopping
Center ................ Balloon First 5 yrs. (to N/A July, 1999 to From 90 days
July, 1999) 90 days prior prior to Maturity
to Maturity Date
Date
Grand Kempinski
Hotel .................. EMD Origination to N/A September, From EMD
September, 2000 2000 to EMD
Arrowhead Towne
Center ................. Balloon None N/A Origination to From 120 days
120 days prior to Maturity
prior to Date
Maturity Date
Mark Centers Pool ...... EMD Origination to N/A November 1, From 180 days
November 1, 1999 to 180 prior to EMD
1999 days prior to
EMD
Westgate Mall .......... Balloon Origination to N/A December 1, From 90 days
December 1, 2000 to 90 prior to Maturity
2000 days prior to Date
Maturity Date
Westshore Mall ......... EMD Origination to 2 yrs. from March 1, From 90 days
March 1, 2002 securitization 2002, to 90 prior to EMD
to EMD days prior to
EMD
</TABLE>
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<PAGE>
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. Certain of the Mortgage Loans, including the Arrowhead Towne
Center Loan, the North Shore Towers Loan and the Edens & Avant Pool Loan do
not expressly require that prepayments be made on 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 Originators or
MSMC by the respective borrowers. Some of the calculations of the statistics
in the tables were not made with adjustments which would be required under
generally accepted accounting principles ("GAAP"). For purposes of the tables
and Annex A, the defined terms have the meanings described below:
(1) "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 twelve calendar months ending at the indicated date.
(2) "NOI" or "Net Operating Income" as used herein with respect to any
Mortgaged Property or group of Mortgaged Properties generally means, for
the year stated, the excess of the total revenue for such Mortgaged
Property or Properties for the period referenced in item (1) above less
the total operating expenses of such Mortgaged Property or Properties
incurred during such period.
NOI and the revenues and expenses used to determine the NOI for each
Mortgaged Property or group of Mortgaged Properties are derived from
information furnished by the related borrowers. There can be no assurance
that 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. 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.
(3) "Underwritable Cash Flow" as used herein with respect to any
Mortgaged Property or group of Mortgaged Properties generally means cash
flow (as determined by MSMC) for a twelve 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 (June 1997 rent rolls for majority of Mortgaged
Properties) provided by the related borrower, or, in the case of hotels,
revenue for the prior 12-month period ended May 1997 (the Ashford
Financial Pool Properties) and June 1997 (the Grand Kempinski Property).
b. Management Fees: Management fees used in the calculation of
Underwritable Cash Flow are generally as follows, except as listed on the
chart below: 3.5% of total departmental revenues for hotels; 3.5% of net
rental income for multi-family properties; 5.0% of base rent plus
percentage rent for retail properties; and 3.0% of effective gross income
for office properties.
c. Franchise Fees: Franchise fees used in the calculation of
Underwritable Cash Flow for hotel properties are calculated as 5.5% of
Rooms Revenue.
d. Capital Reserves: Annual reserves assumed in calculating Underwritable
Cash Flow are as follows, except as listed on the chart below: $0.20/sf
for office; $0.20/sf for retail properties; the Ashford Pool Properties:
5.0% of total departmental revenues for the hotel properties; the Mansion
Grove Property: $400/unit; and the Grand Kempinski Property: 4.5% of total
departmental revenues.
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<PAGE>
e. Rollover Expenses: Annual expenses of tenant rollover (i.e., tenant
improvements ("TI") and leasing commissions ("LC")) assumptions used in
calculating Underwritable Cash Flow are generally as follows:
<TABLE>
<CAPTION>
TENANT IMPROVEMENT LEASING COMMISIONS(1)
BASE RENT ------------------ ---------------------
PER AVG. LEASE RENEWAL NEW RENEWAL NEW RENEWAL MANAGEMENT CAPITAL
SQUARE FOOT TERM (YRS) PROBABILITY TENANT TENANT TENANT TENANT FEES RESERVESS
------------- ------------ ------------- -------- -------- ------- ------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
605 Third Avenue(2) ..... NA 10 75% $35.00 $10.00 $14.00 $7.00 2.5% $0.20
Edens & Avant Pool
Retail................... $10 5 65% $ 2.00 $ 0 $ 2.50 $1.25 3.0%-4.0% $0.15
Edens & Avant Pool
Office................... $13 5 65% $ 7.00 $ 1.00 $ 3.25 $1.63 4.0% $0.20
Ashford Financial Pool ... $15 5 65% $ 7.00 $ 1.00 $ 3.75 $1.88 3.0% $0.20
Fashion Mall.............. NA 10 65% $15.00 $ 5.00 $ 2.50 $1.50 5.0% $0.20
Yorktown Shopping Center NA 7 65% $15.00 $ 5.00 $ 2.50 $1.50 5.0% $0.20
Arrowhead Towne Center ... NA 10 65% $15.00 $ 5.00 $ 2.50 $1.50 5.0% $0.20
Mark Centers Pool......... NA 5 65% $ 5.00 $ 0 NA NA 4.0% $0.15
Westgate Mall............. NA 10 65% $15.00 $ 5.00 $ 2.50 $1.50 5.0% $0.20
Westshore Mall............ NA 10 65% $15.00 $ 5.00 $ 2.50 $1.50 5.0% $0.20
</TABLE>
- ------------
(1) Leasing commissions are included in tenant improvements.
(2) Specific reserves for tenant improvements and leasing commissions have
been established for major tenants.
f. Occupancy: In calculating Underwritable Cash Flow, adjustments were
made to total revenues to reflect maximum occupancies generally as the
lower of actual or 95% for retail, hotel, office and multifamily
properties. The only exception of any significance was for the 605 Third
Avenue Loan; an occupancy rate of 97% was used for the Third Avenue
Property.
g. Real Estate Taxes: In calculating Underwritable Cash Flow, historical
1996 real estate tax expense as provided by the borrower was generally
used.
h. Expenses: In calculating expenses, historical 1996 expenses based on
operating statements provided by the related borrower were generally used
with the following exceptions: 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.
(4) "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 Edens & Avant Pool Property, based on
Underwritable Cash Flow of $20,253,312 and a 9.0% capitalization rate.
"Total Value" is the aggregate Value for all of the Mortgaged Properties.
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<PAGE>
(5) "Allocated Loan Amount" means, for each Mortgaged Property, the
portion of the principal amount of the related Mortgage Loan allocated to
such Mortgaged Property for certain purposes (including, without
limitation, determining the release prices of properties, if the Mortgage
Loan permits such releases) under such Mortgage Loan. The Allocated Loan
Amount for each Mortgaged Property securing a Mortgage Loan was determined
generally based on the ratio of the Underwritable Cash Flow or net
operating income (calculated as provided in the related Mortgage Loan) or
appraised value, or some combination thereof, of such Mortgaged Property
to the Aggregate Net Cash Flow, net operating income, appraised value, or
some combination thereof, of all the Mortgaged Properties securing such
Mortgage Loan. The Allocated Loan Amount for each Mortgaged Property may
be adjusted upon the payment of principal of the related Mortgage Loan,
whether upon amortization, prepayment, defeasance or otherwise. "Cut-Off
Date Allocated Loan Amount" means for each Mortgaged Property the
Allocated Loan Amount of such Mortgaged Property as of the Cut-Off Date.
(6) "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 twelve month period commencing on the Cut-Off Date.
(7) "Effective Maturity Date" for each Mortgage Loan is the date on which
(i) such Mortgage Loan commences to accrue interest at the Revised
Interest Rate for such Mortgage Loan, (ii) all excess cash flow for such
Mortgage Loan is required to be applied to payment of principal of such
Mortgage Loan and (iii) such Mortgage Loan may be voluntarily repaid by
the borrower without payment of a yield maintenance charge or prepayment
premium. There can be no assurance that any Mortgage Loan will be repaid
on its Effective Maturity Date.
(8) "DSCR" or "Debt Service Coverage Ratio" means (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 debt service
coverage ratios for such Mortgage Loans and Mortgaged Properties as
calculated pursuant to the definition of such ratio as set forth in the
related loan documents.
(9) "Loan to Value Ratio" or "LTV" or "Cut-Off Date LTV" means with
respect to any Mortgage Loan, the principal balance of such Mortgage Loan
as of the Cut-Off Date divided by the aggregate value of the Mortgaged
Properties securing such Mortgage Loan.
(10) "Effective Maturity Date Balance," for each of the Mortgage Loans,
is equal to the outstanding principal amount of such Mortgage Loan as of
its Effective Maturity Date, taking into account scheduled amortization,
assuming no prepayments or defaults.
(11) "Effective Maturity Date LTV" or "EMD LTV" means with respect to any
Mortgage Loan, the Effective Maturity Date Balance for such Mortgage Loan
divided by the aggregate Value of the Mortgaged Properties securing such
Mortgage Loan as of the Cut-Off Date. Such calculation thus assumes that
the appraised value of the Mortgaged Property or Mortgaged Properties
securing a Mortgage Loan on the Effective Maturity Date is the same as the
Value or 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.
(12) "SF/Units" means, in the case of office or retail properties, total
square footage or GLA (as provided by the borrower), and in the case of
multifamily properties and hotel properties, the number of apartment units
and hotel rooms, respectively.
(13) "GLA" means the square footage of the gross leaseable or rentable
area.
(14) "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".
(15) "Annualized Base Rent" is calculated by multiplying by 12 the
contractual monthly base rent, 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.
(16) "Average Base Rent Per Square Foot" is calculated by dividing
Annualized Base Rent or annual base rent by total GLA as of the same date
as of which the Annualized Base Rent or annual base rent was calculated.
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(17) "First P&I Date" means the first Due Date on which the borrower is
required to pay both principal and interest.
(18) "Original Principal Balance" means the principal balance of the
Mortgage Loan at origination.
(19) "Anticipated Term" means the term of the Mortgage Loan in months
from the date of the first full monthly payment thereon to the related
Effective Maturity Date or Maturity Date, as applicable.
(20) "Sales per SF" means sales, based on the most recent sales data
provided by the applicable 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.
(21) The term "psf" means per square foot.
(22) "Occupancy Costs" means the sum of minimum rent, percentage rent,
and tenant reimbursements divided by sales.
(23) "LTM" means, with respect to any period, the last 12 months
preceding such period.
(24) "Balloon Balance" means, with respect to any Mortgage Loan, the
outstanding principal balance of such Mortgage Loan on its stated maturity
date or Effective Maturity Date, as applicable.
In addition to the tables set forth below, investors should review the
accompanying notes in the prior section when reading the following
information. A table of Mortgaged Property characteristics is attached as
Annex A to this Prospectus Supplement.
S-67
<PAGE>
MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
ORIGINAL REMAINING
TERM TO TERM TO
EFFECTIVE EFFECTIVE CUT-OFF
ORIGINAL ORIGINAL MATURITY MATURITY EFFECTIVE DATE
NUMBER OF PRINCIPAL MORTGAGE AMORTIZATION DATE DATE MATURITY STATED PRINCIPAL
LOAN NAME PROPERTIES BALANCE RATE (MOS.) (MOS.) (MOS.) DATE MATURITY BALANCE(1)
- ----------------- ---------- ------------ ---------- ------------ --------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
605 Third Avenue . 1 $120,000,000 7.9170% (2) 120 120 10/1/07 10/1/27 $120,000,000
Edens & Avant
Pool............. 63 82,750,000 7.3000% (2) 120 119 8/31/07 8/31/07 82,750,000
Ashford Financial
Pool............. 15 74,500,000 8.6000% 240 119 111 1/21/07 2/1/17 73,537,438
Mansion Grove
Apartments....... 1 73,000,000 8.3500% 360 120 117 7/1/07 7/1/27 72,862,226
North Shore
Towers........... 1 71,700,000 9.3200%(4) 360 120 86 12/1/04 12/1/04 70,280,966
Fashion Mall-- ... 1 65,000,000 7.8500% 360 119 116 6/13/07 7/1/27 64,864,238
Yorktown Shopping
Center........... 1 60,000,000 8.2500% 300 120 81 7/1/04 7/1/04 57,304,459
Grand Kempinski
Hotel............ 1 55,000,000 8.6300% 300 120 120 10/1/07 10/1/22 55,000,000
Arrowhead Towne
Center........... 1 50,000,000 8.6000% 360 84 51 1/1/02 1/1/02 48,899,962
Mark Centers
Pool............. 17 45,929,800 8.8400% 300 119 108 10/31/06 11/1/21 45,449,576
Westgate Mall..... 1 43,023,168 9.2500% 300 119 110 12/1/06 12/1/06 42,681,517
Westshore Mall ... 1 21,000,000 8.0700% 360 84 77 3/1/04 3/1/27 20,900,775
============ ============
Total/Weighted
Average.......... 104 $761,902,968 8.3394% 322 116 105 $754,531,157
========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE AT
PERCENT OF EFFECTIVE
CUT-OFF MATURITY EFFECTIVE
DATE DATE OR ANNUAL UNDERWRITABLE CUT-OFF MATURITY
PRINCIPAL MATURITY APPRAISED DEBT CASH DATE DATE
LOAN NAME BALANCE DATE VALUE(3) SERVICE FLOW DSCR LTV LTV
- ----------------- ---------- ------------ ---------- ------------ --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
605 Third Avenue . 15.9% $105,000,000 $ 180,000,000 $ 9,500,400 $ 19,403,628 2.04x 66.7% 58.3%
Edens & Avant
Pool............. 11.0 82,750,000 225,036,809 6,040,750 20,253,313 3.35x 36.8% 36.8%
Ashford Financial
Pool............. 9.7 52,574,915 144,450,000 7,815,015 16,886,490 2.16x 50.9% 36.4%
Mansion Grove
Apartments....... 9.7 64,491,537 118,000,000 6,642,780 9,246,143 1.39x 61.7% 54.7%
North Shore
Towers........... 9.3 64,482,117 350,000,000 7,121,987 20,124,264 2.83x 20.1% 18.4%
Fashion Mall-- ... 8.6 56,941,015 116,000,000 5,642,012 9,748,888 1.73x 55.9% 49.1%
Yorktown Shopping
Center........... 7.6 48,765,713 119,500,000 5,676,000 7,570,166 1.33x 48.0% 40.8%
Grand Kempinski
Hotel............ 7.3 45,114,370 90,000,000 5,372,443 9,289,725 1.73x 61.1% 50.1%
Arrowhead Towne
Center........... 6.5 46,597,454 105,000,000 4,656,000 8,356,914 1.79x 46.6% 44.4%
Mark Centers
Pool............. 6.0 37,962,282 71,200,000 4,565,057 6,847,352 1.50x 63.8% 53.3%
Westgate Mall..... 5.7 35,890,982 65,000,000 4,421,311 5,321,105 1.20x 65.7% 55.2%
Westshore Mall ... 2.8 19,438,469 33,000,000 1,861,399 3,119,597 1.68x 63.3% 58.9%
========== ============ ============== =========== ============
Total/Weighted
Average.......... 100.0% $660,008,854 $1,617,186,809 $69,315,153 $136,167,585 2.00x 52.7% 45.5%
========== ============ ============== =========== ============
</TABLE>
- ------------
(1) Cut-Off Date is October 1, 1997.
(2) 605 Third Avenue Loan is an interest only loan to its Effective
Maturity Date; the Edens & Avant Pool Loan is an interest only loan.
(3) Edens & Avant Pool Appraised Value is calculated by applying a 9.0% cap
rate to the Underwritable Cash Flow.
(4) The portion of the Mortgage Loan payable to the Trust Fund will be net
of the Hancock Retained Interest (as defined herein) and will be equal
to 6.75% per annum.
S-68
<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.]
LOAN AMOUNT ALLOCATION (IN $MM)
PROPERTY AMOUNT PERCENTAGE
-------- ------ ----------
605 Third Avenue $120.0 15.9%
Edens & Avant Pool $ 82.7 11.0%
Ashford Financial Pool $ 74.5 9.7%
Mansion Grove Apartments $ 73.0 9.7%
North Shore Towers $ 71.7 9.3%
Fashion Mall $ 65.0 8.6%
Yorktown Shopping Center $ 60.0 7.6%
Grand Kempinski Hotel $ 55.0 7.3%
Arrowhead Town Center $ 50.0 6.5%
Mark Centers Pool $ 45.9 6.0%
Westgate Mall $ 43.0 5.7%
Westshore Mall $ 21.0 2.8%
MORTGAGED PROPERTIES BY LOCATION
<TABLE>
<CAPTION>
PERCENTAGE
CUT-OFF OF CUT-OFF
DATE DATE
NUMBER OF ALLOCATED ALLOCATED
STATE PROPERTIES LOAN AMOUNT LOAN AMOUNT
- -------------- ------------ -------------- -------------
<S> <C> <C> <C>
New York....... 6 $199,500,169 26.4%
California..... 3 94,577,979 12.5
Texas.......... 2 68,226,868 9.0
Indiana........ 1 64,864,238 8.6
South
Carolina...... 45 62,865,695 8.3
Illinois....... 1 57,304,459 7.6
Arizona........ 1 48,899,962 6.5
Ohio........... 1 42,681,517 5.7
Pennsylvania .. 10 29,125,458 3.9
Florida........ 4 21,770,709 2.9
Michigan....... 1 20,900,775 2.8
North
Carolina...... 11 10,677,820 1.4
Tennessee...... 3 8,656,771 1.1
Georgia........ 6 6,122,631 0.8
Alabama........ 2 5,915,496 0.8
New Jersey..... 2 4,244,443 0.6
Massachusetts . 2 3,553,487 0.5
Virginia....... 2 3,556,893 0.5
Nebraska....... 1 1,085,788 0.1
------------ -------------- -------------
Total/
Weighted
Average....... 104 $754,531,158 100.0%
============ ============== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PERCENTAGE WEIGHTED
OF TOTAL PERCENTAGE AVERAGE WEIGHTED
UNDERWRITABLE UNDERWRITTEN OF TOTAL CUT-OFF AVERAGE
STATE CASH FLOW CASH FLOW VALUE VALUE DATE LTV DSCR
- -------------- --------------- -------------- -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
New York....... $ 41,005,056 30.1% $ 543,800,000 33.6% 49.7% 2.32x
California..... 14,373,035 10.6 155,400,000 9.6 59.3% 1.57x
Texas.......... 12,440,513 9.1 115,850,000 7.2 59.1% 1.81x
Indiana........ 9,748,888 7.2 116,000,000 7.2 55.9% 1.73x
South
Carolina...... 15,081,865 11.1 166,030,757 10.3 38.0% 3.27x
Illinois....... 7,570,166 5.6 119,500,000 7.4 48.0% 1.33x
Arizona........ 8,356,914 6.1 105,000,000 6.5 46.6% 1.79x
Ohio........... 5,321,105 3.9 65,000,000 4.0 65.7% 1.20x
Pennsylvania .. 4,120,484 3.0 45,200,000 2.8 63.8% 1.50x
Florida........ 4,195,753 3.1 39,100,000 2.4 51.8% 2.11x
Michigan....... 3,119,597 2.3 33,000,000 2.0 63.3% 1.68x
North
Carolina...... 2,695,100 2.0 29,945,550 1.9 36.8% 3.35x
Tennessee...... 2,151,718 1.6 23,907,979 1.5 36.8% 3.35x
Georgia........ 1,219,842 0.9 13,277,522 0.8 48.5% 2.55x
Alabama........ 970,193 0.7 8,675,000 0.5 63.8% 1.50x
New Jersey..... 1,763,005 1.3 14,200,000 0.9 50.9% 2.16x
Massachusetts . 1,159,565 0.9 11,200,000 0.7 50.9% 2.16x
Virginia....... 763,523 0.6 8,500,000 0.5 54.1% 2.00x
Nebraska....... 111,263 0.1 3,600,000 0.2 50.9% 2.16x
--------------- -------------- -------------- ------------
Total/
Weighted
Average....... $136,167,585 100.0% $1,617,186,809 100.0% 52.7% 2.000x
=============== ============== ============== ============
</TABLE>
S-69
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
MORTGAGED PROPERTY LOCATIONS
Nebraska Illinois Indiana
1 property 1 property 1 property
$1,085,788 $57,304,459 $64,864,238
0.1% of total 7.6% of total 8.6% of total
Ohio Michigan Pennsylvania
1 property 1 property 10 properties
$42,681,517 $20,900,775 $29,125,458
5.7% of total 2.8% of total 3.9% of total
New York Massachusetts New Jersey
6 properties 2 properties 2 properties
$199,500,169 $3,553,487 $4,244,443
26.4% of total 0.5% of total 0.6% of total
Virginia North Carolina South Carolina
2 properties 11 properties 45 properties
$3,556,893 $10,677,820 $62,865,695
0.5% of total 1.4% of total 8.3% of total
Florida Georgia Alabama
4 properties 6 properties 2 properties
$21,770,709 $6,122,631 $5,915,496
2.9% of total 0.8% of total 0.8% of total
Tennessee Texas Arizona
3 properties 2 properties 1 property
$8,656,771 $68,226,868 $48,899,962
1.1% of total 9.0% of total 6.5% of total
California
3 properties
$94,577,979
12.5% of total
S-70
<PAGE>
RANGE OF LOAN-TO-VALUE RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF WEIGHTED
NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED
MORTGAGED PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
LOAN-TO-VALUE RATIO PROPERTIES BALANCE BALANCE RATE DSCR LTV
------------ -------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
15.00%-45.00%............ 64 $153,030,966 20.30% 8.23% 3.11x 29.10%
45.01%-55.00%............ 17 179,741,859 23.80 8.49% 1.80x 48.80%
55.01%-65.00%............ 21 259,076,815 34.30 8.35% 1.59x 60.60%
65.01%-75.00%............ 2 162,681,517 21.60 8.27% 1.82x 66.40%
------------ -------------- ---------------
Totals/Weighted
Averages................ 104 $754,531,157 100.00% 8.34% 2.00x 52.70%
============ ============== ===============
</TABLE>
RANGE OF LOAN-TO-VALUE RATIOS AS OF THE EFFECTIVE MATURITY DATE(1)
<TABLE>
<CAPTION>
EFFECTIVE
PRINCIPAL MATURITY
BALANCE AT PERCENTAGE OF WEIGHTED DATE
NUMBER OF EFFECTIVE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED
MORTGAGED MATURITY PRINCIPAL MORTGAGE AVERAGE AVERAGE
LOAN-TO-VALUE RATIO PROPERTIES DATE BALANCE RATE DSCR LTV
------------ -------------- --------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
15.00%-40.00%............ 79 $199,807,032 30.27% 8.35% 2.80x 30.80%
40.01%-50.00%............ 3 152,304,182 23.08 8.20% 1.62x 45.00%
50.01%-60.00%............ 22 307,897,640 46.65 8.40% 1.67x 55.40%
------------ -------------- ---------------
Totals/Weighted
Averages................ 104 $660,008,854 100.00% 8.34% 2.00x 45.50%
============ ============== ===============
</TABLE>
- ------------
(1) Effective Maturity Date used for EMD Mortgage Loans and stated maturity
date for the remaining Mortgage Loans.
REMAINING TERM TO EFFECTIVE MATURITY DATE AS OF THE CUT-OFF DATE(1)
<TABLE>
<CAPTION>
REMAINING TERM TO PERCENTAGE OF WEIGHTED
EFFECTIVE MATURITY DATE NUMBER OF CUT-OFF DATE CUT-OFF DATE AVERAGE WEIGHTED WEIGHTED
AS OF THE CUT-OFF DATE, MORTGAGED PRINCIPAL PRINCIPAL MORTGAGE AVERAGE AVERAGE
(MOS.) PROPERTIES BALANCE BALANCE RATE DSCR LTV
------------ -------------- --------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
50-72........................ 1 $ 48,899,962 6.50% 8.60% 1.79x 46.60%
72-84........................ 2 78,205,234 10.40 8.20% 1.43x 52.10%
84-96........................ 1 70,280,966 9.30 9.32% 2.83x 20.10%
96-108....................... 17 45,449,576 6.00 8.84% 1.50x 63.80%
108-120...................... 83 511,695,419 67.80 8.16% 2.04x 56.80%
------------ -------------- ---------------
Totals/Weighted Averages .... 104 $754,531,157 100.00% 8.34% 2.00x 52.70%
============ ============== ===============
</TABLE>
- ------------
(1) Effective Maturity Date used for EMD Mortgage Loans and stated maturity
date for the remaining Mortgage Loans.
S-71
<PAGE>
MORTGAGED PROPERTIES BY PRIMARY PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENTAGE
CUT-OFF OF CUT-OFF
NUMBER PERCENTAGE DATE DATE
OF OF ALLOCATED ALLOCATED APPRAISED
PROPERTY TYPE PROPERTIES PROPERTIES LOAN AMOUNT LOAN AMOUNT SF/UNITS VALUE
- -------------- ------------ ------------ -------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Regional Mall . 5 4.80% $234,650,951 31.1% 2,568,919 $ 438,500,000
Multifamily.... 2 1.90 143,143,192 19.0 2,721 468,000,000
Office......... 4 3.80 127,493,934 16.9 1,202,026 196,348,327
Hotel.......... 15 14.40 124,983,951 16.6 3,451 228,450,000
Other Retail .. 78 75.00 124,259,130 16.5 6,595,234 285,888,481
------------ ------------ -------------- ------------- ---------------
Total/Weighted
Averages ..... 104 100.00% $754,531,158 100.0% $1,617,186,809
============ ============ ============== ============= ===============
</TABLE>
<TABLE>
<CAPTION>
CUT-OFF
DATE PERCENTAGE
ALLOCATED 1996 OF TOTAL WEIGHTED WEIGHTED
LOAN AMOUNT TOTAL 1996 UNDERWRITABLE UNDERWRITABLE AVERAGE AVERAGE
PROPERTY TYPE PER SF/UNIT REVENUE NOI CASH FLOW CASH FLOW LTV DSCR
- -------------- ------------- -------------- -------------- --------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Regional Mall . $ 91.34 $ 51,600,677 $ 35,909,852 $ 34,116,670 25.1% 54.5% 1.55x
Multifamily.... $52,606.83 12,248,641 9,363,629 29,370,407 21.6 41.3 2.10x
Office......... $ 106.07 44,883,590 24,482,861 21,055,602 15.5 65.3 2.09x
Hotel.......... $36,216.73 98,121,439 28,854,082 25,455,590 18.7 55.4 1.97x
Other Retail .. $ 18.84 35,900,861 26,974,999 26,169,315 19.2 46.7 2.68x
-------------- -------------- --------------- --------------- ---------- ----------
Total/Weighted
Averages ..... $242,755,208 $125,585,423 $136,167,585 100.0% 52.7% 2.00x
============== ============== =============== =============== ========== ==========
</TABLE>
PRIMARY PROPERTY TYPE
BY CUT-OFF DATE ALLOCATED LOAN AMOUNT
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
Regional Mall
31.1%
Multifamily
19.0%
Office
16.9%
Hotel
16.6%
Retail
16.5%
S-72
<PAGE>
UNDERWRITING STANDARDS
General. The underwriting standards utilized in connection with the
origination or purchase of the Mortgage Loans addressed, with respect to each
Mortgaged Property, property valuations and property financial performance,
environmental conditions and physical conditions, as described below.
Appraisals and Market Studies. An appraisal of each of the Mortgaged
Properties was performed except for the North Shore Towers Property and the
Edens & Avant Pool Properties. A marketability study was performed for the
North Shore Towers Property and market studies were performed for each of the
Edens & Avant Pool Properties. The appraisals were performed by independent
MAI appraisers and 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 marketability study and the market studies were also
performed by independent MAI appraisers; however while the marketability
study did give an opinion of value, the market studies do not. LTV figures
herein for the Edens & Avant Pool Loan are based on a 9% capitalization rate
on Underwritable Cash Flow. See "Risk Factors--The Mortgage
Loans--Limitations of Appraisals and Market Studies" 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 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 eighteen 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--The Mortgage Loans--Environmental Law Considerations"
herein.
Property Condition Assessments. Inspections of the Mortgaged Properties
were conducted by licensed engineers prior to origination of the Mortgage
Loans. Such inspections were generally commissioned to assess the structure,
exterior walls, roofing, interior construction, mechanical and electrical
systems and general conditions of the site, buildings and other improvements
located at each Mortgaged Property. The resulting reports of the inspecting
engineers (the "Property Condition Reports") indicated, where appropriate, a
variety of deferred maintenance items and recommended capital improvements
with respect to each Mortgaged Property, as well as the estimated cost of
such items and improvements. In each instance, the related Originator or MSMC
either determined that such items and improvements were being addressed by
the related borrowers in a satisfactory manner, or required that they be
addressed post-closing and, in some instances, that reserves be established
to cover the related costs. See "Description of the Mortgaged Properties and
the Mortgage Loans" herein for descriptions of the reserves or other security
provided for deferred maintenance and capital improvements related to each
Mortgaged Property. See also "Risk Factors--The Mortgage
Loans--Considerations Relating to Engineering Matters" herein.
There are violations of the ADA at some of the Mortgaged Properties that
are not expected to have a material impact on the value of or earnings from
such properties. See "Risk Factors--The Mortgage Loans--Costs of Compliance
with Americans with Disabilities Act."
Zoning and Building Code Compliance. Each of the borrowers has, under its
related Mortgage or loan agreement, generally represented as of the date on
which the Mortgage Loan was originated and/or provided a legal opinion, a
title insurance policy endorsement and/or other evidence, to the effect that
the use and operation of the related Mortgaged Properties are in compliance
in all material respects with applicable zoning, land-use, environmental,
building, fire and health ordinances, rules, regulations and orders
applicable to the related Mortgaged Properties. See "Risk Factors--The
Mortgage Loans--Zoning Compliance; Inspections."
S-73
<PAGE>
Property Management. The manager for each Mortgaged Property was approved
by MSMC in connection with the origination or purchase of the related
Mortgage Loan. Generally, a manager is responsible for responding to changes
in the local market, planning and implementing the rental rate or operating
structure, which may include establishing levels of rent payments or rates,
and insuring that maintenance and capital improvements are carried out in a
timely fashion. Except in the case of the Arrowhead Towne Center Loan,
Yorktown Shopping Center Loan, Westgate Mall Loan and North Shore Towers
Loan, 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-74
<PAGE>
DESCRIPTION OF THE MORTGAGED PROPERTIES AND THE MORTGAGE LOANS
605 THIRD AVENUE: THE BORROWER; THE PROPERTY
The Loan. The 605 Third Avenue Loan was originated by Secore and acquired
by MSMC on September 10, 1997. The 605 Third Avenue Loan had a principal
balance at origination of $120,000,000 and has a principal balance as of the
Cut-Off Date of $120,000,000. It is secured by, among other things, a
Mortgage (the "Third Avenue Mortgage") encumbering a single commercial office
building and an adjacent parking garage located at 605 Third Avenue, New
York, New York (collectively, the "Third Avenue Property").
The Borrower. 605 Third Avenue LLC (the "Third Avenue Borrower") is a
special purpose New York limited liability company whose purpose and business
is limited to acquiring, owning, holding, leasing, financing, mortgaging and
selling the Third Avenue Property and conducting such other activities as may
be necessary or appropriate to promote or conduct such business. The Third
Avenue Borrower has no material assets other than the Third Avenue Property
and related interests. The Third Avenue Borrower is owned 49.5% by Hadwin LLC
(the "Fisher Owner"), a special purpose New York limited liability company
formed solely for the purpose of acting as a non-managing member of the Third
Avenue Borrower and borrowing the Third Avenue Mezzanine Loan described below
under "--605 Third Avenue: The Loan--Mezzanine Debt", 0.5% by FB 605 Corp.
(the "Fisher SPC"), a special purpose New York corporation formed solely for
the purpose of acting as a managing member of the Third Avenue Borrower,
49.5% by Hawaiian 605 Mezzanine LLC (the "Hawaiian Owner"), a special purpose
New York limited liability company formed solely for the purpose of acting as
a non-managing member of the Third Avenue Borrower and borrowing the Third
Avenue Mezzanine Loan described below under "--605 Third Avenue: The
Loan--Mezzanine Debt," and 0.5% by Hawaiian 605 Special Corp. (the "Hawaiian
SPC"), a special purpose New York corporation formed solely for the purpose
of acting as a managing member of the Third Avenue Borrower. The Fisher Owner
is owned 1% by Fisher 605 Special Corp. (the "Fisher Mezzanine SPC"), a
special purpose New York corporation formed solely for the purpose of acting
as a managing member of Fisher Owner, and 99% by Fisher 40th & 3rd Company
("Fisher 40th & 3rd"), a New York general partnership. 100% of the stock of
both Fisher SPC and Fisher Mezzanine SPC and 100% of the partnership
interests of Fisher 40th & 3rd are owned by members of the Fisher family. The
Hawaiian Owner is owned 1% by Hawaiian 605 Mezzanine Special Corp. (the
"Hawaiian Mezzanine SPC"), a special purpose New York corporation formed
solely for the purpose of acting as a managing member of Hawaiian Owner, and
99% by Hawaiian Realty, Inc. ("Hawaiian Realty"), a New York corporation.
100% of the stock of both Hawaiian SPC and Hawaiian Mezzanine SPC is owned by
Hawaiian Realty. 100% of the stock of Hawaiian Realty is owned by National
Bulk Carriers, Inc., which in turn is owned by beneficiaries of the estate of
D.K. Ludwig.
The Property. The Third Avenue Property consists of a 43 story office
building constructed in 1963, with an adjacent 7 story tiered parking garage,
located on Third Avenue between 39th and 40th Streets in New York, New York.
The Third Avenue Property has a GLA of approximately 984,447 square feet
(946,369 net rentable square feet) and the parking garage contains 750
parking spaces. Public entrances to the building are grade level and include
a front entrance as well as separate entrances to the ground floor retail
spaces occupied by Republic National Bank and Cosmetics Plus. As of June 30,
1997, the occupancy rate was 98.0%. Major tenants include John Wiley & Sons,
Inc., a publishing company specializing in professional books, textbooks and
science and professional books, Neuberger & Berman, an investment management
firm, Grant Thornton, an accounting firm and ESPN, Inc., a sports
broadcasting network. Neuberger & Berman has executed leases for an
additional 122,710 square feet beginning in 1999 and 2000, increasing its net
rentable area to 262,158 square feet. Upon taking occupancy of this space,
Neuberger & Berman will become the building's largest tenant, occupying 27.7%
of the net rentable area. John Wiley & Sons will continue to occupy 24.4%,
Grant Thorton 5.9% and ESPN 5.7%, bringing the top four tenant total to 63.7%
of the building's net rentable area. An appraisal completed on August 1, 1997
determined a value of $180,000,000 for the Third Avenue Property.
Market Overview. According to a New York area year-end market report for
1996 prepared by Cushman & Wakefield, Inc., the New York office real estate
overall market vacancy has declined from approximately 16% as of year-end
1995 to approximately 12.3% as of year-end 1996. Vacancy rates for the
midtown Manhattan Class A office market have fallen below 10%.
Location/Access. The Third Avenue Property is located in the Grand Central
sub-market midtown. This sub-market encompasses the area around Grand Central
Station and is generally considered to be the area between Fifth and Second
Avenues and 39th and 47th Streets. Approximately 80 office properties
comprising roughly 40 million square feet are located in this area. The
sub-market is close to Grand Central Station, a hub of regional
transportation.
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Operating History. The following table shows certain information regarding
the operating history of the Third Avenue Property.
ADJUSTED NET OPERATING INCOME (000S)
<TABLE>
<CAPTION>
1997
1994 1995 1996 UNDERWRITABLE NOI
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
Total Revenue.......... $42,062 $42,742 $41,791 $41,778
Total Expense.......... $17,572 $18,407 $18,967 $19,819
--------- --------- --------- -----------------
Net Operating
Income................ $24,491 $24,335 $22,823 $21,959
========= ========= ========= =================
</TABLE>
Occupancy History. The following table shows certain historical
information regarding average occupancy of the Third Avenue Property:
<TABLE>
<CAPTION>
OCCUPANCY PERIOD OCCUPANCY
- ---------------- -----------
<S> <C>
June 30, 1997 .. 98.0%
1996 ........... 98.1%
1995 ........... 98.6%
1994 ........... 100.0%
1993 ........... 99.5%
1992 ........... 99.5%
1991 ........... 85.2%
1990 ........... 99.0%
1989 ........... 92.8%
1988 ........... 100.0%
1987 ........... 100.0%
1986 ........... 100.0%
</TABLE>
Major Tenant Summary. The following table shows certain information
regarding the major tenants of the Third Avenue Property.
<TABLE>
<CAPTION>
TENANT % OF % OF TOTAL
NET RENTABLE TOTAL NET ANNUALIZED ANNUALIZED ANNUALIZED BASE RENT LEASE
TENANT NAME AREA (SF) RENTABLE AREA BASE RENT BASE RENT PSF EXPIRATION
- --------------------------- -------------- --------------- ------------- ------------ -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
John Wiley & Sons 231,047 24.4% $ 8,682,754 27.1% $37.58 04/30/03
Neuberger & Berman 139,448 14.7 4,677,992 14.6 33.55 02/28/07
Unisys(1) 77,144 8.2 3,092,463 9.7 40.09 04/30/99
Rollins Hudig Hall(2) 71,080 7.5 2,772,120 8.7 39.00 04/30/00
Grant Thornton 55,688 5.9 1,733,016 5.4 31.12 08/31/99
ESPN, Inc. 53,674 5.7 1,573,947 4.9 29.32 10/31/04
Univision Holdings 35,814 3.8 1,157,508 3.6 32.32 06/30/10
Stinnes 25,560 2.7 945,720 3.0 37.00 02/28/05
Snow, Becker, Kroll 25,270 2.7 717,830 2.2 28.41 08/31/05
Esanu Katsky Korins & Siger 19,867 2.1 566,210 1.8 28.50 06/30/08
-------------- --------------- ------------- ------------ --------------------
Total Major Tenants 734,592 77.6% $25,919,560 81.0% $35.28
Other Tenants 193,082 20.4 6,090,083 19.0 31.54
Vacant Tenants 18,695 2.0 0 0.0 0.00
Total Net Rentable Area 946,369 100.0% $32,009,643 100.0% $34.51(3)
============== =============== ============= ============ ====================
</TABLE>
- ------------
(1) Neuberger & Berman currently sub-leases and has an executed lease
beginning in 1999 for 66,625 of the 77,144 square feet occupied by
Unisys. The remaining 10,519 square feet is currently sub-leased to
Cosmetics Plus.
(2) Space has been re-measured to 74,780 square feet. Neuberger & Berman
has an executed lease beginning in 2000 for 75% of this space (56,085
square feet.) Neuberger & Berman is currently subleasing this space.
(3) Excludes vacant space of 18,695 square feet.
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<PAGE>
Lease Roll-Over Summary. Over 50% of the leased square footage that
expires in 1999 is currently leased by Unisys Corporation, with Neuberger &
Berman being the primary occupant. Neuberger & Berman has already executed
lease agreements for their occupied portion of this square footage beginning
in 1999.
<TABLE>
<CAPTION>
NUMBER OF
TENANTS EXPIRING PERCENT OF
EXPIRATION YEAR EXPIRING SQUARE FEET SQUARE FEET
- -------------------- ----------- ------------- -------------
<S> <C> <C> <C>
Vacant .............. 18,695 2.00%
1997 ................ 2 17,996 1.90
1999(2) ............. 7 150,722 15.90
2000 ................ 5 95,844 10.10
2001 ................ 3 8,000 0.80
2003 ................ 3 231,047 24.40
2004 ................ 7 72,321 7.60
2005 ................ 8 69,468 7.30
2006 ................ 2 29,568 3.10
2007 or Later ....... 9 252,708 26.70
----------- ------------- -------------
Total/Weighted Ave. 46 946,369 100.00%
=========== ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUMULATIVE ANNUALIZED CUMULATIVE
PERCENT OF ANNUALIZED BASE RENT PERCENT OF PERCENT OF
EXPIRATION YEAR SQUARE FEET BASE RENT PER SF BASE RENT BASE RENT
- -------------------- ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Vacant .............. 2.00% $ 0 $ 0.00 0.00% 0.00%
1997 ................ 3.90 452,400 25.14 1.40 1.40
1999(2) ............. 19.80 5,530,256 36.69 17.30 18.70
2000 ................ 29.90 3,660,384 38.19 11.40 30.10
2001 ................ 30.80 225,500 28.19 0.70 30.80
2003 ................ 55.20 8,682,754 37.58 27.10 58.00
2004 ................ 62.80 2,127,207 29.41 6.60 64.60
2005 ................ 70.20 2,185,268 31.46 6.80 71.40
2006 ................ 73.30 1,161,952 39.30 3.60 75.10
2007 or Later ....... 100.00% 7,983,922 31.59 24.90 100.00%
------------- ------------ ------------
Total/Weighted Ave. $32,009,643 $34.51 100.00%
============= ============ ============
</TABLE>
- ------------
(1) Based on June 30, 1997 rent roll
(2) 1999 expirations include: Unysis (77,144 sq.ft.), Grant Thornton
(53,688 sq.ft.), and Smith Barney (17,890 sq.ft.). Neuberger & Berman
has already executed leases for 66,625 sq.ft. of the space leased by
Unysis. Neuberger & Berman currently subleases this space.
Environmental Report. A Phase I site assessment was performed dated June
20, 1997 on the Third Avenue Property. The Third Avenue Property contains
ACMs which will cost between $2,400,000 and $3,000,000 to abate over the next
several years as part of tenant improvements. The Third Avenue Borrower is
obligated to reserve $25,000,000 over 9 years for tenant improvements,
including ACMs abatement. The Phase I assessment did not reveal any other
environmental liability that the Depositor believes would have a material
adverse effect on the borrower's business, assets or results of operations
taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loans--Environmental Law
Considerations."
Engineering Report. A Property Condition Report was completed on the Third
Avenue Property on July 1, 1997 by a third party due diligence firm. The
Property Condition Report concluded that the Third Avenue Property was
generally in good physical condition and identified approximately $55,200 in
deferred maintenance requirements. At origination of the 605 Third Avenue
Loan, the Third Avenue Borrower established a deferred maintenance reserve
account equal to $70,000 to fund the cost of addressing the identified items.
Property Management. The Third Avenue Property is currently managed by
Fisher Brothers Management Co., a New York general partnership (together with
any successor property manager, the "Third Avenue Manager"), pursuant to a
management agreement (the "Third Avenue Management Agreement") between Third
Avenue Manager, as manager, and Hawaiian Realty and Fisher 40th & 3rd, as
owner, as amended on December 17, 1985, and further amended and assigned on
September 10, 1997. The Third Avenue Manager is 100% owned by senior members
of the Fisher family. The Third Avenue Management Agreement provides for (a)
a management fee equal to $150,000 per year as such amount has been and will
be adjusted for inflation yearly since 1985 and (b) leasing commissions at
market rates.
The initial term of the Third Avenue Management Agreement and the other
service agreements will terminate on April 29, 2084.
The mortgagee may require the Third Avenue Borrower to replace the Third
Avenue Manager with a firm of the mortgagee's choice upon any of the
following occurrences (provided that with respect to replacement of the Third
Avenue Manager pursuant to clause (c) below only, the Third Avenue Borrower
may choose the replacement firm, subject to the mortgagee's approval of such
firm): (a) the occurrence of a monetary event of default under the 605 Third
Avenue Loan or the acceleration of the 605 Third Avenue Loan, (b) at any time
following the date which is 6 months after the Third Avenue Effective
Maturity Date, provided that the mortgagee may not replace the Third Avenue
Manager solely due to the fact that the Effective Maturity Date has passed,
(c) if at any time the Third Avenue DSCR (as defined below) falls below 1.15
to 1.0 as determined by mortgagee in its reasonable discretion on a quarterly
basis (unless the Third Avenue Borrower provides additional collateral for a
portion of the 605 Third Avenue Loan such that the required Third Avenue DSCR
can be
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<PAGE>
maintained on the 605 Third Avenue Loan net of such additional collateral)
and/or (d) at any time following the determination by either a court of
competent jurisdiction or a Third Avenue Neutral Arbitrator (as defined
below) that the Third Avenue Manager has engaged in (i) gross negligence,
(ii) fraud or (iii) willful misconduct arising out of or in connection with
its management agreement with the Third Avenue Borrower, unless any such
gross negligence or willful misconduct (but not fraud) is remedied by the
Third Avenue Manager within ten (10) days following receipt of notice of such
determination. Notwithstanding the foregoing, the mortgagee is not entitled
to require the Third Avenue Borrower to terminate the Third Avenue Management
Agreement pursuant to clause (c) above so long as (i) a Fisher Manager is
acting as the Third Avenue Manager or (ii) (w) no event of default has
occurred and is continuing under the 605 Third Avenue Loan, (x) a Fisher
Manager has voluntarily resigned as the Third Avenue Manager, (y) a new
property manager acceptable to mortgagee and the Rating Agencies assumes the
Third Avenue Manager's duties under the Third Avenue Management Agreement and
(z) the Third Avenue DSCR falls below the required level due to events beyond
the control of the Third Avenue Borrower and the new Third Avenue Manager,
including without limitation (A) a bankruptcy of any tenant contributing more
than 10% of the rentals at the Third Avenue Property, provided the new Third
Avenue Manager is diligently (1) attempting to recover amounts due under such
lease or any guaranty of such lease, (2) pursuing its rights in such
bankruptcy case or (3) attempting to re-lease such space, and (B) a decline
in the market conditions affecting occupancy and rental rates in the
Manhattan real estate market for first-class office buildings. "Third Avenue
DSCR" means for any period the ratio of net operating income for the prior
twelve months (determined based on the accrual method of accounting used for
federal income tax purposes and after adjusting net operating income for
nonsustainable revenues and expenses) to debt service on the Third Avenue
Note (based on a debt service constant of the greater of 10% per annum and
the actual debt service constant on the Third Avenue Note) for such period,
provided, however, that for any period during which the Third Avenue Borrower
has posted the Applicable Third Avenue Defeasance Deposit, the debt service
on the 605 Third Avenue Loan shall be based upon the non-defeased portion of
the debt. "Fisher Manager" means (i) the Third Avenue Manager or (ii) an
entity which is under the control of one or more Fisher Principal active in
the operation and management of real estate and which is an entity whose
primary business is the management of commercial real estate similar to the
Third Avenue Property. "Fisher Principal" means any of the senior members of
the Fisher family.
The Third Avenue Borrower has agreed not to modify the terms of the Third
Avenue Management Agreement, unless such modification is approved by the
mortgagee. The Third Avenue Borrower has agreed not to terminate the Third
Avenue Management Agreement, unless such termination is accompanied by the
replacement of the Third Avenue Manager, such replacement manager is
acceptable to the mortgagee, and the Rating Agencies confirm in writing that
such replacement will not result in the reduction, withdrawal or
qualification of the rating of any of the Certificates initially assigned in
a securitization.
Pursuant to a Subordination Agreement between the Third Avenue Manager and
the mortgagee with respect to the Third Avenue Management Agreement, the
Third Avenue Manager has agreed that its rights under the Third Avenue
Management Agreement are in all respects subordinate to the rights of the
mortgagee.
As of August 1, 1997, the Third Avenue Manager manages and leases
approximately 5,200,000 square feet of properties owned by the Fisher Family,
primarily in New York City. Through a subsidiary, Sandhurst Associates, the
Third Avenue Manager manages another 3,000,000 square feet of property for
third parties.
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<PAGE>
605 THIRD AVENUE: THE LOAN
CERTAIN 605 THIRD AVENUE LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO REFINANCING
SQUARE FOOT(1) VALUE RATIO(2) ACTUAL DSCR(3) DSCR(4)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date................ $116 66.7% 2.04x 1.70x
At Effective Maturity Date $110 58.3%(5) 2.33x 1.95x
</TABLE>
- ------------
(1) Based on the 946,369 square feet net rentable area securing the 605
Third Avenue Loan, and the Cut-Off Date Principal Balance or Balloon
Balance, as applicable, and net of the $10,000,000 Parking Garage
allocated loan amount.
(2) Based on the August 1, 1997 appraisal and Cut-Off Date Principal
Balance or Balloon Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the loan during the 12 months
following the Cut-Off Date, and in the case of Maturity Date Actual
DSCR, 12 months of debt service on the loan assuming a balance equal to
the Balloon Balance, a coupon equal to the Third Avenue Initial
Interest Rate and an amortization term equal to 300 months.
(4) Based on 1997 Underwritable Cash Flow and in the case of Cut-Off Date
Refinancing DSCR assuming annual debt service equals 9.5% of the
Cut-Off Date Principal Balance of the loan, and in the case of
Effective Maturity Date Refinancing DSCR assuming annual debt service
equals 9.5% of the Balloon Balance.
(5) Takes into account the application of payments under the Third Avenue
Principal Amortization Letters of Credit. See "--Security" and
"--Payment Terms" below.
Security. The 605 Third Avenue Loan is a nonrecourse loan, secured only by
the fee estate of the Third Avenue Borrower in the Third Avenue Property, and
certain collateral relating thereto (including an assignment of leases and
rents, the funds and permitted investments in certain reserves and certain
letters of credit). The Third Avenue Borrower has agreed to provide the
mortgagee with letters of credit (the "Third Avenue Principal Amortization
Letters of Credit") in the amount of $15,000,000 as additional security for
the 605 Third Avenue Loan, $5,000,000 of which was provided on the date of
the initial funding of the 605 Third Avenue Loan and the remaining
$10,000,000 of which shall be provided by the Third Avenue Borrower to the
mortgagee on the following dates: $1,666,666.67 on September 10, 1998,
$1,666,666.67 on September 10, 1999, $1,666,666.67 on September 10, 2000,
$1,666,666.67 on September 10, 2001, $1,666,666.67 on September 10, 2002 and
$1,666,666.67 on September 10, 2003. The Third Avenue Principal Amortization
Letters of Credit are required to be issued by banks having a long term
unsecured debt rating of at least "AA" or its equivalent by each Rating
Agency. 605 Third Avenue Borrower has agreed to indemnify the mortgagee and
its successors and assigns with respect to the liabilities arising from and
in connection with certain environmental matters. The mortgagee is the
insured under the title insurance policy (which will be assigned to the Trust
Fund) which insures that the related Mortgage constitutes a valid and
enforceable first lien on the Third Avenue Property, subject to certain
exceptions and exclusions from coverage set forth therein.
Payment Terms. The 605 Third Avenue Loan matures on October 1, 2027 (the
"Third Avenue Maturity Date") and bears interest (a) at a fixed rate per
annum equal to 7.917% (the "Third Avenue Initial Interest Rate") during the
period from September 10, 1997 through September 30, 2007 and (b) from and
including October 1, 2007 (the "Third Avenue Effective Maturity Date") at a
fixed rate per annum (the "Third Avenue Revised Interest Rate") equal to the
lesser of (i) the maximum rate permitted by applicable law and (ii) the Third
Avenue Initial Interest Rate plus 5%. Any interest accrued at the excess of
the Revised Third Avenue Interest Rate over the Third Avenue Initial Interest
Rate shall be deferred and added to the outstanding indebtedness (but not to
principal) under the 605 Third Avenue Loan and shall earn interest at the
Third Avenue Revised Interest Rate (such deferred interest and interest
thereon, "Third Avenue Deferred Interest"). Interest on the 605 Third Avenue
Loan is calculated on the basis of a 360-day year of 30-day months.
The payment date for the 605 Third Avenue Loan is the 1st business day of
each month, and there is no grace period for a default in payment of
principal or interest. However, as described below under "--Third Avenue
Mezzanine Debt," the Third Avenue Mezzanine Lender has rights to cure a
payment default until the date that is 2 business days after it is given
notice thereof, and the 605 Third Avenue Loan may not be accelerated or
foreclosed during the cure period. Commencing on November 1, 1997 through and
including the Payment Date immediately following the Third Avenue Effective
Maturity Date, the 605 Third Avenue Loan requires 120 constant monthly
payments of interest only (the "Third Avenue Initial Monthly Debt Service
Payments") of $791,700. Commencing on the 2nd payment date following the
Third Avenue Effective Maturity Date and on each payment date thereafter, the
605 Third Avenue Loan requires 240 constant monthly payments of principal and
interest (which monthly payments of principal and interest shall be
determined by the mortgagee such that the principal amount of the Third
Avenue Loan will be fully amortized on the Third Avenue Maturity Date)(the
"Third Avenue Revised Monthly Debt Service Payments," and, collectively with
the Third Avenue Initial Monthly Debt Service Payments, the "Third Avenue
Monthly Debt Service Payments"). On the Third Avenue Maturity Date, payment
of the then outstanding balance of the principal, if any, together with all
accrued and unpaid interest and all other sums payable under the loan
documents, is required. Commencing on the Third Avenue Effective Maturity
Date and continuing on each payment
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<PAGE>
date thereafter, the Third Avenue Borrower is required to apply 100% of rents
and other revenues from the Third Avenue Property to the following items in
the following order of priority: (a) to payment of interest accruing at the
Third Avenue Default Rate (as defined below), and late payment charges, if
any, (b) to payment of amounts of taxes and insurance premiums, approved by
the mortgagee, (c) to payment of Third Avenue Monthly Debt Service Payments,
(d) to payment of monthly cash expenses pursuant to the annual budget
approved by the mortgagee (which may be increased by the Third Avenue
Borrower by an overage up to 5%), (e) to payment of extraordinary unbudgeted
operating expenses or capital expenses approved by the mortgagee, (f) to
payments to be applied against outstanding principal until such principal
amount is paid in full, (g) to payments of Third Avenue Deferred Interest,
(h) to payments of any other amounts due under the Third Avenue Loan
documents and (i) lastly, to payment to the Third Avenue Borrower of any
excess amounts.
In addition, the mortgagee has the right, in its sole and absolute
discretion, to draw down (in whole or in part) on the Third Avenue Principal
Amortization Letters of Credit and apply such funds against the outstanding
principal balance of the 605 Third Avenue Loan, at any time after the
occurrence of any one or more of the following events: (i) an event of
default has occurred under any of the 605 Third Avenue Loan documents
including failure to renew the Third Avenue Principal Amortization Letters of
Credit and/or (ii) the Third Avenue Borrower has not prepaid the entire
principal balance of the 605 Third Avenue Loan and any other amounts
outstanding under the 605 Third Avenue Loan documents on or before the Third
Avenue Effective Maturity Date.
If the Third Avenue Borrower defaults in the payment of any monthly
installment of principal and/or interest on the date due, it is required to
pay a late payment charge equal to 3% of the amount of the installment not
paid. Upon the occurrence and during the continuation of any event of
default, the entire unpaid principal amount of the 605 Third Avenue Loan and
any other amounts payable, including interest, will bear interest at a
default rate equal to the lesser of (a) the maximum rate permitted by
applicable law and (b) the then applicable interest rate on the Third Avenue
Loan (i.e. the Third Avenue Initial Interest Rate or the Third Avenue Revised
Interest Rate) plus 5% (the "Third Avenue Default Rate").
Release in Exchange for Substitute Collateral. At any time during the
period from the date that is 2 years from the date of securitization of the
605 Third Avenue Loan to and including the Third Avenue Effective Maturity
Date, provided no event of default under the 605 Third Avenue Loan has
occurred and is then continuing, the Third Avenue Borrower is permitted, on
any regularly scheduled payment date selected by the Third Avenue Borrower
with at least thirty days' notice to the mortgagee (the "Third Avenue
Defeasance Date"), to defease either (i) all of the 605 Third Avenue Loan (a
"Third Avenue Total Defeasance") (and release the lien of the Mortgage with
respect to the entire Third Avenue Property) or (ii) a portion of the 605
Third Avenue Loan with respect to the parking garage in the amount of
$11,000,000 (the "Parking Garage Defeasance") (and release the lien of the
Mortgage with respect to the parking garage), provided that, among other
conditions, the Third Avenue Borrower pays on the Third Avenue Defeasance
Date (a) all scheduled principal and interest payments and other amounts then
due and payable under the 605 Third Avenue Loan payable on such payment date
and (b) the Applicable Third Avenue Defeasance Deposit (as defined below). In
addition, in connection with any such defeasance, the Third Avenue Borrower
is required to deliver to the mortgagee, among other things, (i) a security
agreement in customary form and substance creating a first priority lien on
the Applicable Third Avenue Defeasance Deposit and the U.S. Obligations (as
defined below) purchased therewith, (ii) a written confirmation from each
Rating Agency that such defeasance will not result in the qualification,
downgrade or withdrawal of the ratings of the Certificates (iii) certain
required opinion letters and (iv) in connection with a Parking Garage
Defeasance, (A) certain title endorsements and certain subdivision and zoning
approvals and (B) a restrictive covenant restricting the use which may be
made of the property on which the parking garage is located. In addition, it
is a precondition to a Parking Garage Defeasance that the Third Avenue
Borrower convey title to the portion of the Third Avenue Property on which
the parking garage is located to a third party and that the release of the
parking garage shall not result in the termination of any lease of space at
the Third Avenue Property (other than leases of parking garage space) or the
abatement or reduction of any rents payable in connection therewith.
The "Applicable Third Avenue Defeasance Deposit" means an amount
sufficient to purchase any direct noncallable obligations of the United
States Government, including, without limitation, treasury bills, notes and
bonds (a) generally, with respect to a Third Avenue Total Defeasance,
providing payments on or prior to, but as close as possible to, all
successive scheduled payment dates upon which interest and/or principal
payments are required under the 605 Third Avenue Loan from and after the
Third Avenue Defeasance Date through and including the Third Avenue Effective
Maturity Date and in amounts equal to the payments due on such dates under
the 605 Third Avenue Loan and in the amount of the full outstanding principal
balance of the 605 Third Avenue Loan and all accrued interest thereon on the
Third Avenue Effective Maturity Date and (b) generally, with respect to a
Parking Garage Defeasance, providing payments on or prior to, but as close as
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<PAGE>
possible to, all successive scheduled payment dates upon which interest
and/or principal payments are required under the 605 Third Avenue Loan from
and after the Third Avenue Defeasance Date through and including the Third
Avenue Effective Maturity Date with respect to the $11,000,000 portion of the
605 Third Avenue Loan applicable to the parking garage and in amounts equal
to such payments due on such dates under the 605 Third Avenue Loan and in the
amount of the full outstanding principal balance of $11,000,000 applicable to
the parking garage and all accrued interest thereon on the Third Avenue
Effective Maturity Date. Upon the satisfaction of such conditions, the entire
Third Avenue Property or the parking garage, as applicable, will be released
from the lien of the Mortgage and the U.S. Treasury obligations purchased
with the Applicable Third Avenue Defeasance Deposit will serve as the sole
collateral, or a portion of the collateral, as applicable, for the repayment
of the 605 Third Avenue Loan or such portion thereof, as applicable. In
connection with a Third Avenue Total Defeasance, either the mortgagee or the
Third Avenue Borrower may elect to have the 605 Third Avenue Loan assumed by
a successor borrower which is required to be a special purpose entity,
provided that each Rating Agency shall have confirmed in writing that such
transfer would not result in the reduction, qualification or withdrawal of
its initial ratings of the Certificates.
Prepayment. Voluntary prepayment is prohibited under the 605 Third Avenue
Loan prior to the period commencing 90 days prior to the Third Avenue
Effective Maturity Date. Thereafter, the 605 Third Avenue Loan may be
voluntarily prepaid in whole or in part on any Payment Date without payment
of a prepayment premium.
Principal prepayments on the 605 Third Avenue Loan may occur on payment
dates after the Third Avenue Effective Maturity Date through application of
rents, as described above under "--Payment Terms," and must be made, at the
mortgagee's option, upon acceleration of the loan following the occurrence of
an event of default. Prepayment made following an event of default will be
subject to the payment of a yield maintenance premium (the "Third Avenue
Yield Maintenance Premium").
The Third Avenue Yield Maintenance Premium is an amount equal to the
product of (i) a fraction whose numerator is an amount equal to the portion
of the principal balance being prepaid and whose denominator is the entire
outstanding principal balance on the date of such prepayment, multiplied by
(ii) an amount equal to the remainder obtained by subtracting (x) an amount
equal to the entire outstanding principal balance as of the date of such
prepayment from (y) the present value as of the date of such prepayment of
the remaining scheduled payments of principal and interest through the Third
Avenue Effective Maturity Date (including any final installment or payment of
principal, if any, and interest payable on the Third Avenue Effective
Maturity Date, if the Third Avenue Loan was repaid in full on such date)
determined by discounting such payments at the Third Avenue Discount Rate.
The "Third Avenue Discount Rate" means the rate which, when compounded
monthly, equals the yield calculated by linear interpolation of the yields of
noncallable U.S. Treasury obligations with terms (one longer and one shorter)
most nearly approximating the period from the date of prepayment to the Third
Avenue Effective Maturity Date.
No yield maintenance premium is required to be paid in connection with any
prepayment resulting from the application of insurance or condemnation
proceeds unless an event of default has occurred and is continuing. To the
extent the Third Avenue Borrower is not permitted to apply any insurance or
condemnation proceeds to the restoration of the Third Avenue Property under
the 605 Third Avenue Loan or to apply any excess insurance proceeds or
condemnation awards to any reserve account under the 605 Third Avenue Loan,
the mortgagee has the option to apply such proceeds to prepay the 605 Third
Avenue Loan.
Lockbox and Reserves. Pursuant to the terms of the 605 Third Avenue Loan,
the Third Avenue Borrower has established, in the name of the mortgagee, an
interest bearing cash collateral account (the "Third Avenue Lockbox"), which
is subject to the sole dominion, control and discretion of the mortgagee and
its authorized agents or designees. The Third Avenue Borrower has notified
all tenants of the Third Avenue Property to make all payments of rent and
other sums due under tenant leases, and has covenanted that all other rents
and operating revenue (other than transient parking garage receipts) will be
directly deposited, into the Third Avenue Lockbox.
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The following escrows and reserves have been established and are more
particularly described in the text below the table:
<TABLE>
<CAPTION>
FUTURE FUNDING
RESERVE ACCOUNT PURPOSE INITIAL DEPOSIT REQUIREMENTS
<S> <C> <C> <C>
(a)Taxes and Insurance Escrow for taxes and insurance $2,093,750 1/12 monthly
(b)Debt Service Monthly P&I payment None $791,700
(c)Repair Identified deferred maintenance $70,000 None
(d)Replacement Lender approved replacements None $219,728.40 annually
(e)General Tenant Leasing costs; commissions and tenant $5,000,000 Monthly top up (not to
Improvement improvement costs (not covered by (f) and exceed $200,000 per
(g) below) month)
(f)John Wiley Tenant Costs for Re-leasing of John Wiley & None $165,000 monthly through
Improvement Sons space at lease expiration October 1, 2002
(g) Neuberger Tenant Costs for Re-leasing of Neuberger & None $35,000 monthly through
Improvement Berman space at lease expiration October 1, 2002; then
$165,000 monthly through
October 1, 2006
</TABLE>
The mortgagee will apply funds in the Third Avenue Lockbox to the
following items in the following order of priority: (a) to the tax and
insurance reserve account, (b) to the debt service reserve account, (c) to
the replacement reserve account, (d) to the general tenant improvement
reserve account, (e) to a tenant improvement reserve account, for the payment
of certain costs and expenses, such as leasing commissions, tenant
improvements, and free rent incurred in connection with the re-leasing of the
space in the Third Avenue Property currently occupied by John Wiley & Sons
(the "Wiley Space"), but in no event more than $40 per square foot multiplied
by the square footage of the re-leased Wiley Space, such account to be funded
on each monthly payment date through and including October 1, 2002, in the
amount of $165,000 (one-half of which amount may be maintained in the form of
a letter of credit), provided that upon such time as less than 50,000
rentable square feet of the Wiley Space remains unleased (if no event of
default has occurred and is continuing) the mortgagee shall disburse to the
Third Avenue Borrower any amounts remaining in such account in excess of $60
per rentable square foot for such unleased space, and provided further that
upon the complete re-leasing of the Wiley Space all amounts remaining in such
account shall be disbursed to the Third Avenue Borrower (notwithstanding the
foregoing, in the event the Third Avenue Borrower and John Wiley & Sons enter
into an acceptable lease extension on or before the termination of such
lease, the amount to be held in this tenant improvement reserve account shall
be adjusted to a sum ranging from $9,900,000 in the case of a lease expiring
on or before December 31, 2007 to $4,950,000 in the case of a lease expiring
between January 1, 2012 and October 1, 2012 and equal to zero in the case of
a lease expiring thereafter), (f) to a tenant improvement reserve account,
for the payment of certain costs and expenses, such as leasing commissions,
tenant improvements, and free rent incurred in connection with the re-leasing
of the space in the Third Avenue Property currently occupied by Neuberger &
Berman (the "Neuberger Space"), but in no event more than $40 per square foot
multiplied by the square footage of the re-leased Neuberger Space, such
account to be funded (i) on each monthly payment date through and including
October 1, 2002, in the amount of $35,000 and (ii) on each monthly payment
date from November 1, 2002 through and including October 1, 2006, in the
amount of $165,000 (one-half of which amount may be maintained in the form of
a letter of credit) provided that upon such time as less than 50,000 rentable
square feet of the Neuberger Space remains unleased (if no event of default
has occurred and is continuing) the mortgagee shall disburse to the Third
Avenue Borrower any amounts remaining in such account in excess of $60 per
rentable square foot for such unleased space, and provided further that upon
the complete re-leasing of the Neuberger Space all amounts remaining in such
account shall be disbursed to the Third Avenue Borrower (notwithstanding the
foregoing, in the event the Third Avenue Borrower and Neuberger & Berman
enter into an acceptable lease extension on or before the termination of such
lease, no further deposits will be required into this tenant improvement
reserve account, but if such extension reduces the rent payable under such
lease, the Third Avenue Borrower is required to provide a letter of credit in
the aggregate amount of such reduction), (g) to a free rent reserve account,
into which an amount equal to any free rent and rent abatements provided to
any tenant and any lease termination fees paid by any such tenant in
connection with the re-leasing or surrender of the Wiley Space and/or the
Neuberger Space will, to the extent of available funds, be deposited from the
tenant improvement reserve accounts established as described in subparagraphs
(e) and (f),
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(h) provided no event of default has occurred, to a mortgagor subaccount
reserve account for the payment of expenses in accordance with the annual
budget in effect as approved by the mortgagee, (i) provided no event of
default has occurred, then in accordance with the written directions of the
Third Avenue Mezzanine Lender (as defined below), to an account for the
payment of principal and interest payable under the Third Avenue Mezzanine
Loan (as defined below) and (j) provided no event of default has occurred,
then any remaining funds to a mortgagor subaccount reserve account for
disbursement to the Third Avenue Borrower. In the event the funds in the
Third Avenue Lockbox are insufficient to fund any of the above reserve
requirements, the Third Avenue Borrower is required to deposit funds into the
Third Avenue Lockbox to remedy such shortfall.
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. The Third Avenue Borrower is generally prohibited from transferring or
encumbering the Third Avenue Property except that the Third Avenue Borrower
has the right to transfer, not more than one time during the term of the 605
Third Avenue Loan, in whole its interest in the Third Avenue Property, after
consideration and approval by the mortgagee and receipt of written
confirmation from each Rating Agency that such transfer or encumbrance will
not, in and of itself, result in a qualification, downgrade or withdrawal of
the then current ratings of any Class of Certificates, provided that, among
other things, (i) the mortgagee receives at least 30 days prior written
notice of the date of such transfer, (ii) no event of default shall have
occurred and remain uncured under the 605 Third Avenue Loan, (iii) the
proposed transferee is reputable and creditworthy and complies with all
single purpose entity and other applicable Rating Agency requirements, (iv)
the mortgagee receives a satisfactory non-consolidation opinion from the
Third Avenue Borrower's counsel, (v) the Rating Agencies confirm in writing
that such transfer will not result in the reduction, withdrawal or
qualification of the rating assigned to any of the Certificates, (vi) the
transferee executes and delivers a satisfactory assumption agreement, (vii)
the mortgagee is reimbursed for all of its costs and expenses in connection
with such transfer and (viii) the mortgagee receives a transfer fee equal to
0.5% of the then outstanding principal amount of the 605 Third Avenue Loan.
The 605 Third Avenue Loan generally prohibits the transfer of any interest
in the Third Avenue Borrower without the prior written consent of the
mortgagee. However, the mortgagee's consent is not required with respect to
transfers of direct or indirect beneficial interests in the Third Avenue
Borrower, provided that (i) no event of default shall have occurred and be
continuing, (ii) the Third Avenue Borrower (or the transferor of such
interest) shall deliver notice thereof to mortgagee and the Rating Agencies
at least 30 days prior to the effective date of such transfer, (iii) the
Third Avenue Borrower, the Fisher SPC and the Hawaiian SPC shall remain
single purpose entities and (iv) the transfer (a) is for estate planning
purposes and is a transfer to Fisher Related Persons or (b) is a transfer
among Fisher Related Persons, so long as Fisher Principals active in the
ownership and management of real estate after such transfer own an aggregate
of not less than 10% of the Third Avenue Borrower or (c) is a transfer from a
Hawaiian Affiliate to a transferee listed in clause (b) above or (d) is a
transfer of any such interest in the Third Avenue Borrower held by a Hawaiian
Affiliate to a Hawaiian Affiliate. If 12.5% or more of direct or indirect
beneficial interests in the Third Avenue Borrower are transferred, if any
transfer shall result in a person or entity or a group of affiliates or
family members, as applicable, acquiring more than a 49% direct or indirect
interest in the Third Avenue Borrower or its special purpose corporation
members, or if there is any transfer of any direct interest in the Third
Avenue Borrower held by any special purpose corporation member of the Third
Avenue Borrower, the Third Avenue Borrower is required to deliver or cause to
be delivered to the Rating Agencies and the mortgagee (x) a satisfactory
non-consolidation opinion addressed to the Rating Agencies and the mortgagee
and dated as of the date of the transfer, and (y) an officer's certificate
certifying that such transfer is not an event of default. "Fisher Related
Persons" means any of the following: (A) any Fisher Principal or Additional
Fisher Person, (B) any spouse or descendant, whether by marriage or adoption,
of any Fisher Principal or any Additional Fisher Person, (C) any spouse of
any descendant referred to in clause (B), (D) any trust created for the
benefit of any person(s) referred to in clauses (A) through (C), (E) any
executor or administrator for any person(s) referred to in clauses (A)
through (D), (F) any partnership or limited liability company comprised in
its entirety of any person(s), or having all of its membership interest held
by any persons, referred to in (A) through (E), (G) any corporate foundation
created by and controlled by any of the foregoing person(s) which was created
for charitable or eleemosynary purposes, and (H) any corporation (including,
without limitation, any subsidiary or sub-subsidiary of any such corporation)
which is owned and controlled, directly or indirectly, by any one or more
persons referred to in clauses (A) through (G). "Fisher Principals" and
"Additional Fisher Persons" refers to certain members of the Fisher family as
more particularly identified in the Third Avenue Loan documents. "Hawaiian
Affiliate" means any of the following: (A) the spouse or descendant of D.K.
Ludwig, (B) the estate of D.K. Ludwig or any person described in clause (A),
(C) any trust or corporate foundation, each of the beneficiaries of which is
either a person described in clauses (A) or (B) or is a charitable or
eleemosynary institution or as to which any funds of such trust or
foundation, neither reinvested nor utilized for such persons, are dedicated
to charitable or eleemosynary purposes, (D) any executor or administrator for
any
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person referred to in clauses (A) through (C), (E) any partnership comprised
in its entirety of any persons referred to in clauses (A) through (D), (F)
any corporate foundation created by and of the foregoing persons for
charitable or eleemosynary purposes or (G) any corporation (including without
limitation any subsidiary or sub-subsidiary of any such corporation) which is
wholly owned and controlled, directly or indirectly, by any persons referred
to in clauses (A) through (F).
The Third Avenue Borrower is not permitted to incur any additional
indebtedness other than unsecured indebtedness for operating expenses
incurred in the ordinary course of business which does not exceed $3,000,000
individually or in the aggregate and is paid within 90 days of the date due
unless (a) the Third Avenue Borrower is in good faith contesting its
obligation to pay such indebtedness in a manner satisfactory to the
mortgagee, (b) adequate reserves with respect thereto are maintained on the
books of the Third Avenue Borrower in accordance with GAAP, (c) such contest
operates to suspend collection of such amounts or enforcement of such
obligations and (d) no event of default exists and is continuing.
Transfers by Lender. The mortgagee has the right to sell, assign or
otherwise transfer the Third Avenue Loan or any portion thereof or interest
therein held by the mortgagee without the consent of the Third Avenue
Borrower or the satisfaction of any other requirement with respect to the
Third Avenue Borrower (i) in connection with the securitization of the Third
Avenue Loan, and/or (ii) to a Major Institutional Lender. A "Major
Institutional Lender" is defined as (i) Morgan Stanley Mortgage Capital Inc.
or any Affiliate thereof; or (ii) an insurance company, bank, savings and
loan association, trust company, commercial credit corporation, pension plan,
pension fund or pension fund advisory firm, mutual fund or other investment
company, governmental entity or plan, "qualified institutional buyer" within
the meaning of Rule 144A under the Securities Act of 1933, as amended (other
than a broker/dealer) or an institution substantially similar to any of the
foregoing, in each case under this clause (ii) having at least $250,000,000
in capital/statutory surplus or shareholder's equity and at least
$12,000,000,000 in total assets, and being experienced in making commercial
real estate loans; or (iii) any entity wholly owned by any one or more
institutions meeting the foregoing criteria. Such restrictions on transfer do
not apply to a foreclosure or foreclosure sale of the Third Avenue Property.
Insurance. The Third Avenue Borrower is required to maintain (a) fire and
extended coverage insurance insuring against all hazards included in an "all
risks" endorsement in an amount equal to the full insurable value of the
improvements and building equipment, (b) with respect to any part of the
Third Avenue Property that is located in an area identified by the U.S.
Department of Housing and Urban Development as a flood hazard area, or in an
area designated as "flood prone" pursuant to the National Flood Insurance Act
of 1968 and the Flood Disaster Protection Act of 1973, such insurance as is
available under the National Flood Insurance Program, (c) comprehensive
public liability insurance in an amount not less than $2,000,000 per
occurrence with an aggregate limit of not less than $10,000,000, (d) business
interruption insurance which will cover actual losses for a period of at
least eighteen months, (e) broad form boiler and machinery insurance in such
amounts as are generally available, (f) statutory workers compensation
insurance and (g) during any period of construction or renovation, builder's
"all risk" insurance in an amount equal to not less than the full insurable
value of the Third Avenue Property. The 605 Third Avenue Loan requires the
Third Avenue Borrower to obtain the insurance described above from insurance
carriers having claims paying abilities rated not less than "AA" by S&P or
its equivalent by any other Rating Agency and an Alfred M. Best Company, Inc.
rating of "A" or better and a financial size category of not less than IX. In
addition, the 605 Third Avenue Loan permits the Third Avenue Borrower to
obtain insurance from Travelers and/or Aetna so long as they maintain a
claims paying ability rating by S&P of not less than "A+" and its equivalent
by any other Rating Agency. All policies of insurance are required to name
the mortgagee as additional named insured.
Condemnation and Casualty. After the occurrence of any damage or
destruction to all or any portion of the Third Avenue Property, the Third
Avenue Borrower is required to restore the Third Avenue Property, provided
that the mortgagee makes any insurance proceeds or condemnation awards
received by the mortgagee in connection with such casualty or condemnation
available to the Third Avenue Borrower for the purpose of such restoration.
If (a) an event of default has occurred and is continuing, (b) the amount
of insurance or condemnation proceeds equals or exceeds the outstanding
principal amount of the 605 Third Avenue Loan, (c) the condemnation award
exceeds the amount needed to effect the restoration of the Third Avenue
Property and the condemnation award is not used to fund any deficiencies in
the Third Avenue Lockbox pursuant to the terms of the loan agreement, (d) a
Third Avenue Total Loss with respect to the Third Avenue Property has
occurred, or (e) the restoration of the Third Avenue Property cannot be
completed before the earlier to occur of (i) the date which is six months
prior to the Third Avenue Effective Maturity Date and (ii) the date on which
the business interruption insurance carried by the Third Avenue Borrower with
respect to the Third Avenue Property expires, then the mortgagee shall have
the option of applying insurance proceeds or condemnation awards received to
prepay the 605 Third Avenue Loan and such prepayment shall be without payment
of a yield maintenance premium unless an event of default has occurred and is
continuing.
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A "Third Avenue Total Loss" means (i) a casualty, damage or destruction
of the Third Avenue Property, the cost of restoration of which would exceed
$45,000,000, and with respect to which the Third Avenue Borrower is not
required, under the applicable tenant leases, to apply insurance proceeds to
the restoration of the Third Avenue Property or (ii) a permanent taking of
25% or more of the gross leasable area of the Third Avenue Property or so
much of the Third Avenue Property such that it would be impracticable, in the
mortgagee's sole discretion, even after restoration, to operate the Third
Avenue Property as an economically viable whole and with respect to which the
applicable tenant leases do not require such restoration.
If no event of default exists at the time of settlement, the Third Avenue
Borrower has the right to settle insurance claims and condemnation
proceedings with respect to any casualty or condemnation where the estimated
restoration cost is less than $6,000,000 (the "Third Avenue Threshold
Amount"), and the Third Avenue Borrower may receive the insurance or
condemnation proceeds for the purpose of paying the cost of such restoration.
If the restoration cost exceeds the Third Avenue Threshold Amount, the
mortgagee may participate in the settlement of all insurance claims and
condemnation proceedings relating to such casualty or condemnation and all
insurance or condemnation proceeds will be paid directly to the mortgagee
and, subject to the provisions described in the preceding paragraphs,
advanced to the Third Avenue Borrower in reimbursement for amounts expended
to restore the Third Avenue Property.
Financial Reporting. The Third Avenue Borrower is required to furnish to
the mortgagee: (a) not later than 120 days after the end of each fiscal year,
audited financial statements (including balance sheet and statement of
revenues and expenses), prepared in accordance with the accrual method of
accounting for federal income tax purposes, and (b) not later than 60 days
after the end of each fiscal quarter, unaudited financial statements,
internally prepared in accordance with the accrual method of accounting for
federal income tax purposes.
Approval Rights. Prior to the Third Avenue Effective Maturity Date, the
mortgagee has no approval rights with respect to capital budgets, operating
budgets or major contracts affecting the Third Avenue Property. From and
after the Third Avenue Effective Maturity Date, the Third Avenue Borrower
must obtain the mortgagee's prior written consent to all proposed capital
budgets, operating budgets and major contracts affecting the Third Avenue
Property, which consent may be granted or withheld by the mortgagee in the
mortgagee's sole and absolute discretion.
Without the mortgagee's consent, the Third Avenue Borrower may not enter
into any management agreement (other than the management agreements in effect
on the origination date of the loan). If during the term of the 605 Third
Avenue Loan, the Third Avenue Borrower wishes to designate another property
manager acceptable to the mortgagee, the Third Avenue Borrower must notify
the mortgagee and the Rating Agencies in writing and obtain the mortgagee's
approval of such manager and a written confirmation from the Rating Agencies
that the retention of the proposed property manager will not result in a
downgrade, withdrawal or qualification of the then ratings of the
Certificates. The mortgagee has the right to replace or cause the Third
Avenue Borrower to replace the property manager upon certain events described
above under "--605 Third Avenue: The Borrower; The Property--Property
Management."
Provided that no event of default shall have occurred and be continuing,
prior to the Third Avenue Effective Maturity Date, the Third Avenue Borrower
shall have the right, without the mortgagee's consent, to undertake any
alteration, improvement, demolition or removal of the Third Avenue Property
or any portion thereof (any such alteration, improvement, demolition or
removal, a "Third Avenue Alteration") so long as such Third Avenue Alteration
will not have a material adverse effect on (a) the value of the Third Avenue
Property, (b) the net operating income from the Third Avenue Property or (c)
the Third Avenue Borrower's financial condition. If any of the foregoing
conditions are not met, the Third Avenue Borrower must obtain the mortgagee's
prior written consent to such Third Avenue Alteration, which consent shall
not be unreasonably withheld. Any Third Avenue Alteration in excess of
$6,000,000 (a "Third Avenue Material Alteration") is required to be conducted
under the supervision of an independent architect and no Third Avenue
Material Alteration may be undertaken until 5 business days after there shall
have been filed with the mortgagee, for information purposes only and not for
approval by the mortgagee, detailed plans and specifications and cost
estimates therefor, prepared by such independent architect. Notwithstanding
anything to the contrary contained in the foregoing, no Third Avenue Material
Alteration (exclusive of Third Avenue Alterations being directly paid for by
tenants) which exceeds $6,000,000 may be performed unless the Third Avenue
Borrower has first delivered to the mortgagee cash and cash equivalents
and/or a letter of credit as security in an amount not less than the
estimated cost of the Third Avenue Material Alteration. From and after the
Third Avenue Effective Maturity Date and during the occurrence and
continuance of an event of default, the Third Avenue Borrower must obtain the
mortgagee's prior written consent to any and all proposed Alterations, which
consent may be granted or withheld by the mortgagee in the mortgagee's sole
and absolute discretion.
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Provided that no event of default shall have occurred and be continuing,
prior to the Third Avenue Effective Maturity Date the mortgagee has no
approval rights with respect to leases for 25,000 square feet of space or
less in the Third Avenue Property. All other proposed leases (including
renewals or extensions) which cover more than 25,000 square feet of space in
the Third Avenue Property require the mortgagee's prior written approval,
which approval will not be unreasonably withheld if: (a) rent payable
thereunder is at rates at least equal to the fair market rental value,
including any renewal options (provided, however, that expansion options and
renewal options at 95% of fair market value shall be acceptable), (b) all
lease terms are at market, (c) the mortgagee, in its reasonable judgment,
shall have determined that the proposed tenant is creditworthy in light of
the proposed tenant's obligations under the proposed lease, (c) the lease
represents an arms-length transaction with an independent third party and (d)
the lease is otherwise in accordance with the 605 Third Avenue Loan
documents. The Third Avenue Borrower may not, without the consent of the
mortgagee, amend, modify or waive the provisions of any lease or terminate,
reduce rents under or shorten the term of any lease (x) in any manner which
would have a material adverse effect on the Third Avenue Property taken as a
whole, or (y) affecting more than 25,000 square feet of space (provided that
as to modifications of leases under this clause (y), mortgagee's consent
shall not be unreasonably withheld and the mortgagee agrees to approve such
modification if such lease, as so modified, complies with the provisions of
clauses (a) through (d) above). From and after the Third Avenue Effective
Maturity Date and during the occurrence and continuance of an event of
default, the Third Avenue Borrower must obtain the mortgagee's prior written
consent to any and all proposed leases and to any and all amendments,
waivers, surrenders or terminations of any lease, which consent may be
granted or withheld by the mortgagee in the mortgagee's sole and absolute
discretion. In the event of any dispute which arises between the Third Avenue
Borrower and the mortgagee prior to the Third Avenue Effective Maturity Date
with respect to the exercise of any of the above approval rights related to
Alterations and/or leases, and only in such cases, the same will be
determined by arbitration conducted at the American Arbitration Association
in New York, New York. The parties will each appoint a disinterested
individual as arbitrator on its behalf and the two arbitrators thus appointed
will appoint a third disinterested individual (the "Third Avenue Neutral
Arbitrator"), and said Third Avenue Neutral Arbitrator will, as promptly as
possible, but in no event later than the 9th business day after his
appointment, determine the matter which is the subject of the arbitration by
selecting either the Third Avenue Borrower's position or the mortgagee's
position. The award of the Third Avenue Neutral Arbitrator shall be
conclusive and binding on the mortgagee and the Third Avenue Borrower.
Mezzanine Debt. The Fisher Owner and the Hawaiian Owner (collectively, the
"Third Avenue Mezzanine Borrowers") are borrowers under a mezzanine loan (the
"Third Avenue Mezzanine Loan") originated by Secore and purchased on the same
date and currently held by Fisher Note Company, an affiliate of the Third
Avenue Borrower (together with its successors and assigns in such capacity,
the "Third Avenue Mezzanine Lender"), to the Third Avenue Mezzanine Borrowers
in the amount of $12,000,000 on the closing date of the Third Avenue Loan.
The Third Avenue Mezzanine Loan is secured by a pledge by the Third Avenue
Mezzanine Borrowers of their membership interests in the Third Avenue
Borrower and a pledge by the owners thereof (the "Stock Owners") of 100% of
the stock in each of the Fisher SPC and the Hawaiian SPC (collectively, the
"Third Avenue Pledged Interests"). Pursuant to the pledge agreement relating
to such pledges, the Stock Owners have agreed to cause the related Fisher SPC
and Hawaiian SPC to cause the Third Avenue Borrower to comply with the
covenants in the Mezzanine Loan documents. MSMC and the Third Avenue
Mezzanine Lender are subject to a Third Avenue Intercreditor Agreement dated
September 10, 1997 (the "Third Avenue Intercreditor Agreement") relating to
their respective rights under the Third Avenue Loan and the Third Avenue
Mezzanine Loan, which Third Avenue Intercreditor Agreement has been assigned
by MSMC to the Trustee. The Third Avenue Intercreditor Agreement provides
that prior to foreclosing on the Third Avenue Pledged Interests, the Third
Avenue Mezzanine Lender must obtain a written confirmation from each Rating
Agency that such foreclosure will not result in the reduction, qualification
or withdrawal of the ratings assigned to the Certificates by such Rating
Agency.
The Third Avenue Mezzanine Loan matures on October 1, 2007 and bears
interest at a fixed rate per annum equal to 9.095%. Commencing on November 1,
1997 and on the first day of each month thereafter, the Third Avenue
Mezzanine Loan requires 120 constant monthly payments of principal and
interest of $152,628.58 (based on a 10 year amortization schedule and the
interest rate on the Third Avenue Mezzanine Loan).
The Third Avenue Mezzanine Loan may not be prepaid until April 1, 2007.
The Third Avenue Mezzanine Loan may be defeased in whole by the Third Avenue
Mezzanine Borrowers only after April 1, 2001 upon terms similar to the Third
Avenue Total Defeasance of the Third Avenue Loan. Upon any prepayment of
principal of the Third Avenue Mezzanine Loan following an event of default
thereon, the Third Avenue Mezzanine Borrowers are required to pay a yield
maintenance premium. Notwithstanding the foregoing, the Third Avenue
Mezzanine Loan shall be prepaid from any net casualty or condemnation
proceeds and from any net proceeds of refinancings of the Third Avenue
Property, in each case in an amount
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equal to the excess of the portion thereof applied to restoration or required
to be applied under the Third Avenue Loan. In addition, any overdue amount,
and upon the occurrence and during the continuance of an event of default the
entire principal amount of the Third Avenue Mezzanine Loan, will bear
interest at a default rate that is 5% in excess of the interest rate on the
Third Avenue Mezzanine Loan. The Third Avenue Mezzanine Lender is also
entitled to receive a 3% late fee on overdue amounts. Upon an event of
default under the Third Avenue Mezzanine Loan, all property cash flow
remaining after payment of amounts due or payable pursuant to the Third
Avenue Loan, including without limitation principal, interest and reserves,
and expenses of the Third Avenue Property, are required to be applied to
prepay the Third Avenue Mezzanine Loan.
The Third Avenue Mezzanine Loan documents provide that the Third Avenue
Mezzanine Borrowers and the Fisher SPC and Hawaiian SPC may not allow the
Third Avenue Borrower to transfer or encumber the Third Avenue Property, or
prepay or refinance or amend the Third Avenue Loan, without the consent of
the Third Avenue Mezzanine Lender. However, a refinancing of the Third Avenue
Property is permitted without Third Avenue Mezzanine Lender consent if (i) it
occurs at any time after the date that is 6 months prior to the Third Avenue
Effective Maturity Date (unless the Third Avenue Loan has been repaid in full
or there has been a total defeasance thereof), (ii) which is effected in
connection with the repayment of the Third Avenue Loan at its maturity date
or hyperamortization date, (iii) which is effected in connection with a
repayment of the Third Avenue Mezzanine Loan or a defeasance of the Third
Avenue Mezzanine Loan; provided that certain conditions are met, including
without limitation: (a) any proceeds of such refinancing in excess of the
amount due under the Third Avenue Loan are applied to repay the Third Avenue
Mezzanine Loan, (b) the combined debt service coverage ratio of the new loan
and the Third Avenue Mezzanine Loan is not less than the combined debt
service coverage ratio of the Third Avenue Loan and the Third Avenue
Mezzanine Loan prior to the refinancing, (c) the cash flow and other terms of
the refinancing are not more burdensome to the Third Avenue Mezzanine Lender
than the terms of the Third Avenue Loan and (d) the new lender shall assume
the obligations of the mortgagee under the Third Avenue Intercreditor
Agreement. The Third Avenue Mezzanine Lender also may not unreasonably
withhold its consent to the one-time transfer of the Third Avenue Property
described above so long as certain conditions are met, including without
limitation: (1) the Rating Agencies confirm in writing that such transfer
will not result in the downgrade, withdrawal or qualification of the then
current ratings on the Offered Certificates, (2) the ownership structure of
the new property owner is substantially similar to that of the Third Avenue
Borrower or is otherwise satisfactory to Third Avenue Mezzanine Lender and
(3) the owners of the new property owner assume the Third Avenue Mezzanine
Loan and have been approved as to their credit and character by the Third
Avenue Mezzanine Lender.
The Third Avenue Mezzanine Loan requires the Third Avenue Mezzanine
Borrowers to provide additional collateral to the Third Avenue Mezzanine
Lender in the form of cash or letters of credit if the combined debt service
coverage ratio (calculated assuming 15% of net operating income is not
sustainable) falls below 1.3 during the first 12 full months of the Third
Avenue Mezzanine Loan.
The Third Avenue Mezzanine Loan may be transferred to permitted
institutional transferees, including (i) Fisher Note Company or an affiliate
thereof; provided that no such person shall be a permitted institutional
transferee if such person is not an affiliate of both the Fisher Mezzanine
Borrower and the Third Avenue Borrower; or (ii) an insurance company, bank,
savings and loan association, trust company, commercial credit corporation,
pension plan, pension fund or pension fund advisory firm, mutual fund or
other investment company, governmental entity or plan, "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, as amended (other than a broker/dealer) or an institution
substantially similar to any of the foregoing, in each case under this clause
(ii) having at least $250,000 in capital surplus and $12,000,000,000 in
assets and being experienced in making commercial real estate loans; or (iii)
any entity wholly-owned by any one or more institutions meeting the criteria
in the foregoing clause (ii).
The Third Avenue Intercreditor Agreement prohibits the amendment,
modification or waiver of the Third Avenue Mezzanine Loan without the consent
of the mortgagee under the Third Avenue Loan, except for certain immaterial
modifications or waivers. The Third Avenue Intercreditor Agreement permits
the amendment, modification or waiver of the Third Avenue Loan without the
consent of the Third Avenue Mezzanine Lender; provided that the Third Avenue
Loan may not be amended to increase the amount payable thereunder or interest
thereon, modify the maturity, spread the lien of the Third Avenue Loan to
encumber additional collateral or cross-default the Third Avenue Loan with
any additional indebtedness, without the consent of the Third Avenue
Mezzanine Lender. The Third Avenue Intercreditor Agreement also requires the
mortgagee under the Third Avenue Loan and the Third Avenue Mezzanine Lender
to notify each other of defaults and events of default under their respective
loans. At any time that the Third Avenue Mezzanine Lender is not an affiliate
of the Third Avenue Borrower, the Third Avenue Mezzanine Lender has the right
to cure any payment default or other default that can be cured solely by the
payment of money and does not have any grace period (each a "Third Avenue
S-87
<PAGE>
Monetary Default") until the date that is 2 business days after the mortgagee
under the Third Avenue Loan gives the Third Avenue Mezzanine Lender notice
thereof. The Third Avenue Mezzanine Lender also has the right to cure any
other default (except a bankruptcy or insolvency related default) during the
same grace period as the Third Avenue Borrower; provided that such grace
period runs from the day on which notice is given by the mortgagee under the
Third Avenue Loan to the Third Avenue Mezzanine Lender. The Pooling Agreement
will require the Master Servicer to give notice of any default or event of
default under the Third Avenue Loan to the Third Avenue Mezzanine Lender on
the same date notice is given to the Third Avenue Borrower, and to give both
immediate notice of any Third Avenue Monetary Default. The right of the Third
Avenue Mezzanine Lender to cure defaults under the Third Avenue Loan
terminates on the date that is six months after the Third Avenue Effective
Maturity Date. During the above referenced cure periods the mortgagee under
the Third Avenue Loan may not seek the appointment of a receiver for the
Third Avenue Property, accelerate the Third Avenue Loan or foreclose on the
Third Avenue Property. However, such cure right does not affect the right of
the mortgagee under the Third Avenue Loan to apply the Third Avenue Principal
Amortization Letters of Credit, to receive interest at the Third Avenue
Default Rate or late payment charges during any period when such event of
default remains uncured or to make protective advances, or other consequences
of any such event of default or default.
S-88
<PAGE>
EDENS & AVANT POOL: THE BORROWER; THE PROPERTIES
The Loan. The Edens & Avant Pool Loan was originated by Secore and
acquired by MSMC on July 15, 1997. The Edens & Avant Pool Loan had a
principal balance at origination, and as of the Cut-Off Date, of $82,750,000.
It is secured by, among other things, thirty-five mortgage instruments
(collectively, the "Edens & Avant Pool Mortgages") encumbering 63 community
and neighborhood retail shopping centers, free-standing retail stores and
office properties located in four southeastern states (the "Edens & Avant
Pool Properties").
The Borrower. Edens & Avant Financing Limited Partnership (the "Edens &
Avant Pool Borrower") is a special purpose Delaware limited partnership that
was organized for the sole purpose of owning the Edens & Avant Pool
Properties and carrying on all incidental or related activities. The Edens &
Avant Pool Borrower owns no material assets other than the Edens & Avant Pool
Properties and related interests. The sole general partner of the Edens &
Avant Pool Borrower is Edens & Avant Financing, LLC, a Delaware limited
liability company (the "Edens & Avant Pool GP"), formed for the limited
purpose of acting as general partner of the Edens & Avant Pool Borrower. The
Edens & Avant Pool GP has two members: (i) Edens & Avant Properties Limited
Partnership (the "Edens & Avant Pool Operating Partnership"), a Delaware
limited partnership, and (ii) E & A Special Purpose, Inc., a Delaware
corporation formed for the limited purpose of acting as member of the Edens &
Avant Pool GP and a wholly-owned subsidiary of the Edens & Avant Pool
Operating Partnership. The Edens & Avant Pool Operating Partnership is also
the sole limited partner of the Edens & Avant Pool Borrower. The Edens &
Avant Pool Operating Partnership is indirectly owned 83.5% by the State of
Michigan Retirement System and 16.5% by a group consisting of Joseph Edens
and other principals and employees of affiliates of the Edens & Avant
Borrower.
The Properties. The Edens & Avant Pool Properties securing the Edens &
Avant Pool Loan are comprised of the Edens & Avant Pool Borrower's fee or
leasehold interest in 54 community and neighborhood retail shopping centers,
7 freestanding retail stores and 2 office buildings, located in South
Carolina, North Carolina, Georgia, and Tennessee. The Edens & Avant Pool
Properties contain approximately 4,439,655 square feet of GLA. The Edens &
Avant Pool Properties range in size from approximately 2,090 square feet of
GLA to approximately 247,064 square feet of GLA, with an average size of
approximately 70,471 square feet of GLA. As of April 8, 1997, the average
occupancy rate of the Edens & Avant Pool Properties was approximately 91% and
the aggregate annualized base rent was approximately $24,344,657 or
approximately $5.46 per square foot of GLA. The aggregate calculated value of
the Edens & Avant Pool Properties, based on Underwritable Cash Flow of
$20,253,312 and a 9.0% capitalization rate,was approximately $225,036,809,
with the calculated values for the individual Edens & Avant Pool Properties
ranging from approximately $150,323 to approximately $14,567,776. As of April
8, 1997, no single Edens & Avant Property accounted for more than
approximately 5.6% of the total GLA, more than approximately 6.8% of
annualized base rent from the Edens & Avant Properties and more than
approximately 7.2% of the Net Operating Income in respect of the twelve
months ended December 31, 1996.
Geographic Location. The following table summarizes the geographic
location of the Edens & Avant Pool Properties based on square footage of GLA:
<TABLE>
<CAPTION>
PERCENT OF
COMMUNITY CENTER FREE STANDING OFFICE TOTAL PERCENT OF GLA
STATE GLA GLA GLA GLA TOTAL GLA LEASED
- ------------------------- ---------------- --------------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
South Carolina............ 2,844,855 27,290 161,884 3,034,029 68.3% 89.6%
North Carolina............ 609,708 8,000 -- 617,708 13.9 87.8
Tennessee................. 482,997 -- -- 482,997 10.9 98.0
Georgia................... 298,521 6,400 -- 304,921 6.9 93.3
---------------- --------------- --------- ----------- ------------ ------------
Total/Weighted Average 4,236,081 41,690 161,884 4,439,655 100.0% 90.5%
================ =============== ========= =========== ============ ============
</TABLE>
S-89
<PAGE>
Operating History. The following table shows certain information
regarding the operating history of the Edens & Avant Pool Properties:
ADJUSTED NET OPERATING INCOME (000'S)(1)
<TABLE>
<CAPTION>
UNDERWRITABLE
1994 1995 1996 NOI
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Revenues............... $17,421 $20,875 $26,297 $28,331
Expenses............... (5,020) (5,411) (6,058) (6,375)
--------- --------- --------- ---------------
Net Operating Income . $12,401 $15,463 $20,239 $21,956
========= ========= ========= ===============
Adjusted Net
Operating Income(2) . $11,862 $13,163 $13,450 $14,584
========= ========= ========= ===============
</TABLE>
- ------------
(1) The historical information set forth above does not reflect operating
results for all the Edens & Avant Pool Properties, but only 47 of such
properties.
(2) Net Operating Income as adjusted to reflect only those Edens & Avant
Pool Properties owned for the full 12 months of each of 1994, 1995 and
1996.
Occupancy History. The following table summarizes the occupancy history of
the Edens & Avant Pool Properties:
<TABLE>
<CAPTION>
OCCUPANCY PERCENT
PERIOD/DATE: LEASED
------------------ -----------
<S> <C>
April 8, 1997........ 90.5%
1996.............. 90.5%
1995.............. 90.9%
</TABLE>
Sales History. The following table shows certain information regarding the
1995 and 1996 sales history for certain tenants at the Edens & Avant
Properties:
<TABLE>
<CAPTION>
ANNUAL 1995 SALES(1) ANNUAL 1996 SALES(1)
SF ------------------------ ---------------------
TENANT NAME APRIL 8, 1997 TOTAL PER SF PER SF TOTAL PER SF
- ------------------------- --------------- -------------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
Food Lion............. 630,970 $162,743,015 $258 $170,720,935 $271
Bi-Lo................. 284,799 83,344,733 $293 84,732,513 298
Wal-Mart.............. 166,709 58,558,150 $351 58,998,443 354
Revco................. 196,671 46,074,239 $234 49,915,492 254
Blockbuster Video .... 24,800 4,413,305 $178 3,920,336 158
Winn-Dixie ........... 115,844 23,744,413 $205 21,201,437 183
National Bank of South
Carolina ............. 46,350 N/A N/A N/A N/A
Eckerd's ............. 51,022 8,965,166 $176 9,916,938 194
Cato ................. 56,460 6,838,486 $121 6,522,575 116
Publix Supermarket.... 37,912 N/A N/A N/A N/A
--------------- -------------- -------- -------------- --------
Total/Weighted
Average ........... 1,611,537 $394,681,507 $258 $405,928,669 $266
=============== ============== ======== ============== ========
</TABLE>
- ------------
(1) Historical sales figures and square footage amounts are only listed for
tenants reporting sales in both 1995 and 1996.
(2) Per square foot sales figures are based on only those stores which
reported sales for full years 1995 and 1996.
(3) Sales figures are not applicable for bank tenants.
(4) Under construction as of April 22, 1997, no historical sales figures
available.
S-90
<PAGE>
Description of the Tenants. Approximately 57.4% of the leased GLA of the
Edens & Avant Pool Properties is leased as of April 8, 1997, to tenants with
leased area greater than or equal to 15,000 square feet per lease, which
include leases of supermarkets, drug stores, and value-oriented department,
furniture and apparel stores. Tenants in the Edens & Avant Pool Properties
generally offer 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 Properties is Food
Lion, Inc., whose 26 leases at the Edens & Avant Pool Properties generated
less than approximately 17.1% of the annualized base rent of the Edens &
Avant Pool Properties as of April 8, 1997. The 10 largest tenants average
approximately 19,959 square feet per lease. Other than Food Lion, Inc., no
single tenant represented more than approximately 6.6% of the annualized base
rent of the Edens & Avant Pool Properties as of April 8, 1997.
The following table shows certain information regarding the ten largest
tenants at the Edens & Avant Pool Properties:
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT--EDENS & AVANT POOL LOAN
<TABLE>
<CAPTION>
% OF ANNUALIZED
TENANT OR TENANT TENANT TOTAL ANNUALIZED % OF TOTAL BASE RENT
PARENT COMPANY(1) STORE NAME GLA (SF) GLA BASE RENT ANNUALIZED BASE RENT PER SF
- ------------------------- ------------------- ----------- -------- ------------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Food Lion, Inc. Food Lion 721,290 16.2% $ 4,170,035 17.1% $ 5.78
Royal Ahold Bi-Lo 304,799 6.9 1,581,702 6.5 5.19
Wal-Mart Stores Wal-Mart 446,483 10.1 1,499,524 6.2 3.36
Revco DS, Inc. Revco 232,821 5.2 1,383,127 5.7 5.94
Blockbuster Entertainment Blockbuster 50,128 1.1 817,699 3.4 16.31
Winn Dixie Stores Winn Dixie 115,844 2.6 747,224 3.1 6.45
National Bank of South National Bank of
Carolina South Carolina 46,350 1.0 637,565 2.6 13.76
Eckerd Corp. Eckerd's 59,662 1.3 423,779 1.7 7.10
Cato Corp. CATO 60,460 1.4 423,443 1.7 7.00
Publix Supermarkets Publix Supermarkets 37,912 0.9 318,456 1.3 8.40
----------- -------- ------------- -------------------- ------------
Total/Weighted Average 2,075,749 46.8% $12,002,554 49.3% $ 5.78
Other Major Tenants (more
than 5000 SF) 1,440,959 32.5 6,161,447 25.3 4.28
Remaining Tenants 503,013 11.3 6,133,856 25.2 12.19
Vacant Space 419,934 9.5 46,800 0.2 0.11
----------- -------- ------------- -------------------- ------------
Totals/Weighted Average 4,439,655 100.0% $24,344,657 100.0% $ 6.06
=========== ======== ============= ==================== ============
</TABLE>
- ------------
(1) The parent company may not be the obligor under the applicable lease.
S-91
<PAGE>
Lease Expirations. Approximately 40% of the tenants' leases expire after
2003. The following table shows scheduled lease expirations at the Edens &
Avant Pool Properties as of April 8, 1997, assuming none of the tenants renew
their leases, exercise renewal options or terminate their leases prior to the
scheduled expiration date(1):
<TABLE>
<CAPTION>
NUMBER OF ANNUALIZED CUMULATIVE
LEASES CUMULATIVE ANNUALIZED BASE RENT PERCENT OF PERCENT OF
EXPIRATION YEAR EXPIRING EXPIRING SF PERCENT OF SF PERCENT OF SF BASE RENT PER SF BASE RENT BASE RENT
- --------------------------------- ------------- --------------- --------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ................ 83 419,934 9.5% 9.5% $ 46,800 $0.11 0.2% 0.2%
No Expiration Date (2) 20 76,452 1.7 11.2% 358,015 4.68 1.5 1.7%
1997 .................. 74 164,590 3.7 14.9% 1,322,361 8.03 5.4 7.1%
1998 .................. 141 653,786 14.7 29.6% 3,769,348 5.77 15.5 22.6%
1999 .................. 122 379,753 8.6 38.2% 2,694,931 7.10 11.1 33.7%
2000 .................. 81 417,548 9.4 47.6% 2,516,703 6.03 10.3 44.0%
2001 .................. 62 371,125 8.4 55.9% 2,641,518 7.12 10.9 54.8%
2002 .................. 27 126,621 2.9 58.9% 783,637 6.19 3.2 58.1%
2003 .................. 12 55,770 1.3 60.0% 323,573 5.80 1.3 59.4%
Thereafter ............ 78 1,774,076 40.0 100.0% 9,887,771 5.57 40.6 100.0%
---------- ------------- --------------- ------------ ------------ ------------
Total/Weighted Average 700 4,439,655 100.0% $24,344,657 $6.06 100.0%
========== ============= =============== ============ ============ ============
</TABLE>
- ------------
(1) Lease expiration schedule is based on the rent roll as of April 8,
1997.
(2) The No Expiration Date category includes those leases which are listed
on the rent roll as being either month-to-month, or having expirations
that are prior to the date of the rent roll, or having no expiration
date.
Property Summary. The following table sets forth certain information
regarding location, GLA, occupancy history, financial history, and the
tenancy of the Edens & Avant Pool Properties:
S-92
<PAGE>
THE EDENS & AVANT POOL PROPERTIES SUMMARY
<TABLE>
<CAPTION>
OCCUPANCY
ALLOCATED --------------------
LOAN TOTAL YEAR BUILT/ APRIL 8,
PROPERTY NAME LOCATION AMOUNT SF/UNITS RENOVATED 1995 1996 1997
- -------------------------- ----------------- ---------- -------- ----------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Florence Mall.............. Florence, SC $5,516,883 247,064 1965/1984 94% 99% 100%
Trenholm Plaza............. Forest Acres, SC $4,399,870 172,957 1960/1997 89% 81% 86%
NBSC Building.............. Columbia, SC $3,588,694 147,890 1970/1994 71% 81% 80%
Hampton Plaza.............. Clarksville, TN $3,021,907 189,302 1988 98% 91% 97%
Cumberland Plaza........... McMinnville, TN $2,835,486 143,951 1988 99% 90% 97%
Cunningham Place........... Clarksville, TN $2,799,378 149,744 1987 99% 99% 100%
Bay Village................ Conway, SC $2,381,777 133,480 1988 -- 99% 99%
Belvedere Plaza............ Anderson, SC $2,331,027 158,739 1965/1992 97% 86% 73%
Lakeside Shopping Ctr. .... Anderson, SC $2,134,162 137,507 1979 -- 74% 96%
Triangle Village........... Lexington, SC $2,031,662 115,754 1986 99% 100% 97%
Widewater Square........... Columbia, SC $2,028,788 95,700 1976/1990 99% 100% 95%
Palmetto Plaza............. Sumter, SC $2,013,032 97,864 1964/1996 96% 96% 98%
Edisto Village............. Orangeburg, SC $1,980,334 108,668 1972/1994 95% 98% 98%
Gateway Plaza.............. Sumter, SC $1,956,673 91,150 1989 87% 96% 88%
Shoppers Port.............. Charleston, SC $1,890,984 74,400 1974/1992 96% 100% 100%
Raleigh Boulevard
Shopping Ctr.............. Raleigh, NC $1,755,941 72,232 1990 95% 95% 94%
Kalmia Plaza............... Aiken, SC $1,747,952 215,330 1967 76% 77% 75%
Westland Square............ West Columbia, SC $1,692,883 62,735 1987/1996 97% 98% 96%
Woodberry Plaza............ West Columbia, SC $1,645,846 82,930 1976/1994 98% 100% 100%
Northway Plaza............. Columbia, SC $1,580,781 74,689 1974/1988 97% 95% 93%
Western Square............. Laurens, SC $1,379,182 80,764 1978 84% 87% 82%
Lawndale Village........... Greensboro, NC $1,323,007 46,337 1987 100% 100% 100%
Raeford--Hoke Village ..... Raeford, NC $1,319,807 73,530 1982 100% 100% 100%
Fairfield Square........... Winnsboro, SC $1,306,443 54,640 1987 100% 100% 100%
Northside
Plaza--Henderson.......... Henderson, NC $1,283,456 66,090 1981/1995 85% 95% 90%
St. George Plaza........... St. George, SC $1,282,442 53,211 1982/1997 89% 89% 78%
Waterway Plaza............. Little River, SC $1,282,040 49,750 1991 96% 100% 100%
Northside Plaza--Clinton .. Clinton, NC $1,234,189 80,030 1982 59% 87% 92%
Ravenel Town Center........ Ravenel, SC $1,153,951 48,050 1996 -- -- 100%
South Square Shopping
Ctr....................... Lancaster, SC $1,148,991 44,350 1992 100% 100% 100%
Barnwell Plaza............. Barnwell, SC $1,148,471 70,725 1985 100% 100% 100%
Capitol Square............. West Columbia, SC $1,048,824 79,921 1974/1993 81% 75% 75%
Blowing Rock Square........ Blowing Rock, NC $1,047,320 42,559 1990 95% 96% 100%
Bainbridge Mall............ Bainbridge, GA $1,046,440 145,124 1973 98% 96% 91%
Three Fountains Plaza ..... West Columbia, SC $1,009,260 41,450 1986/1996 95% 95% 95%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOI PRIMARY TENANTS WITH
---------------------------------- ANNUALIZED ANNUALIZED GREATER THAN
UNDER- BASE RENT BASE RENT 15,000 SF
PROPERTY NAME 1995 1996 WRITABLE 4/8/97 PSF 4/8/97 4/8/97(1)
- -------------------------- ---------- ---------- ---------- ---------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Florence Mall.............. $1,212,016 $1,455,783 $1,437,808 $1,620,624 $ 6.59 (2)
Trenholm Plaza............. 888,547 813,906 1,169,694 1,347,017 $ 9.07 (3)
NBSC Building.............. 629,258 824,054 1,004,518 1,548,621 $13.06 National Bank of South
Carolina (2001)
Hampton Plaza.............. -- 781,197 842,969 874,105 $ 4.74 (4)
Cumberland Plaza........... -- 763,145 734,416 771,673 $ 5.53 Wal-Mart (2008), Food Lion
(2009)
Cunningham Place........... -- 721,321 728,112 732,436 $ 4.89 Winn Dixie (2007), Wal-Mart
(2007)
Bay Village................ -- 626,742 622,050 658,566 $ 4.98 (5)
Belvedere Plaza............ 755,482 633,309 619,894 722,619 $ 6.27 Hamrick's, Inc. (2000),
Farmers Furniture (1999)
Lakeside Shopping Ctr. .... -- 382,626 577,785 615,486 $ 4.66 Wal-Mart (2000), Bi-Lo (2011)
Triangle Village........... 457,390 569,913 531,221 554,284 $ 4.95 Food Lion (2006), Wal-Mart
(2005)
Widewater Square........... 480,744 552,949 523,760 564,087 $ 6.19 Bi-Lo (2011)
Palmetto Plaza............. 377,185 405,067 521,389 444,327 $ 4.64 McCrory (1999), Food Lion
(2017)
Edisto Village............. 508,410 522,835 523,910 584,097 $ 5.48 (6)
Gateway Plaza.............. 404,198 524,229 526,056 527,115 $ 6.57 Bi-Lo (2008)
Shoppers Port.............. 376,494 247,359 481,101 539,857 $ 7.26 Food Lion (2010)
Raleigh Boulevard
Shopping Ctr.............. 392,579 447,969 472,236 535,022 $ 7.84 Food Lion (2010)
Kalmia Plaza............... 513,263 472,148 567,238 507,771 $ 3.14 Food Lion (2017), Rose's
Stores (1998)
Westland Square............ 313,524 405,525 421,235 465,791 $ 7.70 Food Lion (2016)
Woodberry Plaza............ 395,610 433,989 425,963 477,688 $ 5.76 Winn-Dixie (2014), Big Lots
(2000)
Northway Plaza............. 307,721 316,010 407,212 347,301 $ 5.02 Food Lion (2017)
Western Square............. 369,630 406,709 361,482 429,787 $ 6.49 Bi-Lo (2012)
Lawndale Village........... 319,903 334,921 334,339 336,530 $ 7.26 Winn-Dixie (2007)
Raeford--Hoke Village ..... 316,682 348,292 343,935 387,756 $ 5.27 B.C Moore & Sons Inc. (2004),
Food Lion (2015)
Fairfield Square........... 298,788 297,506 333,707 349,820 $ 6.40 Food Lion (2007)
Northside
Plaza--Henderson.......... 236,050 264,741 337,256 283,706 $ 4.78 Food Lion (2017)
St. George Plaza........... 195,054 193,730 326,445 210,990 $ 5.10 Food Lion (2017)
Waterway Plaza............. 317,599 325,972 327,264 364,215 $ 7.32 Food Lion (2016)
Northside Plaza--Clinton .. 165,653 190,241 326,970 388,019 $ 5.26 Food Lion (2016), Maxway
(2001)
Ravenel Town Center........ -- 250,848 294,670 289,650 $ 6.03 Food Lion (2016)
South Square Shopping
Ctr....................... 292,215 293,716 298,175 338,838 $ 7.64 Food Lion (2017)
Barnwell Plaza............. 283,679 340,256 303,738 338,750 $ 4.79 Food Lion Inc. (2005),
Wal-Mart (2005)
Capitol Square............. 291,520 289,527 281,841 307,087 $ 5.13 Bi-Lo (2010)
Blowing Rock Square........ 270,922 271,699 277,168 306,748 $ 7.21 Food Lion (2016)
Bainbridge Mall............ 89,014 302,407 322,218 382,070 $ 2.90 (7)
Three Fountains Plaza ..... 171,010 204,675 257,491 297,458 $ 7.54 Food Lion (2016)
</TABLE>
S-93
<PAGE>
THE EDENS & AVANT POOL PROPERTIES SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
OCCUPANCY
ALLOCATED --------------------
LOAN TOTAL YEAR BUILT/ JUNE 30,
PROPERTY NAME LOCATION AMOUNT SF/UNITS RENOVATED 1995 1996 1997
- ---------------------------- ---------------------------- ---------- --------- ----------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Crossroads Shopping Ctr. ... Asheboro, NC $1,000,793 51,440 1981 100% 100% 100%
Saluda Town Centre........... Saluda, SC $ 972,557 37,450 1996 -- 100% 100%
Clusters of Whitehall........ Columbia, SC $ 970,542 68,029 1973/1988 83% 81% 64%
Lexington Village............ Lexington, SC $ 954,392 30,764 1988 100% 99% 95%
Dreher Plaza................. West Columbia, SC $ 931,594 20,276 1989 99% 100% 100%
Tri-County Plaza............. Royston/Franklin Springs, GA $ 929,948 63,510 1986 98% 97% 89%
Clover Plaza................. Clover, SC $ 903,605 45,575 1990 99% 97% 98%
Stephens Plaza............... Toccoa, GA $ 804,486 47,850 1989 94% 95% 100%
Goldrush Shopping Ctr. ..... McCormick, SC $ 757,251 39,700 1993 100% 100% 100%
Mitchell Plaza............... Batesburg, SC $ 751,239 39,970 1987 97% 98% 100%
Blockbuster/Taco
Bell--Lexington............. Lexington, SC $ 662,593 9,200 1990 100% 100% 100%
Rosewood Extension........... Columbia, SC $ 641,374 13,188 1989 100% 98% 88%
Edgecombe Square............. Tarboro, NC $ 603,720 85,740 1990 42% 42% 42%
Forest Drive Shopping Ctr. . Columbia, SC $ 519,033 16,399 1988 86% 85% 85%
Friarsgate Plaza............. Irmo, SC $ 491,790 68,235 1981/1996 85% 85% 82%
Catawba Village.............. Newton-Conover, NC $ 477,676 58,450 1978 73% 74% 86%
Waynesville Plaza............ Waynesville, NC $ 426,181 33,300 1985 81% 83% 100%
Shotwell Square.............. Bainbridge, GA $ 403,332 42,037 1980 100% 100% 100%
Mauldin Square............... Mauldin, SC $ 352,348 15,800 1986 90% 100% 100%
1634 Main Street............. Columbia, SC $ 351,753 13,994 1934/1988 80% 77% 89%
Blockbuster--Irmo............ Irmo, SC $ 333,806 6,000 1988 100% 100% 100%
Blockbuster--Decker.......... Columbia, SC $ 321,007 6,000 1989 100% 100% 100%
Blockbuster--Warner Robbins . Warner Robbins, GA $ 281,004 6,400 1989 100% 100% 100%
Blockbuster--Broad River .... Columbia, SC $ 222,634 6,000 1988 100% 100% 100%
Jackson Plaza Expansion ..... Sylva, NC $ 205,730 8,000 1985 100% 100% 100%
Edens KW Winnsboro........... Winnsboro, SC $ 71,575 7,200 1989 100% 100% 100%
Taco Cid..................... West Columbia, SC $ 60,155 2,090 1980 100% 100% 100%
Lakeside Square.............. Anderson, SC NA 48,441 1975 -- 41% 34%
Totals/Weighted Averages .... 4,439,655 91% 91% 91%
========= ==== ==== ========
Totals/Weighted Averages
(Comparable Properties) .... 3,551,730 90% 91% 90%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOI PRIMARY TENANTS WITH
---------------------------------- ANNUALIZED ANNUALIZED GREATER THAN
UNDER- BASE RENT BASE RENT 15,000 SF
PROPERTY NAME 1995 1996 WRITABLE 4/8/97 PSF 4/8/97 4/8/97(1)
- -------------------------- ---------- ---------- ---------- ---------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Crossroads Shopping Ctr. . $ 250,624 $ 253,833 $ 261,586 $ 302,991 $ 5.89 Food Lion (2006)
Saluda Town Centre......... -- 50,148 246,548 290,535 $ 7.76 Food Lion (2016)
Clusters of Whitehall ..... 296,926 350,336 235,331 291,049 $ 6.71 N/A
Lexington Village.......... 226,936 242,398 240,126 268,139 $ 9.16 N/A
Dreher Plaza............... 230,745 297,506 230,485 255,749 $12.61 N/A
Tri-County Plaza........... 279,402 276,523 247,414 268,367 $ 4.73 Bi-Lo (2006)
Clover Plaza............... 258,037 221,453 244,372 277,237 $ 6.22 Food Lion (2010)
Stephens Plaza............. 169,792 212,771 222,778 289,570 $ 6.05 Bi-Lo (2009)
Goldrush Shopping Ctr. ... 220,994 199,132 196,637 224,292 $ 5.65 Food Lion (2013)
Mitchell Plaza............. 187,583 195,230 199,258 240,241 $ 6.01 Food Lion (2006)
Blockbuster/Taco
Bell--Lexington........... 175,127 169,250 161,974 178,602 $19.41 N/A
Rosewood Extension......... 175,522 179,432 158,373 163,809 $14.17 N/A
Edgecombe Square........... 210,907 184,919 178,405 237,260 $ 6.65 Food Lion (2015)
Forest Drive Shopping Ctr. 118,399 131,983 132,244 139,047 $ 9.96 N/A
Friarsgate Plaza........... 167,774 160,735 144,776 186,319 $ 3.32 Bi-Lo (2001)
Catawba Village............ 113,655 139,314 174,827 202,601 $ 4.05 Bi-Lo (1998)
Waynesville Plaza.......... 113,202 114,667 127,729 148,700 $ 4.97 Food Lion (2006)
Shotwell Square............ 105,294 122,197 113,120 157,276 $ 3.74 Harvey's Supermarket (2000)
Mauldin Square............. 74,905 92,941 90,428 110,880 $ 7.02 N/A
1634 Main Street........... 73,057 57,060 97,981 159,526 $12.77 N/A
Blockbuster--Irmo.......... 79,467 88,121 82,080 82,500 $13.75 N/A
Blockbuster--Decker........ 83,598 85,698 79,025 88,500 $14.75 N/A
Blockbuster--Warner
Robbins................... 75,840 75,126 71,111 78,400 $12.25 N/A
Blockbuster--Broad River .. 63,111 56,650 55,543 100,555 $16.76 N/A
Jackson Plaza Expansion ... 46,703 47,723 46,716 45,200 $ 5.65 N/A
Edens KW Winnsboro......... 20,013 21,237 19,966 34,200 $ 4.75 N/A
Taco Cid................... 15,572 21,709 14,841 21,600 $10.33 N/A
Lakeside Square............ -- 27,454 17,057 51,600 $ 3.18 N/A
Totals/Weighted Averages .. $15,463,325 $20,238,543 $21,955,996 $24,344,657 $ 6.06
=========== =========== =========== =========== ==========
Totals/Weighted Averages
(Comparable Properties) .. $15,463,325 $16,794,666 $17,892,389 $20,060,606 $ 6.15
</TABLE>
<PAGE>
- ------------
(1) Lease expirations are listed assuming no renewal options are exercised.
(2) Rogers Brothers Fabrics (2000), Book A Million (2005), Fleet Mortgage
Group (1998), Piggly Wiggly (2009), Peebles-Kimbrell Company (1997)
(3) Publix Super Markets (2017), Books a Million (2004), Fresh Market
(2007)
(4) Gregg Appliances, Inc. (2006), Wal-Mart (2008), Central Tractor Farm &
Country (2000), Michaels Arts & Craft (2001)
(5) Big Lots (1998), Wal--Mart (2008), Goody's Family Clothing (no lease
expiration date)
(6) Bi-Lo (2014), Badcock Furniture (1998), Maxway Store (1999)
(7) Belk-Simpson (1998), Heilig-Meyers Furniture (2002), Goody's Family
Clothing (1998), Bargain Town (1998)
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<PAGE>
Ground Leases. At 4 of the Edens & Avant Pool Properties, all or a portion
of the underlying land is leased to the Edens & Avant Pool Borrower pursuant
to a ground lease (collectively, the "Edens & Avant Pool Ground Leases").
The interest of the Edens & Avant Pool Borrower in Stephens Plaza, located
in Stephens County, Georgia, consists of a ground leasehold interest created
under a lease dated July 18, 1988, between A & M Properties as lessor and
Edens Toccoa Partners--88 as lessee. Edens Toccoa Partners--88 assigned its
interest in the lease to the Edens & Avant Pool Borrower. The initial term of
the lease commenced on December 10, 1989, expires 30 years thereafter, and
contains 10 successive five year renewal options. The current annual rent
under the lease is $48,300, and increases by 15% after each 5 year renewal
period.
The interest of the Edens & Avant Pool Borrower in Jackson Plaza
Expansion, located in Jackson County, North Carolina, consists of a ground
leasehold interest created under a lease dated June 10, 1980, between The
Midwood Company Inc. as lessor and B. E. T. Investments as lessee. Joseph
Edens succeeded to the interest of B. E. T. Investments, and assigned his
interest in the lease to the Edens & Avant Pool Borrower. The initial term of
the lease expires on September 20, 2007, and there are three successive ten
year renewal options. The annual rent is $960.00, and there is an additional
rent of 33 1/3% of all rents paid to the ground lessee.
The interest of the Edens & Avant Pool Borrower in Blockbuster-Broad
River, located in Richland County, South Carolina, consists in part of a fee
simple interest and in part of a ground leasehold interest which was created
under a lease dated July 1, 1988, between Kathryn N. Shull and ID Investment
Co., Inc. as lessor and Edens Broad River Road Investments--88 as lessee.
Edens Broad River Road Investments--88 assigned its interest in the lease to
the Edens & Avant Pool Borrower. The initial term of the lease commenced on
July 1, 1988, expires 20 years thereafter, and contains 4 successive five
year renewal options. The current annual rent is $34,367.76, with increases
after each five year renewal period based on the immediately preceeding
year's rent multiplied by 85% of any increase in the Consumer Price Index for
All Urban Consumers, subject to a minimum annual increase of 3% and a maximum
annual increase of 5% on a cumulative basis.
The interest of the Edens & Avant Pool Borrower in a portion of Ravenel
Town Center, located in Charleston County, South Carolina, used for septic
sewage purposes, consists of a ground leasehold interest created under a
lease dated April 11, 1996, between Kenneth Baldwin as lessor and Planta
Properties Limited Partnership as lessee. Planta Properties Limited
Partnership assigned its interest in the lease to the Edens & Avant Pool
Borrower. The initial term of the lease expires on the earlier of 100 years
from lease commencement or 90 days after the property owned in fee simple is
served by a public sanitary sewer system. The annual rent is $1.00, and has
been paid for the full 100 year term.
Environmental Reports. Environmental Site Assessments have been performed
on the Edens & Avant Pool Properties within the past two years. The
Environmental Site Assessments did not reveal any environmental liability
that the Depositor believes would have a material adverse effect on the Edens
& Avant Pool Borrower's business, assets or results of operations taken as a
whole. Nevertheless, there can be no assurance that all environmental
conditions and risks were identified in such environmental assessments. See
"Risk Factors--The Mortgage Loans--Environmental Law Considerations."
Engineering Reports. Property Condition Reports was completed on the Edens
& Avant Pool Properties between April 21, 1997 and June 30, 1997 by a third
party due diligence firm. The Property Condition reports concluded that the
Edens & Avant Pool Properties were generally in good physical condition and
identified approximately $253,607 in deferred maintenance. At origination of
the Edens & Avant Pool Loan, the Edens & Avant Borrower established a
deferred maintenance reserve account and made a initial deposit equal to
$317,009 to fund the cost of addressing the identified items.
Property Management. The Edens & Avant Pool Properties are managed by the
Edens & Avant Pool Operating Partnership (the "Edens & Avant Pool Manager"),
an affiliate of the Edens & Avant Pool Borrower, pursuant to an Exclusive
Leasing and Management Agreement (the "Edens & Avant Pool Management
Agreement"), between the Edens & Avant Pool Manager and the Edens & Avant
Pool Borrower. The Edens & Avant Pool Manager is responsible for the
management of the Edens & Avant Pool Properties and the administration of the
leases with respect thereto.
The term of the Edens & Avant Pool Management Agreement continues until
July 14, 1998, and automatically renews for successive one-year terms unless
terminated by (a) either party by 30 days prior written notice to the other,
(b) either party upon a default or breach of the terms of the Edens & Avant
Pool Management Agreement which is not cured within the applicable period of
time set forth in the Edens & Avant Pool Management Agreement, or (c) the
Edens & Avant Pool Borrower in the event of a bona fide sale and conveyance
of the Edens & Avant Pool Properties and the payment of a termination fee
equal to two months' management fee for every full or partial year remaining
thereunder. In addition, upon
S-95
<PAGE>
the occurrence of an event of default under the Edens & Avant Pool Loan
documents, the Edens & Avant Pool Borrower and/or the mortgagee shall be
permitted to terminate the Edens & Avant Pool Management Agreement without
additional penalty, if so required under the Edens & Avant Pool Loan
documents.
Pursuant to a Manager's Consent and Subordination of Management Agreement
with respect to the Edens & Avant Pool Management Agreement between the Edens
& Avant Pool Borrower and the Edens & Avant Pool Manager (the "Edens & Avant
Pool Manager's Subordination"), the Edens & Avant Pool Manager has agreed,
among other things, that (a) it shall not terminate, amend or modify the
Edens & Avant Pool Management Agreement without first obtaining the
mortgagee's written consent (except for termination for non-payment of
management fees, which the mortgagee has the right to cure), (b) all liens,
rights and interests owned, claimed or held by the Edens & Avant Pool Manager
in and to the Edens & Avant Pool Properties, are and shall be, in all
respects subordinate and inferior to the liens and security interests created
for the benefit of the mortgagee, including those created under the Edens &
Avant Pool Loan documents, and (c) upon the occurrence of an event of default
under the Edens & Avant Pool Loan documents, it shall, at the request of the
mortgagee continue performance of its obligations under the Edens & Avant
Pool Management Agreement, provided that the mortgagee gives the Edens &
Avant Pool Manager written notice that it has elected to assert the Edens &
Avant Pool Borrower's rights under the Edens & Avant Pool Management
Agreement and the mortgagee (or the Edens & Avant Pool Borrower) performs the
obligations of the Edens & Avant Pool Borrower to the Edens & Avant Pool
Manager under the Edens & Avant Pool Management Agreement arising from and
after, and with respect to the period commencing upon, the effective date of
such notice.
In addition, pursuant to the terms of the Edens & Avant Pool Manager's
Subordination, the mortgagee may terminate the Edens & Avant Pool Management
Agreement (i) upon, or at any time after, the occurrence of an event of
default under the Edens & Avant Pool Loan documents or continuing default by
the Edens & Avant Pool Manager under the Edens & Avant Pool Management
Agreement, (ii) upon, or at any time after, a 50% or more change in control
of the ownership of the Edens & Avant Pool Manager, and (iii) at any time for
cause (including, but not limited to, the Edens & Avant Pool Manager's gross
negligence, willful misconduct or fraud), and (iv) at such time as the Edens
& Avant Pool DSCR (as defined below) shall be less than 1.25 to 1.0, in
accordance with the terms of the Edens & Avant Pool Loan documents (unless
the Edens & Avant Pool Borrower shall deposit additional collateral in the
form of cash or a letter of credit, as described under "--Edens & Avant Pool:
The Loan--Debt Service Coverage Ratio Covenant") by giving the Edens & Avant
Pool Manager 30 days prior written notice of such termination, in which event
the Edens & Avant Pool Manager shall resign as manager of the Edens & Avant
Pool Properties effective upon the end of such 30 day period.
Edens & Avant, Inc. and its affiliates are one of the largest full-service
commercial real estate firms in the Southeastern United States having
ownership interests in over 5.1 million square feet of properties consisting
primarily of grocery and anchored necessity retail centers. Those properties
have a current estimated value of almost $260 million. Under the terms of the
Edens & Avant Pool Management Agreement, the Edens & Avant Pool Manager is
entitled to (a) a monthly management fee equal to 4% of gross revenues of the
Edens & Avant Pool Properties for each month, (b) a leasing commission
ranging from 33% to 100% (depending on the length of the lease term) of the
first full month's rental for new leases and negotiated renewals, plus 5% of
the base rents received thereafter during the term of the lease, (c) a
special services fee ranging from 5% to 7% of the amount of capital
improvements, major repairs, tenant upfittings and subdivisions or expansions
of spaces within the Edens & Avant Pool Properties contracted for and/or
managed by the Edens & Avant Pool Manager, (d) all third party costs advanced
by the Edens & Avant Pool Manager for the Edens & Avant Pool Borrower
pursuant to such agreement, (e) the reasonable value of the services rendered
pursuant to such agreement by the Edens & Avant Pool Manager beyond the
day-to-day management services, and (f) a fee of 10% of the gross sales price
for an outlot sale.
S-96
<PAGE>
EDENS & AVANT POOL: THE LOAN
CERTAIN EDENS & AVANT POOL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO REFINANCING
SQUARE FOOT(1) VALUE RATIO(2) ACTUAL DSCR(3) DSCR(4)
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Cut-Off Date ... $19 36.8% 3.35x 2.58x
At Maturity
Date............ $19 36.8% 3.35x 2.58x
</TABLE>
- ------------
(1) Based on the 4,439,655 square feet of community center, retail store
and office building GLA securing the Edens & Avant Pool Loan and the
Cut-Off Date Principal Balance or Balloon Balance, as applicable.
(2) Based on a calculated value of $225,036,809 assuming Underwritable Cash
Flow of $20,253,312 and a 9.0% capitalization rate and the Cut-Off Date
Principal Balance or Balloon Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Edens & Avant Pool Loan
during the 12 months following the Cut-Off Date, and in the case of
Maturity Date Actual DSCR, 12 months of debt service on the Edens &
Avant Pool Loan assuming a balance equal to the Balloon Balance and a
coupon equal to the Edens & Avant Interest Rate.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
9.50% of the Cut-Off Date Principal Balance of the Edens & Avant Pool
Loan, and in the case of the Maturity Date Refinancing DSCR, an annual
debt service payment equal to 9.50% of the Balloon Balance.
Security. The Edens & Avant Pool Loan is a non-recourse loan, secured only
by the fee or leasehold estate of the Edens & Avant Pool Borrower in the
Edens & Avant Pool Properties and certain other collateral relating thereto
(including assignments of leases and rents, and an assignment of certain
agreements and the funds in certain accounts). The mortgagee is the insured
under the title insurance policy (which will be assigned to the Trust Fund)
which insures, among other things, that the Edens & Avant Pool Mortgages
constitute valid and enforceable first liens on each Edens & Avant Pool
Property, subject to certain exceptions and exclusions from coverage set
forth therein.
Payment Terms. The Edens & Avant Pool Loan matures on August 31, 2007 (the
"Edens & Avant Pool Maturity Date") and bears interest at a fixed rate per
annum equal to 7.30% (the "Edens & Avant Pool Interest Rate") through and
including the Edens & Avant Pool Maturity Date. Interest on the Edens & Avant
Pool Loan is calculated on the basis of a 360-day year of 30-day months.
The payment date for the Edens & Avant Pool Loan is the first business day
of each month, and there is no grace period for a default in payment of
interest. Commencing on September 1, 1997, the Edens & Avant Pool Loan
requires monthly payments of interest only (the "Edens & Avant Pool Monthly
Debt Service Payments") of $503,395.83. On the Edens & Avant Pool Maturity
Date, payment of the entire balance of the Edens & Avant Pool Loan, together
with all accrued and unpaid interest and all other sums payable under the
Edens & Avant Pool Loan documents, is required.
If the Edens & Avant Pool Borrower defaults in the payment of any monthly
installment of interest on any payment date due, it is required to pay a late
payment charge in an amount equal to 5% of the amount of the installment not
paid. An additional late charge equal to 5% of the monthly payment due will
be charged for each successive month the payment remains outstanding. Upon
the occurrence of any event of default, the entire unpaid principal amount of
the Edens & Avant Pool Loan and any other amounts payable, including
interest, will bear interest at a default rate equal to the lesser of (a) the
maximum rate permitted by applicable law and (b) the Edens & Avant Pool
Interest Rate plus 5% (the "Edens & Avant Pool Default Rate").
Release in Exchange for Substitute Collateral. On any payment date after
the Closing Date, the Edens & Avant Pool Borrower may obtain the release of
one or more Edens & Avant Pool Properties from the lien of the Edens & Avant
Pool Mortgages; provided that, with respect to each release of an Edens &
Avant Pool Property, among other conditions, (a) the Edens & Avant Pool
Borrower shall have given 30 days' prior written notice of such proposed
release, (b) the Edens & Avant Pool Borrower shall deliver the Edens & Avant
Pool Defeasance Collateral (as defined below) in an amount sufficient to pay
125% of the Allocated Loan Amount for the released Edens & Avant Pool
Property plus scheduled interest payments on the portion of the Edens & Avant
Pool Loan equal to such Allocated Loan Amount, or with respect to a release
of all of the Edens & Avant Pool Properties, Edens & Avant Pool Defeasance
Collateral in an amount sufficient to pay the outstanding principal balance
plus all remaining scheduled interest payments, (c) after giving effect to
the delivery of the Edens & Avant Pool Defeasance Collateral, the Edens &
Avant Pool DSCR is not less than the Edens & Avant Pool DSCR for the
immediately preceding 12 month period or the date of loan origination,
whichever is greater, (d) each of the Rating Agencies shall have given the
mortgagee written affirmation that the ratings on the Certificates will not
be qualified, downgraded or withdrawn as a result of such defeasance, (e) no
event of default shall have occurred and be continuing, (f) if the defeasance
relates to Edens & Avant Pool Properties with aggregate Allocated Loan
Amounts which are 15% or more of the principal
S-97
<PAGE>
amount of the Edens & Avant Pool Loan, the loan-to-value ratio of the Edens &
Avant Pool Properties which will remain as Edens & Avant Pool Properties
following the defeasance shall not be less than the loan-to-value ratio of
the Edens & Avant Pool Loan as of the date of origination, and (g) the Edens
& Avant Pool Borrower shall have delivered or caused to be delivered certain
required certificates, endorsements to title insurance policies, appraisals,
legal opinions and financial statements. "Edens & Avant Pool Defeasance
Collateral" consists of obligations or securities that are not subject to
prepayment, call or early redemption which are direct obligations of, or
obligations fully guaranteed as to timely payment by, the United States of
America or any agency or instrumentality thereof, or the obligations of which
are backed by the full faith and credit of the United States of America,
which qualify under Section 1.860G-2(a)(8) of United States Treasury
regulations, and which mature prior to the dates on which they are required
to be applied under the Edens & Avant Pool Loan. The "Edens & Avant Pool
DSCR" for any period means the ratio of aggregate net operating income on the
Edens & Avant Pool Properties, calculated in accordance with GAAP, to debt
service on the Edens & Avant Pool Loan (based on a debt service constant
equal to 10.09% per annum) for such period.
The Edens & Avant Pool Borrower may have one or more Edens & Avant Partial
Release Parcels released from the lien of the applicable Edens & Avant Pool
Mortgage prior to the Edens & Avant Pool Maturity Date upon satisfaction of
the conditions for defeasance set forth above as well as, among other things,
the following conditions: (i) the Edens & Avant Pool Borrower has delivered
to the mortgagee evidence that the entity that holds the option for the Edens
& Avant Partial Release Parcel has exercised its option to purchase such
parcel, (ii) the Edens & Avant Pool Borrower has delivered to the mortgagee
Edens & Avant Pool Defeasance Collateral in an amount sufficient to pay 125%
of the Allocated Loan Amount applicable to the Edens & Avant Pool Property
which is the subject of the partial release, and sufficient to pay scheduled
interest payments on the portion of the Edens & Avant Pool Loan equal to such
Allocated Loan Amount on such Edens & Avant Partial Release Parcel through
and including the Edens & Avant Pool Maturity Date together with the
outstanding principal balance of the Edens & Avant Pool Loan as of the Edens
& Avant Pool Maturity Date, (iii) no event of default shall have occurred and
be continuing, and (iv) the Edens & Avant Pool Borrower has delivered to the
mortgagee an officer's certificate certifying that the condition precedents
for such partial release have been complied with. An "Edens & Avant Partial
Release Parcel" means those portions of the Edens & Avant Pool Properties
identified in the Edens & Avant Pool Loan, each of which portion is subject
to an option of a tenant to purchase such portion pursuant to a right granted
by the related lease or permitted encumbrance existing on the date of
origination of the Edens & Avant Pool Loan.
Prepayment. Voluntary prepayment is prohibited under the Edens & Avant
Pool Loan prior to July 2, 2007, which is 60 days prior to the Edens & Avant
Pool Maturity Date. The Edens & Avant Pool Loan may be voluntarily prepaid
without a yield maintenance or prepayment premium commencing on the date 60
days prior to the Edens & Avant Pool Maturity Date.
Principal prepayments on the Edens & Avant Pool Loan must be made, at the
mortgagee's option, upon acceleration of the Edens & Avant Pool Loan
following the occurrence of an event of default thereunder. Prepayments made
following an event of default will be subject to the payment of a yield
maintenance premium (the "Edens & Avant Pool Yield Maintenance Premium")
equal to the greater of (a) 1% of the portion of the accelerated principal
amount being prepaid and (b) the product of (i) a fraction whose numerator is
an amount equal to the portion of the principal balance of the Edens & Avant
Pool Loan being prepaid and whose denominator is the entire outstanding
principal balance of the Edens & Avant Pool Loan as of the date of such
prepayment multiplied by (ii) an amount equal to the remainder obtained by
subtracting (x) an amount equal to the entire outstanding principal balance
of the Edens & Avant Pool Loan as of the date of such prepayment from (y) the
present value as of the date of such prepayment of the remaining scheduled
payments of principal and interest on the Edens & Avant Pool Loan (including
the payment of principal on the Edens & Avant Pool Maturity Date) determined
by discounting such payments at the Edens & Avant Pool Discount Rate. The
"Edens & Avant Pool Discount Rate" means the rate which, when compounded
monthly, equals the Edens & Avant Pool Treasury Rate. The "Edens & Avant Pool
Treasury Rate" means the yield, as of the date of prepayment, calculated by
linear interpolation of the yields of noncallable U.S. Treasury obligations
with terms (one longer and one shorter) most nearly approximating the period
from the date of prepayment to the Edens & Avant Pool Maturity Date.
To the extent that the Edens & Avant Pool Borrower is not permitted to
apply any insurance or condemnation proceeds to the restoration of one or
more of the Edens & Avant Pool Properties under the Edens & Avant Pool Loan,
the mortgagee will apply such proceeds to prepay the Edens & Avant Pool Loan.
No yield maintenance or prepayment premium is required to be paid in
connection with any prepayment resulting from such application of insurance
or condemnation proceeds.
Substitution of Other Mortgaged Properties for the Mortgaged Properties.
The Edens & Avant Pool Borrower is permitted to substitute one or more
properties (each, an "Edens & Avant Pool Substitute Property") for properties
which
S-98
<PAGE>
are collateral for the Edens & Avant Pool Loan (each, an "Edens & Avant Pool
Replaced Property"). To qualify as an Edens & Avant Pool Substitute Property,
a property (a) must have an appraised fair market value of no less than the
greater of (1) the fair market value of the Edens & Avant Pool Replaced
Property as of origination, and (2) the fair market value of the Edens &
Avant Pool 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) must have net operating income of at least 105% of that of the
Edens & Avant Pool Replaced Property for the immediately preceding 12-month
period; (c) all tenants with more than 25,000 square feet of 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 of leases for more than 10% of
the rentable space at the 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 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 Loan; (f) the
Edens & Avant Pool 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 of property for its current use; (g) the Edens &
Avant Pool 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 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
Edens & Avant Pool Deferred Maintenance Reserve 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 Loan documents
applicable to the Edens & Avant Pool Replaced Property must be true and
correct as to the Edens & Avant Pool Substitute Property in all material
respects; (c) the Edens & Avant Pool 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 Borrower must deliver certain other closing
documents relating to the Edens & Avant Pool 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-built survey, UCC-1 financing
statements, insurance certificates, and certain legal opinions.
The approval of the Rating Agencies is not required for any substitution
(a) if the Edens & Avant Pool Replaced Property is not among the following
Edens & Avant Pool Properties, which at origination were the following top
seven properties ranked by Underwritable Cash Flow (as determined by MSMC),
as specified at origination: (i) Florence Mall, Florence, South Carolina;
(ii) Trenholm Plaza, Columbia, South Carolina; (iii) NBSC Building, Columbia,
South Carolina; (iv) Hampton Plaza, Clarksville, Tennessee; (v) Cumberland
Plaza, McMinnville, Tennessee; (vi) Cunningham Place, Clarksville, Tennessee;
and (vii) Bay Village, Conway, South Carolina; (b) the net operating income
of the Edens & Avant Pool Substitute Property is less than 5% of the sum of
the net operating income for all Edens & Avant Pool Properties, for the
12-month period immediately preceding the proposed substitution; and (c) the
aggregate amount of annual net operating income for all Edens & Avant Pool
Substitute Properties (including the Edens & Avant Pool Property proposed for
substitution) substituted since origination is less than 15% of the annual
net operating income for all Edens & Avant Pool Properties as of the date of
origination of the Edens & Avant Pool Loan.
Lockbox and Reserves. The Edens & Avant Pool Borrower has established with
the National Bank of South Carolina (the "Edens & Avant Pool Lockbox Bank"),
in the name of the Edens & Avant Pool Lockbox Bank, as agent for the
mortgagee, as secured party, a cash collateral account (the "Edens & Avant
Pool Operating Account"). Pursuant to the terms of the Edens & Avant Pool
Loan, the Edens & Avant Pool Borrower is required to direct tenants to pay
rents directly into property accounts for the Edens & Avant Pool Properties,
the balances of which are transferred to the Edens & Avant Pool Operating
Account on a daily basis. If the Edens & Avant Pool DSCR is less than 1.50 to
1.0 or an event of default occurs (an "Edens & Avant Pool Lockbox Event"),
the Edens & Avant Pool Borrower is required to direct all tenants to pay
their rents directly into the Edens & Avant Pool Operating Account, or upon
receipt by the Edens & Avant Pool Borrower, to deposit into such account all
operating revenue from the Edens & Avant Pool Properties.
The Edens & Avant Pool Borrower has established (a) a debt service reserve
account (the "Edens & Avant Pool Interest Escrow Account") to be funded each
month in an amount equal to the interest payment for the next month (the
"Edens & Avant Pool Interest Escrow Amount"), (b) a mortgage escrow account
(the "Edens & Avant Pool Mortgage Escrow
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Account") funded at the initial closing of the Edens & Avant Pool Loan in the
amount of $1,545,583.00 and to be funded each month in an additional amount
equal to one-twelfth of the annual amount of insurance premiums and taxes
payable with respect to the Edens & Avant Pool Properties (the "Edens & Avant
Pool Tax and Insurance Amount"), (c) a deferred maintenance reserve account
(the "Edens & Avant Pool Deferred Maintenance Reserve Account") funded at the
initial closing of the Edens & Avant Pool Loan in the amount of $317,009.00,
(d) an environmental reserve account (the "Edens & Avant Pool Environmental
Reserve Account") funded at the initial closing of the Edens & Avant Pool
Loan in the amount of $391,188.00, and (e) a capital and tenant improvement
reserve account (the "Edens & Avant Pool Capital Expenditure Reserve
Account") funded at the initial closing of the Edens & Avant Pool Loan in the
amount of $4,795,088.00, and required to be funded monthly in an additional
amount equal to $73,994.00 (the "Edens & Avant Pool Capital Expenditure
Reserve Amount").
The Edens & Avant Pool Lockbox Bank will withdraw from the Edens & Avant
Pool Operating Account as soon as there shall be sufficient collected funds
on deposit in the Edens & Avant Pool Operating Account, funds in an amount
sufficient to make the following monthly deposits next due and in the
following order of priority: (i) funds in an amount equal to the Edens &
Avant Pool Tax and Insurance Amount, for deposit into the Edens & Avant Pool
Mortgage Escrow Account; (ii) funds in an amount equal to the Edens & Avant
Pool Interest Escrow Amount, for deposit into the Edens & Avant Pool Interest
Escrow Account; and (iii) funds in an amount equal to the Edens & Avant Pool
Capital Expenditure Reserve Amount, for deposit into the Edens & Avant Pool
Capital Expenditure Reserve Account. Provided that no event of default has
occurred, after the foregoing monthly deposits have been made any remaining
funds shall be paid or released by the Edens & Avant Pool Lockbox Bank as
directed by the Edens & Avant Pool Borrower.
The Edens & Avant Pool Borrower may, at any time, elect to replace any
Edens & Avant Pool Tax and Insurance Amount then being retained by the Edens
& Avant Pool Lockbox Bank and satisfy its obligations by delivery to the
mortgagee of a letter of credit, cash or cash equivalents (any such security,
the "Edens & Avant Pool Mortgage Escrow Security") in an amount reasonably
estimated by the Edens & Avant Pool Borrower to be one-half of the amount
sufficient (including the amount of any remaining Edens & Avant Pool Tax and
Insurance Amount) to discharge the real estate taxes and insurance premiums
which shall become due during the 12 month period immediately after the date
of delivery of such Edens & Avant Pool Mortgage Escrow Security (and for each
12-month period thereafter for so long as the Edens & Avant Pool Borrower
elects to post such security). Any such letter of credit shall be (i) either
an "evergreen" letter of credit or shall not expire until a date two months
after the Edens & Avant Pool Maturity Date, and (ii) issued by a bank with a
long-term unsecured debt rating of at least "AA" or its equivalent by each of
the Rating Agencies or, if not rated by all the Rating Agencies, then at
least "AA" or its equivalent by two of the Rating Agencies (an "Edens & Avant
Approved Bank").
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Edens & Avant Pool Borrower is generally prohibited from
transferring or encumbering the Edens & Avant Pool Properties except for a
transfer of an Edens & Avant Pool Property that has been released as
described under "--Release in Exchange for Substitute Collateral" above.
Notwithstanding the foregoing, a sale or transfer of all of the Edens & Avant
Pool Properties, with the consent of the mortgagee, once by the Edens & Avant
Pool Borrower and a second time by the Edens & Avant Pool Borrower's
transferee only, may be permitted after consideration and approval by the
mortgagee and the Rating Agencies, in their sole discretion, of all relevant
factors, provided that the following conditions, among others, are met: (i)
no event of default has occurred and is continuing; (ii) the proposed
transferee (the "Edens & Avant Pool Transferee") shall be a reputable entity
or person of good character, creditworthy, with sufficient financial worth
considering the obligations assumed and undertaken, and shall comply in all
respects with the provisions set forth in the definition of single purpose
entity and all other applicable criteria of the Rating Agencies; (iii)
mortgagee shall have received evidence in writing from the Rating Agencies to
the effect that such transfer will not result in a qualification, reduction
or withdrawal of any rating initially assigned to the Certificates; (iv)
mortgagee shall have received a non-consolidation opinion relating to the
Edens & Avant Pool Transferee; and (v) the Edens & Avant Pool Transferee
shall have agreed to assume the obligations of the Edens & Avant Pool
Borrower under the Edens & Avant Pool Loan.
The Edens & Avant Pool Loan generally prohibits the transfer of any
interest in the Edens & Avant Pool 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 Borrower, provided
that (a) the Edens & Avant Pool Borrower shall demonstrate to the mortgagee
that the Edens & Avant Pool Borrower shall remain a single purpose entity,
(b) the Edens & Avant Pool 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 Borrower shall certify that no
change of control of the Edens & Avant Pool Manager shall have occurred
except as
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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 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 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 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 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 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 interests in the Edens & Avant Pool Borrower, (v) no such
transfer of interest shall result in a change of control of the Edens & Avant
Pool Borrower or the day to day operations of the Edens & Avant Pool
Properties, (vi) and the Rating Agencies will not qualify, reduce or withdraw
the ratings applicable to the Certificates, and (vii) the Edens & Avant Pool
Borrower provides such legal opinions as may be reasonably required by the
mortgagee and the Rating Agencies. 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
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 Borrower is not permitted to incur any additional
indebtedness other than (i) unsecured indebtedness for operating expenses
incurred in the ordinary course of business not to exceed $2,068,750 and
which is paid within 60 days of the date incurred unless the Edens & Avant
Pool Borrower is in good faith and by proper legal proceedings diligently
contesting the validity or amount of such obligation and at the time of
commencement of such proceedings and during the pendency thereof (a) no event
of default shall exist and be continuing, (b) adequate reserves with respect
thereto are maintained on the books of the Edens & Avant Pool Borrower in
accordance with GAAP and (c) such contest operates to suspend collection of
such amounts or enforcement of such obligations, and (ii) unsecured
indebtedness (not evidenced by a note or other instrument for borrowed money)
for amounts payable or reimbursable to any tenant on account of work
performed at the Edens & Avant Pool Properties by such tenant or for costs
incurred by such tenant in connection with its occupancy of space, including
for tenant improvements.
Insurance. The Edens & Avant Pool Borrower is required to maintain for
each Edens & Avant Pool Property (a) insurance against all perils included
within the classification "All Risks of Physical Loss" with extended coverage
in an amount equal to the full replacement cost of the improvements and
equipment, (b) comprehensive general liability insurance in such amounts as
are generally required by institutional lenders for comparable properties but
in no event less than $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 and/or loss of rental value insurance to cover the
loss of at least 18 months of income, (e) during any period of repair or
restoration, builder's "all risks" insurance in an amount not less than the
full insurable value of the Edens & Avant Pool Property, (f) broad-form
boiler and machinery insurance and insurance against loss of occupancy or use
arising from any related breakdown in such amounts as are generally available
at commercially reasonable premiums and are generally required by
institutional lenders for properties comparable to such Edens & Avant Pool
Property, (g) flood insurance, if available at rates comparable to rates for
comparable properties, with respect to any of the Edens & Avant Pool
Properties located within a federally designated one hundred-year flood plain
in an amount equal to the lesser of the Allocated Loan Amount for the
applicable Edens & Avant Pool Property and the maximum limit of coverage
available, (h)
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windstorm insurance with limits and deductibles as are generally required for
similar properties in the same geographic area, and (i) at the 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.
Any such insurance may be effected under a blanket policy so long as any
such blanket policy shall specify, except in the case of public liability
insurance, the portion of the total coverage of such policy that is allocated
to the Edens & Avant Pool Properties and any sublimits in such blanket policy
applicable to the Edens & Avant Pool Properties, which amounts shall not be
less than the amounts required pursuant to, and which shall in any case
comply in all other respects with the requirements of, the Edens & Avant Pool
Loan. All insurance policies are required to name the mortgagee as an
additional named insured, to provide that all proceeds (except with respect
to proceeds of general liability and workers' compensation insurance) be
payable to the mortgagee except as described below under "--Condemnation and
Casualty" and to contain: (i) a standard "non-contributory mortgagee"
endorsement or its equivalent relating, inter alia, to recovery by the
mortgagee notwithstanding the negligent or willful acts or omissions of the
Edens & Avant Pool Borrower; (ii) a waiver of subrogation endorsement in
favor of the mortgagee; (iii) an endorsement providing that no policy shall
be impaired or invalidated by virtue of any act, failure to act, negligence
of, or violation of declarations, warranties or conditions contained in such
policy by the Edens & Avant Pool Borrower, the mortgagee or any other named
insured, additional insured or loss payee, except for the willful misconduct
of the the mortgagee knowingly in violation of the conditions of such policy;
(iv) an endorsement providing for a deductible per loss of an amount not more
than that which is customarily maintained by prudent owners of first class
properties comparable to and in the general vicinities of the Edens & Avant
Pool Properties, but in no event in excess of $50,000, except in the case of
earthquake coverage, for which such deductible shall not exceed that
generally required by institutional lenders on loans of similar amounts
secured by comparable properties provided such insurance is available at
rates comparable to rates for similar properties in comparable market areas;
and (v) a provision that such policies shall not be cancelled, terminated or
expired without at least 30 days' prior written notice to the mortgagee, in
each instance.
The Edens & Avant Pool Loan requires the Edens & Avant Pool Borrower to
obtain the insurance described above from insurance carriers having claims
paying abilities rated (x) not less than "AA" by S&P or its equivalent by one
or more of the other Rating Agencies and (y) not less than "A" by Best's with
a financial size category of not less than IX. 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 Loan, then the Edens & Avant
Pool 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. See "Risk Factors--The
Mortgage Loans--Availability of Earthquake, Flood and Other Insurance."
Condemnation and Casualty. Following a casualty or condemnation at any
Edens & Avant Pool Property, any insurance and condemnation proceeds will be
applied (after payment of the mortgagee's reasonable expenses of collection
thereof) to amounts due under the Edens & Avant Pool Loan and the prepayment
of the principal amount outstanding thereon, if: (i) the casualty or
condemnation affects more than one property and the proceeds equal or exceed
$4,137,500, (ii) an event of default has occurred and is continuing, (iii) an
Edens & Avant Pool Total Loss has occurred, (iv) the work of restoration
cannot be completed before the earlier of (a) the date which is 6 months
before the Edens & Avant Pool Maturity Date or (b) the date on which the
business interruption insurance required to be carried by the Edens & Avant
Pool Borrower expires, (v) the property is not capable of being substantially
restored to its condition prior to the condemnation or casualty, or (vi) the
Edens & Avant Pool Borrower is unable to demonstrate to the mortgagee's
satisfaction its continuing ability to pay the Edens & Avant Pool Loan. An
"Edens & Avant Pool Total Loss" means (x) a casualty to an Edens & Avant Pool
Property, the cost of restoration of which would exceed 50% of the Allocated
Loan Amount or a lesser amount which would permit any anchor tenant or single
tenant to terminate its lease or (y) a permanent taking by condemnation of
50% or more of the GLA of an Edens & Avant Pool Property or a lesser amount
which would permit any anchor tenant or single tenant to terminate its lease
or so much of an Edens & Avant Pool Property in either case, such that it
would be impractical, in the mortgagee's sole discretion, even after
restoration, to operate such Edens & Avant Pool Property as an economically
viable whole and with respect to which the applicable tenant leases do not
require restoration.
Pursuant to the Edens & Avant Pool Loan, if any casualty or condemnation
proceeds exceed $4,137,500 when aggregated with all other unapplied proceeds
or there has been an Edens & Avant Pool Total Loss, all casualty and
condemnation proceeds are required to be paid directly to the mortgagee. If
such unapplied proceeds do not in the aggregate exceed
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$4,137,500 and there has not been an Edens & Avant Pool Total Loss, such
casualty and condemnation proceeds are to be paid directly to the Edens &
Avant Pool Borrower to be used for restoration, provided that if the
mortgagee has given notice to the Edens & Avant Pool Borrower, any proceeds
paid in respect of business interruption insurance will be deposited directly
into the Edens & Avant Pool Operating Account and will be disbursed in
accordance with the Edens & Avant Pool Loan documents.
Promptly after the occurrence of any damage or destruction to all or any
portion of any Edens & Avant Pool Property or a condemnation of a portion of
any Edens & Avant Pool Property, in either case which does not constitute an
Edens & Avant Pool Total Loss or unapplied proceeds do not in the aggregate
exceed $4,137,500, the Edens & Avant Pool Borrower is obligated promptly
either (i) to apply the proceeds to repayment of the Edens and Avant Pool
Loan and obtain a release of such Edens & Avant Pool Property in accordance
with the release provisions described in "--Release in Exchange for
Substitute Collateral" herein, or substitute such Edens & Avant Pool Property
in accordance with the substitution provisions described in "--Substitution
of Other Mortgaged Properties for the Mortgaged Properties" herein, or (ii)
to commence and diligently prosecute to completion the repair, restoration
and rebuilding of such Edens & Avant Pool Property.
Debt Service Coverage Ratio Covenant. The Edens & Avant Pool Borrower is
required to achieve, and within 30 days of the end of each calendar quarter
(the "Edens & Avant Pool DSCR Determination Date") provide evidence to the
mortgagee of the achievement of an Edens & Avant Pool DSCR for the Edens &
Avant Pool Properties of not less than 1.25 to 1.0 (the "Edens & Avant Pool
Management Replacement DSCR").
If the Edens & Avant Pool Management Replacement DSCR is not maintained,
the mortgagee shall have the right to terminate the Edens & Avant Pool
Management Agreement unless the Edens & Avant Pool Borrower shall deposit
funds (in the form of cash or a letter of credit issued by an Edens & Avant
Approved Bank) in the Edens & Avant Pool Operating Account in an amount such
that if debt service were to be calculated on the difference between the
principal amount of the Edens & Avant Pool Loan and such additional funds
deposited, the Edens & Avant Pool DSCR would be equal to the Edens & Avant
Pool Management Replacement DSCR. Any such funds escrowed shall be returned
to the Edens & Avant Pool Borrower if the Edens & Avant Pool DSCR (without
taking into account any such escrowed funds) is greater than the Edens &
Avant Pool Management Replacement DSCR for two consecutive calendar quarters.
Approval Rights. Without the mortgagee's consent (which may not be
unreasonably withheld, delayed or conditioned), the Edens & Avant Pool
Borrower may not enter into any new management agreement with any new
property manager. If during the term of the Edens & Avant Pool Loan, the
Edens & Avant Pool Borrower wishes to designate another property manager
acceptable to the mortgagee for all or any of the Edens & Avant Pool
Properties, the Edens & Avant Pool Borrower must notify the mortgagee and the
Rating Agencies in writing and obtain from the Rating Agencies written
confirmation that the retention of the proposed property manager will not
result in a downgrade, withdrawal or qualification of the then ratings of the
Certificates, provided that Rating Agency approval shall not be required, for
purposes of permitted transfers as described under "--Transfer of Properties
and Interest in Borrower; Encumbrance; Other Debt" herein, with respect to
any property manager that (a) is a permitted transferee under clause (i) of
the second paragraph under "--Transfer of Properties 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. The mortgagee has the
right to replace the property manager upon the occurrence of the events
described above under "--Property Management" and to direct the retention of
a new property manager at any time following the occurrence and during the
continuance of an event of default.
No new lease or renewal lease shall contain any option to purchase or any
right of first refusal to purchase any Edens & Avant Pool Property or any
portion thereof without the prior written consent of mortgagee, which consent
shall not be unreasonably withheld or delayed. Provided no event of default
has occurred and is continuing, the Edens & Avant Pool Borrower may enter
into any new lease or renewal lease for 7,500 square feet or less of net
rentable space for any Edens & Avant Pool Property without the consent of the
mortgagee. Provided no event of default has occurred and is continuing, and
so long as the Edens & Avant Pool DSCR remains greater than 1.75 to 1.0, the
Edens & Avant Pool Borrower may, without the consent of the mortgagee, enter
into any new lease or renewal lease in an arms-length transaction with any
experienced and creditworthy tenant for more than 7,500 but not exceeding
25,000 square feet of net rentable space for any Edens & Avant Pool Property.
The Edens & Avant Pool Borrower may not, without the prior written consent of
the mortgagee (which consent may not be unreasonably withheld or delayed),
enter into any new lease or renewal lease, amend or terminate a lease (i)
with any tenant for more than 25,000 square feet of net rentable space, or
(ii) any tenant which is the largest supermarket,
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grocery, drug or pharmaceutical store at any Edens & Avant Pool Property. In
determining the amount of net rentable area affected by a lease, proposed
leases with any national or regional chain store retailers within any 6 month
period shall be treated as a single lease notwithstanding that such leases
affect more than one Edens & Avant Pool Property.
Provided that no event of default shall have occurred and be continuing,
the Edens & Avant Pool Borrower has the right, without the mortgagee's
consent, to undertake any alteration, improvement, demolition or removal of
any Edens & Avant Pool Property or any portion thereof (any such alteration,
improvement, demolition or removal, an "Edens & Avant Pool Alteration") so
long as (i) the Edens & Avant Pool Borrower provides the mortgagee with prior
written notice of any Edens & Avant Pool Alteration which, when aggregated
with all related Edens & Avant Pool Alterations constituting a single
project, involves an estimated cost exceeding the greater of 5% of the
Allocated Loan Amount for such Edens & Avant Pool Property or $300,000 with
respect to Edens & Avant Pool Alterations being undertaken at a single Edens
& Avant Pool Property or $4,137,500 with respect to Edens & Avant Pool
Alterations being undertaken at all the Edens & Avant Pool Properties at such
time (in each case, an "Edens & Avant Pool Material Alteration") and (ii) any
Edens & Avant Pool Alteration is not prohibited by any lease or operating
agreement and will not upon completion materially adversely (A) affect the
value, use or operation of the affected Edens & Avant Pool Property taken as
a whole or (B) reduce the net operating income for such Edens & Avant Pool
Property from the level available immediately prior to commencement of such
Edens & Avant Pool Alteration. Any Edens & Avant Pool Material Alteration is
required to be conducted under the supervision of an independent architect
and no Edens & Avant Pool Material Alteration may be undertaken until 5
business days after there shall have been filed with the mortgagee, for
information purposes only and not for approval by the mortgagee, detailed
plans and specifications and cost estimates therefor, prepared by such
independent architect. Notwithstanding anything to the contrary contained in
the foregoing, no Edens & Avant Pool Material Alteration nor any Edens &
Avant Pool Alterations which, when aggregated with all other Edens & Avant
Pool Alterations (other than Edens & Avant Pool Material Alterations) then
being undertaken by the Edens & Avant Pool Borrower exceeds $4,137,500, may
be performed unless the Edens & Avant Pool Borrower has first delivered to
the mortgagee cash and cash equivalents and/or a letter of credit issued by
an Edens & Avant Approved Bank as security in an amount not less than the
estimated cost of the Edens & Avant Pool Material Alteration.
Financial Reporting. The Edens & Avant Pool Borrower is required to
furnish to the mortgagee: (a) annually within 120 days after the end of each
fiscal year, a copy of its year-end financial statements audited by a "Big
Six" accounting firm or other firm reasonably acceptable to the mortgagee,
and upon request by mortgagee, drafts of all such financial statements within
90 days after the end of each fiscal year; (b) quarterly, within 45 days of
each calendar quarter, unaudited certified financial statements prepared
internally in accordance with GAAP (provided that rents shall not be
straight-lined); (c) quarterly within 45 days of each calendar quarter, a
complete rent roll and a report of tenant sales for each tenant that reports
sales to the Edens & Avant Pool Borrower; (d) annually within 45 days after
each calendar year, a summary of each capital expenditure in excess of
$10,000 made at each Edens & Avant Pool Property during the prior
twelve-month period; and (e) promptly, such further information regarding the
Edens & Avant Pool Properties, as the mortgagee may reasonably request.
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ASHFORD FINANCIAL POOL: THE BORROWERS; THE PROPERTIES
The Loan. The Ashford Financial Pool Loan was originated by Secore and
acquired by MSMC on January 21, 1997. The Ashford Financial Pool Loan had a
principal balance at origination of $74,500,000 and has a principal balance
as of the Cut-Off Date of approximately $73,537,438. The Ashford Financial
Pool Loan is evidenced by: (i) a note, having an original principal balance
of $72,000,000 (the "Ashford Multistate Note"), issued jointly by 14 limited
partnerships (collectively, the "Multistate Borrowers), and (ii) a note,
having an original principal balance of $2,500,000 (the "Ashford Westbury
Note"; together with the Ashford Multistate Note, the "Ashford Notes"),
issued by Westbury New York Hotel Limited Partnership (the "Ashford Westbury
Borrower"; together with the Multistate Borrowers, the "Ashford Borrowers").
The Ashford Financial Pool Loan is secured by, among other things, 4
mortgages and deeds of trust (collectively, the "Ashford Mortgages")
encumbering 14 hotels and 1 office building located in several states (the
"Ashford Pool Properties").
The Borrowers. The borrowers under the Ashford Financial Pool Loan
(collectively, the "Ashford Borrower") are 15 special purpose Delaware
limited partnerships whose respective purposes are limited to owning,
operating and managing their respective Ashford Pool Properties. The Ashford
Borrowers own no material assets other than their respective Ashford Pool
Properties and related interests. The general partner of each Ashford
Borrower is a Delaware corporation formed solely for the purpose of acting as
general partner of its respective Ashford Borrower or Borrowers. The Ashford
Borrowers are indirectly owned 33 1/3% each by the Fisher Brothers, Gordon
Getty and George Soros.
The Properties. The Ashford Pool Properties consist of 2 Hilton hotels, 1
Radisson hotel, 1 Embassy Suites hotel, 2 Holiday Inn hotels, 3 Ramada Inn
hotels, 5 Howard Johnson hotels and 1 office building known as the Admiralty
One Office Tower. The Ashford Borrower has covenanted not to terminate any of
the franchise agreements with respect to the Ashford Pool Properties without
the prior written consent of the mortgagee. The appraisals performed by
Hospitality Valuation Services for the Ashford Pool Properties as of January
1, 1997 determined an aggregate value of approximately $144,450,000 for the
Ashford Borrower's ownership interest in the Ashford Pool Properties. The
office building and 11 of the hotels are fee simple interests and 3 of the
hotels are whole or partial leasehold interests.
Geographic Location. The following table summarizes the geographic
location of the Ashford Pool Properties:
<TABLE>
<CAPTION>
% OF
TOTAL TOTAL
STATE ROOMS ROOMS
- ---------------------- ------- -------
<S> <C> <C>
California............. 571 19.5%
Texas.................. 517 17.7
Florida................ 493 16.9
New Jersey............. 332 11.4
New York............... 306 10.5
Massachusetts.......... 296 10.1
Nebraska............... 215 7.4
Virginia............... 193 6.6
------- -------
Total/Weighted
Average............. 2,923 100.0%
======= =======
</TABLE>
Operating History. The following table shows certain information regarding
the operating history of the Ashford Pool Properties (excluding the Admiralty
One Office Tower) on an aggregate basis:
ADJUSTED NET OPERATING INCOME (000S)
<TABLE>
<CAPTION>
1997
UNDERWRITABLE
1995 1996 LTM 5/97 NOI
---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Revenues.................................... $ 58,329 $ 66,689 $ 71,236 $ 71,236
Expenses.................................... (46,902) (49,252) (51,121) (51,508)
---------- ---------- ---------- ---------------
Net Operating Income....................... $ 11,427 $ 17,437 $ 20,115 $ 19,728
Net Operating Income (Admiralty One Office
Tower).................................... $ 826 $ 778 N/A $ 838
========== ========== ========== ===============
Total Net Operating Income................ $ 12,253 $ 18,215 N/A $ 20,566
========== ========== ========== ===============
</TABLE>
S-105
<PAGE>
Occupancy History. The following table shows historical average
occupancy, average daily room rate ("ADR") and revenues per available room
("RevPAR") for the Ashford Pool Properties (excluding the Admiralty One
Office Tower):
<TABLE>
<CAPTION>
OCCUPANCY PERIOD AVERAGE OCCUPANCY
- ------------------ -----------------
<S> <C>
LTM ended May
1997............. 66.3%
1996............. 65.9%
1995............. 63.7%
ADR
-----------------
LTM ended May
1997............. $74.19
1996............. $70.03
1995............. $62.41
REVPAR
-----------------
LTM ended May
1997............. $49.19
1996............. $46.15
1995............. $39.76
</TABLE>
Property Summary. The following table also sets forth certain information,
on a comparative basis, concerning, among other things, the Allocated Loan
Amount, number of rooms, occupancy rates, ADR and RevPAR at the Ashford Pool
Properties:
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<PAGE>
THE ASHFORD FINANCIAL POOL PROPERTY SUMMARY
<TABLE>
<CAPTION>
ALLOCATED TOTAL YEAR BUILT/
PROPERTY NAME LOCATION LOAN AMOUNT SF/ROOMS RENOVATED FEE/LEASEHOLD
- --------------------------- ---------------------- ----------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Newark/Fremont Hilton Newark, CA $14,016,532 311 1984/1994 Fee Simple
Radisson, Fort Worth Fort Worth, TX 13,226,868 517 1921/1980 Fee Simple &
Ground Lease
Embassy Suites Palm Beach Palm Beach Gardens, FL 8,883,717 160 1989/1995 Fee Simple
Gardens
St. Petersburg Bayfront St. Petersburg, FL 7,797,930 333 1971/1995 Fee Simple
Hilton
Holiday Inn Select, Beverly Beverly Hills, CA 7,699,222 260 1973/1994 Fee Simple
Hills
Holiday Inn Select, Clark Clark, NJ 3,059,947 191 1973/1995 Fee Simple
Howard Johnson, Woburn Woburn, MA 2,763,823 100 1972/1994 Fee Simple
Ramada Inn Seminary Plaza Alexandria, VA 2,665,115 193 1975/1995 Fee Simple
Howard Johnson, Middletown Middletown, NY 2,566,407 117 1975/1984 Fee Simple
Howard Johnson, Westbury Westbury, NY 2,467,699 80 1967/1994 Fee Simple &
Ground Sublease
Howard Johnson, Commack Commack, NY 1,776,743 109 1971/1995 Fee Simple
Howard Johnson, Saddle Saddle Brook, NJ 1,184,496 141 1969/1994 Fee Simple &
Brook Ground Lease
Ramada Inn, Omaha Omaha, NE 1,085,788 215 1973/1995 Fee Simple
Ramada Hotel, Woburn Woburn, MA 789,664 196 1972/1995 Fee Simple
Sub-total/Weighted Average $69,983,951 2,923
----------- --------
Admiralty Bank Building Palm Beach Gardens, FL 3,553,487 93,773 1989/N/A Fee Simple
Total $73,537,438
===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
OCCUPANCY ADR NOI
----------------------- ------------------------ -------------------------------------
UNDER-
PROPERTY NAME 1995 1996 LTM 5/97 1995 1996 LTM 5/97 1995 1996 WRITABLE
- --------------------------- ------ ------ -------- ------ ------ -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Newark/Fremont Hilton 76.70% 81.20% 81.40% $65.65 $78.47 $86.92 $ 2,386,246 $ 3,584,474 $ 4,139,092
Radisson, Fort Worth 58.40 59.40 59.40 70.77 79.81 85.74 2,508,653 3,526,146 3,871,097
Embassy Suites Palm Beach 80.20 77.70 79.80 76.66 95.41 98.08 1,166,437 1,624,318 1,746,520
Gardens
St. Petersburg Bayfront 67.10 66.90 64.90 63.27 69.65 71.00 1,557,034 2,031,243 1,960,805
Hilton
Holiday Inn Select, Beverly 68.10 76.70 75.70 58.57 64.31 68.84 747,380 1,714,187 1,870,510
Hills
Holiday Inn Select, Clark 54.70 59.20 69.80 70.24 72.75 82.54 468,732 811,208 1,686,223
Howard Johnson, Woburn 67.90 72.80 72.40 58.73 66.32 68.38 445,830 654,728 677,867
Ramada Inn Seminary Plaza 59.30 58.00 60.90 61.31 65.85 69.36 454,917 580,732 789,971
Howard Johnson, Middletown 60.20 59.40 53.30 49.88 55.02 55.95 488,222 551,390 464,897
Howard Johnson, Westbury 81.10 83.50 81.10 65.30 69.10 71.44 476,479 588,802 573,744
Howard Johnson, Commack 56.90 58.40 59.30 61.32 64.64 65.38 342,720 418,900 424,261
Howard Johnson, Saddle 50.60 60.70 62.00 60.92 65.78 67.66 39,921 459,954 474,657
Brook
Ramada Inn, Omaha 59.50 54.40 53.10 43.34 46.58 48.35 303,313 224,712 242,329
Ramada Hotel, Woburn 56.40 61.40 61.70 51.49 62.85 66.07 41,048 666,581 805,672
Sub-total/Weighted Average 63.70% 65.90% 66.30% $62.41 $70.03 $74.19 $11,426,932 $17,437,375 $19,727,645
------ ------ -------- ------ ------ -------- ----------- ----------- -----------
Admiralty Bank Building -- -- 93.50% N/A N/A N/A 825,821 778,325 838,112
Total $12,252,753 $18,215,700 $20,565,757
=========== =========== ===========
</TABLE>
S-107
<PAGE>
INDIVIDUAL PROPERTY DESCRIPTIONS
Newark/Fremont Hilton. The Newark/Fremont Hilton, located on approximately
7.77 acres in Newark, California, is a multi-story, 311-room, first-class,
lodging facility including a restaurant and lounge, an outdoor pool, a
whirlpool, a gift shop and an exercise room. The Newark/Fremont Hilton was
built in 1984. The franchise agreement for the Newark/Fremont Hilton with
Hilton Inns, Inc. expires on March 6, 2004, and requires payment of a royalty
fee of 5% of gross room revenues, a promotion fee of 0.70% of gross room
revenues, a reservation fee of 1.7% of gross room revenues and a fee of $8.40
per available room per month. Six properties which have been identified as
proposed or under development in the area of the Newark/Fremont Hilton and
which may be competitive therewith are: a 120-room Residence Inn by Marriott,
approximately 6.5 miles from the Newark/Fremont Hilton, which is under
construction; a 154-unit Courtyard and a 142-unit Town Plaza Suites at the
Great Mall of Milpitas, approximately nine miles from the Newark/Fremont
Hilton; a 118-unit economy extended stay facility known as Homestead Village,
approximately eight miles from the Newark/Fremont Hilton and two extended
stay America projects: a 122-unit property, one mile northwest of the
Newark/Fremont Hilton and a 146-unit property, approximately eight miles
southeast of the Newark/Fremont Hilton. For the LTM ended May 31, 1997, the
average occupancy rate for the Newark/Fremont Hilton was approximately 81.4%
and the ADR was approximately $86.92. As of January 1, 1997, the appraised
value of the Newark/Fremont Hilton was approximately $21,800,000.
Radisson Plaza Fort Worth. The Radisson Plaza Fort Worth, located on
approximately 2.5 acres in Fort Worth, Texas, consists of a 15-story and a
13-story, 517-room, full-service lodging facility including two restaurants,
a lounge, eight meeting rooms totaling approximately 62,738 square feet, a
fitness room, an outdoor swimming pool, a gift shop, beauty shop, flower shop
and airline ticket office. The Radisson Plaza Fort Worth opened in 1921 and a
second guest room tower was added in 1983. The property also includes an
underground parking garage facility on approximately 49,000 square feet. The
franchise agreement for the Radisson Plaza Fort Worth with Radisson Hotels
International, Inc. expires in October 2001, and requires payment of royalty
fees of 3.25% of gross room revenues and marketing fees of 3.5% of gross room
revenues. A 203-room Courtyard by Marriott, proposed for the former
Blackstone Hotel building, located two blocks north of the Radisson Plaza, is
likely to compete with the Radisson Plaza Fort Worth. For the LTM ended May
31, 1997, the average occupancy rate for the Radisson Plaza Fort Worth was
approximately 59.4% and the ADR was approximately $85.74. As of January 1,
1997, the appraised value of the Radisson Plaza Fort Worth was approximately
$25,850,000.
A portion of the interest of the Ashford Borrower in the Radisson Plaza
Fort Worth consists of a ground leasehold interest created under a lease
dated March 26, 1960, between Charles W. Seibold, George W. Seibold, Jr. and
Ted Seibold, as lessor and The Fort Worth National Bank, as lessee, as
amended (the "Ashford Radisson Plaza Ground Lease"). The Ashford Radisson
Plaza Ground Lease expires on May 1, 2040 and provides for rent of $30,000
per year until May 2010, $40,000 per year from 2010 to 2020, $60,000 per year
from 2020 to 2030 and $80,000 per year from 2030 to 2040. In addition, the
parking garage located at the Radisson Plaza Fort Worth is leased by the
Ashford Borrower pursuant to a lease dated April 30, 1980, between The City
of Fort Worth as lessor and Hunt Hotel Fort Worth, Ltd. as lessee (the
"Ashford Parking Garage Ground Lease"), which expires in April 2030. The
annual rent under the Ashford Parking Garage Ground Lease is (a) the greater
of a minimum base rent of $75,000 (which increases by $5,000 in the year 2000
and each fifth year thereafter) and an adjusted base rent of $60,000
(increased by the percentage increase in the Consumer Price Index from
commencement of the lease); and (b) a percentage rent equal to 80% of net
profits.
Embassy Suites Palm Beach Gardens; Admiralty One Office Tower. The
Embassy Suites Palm Beach Gardens and the Admiralty One Office Tower were
built in 1989 and are located on approximately 12.5 acres in Palm Beach
Gardens, Florida. The Embassy Suites Palm Beach Gardens is a 10-story lodging
facility with 160 all-suite rooms, two restaurants, one lounge and four
meeting rooms containing approximately 5,110 square feet of meeting space.
The Admiralty One Office Tower is a class A ten-story multiple tenant office
building which contains approximately 80,125 square feet of net rentable
floor area. The property also contains approximately 4.5 acres of excess
land. The franchise agreement for the Embassy Suites Palm Beach Gardens with
Promos Hotels, Inc. expires in October 2015, and requires payment of a
royalty fee of 4% of gross room revenues and a marketing and reservation
contribution of 3.5% of gross room revenues. A 78 suite Residence Inn to be
located on the southwest corner of 45th Street and I-95 is proposed and is
expected to be competitive with the Embassy Suites Palm Beach Gardens. As of
June 30, 1997, the Admiralty One Office Tower was approximately 93.5% leased
and had a square foot rent of approximately $19.03 per square foot. The
Admiralty One Office Tower also contains approximately 13,648 square feet of
retail space which was 100% occupied at an average rent of $15.18 per square
foot as of June 30, 1997. For the LTM ended May 31, 1997, the average
occupancy rate for the Embassy Suites Palm Beach Gardens was approximately
79.8% and the ADR was approximately $98.08. As of January 1, 1997, the
appraised value of the Embassy Suites Palm Beach Gardens and the Admiralty
One Office Tower was approximately $21,000,000.
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<PAGE>
St. Petersburg Bayfront Hilton. The St. Petersburg Bayfront Hilton,
located on approximately 4.68 acres in St. Petersburg, Florida, is a
15-story, 333-room, full service lodging facility, which includes a
restaurant, a bar, a food court and 15 meeting rooms totaling approximately
31,844 square feet. The St. Petersburg Bayfront Hilton was built in 1970. The
franchise agreement for the St. Petersburg Bayfront Hilton with Hilton Inns,
Inc. expires on August 31, 2005, and requires payment of a monthly franchise
fee of 3% of gross room sales through August 31, 1997, and thereafter 5% of
gross room revenues, as well as a monthly advertising fee in the amount of 1%
of gross room revenues. For the LTM ended May 31, 1997, the average occupancy
rate was approximately 64.9% and the ADR was approximately $71.00. As of
January 1, 1997, the appraised value of the St. Petersburg Bayfront Hilton
was approximately $14,300,000.
Holiday Inn Select Beverly Hills. The Holiday Inn Select Beverly Hills,
located on approximately 1.64 acres in Los Angeles, California, is a
12-story, 260 room, full-service lodging facility which includes a
restaurant, a lounge and seven meeting rooms containing approximately 5,017
square feet, a swimming pool, a gift shop and a detached 5-story indoor
garage structure that is currently leased to a third party. The Holiday Inn
Select Beverly Hills was built in 1973. The franchise agreement for the
Holiday Inn Select Beverly Hills with Holiday Inn Franchising, Inc. expires
on February 6, 2005, and requires payment of a franchise fee of 5% of gross
room revenues. For the LTM ended May 31, 1997, the average occupancy rate was
approximately 75.70% and the ADR was approximately $68.64. As of January 1,
1997, the appraised value of the Holiday Inn Select Beverly Hills was
approximately $15,600,000.
Holiday Inn Select Clark. The Holiday Inn Select Clark, located on
approximately 5 acres in Clark, New Jersey, is a six-story, 191-room,
full-service lodging facility which includes approximately 7,493 square feet
of meeting space, a restaurant, a lounge, an outdoor pool with an outdoor
grill area, a gift shop and an exercise room. The Holiday Inn Select Clark
opened for business in 1973. The franchise agreement for the Holiday Inn
Select Clark with Holiday Inns Franchising, Inc. expires on February 29,
2005, and requires payment of royalty fees of 5% of gross room revenues,
marketing fees of 1.5% of gross room revenues, a reservation contribution of
1% of gross room revenues, and a monthly holidex fee of $6.43 for each guest
room. For the LTM ended May 31, 1997, the average occupancy rate was
approximately 69.8% and the ADR was approximately $82.54. As of January 1,
1997, the appraised value of the Holiday Inn Select Clark was approximately
$10,700,000.
Howard Johnson Woburn. The Howard Johnson Woburn, located on approximately
5.2 acres in Woburn, Massachusetts, is a 100-room full-service lodging
facility containing a restaurant, four meeting rooms totaling approximately
4,431 square feet and an indoor swimming pool. The Howard Johnson Woburn was
built in 1972. The franchise agreement for the Howard Johnson Woburn with
Howard Johnson Franchise Systems, Inc. expires in May 2009, and requires a
payment of royalty fees of 4% of gross room revenues, marketing contributions
of 2% of gross room revenues and reservation fees equal to 2.5% of gross room
revenues. A 101-room Sierra Suites Hotel is proposed or under development in
the Woburn area, which is expected to be competitive with the Howard Johnson
Woburn. For the LTM ended May 31, 1997, the average occupancy rate was
approximately 72.4% and the ADR was approximately $68.38. As of January 1,
1997, the appraised value of the Howard Johnson Woburn was approximately
$5,200,000.
Ramada Inn Seminary Plaza. The Ramada Inn Seminary Plaza, located on
approximately 2.63 acres in Alexandria, Virginia, is a 11-story, 193-room,
full-service lodging facility which includes approximately 6,344 square feet
of meeting space, a restaurant and bar, an indoor swimming pool, a small
exercise room, a gift shop, a business center and an adjacent parking garage.
The Ramada Inn Seminary Plaza was constructed in 1975. The franchise
agreement for the Ramada Inn Seminary Plaza with Ramada Franchise Systems,
Inc. expires in October 2009, and requires payment of a fee of 4% of gross
room revenues. For the LTM ended May 31, 1997, the average occupancy rate was
approximately 60.9% and the ADR was approximately $69.36. As of January 1,
1997, the appraised value of the Ramada Inn Seminary Plaza was approximately
$6,600,000.
Howard Johnson Middletown. The Howard Johnson Middletown, located on
approximately 7 acres in Middletown, New York, is a 117-room, economy class
hotel containing approximately 1,731 square feet of meeting space, an indoor
swimming pool and sauna, a restaurant and a lounge. The restaurant and lounge
is currently leased to an independent operator. The Howard Johnson Middletown
opened for business in 1975. The franchise agreement for the Howard Johnson
Middletown with Howard Johnson International, Inc. expires on May 11, 2009,
and requires payment of a special royalty fee of 3.32% of gross room revenues
(increasing on January 1 of each year by 0.09%, with a maximum cap of 4%), a
marketing contribution of 2% of gross room revenues and a room sales charge
for reservations of 2.5% of gross room revenues. A 98-room Best Western
Goshen, located approximately 6 miles southeast of the Howard Johnson
Middletown, and a 100-unit
S-109
<PAGE>
Hampton Inn are currently proposed or under development and may be
competitive with the Howard Johnson Middletown. For the LTM ended May 31,
1997, the average occupancy rate was approximately 53.3% and the ADR was
approximately $55.95. As of January 1, 1997, the appraised value of the
Howard Johnson Middletown was approximately $3,300,000.
Howard Johnson Westbury. The Howard Johnson Westbury, located on
approximately 1.68 acres in Jericho, New York, is a 2-story, 80-room, limited
service lodging facility which includes a lobby, an outdoor swimming pool,
and approximately 800 square feet of meeting space. The Howard Johnson
Westbury was built in 1967. The franchise agreement for the Howard Johnson
Westbury with Howard Johnson Franchise Systems, Inc. expires on May 11, 2009,
and requires payment of a special royalty fee of 3.32% of gross room revenues
(increasing on January 1 of each year by 0.09%, with a maximum cap of 4%), a
marketing contribution of 2% of gross room revenues and a room sales charge
for reservations of 2.5% of gross room revenues. For the LTM ended May 31,
1997, the average occupancy rate was approximately 81.1% and the ADR was
approximately $71.44. As of January 1, 1997, the appraised value of the
Howard Johnson Westbury was approximately $3,800,000.
The interest of the Ashford Borrower in the Howard Johnson Westbury
consists of a fee interest and a ground subleasehold interest. The Ashford
Borrower owns the fee interest and leases the property to Jacob and Malca
Goldfarb pursuant to a ground lease dated November 7, 1964 (the "Ashford
Westbury Ground Lease") which provides for an initial term of five years and
9 automatic renewals of five years each. The rent is $12,000 per year for the
first 20 years, $13,000 for the next 20 years and $14,000 for the last 10
years. The Ashford Westbury Ground Lease with all remaining renewal options,
expires on November 25, 2014. The Ashford Borrower subleases the property
from Jacob and Malca Goldfarb pursuant to a sublease dated August 22, 1966,
as amended (the "Ashford Westbury Sublease"). The Ashford Westbury Sublease
with all remaining renewal options runs through November 25, 2014. Rent is
payable under the Ashford Westbury Sublease at an annual rate of $51,400.
Howard Johnson Commack. The Howard Johnson Commack, located on
approximately 4.13 acres in Commack, New York, is a two-story, 109-room
limited service, lodging facility which includes a gatehouse, approximately
800 square feet of meeting space, an outdoor swimming pool, and an area where
continental breakfast is served. The Howard Johnson Commack opened for
business in 1971. The franchise agreement for the Howard Johnson Commack with
Howard Johnson Franchise Systems, Inc. expires on August 24, 2009, and
requires payment of a special royalty fee of 3.32% of gross room revenues
(increasing on January 1 of each year by 0.09%, with a maximum cap of 4%), a
marketing contribution of 2% of gross room revenues and a room sales charge
for reservations of 2.5% of gross room revenues. For the LTM ended May 31,
1997, the average occupancy rate was approximately 59.3% and the ADR was
approximately $65.38. As of January 1, 1997, the appraised value of the
Howard Johnson Commack was approximately $3,200,000.
Howard Johnson Plaza Saddle Brook. The Howard Johnson Plaza Saddle Brook,
located in Saddle Brook, New Jersey, is an 8-story, 141-room full-service
lodging facility containing approximately 6,193 square feet of meeting space,
a restaurant that is currently leased to an independent operator, an exercise
room, an indoor pool and a whirlpool. The Howard Johnson Plaza Saddle Brook
was built in 1969. The franchise agreement for the Howard Johnson Plaza
Saddle Brook with Howard Johnson expires in August 2009, and requires payment
of a royalty fee of 4% of gross room revenues, a marketing fee of 2% of gross
room revenues and a room sales charge of 2.5% of gross room revenues. For the
LTM ended May 31, 1997, the average occupancy rate was approximately 62% and
the ADR was approximately $67.66. As of January 1, 1997, the appraised value
of the Howard Johnson Plaza Saddle Brook was approximately $3,500,000.
A portion of the interest of the Ashford Borrower in the Howard Johnson
Plaza Saddle Brook consists of a ground leasehold interest created under a
lease dated March 30, 1967, with Saddle Brook Interchange, Inc., which is
currently held by Paul Ferber trading as PLF Company (the "Ashford Saddle
Brook Ground Lease"). The term of the Ashford Saddle Brook Ground Lease,
which has been extended, expires in June 2014. The Ashford Saddle Brook
Ground Lease contains two further extension options of one period of 21 years
and one period of 33 1/3 years. Rent is payable under the Ashford Saddle
Brook Ground Lease at the rate of $45,000 per year.
Ramada Hotel Omaha. The Ramada Hotel Omaha, located on approximately 3.995
acres in Omaha, Nebraska, is a 9-story, 215-room, full-service lodging
facility, which includes a restaurant, a lounge, six meeting rooms totaling
approximately 5,787 square feet, an exercise room and an indoor swimming
pool. The Ramada Hotel Omaha was built in 1973. The franchise agreement for
the Ramada Hotel Omaha with Ramada Franchise Systems, Inc. expires in October
2009, and requires payment of a royalty fee of 4% of gross room revenues and
a RINA services assessment fee of 4.5% of gross room revenues. A number of
properties have been proposed or are under construction that are likely to
compete with the Ramada Hotel Omaha, including a 72-unit Holiday Inn Express
currently under construction four miles southwest of the Ramada Hotel
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<PAGE>
Omaha, a 246-room Embassy Suites Hotel located in downtown Omaha, an 80-room
Ramada Limited located in western Omaha, a 105-room Comfort Inn located at
the intersection of Dodge and 87th Streets and a 131-room Candlewood Hotel
scheduled for development in the Old Mill area of Omaha. For the LTM ended
May 31, 1997, the average occupancy rate was approximately 53.1% and the ADR
was approximately $48.35. As of January 1, 1997, the appraised value of the
Ramada Hotel Omaha was approximately $3,600,000.
Ramada Plaza Woburn. The Ramada Plaza Woburn, located on approximately 7.5
acres in Woburn, Massachusetts, is a 196-room, full-service lodging facility
containing a restaurant/lounge, 5,330 square feet of meeting and banquet
space, an indoor swimming pool and an exercise room. The Ramada Plaza Woburn
was constructed in 1972. The franchise agreement for the Ramada Plaza Woburn
with Ramada Franchise Systems, Inc. expires on October 2, 2009, and requires
payment of a royalty fee of 4% of gross room revenues and a service fee equal
to 4.5% of gross room revenues. A 101-room Sierra Suites Hotel, which will be
located approximately one-half mile north of the Ramada Plaza Woburn, has
been proposed or is under construction, and will be likely to compete with
the Ramada Plaza Woburn. For the LTM ended May 31, 1997, the average
occupancy rate was approximately 61.7% and the ADR was approximately $66.07.
As of January 1, 1997, the appraised value of the Ramada Plaza Woburn was
approximately $6,000,000.
Environmental Reports. Environmental Site Assessments have been performed
on the Ashford Pool Properties within the past two years. The Environmental
Site Assessments did not reveal any environmental liability that the
Depositor believes would have a material adverse effect on the Ashford
Borrower's business, assets or results of operations taken as a whole.
Nevertheless, there can be no assurance that all environmental conditions and
risks were identified in such environmental assessments. See "Risk
Factors--The Mortgage Loans--Environmental Law Considerations."
Engineering Reports. Property Condition Reports were completed on the
Ashford Pool Properties between November 1, 1996 and January 29, 1997 by a
third party due diligence firm. The Property Condition Reports concluded that
the Ashford Pool Properties were generally in good physical condition and
identified approximately $819,765 in deferred maintenance. At origination of
the Ashford Pool Loan, the Ashford Pool Borrower established a deferred
maintenance reserve account and made a deposit equal to $318,000 to fund the
cost of addressing the identified items.
Property Management. The Ashford Pool Properties are managed by the
following management companies (each, an "Ashford Manager" and collectively,
the "Ashford Managers") pursuant to five separate property management
agreements (each, an "Ashford Management Agreement" and collectively, the
"Ashford Management Agreements"): (a) Remington Hospitality, Inc., a Texas
corporation, with respect to the Radisson Plaza Fort Worth, the Ramada Inn
Seminary Plaza, the Ramada Plaza Woburn and the Ramada Hotel Omaha; (b)
Remington Employers Corporation, a Texas corporation, with respect to the
Newark/Fremont Hilton, the St. Petersburg Bayfront Hilton, the Howard Johnson
Commack, the Howard Johnson Woburn, the Howard Johnson Middletown and the
Howard Johnson Saddle Brook; (c) Remington Clark Employers Corporation, a
Texas corporation, with respect to the Holiday Inn Select Clark; (d)
Sandhurst Associates, Ltd., Inc., a New York corporation, with respect to the
Embassy Suites Palm Beach Gardens; and (e) Remington Employers Corporation
with respect to the Howard Johnson Westbury. Pursuant to each Ashford
Management Agreement, each Ashford Manager is responsible for the management
of its respective Ashford Pool Property or Properties. The Ashford Managers
and their affiliates manage hotels with approximately 10,000 rooms throughout
the United States. Under the Ashford Management Agreements, the Ashford
Managers are entitled to an annual management fee, payable monthly, equal to
3% of the gross revenues of their respective Ashford Pool Properties.
Each Ashford Management Agreement provides that the Ashford Manager will
manage its respective Ashford Pool Properties for a term of 15 years, and
each Ashford Manager has an option, which must be exercised at least 180 days
prior to the expiration of the Ashford Management Agreement, to renew the
Ashford Management Agreement for 5 years. Each Ashford Management Agreement
may be terminated upon the bankruptcy or insolvency of its respective Ashford
Manager, a monetary default that is not cured within ten days after notice
thereof, or a non-monetary default that is not cured within 30 days after
notice thereof.
Pursuant to five separate agreements, each among the mortgagee, the
applicable Ashford Borrower and the applicable Ashford Manager (the "Ashford
Manager's Subordination"), each Ashford Manager has agreed that: (i) all fees
and all other amounts payable to such Ashford Manager pursuant to the Ashford
Management Agreement is and will be, in all respects, subordinate and
inferior to the liens and security interests created by the Ashford Financial
Pool Loan, (ii) it will not terminate the Ashford Management Agreement
without first obtaining the mortgagee's prior written consent, (iii) in the
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event of a default in the payment of the management fee, the mortgagee shall
have 60 days following written notice thereof from such Ashford Manager to
cure such default, and (iv) upon the occurrence of an event of default under
the Ashford Notes, such Ashford Manager shall continue to perform its duties
at the mortgagee's request.
The mortgagee will have the right to terminate each Ashford Management
Agreement and cause a new manager to be engaged (i) upon the appointment of a
receiver, at any time after a foreclosure, or following an acceleration of
the indebtedness, or a monetary event of default under the Ashford Financial
Pool Loan documents, (ii) upon, or at any time after, a 50% or more change in
control of the ownership of the Ashford Manager without the consent of the
mortgagee, (iii) for gross negligence, willful misconduct or fraud of the
Ashford Manager; and (iv) (a) if the Ashford Borrower shall fail to maintain
an Ashford Pool DSCR (as defined below) of 1.15 to 1, and (b) the ratio of
the revenues per available room generated by the Ashford Pool Properties to
the revenues per available room generated by the Ashford Pool Properties and
the competitive properties identified in the Ashford Mortgages is less than
72.9% based upon rates reported in the Smith Travel Research Report for the
preceding twelve month period, unless the Ashford Borrower deposits
additional funds in the applicable Ashford Lockbox Account in an amount which
will increase the net operating income and thereby maintain an Ashford Pool
DSCR in excess of 1.15 to 1.
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ASHFORD FINANCIAL POOL: THE LOAN
CERTAIN ASHFORD FINANCIAL POOL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN LOAN TO REFINANCING
PER ROOM(1) VALUE RATIO(2) ACTUAL DSCR(3) DSCR(4)
----------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date ............... $23,943 50.9% 2.16x 2.30x
At Effective Maturity Date $17,117 36.4% 3.06x 3.21x
</TABLE>
- ------------
(1) Based on 2,923 guest rooms securing the Ashford Financial Pool Loan and
the Cut-Off Date Principal Balance or Balloon Balance, as applicable.
(2) Based on the January 1, 1997 appraisals and Cut-Off Date Principal
Balance or Balloon Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Ashford Financial Pool
Loan during the 12 months following the Cut-Off Date, and in the case
of Effective Maturity Date Actual DSCR, 12 months of debt service on
the Ashford Financial Pool Loan assuming a balance equal to the Balloon
Balance, a coupon equal to the Ashford Initial Interest Rate and an
amortization term equal to 240 months.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
10.0% of the Cut-Off Date Principal Balance of the Ashford Financial
Pool Loan, and in the case of Effective Maturity Date Refinancing DSCR,
an annual debt service payment equal to 10.0% of the Balloon Balance.
Security. The Ashford Financial Pool Loan is a nonrecourse loan, secured
only by the direct and indirect fee (and in certain instances leasehold
estate) of each of the Ashford Borrowers in the Ashford Pool Properties and
certain other collateral relating thereto (including assignments of leases
and rents and funds in certain accounts). The mortgagee is the insured under
the title insurance policies (which will be assigned to the Trust Fund) which
insure, among other things, that the Ashford Mortgages constitute valid and
enforceable first liens on the Ashford Pool Properties, subject to certain
exceptions and exclusions from coverage set forth therein.
An event of default under the Ashford Westbury Note will not constitute an
event of default under the Multistate Note; however, an event of default
under the Multistate Note will constitute an event of default under the
Ashford Westbury Note.
Payment Terms. The Ashford Financial Pool Loan matures on February 1, 2017
(the "Ashford Maturity Date") and bears interest (a) at a fixed rate per
annum equal to 8.60% (the "Ashford Initial Interest Rate") through and
including January 20, 2007, and (b) from and including January 21, 2007 (the
"Ashford Effective Maturity Date"), at a rate per annum (the "Ashford Revised
Interest Rate") equal to the lesser of (i) the maximum rate permitted by
applicable law, and (ii) the Ashford Initial Interest Rate plus 5%. Any
interest accrued after the Ashford Effective Maturity Date at the excess of
the Ashford Revised Interest Rate over the Ashford Initial Interest Rate, but
not paid by application of rents and revenues as described in clause (c) of
the next succeeding paragraph, shall be deferred and added to the outstanding
indebtedness under the Ashford Financial Pool Loan and shall, to the extent
permitted by applicable law, earn interest at the Ashford Revised Interest
Rate (such deferred interest and interest thereon, the "Ashford Deferred
Interest"). Interest on the Ashford Financial Pool Loan is calculated on the
basis of a 360-day year of 30-day months.
The payment date for the Ashford Financial Pool Loan is the first business
day of each month, and there is no grace period for a default in payment of
principal or interest. Commencing on March 1, 1997, the Ashford Financial
Pool Loan requires 240 equal monthly payments of principal and interest (the
"Ashford Monthly Debt Service Payments") of $651,251.25 ($629,397.18 under
the Ashford Multistate Note and $21,854.07 under the Ashford Westbury Note)
(based on a 240-month amortization schedule and the Ashford Initial Interest
Rate). On the Ashford Maturity Date, payment of the then outstanding balance
of the principal, if any, together with all accrued and unpaid interest and
all other sums payable under the Ashford Financial Pool Loan documents, is
required. The principal balance of the Ashford Financial Pool Loan on the
Ashford Effective Maturity Date, based on scheduled amortization, will be
approximately $52,574,915. In the event that the Ashford Borrower has not
paid the principal of and interest on the Ashford Financial Pool Loan in full
on or before the Ashford Effective Maturity Date, then commencing on the
Ashford Effective Maturity Date and continuing on each payment date
thereafter, pursuant to the cash collateral agreement, the Ashford Borrower
is required to apply 100% of rents and other revenues from the Ashford Pool
Properties to the following items in the following order of priority: (a) to
payment of the Ashford Tax, Insurance and Ground Rent Amount (as defined
below) for deposit into the Ashford Mortgage Escrow Account; (b) to payment
of the Ashford Monthly Debt Service Payments, including interest accruing
thereon at the Ashford Default Rate for deposit into the Ashford Interest
Escrow Account; (c) to payment of the Ashford Contested Payables Reserve
Amount (as defined below), if any, for deposit into the Ashford Mortgage
Escrow Account; (d) to payment of the monthly Ashford FF&E Reserve Amount (as
defined below) for deposit into the Ashford FF&E Account; (e) to payment to
the mortgagee of the monthly allocation of operating expenses in the annual
budget, and extraordinary expenses, approved
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by the mortgagee; (f) to payments to be applied against the outstanding
principal balance of the Ashford Financial Pool Loan until such principal is
paid in full; and (g) to payments of the Ashford Deferred Interest including
interest thereon at the Ashford Default Rate, if applicable.
If the Ashford Borrower defaults in the payment of any monthly installment
of interest or principal on any payment date due, it is required to pay a
late payment charge equal to 3% of the amount of the installment not paid.
Upon the occurrence of an event of default, the entire unpaid principal
amount of the Ashford Financial Pool Loan and any other amounts payable,
including interest, will bear interest at a default rate equal to the lesser
of (a) the maximum rate permitted by applicable law and (b) the then
applicable interest rate on the Ashford Financial Pool Loan (i.e., the
Ashford Initial Interest Rate or the Ashford Revised Interest Rate) plus 5%
(the "Ashford Default Rate").
Release in Exchange for Substitute Collateral. On any payment date after
the second anniversary of the Closing Date, the Ashford Borrower may obtain
the release of one or more Ashford Pool Properties from the lien of the
Ashford Mortgages; provided that, with respect to each release of an Ashford
Pool Property, among other conditions, (a) the Ashford Borrower shall have
given 30 days' prior written notice of such proposed release, (b) the Ashford
Borrower shall deliver for deposit in a defeasance collateral account the
Ashford Pool Defeasance Collateral (as defined below) in an amount sufficient
to pay (i) with respect to a release of less than all of the Ashford Pool
Properties, 125% of the Allocated Loan Amount for the released Ashford Pool
Property plus scheduled interest and principal payments on the portion of the
Ashford Financial Pool Loan equal to such Allocated Loan Amount, assuming an
interest rate equal to the actual interest rate on the Ashford Notes, through
and including the Ashford Effective Maturity Date, together with the
outstanding principal balance of the Ashford Notes as of the Ashford
Effective Maturity Date, and (ii) with respect to a release of all of the
Ashford Pool Properties, all principal indebtedness outstanding as of the
date of defeasance under the Ashford Notes as it becomes due (which for this
purpose shall be deemed to be no later than the Effective Maturity Date) and
sufficient to pay scheduled interest payments on the Ashford Financial Pool
Loan, assuming an interest rate equal to the actual interest rate on the
Ashford Notes, (c) after giving effect to the proposed release, the Ashford
Pool DSCR would be not less than 1.70 to 1, (d) each of the Rating Agencies
shall have given the mortgagee written affirmation that the ratings on the
Certificates will not be qualified, downgraded or withdrawn as a result of
such defeasance, (e) no event of default shall have occurred and be
continuing, (f) as evidenced by appraisals performed by independent
appraisers, from and after the Ashford Effective Maturity Date, the fair
market value of the Ashford Pool Properties that will remain subject to the
lien of the Ashford Mortgages as of the date of the proposed release shall
not be less than the fair market value of such Ashford Pool Properties as of
January 21, 1997, and (g) the Ashford Pool Borrower shall have delivered or
caused to be delivered certain required certificates, endorsements to title
insurance policies, legal opinions and financial statements. "Ashford Pool
Defeasance Collateral" consists of obligations or securities that are not
subject to prepayment, call or early redemption which are direct obligations
of, or obligations fully guaranteed as to timely payment by, the United
States or any agency or instrumentality thereof (including obligations of the
Government National Mortgage Association), or the obligations of which are
backed by the full faith and credit of the United States of America, which
qualify under Sections 1.860G-2(a)(8) of United States Treasury regulations,
and which mature prior to the dates on which they are required to be applied
under the Ashford Financial Pool Loan.
The "Ashford Pool DSCR" for any period means the ratio of net operating
income to debt service on the Ashford Financial Pool Loan (based on a debt
service constant on the Ashford Notes equal to the product of (i) the greater
of 10.09% per annum and the actual debt service constant on the Ashford
Notes, and (ii) the principal amount outstanding under the Ashford Financial
Pool Loan) for such period.
Prepayment. Voluntary prepayment is prohibited under the Ashford Financial
Pool Loan prior to November 22, 2006, which is 60 days prior to the Ashford
Effective Maturity Date. Thereafter, provided that there is no event of
default under the Ashford Financial Pool Loan documents, the Ashford
Financial Pool Loan may be voluntarily prepaid in whole or in part, on any
payment date without the payment of a yield maintenance or prepayment
premium.
Upon acceleration of the Ashford Notes in accordance with their respective
terms, the Ashford Borrower is required to pay a prepayment premium (the
"Ashford Yield Maintenance Premium") equal to the product of (i) a fraction
whose numerator is an amount equal to the portion of the principal balance
being prepaid and whose denominator is the entire outstanding principal
balance of the Ashford Notes on the date of prepayment, multiplied by (ii) an
amount equal to the remainder obtained by subtracting (x) an amount equal to
the outstanding principal balance of the Ashford Notes as of the date of such
prepayment, from (y) the present value as of the date of such prepayment of
the remaining scheduled payments of principal and interest due under the
Ashford Notes (including any final installment of principal payable on the
Ashford
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Effective Maturity Date), discounted at a rate equal to the Ashford Discount
Rate. The "Ashford Discount Rate" means the rate which, when compounded
monthly, is equal to the yield, as of the prepayment date, calculated by
linear interpolation of the yields of noncallable U.S. Treasury obligations
with terms (one longer and one shorter) most nearly approximating the period
from the date of prepayment to the Ashford Effective Maturity Date.
To the extent that the Ashford Borrower is not permitted to apply any
insurance or condemnation proceeds to the restoration of the Ashford Pool
Properties under the Ashford Financial Pool Loan, the mortgagee shall apply
such proceeds to prepay the Ashford Financial Pool Loan. Unless an event of
default has occurred and is continuing, no yield maintenance or prepayment
premium is required to be paid in connection with any prepayment resulting
from the application of insurance proceeds or condemnation proceeds.
Lockbox and Reserves. Pursuant to the terms of the Ashford Financial Pool
Loan, the Ashford Borrower has established with Texas Commerce Bank National
Association (the "Ashford Lockbox Bank"), in the name of the Ashford Lockbox
Bank, as agent for the mortgagee, as secured party, 14 cash collateral
operating accounts (collectively, the "Ashford Lockbox Accounts"). The
Ashford Borrower has delivered irrevocable written instructions to certain
collection banks which hold the property operating accounts for the Ashford
Pool Properties (collectively, the "Ashford Property Accounts"), to deposit
by wire transfer or via the ACH system on a bi-weekly basis (for so long as
each Ashford Property Account is maintained with an investment grade bank) or
on a daily basis (if an Ashford Property Account is maintained with a bank
other than one of investment grade) to the applicable Ashford Lockbox
Account, upon receipt, all operating revenue from the applicable Ashford Pool
Property (provided that at all times a balance of $5,000 may be maintained in
each Ashford Property Account). The Ashford Borrower has also delivered
irrevocable instructions to the banks which receive and process credit card
receipts for the Ashford Pool Properties to deposit, on a daily basis, by
wire transfer or via the ACH system to the applicable Ashford Property
Account, all amounts constituting available credit card receivables. The
Ashford Borrower has covenanted to deposit all operating revenue from the
Ashford Pool Properties into the applicable Ashford Property Accounts.
The Ashford Borrower has also established with the Ashford Lockbox Bank
the following accounts, each in the name of the Ashford Lockbox Bank, as
agent for the mortgagee, as secured party: (a) an interest escrow account
(the "Ashford Interest Escrow Account") to be funded from the Ashford Lockbox
Account each month prior to the Ashford Effective Maturity Date in an amount
equal to the Ashford Monthly Debt Service Payments, (b) a mortgage escrow
account (the "Ashford Mortgage Escrow Account") funded at the initial closing
of the Ashford Financial Pool Loan in the amount of $763,072.08 and to be
funded from the Ashford Lockbox Account each month prior to the Ashford
Effective Maturity Date in an additional amount equal to the monthly Ashford
Tax, Insurance and Ground Rent Amount, and into which the Ashford Contested
Payables Reserve Amounts may also be deposited from time to time, (c) a
deferred maintenance reserve account (the "Ashford Deferred Maintenance
Reserve Account") funded at the initial closing of the Ashford Financial Pool
Loan in the amount of $318,000, and (d) a capital improvements reserve
account (the "Ashford FF&E Reserve Account") to be funded from the Ashford
Lockbox Account each month prior to the Ashford Effective Maturity Date in a
monthly amount equal to the Ashford FF&E Reserve Amount (as defined below).
The "Ashford Tax, Insurance and Ground Rent Amount" means such amounts as are
sufficient to discharge the obligations of the Ashford Borrower with respect
to real estate taxes, assessments and other impositions and insurance
premiums, as and when they become due. The "Ashford Contested Payables
Reserve Amount" means an amount to be deposited in the Ashford Mortgage
Escrow Account equal to 125% of any trade payables which exceed $250,000 in
the aggregate and are being contested by the Ashford Borrower, less $250,000.
The Ashford Borrower shall either (i) deposit into the Ashford FF&E
Reserve Account an annual amount, payable in monthly installments, equal to
4% of annual revenues projected for the Ashford Pool Properties for the
ensuing year, subject to certain identified credits at certain properties for
amounts deposited in the Ashford Deferred Maintenance Reserve Account (the
"Ashford FF&E Reserve Amount"), or (ii) deliver to the mortgagee invoices for
furniture, fixtures and equipment related costs and an officer's certificate
stating that the Ashford Borrower has incurred such costs equal to 4% of
annual revenues projected for the Ashford Pool Properties. In addition, the
Ashford Borrower shall, with respect to the installation of a sprinkler
system at the Radisson Plaza Fort Worth, deposit into the Ashford FF&E
Reserve Account each month commencing on March 1, 1997 and continuing through
November 1, 1998, an amount equal to $28,571.43. The Ashford Borrower shall
deposit into the Ashford Mortgage Escrow Account included as part of the
Ashford Tax, Insurance and Ground Rent Amount, monthly installments of
$4,284, for advance payment of ground rent with respect to the Howard Johnson
Westbury. In the event that the Ashford Borrower fails to complete certain
work identified in connection with certain compliance plans with respect to
the Americans with Disabilities Act for certain years, it shall deposit into
the Ashford Deferred Maintenance Reserve Account the sums projected for such
work.
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<PAGE>
Until the Ashford Effective Maturity Date, the Ashford Lockbox Bank will
withdraw from the Ashford Lockbox Account on the fifteenth day of each month
(or if such day is not a business day, on the next succeeding business day)
funds in the following amounts and in the following order of priority: (i)
funds in an amount equal to the Ashford Tax, Insurance and Ground Rent
Amount, for deposit into the Ashford Mortgage Escrow Account; (ii) funds in
an amount equal to the Ashford Monthly Debt Service Payments, for deposit
into the Ashford Interest Escrow Account; (iii) funds in an amount equal to
the Ashford Contested Payables Reserve Amount, if any, for deposit into the
Ashford Mortgage Escrow Account; (iv) funds in an amount equal to the Ashford
FF&E Reserve Amount, for deposit into the Ashford FF&E Reserve Account; and
(v) to the Ashford Borrower, provided (a) no event of default under the
Ashford Financial Pool Loan documents has occurred and is continuing, and (b)
no trade payables of the Ashford Borrower are more than 90 days past due
unless they are being contested in good faith and no other obligations of the
Ashford Borrower are past due.
Funds, if any, on deposit in the Ashford Interest Escrow Account are
required to be paid by theAshford Lockbox Bank to the mortgagee on each
payment date in an amount equal to the Ashford Monthly Debt Service Payments.
Funds from the Ashford Mortgage Escrow Account may be withdrawn by the
mortgagee (i) for payment of real estate taxes and insurance premiums from
time to time, and (ii) as of each December 1, commencing on December 1, 1997,
in the amount of $51,400 to pay ground rent with respect to the Howard
Johnson Westbury; provided that the Ashford Lockbox Bank shall at all times
retain a balance of $25,700 in the Ashford Mortgage Escrow Account equal to
six months of ground rent payments in addition to the monthly escrow amounts.
Within 5 business days after receipt of an officer's certificate stating that
certain identified maintenance items have been substantially completed, and
upon inspection of the remediation work, provided no event of default shall
have occurred and be continuing, the mortgagee will instruct the Ashford
Lockbox Bank to disburse specified funds from the Ashford Deferred
Maintenance Reserve Account to pay specified contractors or reimburse the
Ashford Borrower. Failure by the Ashford Borrower to complete the deferred
maintenance at each Ashford Pool Property by January 21, 1998 shall be a
default under the Ashford Mortgages. Funds on deposit in the Ashford FF&E
Reserve Account are required to be disbursed by the Ashford Lockbox Bank to
the Ashford Borrower pursuant to instructions from the mortgagee upon
delivery to the mortgagee of an officer's certificate and invoices of such
furniture, fixtures and equipment costs. From and after the Ashford Effective
Maturity Date, the monthly allocation of operating expenses in the annual
budget and the extraordinary expenses approved by the mortgagee shall be
disbursed by the Ashford Lockbox Bank to the mortgagee, and shall be
disbursed by the mortgagee, in the case of the operating expenses, in
accordance with the terms of such budget and, in the case of the
extraordinary expenses, in accordance with the direction of the Ashford
Borrower.
The Ashford Borrower may, at any time, elect to replace any Ashford Tax,
Insurance and Ground Rent Amounts then being retained by the Ashford Lockbox
Bank and satisfy its obligations by delivery to the mortgagee of a letter of
credit, cash or cash equivalents (any such security, the "Ashford Mortgage
Escrow Security") in an amount reasonably estimated by the Ashford Borrower
to be one-half of the amount sufficient (including the amount of any
remaining Ashford Tax, Insurance and Ground Rent Amounts) to discharge the
real estate taxes and insurance premiums which shall become due during the 12
month period immediately after the date of delivery of such Ashford Mortgage
Escrow Security (and for each 12-month period thereafter for so long as the
Ashford Borrower elects to post such security). Any such letter of credit
shall be (i) either an "evergreen" letter of credit or shall not expire until
a date two months after the Ashford Maturity Date, and (ii) issued by a bank
with a long-term unsecured debt rating of at least "AA" or its equivalent by
each of the Rating Agencies or, if not rated by all the Rating Agencies, then
at least "AA" or its equivalent by two of the Rating Agencies, provided that
Texas Commerce Bank shall also be an approved bank for so long as it shall
maintain a long-term debt rating by S&P of "A+" or better (an "Ashford
Approved Bank"). In addition, at its option, the Ashford Borrower may deliver
to the mortgagee a letter or letters of credit issued by an Ashford Approved
Bank in the amount required to be on deposit at that time in either the
Ashford Deferred Maintenance Reserve Account or the Ashford FF&E Reserve
Account in lieu of cash.
Transfer of Properties and Interests in Borrowers; Encumbrance; Other
Debt. The Ashford Borrower is generally prohibited from transferring,
encumbering or filing a declaration of condominium with respect to, any of
the Ashford Pool Properties, except (i) for a transfer of an Ashford Pool
Property that has been released as described under "--Release in Exchange for
Substitute Collateral" above, and (ii) that the Ashford Borrower shall have
the right to sell, not more than once during the term of the loan, in whole
its interest in the Ashford Pool Properties to an Ashford Qualified Purchaser
(as defined below), subject to the prior written approval of the mortgagee
and the satisfaction of the following conditions, among others: (i) the
Ashford Borrower shall give the mortgagee at least 30 days' prior written
notice of the proposed date of sale (the "Ashford Sale Date"), (ii) no event
of default shall have occurred and be continuing, (iii) the mortgagee
receives written confirmation from the Rating Agencies reaffirming the credit
rating of the Certificates, (iv) the Ashford Qualified Purchaser shall agree
to assume, on a non-recourse basis, the obligations of the Ashford Borrower
under the Ashford Financial Pool
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Loan, (v) the Ashford Borrower shall provide evidence as may be reasonably
requested by the mortgagee of the real estate experience, qualifications,
creditworthiness and hotel management ability of the Ashford Qualified
Purchaser and its property manager, (vi) the mortgagee shall have received
acceptable opinions of counsel, including an acceptable nonconsolidation
opinion addressed to the mortgagee and the Rating Agencies, and (vii) the
Ashford Borrower shall pay the mortgagee a transfer fee equal to 1% of the
principal amount of the Ashford Financial Pool Loan as of the Ashford Sale
Date.
An "Ashford Qualified Purchaser" means a single purpose entity, acceptable
to the mortgagee and the Rating Agencies in their sole discretion, meeting
such requirements of creditworthiness, real estate experience, ownership
and/or management as the mortgagee shall deem pertinent in its reasonable
discretion. A Qualified Purchaser shall be an experienced owner and operator
of nationally recognized hotel properties.
The Ashford Financial Pool Loan generally prohibits the transfer of any
direct or indirect beneficial interest in any Ashford Borrower without the
prior written consent of the mortgagee, except that mortgagee's consent is
not required with respect to transfers of direct or indirect beneficial
interests in any Ashford Borrower, including the transfer of any Soros
ownership interests to an Ashford Permitted Transferee (except as provided
below), provided that: (i) no event of default shall have occurred and be
continuing, (ii) at least fifteen business days prior notice shall have been
delivered to the mortgagee and the Rating Agencies; (iii) the Ashford
Borrower shall remain a single-purpose entity, and the Ashford Pool
Properties shall continue to be managed by a manager acceptable to the
mortgagee; (iv) no transfer of a limited partner, non-managing member or
shareholder interest (other than a transfer to an Ashford Permitted
Transferee, except as qualified below) shall result in any one person (or any
group of affiliates) owning directly or indirectly 50% or more of the
beneficial ownership interests of any Ashford Borrower; (v) no transfer of a
limited partner, non-managing member or shareholder interest shall result in
Monty Bennett, Archie Bennett or their estate, legatees or devisees, or any
entity controlled by such parties (a "Bennett Related Person''), directly or
indirectly owning more than 40% of the beneficial interests of any Ashford
Borrower; and (vi) Fisher Related Persons, Getty Related Persons and/or Soros
Related Persons should at all times own, directly or indirectly, not less
than 51% of the beneficial interests in the Ashford Borrower. A "Fisher
Related Person" means any member of the Fisher family or Martin L. Edelman,
or their estates, legatees or devisees, or any entity all of the equity
interests in which are owned by one or more such parties, or any trust of
which members of the Fisher family or Martin Edelman are income
beneficiaries. A "Getty Related Person" means FGT, LP or Gordon P. Getty, or
his estate, legatees, devisees, or any entity all of the equity interests in
which are owned by any such party, or any trust in which Gordon P. Getty is
the income beneficiary. A "Soros Related Person" means George Soros or his
estate, legatees or devisees, or Evan M. Marks, or any entity all of the
equity interests in which are owned by one or more such parties, or any trust
established by George Soros in which his family members are primary income
beneficiaries or remainder beneficiaries or any other entity controlled by
George Soros.
If 10% or more of the direct beneficial interests in the Ashford Borrower
are transferred (other than any transfer of any Soros ownership interests) to
any Fisher Related Person, Getty Related Person, Soros Related Person or
Bennett Related Person (collectively, the "Ashford Permitted Transferees"),
or if any such transfer shall result in any person (or group of affiliates)
acquiring more than a 50% interest as set forth above or any transfer shall
result in a person that had more than a 50% interest in the Ashford Borrower
having less than a 50% interest in the Ashford Borrower, the Ashford Borrower
is required to deliver to the mortgagee and the Rating Agencies a
nonconsolidation opinion addressed to the Rating Agencies and the mortgagee,
and an officer's certificate certifying that such transfer is not an event of
default. The Ashford Financial Pool Loan documents also provide that not less
than 15 business days prior to (i) any transfer of a 10% direct or indirect
beneficial interest in the Ashford Borrower, (ii) any transfer that will
result in a person acquiring a greater than 50% interest in the Ashford
Borrower, or (iii) any transfer that will result in a person that had a
greater than 50% interest in the Ashford Borrower having less than a 50%
interest in the Ashford Borrower, the Ashford Borrower is required to deliver
to the mortgagee and the Rating Agencies (a) an officer's certificate
certifying that the transfer is permitted, and (b) an opinion of counsel to
the transferee, addressed to the Rating Agencies and the mortgagee, as to
nonconsolidation in bankruptcy.
The Ashford Borrower is not permitted to incur any additional indebtedness
without the consent of the mortgagee, provided that if no event of default
has occurred and is continuing, the Ashford Borrower may incur unsecured
indebtedness (a) for operating expenses incurred in the ordinary course of
business, provided each such amount is paid within 90 days of the date
incurred, unless the Ashford Borrower is in good faith and by proper legal
proceedings diligently contesting its obligation to pay such indebtedness,
and provided that at the time of commencement of such proceedings and during
the pendency thereof (i) adequate reserves with respect thereto are
maintained on the books of the Ashford Borrower, (ii) such contest operates
to suspend collection of such amounts or enforcement of such obligations and
(iii) no event of default exists and is continuing; (b) payable or
reimbursable to any tenant on account of work performed at any Ashford Pool
Property
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or for costs incurred by such tenant in connection with its occupancy of
space at the Ashford Pool Property, (c) payable or reimbursable to the hotel
franchisers for the initial franchise fees and fees for the use of the
reservation equipment, and (d) with respect to equipment leases for vans,
telephone systems, energy management systems, signage and reservation
systems.
Insurance. The Ashford Borrower is required to maintain for the Ashford
Pool Properties (a) insurance against all perils included within the
classification "All Risks of Physical Loss" with extended coverage in an
amount at all times sufficient to prevent the Ashford Borrower from becoming
a co-insurer, but in any event equal to the full insurable value (i.e. actual
replacement cost) of the improvements and the building equipment, (b)
comprehensive general liability insurance, including bodily injury,
contractual injury, death and property damage liability, and excess and/or
umbrella liability insurance in such amounts as are generally required by
institutional lenders for comparable properties, but in no event less than
$1,000,000 per occurrence and with an aggregate limit of not less than
$5,000,000 per Ashford Pool Property, (c) statutory workers' compensation
insurance, (d) business interruption and/or loss of "rental value" insurance,
where applicable, in an amount sufficient to avoid any co-insurance penalty
and to cover the loss of profits and rents sustained during the period from
the date of loss to the reopening of the Ashford Pool Property, provided that
such policies of insurance shall be subject only to exclusions that are
acceptable to the mortgagee and the Rating Agencies, (e) during any period of
repair or restoration, builder's "all risk" insurance in an amount not less
than the full insurable value of the Ashford Pool Properties, (f) broad-form
boiler and machinery insurance (without exclusion for explosion) and
insurance against loss of occupancy or use arising from any related breakdown
in such amounts as are generally available at commercially reasonable
premiums and are generally required by institutional lenders for properties
comparable to the Ashford Pool Properties, (g) if any improvement is located
within an area designated as "flood prone" or a "special flood hazard area",
flood insurance if available, in an amount equal to the lesser of the
allocated Loan Amount for the applicable Ashford Pool Property and the
maximum limit of coverage available with respect to the applicable Ashford
Pool Property, acceptable to the mortgagee; provided, however, that if flood
insurance shall be unavailable from private carriers, flood insurance
provided by the federal or state government, if available, (h) with respect
to any Ashford Pool Property located in California, earthquake coverage with
such limits and deductibles generally required by institutional lenders for
similar properties in the geographic area where the Ashford Pool Properties
are located, but in any event at least equal to the lesser of the Allocated
Loan Amount for the applicable Ashford Pool Property and the maximum limit of
coverage available with respect to such property, (i) with respect to any
Ashford Pool Property located in Florida, windstorm coverage with such limits
and deductibles generally required by institutional lenders for similar
properties in the geographic area where the Ashford Pool Properties are
located, but in any event at least equal to the lesser of the Allocated Loan
Amount for the applicable Ashford Pool Property and the maximum limit of
coverage available with respect to such property, and (j) at the 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. Such earthquake and
windstorm coverage may insure additional properties on a pooled risk basis.
Any such insurance may be effected under a blanket policy so long as any
such blanket policy shall specify, except in the case of public liability
insurance, the portion, if less than all, of the total coverage of such
policy that is allocated to the Ashford Pool Properties and any sublimits in
such blanket policy applicable to the Ashford Pool Properties, which amounts
shall not be less than the amounts required pursuant to, and which shall in
any case comply in all other respects with the requirements of, the Ashford
Financial Pool Loan. All insurance policies are required to name the
mortgagee as an additional insured, to provide that all proceeds (except with
respect to proceeds of general liability and workers' compensation insurance)
be payable to the mortgagee except as described below under "--Condemnation
and Casualty" and to contain: (i) a standard "non-contributory mortgagee"
endorsement or its equivalent relating, inter alia, to recovery by the
mortgagee notwithstanding the negligent or willful acts or omissions of the
Ashford Borrower; (ii) a waiver of subrogation endorsement in favor of the
mortgagee; (iii) an endorsement providing that no policy shall be impaired or
invalidated by virtue of any act, failure to act, negligence of, or violation
of declarations, warranties or conditions contained in such policy by the
Ashford Borrower, the mortgagee or any other named insured, additional
insured or loss payee, except for the willful misconduct of the mortgagee
knowingly in violation of the conditions of such policy; (iv) an endorsement
providing for a deductible per loss of an amount not more than that which is
customarily maintained by prudent owners of first class properties comparable
to and in the general vicinity of the Ashford Pool Properties, but in no
event in excess of $100,000, except with respect to earthquake coverage for
which the deductible shall not be in excess of that generally required by
institutional lenders on loans of similar amounts secured by comparable
properties; and (v) a provision that such policies shall not be cancelled,
terminated or expired without at least 30 days' prior written notice to the
mortgagee, in each instance.
The Ashford Financial Pool Loan requires the Ashford Borrower to obtain
the insurance described above, in all cases except as otherwise provided with
respect to earthquake insurance and windstorm insurance, from domestic
primary
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insurance carriers having both (x) a claims paying ability rating by S&P of
not less than "AA" or its equivalent by any other Rating Agency, and (y) a
Best's rating of "A" or better with a financial size category of not less
than IX. Notwithstanding the foregoing, the Ashford Borrower shall maintain
(i) the initial $10,000,000 of earthquake insurance coverage with a domestic
primary insurer acceptable to the mortgagee having a claims paying ability
rating by S&P of not less than "AA" and the second $10,000,000 of insurance
coverage with a domestic primary insurer acceptable to the mortgagee having a
claims paying ability rating by S&P of not less than "BBB", and (ii) the
initial $25,000,000 of windstorm insurance coverage with a domestic primary
insurer acceptable to the mortgagee having a claims paying ability rating by
S&P of not less than "AA" and the remainder of such coverage with a domestic
primary insurer having a claims paying ability rating by S&P of not less than
"BBB". See "Risk Factors--Availability of Earthquake, Flood and Other
Insurance."
Condemnation and Casualty. Following a casualty or condemnation at any
Ashford Pool Property, any insurance and condemnation proceeds (other than
proceeds with respect to business interruption insurance) in excess of the
greater of $250,000 and 7.5% of the Allocated Loan Amount with respect to
such Ashford Pool Property (the "Ashford Threshold Amount") will be applied
(after payment of the mortgagee's reasonable expenses of collection thereof)
to amounts due under the Ashford Financial Pool Loan and the prepayment of
the principal amount outstanding thereon, only if: (a)(i) an event of default
has occurred and is continuing, (ii) an Ashford Pool Total Loss (as defined
below) has occurred, (iii) either (A) the work of restoration cannot be
completed before the earlier of the date which is six months before the
Ashford Maturity Date or the date on which the business interruption
insurance required to be carried by the Ashford Borrower expires, or (B) the
condemnation or casualty occurs on a date which is less than 6 months prior
to the Ashford Maturity Date, (iv) such proceeds equal or exceed the
Allocated Loan Amount with respect to the applicable Ashford Pool Property,
(v) the amount of such proceeds equal or exceed the outstanding principal
amount of the Ashford Financial Pool Loan, or (vi) the Ashford Borrower is
unable to demonstrate to the mortgagee's satisfaction its continuing ability
to pay the Ashford Financial Pool Loan; or (b) such proceeds were the result
of condemnation, and after restoration is completed, there are excess
proceeds which were not required to effect such restoration. Such excess
proceeds shall be applied to the prepayment of the amounts due under the
Ashford Financial Pool Loan, or at the Ashford Borrower's election, shall be
deposited in the Ashford FF&E Reserve Account and disbursed in accordance
with the provisions of the Ashford Financial Pool Loan.
An "Ashford Pool Total Loss" means (x) a casualty to an Ashford Pool
Property, the cost of restoration of which would exceed 50% of the Allocated
Loan Amount and with respect to which the Ashford Borrower is not required
under the applicable tenant leases to apply such proceeds to restoration of
the Ashford Pool Property or (y) a permanent taking by condemnation of 25% or
more of the GLA of an Ashford Pool Property or so much of an Ashford Pool
Property, in either case, such that it would be impractical, in the
mortgagee's sole discretion, even after restoration, to operate such Ashford
Pool Property as an economically viable whole and with respect to which the
applicable tenant leases do not require restoration.
Pursuant to the Ashford Financial Pool Loan, if (i) there is a casualty as
to an Ashford Pool Property that constitutes an Ashford Pool Total Loss and
the mortgagee elects not to permit the Ashford Borrower to restore such
Ashford Pool Property, or (ii) there is a condemnation as to an Ashford Pool
Property that constitutes an Ashford Pool Total Loss and the mortgagee elects
to apply the proceeds against payment of the indebtedness due under the
Ashford Financial Pool Loan, then the Ashford Borrower must prepay the
Ashford Notes to the extent of the proceeds received up to an amount equal to
125% of the original Allocated Loan Amount with respect to the applicable
Ashford Pool Property. Upon prepayment of the Ashford Notes in such amount,
the Ashford Borrower shall be entitled to obtain from the mortgagee a release
of the applicable Ashford Pool Property from the lien of the applicable
Ashford Mortgage, provided no event of default has occurred and is
continuing.
Notwithstanding the foregoing, and excluding the situations described
above requiring prepayment of the Ashford Notes, to the extent that
condemnation or insurance proceeds do not exceed the Ashford Threshold
Amount, or if less than the Ashford Threshold Amount but when aggregated with
all other unapplied proceeds with respect to any Ashford Pool Property, do
not exceed $1,500,000 in the aggregate, such proceeds shall be paid to the
Ashford Borrower to be applied to restoration of the applicable Ashford Pool
Property.
Promptly after the occurrence of any damage or destruction to all or any
portion of any Ashford Pool Property or a condemnation of a portion of any
Ashford Pool Property, in either case which does not constitute an Ashford
Pool Total Loss, the Ashford Pool Borrower is obligated either (1) to obtain
a release of such Ashford Pool Property in accordance with the release
provisions described above, or (2) to commence and diligently prosecute to
completion the repair, restoration and rebuilding of such Ashford Pool
Property.
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If insurance or condemnation proceeds are not required to be applied to
the payment or prepayment of the Ashford Financial Pool Loan as described
above, then the mortgagee is obligated to make such insurance and
condemnation proceeds (other than business interruption insurance proceeds)
available to the Ashford Borrower for payment or reimbursement of the costs
and expenses of the repair, restoration and rebuilding of the Ashford
Property, subject to the following conditions: (i) at the time of loss or
damage or at any time thereafter while the Ashford Borrower is holding any
portion of the proceeds, there shall be no continuing event of default; (ii)
if the estimated cost of the work (as estimated by the independent architect
referred to in clause (iii) below) shall exceed the proceeds, the Ashford
Borrower shall, at its option, either deposit with or deliver to the
mortgagee (A) cash and cash equivalents, (B) a letter or letters of credit
issued by an Ashford Approved Bank in an amount equal to the estimated cost
of the work less the proceeds available or (C) such other evidence of the
Ashford Borrower's ability to meet such excess costs which is satisfactory to
the mortgagee and the Rating Agencies; and (iii) the mortgagee shall, within
a reasonable period of time prior to request for initial disbursement, be
furnished with an estimate of the cost of the work accompanied by an
independent architect's certification as to such costs and appropriate plans
and specifications for the work of restoration. Disbursement of the proceeds
in cash or cash equivalents to the Ashford Borrower shall be made from time
to time (but not more frequently than once in any month) by the mortgagee but
only for so long as no event of default shall have occurred and be
continuing, as the work progresses upon receipt by mortgagee of an officer's
certificate of the Ashford Borrower and an independent architect's
certificate as to the progress of the restoration. No payment made prior to
the final completion of the work, except for payment made to contractors
whose work shall have been fully completed and from whom final lien waivers
have been received, shall exceed 95% of the value of the work performed from
time to time, and at all times the undisbursed balance of said proceeds
together with all amounts deposited, bonded or guaranteed, shall be at least
sufficient to pay for the estimated cost of completion of the work.
Debt Service Coverage Ratio Covenants. For the period commencing on
January 21, 1997 and terminating on December 31, 1997, the Ashford Borrower
is required to maintain an Ashford DSCR of 1.70 to 1 for the preceding four
quarters (the "Ashford Minimum DSCR"). If the Ashford Minimum DSCR is not
maintained, the Ashford Borrower is required to deliver to the mortgagee,
within 60 days after the end of the applicable four quarter period, cash,
cash equivalents or a letter of credit issued by an Ashford Approved Bank (to
be held as additional collateral) equal to the amount that would be required
to pay down the Ashford Financial Pool Loan so that the Ashford DSCR for the
applicable four quarter period is greater than the Ashford Minimum DSCR. Any
funds so escrowed shall be returned to the Ashford Borrower if the Ashford
Minimum DSCR is achieved for four consecutive quarterly periods. The "Ashford
DSCR" means, as of the last day of any fiscal quarter of the Ashford
Borrower, for the most recent period of 12 consecutive calendar months ending
on or prior to such date, the ratio of net operating income determined in
accordance with GAAP to the amount of interest and principal due and payable
during such period (based on a debt service constant of the greater of 10.90%
per annum and the actual debt service constant for such period).
The Ashford Borrower is required to achieve, and within 30 days of the end
of each calendar quarter (the "Ashford DSCR Determination Date") provide
evidence to the mortgagee of the achievement of an Ashford DSCR for the
Ashford Pool Properties of not less than 1.15 to 1 (the "Ashford Management
Replacement DSCR"). If the Ashford Management Replacement DSCR is not
maintained and the ratio of revenues per available room generated by the
Ashford Pool Properties to the revenues per available room generated by the
Ashford Pool Properties and the competitive properties identified in the
Ashford Mortgage is less than 72.9% for the preceding 12 month period, the
mortgagee shall have the right to terminate the Ashford Management Agreement
unless the Ashford Borrower shall deposit additional funds in the Ashford
Operating Account in an amount which, if treated as income from the
operations of the Ashford Pool Properties, would increase net operating
income and thereby maintain an Ashford DSCR in excess of the Ashford
Management Replacement DSCR. Any such funds escrowed shall be returned to the
Ashford Borrower if the Ashford Management Replacement DSCR is achieved for
two consecutive Ashford DSCR Determination Dates without taking into account
any such escrowed funds in making such determination.
Approval Rights. On and after the Ashford Effective Maturity Date, the
mortgagee has the right to approve the annual budget of the Ashford Borrower.
Prior to the Ashford Effective Maturity Date, the Ashford Borrower is not
required to obtain the approval of the mortgagee with respect to the annual
budget.
Without the mortgagee's consent (which may not be unreasonably withheld),
the Ashford Borrower may not enter into any management agreement other than
the management agreement in effect on the origination of the Ashford
Financial Pool Loan. If during the term of the Ashford Financial Pool Loan,
the Ashford Borrower wishes to designate another property manager acceptable
to the mortgagee, the Ashford Borrower must notify the mortgagee and obtain
its approval and must
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notify the Rating Agencies in writing and obtain written confirmation that
the retention of the proposed property manager will not result in a
downgrade, withdrawal or qualification of the then ratings of the
Certificates. The mortgagee has the right to direct the retention of a new
property manager upon certain events described above under "--Property
Management."
Provided that no event of default shall have occurred and be continuing,
the Ashford Borrower has the right to undertake any alteration, improvement,
demolition or removal of an Ashford Pool Property or any portion thereof (any
such alteration, improvement, demolition or removal, an "Ashford Alteration")
so long as the Ashford Borrower provides the mortgagee with prior written
notice of any Ashford Alteration which, when aggregated with all related
Ashford Alterations, involves an estimated cost exceeding the greater of
$250,000 or 7.5% of the Allocated Loan Amount with respect to such Ashford
Pool Property (such an alteration, an "Ashford Material Alteration"). No
Ashford Material Alteration nor any Ashford Alterations which, when
aggregated with all other Ashford Alterations, exceeds $1,500,000 may be
performed unless the Ashford Borrower has first deposited into the Ashford
FF&E Reserve Account the estimated cost of the Ashford Material Alteration or
the Ashford Alterations in excess of an amount equal to the greater of
$250,000 or 7.5% of the Allocated Loan Amount with respect to such Ashford
Pool Property.
The Ashford Borrower may not, without the consent of the mortgagee, amend,
modify, waive, terminate, reduce rents under or shorten the term of (i) any
lease with an annual rent of more than $50,000, or (ii) any commercial tenant
lease in any manner which would have a material adverse effect on the
applicable Ashford Pool Property taken as a whole.
Financial Reporting. The Ashford Borrower is required to furnish to the
mortgagee: (a) annually within 120 days following the end of each calendar
year, a copy of its audited year-end financial statements, (b) not later than
45 days after the end of each calendar quarter (i) unaudited financial
statements prepared internally in accordance with GAAP covering such
accounting period, including a balance sheet as of the end of such quarter, a
statement of revenues and expenses for such quarter, a statement of net
operating income for such quarter and, upon request of either the Rating
Agencies or the mortgagee, a statement of profit and losses as to each
Ashford Pool Property, and (ii) a report of occupancy for such quarter,
including average daily rate, (c) not later than 45 days after the end of
each fiscal quarter, a true and complete rent roll for the Admiralty One
Office Tower; and (d) within 45 days after the end of each calendar year, an
annual summary of all capital expenditures during the prior twelve month
period.
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<PAGE>
MANSION GROVE APARTMENTS: THE BORROWER; THE PROPERTY
The Loan. The Mansion Grove Loan was originated by Secore and acquired by
MSMC on June 9, 1997. The Mansion Grove Loan had a principal balance at
origination of $73,000,000 and has a principal balance as of the Cut-Off Date
of approximately $72,862,226. It is secured by, among other things, a
Mortgage (the "Mansion Grove Mortgage") encumbering an 877 unit residential
complex known as Mansion Grove Apartments, located in Santa Clara, California
(the "Mansion Grove Property").
The Borrower. Lick Mill Creek Apartments (the "Mansion Grove Borrower") is
a special purpose California limited partnership that was organized for the
limited purpose of owning, operating and financing the Mansion Grove
Property. The Mansion Grove Borrower owns no material asset other than the
Mansion Grove Property and related interests. The sole general partner of the
Mansion Grove Borrower is Santa Clara Citimarc Devco, Inc., a California
corporation (the "Mansion Grove GP"), which was formed for the limited
purpose of acting as general partner of the Mansion Grove Borrower and has a
1% general partnership interest in the Mansion Grove Borrower. The limited
partners of the Mansion Grove Borrower are Sanford N. Diller and Helen P.
Diller, as Trustees of the DNS Trust, a Revocable Family Trust, dated
February 12, 1981, as amended (the "DNS Trust"), the Wagner Family Trust and
the Kroll Family Trust (collectively, the "Owning Trusts"). The DNS Trust,
the Wagner Family Trust and the Kroll Family Trust have an 89%, 6% and 5%
limited partnership interest in the Mansion Grove Borrower, respectively. The
Mansion Grove GP is wholly-owned by the DNS Trust.
The Property. The Mansion Grove Property securing the Mansion Grove Loan
consists of an 876 unit residential complex with 24 three-story buildings
(consisting of 438 one-bedroom apartments and 438 two-bedroom apartments),
one cottage containing a two-bedroom unit used as a leasing office, an
approximately 5,800 square foot recreation facility, a 1,124 space parking
garage and 501 surface parking spaces. The recreation facility incorporates a
convenience store, weight and aerobic rooms and a clubhouse. Other amenities
include three pools, three spas and three tennis courts. The Mansion Grove
Property is situated on approximately 28.77 acres. The buildings were
constructed between 1987 and 1989.
As of June 26, 1997, the occupancy rate of the residential units of the
Mansion Grove Property was approximately 97%.
The table below summarizes certain information relating to the residential
units at the Mansion Grove Property as of April 9, 1997:
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED
NO. MARKET MONTHLY MARKET %
DESCRIPTION UNITS AVERAGE SF TOTAL SF RENT RENT/PER SF OF UNITS
- -------------------- ------- ------------ ---------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
2 bedroom, 2 bath(1) 1 1,000 1,000 N/A N/A --
1 bedroom, 1 bath 438 700 306,600 $1,250 $21.43 49.9%
2 bedroom, 2 bath(2) 150 961 144,150 $1,600 $19.98 17.1
2 bedroom, 2 bath 288 950 273,600 $1,550 $19.58 32.8
------- ---------- ----------
877 725,350 100%
======= ========== ==========
</TABLE>
(1) Leasing office.
(2) Contain stacked washer/dryers.
An appraisal prepared by Landauer Associates, Inc., dated as of April 9,
1997, determined a value for the Mansion Grove Property of approximately
$118,000,000. The appraisal specifically assumes, among other things, that
the Mansion Grove Property is not impacted by soil and water contamination
beyond the costs of the current monitoring program. See "Risk Factors--The
Mortgage Loans--Limitations of Appraisals" and "--Environmental Law
Considerations."
Market Overview. San Jose is the third largest city in California and as
of January 1995, had approximately 846,000 residents. The area surrounding
Santa Clara is known as "Silicon Valley" due to the concentration of high
technology and computer-related firms located there. San Francisco is
approximately 30 miles to the northwest. Santa Clara County is the San
Francisco Bay Area's most populous county and as of the fourth quarter of
1996, had a population of almost 1.6 million. Based on the Landauer
Associates appraisal, the average household income within the San Jose
Primary Metropolitan Statistical Area is $71,000.
Location/Access. The Mansion Grove Property is located in the City of
Santa Clara, Santa Clara County, California, a suburb to the larger city of
San Jose. Highways 237 and 101 as well as Interstate 880 provide access to
the major bay area
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metropolitan centers of San Jose, San Francisco and Oakland. Bus and
passenger rail service are available means of transportation in the area. The
San Francisco International Airport, the Oakland Airport and the San Jose
International Airport provide regularly scheduled commercial flights.
Competition. The primary competitors of the Mansion Grove Property are
apartment complexes known as Bella Vista, E'lan, Willow Lake and Woodland
Meadows, which were generally built at the same time as, and provide similar
amenities to, the Mansion Grove Property.
The following table shows an overview of the primary and secondary
competition to the Mansion Grove Property as of April 9, 1997:
<TABLE>
<CAPTION>
BUILDING NAME/ YEAR NO. MONTHLY
PROPERTY ADDRESS BUILT OF UNITS TYPE SIZE RENTAL RATES
- ---------------------- ------- ---------- ------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Subject Property
- ----------------------
Mansion Grove 1989 877 1/1 700 SF $1,150-$1,215
502 Mansion Park Dr. 2/2 950-961 SF $1,500-$1,610
Santa Clara, CA
Competition
- ----------------------
Bella Vista 1991 634 1/1 509-619 SF $1,165-$1,315
1500 Vista Club 2/2 735-1,175 SF $1,475-$2,155
Circle
Santa Clara, CA
E'lan 1991 941 1/1 532-780 SF $1,129-$1,455
345 Village Center 2/2 760-1,230 SF $1,410-$1,895
Dr.
San Jose, CA
Willow Lake 1989 408 1/1 732 SF $1,275-$1,445
1331 Lakeshore 2/2 1,015 SF $1,595-$1,895
Circle
Woodland Meadows 1992 366 1/1 836 SF $1,265-$1,445
2544 Vista Wood 2/2 1,104-1,119 SF $1,525-$1,925
Circle
San Jose, CA
</TABLE>
Operating History. The following table shows certain information regarding
the operating history of the Mansion Grove Property:
ADJUSTED NET OPERATING INCOME (000S)
<TABLE>
<CAPTION>
UNDERWRITABLE
1994 1995 1996 NOI
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Revenues............. $ 9,887 $10,665 $12,249 $13,075
Expenses............. (3,476) (3,130) (2,885) (3,478)
--------- --------- --------- ---------------
Net Operating
Income............ $ 6,411 $ 7,535 $ 9,364 $ 9,597
========= ========= ========= ===============
</TABLE>
Occupancy History. The occupancy history of the Mansion Grove Property is
as follows:
<TABLE>
<CAPTION>
PERCENT
LEASED
---------
<S> <C>
Occupancy Period/Date:
June 26, 1997......... 96.8%
1996.................. 95.3%
1995.................. 94.3%
</TABLE>
Environmental Report. A Phase I site assessment dated July 24, 1997 was
performed on the Mansion Grove Property. The Mansion Grove Property is
currently undergoing soil and groundwater remediation pursuant to a Remedial
Action Plan approved by the California Department of Toxic Substances
Control. The site was formerly used in the production of certain chemical
compounds and for solvent recycling and reclamation by a previous owner of
the site, Imcera Corporation (now known as Mallinckrodt). Mallinckrodt has
assumed sole responsibility for responding to contamination on or from the
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<PAGE>
Mansion Grove Property. Mallinckrodt is a publicly-traded corporation rated
"Baa2" by Moody's and "A-" by S&P. As a result, the Mansion Grove Borrower
currently does not have any obligations with respect to this clean-up of the
Mansion Grove Property. See "Risk Factors--The Mortgage Loans--Environmental
Law Considerations" for a more complete discussion. The Phase I assessment
did not reveal any other environmental liability that the Depositor believes
would have a material adverse effect on the Mansion Grove Borrower's
business, assets or results of operations taken as a whole. Nevertheless,
there can be no assurance that all environmental conditions and risks were
identified in such environmental assessment.
Engineering Report. A Property Condition Report was completed on the
Mansion Grove Property on May 20, 1997 by a third party due diligence firm.
The Property Condition Report concluded that the Mansion Grove Property was
generally in good physical condition and did not identify any items of
deferred maintenance.
Property Management. The Mansion Grove Property is managed by Maxim
Property Management (the "Mansion Grove Manager"), pursuant to the terms of a
Management and Operating Agreement (the "Mansion Grove Management
Agreement"). The DNS Trust holds an 89% ownership interest in the Mansion
Grove Manager. The Mansion Grove Manager is responsible for the management,
operation, maintenance and leasing of the Mansion Grove Property. The Mansion
Grove Management Agreement is on a month-to-month basis, subject to the right
of either party to terminate the agreement upon 30 days' prior written
notice.
If during the term of the Mansion Grove Loan, the Mansion Grove Borrower
wishes to designate another property manager acceptable to the mortgagee, the
Mansion Grove Borrower must notify the mortgagee and the Rating Agencies in
writing and obtain from the Rating Agencies prior to such appointment,
written confirmation that the retention of the proposed property manager will
not result in a downgrade, withdrawal or qualification of the then ratings of
the Certificates. Without the mortgagee's consent (which may not be
unreasonably withheld or delayed), the Mansion Grove Borrower may not enter
into any new management agreement with such proposed property manager.
Pursuant to the Mansion Grove Loan, the mortgagee has the right to direct the
Mansion Grove Borrower to terminate the Mansion Grove Management Agreement
upon (i) the occurrence and continuance of an event of default which is not
cured within applicable cure periods and the appointment of a receiver, or
(ii) the Mansion Grove DSCR falling below 1.10 to 1 and the giving of notice
and lapse of the cure period as described in "--Debt Service Coverage Ratio
Covenant" below.
Pursuant to the terms of a manager's consent and subordination of
management agreement between the Mansion Grove Borrower and the Mansion Grove
Manager (the "Mansion Grove Manager's Subordination"), the Mansion Grove
Manager has agreed (i) to the termination rights of the mortgagee described
above, (ii) that all liens, rights and interests owned or held by the Mansion
Grove Manager in and to the Mansion Grove Property are subordinate to the
liens of the mortgagee, including the Mansion Grove Mortgage, (iii) not to
terminate the Mansion Grove Management Agreement without first obtaining the
mortgagee's written consent, except with respect to non-payment of the
management fee and mortgagee has not cured such non-payment, and (iv) that it
will not amend or modify the Mansion Grove Management Agreement in any
material respect without the prior written consent of the mortgagee.
The Mansion Grove Manager and its affiliates manage over 2,100 units
(including seven projects) in the City of Santa Clara. The Mansion Grove
Manager is entitled to a monthly management fee equal to 3% of the total
operating revenues of the Mansion Grove Property and a fee for supervision of
capital improvement expenditures equal to 8% of the total amount of
expenditures for projects in excess of $5,000.
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<PAGE>
MANSION GROVE APARTMENTS: THE LOAN
CERTAIN MANSION GROVE LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO ACTUAL REFINANCING
UNIT(1) VALUE RATIO(2) DSCR(3) DSCR(4)
-------------- -------------- -------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date ............... $83,081 61.7% 1.39x 1.41x
At Effective Maturity Date $73,537 54.7% 1.58x 1.59x
</TABLE>
- ------------
(1) Based on the 877 residential apartment units securing the Mansion Grove
Loan and the Cut-Off Date Principal Balance or Balloon Balance, as
applicable.
(2) Based on the April 9, 1997 appraisal and Cut-Off Date Principal Balance
or Balloon Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Mansion Grove 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 Mansion
Grove Loan assuming a balance equal to the Balloon Balance, a coupon
equal to the Mansion Grove Initial Interest Rate and an amortization
term equal to 360 months.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of the
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
9.0% of the Cut-Off Date Principal Balance of the Mansion Grove Loan,
and in the case of Effective Maturity Date Refinancing DSCR, an annual
debt service payment equal to 9.0% of the Balloon Balance.
Security. The Mansion Grove Loan is a nonrecourse loan, secured only by
the direct fee estate of the Mansion Grove Borrower in the Mansion Grove
Property and certain other collateral relating thereto (including an
assignment of leases, rents and security deposits and the funds in certain
accounts). The mortgagee is the insured under the title insurance policy
(which will be assigned to the Trust Fund) which insures, among other things,
that the Mansion Grove Mortgage constitutes a valid and enforceable first
lien on the Mansion Grove Property, subject to certain exceptions and
exclusions from coverage set forth therein.
Payment Terms. The Mansion Grove Loan matures on July 1, 2027 (the
"Mansion Grove Maturity Date") and bears interest (a) at a fixed rate per
annum equal to 8.35% (the "Mansion Grove Initial Interest Rate") through and
including June 30, 2007 and (b) from and including July 1, 2007 (the "Mansion
Grove Effective Maturity Date"), at a rate per annum (the "Mansion Grove
Revised Interest Rate") equal to the lesser of (i) the maximum rate permitted
by applicable law, and (ii) the greater of (A) the Mansion Grove Initial
Interest Rate plus 2% and (B) the Mansion Grove Treasury Rate plus 2%,
subject to a cap on the Mansion Grove Initial Interest Rate plus 5%. The
"Mansion Grove Treasury Rate" means the yield, as of the Mansion Grove
Effective Maturity Date, calculated by linear interpolation of the yields of
noncallable U.S. Treasury obligations with terms (one longer and one shorter)
most nearly approximating the period from the Mansion Grove Effective
Maturity Date to the Mansion Grove Maturity Date, as determined by the
mortgagee on the basis of Federal Reserve Statistical Release H.15 Selected
Interest Rates under the heading U.S. Governmental Security/Treasury Constant
Maturities or other recognized source of financial market information
selected by the mortgagee for the week prior to the Mansion Grove Effective
Maturity Date. Any interest accrued after the Mansion Grove Effective
Maturity Date at the excess of the Mansion Grove Revised Interest Rate over
the Mansion Grove Initial Interest Rate, but not paid by application of rents
and revenues as described in clause (b) of the next succeeding paragraph,
shall be deferred and added to the outstanding indebtedness under the Mansion
Grove Loan and shall, to the extent permitted by applicable law, earn
interest at the Mansion Grove Revised Interest Rate (such deferred interest
and interest thereon, the "Mansion Grove Deferred Interest"). Interest on the
Mansion Grove Loan is calculated on the basis of a 360-day year of 30-day
months.
The payment date for the Mansion Grove Loan is the first business day of
each month, and there is no grace period for a default in payment of
principal or interest. Commencing on August 1, 1997, the Mansion Grove Loan
requires 360 equal monthly payments of principal and interest (the "Mansion
Grove Monthly Debt Service Payments") of $553,565.02 (based on a 360-month
amortization schedule and the Mansion Grove Initial Interest Rate), payable
monthly on the first business day of each month, without a grace period. On
the Mansion Grove Maturity Date, payment of the then outstanding balance of
the principal, if any, together with all accrued and unpaid interest and all
other sums payable under the Mansion Grove Loan documents, is required. The
principal balance of the Mansion Grove Loan on the Mansion Grove Effective
Maturity Date, based on scheduled amortization, will be approximately
$64,491,537. In the event that the Mansion Grove Borrower has not paid the
principal of and interest on the Mansion Grove Loan in full on or before the
Mansion Grove Effective Maturity Date, then commencing on the Mansion Grove
Effective Maturity Date and continuing on each payment date thereafter, the
Mansion Grove Borrower is required to apply 100% of rents and other revenues
from the Mansion Grove Property to the following items in the following order
of priority: (a) to payment of the Mansion Grove Tax and Insurance
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Amounts (as defined below); (b) to payment of the Mansion Grove Monthly Debt
Service Payments, including interest accruing thereon at the Mansion Grove
Default Rate (as defined below), and late payment charges, if any; (c) to
payment of the Mansion Grove Capital Reserve Amount (as defined below); (d)
to payment of monthly cash expenses pursuant to the annual budget approved by
the mortgagee; (e) to payment of extraordinary, unbudgeted operating expenses
or capital expenses approved by the mortgagee, if any; (f) to payment of the
outstanding principal due under the Mansion Grove Loan until such principal
amount is paid in full; (g) to payment of the Mansion Grove Deferred
Interest, including interest thereon, if any, accruing at the Mansion Grove
Revised Interest Rate or the Mansion Grove Default Rate, as applicable; (h)
to payment of any other amounts due under the loan documents; and (i) lastly,
to payment to the Mansion Grove Borrower of any excess amounts.
If the Mansion Grove Borrower defaults in the payment of any monthly
installment of principal and/or interest on the payment date due, it is
required to pay a late payment charge in an amount equal to 5% of the amount
of the installment not paid. Upon the occurrence of any event of default, the
entire unpaid principal amount of the Mansion Grove Loan and any other
amounts payable, including interest, will bear interest at a default rate
equal to the lesser of (a) the maximum rate permitted by applicable law and
(b) the then applicable interest rate on the Mansion Grove Loan (i.e., the
Mansion Grove Initial Interest Rate or the Mansion Grove Revised Interest
Rate) plus 4% per annum (the "Mansion Grove Default Rate").
Prepayment. Voluntary prepayment is prohibited under the Mansion Grove
Loan prior to July 1, 2002. Thereafter, the Mansion Grove Loan may be
voluntarily prepaid in whole, but not in part, upon payment of a prepayment
premium (the "Mansion Grove Yield Maintenance Premium") equal to the greater
of: (a) the product of (i) a fraction whose numerator is an amount equal to
the portion of the principal balance of the Mansion Grove Loan being prepaid
and whose denominator is the entire outstanding principal balance of the
Mansion Grove Loan on the date of such prepayment, multiplied by (ii) an
amount equal to the remainder obtained by subtracting (x) an amount equal to
the entire outstanding principal balance of the Mansion Grove Loan as of the
date of such prepayment from (y) the present value as of the date of such
prepayment of the remaining scheduled payments of principal and interest on
the Mansion Grove Loan (including any final installment of principal payable
on the Mansion Grove Maturity Date) determined by discounting such payments
at the Mansion Grove Discount Rate; and (b) 1% of the then outstanding
principal balance of the Note. The "Mansion Grove Discount Rate" means the
rate which, when compounded monthly, equals the Mansion Grove Treasury Rate.
Notwithstanding the foregoing, the Mansion Grove Loan may be prepaid without
a yield maintenance or prepayment premium during the period commencing 90
days prior to the Mansion Grove Effective Maturity Date.
Principal prepayments on the Mansion Grove Loan may occur on payment dates
after the Mansion Grove Effective Maturity Date through application of rents,
as described above under "--Payment Terms," and must be made, at the
mortgagee's option, upon acceleration of the Mansion Grove Loan in accordance
with its terms or following the occurrence of an event of default thereunder.
Prepayments made following an event of default will be subject to the payment
of the Mansion Grove Yield Maintenance Premium.
To the extent that the Mansion Grove Borrower is not permitted to apply
any insurance or condemnation proceeds to the restoration of the Mansion
Grove Property under the Mansion Grove Loan, the mortgagee shall apply such
proceeds to prepay the Mansion Grove Loan. The Mansion Grove Yield
Maintenance Premium is not required to be paid in connection with any
prepayment made from insurance or condemnation proceeds. In the event that,
following the application of insurance or condemnation proceeds in accordance
with the provisions set forth in clauses (i) through (vii) as described in
"--Condemnation and Casualty" below, the outstanding principal amount of the
Mansion Grove Loan shall be less than or equal to $10,000,000, the Mansion
Grove Borrower shall have the right to prepay such outstanding principal
amount without payment of the Mansion Grove Yield Maintenance Premium.
Lockbox and Reserves. Pursuant to the terms of the Mansion Grove Loan, the
Mansion Grove Borrower has established with LaSalle National Bank (the
"Mansion Grove Lockbox Bank"), in the name of MSMC, as secured party, a cash
collateral operating account (the "Mansion Grove Lockbox"). The Mansion Grove
Borrower has delivered irrevocable written instructions to Bank of America,
the bank which holds the property account for the Mansion Grove Property (the
"Mansion Grove Property Account"), to deposit on a daily basis by wire
transfer to the Mansion Grove Lockbox, upon receipt, all operating revenue
from the Mansion Grove Property and other amounts received in the Mansion
Grove Property Account. The Mansion Grove Borrower has covenanted to deposit
all operating revenue from the Mansion Grove Property into the Mansion Grove
Property Account.
The Mansion Grove Borrower has also established with the Mansion Grove
Lockbox Bank the following accounts, each in the name of MSMC, as secured
party: (a) an interest escrow account (the "Mansion Grove Interest Escrow
Account"),
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(b) a mortgage escrow account (the "Mansion Grove Mortgage Escrow Account")
funded at the initial closing of the Mansion Grove Loan in the amount of
$454,598 and to be funded from the Mansion Grove Lockbox each month prior to
the Mansion Grove Effective Maturity Date in an additional amount equal to
the monthly Mansion Grove Tax and Insurance Amount, and into which the
Mansion Grove Contested Payables Reserve Amounts may also be deposited from
time to time, and (c) a capital improvements reserve account (the "Mansion
Grove Capital Reserve Account") to be funded from the Mansion Grove Lockbox
each month prior to the Mansion Grove Effective Maturity Date in the amount
of $29,200 (the "Mansion Grove Capital Reserve Amount"). The "Mansion Grove
Tax and Insurance Amount" means such amounts as are sufficient to discharge
the obligations of the Mansion Grove Borrower with respect to, among other
things, insurance, taxes, assessments and other impositions, as and when they
become due. The "Mansion Grove Contested Payables Reserve Amount" means an
amount to be deposited in the Mansion Grove Mortgage Escrow Account equal to
125% of any trade payables which exceed $300,000 in the aggregate and are
being contested by the Mansion Grove Borrower, less $300,000.
Notwithstanding the establishment of the Mansion Grove Interest Escrow
Account, prior to (a) any failure of the Mansion Grove Borrower to make any
payment of interest on or principal of the Mansion Grove Loan when due or
failure to pay the principal balance of the Mansion Grove Loan when due or
(b) the occurrence of any other event of default and the acceleration of the
Mansion Grove Loan, the Mansion Grove Lockbox Bank shall not be required to
deposit any amounts into the Mansion Grove Interest Escrow Account or pay the
mortgagee funds from such account, but the Mansion Grove Borrower shall make
payments due under the Mansion Grove Loan directly to the mortgagee and all
amounts which would otherwise have been required to be deposited into the
Mansion Grove Interest Escrow Account shall be disbursed to the Mansion Grove
Borrower.
Until the Mansion Grove Effective Maturity Date, the Mansion Grove Lockbox
Bank will withdraw from the Mansion Grove Lockbox on the first business day
of each month funds in the following amounts and in the following order of
priority: (i) if the conditions to funding such account have occurred, funds
in an amount equal to the Mansion Grove Monthly Debt Service Payments, for
deposit into the Mansion Grove Interest Escrow Account; (ii) funds in an
amount equal to the Mansion Grove Tax and Insurance Amount, for deposit into
the Mansion Grove Mortgage Escrow Account; (iii) funds in an amount equal to
the Mansion Grove Contested Payables Reserve Amount, if any, for deposit into
the Mansion Grove Mortgage Escrow Account; (iv) funds in an amount equal to
the Mansion Grove Capital Reserve Amount, for deposit into the Mansion Grove
Capital Reserve Account; and (v) to the Mansion Grove Borrower, provided (a)
no event of default under the Mansion Grove Loan documents has occurred and
is continuing, and (b) no trade payables of the Mansion Grove Borrower are
more than 60 days past due unless they are being contested in good faith and
no other obligations of the Mansion Grove Borrower are past due.
Funds, if any, on deposit in the Mansion Grove Interest Escrow Account are
required to be paid by the Mansion Grove Lockbox Bank to the mortgagee on
each payment date in the amount of interest due on the Mansion Grove Loan on
such payment date. Funds from the Mansion Grove Mortgage Escrow Account may
be withdrawn by the mortgagee for payment of real estate taxes and insurance
premiums. Funds on deposit in the Mansion Grove Capital Reserve Account are
required to be disbursed by the Mansion Grove Lockbox Bank to the Mansion
Grove Borrower for invoiced costs associated with capital expenditures not
more frequently than once per month pursuant to instructions from the
mortgagee, upon delivery by the Mansion Grove Borrower to the mortgagee of an
officer's certificate certifying as to certain matters, provided no event of
default shall have occurred and be continuing. If the Mansion Grove Lockbox
Bank determines that there will be insufficient amounts in the Mansion Grove
Lockbox to fund the Mansion Grove Capital Reserve Account, the Mansion Grove
Borrower shall be required, after notice thereof, to deposit the shortfall
into the Mansion Grove Capital Reserve Account.
The Mansion Grove Borrower may, at any time, elect to replace any Mansion
Grove Tax and Insurance Amounts then being retained by the Mansion Grove
Lockbox Bank and satisfy its obligations by delivery to the mortgagee of a
letter of credit, cash or cash equivalents (any such security, the "Mansion
Grove Mortgage Escrow Security") in an amount reasonably estimated by the
Mansion Grove Borrower to be one-half of the amount sufficient (including the
amount of any remaining Mansion Grove Tax and Insurance Amounts) to discharge
the real estate taxes, insurance premiums and impositions which shall become
due during the 12 month period immediately after the date of delivery of such
Mansion Grove Mortgage Escrow Security (and for each 12 month period
thereafter for so long as the Mansion Grove Borrower elects to post such
security). Any such letter of credit shall either (i) be an "evergreen"
letter of credit or (ii) not expire until a date not sooner than two months
after the Mansion Grove Maturity Date or (iii) be a series of letters of
credit each with a term of one year; provided, that on or before the date
which is 30 days prior to the expiration of each such one-year letter of
credit, the Mansion Grove Borrower shall deliver to the mortgagee a
replacement one-year letter of credit and the term of the final one-year
letter of
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credit shall not expire until a date not sooner than two months after the
Mansion Grove Maturity Date; provided, further, that in the event that the
Mansion Grove Borrower fails to deliver to the mortgagee a replacement
one-year letter of credit within the time periods set forth above, the
mortgagee shall be entitled to draw the entire amount of the then effective
letter of credit for application to the payment of such taxes or impositions.
Each such letter of credit shall be issued by a bank with a long-term
unsecured debt rating of at least "AA" or its equivalent by each Rating
Agency or, if not rated by all the Rating Agencies, then at least "AA" or its
equivalent by two of the Rating Agencies (a "Mansion Grove Approved Bank").
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Mansion Grove Borrower is generally prohibited from transferring or
encumbering the Mansion Grove Property except that the Mansion Grove Borrower
shall have the right to sell, not more than once during the term of the loan,
in whole its interest in the Mansion Grove Property to a Mansion Grove
Qualified Purchaser (as defined below), subject to the prior written approval
of the mortgagee, which approval shall not be unreasonably withheld, and to
the satisfaction of the following conditions, among others: (i) the Mansion
Grove Borrower shall give at least 30 days' notice of the proposed date of
sale (the "Mansion Grove Sale Date"); (ii) no event of default shall have
occurred and be continuing as of the date of such notice or the Mansion Grove
Sale Date; (iii) the Mansion Grove Borrower shall provide evidence of the
real estate experience, qualifications, creditworthiness and management
ability of the proposed Mansion Grove Qualified Purchaser and its property
manager; (iv) the Mansion Grove Qualified Purchaser shall agree to assume the
obligations of the Mansion Grove Borrower under the Mansion Grove Loan; (v)
the mortgagee shall receive acceptable opinions of counsel, including an
acceptable nonconsolidation opinion addressed to the mortgagee and the Rating
Agencies; (vi) the Mansion Grove Borrower shall pay the mortgagee a transfer
fee equal to 1% of the principal amount of the Mansion Grove Loan as of the
Mansion Grove Sale Date, and (vii) any transfer described herein shall be
subject to the prior written consent of the mortgagee, as well as delivery by
the Rating Agencies of written confirmation that any such transfer will not
result in the withdrawal, qualification or downgrading of the then current
ratings of the Certificates.
A "Mansion Grove Qualified Purchaser" means a single purpose entity,
acceptable to the mortgagee and the Rating Agencies in their sole discretion,
meeting such requirements of creditworthiness and real estate experience
ownership and/or management as the mortgagee shall deem pertinent in its sole
discretion. Notwithstanding anything to the contrary, approval of a proposed
transferee as a Mansion Grove Qualified Purchaser by the mortgagee and the
Rating Agencies shall not be required provided the following criteria are
met: (i) the proposed transferee is, or is controlled by, a pension fund, a
pension fund advisor, an insurance company, a reputable bank doing
substantial business in a major financial market or a real estate investment
trust rated investment grade by the Rating Agencies (in any such case, the
"Controlling Entity"); (ii) the Controlling Entity has a net worth of at
least $150,000,000 and total assets of at least $300,000,000 or, if the
Controlling Entity is a pension fund advisor, controls at least
$1,000,000,000 in assets; and (iii) the proposed transferee controls at least
20 multi-family apartment properties with an aggregate of at least 5,000
units, substantially comparable to the Mansion Grove Property with respect to
standard of operation and maintenance, quality and location (provided such
properties need not be located in the same metropolitan area as the Mansion
Grove Property).
The Mansion Grove Loan generally prohibits the transfer of any interest in
the Mansion Grove Borrower without the prior written consent of the
mortgagee, except that mortgagee's consent is not required with respect to
transfers of direct or indirect beneficial interests in the Mansion Grove
Borrower, provided that (i) no event of default shall have occurred and be
continuing, (ii) at least fifteen business days' notice shall be delivered to
the mortgagee and the Rating Agencies, (iii) the Mansion Grove Borrower shall
remain a single purpose entity, and (iv) no transfer of limited partner,
non-managing member or shareholder interests shall result in any one person
(or any group of Affiliates), other than Sanford N. Diller, owning, directly
or indirectly, 50% or more of the beneficial ownership interests of the
Mansion Grove Borrower. If 10% or more of the direct beneficial interests in
the Mansion Grove Borrower are transferred or if any transfer shall result in
a person or a group of Affiliates acquiring more than a 50% interest as set
forth above, the Mansion Grove Borrower is required to deliver to the Rating
Agencies and the mortgagee a satisfactory opinion of counsel as to
nonconsolidation in bankruptcy, and an officer's certificate certifying that
such transfer is not an event of default. However, neither mortgagee's
consent nor delivery of a nonconsolidation opinion is required in connection
with any of the following transfers: (i) a transfer or transfers of limited
partnership interests in the Mansion Grove Borrower to Sanford N. Diller,
Robert W. Wagner or Mark R. Kroll or the spouse of any of them as a result of
the revocation of the Owning Trusts, (ii) a transfer or transfers of direct
or indirect beneficial interests in the Mansion Grove Borrower by any
individual described in the foregoing clause (i) or his related Owning Trust
to such person's estate, heirs, spouse or direct lineal descendants or their
respective spouses or to any trust for the benefit of any of them, and (iii)
a transfer or transfers of direct or indirect beneficial interests in the
Mansion Grove
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Borrower by Robert W. Wagner or Mark R. Kroll, their related Owning Trust,
such individual's spouse, estate or heirs to Sanford N. Diller, his related
Owning Trust, lineal descendant, estate or heirs or a trust benefiting any of
the foregoing; provided, however, that any subsequent transfer by any person
who is such a transferee shall be subject to the restrictions otherwise set
forth in this paragraph.
The Mansion Grove Borrower is not permitted to incur any additional
indebtedness without the consent of the mortgagee, other than unsecured
indebtedness for operating expenses incurred in the ordinary course of
business which does not exceed, at any time, $2,500,000 and is paid within 60
days of the date incurred, unless the Mansion Grove Borrower is in good faith
and by proper legal proceedings diligently contesting its obligation to pay
such indebtedness, and provided that at the time of commencement of such
proceedings and during the pendency thereof (i) adequate reserves with
respect thereto are maintained on the books of the Mansion Grove Borrower in
accordance with GAAP, (ii) such contest operates to suspend collection of
such amounts or enforcement of such obligations and (iii) no event of default
exists and is continuing.
Insurance. The Mansion Grove Borrower is required to maintain for the
Mansion Grove Property (a) insurance against all perils included within the
classification "All Risks of Physical Loss" with extended coverage in an
amount at all times sufficient to prevent the Mansion Grove Borrower from
becoming a co-insurer, but in any event equal to the full insurable value
(i.e. actual replacement cost) of the improvements and the building
equipment, (b) comprehensive general liability insurance, including bodily
injury, contractual injury, death and property damage liability, and excess
and/or umbrella liability insurance in such amounts as are generally required
by institutional lenders for comparable properties, but in no event less than
$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 and/or loss of "rental value" insurance in an amount sufficient
to avoid any co-insurance penalty and to cover at least 12 months of net
revenue, but not less than $12,825,000, provided that such policies of
insurance shall be subject only to exclusions that are acceptable to the
mortgagee and the Rating Agencies, (e) during any period of repair or
restoration, builder's "all risk" insurance in an amount not less than the
full insurable value of the Mansion Grove Property, (f) broad-form boiler and
machinery insurance (without exclusion for explosion) and insurance against
loss of occupancy or use arising from any related breakdown in such amounts
as are generally available at a commercially reasonable premium and are
generally required by institutional lenders for properties comparable to the
Mansion Grove Property, (g) if any improvement is located within an area
designated as "flood prone" or a "special flood hazard area", flood insurance
if available, in an amount equal to the lesser of the outstanding principal
amount of the Mansion Grove Loan and the maximum limit of coverage available
with respect to the Mansion Grove Property, acceptable to the mortgagee;
provided, however, that if flood insurance shall be unavailable from private
carriers, flood insurance provided by the federal or state government, if
available, (h) earthquake insurance as described below, and (i) at the
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.
If the Mansion Grove Property is part of a pool for earthquake insurance
coverage along with some or all of the Mansion Grove Affiliated Properties
(as defined below), then the Mansion Grove Borrower shall seek to include the
Mansion Grove Property as part of that pool for earthquake insurance coverage
purposes, provided that such coverage can be obtained utilizing the same or
similar underwriting criteria, and providing for the same or similar terms
and conditions of coverage, as are applicable with respect to the other
properties included in that pool; and provided further, that if the Mansion
Grove Property is included in the afore-described pool, then the Mansion
Grove Borrower shall be required to spend at least $120,000 per year for such
earthquake coverage. The "Mansion Grove Affiliated Properties" generally
means properties owned or controlled by, or managed by any person controlled
by, the same party or parties who control the general partner of the Mansion
Grove Borrower. If the Mansion Grove Property is not part of a pool for
earthquake insurance coverage, then the Mansion Grove Borrower shall seek to
obtain separate earthquake insurance coverage for the Mansion Grove Property
under such terms and conditions as it deems reasonable in its good faith
judgment, provided that such earthquake insurance coverage is available on
commercially reasonable terms as determined by the Mansion Grove Borrower in
its good faith judgment; and provided further, that if such coverage is
available on commercially reasonable terms, then the Mansion Grove Borrower
shall be required to spend at least $120,000 per year in obtaining such
earthquake coverage. Any insurers providing earthquake insurance coverage
shall have, for the first $10,000,000 of coverage, a claims-paying ability
rating by S&P of not less than "A-" or its equivalent by any other Rating
Agency.
Any such insurance may be effected under a blanket policy so long as any
such blanket policy shall specify, except in the case of public liability
insurance, the portion, if less than all, of the total coverage of such
policy that is allocated to the Mansion Grove Property and any sublimits in
such blanket policy applicable to the Mansion Grove Property, which amounts
shall not be less than the amounts required pursuant to, and which shall in
any case comply in all other respects with the
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requirements of, the Mansion Grove Loan. All insurance policies are required
to name the mortgagee as an additional named insured, to provide that all
proceeds (except with respect to proceeds of general liability and workers'
compensation insurance) be payable to the mortgagee except as described below
under "--Condemnation and Casualty" and to contain: (i) a standard
"non-contributory mortgagee" endorsement or its equivalent relating, inter
alia, to recovery by the mortgagee notwithstanding the negligent or willful
acts or omissions of the Mansion Grove Borrower; (ii) a waiver of subrogation
endorsement in favor of the mortgagee; (iii) an endorsement providing that no
policy shall be impaired or invalidated by virtue of any act, failure to act,
negligence of, or violation of declarations, warranties or conditions
contained in such policy by the Mansion Grove Borrower, mortgagee or any
other named insured, additional insured or loss payee, except for the willful
misconduct of the the mortgagee knowingly in violation of the conditions of
such policy; (iv) an endorsement providing for a deductible per loss of an
amount not more than that which is customarily maintained by prudent owners
of first class properties comparable to and in the general vicinity of the
Mansion Grove Property, but in no event in excess of (A) $100,000 and (B)
with respect to earthquake insurance, the greater of $100,000 and 10% of the
value of the building in question; and (v) a provision that such policies
shall not be cancelled, terminated or expired without at least 30 days' prior
written notice to the mortgagee, in each instance.
The Mansion Grove Loan requires the Mansion Grove Borrower to obtain the
insurance described above, in all cases except as otherwise provided with
respect to earthquake insurance, from domestic primary insurance carriers
having both (x) a claims paying ability rating by S&P of not less than "AA"
or its equivalent by any other Rating Agency ("AA Rating"), and (y) a Best's
rating of "A" or better with a financial size category of not less than IX.
Notwithstanding the foregoing, the Fireman's Fund Insurance Corporation is
deemed to be an acceptable insurer; provided, however, that in the event the
claims-paying ability rating assigned to Fireman's Fund Insurance Corporation
by S&P falls below "A-", then the Mansion Grove Borrower shall be obligated
to obtain the insurance coverage required above. Notwithstanding the
foregoing, the Mansion Grove Borrower shall be obligated to spend a maximum
of $150,000 (for annual insurance premiums) to obtain the coverage required
under the Mansion Grove Mortgage from insurers with an "AA" Rating; to the
extent that the coverage required under the Mansion Grove Mortgage is not
available from insurers with an "AA" Rating or is available therefrom at a
cost in excess of such maximum, the Mansion Grove Borrower shall be obligated
to obtain such coverage, irrespective of cost, from insurers having a
claims-paying-ability rating by S&P of not less than "A" and its equivalent
by any other Rating Agency and otherwise in accordance with the requirements
of the Mansion Grove Mortgage, to the extent available. See "Risk
Factors--The Mortgage Loans--Availability of Earthquake, Flood and Other
Insurance."
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Mansion Grove Property or a
condemnation of a portion of the Mansion Grove Property, in either case which
does not constitute a Mansion Grove Total Loss, the Mansion Grove Borrower is
obligated either (1) to pay in full the principal and interest and all other
amounts due on the Mansion Grove Loan or (2) to commence and diligently
prosecute to completion the repair, restoration and rebuilding of the Mansion
Grove Property. A "Mansion Grove Total Loss" means (i) a casualty, damage or
destruction of the Mansion Grove Property, the cost of restoration of which
would exceed 50% of the outstanding principal amount of the Mansion Grove
Loan, or (ii) a permanent condemnation of 50% or more of the GLA of the
Mansion Grove Property or so much thereof, in either case, such that it would
be impracticable, in the mortgagee's reasonable discretion, even after
restoration, to operate the Mansion Grove Property as an economically viable
whole and with respect to which the applicable tenant leases and licenses of
the property do not require such restoration.
Following a casualty or condemnation at the Mansion Grove Property, any
insurance and condemnation proceeds will be applied (after payment of the
mortgagee's reasonable expenses of collection thereof) to amounts due under
the Mansion Grove Loan and the prepayment of the principal amount outstanding
thereon, if: (i) the proceeds equal or exceed the outstanding principal
balance of the Mansion Grove Loan, (ii) an event of default has occurred or
is continuing, (iii) a Mansion Grove Total Loss has occurred, (iv) the work
of repair or restoration cannot be completed before the earlier of (a) the
date which is six months before the Mansion Grove Maturity Date or (b) the
date on which the business interruption insurance expires, (v) the Mansion
Grove Property is not capable of being restored substantially to its
condition prior to such casualty or condemnation, (vi) the Mansion Grove
Borrower is unable to demonstrate to the mortgagee's reasonable satisfaction
its continuing ability to pay the Mansion Grove Loan, or (vii) such proceeds
were the result of a condemnation, and after restoration is completed, there
are excess proceeds which were not required to effect such restoration,
subject to the Mansion Grove Borrower's right to elect to deposit such excess
proceeds in an escrow account as described below.
In the event of (a) a Mansion Grove Total Loss resulting from a casualty,
damage or destruction, if either (i) the cost to repair the Mansion Grove
Property would exceed 5% of the outstanding principal amount of the Mansion
Grove Loan (the "Mansion Grove Threshold Amount") and the restoration of the
Mansion Grove Property cannot reasonably be completed
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before the date which is the later to occur of the date of expiration of any
business interruption insurance or the date of expiration of any letter of
credit posted in lieu thereof or in addition thereto and under such
circumstances the Mansion Grove Borrower is not required under any tenant
lease to make the proceeds available to restore the Mansion Grove Property or
(ii) the mortgagee elects not to permit the Mansion Grove Borrower to restore
the Mansion Grove Property, or (b) a Mansion Grove Total Loss resulting from
a condemnation, and the mortgagee elects to apply the proceeds against the
indebtedness, then the Mansion Grove Borrower must prepay the Mansion Grove
Loan to the extent of the casualty proceeds or condemnation proceeds
received.
If any insurance or condemnation proceeds (other than business
interruption insurance proceeds) are in excess of the Mansion Grove Threshold
Amount, then all such proceeds will be paid over to the mortgagee and applied
to amounts due under the Mansion Grove Loan and the prepayment of the
principal amount outstanding thereon, without a prepayment premium or
penalty, if any of the requirements in clauses (i) through (vii) in the
second paragraph of "--Condemnation and Casualty" herein are met. If such
insuarance or condemnation proceeds received do not exceed the Mansion Grove
Threshold Amount, they are to be paid to the Mansion Grove Borrower to be
used for restoration. If such insurance or condemnation proceeds (other than
business interruption insurance proceeds) are in excess of the Mansion Grove
Threshold Amount and are not required to be applied to the payment or
prepayment of the loan as described above, then the mortgagee is obligated to
make all insurance and condemnation proceeds (other than business
interruption insurance proceeds) available to the Mansion Grove Borrower for
payment or reimbursement of the costs and expenses of the repair, restoration
and rebuilding of the Mansion Grove Property, subject to the following
conditions: (i) at the time of loss or damage or at any time thereafter while
the Mansion Grove Borrower is holding any portion of the proceeds, there
shall be no continuing event of default; (ii) if the estimated cost of the
work (as estimated by the independent architect referred to in clause (iii)
below) shall exceed the proceeds, the Mansion Grove Borrower shall, at its
option, either deposit with or deliver to the mortgagee (A) cash and cash
equivalents, (B) a letter or letters of credit issued by a Mansion Grove
Approved Bank in an amount equal to the estimated cost of the work less the
proceeds available or (C) such other evidence of the Mansion Grove Borrower's
ability to meet such excess costs which is reasonably satisfactory to the
mortgagee; and (iii) the mortgagee shall, within a reasonable period of time
prior to request for initial disbursement, be furnished with an estimate of
the cost of the work accompanied by an independent architect's certification
as to such costs and appropriate plans and specifications for the work of
restoration. Disbursement of the proceeds in cash or cash equivalents to the
Mansion Grove Borrower shall be made from time to time (but not more
frequently than once in any month) by the mortgagee but only for so long as
no event of default shall have occurred and be continuing, as the work
progresses upon receipt by mortgagee of an officer's certificate of the
Mansion Grove Borrower and an independent architect's certificate as to the
progress of the restoration. No payment made prior to the final completion of
the work, except for payment made to contractors whose work shall have been
fully completed and from whom final lien waivers have been received, shall
exceed 95% of the value of the work performed from time to time, and at all
times the undisbursed balance of said proceeds together with all amounts
deposited, bonded or guaranteed, shall be at least sufficient to pay for the
estimated cost of completion of the work.
If, after the work is completed and all costs of completion have been
paid, there are excess proceeds, then upon 10 days' prior written notice from
the Mansion Grove Borrower to the mortgagee, provided no event of default has
occurred and is then continuing, the Mansion Grove Borrower shall have the
option of directing the mortgagee to either (a) retain such proceeds in the
Mansion Grove Capital Reserve Account to be applied by the Mansion Grove
Borrower to the cost of improvements, alterations, tenant improvements or
other capital improvements, (b) apply such excess proceeds with respect to
the condemnation or casualty to the payment or prepayment of all or any
portion of the indebtedness secured by the Mansion Grove Mortgage without
penalty or premium, or (c) if the amount of such excess proceeds is less than
$1,000,000, or if such excess proceeds of any amount are the product of a
Mansion Grove Siding Litigation Recovery, pay same to the Mansion Grove
Borrower. The Mansion Grove Borrower has disclosed to the mortgagee that it
has engaged as plaintiff in litigation seeking damages in connection with the
quality of materials used for hardboard siding on the improvements. In the
event that the Mansion Grove Borrower's litigation results in a recovery by
the Mansion Grove Borrower (a "Mansion Grove Siding Litigation Recovery"),
such Mansion Grove Siding Litigation Recovery shall be applied in accordance
with the provisions set forth herein as though the same constituted
"proceeds" for the replacement of hardboard siding on the improvements;
provided, that in no event shall such Mansion Grove Siding Litigation
Recovery or any portion thereof be required to be used to prepay the Mansion
Grove Loan.
Debt Service Coverage Ratio Covenant. The Mansion Grove Borrower is
required to achieve, and within 30 days of the end of each calendar quarter
(the "Mansion Grove DSCR Determination Date") provide evidence to the
mortgagee of the achievement of, a Mansion Grove DSCR for the Mansion Grove
Property of not less than 1.10 to 1 (the "Mansion Grove
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Management Replacement DSCR"). The "Mansion Grove DSCR" means, as of the last
day of any fiscal quarter of the Mansion Grove Borrower, for the most recent
period of 12 consecutive calendar months ending on or prior to such date, the
ratio of net operating income determined in accordance with GAAP to the
amount of interest and principal due and payable during such period (based on
a debt service constant of the greater of 9.66% per annum and the actual debt
service constant for such period).
If the Mansion Grove Management Replacement DSCR is not maintained and the
Mansion Grove Manager is managing the Mansion Grove Property in a manner that
is inconsistent with standards that are customary for comparable properties,
the mortgagee shall deliver to the Mansion Grove Borrower notice thereof and
shall, provided that the Mansion Grove Management Replacement DSCR is not
achieved within, and the Mansion Grove Manager continues to manage the
Mansion Grove Property in a manner that is inconsistent with standards that
are customary for comparable properties for, 90 days following the giving of
such notice, have the right to terminate the Mansion Grove Management
Agreement unless the Mansion Grove Borrower shall deposit additional funds in
the Mansion Grove Lockbox in an amount which, if treated as income from the
operations of the Mansion Grove Property, would increase net operating income
and thereby maintain a debt service coverage ratio in excess of the Mansion
Grove Management Replacement DSCR. Any such funds escrowed shall be returned
to the Mansion Grove Borrower if the Mansion Grove Management Replacement
DSCR is achieved for two consecutive Mansion Grove DSCR Determination Dates
without taking into account any such escrowed funds in making such
determination.
Approval Rights. Under the Mansion Grove Loan, the Mansion Grove Borrower
is required to submit to the mortgagee, for the mortgagee's written approval,
an annual budget not later than 60 days prior to the commencement of each
calendar year. If the mortgagee notifies the Mansion Grove Borrower within 10
days of any objections to such budget, the Mansion Grove Borrower is required
to revise the same and resubmit it to the mortgagee until the mortgagee
approves an annual budget. In the event that the Mansion Grove Borrower must
incur an extraordinary operating expense or a capital expense not set forth
in the approved annual budget, it is required promptly to deliver to the
mortgagee, for the mortgagee's approval, a reasonably detailed explanation of
such proposed expense.
Without the mortgagee's consent (which may not be unreasonably withheld or
delayed), the Mansion Grove Borrower may not enter into any management
agreement. If during the term of the Mansion Grove Loan, the Mansion Grove
Borrower wishes to designate another property manager acceptable to the
mortgagee, the Mansion Grove Borrower must notify the mortgagee and the
Rating Agencies in writing and obtain from the Rating Agencies written
confirmation that the retention of the proposed property manager will not
result in a downgrade, withdrawal or qualification of the then ratings of the
Certificates. The mortgagee has the right to replace the property manager
upon the occurrence of the events described above under "--Property
Management" and to direct the retention of a new property manager at any time
following the occurrence and during the continuance of an event of default
and the appointment of a receiver, and at any time after July 1, 2007.
Provided that no event of default shall have occurred and be continuing,
the Mansion Grove Borrower has the right, without the mortgagee's consent, to
undertake any alteration, improvement, demolition or removal of the Mansion
Grove Property or any portion thereof (any such alteration, improvement,
demolition or removal, a "Mansion Grove Alteration") so long as (i) the
Mansion Grove Borrower provides the mortgagee with prior written notice of
any Mansion Grove Alteration which, when aggregated with all related Mansion
Grove Alterations constituting a single project, involves an estimated cost
exceeding the Mansion Grove Threshold Amount (a "Mansion Grove Material
Alteration") and (ii) any Mansion Grove Alteration is undertaken in
accordance with the loan documents and is not prohibited by any leases, and
will not upon completion materially adversely (A) affect the value, use or
operation of the Mansion Grove Property taken as a whole or (B) reduce the
net operating income for the Mansion Grove Property from the level available
immediately prior to commencement of such Mansion Grove Alteration. Any
Mansion Grove Material Alteration is required to be conducted under the
supervision of an independent architect and no such Mansion Grove Material
Alteration may be undertaken until five business days after there shall have
been filed with the mortgagee, for information purposes only and not for
approval by the mortgagee, detailed plans and specifications and cost
estimates therefor, prepared by such independent architect. Notwithstanding
anything to the contrary contained in the foregoing, no Mansion Grove
Material Alteration nor any Mansion Grove Alterations which when aggregated
with all other Mansion Grove Alterations (other than Mansion Grove Material
Alterations) then being undertaken by the Mansion Grove Borrower exceeds the
Mansion Grove Threshold Amount, may be performed unless the Mansion Grove
Borrower has first delivered to the mortgagee cash, cash equivalents and/or a
letter of credit by a Mansion Grove Approved Bank as security in an amount
not less than the estimated cost of the Mansion Grove Material Alteration or
the Mansion Grove Alterations in excess of the Mansion Grove Threshold
Amount.
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The Mansion Grove Borrower may, without the consent of the mortgagee,
amend, modify or waive the provisions of any tenant lease or terminate,
reduce rents under or shorten the term of any tenant lease.
Financial Reporting. The Mansion Grove Borrower is required to furnish to
the mortgagee: (a) annually within 120 days after the end of each fiscal
year, a copy of its year-end financial statements audited by a nationally
recognized, independent public accounting firm reasonably acceptable to the
mortgagee; (b) monthly within 30 days following the end of each calendar
month (except the last month of its fiscal year), unaudited financial
statements prepared internally in accordance with GAAP; (c) monthly within 30
days of each calendar month, a complete and certified rent roll; (d)
annually, no later than 15 business days after the first day of each fiscal
year, a schedule describing all taxes and other impositions payable or
estimated to be payable during such fiscal year; and (e) such reasonable
additional information regarding the Mansion Grove Property as the mortgagee
may reasonably request in writing.
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NORTH SHORE TOWERS: THE BORROWER; THE PROPERTY
The Loan. The North Shore Towers Loan was made by John Hancock Mutual Life
Insurance Company ("John Hancock") on November 21, 1994 to North Shore Towers
Apartments Incorporated (the "North Shore Towers Borrower") and amends and
consolidates various loans originated by Chase Manhattan Mortgage and Realty
Trust and its successors and assigns in October 1972 and September 1983. The
North Shore Towers Loan was acquired by MSMC on September 25, 1997 pursuant
to the Hancock Agreement pursuant to which John Hancock will retain a portion
of the interest (the "Hancock Retained Interest") accruing thereon equal to
2.57% per annum and will act as subservicer of the North Shore Towers Loan.
The Hancock Retained Interest is payable to John Hancock whether or not it is
subservicing the North Shore Towers Loan. The North Shore Towers Loan has a
principal balance as of the Cut-Off Date of approximately $70,280,966. It is
secured by, among other things, a Mortgage (the "North Shore Towers
Mortgage") encumbering a co-operative apartment project known as North Shore
Towers, located in Floral Park, Queens County, New York (the "North Shore
Towers Property").
The Borrower. The North Shore Towers Borrower is a New York corporation
organized for the purpose of owning the North Shore Towers Property and
carrying on all incidental or related activities. The North Shore Towers
Borrower owns no material asset other than the North Shore Towers Property
and related interests. The North Shore Towers Borrower is owned approximately
84% by tenant-shareholders and approximately 16% by the original sponsor,
Three Towers Holding, Inc.
The Property. The North Shore Towers Property securing the North Shore
Towers Loan includes three 33-story, cooperative, apartment buildings with
1,844 residential apartments (including 9 below grade units), an underground
parking garage with approximately 2,374 parking spaces, surface parking lots
that can accommodate 547 cars and a "residents only" country club with an
18-hole golf course. The North Shore Towers Property is situated on
approximately 111 acres. All of the land is owned by the North Shore Towers
Borrower in fee, except for approximately 4.47 acres, on which a portion of
the golf course, the eastern entrance roadway and a corner of the tennis
courts are situated, which is held under a ground lease that does not expire
until 2071. The three buildings, which were constructed in 1971, are
connected by a below-ground arcade that stretches approximately one quarter
mile and contains commercial space which is occupied by several businesses,
including a Chase bank branch, a doctor's office, a 470 seat movie theater, a
supermarket deli, boutique, florist, beauty parlor, jeweler, dry cleaner and
a card store. The country club's amenities include an 18-hole golf course, 5
lighted tennis courts, indoor and outdoor swimming pools, whirlpool, steam
sauna and fitness facilities. The North Shore Towers Property has its own
energy plant which supplies the three buildings with electricity, hot water,
heat and air conditioning.
1,549 of the residential apartments have been sold and all, except 6 of
these units which have been sublet, as of June 30, 1997, are owner occupied.
The apartment owners, other than the sponsor, are permitted to sublet their
units once only for a period of 1 to 2 years. 295 of the residential
apartments are owned by the sponsor, Three Towers Holding, Inc. These units
are rent stabilized units and are regulated under the New York Department of
Housing and Community Renewal. As of August 22, 1997, 25 of the sponsor-owned
units were vacant.
The table below summarizes certain information, as of June 30, 1997, with
respect to the apartment units at the North Shore Towers Property that are
owned by Three Towers Holding, Inc.:
SPONSOR-HELD RESIDENTIAL APARTMENT UNITS
<TABLE>
<CAPTION>
STABILIZED
NO. MONTHLY MONTHLY
DESCRIPTION UNITS ROOMS TOTAL SF RENT MAINTENANCE(1)
- ------------- ------- ------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Studio 1 2 450 $ 690 $ 440
Studio 1 3 600 $ 1,145 $ 617
One Bed 54 162 37,800 $ 49,159 $ 37,542
One Bed 131 524 121,830 $165,300 $151,225
Two Bed 93 465 111,600 $155,222 $152,982
Three Bed 14 84 18,900 $ 26,347 $ 31,879
Three Bed 1 8 2,000 $ 4,037 $ 3,905
------- ------- ----------
Total 295 1,248 293,180
======= ======= ==========
</TABLE>
- ------------
(1) Monthly maintenance is calculated by allocating the maintenance charges
per available share, including electricity, from the December 31, 1996
financial statement to individual units based on their share allocation
outlined in the Offering Plan.
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The commercial portion of the North Shore Towers Property had an
annualized base rent of approximately $458,452.80 as of March 20, 1997.
A marketability study dated July 14, 1997, prepared by Regional Appraisal
Associates determined a value, as of June 30, 1997, assuming co-operative
ownership above any underlying mortgage or financing, for the North Shore
Towers Property of approximately $350,000,000.
Market Overview and Competition. According to the marketability study
performed by Regional Appraisal Associates, the range and quality of the
North Shore Towers Property's amenities (particularly the country club and
on-site shops, entertainment, banking and medical facilities) made it
difficult to find comparable properties on which to base a competitive
analysis. Competitors in the local area include the Bay Club, an enclosed
condominium complex containing two 22-story apartment buildings with 630
units, a health club and 24 hour doormen, and the Versailles, a 16-story, 243
unit cooperative building, both of which are located approximately four miles
northwest of the North Shore Towers Property. The Versailles shares common
grounds with two other cooperative buildings, the Americana and the Seville.
The Seville is a 16-story, 290 unit building and the Americana is a 16-story,
243 unit building. The Versailles, the Americana and the Seville were built
around 1969 and have a health club, a below grade shopping area and doormen.
Another competitor in the local area is One Kensington Gate, a six-story
cooperative building built around 1970 and located approximately six miles
north of the North Shore Towers Property with amenities that include a
swimming pool, doorman and built-in garage. The North Shore Towers Property
also competes with other properties in the New York City area.
Location/Access. The North Shore Towers Property is located on the
northeast corner of the Grand Central Parkway Service Road and 267th Street
in Floral Park, Queens County, New York, on the border of Queens and Nassau
Counties. The surrounding communities include Glen Oaks and Bellerose to the
west, Lake Success (Nassau County) and Little Neck to the north, North New
Hyde Park (Nassau County) to the east and Floral Park (Nassau County) to the
south. The main local shopping district is Union Turnpike which has several
shopping centers. New York Surface Bus Transportation provides daily express
bus service to and from Manhattan. This service is augmented by private bus
transportation to shopping centers and other points, on a daily basis. There
is no subway service in this area of Queens. The area is serviced by the Long
Island Expressway and the Grand Central Parkway.
Ground Leases. The interest of the North Shore Towers Borrower in a 4.47
acre portion of the North Shore Towers Property (on which a portion of the
golf course, the eastern entrance roadway and a corner of the tennis courts
are situated) consists of a ground leasehold interest created under a lease
dated March 24, 1977, between Michelin Tire Corporation as lessor and Sigmund
Sommer as lessee. Sigmund Sommer assigned its interest in the lease to the
North Shore Towers Borrower. The initial term of the lease expires on June
30, 2071. The annual rent is $100.00.
The North Shore Towers Borrower is the holder of both the lessor's and, by
assignments, the lessee's interests (which interests have expressly not been
merged) in a ground lease dated July 1, 1972, between Sigmund Sommer as
lessor and North Shore Developers, a New York limited partnership, as lessee,
covering another portion of the North Shore Towers Property. Sigmund Sommer
assigned its interest in the lease to the North Shore Towers Borrower. Both
the ground lease and the fee interest of the North Shore Towers Borrower in
the portion of the property subject to the ground lease are security under
the North Shore Towers Mortgage.
Environmental Report. A Phase I site assessment dated August 1997 was
performed on the North Shore Towers Property. The Phase I assessment did not
reveal any environmental liability that the Depositor believes would have a
material adverse effect on the North Shore Tower Borrower's business, assets
or results of operations taken as a whole. Nevertheless, there can be no
assurance that all environmental conditions and risks were identified in such
environmental assessment. See "Risk Factors--The Mortgage
Loans--Environmental Law Considerations."
Engineering Report. A Property Condition Report was completed on the North
Shore Towers Property on December 31, 1996 by a third party due diligence
firm. The Property Condition Report concluded that the North Shore Towers
Property was generally in good physical condition and identified no immediate
deferred maintenance requirements. As of December 31, 1996, the North Shore
Towers Borrower had a reserve fund of $4,423,242 and an auxiliary reserve
fund of $3,370,947, to fund capital improvements, repairs and maintenance on
the North Shore Towers Property.
Property Management. The North Shore Towers Property is managed by North
Shore Towers Management Incorporated (the "North Shore Towers Manager"),
pursuant to the terms of a Management Agreement dated May 1, 1995
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(the "North Shore Towers Management Agreement"). The North Shore Towers
Manager is an affiliate of the sponsor, Three Towers Holding, Inc., and is
dedicated solely to the management of the North Shore Towers Property. The
North Shore Towers Manager is responsible for the management, operation,
maintenance and leasing of the North Shore Towers Property (including the
country club). The initial term of the North Shore Towers Management
Agreement will terminate on June 30, 1998.
The North Shore Towers Borrower has agreed pursuant to the terms of the
North Shore Towers Mortgage that the North Shore Towers Management Agreement
shall be expressly subject and subordinate to the North Shore Towers
Mortgage. The North Shore Towers Borrower shall advise the mortgagee prior to
any amendment, modification or termination of the North Shore Towers
Management Agreement or upon entering into any new or replacement management
contract, but the North Shore Towers Borrower shall have the right to make
all final decisions relating thereto.
The North Shore Towers Manager is entitled to (a) a monthly management fee
of $72,916.67, (b) a commission equal to 6% of the purchase price of shares
of stock of the North Shore Towers Borrower in connection with services
relating to the sale of such shares, and (b) a leasing commission equal to
the aggregate of (i) 7% of the rent for the first lease year, (ii) 5% of the
rent for the second lease year, and (iii) 3% of the rent for each of the
third, fourth and fifth lease years, in connection with leasing or subleasing
spaces at the North Shore Towers Property acquired or reacquired by the North
Shore Towers Borrower.
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NORTH SHORE TOWERS: THE LOAN
CERTAIN NORTH SHORE TOWERS LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO ACTUAL REFINANCING
UNIT(1) VALUE RATIO(2) DSCR(3) DSCR (4)
-------------- -------------- -------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date .. $38,113 20.1% 2.83x 3.18x
At Maturity ... $34,969 18.4% 3.14x 3.47x
</TABLE>
- ------------
(1) Based on the 1,844 residential apartment units securing the North Shore
Towers Loan and the Cut-Off Date Principal Balance or Balloon Balance,
as applicable.
(2) Based on the July 14, 1997 marketability study and Cut-Off Date
Principal Balance or Balloon Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the North Shore Towers Loan
during the 12 months following the Cut-Off Date, and in the case of
Maturity Date DSCR, 12 months of debt service on the North Shore Towers
Loan assuming a balance equal to the Balloon Balance, a coupon equal to
the North Shore Towers Interest Rate and an amortization term equal to
360 months.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of the
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
9.0% of the Cut-Off Date Principal Balance of the North Shore Towers
Loan, and in the case of Maturity Date Refinancing DSCR, an annual debt
service payment equal to 9.0% of the Balloon Balance.
Security. The North Shore Towers Loan is a nonrecourse loan, secured only
by the fee and leasehold estates of the North Shore Towers Borrower in the
North Shore Towers Property and certain other collateral relating thereto
(including an assignment of leases and rents, an assignment of the management
contract and an assignment of proprietary leases). John Hancock is the named
insured under the title insurance policy (which will be assigned to the Trust
Fund) which insures, among other things, that the North Shore Towers Mortgage
constitutes a valid and enforceable first lien on the North Shore Towers
Property, subject to certain exceptions and exclusions from coverage set
forth therein.
The North Shore Towers Loan amends and consolidates, pursuant to a Note
Consolidation Agreement, certain prior loans made by Chase Manhattan Bank. In
connection with the sale of the North Shore Towers Loan, John Hancock
delivered to MSMC an originally executed Note Consolidation Agreement, but
did not deliver originals of 3 of the 4 Consolidated Notes. The loss of such
notes creates the risk that a bona fide purchaser of such notes could assert
competing claims for payment under such notes. John Hancock has delivered to
MSMC a Lost Note Certificate and Indemnity pursuant to which it agrees to
indemnify MSMC and its assigns against any and all losses, costs, or
liabilities incurred by MSMC or its assigns as a result of any person
claiming an interest in any of the consolidated notes.
Payment Terms. The North Shore Towers Loan matures on December 1, 2004
(the "North Shore Towers Maturity Date") and bears interest at a fixed rate
per annum equal to 9.32% (the "North Shore Towers Interest Rate") through and
including the North Shore Towers Maturity Date. As a result of the Hancock
Retained Interest required to be paid to John Hancock as described in
"--North Shore Towers: The Borrower; the Property--The Loan" above, the
interest rate payable to the Trust Fund on the North Shore Towers Loan will
be 6.75%. Interest on the North Shore Towers Loan is calculated on the basis
of a 360-day year of 30-day months.
The payment date for the North Shore Towers Loan is the first day of each
calendar month, and there is no grace period for a default in payment of
principal or interest. Commencing on January 1, 1995 and ending on November
1, 2004, the North Shore Towers Loan requires constant monthly payments of
principal and interest (the "North Shore Towers Monthly Debt Service
Payments") of $593,498.89 (based on a 360-month amortization schedule and the
North Shore Towers Interest Rate). On the North Shore Towers Maturity Date,
payment of the then outstanding balance of the principal, if any, together
with all accrued and unpaid interest and all other sums payable under the
North Shore Towers Loan documents, is required. The principal balance of the
North Shore Towers Loan at the North Shore Towers Maturity Date, based on
scheduled amortization, will be approximately $64,482,117.
Upon the occurrence of any event of default, the entire unpaid principal
amount of the North Shore Towers Loan and any other amounts payable,
including interest, will bear interest at a default rate equal to the lesser
of (a) the maximum rate permitted by applicable law, and (b) 12.32% per annum
(the "North Shore Towers Default Rate").
Prepayment. Voluntary prepayment is permitted in whole (but not in part),
upon not less than 30 nor more than 90 days' prior written notice and payment
of a prepayment premium (the "North Shore Towers Yield Maintenance Premium")
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<PAGE>
equal to the greater of (a) the product obtained by multiplying (i) the
difference obtained by subtracting from 9.5028% the yield rate on publicly
traded United States Treasury Securities having the closest matching maturity
date to the maturity date of the Note (the "North Shore Towers Treasury
Rate"), as such yield rate is reported in the Wall Street Journal or other
similar business publication of general circulation on the fifth business day
preceding the prepayment date or, if no yield rate on publicly traded United
States Treasury Securities is obtainable, at the yield rate of the issue most
closely equivalent to such United States Treasury Securities, as determined
by mortgagee in its reasonable discretion, and (ii) the number of years and
fraction thereof remaining between the prepayment date and the scheduled
maturity date of the North Shore Towers Loan, and (iii) the amount of the
then outstanding principal balance of the North Shore Towers Loan, which
product, assuming that it were paid in equal monthly installments until the
maturity date of the North Shore Towers Loan, shall be discounted to present
value in mortgagee's customary manner and using the North Shore Towers
Treasury Rate as a discount rate; and (b) 1% of the then outstanding
principal balance of the North Shore Towers Loan. Notwithstanding the
foregoing, the North Shore Towers Loan may be prepaid in full (but not in
part) without a yield maintenance or prepayment premium during the last 3
months prior to the North Shore Towers Maturity Date. Pursuant to the Hancock
Agreement, a substantial portion of any Prepayment Premium paid by the North
Shore Towers Borrower will be allocated to John Hancock, equal to the amount
of such Prepayment Premium multiplied by a fraction, the numerator of which
is 2.57% per annum (the Hancock Retained Interest) and the denominator of
which is 3.30% per annum. Any portion of such North Shore Towers Yield
Maintenance Prepayment Premium payable to John Hancock will not be included
in the Trust Fund and will not be available to Certificateholders.
Upon acceleration of the North Shore Towers Loan due to an event of
default at any time other than during the last 3 months prior to the North
Shore Towers Maturity Date, the North Shore Towers Borrower must pay the
North Shore Towers Yield Maintenance Premium. No prepayment premium is
required to be paid in connection with any insurance proceeds or condemnation
awards that are paid as a result of a North Shore Towers Total Loss (as
defined below).
Lockbox and Reserves. Pursuant to the terms of the North Shore Towers Loan
documents, the North Shore Towers Borrower has established a reserve fund
(the "North Shore Towers Tax Reserve Fund") with Shawmut Bank Connecticut
N.A., as escrow agent, to pay real estate taxes and special assessments on
the North Shore Towers Property. On the tenth day of each month, the North
Shore Towers Borrower is required to deposit in the North Shore Towers Tax
Reserve Fund an amount equal to $727,500, which amount shall be adjusted to
an amount sufficient to pay such taxes and assessments as they become due and
payable. Funds deposited in the North Shore Towers Tax Reserve Fund shall be
invested by the escrow agent in certain permitted investments at the
direction of the North Shore Towers Borrower. Funds on deposit in the North
Shore Towers Tax Reserve Fund are required to be disbursed, upon presentation
of tax bills, to the North Shore Towers Borrower who will make payment of the
taxes and assessments when due to the taxing authorities and obtain receipts
for such payments for the escrow agent. In the event that the balance in the
North Shore Towers Tax Reserve Fund is insufficient, on notice from the
escrow agent, the North Shore Towers Borrower shall immediately deposit
sufficient sums to cover any such deficiency so escrow agent shall be able to
pay the required amount. The North Shore Towers Borrower shall be entitled to
any income earned on the deposits held in the North Shore Towers Tax Reserve
Fund. Any deposits in the North Shore Towers Tax Reserve Fund in excess of
the amount needed to pay taxes and assessments shall be remitted to the North
Shore Towers Borrower, provided that no event of default under any of the
North Shore Towers Loan documents has occurred and is continuing, and the
North Shore Towers Borrower has made the required deposits to the North Shore
Towers Tax Reserve Fund. The North Shore Towers Loan has no lockbox
arrangement.
In addition to the North Shore Towers Tax Reserve Fund, as of December 31,
1996, the North Shore Towers Borrower had a reserve fund of $4,423,242 and an
auxiliary reserve fund of $3,370,947, to fund capital improvements, repairs
and maintenance on the North Shore Towers Property. Such reserve funds do not
secure the North Shore Towers Loan, and the mortgagee does not have the right
to control their application or use (except to the limited extent set forth
below under "--Approval Rights").
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. Unless permitted by the North Shore Towers Loan documents as described
below, it is an event of default under the North Shore Towers Mortgage if the
North Shore Towers Borrower shall, voluntarily or by operation of law,
directly or indirectly (including, without limitation, by a transfer,
conveyance or other disposition of all or any shares of stock or other
ownership interests in the North Shore Towers Borrower or in any entity
owning, directly or indirectly, all or any shares of stock or other ownership
interest in the North Shore Towers Borrower or in any such entity, other than
the sale of stock of the North Shore Towers Borrower by a lessee under a
proprietary lease in connection with the transfer, in the ordinary course, of
the unit covered by such proprietary lease), sell, assign, transfer, convey
or otherwise dispose of, or enter into a contract for the sale of, or
mortgage, encumber or grant a
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<PAGE>
security interest with respect to, all or any part of the North Shore Towers
Property (including, without limitation, any interest as lessee under the
ground leases, or enter into any agreement the effect of which is to transfer
(directly or indirectly) any development rights appurtenant to the North
Shore Towers Property, or if a change shall occur in the ownership or control
of the North Shore Towers Borrower (except for transfers of proprietary
leases in the ordinary course of the North Shore Towers Borrower's business)
unless (i) the mortgagee shall consent thereto in writing, which consent may
be withheld by the mortgagee in its absolute discretion, (ii) the original
borrower executing the North Shore Towers Mortgage shall remain primarily
liable for the indebtedness secured thereby and the performance of all the
terms, covenants, and conditions of the North Shore Towers Mortgage, (iii)
the mortgagee is furnished with certified copies of the documentation
effecting such transfer or encumbrance and (iv) the transferee(s) execute(s)
the North Shore Towers Mortgage as a security agreement and such financing
statements and other documents, certificates and instruments as may be
required by the mortgagee.
The North Shore Towers Mortgage provides that the North Shore Towers
Borrower will not create any lien or other encumbrance on the North Shore
Towers Property, other than (a) encumbrances permitted under the North Shore
Towers Loan documents, (b) liens, which are subject and subordinate to the
lien of the North Shore Towers Mortgage, of mechanics, material men or
suppliers incurred in the ordinary course of business of the North Shore
Towers Borrower, and (c) leases, licenses and occupancy agreements (including
proprietary and commercial leases) (the "North Shore Towers Space Leases")
affecting the North Shore Towers Property, which by their terms are expressly
subordinate to the North Shore Towers Mortgage.
The North Shore Towers Loan documents do not prohibit the North Shore
Towers Borrower from incurring any additional indebtedness. However, it is an
event of default under the North Shore Towers Mortgage if, with respect to
any indebtedness for borrowed money in excess of $700,000 in the aggregate,
the North Shore Towers Borrower shall default (as principal or surety) in the
payment of any principal of, premium, if any, or interest, or in the due
performance or observance of any of the other terms of any such indebtedness,
in each case beyond any applicable notice and grace period, provided that
there shall be no such event of default if the North Shore Towers Borrower is
contesting any such claimed default diligently and in good faith by
appropriate legal proceedings.
Insurance. The North Shore Towers Borrower is required to maintain for the
North Shore Towers Property (a) insurance against fire, flood, lightning and
other risks as are included under standard "all-risk" policies with extended
coverage in an amount not less than 100% of the actual replacement value of
the improvements, (b) public liability (including personal injury and
property damage) insurance in such amounts as usually carried by prudent
persons operating similar properties in the same general locality, but in any
event with a single limit of not less than $2,000,000 for any one claim with
respect to personal injury, a combined aggregate limit of not less than
$2,000,000 per occurrence, together with umbrella liability insurance
coverage of not less than $15,000,000, (c) statutory workers' compensation
insurance and employer's liability insurance in customary amounts, (d)
business interruption and/or loss of "rental value" insurance to cover the
loss of at least 18 months of income, (e) during any period during which
there is construction work being performed, all risk, builders' risk
insurance for the North Shore Towers Property, (f) explosion insurance for
boilers and similar apparatus located on the North Shore Towers Property in
such amounts as usually carried by prudent persons operating similar
properties in the same general locality, (g) if the North Shore Towers
Property is in a designated flood area, insurance against loss/damage caused
by flood in such amounts as usually carried by persons operating similar
properties in the same general locality, but in any event in an amount not
less than required by such designation, (h) war risk insurance (to the extent
obtainable from the United States Government or any agency thereof), and (i)
such other insurance for the North Shore Towers Property in such amounts and
against such insurable hazards as mortgagee from time to time may reasonably
require by written notice to the North Shore Towers Borrower.
Any such insurance may be effected under a blanket policy so long as such
policy shall specify the portion, if less than all, of the total coverage of
such policy that is allocated to the North Shore Towers Property and shall in
other respects comply with the requirements of the North Shore Towers Loan.
All insurance policies are required to (a) (except for worker's compensation
insurance) name the North Shore Towers Borrower and the mortgagee as insureds
as their respective interests may appear, (b) (except for worker's
compensation and public liability insurance) provide that the proceeds for
any losses shall be adjusted by the North Shore Towers Borrower, subject to
the approval of the mortgagee in the event the proceeds shall exceed
$250,000, and shall be payable to the mortgagee, to be held and applied as
described below under "--Condemnation and Casualty", (c) include effective
waivers by the insurer of all rights of subrogation against any named
insured, the indebtedness secured by the North Shore Towers Mortgage and the
North Shore Towers Property and all claims for insurance premiums against the
mortgagee, (d) provide that any losses shall be payable notwithstanding (i)
any act, failure to act or negligence of or violation of warranties,
declarations or conditions contained in such policy by any named insured,
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<PAGE>
(ii) the occupation or use of the North Shore Towers Property for purposes
more hazardous than permitted by the terms thereof, (iii) any foreclosure or
other action or proceeding taken by the mortgagee pursuant to any provision
of the North Shore Towers Mortgage, or (iv) any change in title or ownership
of the North Shore Towers Property, (e) provide that no cancellation or
material change in coverage shall be effective until at least 30 days after
receipt by mortgagee of written notice thereof, and (f) be satisfactory in
all other respects to the mortgagee. The North Shore Towers Loan requires the
North Shore Towers Borrower to obtain the insurance described above from
insurance carriers approved by the mortgagee. See "Risk Factors and Other
Special Considerations--Availability of Earthquake, Flood and Other
Insurance."
Condemnation and Casualty. Following a casualty or condemnation at the
North Shore Towers Property, any insurance and condemnation proceeds will be
applied, at the mortgagee's option, in any one or more of the following ways
(subject to the next succeeding paragraph): (a) released to the North Shore
Towers Borrower for application to the cost of restoration, (b) to fulfill
any of the covenants contained in the North Shore Towers Mortgage as the
mortgagee may determine, or (c) regardless of whether part or all of the
indebtedness secured by the North Shore Towers Mortgage shall then be matured
or unmatured, as follows: (i) first, to the payment of the costs and expenses
of the recovery of such proceeds, (ii) second, to the payment of any
indebtedness secured by the North Shore Towers Mortgage, other than
indebtedness with respect to the North Shore Towers Loan, (iii) third, to the
payment of all amounts of principal and interest then outstanding on the
North Shore Towers Loan, and (iv) fourth, the balance, if any, to the North
Shore Towers Borrower, unless a court orders otherwise.
The North Shore Towers Mortgage provides that the mortgagee shall apply
insurance or condemnation proceeds received as a result of a North Shore
Towers Total Loss (as defined below) in the manner specified in clause (c) of
the preceding paragraph. A "North Shore Towers Total Loss" means (i) a
permanent taking by condemnation of the entire North Shore Towers Property,
or (ii) a taking of less than the entire North Shore Towers Property or any
damage to or destruction of the North Shore Towers Property, in either case
which renders the North Shore Towers Property remaining after such taking,
damage or destruction unsuitable for restoration for use as property of
substantially the same value, condition, character and general utility as the
North Shore Towers Property prior to such taking, damage or destruction.
Notwithstanding the provisions contained in the North Shore Towers Mortgage
which may be to the contrary, the mortgagee has agreed in a side letter with
the North Shore Towers Borrower that it will permit the use of any fire
insurance loss proceeds received by the mortgagee by reason of insured damage
to the North Shore Towers Property for restoration and rebuilding, provided
the North Shore Towers Loan is not then in default and subject to reasonable
regulation by the mortgagee with respect to the use of the funds and the
disbursement thereof, and provided, further, that such agreement applies only
to such of the proceeds as may be needed to defray the cost of the
restoration and rebuilding and shall not apply to fire insurance loss
proceeds paid to the mortgagee by reason of a loss or damage as to which the
fire insurance company denies liability to a named insured.
Subject to the immediately preceding sentence, in the case of a
condemnation or casualty (other than a North Shore Towers Total Loss), the
North Shore Towers Borrower will, at its expense, whether or not the
insurance proceeds or condemnation proceeds shall be made available to the
North Shore Towers Borrower, or if made available, shall be sufficient,
promptly perform the replacement, repair or restoration of the North Shore
Towers Property as nearly as practicable to the value, condition, character
and general utility thereof immediately prior to such condemnation or
casualty.
Approval Rights. Prior to amending, modifying, supplementing or
terminating any management contract entered into by the North Shore Towers
Borrower relating to the North Shore Towers Property (including the North
Shore Towers Management Agreement (defined below)), or granting any material
consent or waiver thereunder (each, a "North Shore Towers Management Contract
Transaction"), the North Shore Towers Borrower is required to advise the
mortgagee, in a reasonably detailed written notice, as to the nature of such
North Shore Towers Management Contract Transaction. The North Shore Towers
Borrower shall consult with the mortgagee regarding such North Shore Towers
Management Contract Transaction and shall in good faith consider any
suggestions by the mortgagee relating thereto, provided that the North Shore
Towers Borrower shall have the right to make all final decisions regarding
such North Shore Towers Management Contract Transaction.
The North Shore Towers Borrower shall have the right to make reasonable
alterations, additions, improvements, modifications or changes (the "North
Shore Towers Alterations") to the North Shore Towers Property without first
obtaining the consent of the mortgagee, provided that upon the completion of
such North Shore Towers Alteration, the North Shore Towers Borrower's reserve
fund is not reasonably anticipated to be less than $2,000,000. If the
foregoing condition regarding the North Shore Towers Borrower's reserve fund
is not satisfied, then (a) any North Shore Towers Alteration that costs in
excess of $700,000 per project shall be subject to prior written consent
(which consent shall not be unreasonably withheld or
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delayed), and (b) the North Shore Towers Borrower shall give the mortgagee
prior written notice of any North Shore Towers Alteration that costs $700,000
or less (although the mortgagee's consent to such North Shore Towers
Alteration shall not be required). Notwithstanding the foregoing, if any
event of default under the North Shore Towers Loan shall have occurred and be
continuing, then any North Shore Towers Alterations shall require the prior
written consent of the mortgagee. The North Shore Towers Borrower agrees,
among other things, that any North Shore Towers Alterations shall (i) not
change the general character of the North Shore Towers Property or reduce the
fair market value thereof below its value immediately before such North Shore
Towers Alteration, or impair the usefulness of the North Shore Towers
Property, and (ii) be made under the supervision of a qualified architect or
engineer.
The North Shore Towers Borrower shall not, without first obtaining the
written approval of the mortgagee (which consent shall not be unreasonably
withheld), (a) enter into any North Shore Towers Space Leases, except for
proprietary leases between the North Shore Towers Borrower, as lessor and a
tenant-shareholder of the North Shore Towers Borrower, or (b) cancel any
North Shore Towers Space Leases, except if a tenant thereunder has defaulted,
accept a surrender thereof or reduce the payment of rent thereunder (except
under a proprietary lease in the ordinary course of business) or amend any of
the provisions thereof which in any way affects the rights of the mortgagee
by more than a de minimis amount or grant any consent or waiver thereunder
(except for proprietary leases) or accept any prepayment of rent thereunder
(except any amount which may be required to be prepaid by the terms of any
such North Shore Towers Space Lease). The North Shore Towers Borrower shall
not, without the prior written consent of the mortgagee, surrender the
leasehold estate created by any of the ground leases or terminate, cancel,
modify or amend any of the ground leases in any respect.
The North Shore Towers Borrower shall neither cancel nor terminate any of
the charter, articles of incorporation, by-laws or proprietary leases in
effect or amend or modify the provisions thereof which in any way affects the
mortgagee's rights by more than a de minimis amount, without first obtaining
the prior written approval of the mortgagee.
Financial Reporting. The North Shore Towers Borrower is required to
furnish to the mortgagee: (a) on or about January 1 of each year a certified
statement of the rent roll with respect to commercial leases of the North
Shore Towers Property, (b) on or about February 1 of each year, a written
summary of sales of cooperative apartments by tenant-shareholders of the
North Shore Towers Borrower (including the sponsor) for the preceding
calendar year, (c) on the first day of each calendar quarter a written report
describing all material North Shore Towers Alterations then in progress and
indicating the amount in the North Shore Towers Borrower's reserve fund as of
such date, (d) pursuant to the terms of a side letter, provided no event of
default has occurred, annual statements of income and expenses in detail
satisfactory to the mortgagee in connection with the North Shore Towers
Property within 90 days of the expiration of each fiscal year certified by
the North Shore Towers Borrower, the North Shore Towers Borrower's accountant
or a financial officer thereof, provided that statements certified by a
certified public accountant are not available, (e) if an event of default has
occurred, not later than 4 months after the end of each fiscal year of the
North Shore Towers Borrower, statements in detail satisfactory to the
mortgagee, certified by a firm of certified public accountants, of annual
income and expenses with respect to ownership and operation of the North
Shore Towers Property for such fiscal year, and (f) such information and data
with respect to the operations, condition, properties and assets of the North
Shore Towers Borrower and the North Shore Towers Property as the mortgagee
may from time to time reasonably request. In addition, the North Shore Towers
Borrower is required to use its best efforts to provide the mortgagee on or
about January 1 of each year with a rent roll for the cooperative apartment
units then owned by the sponsor.
Hancock Agreement. Pursuant to the Hancock Agreement, John Hancock is
entitled to receive from interest received on the North Shore Towers Loan,
the Hancock Retained Interest, and in the event any Prepayment Premium is
received on the North Shore Towers Loan, John Hancock is entitled to receive
a substantial portion of such Prepayment Premium, as described above under
"--North Shore Towers: The Loan--Prepayment."
The Hancock Agreement also provides that, unless a North Shore Towers
Credit Event has occurred, John Hancock has the right to approve any material
modification to any economic or priority terms of the North Shore Towers
Loan, which approval must not be unreasonably withheld. In addition, if the
North Shore Towers Loan is modified or restructured and the interest rate is
reduced, pursuant to the Hancock Agreement, the Monthly Payments must first
be applied to interest and such interest is required to be allocated to John
Hancock and the Trust Fund pro rata, based on the ratio of the Hancock
Retained Interest or the North Shore Towers Net Interest Rate, as applicable,
to the North Shore Towers Interest Rate.
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<PAGE>
FASHION MALL: THE BORROWER; THE PROPERTY
The Loan. The Fashion Mall Loan was originated by Secore and acquired by
MSMC on June 13, 1997. The Fashion Mall Loan had a principal balance at
origination of $65,000,000 and has a principal balance as of the Cut-Off Date
of approximately $64,864,238. It is secured by, among other things, a
Mortgage (the "Fashion Mall Mortgage") encumbering a regional shopping center
known as The Fashion Mall--Keystone at the Crossing, located in Indianapolis,
Indiana (the "Fashion Mall Property").
The Borrower. Galahad Real Estate Corporation (the "Fashion Mall
Borrower") is a special purpose Delaware corporation whose purpose and
business is limited to holding ownership and leasehold interests in the
Fashion Mall Property, leasing, managing, developing, operating, maintaining,
financing and otherwise using, and as necessary improving, the Fashion Mall
Property and engaging in related activities. The Fashion Mall Borrower owns
no material asset other than the Fashion Mall Property and related interests.
The Fashion Mall Borrower is a direct wholly-owned subsidiary of Pendragon
Real Estate Corporation, which is a direct wholly-owned subsidiary of the
Shell Pensions Trust Ltd., United Kingdom, as trustee of the Shell
Contribution Pension Fund.
The Property. The Fashion Mall Property was originally built in 1973 and
remodeled and expanded at various times, most recently in 1993. The Fashion
Mall Property is comprised of the Fashion Mall Borrower's leasehold interest
in Keystone at the Crossing Fashion Mall, an enclosed, 2-level, 2-anchor
regional mall located in the northern suburbs of Indianapolis, Indiana. The
Fashion Mall Property is anchored by Jacobson's and Parisian and contains
approximately 682,912 total square feet, of which approximately 349,222
square feet is mall store GLA, approximately 249,721 square feet is anchor
store GLA, approximately 29,140 square feet is strip center GLA, and
approximately 54,829 square feet is outparcel GLA. The Fashion Mall-Keystone
at the Crossing is situated on approximately 48.155 acres which is ground
leased by the Fashion Mall Borrower as described under "--Ground Leases"
below and contains approximately 2,157 surface parking spaces and 990 deck
parking spaces. The ratio of parking spaces per 1,000 square feet of GLA is
4.61 to 1. An appraisal completed by Landauer Associates, Inc. on March 18,
1997 determined a market value of $116,000,000 for the Fashion Mall
Borrower's ownership interest in the Fashion Mall Property.
The table below summarizes the components of total square feet at the
Fashion Mall as of May 31, 1997:
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA
--------- -----------
<S> <C> <C>
Anchor Stores
- ----------------------
Parisian ............. 129,721 19.0%
Jacobson's ........... 120,000 17.6
--------- -----------
Total Anchor Stores 249,721 36.6%
Mall Store Space ...... 349,222 51.1
Strip Center Space ... 29,140 4.3
Outparcels ............ 54,829 8.0
--------- -----------
GLA Total ........... 682,912 100.0%
========= ===========
</TABLE>
Location/Access. The Fashion Mall Property is located in the Keystone at
the Crossing development near Interstate 465 and Keystone Avenue, in Marion
County, a northern suburb of Indianapolis, Indiana. Keystone at the Crossing
is a 165-acre development, which contains primarily retail, office and
lodging developments. In addition to commercial areas, the surrounding
neighborhood includes single and multi-family developments for upper-middle
to upper-income households. Access to the property for residents of northern,
central, eastern and western Indianapolis is provided via the Indianapolis
Interstate 465 loop, located immediately adjacent to the property. Indiana
Route 431 (Keystone Avenue), the primary north-south artery through
Indianapolis, is located proximate to the Fashion Mall Property.
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<PAGE>
Operating History. The following table shows certain information
regarding the operating history of the Fashion Mall Property (see
Underwritable Cash Flow definition):
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 NOI
------------- ------------- ---------------
<S> <C> <C> <C>
Revenues .............. $13,619,519 $13,946,994 $14,218,275
Expenses .............. (3,768,597) (3,776,727) (3,999,479)
------------- ------------- ---------------
Net Operating Income $ 9,850,922 $10,170,267 $10,218,796
============= ============= ===============
</TABLE>
Occupancy History. The occupancy history for the mall store space of the
Fashion Mall Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
PERCENT LEASED
--------------
<S> <C>
Occupancy as of:
- -----------------
May 31, 1997..... 88.0%
December 31,
1996............ 87.6%
December 31,
1995............ 89.7%
</TABLE>
Occupancy Cost. According to Landauer Associates, Inc., the estimated
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 is
approximately 9.95% for 1997.
Tenant Sales. The Fashion Mall Property's historical mall store sales and
anchor store sales are summarized as follows:
<TABLE>
<CAPTION>
SQUARE
FOOTAGE ANNUAL 1995 SALES ANNUAL 1996 SALES
--------- -------------------- ---------------------
TOTAL PER TOTAL PER
1996 (000S) SF (000S) SF
--------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Anchor Store Sales(1)
- -----------------------------------
Jacobson's ........................ 120,000 $ 28,670 $239 $ 28,003 $233
Parisian .......................... 129,721 21,429 $165 21,084 $163
--------- ---------- -------- ---------- ---------
Total Anchor Store ............... 249,721 $ 50,099 $201 $ 49,088 $197
========= ======== =========
Mall Store Sales(1)
- -----------------------------------
Comparable Store .................. 253,595 $ 94,406 $372 $ 90,959 $359
Non-Comparable Store .............. 51,656 3,495 $ 68(2) 10,918 $211(2)
--------- ---------- -------- ---------- ---------
Total Mall Store ................. 305,251 $ 97,901 $321 $101,878 $334
========= ======== =========
Gross Sales--Anchors and Mall
Stores ............................ $148,000 $150,965
========== ==========
</TABLE>
- ------------
(1) Based on the December 31, 1996 sales report. Information is based
solely upon the sales figures provided by the Fashion Mall Borrower
from data provided by the tenants.
(2) Non-comparable store tenants may not be in occupancy for a full
calendar year and therefore non-comparable sales per square foot may
not be reflective of full year sales per square foot.
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<PAGE>
Mall Stores. The Fashion Mall Property's tenant base is primarily
comprised of national retailers such as The Limited, Victoria's Secret,
Banana Republic, The Gap, Eddie Bauer, Coach, Talbot's, Abercrombie & Fitch,
Williams-Sonoma, Pottery Barn, Aveda, Laura Ashley, Brooks Brothers and J.
Crew. 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 ten largest
mall store tenants by Annualized Base Rent (percentage rent and tenant
reimbursement obligations are not included):
TEN LARGEST MALL STORE AND ANCHOR TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
TENANT OR TENANT TENANT % OF TOTAL
PARENT COMPANY STORE NAME GLA GLA
- ---------------------- ---------------------- --------- ------------
<S> <C> <C> <C>
The Limited Inc. The Limited 37,531 10.7%
Abercrombie and Fitch
Structure
Bath & Body Works
Victoria's Secret
Williams-Sonoma, Inc. Hold Everything 20,148 5.8
Pottery Barn
Williams-Sonoma
The Gap, Inc. Banana Republic 15,537 4.4
The Gap
Gap Kids
Baby Gap
Spiegel, Inc. Eddie Bauer 17,534 5.0
J. Crew Group Inc. J. Crew 8,566 2.5
Talbots Talbots 9,508 2.7
Talbots Kids
Laura Ashley Holdings, Laura Ashley 8,000 2.3
Plc.
Marks & Spencer, Plc. Brooks Brothers 6,678 1.9
Jos. A. Bank Clothiers Jos. A. Bank Clothiers 7,608 2.2
Raleigh Limited Raleigh Limited 6,000 1.7
--------- ------------
Total/Weighted Average 137,110 39.3%
(10 Largest)
Remaining (excluding 168,199 48.2
non-owned anchors)
Vacant Space 43,913 12.6
--------- ------------
Total (excluding 349,222 100.0%
============
non-owned anchors)
Jacobson Stores Inc. Jacobson's 120,000
Proffitt's Inc. Parisian 129,721
---------
Total (including
non-owned anchors) 598,943
=========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF TOTAL
TENANT OR TENANT ANNUALIZED ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY BASE RENT BASE RENT PER SF
- ---------------------- ------------ ------------ --------------------
<S> <C> <C> <C>
The Limited Inc. $ 716,383 9.9% $ 19.09
Williams-Sonoma, Inc. 424,119 5.8 21.05
The Gap, Inc. 418,696 5.8 26.95
Spiegel, Inc. 403,282 5.6 23.00
J. Crew Group Inc. 308,376 4.3 36.00
Talbots 218,176 3.0 22.95
Laura Ashley Holdings, 208,000 2.9 26.00
Plc.
Marks & Spencer, Plc. 153,594 2.1 23.00
Jos. A. Bank Clothiers 144,552 2.0 19.00
Raleigh Limited 135,900 1.9 22.65
------------ ------------ --------------------
Total/Weighted Average $3,131,077 43.2% 22.84
(10 Largest)
Remaining (excluding 4,121,583 56.8 24.50
non-owned anchors)
Vacant Space 0 0 0
------------ ------------
Total (excluding
non-owned anchors) $7,252,660 100.0% $ 23.89(2)
------------ ============
Jacobson Stores Inc. 1,078,203 8.99
Proffitt's Inc. 1,083,170 8.35
------------ --------------------
Total (including
non-owned anchors) $9,414,033 $17.27(2)
============ ====================
</TABLE>
- ------------
(1) Based on May 31, 1997 rent roll.
(2) Does not include vacant and open expiration square footage.
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<PAGE>
Mall Store Lease Expiration. The following table shows scheduled lease
expirations of mall store GLA at the Fashion Mall Property as of May 31, 1997
assuming none of the tenants renew their leases, exercise renewal options or
terminate their leases prior to the scheduled expiration date (1). See
"--Anchor Stores" below for anchor lease or reciprocal easement agreement
("REA") expirations.
LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE ANNUAL CUMULATIVE
LEASES EXPIRING PERCENT OF PERCENT OF ANNUALIZED BASE RENT PERCENT OF PERCENT OF
YEAR EXPIRATION EXPIRING SF SF BASE RENT BASE RENT PER SF BASE RENT BASE RENT
- --------------------- ----------- ---------- ------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ............... 43,913 12.57% 12.57% $ 0 $ 0.00 0.00% 0.00%
Open Expiration....... 4 9,979 2.86 15.43% 198,384 19.88 2.74 2.74%
1997.................. 3 6,570 1.88 17.31% 174,528 26.56 2.41 5.14%
1998.................. 16 22,338 6.40 23.71% 597,891 26.77 8.24 13.39%
1999.................. 17 36,733 10.52 34.23% 834,907 22.73 11.51 24.90%
2000.................. 9 40,208 11.51 45.74% 749,370 18.64 10.33 35.23%
2001.................. 3 10,113 2.90 48.64% 247,411 24.46 3.41 38.64%
2002.................. 4 4,529 1.30 49.93% 126,471 27.92 1.74 40.38%
2003.................. 11 22,069 6.32 56.25% 646,354 29.29 8.91 49.30%
2004.................. 11 35,063 10.04 66.29% 794,538 22.66 10.96 60.25%
2005.................. 8 46,512 13.32 79.61% 1,071,285 23.03 14.77 75.02%
2006.................. 8 35,310 10.11 89.72% 998,131 28.27 13.76 88.78%
2007 or Later......... 7 35,885 10.28 100.00% 813,389 22.67 11.22 100.00%
----------- ---------- ------------ ------------- ------------ ------------
Total/Weighted Avg. 101 349,222 100.00% $7,252,660 $23.89(2) 100.00%
=========== ========== ============ ============= ============ ============
</TABLE>
- ------------
(1) Based on the May 31, 1997 rent roll. Mall Store Space only includes
Fashion Mall East and Fashion Mall West. Excludes Keystone Shoppes and
outparcels.
(2) Does not include vacant and open expiration square footage.
Anchor Stores. The following table shows certain information for each of
Fashion Mall's anchor tenants (and its corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING OF
PARENT ANCHOR- OPERATING
COMPANY(1) OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P)/(MOODY'S) GLA COLLATERAL EXPIRATION(2) EXPIRATION(3) TERMINATION
- ------------ -------------------- ---------------- --------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parisian..... Proffitt's Inc. BB/Ba2 129,721 Collateral 11/30/2043 11/30/2013 N/A
Jacobson's .. Jacobson Stores Inc. NA/Ba3 120,000 Collateral 8/31/2048(4) 8/31/2018(4) N/A
</TABLE>
- ------------
(1) Reflects long-term debt rating as of September 22, 1997.
(2) Includes initial term and options identified in the lease.
(3) Date of operating covenant expiration is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into
account co-tenancy or other operating requirements.
(4) Based on the latest required term commencement date of the lease. The
actual commencement date, and expiration date, may be earlier.
Operating Agreement. Parisian, Inc., the anchor tenant under a lease dated
October 2, 1992, as amended, has agreed to operate the department store
called "Parisian" (or such other name as the tenant uses in the majority of
its fashion stores in the southeastern United States) through November 30,
2008 and to operate a first class retail department store at the premises
thereafter until November 30, 2013 unless (i) the Jacobson department store
is closed for 12 consecutive months or (ii) the Fashion Mall Borrower
continues in material default of its operating covenants as landlord under
the lease after notice and opportunity to cure. Jacobson Stores Inc., the
anchor tenant under a lease dated March 30, 1987, has agreed to operate and
utilize the premises it leases as a first class specialty department store
under the name "Jacobson's" (or such other name as the tenant uses in
substantially all of the tenant's specialty department store locations in
Indiana, Michigan and Ohio) through August 31, 2018.
S-145
<PAGE>
Market Overview and Competition. According to the March 18, 1997 Landauer
Associates, Inc. appraisal, the Fashion Mall Property trade area (estimated
by Landauer Associates, Inc. to be a 10-mile radius) is estimated, as of
1996, to have 623,182 people in approximately 255,750 households with an
average household income of $50,037. These estimates represent a compound
annual growth rate from 1990 to 1996 of 1.7%, 2.0% and 2.9%, respectively.
Including the Fashion Mall Property, there are a total of six
super-regional and regional malls located in the greater Indianapolis
metropolitan area. Two local department stores, Lazarus and L.S. Ayres, which
are traditional regional mall anchors in the Indianapolis area, are absent
from the Fashion Mall Property, while one or both are present at Washington
Square, Lafayette Square and Glendale Center.
The following table shows an overview of the competition to the Fashion
Mall Property:
<TABLE>
<CAPTION>
APPROXIMATE DISTANCE
YEAR BUILT/ OWNER/ FROM KEYSTONE FASHION ANCHORS/ SIZE
MALL/RETAIL PROPERTY RENOVATED MANAGEMENT (MILES) MALL STORES (SF)
<S> <C> <C> <C> <C> <C>
- ------------------------ ------------- ---------------- --------------------- --------------- -----------
Subject Property
The Fashion Mall-
Keystone at the
Crossing 1973 Royal British Jacobson's 120,000
Shell Pensions Parisian 129,721
Trust, Ltd. Mall Stores 349,222
United Kingdom Stripcenter 29,140
Outparcels 54,829
----------
Total 682,912
Competition
Circle Centre Mall 1995 Simon-DeBartolo 10 Nordstrom 208,178
Company Parisian 144,000
Mall Stores 427,822
----------
Total 780,000
----------
Castleton Square Mall 1972/1990 Simon-DeBartolo 2 L.S. Ayers 150,000
Company C Penney 180,000
Lazarus 300,000
Sears 220,000
Kohl's 60,000
Montgomery Ward 95,000
Mall Stores 472,407
----------
Total 1,447,407
Washington Square 1974 Simon-DeBartolo 8 JC Penney 220,000
Company L.S. Ayers 155,000
Lazarus 150,000
Montgomery Ward 130,000
Sears 200,000
Mall Stores 487,830
----------
Total 1,342,830
Lafayette Square 1968/ Simon-DeBartolo 8 JC Penney 200,000
1986/ Company L.S. Ayers 150,000
1996 Lazarus 160,000
Montgomery Ward 150,000
Sears 230,000
Mall Stores 570,646
----------
Total 1,460,646
Glendale Center 1958/ Equity Investors 5 L.S. Ayers 240,000
1985 Lazarus 165,000
Mall Stores 395,000
----------
Total 800,000
</TABLE>
- ------------
Source: Landauer Associates, Inc.
S-146
<PAGE>
Ground Leases. All of the Fashion Mall Property is ground leased by the
Fashion Mall Borrower. The ground lease for the parking garage is between the
Fashion Mall Borrower, as lessee, and WRC Properties, Inc., as ground lessor,
and runs through December 31, 2067 after 10 5-year renewals at lessee's
option. The rent is $1.00 per year through calendar year 2012, and thereafter
7.5% per year of the value of the land only. The Fashion Mall Property
exclusive of the parking garage is ground leased under 6 ground leases, each
of which is between the Fashion Mall Borrower, as lessee, and one or more
members of the Kerr family, as lessor, and each of which runs through October
31, 2067. The aggregate rent under the Kerr family ground leases includes
monthly minimum rent of $8,005.34 plus percentage rent of 5% of gross rentals
from tenant leases.
Environmental Report. A Phase I site assessment dated May 22, 1997, was
performed on the Fashion Mall Property. The Phase I assessment did not reveal
any environmental liability that the Depositor believes would have a material
adverse effect on the borrower's business, assets or results of operations
taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loans--Environmental Law
Considerations".
Engineering Report A Property Condition Report was completed on the
Fashion Mall Property on May 23, 1997 by a third party due diligence firm.
The Property Condition Report concluded that the Fashion Mall Property was
generally in good physical condition and did not identify any items of
deferred maintenance.
Property Management. The Fashion Mall Property is managed by Urban Retail
Properties, Inc. (the "Fashion Mall Manager"), which is an affiliate of Urban
Shopping Centers, a public real estate investment trust, pursuant to a
management and leasing agreement, dated October 15, 1996 (the "Fashion Mall
Management Agreement"), between the Fashion Mall Manager and the Fashion Mall
Borrower. The Fashion Mall Management Agreement provides for (i) a management
fee, payable monthly, of (x) 2.00% of the gross receipts derived from the net
leased outparcels and (y) 3.75% of the gross receipts derived from the
remaining facilities at the Fashion Mall Property and (ii) leasing
commissions (a) ranging from $0.80 per square foot leased under leases with
terms of 1 year to $5.50 per square foot leased under leases for terms of 10
years or more, in the case of mall shops and strip center space, and (b)
ranging from $0.60 per square foot leased under leases with terms of 1 year
to $3.00 per square foot leased under leases for terms of 5 years or more, in
the case of the strip center space and outparcels and (c) in the case of
renewals or extensions of existing leases, 1/2 of such amounts.
The Fashion Mall Management Agreement is for a term ending December 31,
1997 with automatic extensions on a month-to-month basis. It may be
terminated by either party upon 30 days' notice to the other. The Fashion
Mall Manager has agreed that it will not terminate the Fashion Mall
Management Agreement without the prior written consent of the mortgagee
(except for non-payment of management fees, which the mortgagee has the right
to cure) and that if the mortgagee obtains possession or title to the Fashion
Mall Property the mortgagee may either assume the Fashion Mall Management
Agreement or terminate it upon 30 days' notice. The Fashion Mall Loan
provides that the mortgagee may direct the replacement of the Fashion Mall
Manager at any time following the occurrence and during the continuance of an
event of default thereunder.
The Fashion Mall Manager is a publicly traded real estate investment trust
which is not an affiliate of the Fashion Mall Borrower. In the industry trade
publication Shopping Center World (March 1997), the Fashion Mall Manager has
been ranked as the 3rd largest retail property manager in the United States,
with approximately 54,421,000 square feet under management.
Asset management services, including acting as representative of the
Fashion Mall Borrower with regard to the Fashion Mall Manager, are provided
to the Fashion Mall Borrower by AMRESCO Advisors, Inc.
S-147
<PAGE>
FASHION MALL: THE LOAN
CERTAIN FASHION MALL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER
SQUARE FOOT LOAN TO REFINANCING
(1) VALUE RATIO(2) ACTUAL DSCR(3) DSCR(4)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date............... $95 55.9% 1.73x 1.67x
At Effective Maturity
Date...................... $83 49.1% 1.97x 1.90x
</TABLE>
- ------------
(1) Based on the 682,912 square feet securing the Fashion Mall Loan and the
Cut-Off Date Principal Balance or Balloon Balance, as applicable.
(2) Based on the March 18, 1997 Landauer Associates, Inc. appraised market
value and the Cut-Off Date Principal Balance or Balloon Balance, as
applicable.
(3) Based on the (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Fashion Mall Loan during
the 12 months following the Cut-Off Date, and in the case of Maturity
Date Actual DSCR, 12 months of debt service on the Fashion Mall Loan
assuming a balance equal to the Balloon Balance, a coupon equal to the
Fashion Mall Initial Interest Rate and an amortization term equal to
360 months.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of the
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
9.0% of the Cut-Off Date Principal Balance of the Fashion Mall Loan,
and, in the case of Effective Maturity Date Refinancing DSCR, an annual
debt service payment equal to 9.0% of the Balloon Balance.
Security. The Fashion Mall Loan is a nonrecourse loan, secured only by the
direct and indirect leasehold estate of the Fashion Mall Borrower in the
Fashion Mall Property and certain other collateral relating thereto
(including an assignment of leases and rents, an assignment of certain
agreements and the funds in certain accounts). The mortgagee is the insured
under the title insurance policies (which will be assigned to the Trust Fund)
which insure, among other things, that the Fashion Mall Mortgage constitutes
a valid and enforceable first lien on the Fashion Mall Property, subject to
certain exceptions and exclusions from coverage set forth therein.
Payment Terms. The Fashion Mall Loan matures on July 1, 2027 (the "Fashion
Mall Maturity Date") and bears interest (a) at a fixed rate per annum equal
to 7.85% (the "Fashion Mall Initial Interest Rate") through and including
June 12, 2007 and (b) from and including June 13, 2007 (the "Fashion Mall
Effective Maturity Date"), at a fixed rate per annum (the "Fashion Mall
Revised Interest Rate") equal to the lesser of (i) the maximum rate permitted
by applicable law and (ii) the greater of (A) the Fashion Mall Initial
Interest Rate plus 2% and (B) the Fashion Mall Treasury Rate plus 2%, subject
to a cap of the Fashion Mall Initial Interest Rate plus 5%. The "Fashion Mall
Treasury Rate" means the yield, as of the Fashion Mall Effective Maturity
Date, calculated by linear interpolation of the yields of noncallable U.S.
Treasury Obligations with terms (one longer and one shorter) most nearly
approximating the period from the Fashion Mall Effective Maturity Date to the
Fashion Mall Maturity Date. Any interest accrued after the Fashion Mall
Effective Maturity Date at the excess of the Fashion Mall Revised Interest
Rate over the Fashion Mall Initial Interest Rate, but not paid by application
of rents and revenues as described in clause (c) of the next succeeding
paragraph, shall be deferred and added to the outstanding indebtedness under
the Fashion Mall Loan and shall, to the extent permitted by applicable law,
earn interest at the Fashion Mall Revised Interest Rate (such deferred
interest and interest thereon, the "Fashion Mall Deferred Interest").
Interest on the Fashion Mall Loan is calculated on the basis of a 360-day
year of 30-day months.
The payment date for the Fashion Mall Loan is the first business day of
each month, and there is no grace period for a default in payment of
principal or interest. Commencing on August 1, 1997, the Fashion Mall Loan
requires 360 equal monthly payments of principal and interest (the "Fashion
Mall Monthly Debt Service Payments") of $470,167.67 (based on a 360-month
amortization schedule and the Fashion Mall Initial Interest Rate). On the
Fashion Mall Maturity Date, payment of the then outstanding balance of the
principal, if any, together with all accrued and unpaid interest and all
other sums payable under the loan documents, is required. The principal
balance of the Fashion Mall Loan on the Fashion Mall Effective Maturity Date,
based on scheduled amortization, is $56,941,015. In the event that the
Fashion Mall Borrower has not paid the principal of and interest on the
Fashion Mall Loan in full on or before the Fashion Mall Effective Maturity
Date, then commencing on the Fashion Mall Effective Maturity Date and
continuing on each payment date thereafter, the Fashion Mall Borrower is
required to apply 100% of rents and other revenues from the Fashion Mall
Property to the following items in the following order of priority: (a) to
payment of interest accruing at the Fashion Mall Default Rate (as defined
below) and late payment charges, if any; (b) to payment of required monthly
amounts of taxes and insurance premiums; (c) to payment of the Fashion Mall
Monthly Debt Service Payments; (d) to payment of monthly cash expenses
pursuant to the annual budget approved by the mortgagee; (e) to payment of
extraordinary, unbudgeted operating expenses approved by the mortgagee, if
S-148
<PAGE>
any; (f) to payments to be applied against the outstanding principal of the
loan until such principal amount is paid in full; (g) to payments of Fashion
Mall Deferred Interest; (h) to payments of any other amounts due under the
loan documents; and (i) lastly, to payment to the Fashion Mall Borrower of
any excess amounts.
If the Fashion Mall Borrower defaults in the payment of any monthly
installment of principal or interest on the payment date due, it is required
to pay a late payment charge in an amount equal to 5% of the amount of the
installment not paid. Upon the occurrence of any event of default, the entire
unpaid principal amount of the Fashion Mall Loan and any other amounts
payable, including interest, will bear interest at a default rate equal to
the lesser of (a) the maximum rate permitted by applicable law and (b) the
then applicable interest rate on the Fashion Mall Loan (i.e. the Fashion Mall
Initial Interest Rate or the Fashion Mall Revised Interest Rate) plus 4% (the
"Fashion Mall Default Rate").
Prepayment. Voluntary prepayment is prohibited under the Fashion Mall Loan
prior to the second anniversary of the Closing Date. Thereafter, the Fashion
Mall Loan may be voluntarily prepaid in whole or in part on any payment date
upon payment of a prepayment premium (the "Fashion Mall Yield Maintenance
Premium") equal to the greater of (a) 1% of the portion of the principal
amount being repaid and (b) the product of (i) a fraction whose numerator is
an amount equal to the portion of the principal balance being prepaid and
whose denominator is the entire outstanding principal balance on the date of
such prepayment, multiplied by (ii) an amount equal to the remainder obtained
by subtracting (x) an amount equal to the entire outstanding principal
balance as of the date of such prepayment from (y) the present value as of
the date of such prepayment of the remaining scheduled payments of principal
and interest (including any final installment of principal payment on the
Fashion Mall Effective Maturity Date) determined by discounting such payments
at a discount rate equivalent to 0.50% plus the Fashion Mall Discount Rate.
The "Fashion Mall Discount Rate" means the rate which, when compounded
monthly, equals the yield, as of the date of prepayment, calculated by linear
interpolation of the yields of noncallable U.S. Treasury obligations with
terms (one longer and one shorter) most nearly approximating the period from
the date of prepayment to the Fashion Mall Effective Maturity Date.
Notwithstanding the foregoing, the Fashion Mall Loan may be prepaid without a
prepayment premium during the period commencing 90 days prior to the Fashion
Mall Effective Maturity Date.
Principal prepayments on the Fashion Mall Loan may occur on payment dates
after the Fashion Mall Effective Maturity Date through application of rents,
as described above under "--Payment Terms," and must be made, at the
mortgagee's option, upon acceleration of the loan following the occurrence of
an event of default. Prepayments made following an event of default will be
subject to the payment of the Fashion Mall Yield Maintenance Premium.
To the extent that the Fashion Mall Borrower is not permitted to apply any
insurance or condemnation proceeds to the restoration of the Fashion Mall
Property under the Fashion Mall Loan, the mortgagee has the option to apply
such proceeds to prepay the Fashion Mall Loan. No yield maintenance premium
is required to be paid in connection with any prepayment resulting from the
application of insurance or condemnation proceeds.
Lockbox and Reserves. Pursuant to the terms of the Fashion Mall Loan, the
Fashion Mall Borrower has established in the name of NBD Bank, N.A., as agent
for the mortgagee, as secured party, a cash collateral account (the "Fashion
Mall Lockbox") with such bank (the "Fashion Mall Lockbox Bank"). The Fashion
Mall Borrower has delivered irrevocable written instructions to such bank
(which also holds the operating accounts for the Fashion Mall Property
(collectively, the "Fashion Mall Property Account")), to deposit on a daily
basis by transfer to the Fashion Mall Lockbox, upon receipt, all operating
revenue from the Fashion Mall Property and other amounts received in the
Fashion Mall Property Account. The Fashion Mall Borrower has instructed and
is required to instruct all tenants either to mail all checks or to wire all
funds with respect to rent due under the leases to the Fashion Mall Property
Account, and has covenanted to deposit all operating revenue from the Fashion
Mall Property into the Fashion Mall Property Account.
The Fashion Mall Borrower has established (a) an interest escrow account
(the "Fashion Mall Interest Escrow Account") to be funded each month before
the Fashion Mall Effective Maturity Date in an amount equal to the Fashion
Mall Monthly Debt Service Payment, (b) a mortgage escrow account (the
"Fashion Mall Mortgage Escrow Account") funded at the initial closing of the
loan in the amount of $204,130.04 and to be funded each month before the
Fashion Mall Effective Maturity Date in an additional amount equal to
$68,044.00 (the "Fashion Mall Tax and Insurance Amount"), into which Fashion
Mall Contested Payables Reserve Amounts (as defined below) may also be
deposited from time to time, (c) a capital improvements reserve account (the
"Fashion Mall Capital Reserve Account") to be funded each month before the
Fashion Mall Effective Maturity Date in the amount of $8,518.00 (the "Fashion
Mall Capital Reserve Amount") and (d) a ground rent escrow account (the
"Fashion Mall Ground Rent Escrow Account") funded at the initial closing of
the loan in the amount of $143,358.33 and to be funded each month in an
additional amount (i) of $35,840.00 during the period ending March 31,
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<PAGE>
1998 or (ii) during the period from April 1, 1998 through the Fashion Mall
Effective Maturity Date, equal to the greater of (A) 105% of the
corresponding month's ground rent from the previous year and (B) the amount
of ground rent specified for such month in the annual budget approved by the
mortgagee (the "Fashion Mall Ground Rent Amount").
"Fashion Mall Contested Payables Reserve Amount" means an amount to be
deposited in the Fashion Mall Mortgage Escrow Account equal to 125% of any
payables which exceed $250,000 in the aggregate and are being contested by
the Borrower in good faith, less $250,000.
Until the Fashion Mall Effective Maturity Date, the Fashion Mall Lockbox
Bank will withdraw from the Fashion Mall Lockbox on the first business day of
each month funds in the following amounts and in the following order of
priority: (i) funds in an amount equal to the Fashion Mall Monthly Debt
Service Payment, for deposit into the Fashion Mall Interest Escrow Account;
(ii) funds in an amount equal to the Fashion Mall Tax and Insurance Amount,
for deposit into the Fashion Mall Mortgage Escrow Account; (iii) funds in an
amount equal to the Fashion Mall Capital Reserve Amount, for deposit into the
Fashion Mall Capital Reserve Account, (iv) funds in the amount of the Fashion
Mall Ground Rent Amount, for deposit into the Fashion Mall Ground Rent Escrow
Account, and (v) to the Fashion Mall Borrower, provided (a) no event of
default under the loan documents has occurred and is continuing, (b) no trade
payables are more than 60 days past due, unless they are being contested in
good faith, and no other obligations of the Fashion Mall Borrower are past
due, and (c) the Fashion Mall Borrower has caused the deposit into the
Fashion Mall Mortgage Escrow Account of all Fashion Mall Contested Payables
Reserve Amounts in connection with accounts payable being contested in good
faith.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Fashion Mall Borrower is generally prohibited from transferring or
encumbering the Fashion Mall Property except that the Fashion Mall Borrower
has the right to sell, not more than two times during the term of the Fashion
Mall Loan, in whole its interest in the Fashion Mall Property, subject to the
prior written approval of the mortgagee, which approval shall be in the sole
and absolute discretion of the mortgagee (unless the purchaser shall be a
Fashion Mall Qualified Purchaser (as defined below), in which event, no
approval shall be required) and to the satisfaction of the following
conditions, among others: (i) the Fashion Mall Borrower shall give at least
thirty (30) days' prior written notice of the date proposed for such sale
(the "Fashion Mall Sale Date"); (ii) no event of default shall have occurred
and be continuing as of the date of such notice or the Fashion Mall Sale
Date; (iii) the Fashion Mall Borrower shall provide evidence of real estate
experience, qualifications and creditworthiness and management ability of the
proposed transferee and its property manager; (iv) the Fashion Mall Qualified
Purchaser shall have expressly agreed to assume the obligations of the
Fashion Mall Borrower under the Fashion Mall Loan; (v) the mortgagee shall
receive acceptable opinions of counsel, including an acceptable
nonconsolidation opinion addressed to the mortgagee and the Rating Agencies;
(vi) the Fashion Mall Borrower shall pay a transfer fee equal to 0.1% of the
then outstanding principal amount of the Fashion Mall Loan in the case of the
first transfer, and 0.5% of the then outstanding principal amount of the loan
in the case of the second transfer; and (vii) if the purchaser is not a
Fashion Mall Qualified Purchaser, the Fashion Mall Borrower shall have
obtained written confirmation from the Rating Agencies that such transfer
shall not result in a downgrade, withdrawal, or qualification of the then
ratings of the Certificates.
A "Fashion Mall Qualified Purchaser" means a single purpose entity which
is: (a) a person controlled by a pension fund, account or trust, an insurance
company, a major money center bank or a real estate investment trust with a
long-term debt rating of not less than BBB-/Baa3 (or equivalent) by the
Rating Agencies; (b) a person controlled by an entity which, together with
its affiliates, has a current net worth exclusive of the Fashion Mall
Property 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 $1,000,000,000; and (c) a person, which
together with its affiliates, controls at least five regional malls of not
less than 3,000,000 square feet in the aggregate.
The Fashion Mall Loan generally prohibits the transfer of any interest in
the Fashion Mall Borrower without the prior written consent of the mortgagee.
However, mortgagee's consent is not required with respect to transfers of
direct or indirect beneficial interests in the Fashion Mall Borrower,
provided that Pendragon Real Estate Corporation, a Delaware corporation,
shall at all times directly or indirectly own not less than 51% of the
beneficial interests in the Fashion Mall Borrower (or if Fashion Mall
Property has been sold as described below, the majority shareholder, managing
member or general partner of such purchaser at the time of such sale shall
own not less than 51% of the beneficial interest of such purchaser or the
interest held at the time of such purchase, whichever is less). Moreover, no
consent is required (a) with respect to any transfer of any or all interests
in a direct or indirect shareholder of the Fashion Mall Borrower to a Fashion
Mall Qualified Purchaser (however, such transfer as described in this clause
(a) shall constitute one of the two permitted sales of the Fashion Mall
Property described above) or (b) any transfer of any or all direct or
indirect interest in the Fashion Mall
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<PAGE>
Borrower to an entity that is 100% owned, directly or indirectly, and
controlled by the sole shareholder of Pendragon Real Estate Corporation. Such
transfer as described in clause (b) above will not be deemed to apply against
the two permitted sales described above. If 10% or more of direct beneficial
interests in the Fashion Mall Borrower are transferred or if any transfer
results in a person or a group of affiliates acquiring more than a 50%
interest as set forth above, the Fashion Mall Borrower is required to deliver
or cause to be delivered to the Rating Agencies and the mortgagee a
satisfactory opinion of counsel as to nonconsolidation in bankruptcy.
The Fashion Mall Borrower is not permitted to incur any additional
indebtedness other than (i) unsecured indebtedness for operating expenses
incurred in the ordinary course of business which does not exceed, at any
time, $1,800,000 and is paid within 60 days of the date incurred unless (a)
the Fashion Mall Borrower is in good faith contesting its obligation to pay
such indebtedness in a manner satisfactory to the mortgagee, (b) adequate
reserves with respect thereto are maintained on the books of the Fashion Mall
Borrower in accordance with GAAP, (c) such contest operates to suspend
collection of such amounts or enforcement of such obligations and (d) no
event of default exists and is continuing and (ii) unsecured indebtedness
(not evidenced by a note or other instrument for borrowed money) for amounts
payable or reimbursable to any tenant on account of work performed at the
Fashion Mall Property by such tenant or for costs incurred by such tenant in
connection with its occupancy of space, including for tenant improvements.
Insurance. The Fashion Mall Borrower is required to maintain for the
Fashion Mall Property (a) insurance against all perils included within the
classification "All Risks of Physical Loss" with extended coverage in an
amount at all times sufficient to prevent the Fashion Mall Borrower from
becoming a co-insurer, but in any event equal to the full insurable value of
the improvements and equipment, (b) comprehensive general liability insurance
in such amounts as are generally required by institutional lenders for
comparable properties but in no event less than $5,000,000 per occurrence and
with an aggregate limit of not less than $10,000,000, (c) statutory workers
compensation insurance, (d) business interruption and/or loss of "rental
value" insurance to cover the loss of at least 18 months income, (e) during
any period of repair or restoration, builder's "all risk" insurance in an
amount not less than the full insurable value of the Fashion Mall Property,
(f) broad-form boiler and machinery insurance and insurance against loss of
occupancy or use arising from any related breakdown in such amounts as are
generally available at a commercially reasonable premium and are generally
required by institutional lenders for properties comparable to the Fashion
Mall Property, (g) flood insurance, if available, with respect to any Fashion
Mall Property located within a federally designated flood hazard zone in an
amount equal to the lesser of the outstanding principal amount of the loan
and the maximum limit of coverage available, and (h) at the 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.
Any such insurance may be effected under a blanket policy so long as any
such blanket policy shall specify, except in the case of public liability
insurance, the portion of the total coverage of such policy that is allocated
to the Fashion Mall Property and any sublimits in such blanket policy
applicable to the Fashion Mall Property, which amounts may not be less than
the amounts required pursuant to, and which must in any case comply in all
other respects with the requirements of, the Fashion Mall Loan. All insurance
policies are required to name the mortgagee as an additional named insured,
to provide that all proceeds (except with respect to proceeds of general
liability and workers' compensation insurance) be payable to the mortgagee
except as described below under "--Casualty and Condemnation" and to contain:
(i) a standard "non-contributory mortgagee" endorsement or its equivalent
relating, inter alia, to recovery by the mortgagee notwithstanding the
negligent or willful acts or omissions of the Fashion Mall Borrower; (ii) a
waiver of subrogation endorsement in favor of the mortgagee; (iii) an
endorsement providing that no policy shall be impaired or invalidated by
virtue of any act, failure to act, negligence of, or violation of
declarations, warranties or conditions contained in such policy by the
Fashion Mall Borrower, the mortgagee or any other named insured, additional
insured or loss payee, except for the willful misconduct of the mortgagee
knowingly in violation of the conditions of such policy; (iv) an endorsement
providing for a deductible per loss of an amount not more than that which is
customarily maintained by prudent owners of first class properties comparable
to and in the general vicinity of the Fashion Mall Property, but in no event
in excess of $250,000; and (v) a provision that such policies shall not be
canceled, terminated or expired without at least thirty days' prior written
notice to the mortgagee, in each instance. The Fashion Mall Loan requires the
Fashion Mall Borrower to obtain the insurance described above from insurance
carriers having claims paying abilities rated (x) not less than "AA" by S&P
and "AA" or its equivalent by one or more of the other Rating Agencies and
(y) not less than "A" by Alfred M. Best Company, Inc. with a financial size
category of not less than IX. See "Risk Factors--The Mortgage
Loans--Availability of Earthquake, Flood and Other Insurance."
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Fashion Mall Property or a
condemnation of a portion of the Fashion Mall Property, in either case which
does not constitute
S-151
<PAGE>
a Fashion Mall Total Loss, the Fashion Mall Borrower is obligated promptly
either (1) to pay in full the principal and interest and all other amounts
due on the Fashion Mall Loan or (2) to commence and diligently prosecute to
completion the repair, restoration and rebuilding of the Fashion Mall
Property.
A "Fashion Mall Total Loss" means (x) a casualty, damage or destruction of
the Fashion Mall Property, the cost of restoration of which would exceed 50%
of the outstanding principal balance of the Fashion Mall Loan or (y) a
permanent taking by condemnation of 50% or more of the GLA of the Fashion
Mall Property, in either case, such that it would be impractical, in the
mortgagee's sole discretion, even after restoration, to operate the Fashion
Mall Property as an economically viable whole and with respect to which the
applicable tenant leases do not require restoration.
Following a casualty or condemnation at the Fashion Mall Property, any
insurance and condemnation proceeds will be applied (after payment of the
mortgagee's reasonable expenses of collection thereof) to amounts due under
the Fashion Mall Loan and the prepayment of the principal amount outstanding
thereon, if: (i) the proceeds equal or exceed the outstanding principal
balance of the Fashion Mall Loan, or (ii) an event of default has occurred or
is continuing, or (iii) a Fashion Mall Total Loss has occurred, or (iv) the
work of restoration cannot be completed before the earlier of (a) the date
which is six months before the Maturity Date or (b) the date on which the
business interruption insurance expires, or (v) the Fashion Mall Property is
not capable of being restored substantially to its condition prior to the
casualty or condemnation, or (vi) the Fashion Mall Borrower is unable to
demonstrate to the mortgagee's reasonable satisfaction its continuing ability
to pay the Fashion Mall Loan.
In the event of (i) a Fashion Mall Total Loss resulting from a casualty,
damage or destruction, if either (A) the cost to repair the Fashion Mall
Property would exceed $3,250,000 (the "Fashion Mall Threshold Amount") and
the restoration of the Fashion Mall Property cannot reasonably be completed
before the date which is the later to occur of the date of expiration of any
business interruption insurance or the date of expiration of any letter of
credit posted in lieu thereof or in addition thereto and under such
circumstances the Fashion Mall Borrower is not required under any tenant
lease to make the proceeds available to restore the Fashion Mall Property or
(B) the mortgagee elects not to permit the Fashion Mall Borrower to restore
the Fashion Mall Property, or (ii) a Fashion Mall Total Loss resulting from a
condemnation, then the Fashion Mall Borrower must prepay the Fashion Mall
Loan to the extent of the casualty or condemnation proceeds received, up to
an amount equal to the outstanding principal thereof.
If any insurance or condemnation proceeds (other than business
interruption insurance proceeds) are in excess of the Fashion Mall Threshold
Amount, then all such proceeds will be applied to amounts due under the
Fashion Mall Loan and the prepayment of the principal amount outstanding
thereon, without prepayment premium or penalty, only if: (A)(i) the amount of
such proceeds is equal to or greater than the outstanding principal amount of
the Loan, or (ii) the casualty or condemnation occurs less than 180 days
before the Fashion Mall Loan Maturity Date, or (iii) more than 25% of the
rentable area of the Fashion Mall Property has been the subject of the
casualty or condemnation, or (B) such proceeds are condemnation proceeds
received in excess of the amount needed to restore the Fashion Mall Property
after a partial taking by condemnation, in which case prepayment will be made
to the extent of such unneeded proceeds or they will be deposited in the
Fashion Mall Capital Reserve Account for use at the Fashion Mall Property.
If any casualty or condemnation proceeds exceed the Fashion Mall Threshold
Amount, all casualty and condemnation proceeds are required to be paid
directly to the mortgagee. If such proceeds do not exceed the Fashion Mall
Threshold Amount, they are to be paid to the Fashion Mall Borrower to be used
for restoration. In the event that any insurance or condemnation proceeds
(other than business interruption insurance proceeds) are in excess of the
Fashion Mall Threshold Amount and are not required to be applied to the
payment or prepayment of the Fashion Mall Loan as described above, then the
mortgagee is obligated to make all casualty and condemnation proceeds (other
than business interruption insurance proceeds) available to the Fashion Mall
Borrower or the applicable tenant for payment or reimbursement of the costs
and expenses of the repair, restoration and rebuilding of the Fashion Mall
Property if, among other conditions, (i) the mortgagee is furnished with an
estimate of the cost of the work accompanied by appropriate plans and
specifications for the work of restoration and an independent architect's
certification as to such costs and (ii) in the case that the cost of the work
exceeds the proceeds, the Fashion Mall Borrower, at its option, either
deposits with or delivers to the mortgagee (and promptly following any such
deposit or delivery, provides written notice of same to the Rating Agencies)
(A) cash and cash equivalents, (B) a letter or letters of credit in an amount
equal to the estimated cost of the work less the proceeds available or (C)
such other evidence of the Fashion Mall Borrower's ability to meet such
excess costs as is reasonably satisfactory to the mortgagee and the Rating
Agencies.
S-152
<PAGE>
Debt Service Coverage Ratio Covenants. For the period ending June 13,
1998, the Fashion Mall Borrower is required to maintain a Fashion Mall DSCR
(as defined below), determined as of the last day of each calendar quarter
with respect to the preceding four quarters, equal to or greater than 1.28 to
1. The "Fashion Mall DSCR" means, for any period, the ratio of net operating
income determined in accordance with GAAP to the amount of interest and
principal due and payable during such period (based on a debt service
constant of the greater of 9.66% per annum and the actual debt service
constant for such period).
If at any time before June 13, 1998, the Fashion Mall DSCR for any period
of four calendar quarters is less than 1.28 to 1, then promptly after the
delivery by the Fashion Mall Borrower of the applicable quarterly financial
statement in accordance with the provisions of the Fashion Mall Loan, but in
no event later than the 60th day after the end of the applicable quarter, the
Fashion Mall Borrower shall deliver to the mortgagee cash and/or cash
equivalents or a letter of credit (the "Fashion Mall Debt Service
Collateral") in an amount, as determined by the mortgagee, equal to the
amount that would be required to pay down the loan so that the Fashion Mall
DSCR for the applicable four quarter period would have been equal to or
greater than 1.28 to 1. The Fashion Mall Debt Service Collateral will be held
by the mortgagee as additional collateral for the Fashion Mall Loan. If an
event of default occurs before the Fashion Mall Debt Service Collateral is
released, the mortgagee may apply the same to the payment of principal and
interest (including any Fashion Mall Yield Maintenance Premium).
The Fashion Mall Debt Service Collateral will be released, provided no
event of default shall have occurred and be continuing, at such time as the
Fashion Mall DSCR for any consecutive four quarter period is equal to or
greater than 1.30 to 1.
If at any time the Fashion Mall DSCR for any period of four calendar
quarters is not equal to or greater than 1.10:1, the mortgagee has the right
to terminate the property manager and to require the Fashion Mall Borrower to
retain a different qualifying property manager. Notwithstanding the
foregoing, however, the mortgagee has no such right to terminate the manager
if and for so long as the Fashion Mall Borrower shall deliver to the
mortgagee cash and/or cash equivalents or a letter of credit (the "Fashion
Mall Additional Collateral") in the amount, as determined by the mortgagee,
that would be required to pay down the loan so that the Fashion Mall DSCR for
the applicable four quarter period would have been equal to 1.10:1. The
Fashion Mall Additional Collateral will be held by the mortgagee as
additional collateral for the loan. If an event of default occurs before the
Fashion Mall Additional Collateral is released, the mortgagee may apply the
same to the payment of principal and interest (including any Fashion Mall
Yield Maintenance Premium).
The Fashion Mall Additional Collateral will be released, provided no event
of default shall have occurred and be continuing, at such time as the Fashion
Mall DSCR for any two consecutive quarters (with respect to the preceding
four quarters in each case) is equal to or greater than 1.10 to 1.
Any letter of credit delivered as Fashion Mall Debt Service Collateral or
Fashion Mall Additional Collateral is required to be an irrevocable,
unconditional, transferable, clean sight draft letter of credit in favor of
the mortgagee and entitling the mortgagee to draw thereon in New York, New
York, issued by a domestic Fashion Mall Approved Bank or the U.S. agency or
branch of a foreign Fashion Mall Approved Bank, or if there are no domestic
Fashion Mall Approved Banks or U.S. agencies or branches of a foreign Fashion
Mall Approved Bank then issuing letters of credit, then such letter of credit
may be 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. A "Fashion Mall Approved Bank" means a bank or
other financial institution which has a minimum long-term unsecured debt
rating of at least "AA" or its equivalent 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 two of the Rating Agencies.
Approval Rights. Under the Fashion Mall Loan, the Fashion Mall Borrower is
required to submit to the mortgagee, for the mortgagee's written approval, an
annual budget not later than 60 days prior to the commencement of each
calendar year. In the event that the Fashion Mall Borrower must incur an
extraordinary operating expense or a capital expense not set forth in the
approved annual budget, it is required promptly to deliver to the mortgagee,
for the mortgagee's approval, a reasonably detailed explanation of such
proposed expense. In the event that the Fashion Mall Borrower must repair or
expend funds for an unforeseen expense as immediately required to preserve
the value of the Fashion Mall Property, the Fashion Mall Borrower may make
such payments without prior approval of the mortgagee.
Without the mortgagee's consent (which may not be unreasonably withheld,
delayed or conditioned), the Fashion Mall Borrower may not enter into any
management agreement, except that the Fashion Mall Borrower may, without
mortgagee's
S-153
<PAGE>
consent, renew the management agreement with Urban Retail Properties Co.
presently in effect as described below under "--Property Management." If
during the term of the Fashion Mall Loan, the Fashion Mall Borrower wishes to
designate another property manager acceptable to the mortgagee, the Fashion
Mall Borrower must notify the mortgagee and the Rating Agencies in writing
and obtain from the Rating Agencies written confirmation that the retention
of the proposed property manager will not result in a downgrade, withdrawal
or qualification of the then ratings of the Certificates. The mortgagee has
the right to replace the property manager upon the occurrence of events
described above under "--Property Management" and to direct the retention of
a new property manager at any time following the occurrence and during the
continuance of an event of default and at any time after June 13, 2007.
Provided that no event of default shall have occurred and be continuing,
the Fashion Mall Borrower has the right, without the mortgagee's consent, to
undertake any alteration, improvement, demolition or removal of the Fashion
Mall Property or any portion thereof (any such alteration, improvement,
demolition or removal, a "Fashion Mall Alteration") so long as (i) the
Fashion Mall Borrower provides the mortgagee with prior written notice of any
Fashion Mall Alteration which, when aggregated with all related Fashion Mall
Alterations, involves an estimated cost exceeding $3,250,000 (a "Fashion Mall
Material Alteration") and (ii) any Fashion Mall Alteration will not upon
completion materially adversely (A) affect the value, use or operation of the
Fashion Mall Property taken as a whole or (B) reduce the net operating income
for the Fashion Mall Property from the level available immediately prior to
commencement of such Fashion Mall Alteration. Any Fashion Mall Material
Alteration is required to be conducted under the supervision of an
independent architect and no Fashion Mall Material Alteration may be
undertaken until five business days after there shall have been filed with
the mortgagee, for information purposes only and not for approval by the
mortgagee, detailed plans and specifications and cost estimates therefor,
prepared by such independent architect. Notwithstanding anything to the
contrary contained in the foregoing, no Fashion Mall Material Alteration nor
any Fashion Mall Alterations which, when aggregated with all other Fashion
Mall Alterations (other than Fashion Mall Material Alterations) then being
undertaken by the Fashion Mall Borrower, exceeds the Fashion Mall Threshold
Amount may be performed unless the Fashion Mall Borrower has first delivered
to the mortgagee cash and cash equivalents and/or a letter of credit as
security in an amount not less than the estimated cost of the Fashion Mall
Material Alteration or the Fashion Mall Alterations in excess of the Fashion
Mall Threshold Amount.
The Fashion Mall Borrower may not, without the consent of the mortgagee,
amend, modify or waive the provisions of any tenant lease or terminate,
reduce rents under or shorten the term of any tenant lease (x) in any manner
which would have a material adverse effect on the Fashion Mall Property taken
as a whole, or (y) affecting 15,000 or more rentable square feet.
Financial Reporting. The Fashion Mall Borrower is required to furnish to
the mortgagee: (a) annually within 90 days after the end of each fiscal year,
a copy of its year-end financial statement audited by a "Big Six" accounting
firm or other firm reasonably acceptable to the mortgagee; (b) quarterly
within 45 days of each calendar quarter (except the fourth quarter of any
calendar year), quarterly unaudited financial statements; (c) quarterly
within 45 days of each calendar quarter, a complete rent roll and, annually
within 60 days after each calendar year, specified leasing information with
respect to the preceding year; (d) annually within 45 days after each
calendar year, a summary of all capital expenditures made at the Fashion Mall
Property during the prior twelve-month period; and (e) as soon as
practicable, such further information regarding the Fashion Mall Property as
the mortgagee or the Rating Agencies may reasonably request in writing.
Concurrently with delivery of the financial statements to the mortgagee, the
Fashion Mall Borrower is required to provide a copy of the foregoing items to
the Rating Agencies. The Fashion Mall Borrower is also required to provide
the mortgagee with updated information concerning the tax and insurance costs
for the next succeeding fiscal year prior to the termination of each fiscal
year.
S-154
<PAGE>
YORKTOWN SHOPPING CENTER: THE BORROWER; THE PROPERTY
The Loan. The Yorktown Shopping Center Loan was made by TIAA on June 28,
1994 and acquired by MSMC on June 18, 1997. The Yorktown Shopping Center Loan
had a principal balance at the date of its origination of $60,000,000 and has
a principal balance as of the Cut-Off Date of approximately $57,304,459. The
Yorktown Shopping Center Loan was made to refinance prior TIAA loans in the
amount of $36,098,697 which were originated in 1968, 1975, 1983 and 1986. The
Yorktown Shopping Center Loan is secured by, among other things, a Mortgage
(the "Yorktown Mortgage") encumbering a regional mall known as the Yorktown
Shopping Center, located in Lombard, Illinois (the "Yorktown Property").
The Borrower. Yorktown Joint Venture (the "Yorktown Borrower") is an
Illinois general partnership whose purpose and business is to buy, sell,
lease, hold, develop, borrow against, refinance, hypothecate, exercise all
incidents of ownership or possession of and otherwise deal with all or any
portion of the real and/or personal property constituting the Yorktown
Shopping Center, a nearby convenience center known as Yorktown Convenience
Center, and adjacent and related property, and other related purposes. The
Yorktown Convenience Center does not secure the Yorktown Shopping Center
Loan. The general partners of the Yorktown Borrower are the Estate of E.D.
Pehrson, et al. (52.00%), the Rogers Brothers (21.00%), Pehrson Yorktown
Investments, L.P. (14.06%), Carroll Yorktown Investments, L.P. (8.44%), Joel
B. Wilder (3.50%) and Sumner Schein (1.00%).
The Property. The Yorktown Property was originally built in 1968 and
remodeled and expanded at various times, most recently in 1994. The Yorktown
Property is comprised of the Yorktown Borrower's fee simple interest in the
Yorktown Shopping Center, an enclosed, 2-level, 4-anchor regional mall
located in the City of Lombard, Illinois approximately 13 miles west of
downtown Chicago, Illinois. The Yorktown Property has 4 self-owned anchor
stores including JC Penney, Carson Pirie Scott & Co., Von Maur and Montgomery
Ward and contains approximately 1,305,907 total square feet, of which
approximately 392,658 square feet is mall store GLA, approximately 825,368
square feet is self-owned anchor store GLA and approximately 87,881 square
feet is outparcel GLA. An 18-screen General Cinema Multiplex with stadium
seating is currently being constructed and is expected to be completed by
approximately March 1, 1998. The portion of Yorktown Shopping Center that
secures the Yorktown Shopping Center Loan consists of 480,539 square feet of
mall store and outparcel GLA upon completion of the new cinema. The Yorktown
Shopping Center is situated on approximately 104.37 acres and contains
approximately 9,750 parking spaces. The ratio of parking spaces per 1,000
square feet of GLA is 7.47 to 1. An appraisal completed by Landauer
Associates, Inc. on September 9, 1997 determined a market value of
$119,500,000 for the Yorktown Borrower's ownership interest in the property.
The table below summarizes the components of total square feet at the
Yorktown Property as of June 30, 1997, and includes the incremental square
footage of the General Cinema Multiplex.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA
----------- -----------
<S> <C> <C>
Self-Owned Anchor Stores
- -------------------------------
JC Penney ..................... 239,110 18.3%
Carson Pirie Scott & Co. ..... 214,534 16.4
Von Maur ...................... 206,342 15.8
Montgomery Ward ............... 165,382 12.6
----------- -----------
Total Self-Owned Anchor
Stores ...................... 825,368 63.2%
Mall Store Space................ 392,658 30.0
Outparcels ..................... 87,881 6.7
----------- -----------
GLA Total .................... 1,305,907 100.0%
=========== ===========
</TABLE>
Location/Access. The Yorktown Property is located in Lombard, Illinois, a
west suburban community of Chicago. The immediate area is primarily
residential and includes the communities of Downers Grove, Lombard, Wheaton
and Elmhurst. Access to the subject property is via Interstate 88, a primary
east-west Chicago highway and State Road 53, a north-south artery in the
western suburbs.
S-155
<PAGE>
Operating History. The following table shows certain information
regarding the operating history of the Yorktown Property (see Underwritable
Cash Flow definition):
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1994 1995 1996 NOI
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues............. $ 9,114,578 $ 9,711,467 $10,365,552 $10,460,477
Expenses............. (2,164,952) (2,064,742) (2,111,645) (2,432,008)
------------- ------------- ------------- ---------------
Net Operating
Income............. $ 6,949,626 $ 7,646,725 $ 8,253,907 $ 8,028,469
============= ============= ============= ===============
</TABLE>
Occupancy History. The occupancy history for the mall store space of the
Yorktown Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
PERCENT LEASED
--------------
<S> <C>
Occupancy as of(1):
- -------------------
June 30, 1997 ..... 91.7%
December 31, 1996 87.8%
December 31, 1995 76.4%
</TABLE>
- ------------
(1) Includes month-to-month tenants (9.3% as of June 30, 1997) and
Woolworth's (12.7% as of June 30, 1997), which no longer occupies
leased space, but is current on rental payments. According to the
December 31, 1996 rent roll, Woolworth's rent is $3.24 PSF per annum
under a lease that expires January 31, 1999.
Occupancy Cost. 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 10.23% for 1996.
S-156
<PAGE>
Tenant Sales. The Yorktown Property's historical mall store sales and
outparcel sales are summarized as follows:
<TABLE>
<CAPTION>
SQUARE
FOOTAGE ANNUAL 1995 SALES(1) ANNUAL 1996 SALES(1)
--------- ----------------------- -----------------------
TOTAL PER TOTAL PER
1996 (000S) SF (000S) SF
--------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Mall Store Sales(2)
-------------------------------------
Comparable Store....................... 204,451 $57,362 $281 $60,632 $297
Non-Comparable Store................. 65,804 4,199 $149(3) 9,490 $220(3)
--------- --------- --------- --------- ---------
Total Mall Store.................... 270,255 $61,561 $228 $70,122 $263
========= ========= =========
Outparcel Sales(4)
-------------------------------------
Yorktown Cinema (old)(5)............... 32,540 $ 3,080 $ 95 $ 3,283 $101
Pizza Hut............................ 4,035 352 $ 87 330 $ 82
--------- --------- --------- --------- ---------
Total Outparcel..................... 36,575 $ 3,432 $ 94 $ 3,613 $ 99
========= ========= =========
Gross Sales--Mall Stores and
Outparcels............................. $64,993 $73,735
========= =========
</TABLE>
- ------------
(1) Anchor tenants' sales are not available as the anchors, Von Maurs, JC
Penney, Carson Pirie Scott & Co. and Montgomery Ward each are
self-owned anchors and are not required to report sales to the Yorktown
Borrower.
(2) Sales and square footage have not been included in the above table for
both temporary tenants and Woolworth's.
(3) Non-comparable store tenants may not be in occupancy for a full
calendar year and therefore non-comparable sales per square foot may
not be reflective of full year sales per square foot.
(4) Sales are not reported for Cole Taylor Bank (4,800 sq. ft.) and
Firestone (9,217 sq. ft.).
(5) The previous Yorktown Cinema is being replaced with a 69,829 square
foot General Cinema multiplex. The estimated date of construction
completion and theater opening is March 1, 1998.
S-157
<PAGE>
Mall Stores. The Yorktown Property tenant base is primarily comprised of
national retailers such as The Limited, Structure, Victoria's Secret,
Express, The Gap, The Disney Store, Gymboree, and Garden Botanika. 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 ten largest
mall store tenants by Annualized Base Rent (percentage rent and tenant
reimbursement obligations are not included):
TEN LARGEST MALL STORES TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
TENANT OR TENANT TENANT % OF TOTAL
PARENT COMPANY STORE NAME GLA GLA
- ------------------------ ------------------- --------- ------------
<S> <C> <C> <C>
The Limited Inc. Express, Inc. 41,381 10.5%
Lane Bryant
Lerner New York
The Limited
Structure
Victoria's Secret
Woolworth Corp. Woolworths(2) 58,967 15.0
Foot Locker
Lady Foot Locker
Champs Sports
The Gap, Inc. The Gap 10,094 2.6
The Gap Kids
Evan's Inc. Evan's 15,719 4.0
Casual Corner Group Inc. Casual Corner 7,000 1.8
Petite Sophisticate
Mark Bros. Jewelers Mark Bros. Jewelers 1,938 0.5
Lundstrom Jewelers
Musicland Sam Goody 12,486 3.2%
The Walt Disney Co. The Disney Store 6,432 1.6
Rogers Jewelers Rogers Jewelers 1,887 0.5
Bachrachs Clothing Co. Bachrachs 5,058 1.3
--------- ------------
Total/Weighted Average 160,962 41.0%
(10 Largest)
Remaining (excluding 199,190 50.7
non-owned anchors)
Vacant Space 32,506 8.3
--------- ------------
Total (excluding 392,658 100.0%
========= ============
non-owned anchors)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF TOTAL
TENANT OR TENANT ANNUALIZED ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY BASE RENT BASE RENT PER SF
- ------------------------ ------------ ------------ --------------------
<S> <C> <C> <C>
The Limited Inc. $ 853,320 12.9% $20.62
Woolworth Corp. 362,735 5.5 6.15
The Gap, Inc. 238,856 3.6 23.66
Evan's Inc. 223,989 3.4 14.25
Casual Corner Group Inc. 175,355 2.6 25.05
Mark Bros. Jewelers 172,200 2.6 88.85
Musicland $ 163,000 2.5% 13.05
The Walt Disney Co. 141,504 2.1 22.00
Rogers Jewelers 113,220 1.7 60.00
Bachrachs Clothing Co. 105,510 1.6 20.86
------------ ------------ --------------------
Total/Weighted Average $2,549,689 38.4% $15.84
(10 Largest)
Remaining (excluding 4,088,086 61.6 20.52
non-owned anchors)
Vacant Space 0 0 0
------------ ------------ --------------------
Total (excluding
non-owned anchors) $6,637,775 100.0% $19.57(3)
============ ============ ====================
</TABLE>
- ------------
(1) Based on June 30, 1997 rent roll.
(2) Woolworth Corp. has announced the closing of discount stores operating
under the Woolworths trade name.
(3) Does not include vacant and month-to-month square footage and base
rent.
S-158
<PAGE>
Mall Store Lease Expiration. The following table shows scheduled lease
expirations of mall store GLA at the Yorktown Property as of June 30, 1997,
assuming none of the tenants renew their leases, exercise renewal options or
terminate their leases prior to the scheduled expiration date.(1) See
"--Anchor Stores" below for anchor lease or REA expirations.
LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF
LEASES EXPIRING PERCENT OF
YEAR EXPIRATION EXPIRING SF SF
- -------------------- ----------- ---------- ------------
<S> <C> <C> <C>
Vacant .............. 0 32,506 8.28%
Month-to-Month (2) .. 15 36,591 9.32
1997................. 13 43,049 10.96
1998................. 13 30,247 7.70
1999................. 7 58,020 14.78
2000................. 9 17,257 4.39
2001................. 8 11,409 2.91
2002................. 8 15,247 3.88
2003................. 11 9,323 2.37
2004................. 10 23,227 5.92
2005................. 7 16,910 4.31
2006................. 11 52,592 13.39
2007 or Later........ 9 46,280 11.79
----------- ---------- ------------
Total/Weighted Avg. 121 392,658 100.00%
=========== ========== ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CUMULATIVE ANNUAL CUMULATIVE
PERCENT OF ANNUALIZED BASE RENT PERCENT OF PERCENT OF
YEAR EXPIRATION BASE RENT BASE RENT PER SF BASE RENT BASE RENT
- -------------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Vacant .............. 8.28% $ 0 $ 0.00 0.00% 0.00%
Month-to-Month (2) .. 17.60% 306,465 8.38 4.62 4.62%
1997................. 28.56% 313,444 7.28 4.72 9.34%
1998................. 36.26% 615,685 20.36 9.28 18.61%
1999................. 51.04% 316,329 5.45 4.77 23.38%
2000................. 55.44% 537,791 31.16 8.10 31.48%
2001................. 58.34% 409,744 35.91 6.17 37.66%
2002................. 62.22% 556,692 36.51 8.39 46.04%
2003................. 64.60% 555,479 59.58 8.37 54.41%
2004................. 70.51% 644,130 27.73 9.70 64.11%
2005................. 74.82% 463,219 27.39 6.98 71.09%
2006................. 88.21% 1,100,928 20.93 16.59 87.68%
2007 or Later........ 100.00% 817,869 17.67 12.32 100.00%
------------ ----------- ------------
Total/Weighted Avg. $6,637,775 $19.57(2) 100.00%
============ =========== ============
</TABLE>
- ------------
(1) Based on the June 30, 1997 rent roll.
(2) Does not include vacant and month-to-month square footage.
Anchor Stores. The following table shows certain information for each of
the Yorktown Property's anchor tenants (and its corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING OF
PARENT ANCHOR- OPERATING
COMPANY(1) OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) GLA COLLATERAL EXPIRATION EXPIRATION(2) TERMINATION
- ------------------ ------------------------ ---------------- --------- -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
JC Penney.......... J.C. Penney Co., Inc. A/A2 239,110 Anchor-Owned N/A Expired 1/1/2010(3)
Carson Pirie
Scott............. Carson Pirie Scott & Co. NA/NA 214,534 Anchor-Owned N/A Expired 1/1/2010(3)
Von Maur........... Von Maur and Company NA/NA 206,342 Anchor-Owned N/A 10/1/2009(3) 5/14/2033(3)
Montgomery Ward ... Montgomery Ward & Co.(4) NA/NA 165,382 Anchor-Owned N/A Expired 1/1/2010(3)
</TABLE>
- ------------
(1) Reflects long-term debt rating of the parent company as of September
22, 1997.
(2) Date of operating covenant expiration is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into
account co-tenancy or other operating requirements.
(3) Based on the latest required term commencement date of the REA. The
actual commencement date and expiration date may be earlier.
(4) Montgomery Ward & Co., the parent company of Montgomery Ward, filed for
bankruptcy protection under the Bankruptcy Code on July 7, 1997.
Operating Agreement. The Reciprocal Construction, Operation and Easement
Agreement dated August 29, 1966 by and between LaSalle National Bank, as
Trustee ("LaSalle") and each of Carson, Pirie, Scott & Company ("Carson"),
Montgomery Ward Realty Corporation ("Ward"), J.C. Penney Company ("Penney")
and Wieboldt Stores, Inc. ("Wieboldt") (as amended September 16, 1968 by the
parties thereto with Highland Avenue Corporation ("Highland") as successor to
the interest of Carson, Ward, Penney and Wieboldt, the "Yorktown Trustee
REA") contained operating covenants, all of which have expired. The Yorktown
Trustee REA is for a term until January 1, 2010.
Von Maur, Inc. is a party to an Operation and Covenant Agreement (the "Von
Maur REA") dated as of May 14, 1993 with the Yorktown Borrower pursuant to
which it is required to operate its store at the property. The Von Maur REA
S-159
<PAGE>
provides that the Von Maur store shall operate as a Von Maur Fashion
Department Store until the year 2009 with an option for an expansion. Von
Maur may be relieved of such operating covenant if (i) the Yorktown Trustee
REA terminates prior to its expiration date; (ii) one or more of Ward, Penney
or Carson ceases operation at Yorktown Shopping Center with no intention to
reopen and within 18 months thereafter there is no acceptable replacement; or
(iii) for a period of at least 1 year, less than 65% of the net rental space
in Yorktown Shopping Center (excluding Ward, Penney and Carson) is leased.
Market Overview and Competition. According to the September 9, 1997
Landauer Associates, Inc. appraisal, the Yorktown Property trade area
(estimated by Landauer Associates, Inc. to be a 4-mile radius) is estimated,
as of 1996, to have 157,488 people in approximately 61,698 households with an
average household income of $69,974. These estimates represent a compound
annual growth rate from 1990 to 1996 of 0.68%, 1.14% and 2.67%, respectively.
Including the Yorktown Property, there are a total of 5 super-regional and
regional malls located in the western submarket of Chicago.
The following table shows an overview of the competition to the Yorktown
Property:
S-160
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE DISTANCE
OWNER/ FROM YORKTOWN ANCHORS/ SIZE
MALL/RETAIL PROPERTY YR. BUILT MANAGEMENT (MILES) MALL STORES (SQUARE FEET)
- ------------------------- ----------- ---------------- -------------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Subject Property
- -------------------------
Yorktown Shopping Center 1968 Pehrson JC Penney 239,110
Schactman Carson Pirie Scott 214,534
Wilder Von Maur 206,342
Montgomery Ward 165,382
Mall Stores 392,658
Outparcels 87,881
-------------
Total 1,305,907
Competition
- -------------------------
Oak Brook Shopping
Center 1962 Urban Retail 2 Lord & Taylor 99,000
Properties, Inc. Saks Fifth Avenue 91,000
Marshall Field's 364,000
Nieman Marcus 112,000
Nordstrom 215,000
Sears 282,000
Mall Stores 850,000
-------------
Total 2,013,000
Stratford Square 1981 Urban/ 9 Carson Pirie Scott 141,000
Ohio State Montgomery Ward 157,000
Teachers JC Penney 141,000
Kohl's 75,000
Marshall Field's 141,000
Sears 141,000
Mall Stores 499,000
-------------
Total 1,295,000
Fox Valley Center 1975 O'Connor Group/ 10 Carson Pirie Scott 115,000
Heitman Marshall Field's 207,000
JC Penney 231,000
Sears 314,000
Mall Stores 599,000
-------------
Total 1,466,000
Woodfield Mall 1971 The Taubman Co. 13 Lord & Taylor 124,000
JC Penney 331,000
Sears 380,000
Marshall Field's 347,000
Nordstrom 198,000
Mall Stores 1,320,000
-------------
Total 2,700,000
</TABLE>
- ------------
Source: Landauer Associates, Inc.
S-161
<PAGE>
Environmental Report. A Phase I site assessment dated September 11, 1997
was performed on the Yorktown Property. The Phase I did not reveal any
environmental liability that the Depositor believes would have a material
adverse effect on the borrower's business, assets or results of operations
taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loans--Environmental Law
Considerations."
Engineering Report. A Property Condition Report was completed on the
Yorktown Property on October 18, 1993 by a third party due diligence firm.
The Property Condition Report concluded that the Yorktown Property was
generally in good physical condition and identified approximately $408,000 in
deferred maintenance requirements.
Property Management. The Yorktown Property is managed by Robert W. Long
("Long") and E.D. Pehrson Associates, Inc. ("Pehrson") with the assistance of
Wilder Management Associates, Inc. ("Wilder") (collectively, the "Yorktown
Managers").
Long manages the Yorktown Shopping Center, other than portions thereof,
subject to the Yorktown Trustee REA, pursuant to a Management Agreement dated
May 21, 1993 and a letter agreement dated May 26, 1993 (together, the
"Yorktown-Long Management Agreement"), each between the Yorktown Borrower and
Long. The Yorktown-Long Management Agreement provides for an annual salary of
$123,844 for 1993, to be adjusted by the representative of the Rogers family
partners; provided that such salary may not be reduced unless net cash flow
from the Yorktown Property declines below 95% of net cash flow for the 1993
calendar year. The Yorktown-Long Management Agreement has a term of one year
from the date thereof with automatic extensions from year to year thereafter
until the sale of the Yorktown Shopping Center or such earlier time as the
Yorktown Borrower or its authorized representative manager terminates such
agreement by notice to Long or Long dies or ceases to control the management
entity. Long may be replaced as manager pursuant to a change in control under
the partnership agreement of the Yorktown Borrower.
Pehrson manages the common areas specified in the Trustee REA pursuant to
the Management Agreement dated September 26, 1993 but expressly intended to
have effect as of January 1, 1978 (the "Yorktown-Pehrson Management
Agreement") between Pehrson and the Yorktown Borrower. The Yorktown-Pehrson
Management Agreement provides for a management fee per annum equal to the
lesser of (a) 4% of the cost of keeping, maintaining and operating such
common areas and (b) $25,000. The Yorktown-Pehrson Management Agreement is
for a term of one year with automatic extensions on a month-to-month basis.
It is terminable at will with written notice by Pehrson to each of La Salle,
Highland, Ward, Wieboldt and Penney or by any three of La Salle, Highland,
Ward, Wieboldt and Penney to Pehrson. The Yorktown Shopping Center Loan does
not specifically provide mortgagee with the right to terminate or replace any
of the managers of the Yorktown Shopping Center, except that if an
independent manager is proposed as a result of any permitted transfer of
interest in the Yorktown Shopping Center by the Yorktown Borrower, such
independent manager is subject to the approval of the mortgagee and must meet
certain specified criteria including experience and reputation in the
management of similar properties.
Each of the Yorktown Managers is affiliated with the Yorktown Borrower. In
the industry trade publication Shopping Center World (March 1996), Wilder has
been ranked as the 93rd largest retail property manager in the nation.
S-162
<PAGE>
YORKTOWN SHOPPING CENTER: THE LOAN
CERTAIN YORKTOWN SHOPPING CENTER 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 .. $119 48.0% 1.33x 1.47x
At Maturity..... $102 40.8% 1.64x 1.72x
</TABLE>
- ------------
(1) Based on the 480,539 square feet securing the Yorktown Shopping Center
Loan and the Cut-Off Date Principal Balance or Balloon Balance, as
applicable.
(2) Based on the September 9, 1997 Landauer Associates, Inc. appraised
market value and the Cut-Off Date Principal Balance or Balloon Balance,
as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Yorktown Shopping Center
Loan during the 12 months following the Cut-Off Date, and in the case
of Maturity Date Actual DSCR, 12 months of debt service on the Yorktown
Shopping Center Loan assuming a balance equal to the Balloon Balance, a
coupon equal to the Yorktown Shopping Center Interest Rate and an
amortization term equal to 300 months.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of the
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
9.0% of the Cut-Off Date Principal Balance of the Yorktown Shopping
Center Loan, and, in the case of the Maturity Date Refinancing DSCR, an
annual debt service payment equal to 9.0% of the Balloon Balance.
Security. The Yorktown Shopping Center Loan is a non-recourse loan secured
only by the fee estate of the Yorktown Borrower in the Yorktown Property and
certain other collateral (including without limitation an assignment of
leases and rents).
Payment Terms. The Yorktown Shopping Center Loan matures on July 1, 2004
(the "Yorktown Shopping Center Maturity Date") and bears interest at a fixed
rate per annum of 8.25% (the "Yorktown Shopping Center Interest Rate").
The payment date for the Yorktown Shopping Center Loan is the first
business day of each month, and there is a five day grace period for a
default in payment of principal or interest. The Yorktown Shopping Center
loan requires equal monthly payments of principal and interest in the amount
of $473,000 (based on a 300-month amortization schedule and the Yorktown
Shopping Center Interest Rate). On the Yorktown Shopping Center Maturity
Date, payment of the then outstanding balance of the principal, if any,
together with all accrued and unpaid interest and all other sums payable
under the loan documents, is required. The principal balance of the Yorktown
Shopping Center Loan on the Yorktown Shopping Center Maturity Date, based on
scheduled amortization will be $48,765,713.
If the Yorktown Borrower defaults in the payment of any monthly
installment of principal or interest on the payment date due, it is required
to pay a late payment charge in an amount equal to 5% of the amount of the
installment not paid. Upon the occurrence of any event of default and
acceleration of the Yorktown Shopping Center Loan, or upon failure to repay
the principal of the Yorktown Shopping Center Loan at the Yorktown Shopping
Center Maturity Date, the entire unpaid principal amount of the Yorktown
Shopping Center Loan and any other amounts payable, including interest, will
bear interest at a default rate equal to the lesser of (a) the maximum rate
permitted by applicable law and (b) Yorktown Shopping Center Interest Rate
plus 4% (the "Yorktown Shopping Center Default Rate").
Prepayment. Voluntary prepayment is prohibited under the Yorktown Shopping
Center Loan prior to July 1, 1999. Thereafter, the Yorktown Shopping Center
Loan may be voluntarily prepaid in whole, but not in part, on any payment
date upon payment of a prepayment premium (the "Yorktown Yield Maintenance
Premium") equal to the greater of (a) beginning on July 1, 1999 and ending on
June 30, 2000 a sum equal to 2% of the outstanding balance of the Yorktown
Note, such percentage of the outstanding balance declining 0.25% during each
successive 12-month period thereafter to a minimum of 1%, which minimum shall
continue thereafter to maturity (such declining percentage, the "Yorktown
Applicable Percentage"); and (b) the excess, if any, of (i) the present value
on the date of prepayment of all interest payments that would have been
payable through the Yorktown Shopping Center Maturity Date as calculated by
multiplying the Yorktown Shopping Center Interest Rate by the outstanding
balance of the Yorktown Note on the date of prepayment, dividing such product
by 12 and discounting such monthly payments at the then treasury discount
rate charged on loans to depository institutions by the New York Federal
Reserve Bank on the date of prepayment (the "Yorktown Discount Rate") over
(ii) the present value on the date of prepayment of all interest payments
that would have been payable had the fixed interest rate been the "Yorktown
Assumed Reinvestment Rate" (as defined below) calculated by multiplying the
Yorktown Assumed Reinvestment Rate by the outstanding balance of the Yorktown
Shopping Center Loan at the time of prepayment, dividing
S-163
<PAGE>
such product by 12 and discounting such monthly payments at the Yorktown
Discount Rate. Notwithstanding the foregoing, any prepayment during the 90
days immediately preceding the Yorktown Shopping Center Maturity Date may be
made without payment of a prepayment premium.
The "Yorktown Assumed Reinvestment Rate" means 0.50% plus the arithmetic
mean of the yields under the respective headings "This Week" and "Last Week"
set forth in the statistical release H.15.519 (or a successor thereto
reasonably selected by the mortgagee) most recently published prior to the
date of determination under the caption "Treasury Constant Maturities" for
the maturity (rounded to the nearest month) corresponding to the remaining
term of the Yorktown Shopping Center Loan. If no maturity exactly corresponds
to such remaining term of the Yorktown Shopping Center Loan, yields for the
two published maturities most closely corresponding to such remaining term
shall be calculated pursuant to the immediately preceding sentence and the
Yorktown Assumed Reinvestment Rate shall be interpolated or extrapolated from
such yields on a straight-line basis, rounding in each such relevant periods
to the nearest month.
Principal prepayments on the Yorktown Shopping Center Loan must be made,
at the mortgagee's option, upon acceleration of the loan following an event
of default. Prepayments made following an event of default will be subject to
the payment of the Yorktown Yield Maintenance Premium. If under the Yorktown
Shopping Center Loan the Yorktown Borrower has no privilege of voluntary
prepayment at the time payment is tendered as a result of default, the
Yorktown Borrower shall pay a "prepayment premium" equal to the greater of:
(A) the prepayment premium described above with the Yorktown Applicable
Percentage equal to 2%, or (B) the sum obtained by multiplying the
outstanding principal balance by the product of (i) the amount obtained by
subtracting (a) the percent per annum of the Treasury Constant Maturities
having a maturity date closest in time (based on a weighted average if
necessary) to the remaining term of the Yorktown Shopping Center Loan as
reported in the statistical release H.15.519 (or a successor thereto
reasonably selected by the mortgagee) for the week in which the 15th day
prior to the prepayment occurs, from (b) 8.25% and (ii) the number of years
and any fraction thereof remaining between the date of prepayment and the
Yorktown Shopping Center Maturity Date and then arriving at the present value
of such amount by discounting at the Yorktown Discount Rate.
Lockbox and Reserves. The Yorktown Shopping Center Loan requires monthly
impounds of 1/12 of the annual amount of taxes, assessments, water, sewer,
governmental payments and insurance premiums. In connection therewith, the
Yorktown Borrower has executed and delivered to the mortgagee a Tax Escrow
Agreement, dated June 28, 1994, providing for the impounding of property
taxes (the "Yorktown Tax Impound"). The Yorktown Tax Impound is held by
Heitman Financial Services Ltd as escrow holder (the "Yorktown Escrow
Holder") in an interest bearing escrow account in the name of the Yorktown
Escrow Holder designating the mortgagee as secured party for the Yorktown
Borrower, which account is pledged to the mortgagee as additional collateral
for the Yorktown Shopping Center Loan. The Yorktown Tax Agreement does not
provide for the impounding of insurance premiums. The Yorktown Shopping
Center Loan documents do not provide for any lockboxes or collection accounts
except for the tax impound.
In addition to the foregoing escrow, the Yorktown Mortgage grants to the
mortgagee the right at any time to have an independent engineer or other
qualified expert survey the adequacy of the maintenance of the Yorktown
Property. If any deficiencies in the maintenance are found, the Yorktown
Borrower is obligated within 60 days after written demand to deposit with the
mortgagee a sum equal to the estimated costs of repairs and replacements
together with the costs of the inspection.
Transfer of Properties and Interest in the Borrower; Encumbrance; Other
Debt. The Yorktown Borrower is generally prohibited from transferring or
encumbering the Yorktown Property, except that the Yorktown Borrower has the
right to transfer, not more than one time during the term of the loan, its
interest in the Yorktown Property, in whole, subject to, among others, the
requirements that: (a) there is no default; (b) mortgagee receives at least
60 days' prior notice; (c) the proposed transferee has a net worth of not
less than $100 million with an excellent reputation in property management
and extensive experience in the operation, management and ownership of
properties similar to the Yorktown Property; (d) the property manager is
acceptable to the mortgagee; and (e) the proposed transferee executes
documents satisfactory to the mortgagee to protect mortgagee's security.
The Yorktown Shopping Center Loan also generally prohibits the transfer of
any interest in the Yorktown Borrower without the prior written consent of
the mortgagee. However, mortgagee's consent is required to be given with
respect to certain transfers of direct or indirect beneficial interests in
the Yorktown Borrower; provided that the Yorktown Borrower is not in default,
so long as the Pehrson group retains ownership and control of not less than
74% of the ownership interests in the Yorktown Borrower and remains in
control of the Yorktown Property.
The Yorktown Mortgage prohibits the Yorktown Borrower from further
encumbering or suffering to exist any lien against all or any portion of the
Yorktown Property other than the Yorktown Mortgage. The Yorktown Shopping
Center
S-164
<PAGE>
Loan documents do not contain other restrictions on the Yorktown Borrower's
right to incur indebtedness. In addition, the Yorktown Borrower may incur
additional indebtedness upon specific request to the mortgagee and after full
disclosure of the terms and conditions of a proposed financing consistent
with the following criteria: (a) the net operating income of the Yorktown
Property exceeds 125% of the sum of the debt service attributable to both the
Yorktown Shopping Center Loan and the proposed secondary financing; (b) the
occupancy rate is at least 85%; (c) the proposed secondary financing is
provided by a financial institution with total net assets of $5 billion or
more; (d) no default exists; (e) the outstanding indebtedness under the
Yorktown Shopping Center Loan when combined with the amount of the proposed
financing does not exceed 90% of the appraised value of the Yorktown
Property; and (f) the documents for the secondary financing are in form and
content satisfactory to the mortgagee and provide for subordination to the
mortgagee and certain other conditions to protect the mortgagee's interest in
the Yorktown Property.
Insurance. The Yorktown Borrower is obligated to insure the Yorktown
Property against loss or damage by, or abatement of rental income resulting
from, fire, earthquake, boiler explosion, perils insured against under
extended coverage insurance, vandalism, malicious mischief, sprinkler leakage
and such other hazards, casualties and contingencies (including, but not
limited to, war risk insurance, if available) in such amounts (but never less
than the full replacement costs) and for such periods as may be required by
the mortgagee. The Yorktown Borrower is also obligated to carry and maintain
such liability and indemnity insurance (including without limitation water
damage insurance and the so-called assumed and contractual liability
coverage) as mortgagee may require from time to time in form, amount and with
companies satisfactory to mortgagee.
Condemnation and Casualty. The mortgagee is obligated to make insurance
and condemnation proceeds available for restoration of the Yorktown Property
if (i) there exist no defaults under the Yorktown Shopping Center Loan
documents, (ii) all leases continue in effect, (iii) the mortgagee "shall
first be given satisfactory proof that such improvements have been fully
restored or that by the expenditure of such money will be fully restored free
and clear of liens", (iv) the Yorktown Borrower deposits any shortfall of
funds necessary to complete restoration, (v) the Yorktown Borrower obtains
waiver of rights of subrogation on insurance policies, and (vi) the aggregate
minimum monthly rental payable thereafter under all leases shall not be less
than the sum of one-twelfth of the annual premiums for insurance, one twelfth
of the annual taxes and assessments, and the monthly installments of
principal and interest or otherwise if less than such sum, then so much
insurance proceeds shall first be applied upon the said indebtedness without
giving rise to any prepayment premium, so that upon payment monthly of an
amount equal to such aggregate monthly minimum rentals, when applied monthly
to pro-rata ground rent, if any, taxes and assessments and insurance
premiums, then to interest and the balance to principal will service the
remaining principal balance at an annual constant rate of 9.46145% in which
latter event the monthly installment under the Yorktown Shopping Center Loan
shall be reduced accordingly. In the event any of the above conditions are
not satisfied, the mortgagee may apply the insurance proceeds or condemnation
award to the Yorktown Shopping Center Loan, without premium or penalty.
The Yorktown Shopping Center Loan documents do not specifically require
that the Yorktown Borrower repair the Yorktown Shopping Center Property
following a casualty or condemnation. The Yorktown Borrower is, however,
obligated to keep and maintain the Yorktown Property in thorough repair and
condition, make all replacements necessary to keep the Yorktown Property in
continuous good condition, and effect such other repairs as the mortgagee
reasonably requires.
Approval Rights. The Yorktown Borrower is not permitted to alter, remove
or demolish any of the improvements without the mortgagee's written consent.
The Yorktown Borrower is not permitted to enter into any lease, sublease,
license or other agreement affecting the use, occupancy or utilization of all
or any portion of the Yorktown Property without mortgagee's express prior
written approval.
Financial Reporting. Within 120 days following the expiration of each
fiscal year, the Yorktown Borrower is obligated to provide financial
statements showing all earnings and expenses since the last such statement,
prepared by an independent certified public accountant in accordance with
GAAP, and verified by the affidavit of the Yorktown Borrower. The financial
statements are to show all sales made on the premises and a rent-roll if so
requested by the mortgagee. In addition, the Yorktown Borrower is obligated
to furnish the foregoing financial statements within 30 days after demand
therefore by the mortgagee, and provide such other financial information that
the mortgagee shall reasonably require.
S-165
<PAGE>
GRAND KEMPINSKI HOTEL: THE BORROWER; THE PROPERTY
The Loan. The Grand Kempinski Loan was originated by Secore and acquired
by MSMC on September 11, 1997. The Grand Kempinski Loan had a principal
balance at origination of $55,000,000 and has a principal balance as of the
Cut-Off Date of $55,000,000. It is secured by, among other things, a Mortgage
(the "Grand Kempinski Mortgage") encumbering a full-service four star luxury
hotel located in Dallas, Texas (the "Grand Kempinski Property").
The Borrower. Registry Dallas Associates Limited Partnership (the "Grand
Kempinski Borrower") is a special purpose Delaware limited partnership whose
purpose and business is limited to owning, operating, maintaining, financing
and mortgaging the Grand Kempinski Property. The Grand Kempinski Borrower has
no material assets other than the Grand Kempinski Property and related
interests. The sole general partner of the Grand Kempinski Borrower is
Sunshine Holdings I Corp. (the "Grand Kempinski GP"), a special purpose
Delaware corporation formed solely for the purpose of acting as general
partner of the Grand Kempinski Borrower. The limited partner of the Grand
Kempinski Borrower is Dallas Hotel Associates Limited Partnership, a Delaware
limited partnership (the "Grand Kempinski LP").
The Property. The Grand Kempinski Property is comprised of the Grand
Kempinski Borrower's fee simple interest in approximately 11 acres of land
improved with a 528-room, 15-story, four star luxury hotel currently known as
the Grand Kempinski Dallas, located in Addison, a small business town north
of Dallas, Texas, at the intersection of Dallas North Tollway and Beltline
Road. The Grand Kempinski Property was constructed in 1983 and includes six
food and beverage facilities--Le Cafe, a 250-seat coffee shop/restaurant,
Monte Carlo, a 230-seat French and Italian restaurant, Le Gala, a 150-seat
reception hall, the Malachite, a 750-seat showroom, the Bristol Lounge, a
120-seat lobby lounge and bar, and Kempi's, a 750-seat nightclub--as well as
21 meeting rooms totaling approximately 76,000 square feet, 860 parking
spaces (330 spaces in surface lots and 530 spaces in a parking garage), two
swimming pools and a health club with tennis courts and racquetball courts.
The average occupancy rate for the 12 months ended June 30, 1997 for the
Grand Kempinski Property was 70%. The ADR and the RevPAR for the twelve
months ended June 30, 1997 were $110.99 and $77.58, respectively. An
appraisal completed on April 1, 1997 determined a value of approximately
$90,000,000 for the Grand Kempinski Property.
Market Overview. The subject property is surrounded by commercial office
buildings, the businesses of which provide a primary source of lodging demand
for the area. The nearby LBJ Freeway and Quorum/Bent Tree office markets
account for 28.3% of Dallas' total office square footage (33.2 million square
feet). These markets currently have approximately a 6% vacancy rate compared
to approximately a 16% market average for the Dallas area. The construction
of 22 office buildings in nearby area, totaling 3,440,578 square feet, is
expected to be complete by 1999.
Demand generators for lodging stem in part from several large businesses
and corporations in the Grand Kempinski Property's immediate vicinity. Some
of these businesses include:
<TABLE>
<CAPTION>
DISTANCE FROM SUBJECT SITE
DEMAND GENERATOR (MILES)
- -------------------------- --------------------------------
<S> <C>
CompUSA ................... 0.10
MBNA Information Services 0.25
Pizza Hut International .. 0.25
Mary Kay Cosmetics, Inc. . 0.75
The Galleria Mall ......... 2.0
Countrywide Funding ....... 8.0
</TABLE>
Other large employers in the North Dallas area include Texas Instruments,
EDS Corporation, JC Penney Co, MCI, Northern Telecom and Frito Lay Co. and
may also provide hotel demand potential. There can be no assurance that the
office market in the area will remain as described above, or as to the level
of future demand for lodging.
Location/Access. The Grand Kempinski Property is located north of Dallas
just off the Dallas Parkway, directly across from Prestonwood Mall. Street
frontage for the hotel is available along the Dallas Parkway to east and the
Quorum Loop to the south. Regional access comes primarily from the Dallas
North Tollway, which is a six-lane, bi-directional toll road that extends in
a north-south direction through North Dallas (the Dallas Parkway is a western
access road for the Tollway). The Tollway road is a primary commuting route,
and links the commercial and residential developments in North Dallas with
the communities to the south, including the Dallas Central Business District.
The Dallas North Tollway provides access to I-635 approximately two miles
south of the subject property. I-635, known locally as the LBJ Freeway,
constitutes a major east-west loop, which circumnavigates the Dallas
Metropolitan area and provides ready access from North Dallas to the
Dallas/Fort Worth Airport. The hotel is approximately 19 miles east of the
airport.
S-166
<PAGE>
Competition. The Grand Kempinski Property's primary competitors include
the Marriott Quorum, the Westin Galleria and the Doubletree Lincoln Center.
Unlike its competitors, the Grand Kempinski Property derives the largest
share of its room demand from the meeting and group segment of the market.
The Grand Kempinski Property has 76,000 square feet of meeting space, which
substantially exceeds that of its competitors. The Grand Kempinski generally
tracks market levels of ADR except for the Westin Galleria, which maintains a
significantly higher ADR. The Westin benefits from its location next to the
Galleria Mall and office buildings.
Operating History. The following table shows certain information
regarding the operating history of the Grand Kempinski Property:
ADJUSTED NET OPERATING INCOME (000S)
<TABLE>
<CAPTION>
UNDERWRITABLE
1995 1996 LTM 6/30/97 NOI
---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues.............. $ 28,618 $ 31,433 $ 32,691 $ 32,691
Expenses.............. (19,053) (20,016) (20,262) (21,930)
---------- ---------- ------------- ---------------
Net Operating
Income............... $ 9,565 $ 11,417 $ 12,429 $ 10,761
========== ========== ============= ===============
</TABLE>
Occupancy History. The following table shows historical average occupancy,
ADR and RevPAR for the Grand Kempinski Property.
<TABLE>
<CAPTION>
AVERAGE OCCUPANCY
-----------------
<S> <C>
Occupancy Period:
- -----------------
LTM ended June
1997................ 69.9%
1996............... 69.9%
1995............... 71.6%
ADR
-----------------
LTM ended June
1997................ $110.99
1996............... $107.59
1995............... $100.11
REVPAR
-----------------
LTM ended June
1997................ $77.58
1996............... $75.21
1995............... $71.68
</TABLE>
Parking and Zoning Issues. The zoning ordinance (the "Zoning Ordinance")
under which the Grand Kempinski Hotel was built on its face requires 1,438
parking spaces. A City of Addison informal policy relating to hotel parking
requirements, which MSMC was informed de facto supersedes the Zoning
Ordinance in the city's practical enforcement of parking requirements, would
require 1,019 spaces. The Grand Kempinski Hotel has 860 parking spaces.
Nevertheless, the City of Addison has confirmed in writing that it does not
consider the Grand Kempinski Hotel to be non-conforming because of parking
issues, and an unqualified certificate of occupancy has been issued and is in
effect for the Grand Kempinski Property.
The Zoning Ordinance also permitted the Grand Kempinski Hotel's height to
be either 117 feet "or as approved by [the] FAA." The hotel, with antenna, is
192 feet tall. However, the city has no documentation regarding the FAA
approval height. The city has delivered a letter stating that the structure's
height is acceptable and does not encroach onto air traffic. The property is
not in a deed-restriction zone where height is specifically limited by the
FAA, and there are taller buildings in the proximity of the hotel.
Environmental Report. A Phase I site assessment dated July 24, 1997 was
performed on the Grand Kempinski Property. The Phase I 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 or
operations taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loans--Environmental Law
Considerations."
Engineering Report. A Property Condition Report was completed on the Grand
Kempinski Property on July 30, 1997 by a third party due diligence firm. The
Property Condition Report concluded that the Grand Kempinski Property was
S-167
<PAGE>
generally in good physical condition and identified approximately $127,750 in
deferred maintenance. At origination of the Grand Kempinski Loan, the Grand
Kempinski Borrower established a deferred maintenance reserve account and
made an initial deposit equal to $127,750 to fund the cost of addressing the
identified items.
Property Management. The Grand Kempinski Property is currently being
managed by Kempinski International, Inc. ("Kempinski"), pursuant to a
management agreement with Grand Kempinski Borrower. The Grand Kempinski
Borrower has entered into a termination agreement with Kempinski to terminate
the management agreement with Kempinski effective no later than November 1,
1997. Upon such termination, the Grand Kempinski Property will be managed by
Inter-Continental Hotels Corporation (the "Grand Kempinski Manager"),
pursuant to a management agreement (the "Grand Kempinski Management
Agreement"), between the Grand Kempinski Manager and the Grand Kempinski
Borrower. The Grand Kempinski Manager is responsible for the operation,
management and supervision of the Grand Kempinski Property. Under the Grand
Kempinski Management Agreement, the Grand Kempinski Manager is entitled to
(a) an annual license fee equal to 1.25% of annual gross receipts received;
(b) a management fee equal to 15% of income before fixed charges of the Grand
Kempinski Property, if such income exceeds $14,000,000 in the calendar year,
and if not, no such management fee is payable; (c) reservation fees equal to
5% of the reservation revenue of the Grand Kempinski Property, up to maximum
of $200,000; and (d) compensation for marketing, sales and other services.
The fees payable to the Grand Kempinski Manager are operating expenses of the
borrower and as such are subordinate to amounts due on the Grand Kempinski
Loan, including amounts to be deposited into the reserve accounts thereunder,
as described below under "--Grand Kempinski Hotel: The Loan--Lockbox and
Reserves."
The Grand Kempinski Management Agreement provides that the Grand Kempinski
Manager will manage the property until September 30, 2007. The Grand
Kempinski Manager and Grand Kempinski Borrower each have one option to extend
the original term of the Grand Kempinski Management Agreement for an
additional five years by giving notice to the other within 180 days of the
original term's expiration; the other party then has 30 days from receipt of
such notice to accept or reject such extension.
Under the Grand Kempinski Loan, the Grand Kempinski Borrower may only
appoint a replacement manager to the Grand Kempinski Manager if such
appointment is reasonably acceptable to the mortgagee.
Pursuant to a Manager's Consent and Subordination of Management Agreement
with respect to the Grand Kempinski Management Agreement, the mortgagee will
have the right to terminate the Grand Kempinski Management Agreement upon, or
at any time after, an event of default under the Grand Kempinski Loan has
occurred and is continuing, or upon the debt service coverage ratio falling
below 1.10, by giving the Grand Kempinski Manager 30 days' prior written
notice of such termination. The Grand Kempinski Manager may terminate the
Grand Kempinski Management Agreement only with the prior written consent of
the mortgagee, except in certain circumstances of uncured defaults. The loan
documents provide that the Grand Kempinski Borrower has up to 180 days to
find a replacement manager reasonably acceptable to the mortgagee after
mortgagee gives the Grand Kempinski Borrower notice of its intent to
terminate the Grand Kempinski Management Agreement, before the Grand
Kempinski Manager must be terminated. The Grand Kempinski Manager has also
agreed in such subordination agreement that if an event of default under the
Grand Kempinski Loan has occurred and is continuing, all liens, rights and
interests owned, claimed or held by the Grand Kempinski Manager in and to any
of the Grand Kempinski Property are and will be, in all respects, subordinate
and inferior to the liens and security interest created by the Grand
Kempinski Loan.
Under the Grand Kempinski Loan, the Grand Kempinski Borrower is obligated
to achieve, and within 30 days of the end of each calendar quarter provide
evidence to the mortgagee of the achievement of, a debt service coverage
ratio for the last four quarters of at least 1.10 (the "Grand Kempinski
Borrower Termination Ratio") as of the end of each such calendar quarter. If
the Grand Kempinski Borrower fails to achieve the Grand Kempinski Borrower
Termination Ratio, the Grand Kempinski Borrower, at the request of the
mortgagee, may terminate the Grand Kempinski Manager and replace the Grand
Kempinski Manager with a property manager reasonably acceptable to the
mortgagee. The mortgagee will withdraw its request to terminate the Grand
Kempinski Manager upon the Grand Kempinski Borrower's failure to achieve the
Grand Kempinski Borrower Termination Ratio if the borrower deposits funds
into the Grand Kempinski Cash Collateral Account in an amount which, if
treated as income from the operation of the property, would increase the debt
service coverage ratio to the required ratio. The loan documents provide that
the Grand Kempinski Borrower has up to 180 days to find a replacement manager
reasonably acceptable to the mortgagee.
S-168
<PAGE>
GRAND KEMPINSKI HOTEL: THE LOAN
CERTAIN GRAND KEMPINSKI LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO ACTUAL REFINANCING
ROOM(1) VALUE RATIO(2) DSCR(3) DSCR(4)
-------------- -------------- -------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date............... $104,167 61.1% 1.73x 1.69x
At Effective Maturity
Date...................... $ 85,444 50.1% 2.11x 2.06x
</TABLE>
- ------------
(1) Based on the 528 guest rooms securing the Grand Kempinski Loan and the
Cut-Off Date Principal Balance or Balloon Balance, as applicable.
(2) Based on the April 1, 1997 appraisal and Cut-Off Date Principal Balance
or Balloon Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date, Actual DSCR, actual debt service on the Grand Kempinski 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
Grand Kempinski Loan assuming a balance equal to the Balloon Balance, a
coupon equal to the Grand Kempinski Initial Interest Rate and an
amortization term equal to 300 months.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
10% of the Cut-Off Date Principal Balance of the Grand Kempinski Loan,
and in the case of Effective Maturity Date Refinancing DSCR, an annual
debt service payment equal to 10% of the Balloon Balance.
Security. The Grand Kempinski Loan is a non-recourse loan, secured only by
the fee interest of the Grand Kempinski Borrower in the related Mortgaged
Property, and certain collateral therefor (including an assignment of leases
and rents and the funds in certain accounts). The Grand Kempinski Borrower
has agreed to indemnify the mortgagee and its successors and assigns with
respect to the liabilities arising from and in connection with certain
environmental matters. The mortgagee is the insured under a title insurance
policy (which will be assigned to the Trust Fund) which insures that the
Grand Kempinski Mortgage constitutes a valid and enforceable first lien on
the Grand Kempinski Property, subject to certain exceptions and exclusions
from coverage set forth therein.
Payment Terms. The Grand Kempinski Loan matures on October 1, 2022 (the
"Grand Kempinski Maturity Date") and bears interest at a fixed rate per annum
equal to 8.63% (the "Grand Kempinski Initial Interest Rate") through and
including September 30, 2007, and from and including October 1, 2007 (the
"Grand Kempinski Effective Maturity Date") at a fixed rate per annum (the
"Grand Kempinski Revised Interest Rate") equal to the lesser of (i) the
maximum rate permitted by applicable law and (ii) the Grand Kempinski Initial
Interest Rate plus 5% . Any interest accrued at the excess of the Grand
Kempinski Revised Interest Rate over the Grand Kempinski Initial Interest
Rate is deferred and added to the outstanding indebtedness under the Grand
Kempinski Loan and earns interest at the Grand Kempinski Revised Interest
Rate (such deferred interest and interest thereon, "Grand Kempinski Deferred
Interest"). Interest on the Grand Kempinski Loan is calculated on the basis
of a 360-day year of 30-day months.
The payment date for the Grand Kempinski Loan is the first business day of
each month, and there is no grace period for a default in payment of
principal or interest. However, as described below under "--Grand Kempinski
Mezzanine Debt," the Grand Kempinski Mezzanine Lender has the right to cure a
payment default within 2 business days after it is given notice thereof, and
the Grand Kempinski Loan may not be accelerated or foreclosed during the cure
period. Commencing on November 1, 1997, the Grand Kempinski Loan requires 300
constant monthly payments of principal and interest (the "Grand Kempinski
Monthly Debt Service Payments") of $447,703.56 (based on a 300 month
amortization schedule and the Grand Kempinski Initial Interest Rate). On the
Grand Kempinski Maturity Date, payment of the then outstanding balance of the
principal, if any, together with all accrued and unpaid interest and all
other sums payable under the loan documents, is required. The scheduled
principal balance of the Grand Kempinski Loan as of the Grand Kempinski
Effective Maturity Date is approximately $45,114,370. Commencing on the Grand
Kempinski Effective Maturity Date and continuing on each payment date
thereafter, the Grand Kempinski Borrower is required to apply 100% of rents
and other revenues from the Grand Kempinski Property to the following items
in the following order of priority: (a) to payment of required monthly
amounts of taxes and insurance premiums; (b) to payment of the Grand
Kempinski Monthly Debt Service Payment; (c) to make required deposits into
the furniture, fixtures and equipment reserve account described below under
"--Lockbox and Reserves," (d) to payment of monthly cash expenses pursuant to
the annual budget approved by the mortgagee; (e) to payment of extraordinary,
unbudgeted operating expenses approved by the mortgagee, if any; (f) to
payment of interest accruing at the Grand Kempinski Default Rate (as defined
below) and late payment charges, if any; (g) to payments of any other amounts
due under the loan documents; (h) to payments to be applied against the
outstanding principal of the loan until such principal amount is paid in
full; (i) to payments of Grand Kempinski Deferred Interest; (j) to payment to
an account maintained for the Grand Kempinski Mezzanine Lender and (k)
lastly, to payment to the Grand Kempinski Borrower of any excess amounts.
S-169
<PAGE>
Upon the occurrence of any event of default in the payment of principal
and interest, or 10 business days after Lender has given notice to the Grand
Kempinski Borrower following any other event of default, the entire unpaid
principal amount of the Grand Kempinski Loan and any other outstanding
amounts payable, including interest, will bear interest at a default rate
equal to the lesser of (a) the maximum rate permitted by applicable law and
(b) the then applicable interest rate on the Grand Kempinski Loan (i.e. the
Grand Kempinski Initial Interest Rate or the Grand Kempinski Revised Interest
Rate) plus 5% (the "Grand Kempinski Default Rate"). The Grand Kempinski Loan
does not require the Grand Kempinski Borrower to pay late payment charges if
it defaults on a principal or interest payment.
Prepayment. Voluntary prepayment is prohibited under the Grand Kempinski
Loan prior to September 11, 2000. Thereafter, the Grand Kempinski Loan may be
voluntarily prepaid in whole on any payment date upon payment of a prepayment
premium (the "Grand Kempinski Yield Maintenance Premium") equal to the
greater of (a) 1% of the portion of the principal amount being repaid and (b)
the product of (i) a fraction whose numerator is an amount equal to the
portion of the principal balance being prepaid and whose denominator is the
entire outstanding principal balance on the date of such prepayment,
multiplied by (ii) an amount equal to the remainder obtained by subtracting
(x) an amount equal to the entire outstanding principal balance as of the
date of such prepayment from (y) the present value as of the date of such
prepayment of the remaining scheduled payments of principal and interest
(including any final installment of principal payable on the Grand Kempinski
Maturity Date) determined by discounting such payments at the Grand Kempinski
Discount Rate. The "Grand Kempinski Discount Rate" means the rate which, when
compounded monthly, equals the yield, as of the date of prepayment,
calculated by linear interpolation of the yields of noncallable U.S. Treasury
obligations with terms (one longer and one shorter) most nearly approximating
the period from the date of prepayment to the Grand Kempinski Effective
Maturity Date. Notwithstanding the foregoing, the Grand Kempinski Loan may be
prepaid without a prepayment premium commencing on the Grand Kempinski
Effective Maturity Date.
Principal prepayments on the Grand Kempinski Loan may occur on payment
dates after the Grand Kempinski Effective Maturity Date through application
of rents, as described above under "--Payment Terms," and must be made, at
the mortgagee's option, upon acceleration of the loan following the
occurrence of an event of default. Prepayments made following an event of
default will be subject to the payment of the Grand Kempinski Yield
Maintenance Premium .
To the extent that the Grand Kempinski Borrower is not permitted to apply
any insurance or condemnation proceeds to the restoration of the Grand
Kempinski Property under the Grand Kempinski Loan, the mortgagee has the
option to apply such proceeds to prepay the Grand Kempinski Loan. No yield
maintenance premium is required to be paid in connection with any prepayment
resulting from the application of insurance or condemnation proceeds.
Lockbox and Reserves. Pursuant to the terms of the Grand Kempinski Loan,
the Grand Kempinski Borrower has established with Texas Commerce Bank
National Association, as agent for the mortgagee, as secured party, a cash
collateral account (the "Grand Kempinski Lockbox") with such bank (the "Grand
Kempinski Lockbox Bank"). The Grand Kempinski Borrower has delivered
irrevocable written instructions to the bank which holds the operating
accounts for the Grand Kempinski Property (collectively, the "Grand Kempinski
Property Account"), to deposit on a daily basis by wire transfer to the Grand
Kempinski Lockbox, upon receipt, all operating revenue from the Grand
Kempinski Property and other amounts received in the Grand Kempinski Property
Account. The Grand Kempinski Borrower (i) has instructed and is required to
instruct (x) all credit card companies to deposit credit card receivables
directly into the Grand Kempinski Property Account and (y) the Grand
Kempinski Manager to deposit all operating revenue from the Grand Kempinski
Property into the Grand Kempinski Property Account and (ii) has covenanted to
deposit all operating revenue received by it into the Grand Kempinski
Property Account.
The Grand Kempinski Borrower has established (a) a debt service escrow
account (the "Grand Kempinski Debt Service Escrow Account") funded at the
initial closing of the Grand Kempinski Loan in the amount of $755,744 and to
be funded each month in an amount equal to the Grand Kempinski Monthly Debt
Service Payment, (b) a mortgage escrow account (the "Grand Kempinski Mortgage
Escrow Account") to be funded each month in an amount (the "Grand Kempinski
Tax and Insurance Amount") equal to 1/12 of tax and insurance premium
payments due in the succeeding 12 months, (c) a replacement reserve account
(the "Grand Kempinski FF&E Reserve Account") to be funded each month in the
amount of 1/12 of 4% of annual operating income (the "Grand Kempinski FF&E
Amount"), (d) an operating cash expense account (the "Grand Kempinski Cash
Expense Account") to be funded each month in the amount of monthly operating
expenses and capital expenditures set forth in the annual budget approved by
the mortgagee ("Grand Kempinski Budgeted Expenses") and any extraordinary,
unbudgeted operating expenses approved by the mortgagee ("Grand Kempinski
Extraordinary Expenses") and (e) a repair reserve account (the "Grand
Kempinski Repair Reserve Account") funded at the initial closing of the Grand
Kempinski Loan in the amount of $127,750 to pay the cost of repairing certain
conditions identified in an
S-170
<PAGE>
engineering report prepared in connection with the origination of the Grand
Kempinski Loan. In addition, the Grand Kempinski Mezzanine Borrower (as
defined below) has established a mezzanine loan account (the "Grand Kempinski
Mezzanine Loan Account") as described below under "--Mezzanine Debt."
Until the Grand Kempinski Effective Maturity Date, the Grand Kempinski
Lockbox Bank will withdraw from the Grand Kempinski Lockbox on the first
business day of each month funds in the following amounts and in the
following order of priority: (i) funds in an amount equal to the Grand
Kempinski Tax and Insurance Amount, for deposit into the Grand Kempinski
Mortgage Escrow Account; (ii) funds in an amount equal to the Grand Kempinski
Monthly Debt Service Payment, for deposit into the Grand Kempinski Debt
Service Escrow Account; (iii) funds in an amount equal to the Grand Kempinski
FF&E Amount, for deposit into the Grand Kempinski FF&E Reserve Account; (iv)
funds in the amount of Grand Kempinski Budgeted Expenses and Grand Kempinski
Extraordinary Expenses, if any, for deposit into the Grand Kempinski Cash
Expense Account; (v) funds in the monthly amount due under the Grand
Kempinski Mezzanine Loan (as defined below) for deposit into the Grand
Kempinski Mezzanine Loan Account; and (vi) the remainder to the Grand
Kempinski Borrower.
From and after the Grand Kempinski Effective Maturity Date, the Grand
Kempinski Lockbox Bank will withdraw from the Grand Kempinski Lockbox on the
first business day of each month funds in the following amounts and in the
following order of priority: (i) funds in an amount equal to the Grand
Kempinski Tax and Insurance Amount, for deposit into the Grand Kempinski
Mortgage Escrow Account; (ii) funds in an amount equal to the Grand Kempinski
Monthly Debt Service Payment, for deposit into the Grand Kempinski Debt
Service Escrow Account; (iii) funds in an amount equal to the Grand Kempinski
FF&E Amount, for deposit into the Grand Kempinski FF&E Reserve Account; (iv)
funds in the amount of Grand Kempinski Budgeted Expenses, for deposit into
the Grand Kempinski Cash Expense Account; (v) funds in the amount of Grand
Kempinski Extraordinary Expenses, if any, for deposit into the Grand
Kempinski Cash Expense Account; (vi) funds to make additional payments on the
Grand Kempinski Loan until the outstanding principal balance thereof has been
reduced to zero; (vii) funds to make payments of any accrued Grand Kempinski
Deferred Interest, (viii) funds up to the amount owing on the Grand Kempinski
Mezzanine Loan, for deposit into the Grand Kempinski Mezzanine Loan Account;
and (v) the remainder to the Grand Kempinski Borrower.
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. The Grand Kempinski Borrower is generally prohibited from transferring
or encumbering the Grand Kempinski Property, except that the Grand Kempinski
Borrower has the right to transfer, not more than one time during the term of
the loan, in whole its interests in the Grand Kempinski Property if, after
considering the following factors, the mortgagee determines in its reasonable
discretion that the following factors, among others, shall have been
satisfied: (i) no event of default shall have occurred and remain uncured
under the Grand Kempinski Loan, (ii) the proposed transferee is reputable and
creditworthy and complies with all single purpose entity and other applicable
Rating Agency requirements, (iii) the mortgagee receives a satisfactory
non-consolidation opinion, (iv) the Rating Agencies confirm in writing that
such transfer will not result in the reduction, withdrawal or qualification
of the rating assigned to any of the Certificates, (v) the transferee
executes and delivers a reasonably satisfactory assumption agreement, (vi)
the mortgagee is reimbursed for all of its reasonable costs and expenses in
connection with such transfer, and (vii) mortgagee receives a transfer fee
equal to 0.25% of the then outstanding principal amount of the loan.
Holders of limited partnership interests in the Grand Kempinski Borrower
or of stock in the general partner of the Grand Kempinski Borrower may
transfer their interests in the Grand Kempinski Borrower or the general
partner of the Grand Kempinski Borrower, as applicable; provided, however,
if, after taking into account such transfer and all prior transfers, more
than 49% of the interests in the Grand Kempinski Borrower or the general
partner of Grand Kempinski Borrower are held by any affiliated group, as
conditions to such transfer, (1) a non-consolidation opinion satisfactory to
the mortgagee and the Rating Agencies must be delivered, and (2) unless such
transferee is a member of the Grand Kempinski Control Group, each Rating
Agency must have confirmed in writing that the proposed transfer would not
result in a qualification, downgrade or withdrawal of its then current rating
on any class of Certificates. "Grand Kempinski Control Group" means certain
principals of the Grand Kempinski Borrowers, their immediate family members,
or any entity or trust owned or controlled by any such person. Subject to the
provisions above, transfers of direct or indirect interests in the Grand
Kempinski Borrower may be made if, after giving effect to such transfer and
all prior transfers, the Grand Kempinski Control Group owns at least 51% of
the interests in the Grand Kempinski Borrower, each Rating Agency has
confirmed in writing that the proposed transfer would not result in a
qualification, downgrade or withdrawal of its then current rating on any
class of Certificates; provided, however, that the transferor shall give 20
days' prior written notice to the mortgagee of any transfer to a person
outside the Grand Kempinski Control Group. The interests of the general
partner of the Grand Kempinski Borrower in the Grand Kempinski Borrower may
not be transferred.
S-171
<PAGE>
The Grand Kempinski Borrower is not permitted to incur any additional
indebtedness other than (i) indebtedness for operating expenses or equipment
leases incurred in the ordinary course of business which is not secured by
liens (other than liens being properly contested in accordance with the Grand
Kempinski Loan) provided that such indebtedness must be reserved for in an
amount equal to 110% of total payables over $250,000 and (ii) indebtedness
(not evidenced by a note or other instrument for borrowed money) not secured
by liens (other than liens being properly contested in accordance with the
Grand Kempinski Loan) for amounts payable or reimbursable to any tenant on
account of work performed at the Grand Kempinski Property by such tenant or
for costs incurred by such tenant in connection with its occupancy of space,
including for tenant improvements.
Insurance. The Grand Kempinski Borrower is required to maintain (a) fire
and extended coverage insurance in an amount equal to at least 100% of the
full replacement cost of the improvements and equipment, (b) flood insurance
with respect to any part of the Grand Kempinski Property that is located in
an area identified by the Federal Emergency Management Agency as an area
having special flood hazards, (c) comprehensive public liability insurance,
(d) rental loss or business interruption insurance which will cover a period
of at least 24 months, (e) machinery and boiler explosion insurance, (f)
statutory workers compensation insurance and (g) during any period of
restoration, builder's "all risk" insurance in an amount equal to not less
than the full insurable value of the related property. The Grand Kempinski
Loan requires the Grand Kempinski Borrower to obtain the insurance described
above from insurance carriers having claims paying abilities rated not less
than "AA-" by S&P. All policies of insurance are required to name the
mortgagee as an additional insured.
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to the Grand Kempinski Property, the Borrower is obligated to
commence and diligently prosecute to completion the repair and restoration of
the Grand Kempinski Property. The Grand Kempinski Borrower is obligated
diligently to prosecute any condemnation proceeding, the mortgagee having the
right to participate in any such condemnation proceedings, and promptly to
commence and diligently to prosecute the restoration of the Grand Kempinski
Property following any condemnation.
If the casualty or condemnation proceeds (after payment of the mortgagee's
costs of collection thereof) are less than $1,000,000 and the costs of
completing the restoration are less than $1,000,000, the mortgagee shall
disburse such proceeds to the Grand Kempinski Borrower for application to the
restoration. If the casualty or condemnation proceeds (after payment of the
mortgagee's costs of collection thereof) or the costs of completing the
restoration are equal to or greater than $1,000,000, the mortgagee shall
disburse such proceeds to the Grand Kempinski Borrower for application to the
restoration upon satisfaction of the following conditions, among others:
(i)(A) such proceeds, if they are casualty proceeds, are less than 50% of the
outstanding principal amount of the Grand Kempinski Loan and (B) if such
proceeds are condemnation proceeds, less than 10% of the land has been taken;
(ii) the mortgagee is satisfied that the restoration will be completed on or
before the earliest to occur of (x) the maturity date of the loan, (y) such
time as may be required by applicable law or (z) the expiration of business
interruption insurance coverage, (iii) the mortgagee receives periodic
specified assurance of the progress of the restoration and (iv) the Grand
Kempinski Borrower has deposited with the mortgagee the amount of any
deficiency, as estimated by the mortgagee, in funds required for the
restoration.
All net proceeds not required (i) to be made available for the restoration
or (ii) to be returned to the Grand Kempinski Borrower as excess net proceeds
may be retained and applied by the mortgagee toward the payment of the Grand
Kempinski Loan, or, at the discretion of the mortgagee, to the Grand
Kempinski Borrower for such purposes as the mortgagee may designate. If there
are excess proceeds after restoration, the mortgagee will make such excess
available to the Grand Kempinski Borrower for its own use.
Approval Rights. On and after the Grand Kempinski Effective Maturity Date,
the mortgagee has control over the budget of the Grand Kempinski Borrower.
Prior thereto, the mortgagee has the rights described below under
"--Mezzanine Debt."
Without the mortgagee's consent (which may not be unreasonably withheld),
the Grand Kempinski Borrower may not enter into any management agreement
other than the management agreement in effect on the origination date of the
loan. If during the term of the Grand Kempinski Loan, the Grand Kempinski
Borrower wishes to designate another property manager acceptable to the
mortgagee, the Grand Kempinski Borrower must notify the mortgagee and obtain
its approval and must notify the Rating Agencies in writing and obtain from
the Rating Agencies written confirmation that the retention of the proposed
property manager will not result in a downgrade, withdrawal or qualification
of the then ratings of the Certificates. The mortgagee has the right to
direct the retention of a new property manager upon certain events described
above under "--Grand Kempinski Hotel: The Borrower; The Property--Property
Management."
S-172
<PAGE>
Provided that no event of default shall have occurred and be continuing,
the Grand Kempinski Borrower has the right to undertake any alteration,
improvement, demolition or removal of the Grand Kempinski Property or any
portion thereof (any such alteration, improvement, demolition or removal, a
"Grand Kempinski Alteration") so long as the Grand Kempinski Borrower
provides the mortgagee with prior written notice of any Grand Kempinski
Alteration which, when aggregated with all related Grand Kempinski
Alterations, involves an estimated cost exceeding $1,000,000 (a "Grand
Kempinski Material Alteration"). No Grand Kempinski Material Alteration may
be performed unless the Grand Kempinski Borrower has first deposited into the
Grand Kempinski FF&E Reserve Account the estimated cost of the Grand
Kempinski Material Alteration in excess of $1,000,000.
The Grand Kempinski Borrower may not, without the consent of the
mortgagee, amend, modify or waive the provisions of any commercial tenant
lease or terminate, reduce rents under or shorten the term of any commercial
tenant lease in any manner which would have a material adverse effect on the
Grand Kempinski Property taken as a whole.
Financial Reporting. Within 90 days following the expiration of each
calendar year and within 30 days following the end of each calendar month,
the Grand Kempinski Borrower must furnish to the mortgagee and to the Rating
Agencies: (i) a current rent roll; (ii) monthly and year-to-date operating
statements for each calendar month and annual operating statements for each
calendar year including actual capital expenditures and prepared according to
GAAP; (iii) a property balance sheet for the monthly and annual statement;
(iv) a comparison of budgeted and actual total income and total expenses for
each calendar year or for each month and year-to-date; (v) a calculation of
debt service coverage ratio; (vi) monthly or annual (as applicable) occupancy
statements including ADR; and (vii) occupancy and RevPAR analysis. Annual
statements must be audited by a firm of nationally recognized, independent
certified public accountants and state in comparative form all figures for
the prior calendar year.
Mezzanine Debt. The Grand Kempinski LP, which owns a 99.5% limited
partnership interest in the Grand Kempinski Borrower, is the borrower (in
such capacity, the "Grand Kempinski Mezzanine Borrower") under a mezzanine
loan (the "Grand Kempinski Mezzanine Loan") originated by Secore in the
amount of $7,000,000 on September 11, 1997. MSMC (the "Grand Kempinski
Mezzanine Lender") purchased the Grand Kempinski Mezzanine Loan from Secore
on September 11, 1997. The Grand Kempinski Borrower, in its partnership
agreement, has acknowledged that it is subject to certain provisions of the
Grand Kempinski Mezzanine Loan applicable thereto, as described below. The
Grand Kempinski Mezzanine Loan is secured by a pledge by the Grand Kempinski
Mezzanine Borrower of its partnership interest in the Grand Kempinski
Borrower and a pledge by the owner of 100% of the stock in the Grand
Kempinski GP of such stock (collectively, the "Grand Kempinski Pledged
Interests"). The Depositor and the Grand Kempinski Mezzanine Lender are
subject to an Intercreditor Agreement dated September 11, 1997 (the "Grand
Kempinski Intercreditor Agreement") relating to their respective rights under
the Grand Kempinski Loan and the Grand Kempinski Mezzanine Loan, which Grand
Kempinski Intercreditor Agreement has been assigned by the Depositor to the
Trustee. The Grand Kempinski Intercreditor Agreement provides that the Grand
Kempinski Mezzanine Lender must obtain a written confirmation from each
Rating Agency that the following actions will not result in the
qualification, downgrade or withdrawal of the ratings initially assigned to
the Certificates by such Rating Agency: (i) the transfer of any or all of its
interest in the Grand Kempinski Mezzanine Loan; (ii) its foreclosure on the
Grand Kempinski Pledged Interests, and (iii) the enforcement of its rights,
as described below, to direct the termination of the manager of the Grand
Kempinski Property and the approval of a replacement manager therefor and
execution of any related management agreement.
The Grand Kempinski Mezzanine Loan matures on May 1, 2006 and bears
interest at a fixed rate per annum equal to 9.87%. Commencing on November 1,
1997 and on the first business day of each month thereafter, the Grand
Kempinski Mezzanine Loan requires 103 consecutive monthly payments of
principal and interest. Pursuant to the Grand Kempinski Mezzanine Loan,
amounts in the Grand Kempinski Lockbox remaining after payment of debt
service and reserves under the Grand Kempinski Loan will be deposited into
the Mezzanine Loan Account to be applied (i) to payments due under the Grand
Kempinski Mezzanine Loan and (ii) if an event of default has occurred and is
continuing under the Grand Kempinski Mezzanine Loan, to the payment of
principal of the Mezzanine Loan, together with any yield maintenance premium
due thereon, until the Grand Kempinski Mezzanine Loan is paid in full.
The Grand Kempinski Mezzanine Loan may not be prepaid until October 1,
2000. Upon any prepayment of principal of the Grand Kempinski Mezzanine Loan
following an event of default thereon (unless such prepayment is related to a
prepayment of the Grand Kempinski Loan upon which a yield maintenance premium
is not required), the Grand Kempinski Mezzanine Borrowers are required to pay
a yield maintenance premium. Notwithstanding the foregoing, the partnership
agreement of the Grand Kempinski Borrower requires that any net casualty or
condemnation proceeds and any net proceeds
S-173
<PAGE>
of a refinancing or transfer of the Grand Kempinski Property, in each case in
excess of the portion thereof required to be applied under the Grand
Kempinski Loan, must be provided to the Grand Kempinski Mezzanine Borrower as
a partnership distribution in order to permit the prepayment of the Grand
Kempinski Mezzanine Loan.
The limited partnership agreement of the Grand Kempinski Borrower provides
that it may not cause or permit the transfer or encumbrance (other than
permitted encumbrances described in the Grand Kempinski Loan documents) of
the Grand Kempinski Property, or prepay or refinance the Grand Kempinski Loan
(other than a prepayment required by the terms of the Grand Kempinski Loan),
or amend the Grand Kempinski Loan, without the consent of its limited
partner, which is the Grand Kempinski Mezzanine Borrower. The Grand Kempinski
Mezzanine Borrower has agreed under the Grand Kempinski Mezzanine Loan not to
provide its consent to any such transfer or encumbrance of the Grand
Kempinski Property, or prepayment or refinancing of the Grand Kempinski Loan,
or amendment to the Grand Kempinski Loan (unless the Grand Kempinski Borrower
has provided for the repayment in full of the Grand Kempinski Mezzanine Loan)
without the consent of the Grand Kempinski Mezzanine Lender; provided, that a
partial prepayment of the Grand Kempinski Loan shall only require a partial
prepayment of the Grand Kempinski Mezzanine Loan. However, the Grand
Kempinski Mezzanine Lender has agreed with the Grand Kempinski Lender to
permit a refinancing of the Grand Kempinski Loan if certain conditions are
met including that the combined debt service coverage ratio shall be not less
than the combined debt service coverage ratio prior to refinancing and the
aggregate amount of debt shall not increase from that prior to the
refinancing. The Grand Kempinski Mezzanine Lender has agreed to permit a
one-time only sale or other transfer of the Grand Kempinski Property if it
determines in its reasonable discretion that the following factors, among
others, shall be satisfied: (i) the proposed transferee ("Grand Kempinski
Property Transferee") is a reputable entity, with sufficient financial worth
considering the obligations assumed and undertaken, as evidenced by
information reasonably requested by the Grand Kempinski Mezzanine Lender and
such Grand Kempinski Property Transferee shall comply in all respects with
all applicable criteria of the Rating Agencies, and (ii) an entity acceptable
to the Grand Kempinski Mezzanine Lender, in its reasonable discretion, shall
have executed and delivered to Grand Kempinski Mezzanine Lender an assumption
agreement in form and substance reasonably acceptable to the Grand Kempinski
Mezzanine Lender, evidencing such entity's agreement to abide and be bound by
the terms of the Grand Kempinski Mezzanine Loan.
In addition, the partnership agreement of the Grand Kempinski Borrower
requires that it obtain the approval of the Grand Kempinski Mezzanine
Borrower for its budget and for expenses above its budget for as long as the
Grand Kempinski Mezzanine Loan is outstanding. The Grand Kempinski Mezzanine
Borrower is prohibited from providing its consent to the budget and excess
expenses of the Grand Kempinski Borrower without the approval of the Grand
Kempinski Mezzanine Lender. Pursuant to the Grand Kempinski Intercreditor
Agreement, prior to the Grand Kempinski Effective Maturity Date, the Grand
Kempinski Mezzanine Lender shall have the right to approve the budget of the
Grand Kempinski Borrower; however, the mortgagee will have the right to
override any objection to the budget by the Grand Kempinski Mezzanine Lender.
At any time after the Grand Kempinski Effective Maturity Date, the mortgagee
shall have the right to control the approval of the budget.
Under the Grand Kempinski Intercreditor Agreement, the mortgagee must
obtain the consent of the Grand Kempinski Mezzanine Lender before it: (i)
modifies, amends or waives any provision of the Grand Kempinski Loan
documents, which consent shall not be unreasonably withheld or delayed, and
is not required for amendment or modification of the Grand Kempinski
Borrowers organizational documents made to satisfy Rating Agency requests;
(ii) consents to a transfer of the Grand Kempinski Property or a prepayment
or refinancing of the Grand Kempinski Loan (in each case, to the extent the
Trust has consent rights thereto); (iii) consents to (to the extent the Trust
has consent rights thereto): (A) any material demolition, improvement,
renovation, refurbishment or alteration to the property and (B) the entering
into, amendment or termination of a contractual obligation of the Grand
Kempinski Borrower, provided that if mortgagee reasonably determines that the
items in (A) and (B) above are necessary to keep the Grand Kempinski Property
in a competitive position or for health and safety reasons, the consent of
the Grand Kempinski Mezzanine Lender is not required. In addition, pursuant
to the Grand Kempinski Intercreditor Agreement, the mortgagee is required to
notify the Grand Kempinski Mezzanine Lender if the Grand Kempinski Borrower
seeks or requests a release of the lien of the Grand Kempinski Loan or seeks
or requests the mortgagee's consent to, or takes any action in connection
with or in furtherance of, a transfer of the Grand Kempinski Property or a
prepayment or refinancing of the Grand Kempinski Loan.
The Grand Kempinski Mezzanine Lender has certain rights to approve a
replacement property manager and to cause the termination of the property
manager upon an event of default under the Grand Kempinski Mezzanine Loan or
a decline in the combined debt service coverage ratio below 1.10. Pursuant to
the Grand Kempinski Intercreditor Agreement, the Grand Kempinski Mezzanine
Lender's rights to direct the termination of the property manager upon such
circumstances and to consent to the appointment of a replacement property
manager are subject to any rights of the mortgagee to take such actions
pursuant to the Grand Kempinski Loan.
S-174
<PAGE>
Under the Grand Kempinski Mezzanine Loan Agreement, the Grand Kempinski
Mezzanine Lender has the right, but not the obligation, to exercise the Grand
Kempinski Mezzanine Borrower's rights under the limited partnership agreement
of the Grand Kempinski Borrower (a) to cure an event of default by the Grand
Kempinski Borrower under the Grand Kempinski Loan and (b) to satisfy any
liens, claims or judgments against the Grand Kempinski Property, in either
case, unless the Grand Kempinski Mezzanine Borrower or the Grand Kempinski
Borrower shall be diligently pursuing remedies to the Grand Kempinski
Mezzanine Lender's sole satisfaction. The Grand Kempinski Mezzanine Borrower
is required to reimburse the Grand Kempinski Mezzanine Lender on demand for
any and all costs incurred by the Grand Kempinski Mezzanine Lender in
connection with curing such an event of default by the Grand Kempinski
Borrower under the Grand Kempinski Loan or satisfying any liens, claims or
judgments against the Grand Kempinski Property.
Under the Grand Kempinski Intercreditor Agreement, the mortgagee is
required to give to the Grand Kempinski Mezzanine Lender copies of notices of
events of default or notices of events that with the passage of time and
failure to cure, would result in the occurrence of a default or event of
default under the Grand Kempinski Loan, simultaneously with giving such
notices to the Grand Kempinski Borrower. Pursuant to the Grand Kempinski
Intercreditor Agreement, the mortgagee is restricted from accelerating the
Grand Kempinski Loan, and it shall not pursue any remedies under the Grand
Kempinski Loan unless the Grand Kempinski Mezzanine Lender fails to cure or
cause to be cured such default within 2 business days for any payment default
and 30 days for any other event of default, following the Grand Kempinski
Mezzanine Lender's receipt of written notice of the occurrence of such
default. However, the Grand Kempinski Intercreditor Agreement provides that
the requirements described in the previous sentence may be restricted or
limited as required in writing by any of the Rating Agencies.
S-175
<PAGE>
ARROWHEAD TOWNE CENTER: THE BORROWER; THE PROPERTY
The Loan. The Arrowhead Towne Center Loan was originated by TIAA on
December 28, 1994 and acquired by MSMC on September 30, 1996. The Arrowhead
Towne Center Loan had a principal balance at origination of $50,000,000 and
has a principal balance as of the Cut-Off Date of $48,899,962. It is secured
by, among other things, a deed of trust (the "Arrowhead Mortgage")
encumbering a super-regional mall located in Glendale, Arizona (the
"Arrowhead Property").
The Borrower. New River Associates (the "Arrowhead Borrower") is an
Arizona general partnership, formed to engage in the acquisition, ownership,
operation, management and leasing of the Arrowhead Property. The Arrowhead
Borrower owns no material asset other than the Arrowhead Property and related
interests. The general partners of the Arrowhead Borrower are the Westcor
Company II Limited Partnership, an Arizona limited partnership ("Westcor II")
(33 1/3%), Ho Bell Road Investment Corporation, a Delaware corporation (33
1/3%), and JCP Realty, Inc., a Delaware corporation (33 1/3%). Westcor II is
wholly owned by Westcor Realty Limited Partnership ("WRLP"), which in turn is
owned approximately 73% by the pension funds advised by AEW Capital Markets
and approximately 27% by various individuals, trusts and partnerships. Ho
Bell Road Investment Corporation is a wholly-owned subsidiary of GGP Homart
Limited Partnership, a Delaware limited partnership. JCP Realty, Inc. is a
wholly-owned subsidiary of J.C. Penney Company, Inc.
The Property. The Arrowhead Property was originally built in 1993 and
expanded in 1996. The Arrowhead Property is comprised of the Arrowhead
Borrower's fee simple interest in the Arrowhead Property, an enclosed 2-level
5-anchor, super-regional mall located in the City of Glendale, Arizona. The
Arrowhead Property is anchored by five self-owned national stores, Dillard's,
JC Penney, Robinson's-May, Montgomery Ward and Mervyn's and contains
approximately 1,132,244 square feet, of which approximately 394,297 square
feet is mall store GLA, and approximately 737,947 square feet is self-owned
anchor store GLA. The portion of Arrowhead Towne Center that secures the
Arrowhead Towne Center Loan consists of 394,297 square feet of mall stores.
Arrowhead Towne Center is situated on approximately 91.25 acres and contains
approximately 6,141 parking spaces. The ratio of parking spaces per 1,000
square feet of GLA is 5.42 to 1. An appraisal completed by Landauer
Associates, Inc. on September 4, 1997 determined a market value of
$105,000,000 for the Arrowhead Borrower's ownership interest in the Arrowhead
Property.
The table below summarizes the components of total square feet at the
Arrowhead Property as of June 30, 1997:
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA
----------- -----------
<S> <C> <C>
Self-Owned Anchor Stores
- --------------------------------
Dillards ....................... 204,198 18.0%
Robinson's-May ................. 191,500 16.9
JC Penney ...................... 140,387 12.4
Montgomery Ward ................ 119,862 10.6
Mervyn's ....................... 82,000 7.2
----------- -----------
Total Self-Owned Anchor Stores 737,947 65.2%
Mall Store Space ................ 394,297 34.8
----------- -----------
GLA Total ..................... 1,132,244 100.0%
=========== ===========
</TABLE>
Location/Access. The Arrowhead Property is located in Glendale, Arizona, a
northwest suburban community of Phoenix, Arizona. The city of Glendale is
Arizona's fourth largest city in terms of population and comprises over
one-quarter of the Phoenix northwest valley region's total area. The
Arrowhead Property is accessible for residents of the northwest valley and
city of Phoenix.
S-176
<PAGE>
Operating History. The following table shows certain information
regarding the operating history of the Arrowhead Property (see Underwritable
Cash Flow definition).
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1994 1995 1996 NOI
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues.............. $ 9,444,379 $12,121,878 $13,687,319 $14,090,273
Expenses.............. (4,465,328) (5,130,749) (5,170,534) (5,288,005)
------------- ------------- ------------- ---------------
Net Operating
Income............... $ 4,979,051 $ 6,991,129 $ 8,516,785 $ 8,802,268
============= ============= ============= ===============
</TABLE>
Occupancy History. The occupancy history for the mall store space of the
Arrowhead Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
PERCENT LEASED
--------------
<S> <C>
Occupancy as of:
- ------------------
June 30, 1997..... 89.2%
December 31,
1996.............. 87.1%
December 31,
1995.............. 81.0%
</TABLE>
Occupancy Cost. 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 13.29% for 1996.
Tenant Sales. The Arrowhead Property's historical mall store sales are
summarized as follows:
<TABLE>
<CAPTION>
SQUARE ANNUAL 1995 SALES ANNUAL 1996 SALES
FOOTAGE (1) (1)
--------- -------------------- --------------------
TOTAL PER TOTAL PER
1996 (000'S) SF (000'S) SF
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Mall Store Sales (2)
- -----------------------
Comparable Store ...... 236,341 $60,092 $254 $66,427 $281
Non-Comparable ........ 100,250 7,278 $230(3) 13,731 $208(3)
--------- --------- --------- --------- ---------
Total Mall Store .... 336,591 $67,370 $251 $80,158 $265
========= ========= =========
Gross Sales--Mall
Stores.................. $67,370 $80,158
========= =========
</TABLE>
- ------------
(1) Anchor tenants' sales are not available as the anchors, JC Penney,
Dillard's, Robinson's-May, Mervyn's and Montgomery Ward each are
self-owned anchors and are not required to report sales to the
Arrowhead Borrower.
(2) Based on the December 31, 1996 sales report. Information is based
solely upon the sales figures provided to the Arrowhead Borrower from
data provided by the tenants.
(3) Non-comparable store tenants may not be in occupancy for a full
calendar year and therefore non-comparable sales per square foot may
not be reflective of full year sales per square foot.
S-177
<PAGE>
Mall Stores. Arrowhead Towne Center's tenant base is primarily comprised
of national retailers such as The Limited, Lerner New York, Structure,
Victoria's Secret, Foot Locker, Champs, Eddie Bauer, Gymboree, Bombay Company
and The Gap. 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 ten 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(1)
<TABLE>
<CAPTION>
TENANT OR TENANT TENANT % OF TOTAL
PARENT COMPANY STORE NAME GLA GLA
- ---------------------- ---------------------- --------- ------------
<S> <C> <C> <C>
The Limited Inc. Compagnie Int'l 41,704 10.6%
Express
Lerner New York
Limited
The Lane Bryant
Victoria's Secret
Structure
Woolworth Corp. Champs 8,869 2.2
Foot Locker
Lady Foot Locker
Trans World Record Town 7,613 1.9
Entertainment Corp.
Chevy's Mexican Chevy's Mexican 7,114 1.8
Restaurant Restaurant
Spiegel, Inc. Eddie Bauer 6,000 1.5
The Gap, Inc. The Gap 5,277 1.3
Brown Group Inc. Famous Footwear 5,664 1.4
Naturalizer
Pocket Change Pocket Change 4,690 1.2
Charlotte Russe Charlotte Russe 7,291 1.8
Arizona Outfitters Arizona Outfitters 5,664 1.4
--------- ------------
Total/Weighted 99,886 25.3%
Average
(10 Largest)
Remaining (excluding 252,168 64.0
non-owned anchors)
Vacant Space 42,243 10.7
--------- ------------
Total (excluding 394,297 100.0%
========= ============
non-owned anchors)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF TOTAL
TENANT OR TENANT ANNUALIZED ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY BASE RENT BASE RENT PER SF
- ---------------------- ------------ ------------ --------------------
<S> <C> <C> <C>
The Limited Inc. $ 625,560 7.2% $15.00
Woolworth Corp. 211,442 2.4 23.84
Trans World 182,712 2.1 24.00
Entertainment Corp.
Chevy's Mexican 170,736 2.0 24.00
Restaurant
Spiegel, Inc. 150,000 1.7 25.00
The Gap, Inc. 131,925 1.5 25.00
Brown Group Inc. 131,877 1.5 23.28
Pocket Change 131,320 1.5 28.00
Charlotte Russe 109,365 1.3 15.00
Arizona Outfitters 107,616 1.2 19.00
------------ ------------ --------------------
Total/Weighted $1,952,553 22.4% $19.55
Average
(10 Largest)
Remaining (excluding 6,758,386 77.6 26.80
non-owned anchors)
Vacant Space 0 0 0
------------ ------------ --------------------
Total (excluding
non-owned anchors) $8,710,939 100.0% $24.74(2)
============ ============ ====================
</TABLE>
- ------------
(1) Based on June 30, 1997 rent roll.
(2) Does not include vacant square footage.
S-178
<PAGE>
Mall Store Lease Expiration. The following table shows scheduled lease
expirations of mall store GLA at the Arrowhead Property as of June 30, 1997,
assuming none of the tenants renew their leases, exercise renewal options or
terminate their leases prior to the scheduled expiration date.(1) See
"--Anchor Stores" below for anchor lease or REA expirations.
LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE ANNUAL CUMULATIVE
LEASES EXPIRING PERCENT OF PERCENT OF ANNUAL BASE RENT PERCENT OF PERCENT OF
YEAR EXPIRATION EXPIRING SF SF BASE RENT BASE RENT PER SF BASE RENT BASE RENT
- --------------------- ----------- ---------- ------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ............... 42,243 10.71% 10.71% $ 0 $ 0.00 0.00% 0.00%
1997.................. 8 11,533 2.92 13.64% 310,500 26.92 3.56 3.56%
1998.................. 8 8,050 2.04 15.68% 310,423 38.56 3.56 7.13%
1999.................. 3 5,376 1.36 17.04% 155,289 28.89 1.78 8.91%
2000.................. 4 2,833 0.72 17.76% 94,849 33.48 1.09 10.00%
2001.................. 13 14,155 3.59 21.35% 476,035 33.63 5.46 15.46%
2002.................. 4 4,879 1.24 22.59% 157,275 32.24 1.81 17.27%
2003.................. 67 110,400 28.00 50.59% 3,517,251 31.86 40.38 57.65%
2004.................. 10 20,877 5.29 55.88% 630,336 30.19 7.24 64.88%
2005.................. 10 31,680 8.03 63.92% 679,421 21.45 7.80 72.68%
2006.................. 18 81,198 20.59 84.51% 1,609,579 19.82 18.48 91.16%
2007 or Later......... 5 61,073 15.49 100.00% 769,981 12.61 8.84 100.00%
----------- ---------- ------------ ------------ ----------- ------------
Total/Weighted Avg. 150 394,297 100.00% $8,710,939 $24.74(2) 100.00%
=========== ========== ============ ============ =========== ============
</TABLE>
- ------------
(1) Based on the June 30, 1997 rent roll.
(2) Does not include vacant square footage.
Anchor Stores. The following table shows certain information for each of
Arrowhead Towne Center's anchor tenants (and its corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING OF
PARENT ANCHOR- OPERATING
COMPANY(1) OWNED/ LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P)/(MOODY'S) GLA COLLATERAL EXPIRATION EXPIRATION(2) TERMINATION
- -------------- ------------------------- ---------------- --------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dillard's...... Dillard Dept. Stores Inc. A+/A2 204,198 Anchor-Owned N/A 10/15/2008 2/14/2042
JC Penney...... J.C. Penney Co., Inc. A/A2 140,387 Anchor-Owned N/A 10/15/2008 2/14/2042
Robinson's-May May Department Stores A/A2 191,500 Anchor-Owned N/A 10/15/2008 2/14/2042
Montgomery
Ward.......... Montgomery Ward & Co.(3) NA/NA 119,862 Anchor-Owned N/A 10/15/2009 2/14/2042
Mervyn's....... Dayton Hudson Corp. BBB+/Baa1 82,000 Anchor-Owned N/A 10/15/2008 2/14/2042
</TABLE>
- ------------
(1) Reflects long-term debt rating as of September 22, 1997.
(2) Date of operating covenant expiration is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into
account co-tenancy or other operating requirements.
(3) Montgomery Ward & Co., the parent company of Montgomery Ward, filed for
bankruptcy protection under the Bankruptcy Code on July 7, 1997.
Operating Agreement. Pursuant to the Construction, Operation, and
Reciprocal Easement Agreement dated as of February 14, 1992 (the "Arrowhead
REA") among the Arrowhead Borrower, Montgomery Ward Land Corporation, JC
Penney Company, Inc., Mervyn's, Dillard Department Stores, Inc. and The May
Department Stores, each of the parties other than the Arrowhead Borrower (i)
covenanted to open its store on the opening date set forth therein (For
Montgomery Ward Land Corporation, October 15, 1994, and for each other
company October 15, 1993) and (ii) covenanted to operate its store for 15
consecutive years from such opening date under the trade name specified
therein ("Montgomery Ward," "Penney" or "JC Penney", "Mervyn's", "Dillard's"
and "Robinson's") (or in the case of each company, such other trade name as
it is doing business in 75% of its stores having a specified floor area,
ranging from 70,000 to 100,000 square feet, which operate under
S-179
<PAGE>
the foregoing specified trade names in Arizona as of the date of the
Arrowhead REA). The Arrowhead REA permits each store to be released from its
operating covenant if two of the other stores cease or fail to operate their
respective stores as required by the foregoing operating covenant and such
failure continues for six continuous months.
Market Overview and Competition. According to the September 4, 1997
Landauer Associates, Inc. appraisal, the Arrowhead Property trade area
(estimated by Landauer Associates, Inc. to be a 8-mile radius) is estimated,
as of 1996, to have 490,241 people in approximately 195,922 households with
an average household income of $42,957. These estimates represent a compound
annual growth rate from 1990 to 1996 of 2.56%, 2.83% and 2.09%, respectively.
Including the Arrowhead Property, there are a total of six super-regional
and regional malls located within the northwest Phoenix submarket.
The following table shows an overview of the competition to the Arrowhead
Property:
<TABLE>
<CAPTION>
APPROXIMATE DISTANCE
YEAR BUILT/ OWNER/ FROM ARROWHEAD ANCHORS/ SIZE
MALL/RETAIL PROPERTY RENOVATED MANAGEMENT (MILES) MALL STORES (SF)
<S> <C> <C> <C> <C> <C>
- ---------------------- ------------- ------------ -------------------- --------------- -----------
Subject Property
Arrowhead Towne
Center 1993 Westcor Dillard's 204,198
Robinsons-May 191,500
JC Penney 140,387
Montgomery Ward 119,862
Mervyn's 82,000
AMC Theaters 46,123
Mall Stores 348,174
-----------
Total 1,132,244
Competition
Metrocenter 1973/ Corporate 7 Sears 241,249
1996 Property Dillard's 340,000
Investor/ Robinsons-May 106,000
Westcor JC Penney 150,000
Macy's 161,600
Mall Stores 535,043
-----------
Total 1,533,892
Paradise Valley 1979 Westcor 15 Dillard's 200,000
Partners JC Penney 150,000
Robinsons-May 145,000
Sears 125,000
Macy's 180,000
Mall Stores 417,495
-----------
Total 1,217,495
Desert Sun 1981/ Westcor 12 Sears 144,275
1993 Partners Mervyn's 80,000
Montgomery Ward 115,000
JC Penney 148,750
Dillard's 124,200
Mall Stores 302,624
-----------
Total 914,849
</TABLE>
- ------------
Source: Landauer Associates, Inc.
S-180
<PAGE>
Environmental Report. A Phase I site assessment dated August 18, 1997 was
performed on the Arrowhead Property. The Phase I assessment did not reveal
any environmental liability that the Depositor believes would have a material
adverse effect on the borrower's business, assets or results of operations
taken as a whole. Nevertheless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loans--Environmental Law
Considerations."
Engineering Report. A Property Condition Report was completed on the
Arrowhead Property on December 23, 1994 by a third party due diligence firm.
The Property Condition Report concluded that the Arrowhead Property was
generally in good physical condition and identified approximately $25,000 in
deferred maintenance requirements.
Special Tax Assessments Affecting the Arrowhead Property. The Arrowhead
Borrower is party to a Development Agreement with the City of Glendale (the
"City") pursuant to which the borrower is required to pay semi-annual
assessments by the City in connection with the repayment of bonds which were
issued by the city to fund certain improvements on public land located near
the Arrowhead Property. As is the case with other tax assessments, pursuant
to local tax law the City's right to payment thereof is secured by a lien on
the Arrowhead Property which is prior to the lien of the mortgagee.
In conjunction with the Development Agreement, the City agreed to
reimburse the Arrowhead Borrower in an amount equal to 95.1515% of the
assessments paid by the Arrowhead Borrower which relate to reimbursable
off-site costs, as defined. Such payments to be made by the City are based on
the amount of privilege license taxes collected by the City on retail sales,
rental and construction activities during the preceding six-month period,
limited to 66% of annual collections. Any amounts not paid to the Arrowhead
Borrower by the City (due to declines in tax collections or otherwise) will
accumulate in a short-fall account and will earn interest at the prime rate.
The Arrowhead Borrower's initial assessment and, accordingly, the City's
first reimbursement payment to the Arrowhead Borrower began in June 1994.
Under the terms of the agreement, semi-annual assessment and reimbursement
payments will continue until the full assessed amount has been paid in full,
or until June 2014.
The notes to the financial statements of the Arrowhead Borrower for its
1996 fiscal year stated "Management believes that approximately $16,881,000
remains to be assessed to the Arrowhead Borrower, of which approximately
$14,925,000 will be subject to reimbursement by the City. The amount not
reimbursed by the City will be subject to reimbursement by the tenants of
Arrowhead Towne Center. During 1996 and 1995 the Arrowhead Borrower was
reimbursed by the City for all assessments paid ($1,424,000 in 1996 and
$1,454,000 in 1995)." See "Risk Factors--The Mortgage Loans--Special Tax
Assessments Affecting the Arrowhead Property."
Property Management. The Arrowhead Property is managed by Westcor II, the
33 1/3% owner of the Arrowhead Borrower (in such capacity, the "Arrowhead
Manager"), pursuant to a management agreement dated July 28, 1988 (the
"Arrowhead Management Agreement"), between the Arrowhead Manager and the
Arrowhead Borrower. The Arrowhead Management Agreement provides for (i) until
the fifth anniversary of the opening date of the Arrowhead Mall, defined as
the date on which 3 department stores of at least 120,000 square feet and at
least 60% of the mall stores are open for business (the "Arrowhead Opening
Date"), a management fee, payable monthly, of 4.00% of the minimum and
percentage rent collected by the Arrowhead Manager during the preceding
month, but in no event less than $8,000 per month and (ii) leasing
commissions (a) of $3.00 per square foot of GLA for new leases, and (b) in
the case of renewals or extensions of existing leases, $1.50 per square foot;
provided, that no such leasing commissions are payable until a separate
leasing agreement executed contemporaneously with the Arrowhead Management
Agreement has expired.
The Arrowhead Management Agreement is for an initial term ending on the
fifth anniversary of the Arrowhead Opening Date and, unless terminated by
either party by written notice given not later than 90 days prior to such
fifth anniversary, provides for automatic extensions on a year to year basis,
unless terminated by either party by notice to the other 90 days prior to the
next anniversary of the Arrowhead Opening Date. The Arrowhead Towne Center
Loan provides that the Arrowhead Property must be managed by (1) the
Arrowhead Manager; (2) an affiliate of the Arrowhead Manager so long as
Westcor II employs any two of the following persons in an executive capacity
with supervisory responsibilities: Robert L. Ward, Gilbert C. Chester, John
F. Rasor, Robert B. William and Robert G. Mayhall, or (3) a manager
reasonably acceptable to the mortgagee. The mortgagee does not have any right
to terminate the manager, even upon an event of default under the Arrowhead
Towne Center Loan.
The Arrowhead Manager is 100% owned by WRLP. In the industry trade
publication Shopping Center World (March 1996), WRLP has been ranked as the
32nd largest retail property manager in the nation, with approximately
14,041,620 square feet under management.
S-181
<PAGE>
ARROWHEAD TOWNE CENTER: THE LOAN
CERTAIN ARROWHEAD TOWNE CENTER LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO REFINANCING
SQUARE FOOT(1) VALUE RATIO(2) ACTUAL DSCR(3) DSCR(4)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date .. $124 46.6% 1.79x 1.90x
At Maturity ... $118 44.4% 1.93x 1.99x
</TABLE>
- ------------
(1) Based on the 394,297 square feet securing the Arrowhead Towne Center
Loan and the Cut-Off Date Principal Balance or Balloon Balance, as
applicable.
(2) Based on the September 4, 1997 Landauer Associates, Inc. appraised
market value and the Cut-Off Date Principal Balance or Balloon Balance,
as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Arrowhead Towne Center
Loan during the 12 months following the Cut-Off Date, and in the case
of Maturity Date Actual DSCR, 12 months of debt service on the
Arrowhead Towne Center Loan assuming a balance equal to the Balloon
Balance, a coupon equal to the Arrowhead Interest Rate and an
amortization term equal to 360 months.
(4) Based on (a) 1997 Underwritable Cash Flow and, (b) in the case of the
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
9.0% of the Cut-Off Date Principal Balance of the Arrowhead Towne
Center Loan, and, in the case of the Maturity Date Refinancing DSCR, an
annual debt service payment equal to 9.0% of the Balloon Balance.
Security. The Arrowhead Towne Center Loan is a non-recourse loan, secured
only by the fee estate of the Arrowhead Borrower in the Arrowhead Property
and certain other collateral (including without limitation, an assignment of
leases and rents and a pledge of funds in certain accounts and certain
residential development fees and improvements reimbursements payable to the
Arrowhead Borrower under the Development Agreement with the City of Glendale
described above). The mortgagee under the Arrowhead Towne Center Loan is the
insured under a title insurance policy, insuring that it has a valid and
enforceable lien on the Arrowhead Property subject to the exceptions listed
therein. The Arrowhead Borrower has executed an Environmental Indemnity
Agreement pursuant to which it is personally liable.
Payment Terms. The Arrowhead Towne Center Loan matures on January 1, 2002
(the "Arrowhead Maturity Date") and bears interest at a fixed rate per annum
of 8.60% (the "Arrowhead Interest Rate").
The payment date for the Arrowhead Towne Center Loan is the first day of
each month, and there is a 5-day grace period for a default in payment of
principal or interest. The Arrowhead Note does not specify the day count
fraction to be used to calculate interest; however, the Arrowhead Towne
Center Loan has been serviced as if such Note provided for interest on the
Arrowhead Towne Center Loan to be calculated on the basis of a 360-day year
of 30-day months. The Arrowhead Note requires equal monthly payments of
principal and interest in the sum of $388,000 (based on a thirty-year
amortization schedule and the Arrowhead Interest Rate). On the Arrowhead
Maturity Date, payment of the then outstanding balance of the principal, if
any, together with all accrued and unpaid interest and all other sums due
under the loan documents, is required. The principal balance of the Arrowhead
Towne Center Loan on the Arrowhead Maturity Date, based on scheduled
amortization, will be $46,597,454.
In the event the Arrowhead Borrower fails to pay any monthly installment
of principal or interest when due, then the Arrowhead Borrower is required to
pay to the mortgagee a late payment charge of 5% of the installment not paid.
Upon the occurrence of an event of default under the Arrowhead Towne Center
Loan, interest will accrue on the entire unpaid principal balance and any
other amounts, including interest then due thereon at a default rate equal to
12% per annum.
Prepayment. Voluntary prepayment in full is permitted under the Arrowhead
Towne Center Loan, provided no acceleration due to a default has occurred and
upon 60 days' prior notice and payment of a premium ("Arrowhead Yield
Maintenance Premium") equal to the greater of (a) the Arrowhead Yield
Maintenance or (b) 2% of the outstanding principal balance of the loan during
the third loan year, 1 1/2% during the fourth year and 1% thereafter. The
"Arrowhead Yield Maintenance" is the amount by which (i) the sum of the
Arrowhead Discounted Values of all remaining scheduled payments on the
Arrowhead Towne Center Loan, Note Payments, calculated at the Arrowhead
Discount Rate, exceeds (ii) the outstanding principal amount of the loan on
the date of prepayment. "Arrowhead Discounted Value" means the value of an
Arrowhead Note Payment based on the formula NP/(1+R/12)n, where NP means the
amount of a remaining scheduled payment, R means the Arrowhead Discount Rate,
and n means the number of months from the date of prepayment to the date of
the remaining scheduled payment in question. "Arrowhead Note Payments" means
each scheduled payment of monthly debt service under the Arrowhead Towne
Center Loan at the Arrowhead Interest Rate between the date of
S-182
<PAGE>
prepayment and the Arrowhead Maturity Date, including the scheduled repayment
of principal at the Arrowhead Maturity Date. The "Arrowhead Discount Rate" is
the yield of a U.S. Treasury security selected by mortgagee, as published in
The Wall Street Journal two weeks prior to the date of prepayment, having a
maturity and interest rate that are the same as, or if not identical, the
most closely corresponding to, those of the Arrowhead Towne Center Loan. The
Arrowhead Towne Center Loan may be prepaid without payment of the Arrowhead
Yield Maintenance Premium, in full only, during the 4 months immediately
preceding the Arrowhead Maturity Date provided no event of default has
occurred resulting in an acceleration of the Arrowhead Towne Center Loan. No
payment of the Arrowhead Yield Maintenance Premium is required if prepayment
occurs due to application of insurance or condemnation proceeds or
application of escrow proceeds. If the Arrowhead Borrower tenders payment
upon acceleration of the Arrowhead Towne Center Loan due to an event of
default prior to the date on which the Arrowhead Borrower is eligible to make
voluntary prepayment, the Arrowhead Borrower must pay the Arrowhead Yield
Maintenance Premium.
Release. Provided that no event of default has occurred and is continuing
under the Arrowhead Towne Center Loan documents, the Arrowhead Borrower has
the right, without consent of mortgagee, to release one parcel of the
Arrowhead Property (the "Arrowhead Released Parcel") for the purpose of
either conveying or ground leasing such Arrowhead Released Parcel to a third
party for the construction of a department store reasonably acceptable to
mortgagee containing a minimum of 150,000 net rentable square feet. The
Arrowhead Borrower is not required to pay down the Arrowhead Towne Center
Loan in connection with such release. Such release is subject to the
mortgagee's approval of the location of the Arrowhead Released Parcel and the
satisfaction of certain other conditions.
Lockbox and Reserves. The Arrowhead Towne Center Loan does not require a
lockbox or reserves other than payment to the mortgagee or its agent monthly
until the Note is fully paid of a sum equal to all real estate taxes next due
on the Arrowhead Property (as estimated by the mortgagee), less all sums paid
therefor, divided by the number of months to elapse before one month prior to
the date when such taxes will become due and payable.
Mortgagee has the right at any time and from time to time to engage an
independent consultant to survey the adequacy of the maintenance of the
Arrowhead Property, and which if found to be inadequate, mortgagor shall
reimburse mortgage for the cost of such inspection.
Transfer of Properties and Interest in the Arrowhead Borrower;
Encumbrance; Other Debt. The Arrowhead Borrower is generally prohibited from
transferring or encumbering the Arrowhead Property except that the Arrowhead
Borrower has the right exercisable once to sell, assign or transfer (each, an
"Arrowhead Permitted Transfer") the Arrowhead Property to (a) a real estate
investment trust approved by mortgagee (an "Arrowhead REIT Transferee"), or
(b) an entity (an "Arrowhead Non-REIT Transferee") with (i) a verifiable net
worth of at least $50,000,000 or if such entity is a pension fund, an entity
with total assets of at least $10,000,000,000 and a rating acceptable to
mortgagee issued by an agency acceptable to mortgagee or, to the extent such
entity does not have a rating, such entity has submitted to mortgagee its
financial statements which are in form and substance acceptable to mortgagee,
and (ii) substantial experience in the ownership, operation, and management
of enclosed regional malls similar in size to the Arrowhead Property which
contain in the aggregate a minimum of 1,000,000 square feet of GLA, or (c) an
entity (an "Arrowhead Qualified Affiliate Transferee") which is a wholly
owned and controlled affiliate of an Arrowhead Permitted Transferee (as
hereinafter defined), so long as (A) certain conditions relating to tenancy
are satisfied, (B) no default exists, (C) concurrently with the transfer of
the Arrowhead Property, the proposed Arrowhead REIT Transferee, Arrowhead
Non-REIT Transferee, or Arrowhead Qualified Affiliate Transferee (each, an
"Arrowhead Permitted Transferee"), as applicable, shall expressly assume the
loan, (D) the debt service coverage ratio for the 12 month period immediately
preceding such sale, assignment, or transfer shall not be less than 1.5 to
1.0, (E) the loan to value ratio does not exceed 65% as of the proposed date
of sale, transfer or assignment, (F) the Arrowhead Property continues to be
managed by (1) an affiliate of Westcor II so long as Westcor II continues to
employ any two of the following people in an executive capacity with
supervisory responsibilities: Robert L. Ward, Gilbert W. Chester, John F.
Rasor, Robert B. William, and Robert G. Mayhall, or (2) a manager reasonably
acceptable to the mortgagee and (G) the Arrowhead Borrower pays to the
mortgagee $150,000, plus all of mortgagee's reasonable expenses.
Certain transfers of partnership interests in, and changes to the
composition of Arrowhead Borrower (each, an "Arrowhead Permitted Partnership
Transfer") are permitted under the Arrowhead Towne Center Loan and are not
deemed to be an exercise of the right to sell, assign or transfer the
Arrowhead Property so long as certain conditions are met depending on the
nature of the transfer and, in all cases, so long as the condition set forth
in Subsection (F) above is satisfied.
The Arrowhead Mortgage prohibits the Arrowhead Borrower from incurring
other liens on the Arrowhead Property but does not otherwise prohibit the
Arrowhead Borrower from incurring indebtedness.
S-183
<PAGE>
Insurance. The Arrowhead Borrower is generally required to maintain such
general liability and casualty insurance as may be reasonably required from
time to time by mortgagee, insuring against loss or damage by, or abatement
of rental income resulting from, fire, earthquake, boiler explosion, perils
insured against under extended coverage insurance, vandalism, malicious
mischief and sprinkler leakage and such other hazards, casualties and
contingencies (including but not limited to, war risk insurance, if such war
risk insurance is available at reasonable rates) in such amounts and for such
periods as may be reasonably required by mortgagee, and is required to pay
when due any premium on such insurance. All such insurance shall be carried
by companies approved by mortgagee; provided, that any such company shall be
deemed approved if it has an Alfred M. Best Company, Inc. rating of A:X or
better, is licensed in Arizona and has actively been in business for at least
five years.
Condemnation and Casualty. If the Arrowhead Property is condemned or
damaged or destroyed by fire or other casualty, the Arrowhead Borrower is
permitted to collect, adjust and compromise any losses of less than $500,000
and, subject to the provisions below, the mortgagee may collect, adjust and
compromise any losses in excess of $500,000. The mortgagee may apply
condemnation or casualty proceeds at its option as follows: (a) as a
prepayment of the Arrowhead Towne Center Loan without payment of any
prepayment premium, (b) to restoring the Arrowhead Property, or (c) by
delivering same to the Arrowhead Borrower.
Notwithstanding anything above to the contrary, in the event of any
condemnation or loss or damage to the improvements on the Arrowhead Property
which exceeds $500,000, mortgagee shall make the condemnation or casualty
proceeds available for the restoration of the improvements so damaged,
subject to the following conditions: (a) that the Arrowhead Borrower is not
then in default under the loan; (b) that Arrowhead Borrower can
satisfactorily demonstrate that the debt service coverage ratio following
restoration and repair will be at least 1.10 to 1; (c) that mortgagee shall
first be given satisfactory proof that such improvements have been fully
restored; (d) that in the event such proceeds are insufficient, Arrowhead
Borrower deposits funds which, together with the condemnation or casualty
proceeds, shall be sufficient to restore the Arrowhead Property; (e) that in
the event Arrowhead Borrower shall fail within a reasonable time, subject to
delays beyond its control, to restore or rebuild such improvements, then
mortgagee, at its option, may so restore or rebuild; and (f) that any excess
funds shall be applied to repayment of the loan without payment of any
prepayment premium. In the event such conditions are not satisfied, then
mortgagee can elect the disposition of such proceeds in its discretion as
described in the first paragraph of this section.
Approval Rights. The Arrowhead Towne Center Loan documents provide that
the Arrowhead Borrower has the right, provided that no event of default under
the Arrowhead Towne Center Loan documents has occurred and is continuing,
without consent of the mortgagee to undertake alterations, improvement,
demolition or removal as required for (a) alterations made to tenant spaces
pursuant to leases approved by mortgagee, (b) alterations as contemplated in
the construction budget dated December 27, 1994 approved by mortgagee or (c)
alterations which are cosmetic or non-structural in nature. Any alteration
that does not meet the foregoing criteria may be undertaken only with the
mortgagee's written consent. The Arrowhead Borrower may not enter into or
modify a lease without the mortgagee's prior written consent except for (a)
leases that have a term of less than one year or (b) leases that are for not
more than 5,000 net rentable square feet, are on forms previously approved by
mortgagee, provide for the payment of fair market rents, are on commercially
reasonable terms negotiated at arm's length, and in the case of a
modification, shall not cause the debt service coverage ratio to be less than
1.3 to 1 for the 12-month period following such modification. The Arrowhead
Borrower may not, without the mortgagee's written consent, terminate a lease
unless (a) the lessee thereunder is in default or (b) such termination is
pursuant to the Arrowhead Borrower's reasonable and prudent business
judgment, and the lease covers not more than 5000 net rentable square feet;
provided, that such termination shall not cause the debt service coverage
ratio to be less than 1.3 to 1 for the 12-month period following such
termination.
Financial Reporting. Within 90 days following the expiration of each
fiscal year, the Arrowhead Borrower must furnish to the mortgagee a certified
earning and expenses statement, prepared by an independent certified public
accountant acceptable to the mortgagee, in accordance with generally accepted
accounting principles, and verified by the Arrowhead Borrower. In addition,
once per year, within 10 days after demand therefor and, in any event, within
90 days following the expiration of each fiscal year of the Arrowhead
Borrower, the Arrowhead Borrower must (a) use reasonable efforts to obtain
from all tenants of the Arrowhead Property and to furnish to the mortgagee
statements showing all sales made therein by such tenants and (b) provide an
operating and capital expenditure budget for the Arrowhead Borrower's
forthcoming fiscal year. Further, within 5 days following the end of each
fiscal quarter, the Arrowhead Borrower must furnish to mortgagee a current
rent roll of the Arrowhead Property certified by the Arrowhead Borrower.
S-184
<PAGE>
MARK CENTERS POOL: THE BORROWERS; THE PROPERTY
The Loan. The Mark Centers Pool Loan was originated by Secore on October
4, 1996 and acquired by MSMC on October 4, 1996. The Mark Centers Pool Loan
had a principal balance at origination of $45,929,800 and has a principal
balance as of the Cut-Off Date of approximately $45,449,576. It is secured by
a single Mortgage (the "Mark Centers Pool Mortgage") encumbering 17 community
and neighborhood retail shopping centers located in 7 mid-Atlantic and
southeastern states (the "Mark Centers Pool Properties").
The Borrowers. The borrowers under the Mark Centers Pool Loan (each, a
"Mark Centers Pool Borrower Entity" and, collectively, the "Mark Centers Pool
Borrower") are 10 special-purpose limited partnerships. Their respective sole
general partners (the "Mark Centers Pool Borrower GPs") are 10
special-purpose corporations, each organized in the jurisdiction of
organization of its respective, similarly named Mark Centers Pool Borrower
Entity, where its respective Mark Centers Pool Property or Properties are
located. The limited partnership agreement of each Mark Centers Pool Borrower
Entity provides that it is organized for the sole purpose of owning its
respective Mark Centers Pool Property or Properties and carrying on all
incidental or related activities. The organizational documents of each Mark
Centers Pool Borrower GP provide that it was organized solely for the purpose
of acting as general partner of its respective Mark Centers Pool Borrower
Entity. Mark Centers Limited Partnership, a Delaware limited partnership
("MCLP"), is the sole limited partner of each Mark Centers Pool Borrower
entity, and each Mark Centers Pool Borrower GP is a direct, wholly-owned
subsidiary of MCLP. MCLP conducts substantially all the activities of Mark
Centers Trust, a Maryland real estate investment trust (the "Mark Centers
Pool REIT"), which is a public company traded on the New York Stock Exchange
and which owns an 85% interest in MCLP as its sole general partner. The
chairman and chief executive officer of the Mark Centers Pool REIT is Marvin
L. Slomowitz.
The Properties. The Mark Centers Pool Properties securing the Mark Centers
Pool Loan are comprised of the Mark Centers Borrower's fee or leasehold
interest in 17 community and neighborhood retail shopping centers located in
Pennsylvania, Alabama, South Carolina, New York, Virginia, Georgia and
Florida. 10 of the Mark Centers Pool Properties are located in Pennsylvania.
The Mark Centers Pool Properties contain approximately 2,317,463 square feet
of GLA. The Mark Centers Pool Properties range in size from approximately
45,380 square feet of GLA to approximately 381,678 square feet of GLA, with
an average size of approximately 136,321 square feet of GLA. As of June 30,
1997, the average occupancy rate for the Mark Centers Pool Properties was
approximately 93% and the aggregate annualized base rent was approximately
$8,739,141 or approximately $3.77 per square foot of GLA. The aggregate
appraised value of the Mark Centers Pool Properties, based on the appraisals
performed by CB Commercial Real Estate Group, Inc., from May 5, 1996 to July
11, 1996 is $71,200,000, with the values for the individual Mark Center Pool
Properties ranging from $11,900,000 to $1,800,000. As of June 30, 1997 no
single Mark Centers Pool Property accounted for more than 16.5% of the total
GLA, more than 14.4% of annualized base rent from the Mark Centers Pool
Properties or more than 17.9% of the Net Operating Income in respect to the
12 months ended December 31, 1996.
Geographic Location. The following table summarizes the geographic
location of the Mark Centers Pool Properties based on square footage of GLA:
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF GLA
STATE GLA TOTAL GLA LEASED
- ------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Pennsylvania.............. 1,136,173 49.0% 98.4%
Alabama................... 584,901 25.2 83.5
South Carolina............ 133,878 5.8 91.0
New York.................. 128,479 5.5 95.0
Virginia.................. 118,535 5.1 100.0
Georgia................... 113,367 4.9 96.0
Florida................... 102,130 4.4 79.0
----------- ------------ ------------
Total/Weighted Average 2,317,463 100.0% 93.2%
=========== ============ ============
</TABLE>
Operating History. The following table shows certain information regarding
the operating history of the Mark Centers Pool Properties.
ADJUSTED NET OPERATING INCOME (000S)
<TABLE>
<CAPTION>
UNDERWRITABLE
1994 1995 1996 NOI
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Revenues............... $ 9,378 $10,686 $11,217 $11,491
Expenses............... (2,933) (3,042) (3,626) (3,757)
--------- --------- --------- ---------------
Net Operating
Income................ $ 6,444 $ 7,643 $ 7,591 $ 7,734
========= ========= ========= ===============
</TABLE>
S-185
<PAGE>
Occupancy History. The following table summarizes the occupancy history
of the Mark Centers Pool Properties:
<TABLE>
<CAPTION>
OCCUPANCY PERIOD/DATE OCCUPANCY
- ------------------------- -------------
<S> <C>
June 30, 1997 .......... 93%
1996 ................... 90%
1995 ................... 94%
</TABLE>
Sales History. The following table shows certain information regarding the
1995 and 1996 sales history for certain tenants at Mark Centers Pool
Properties:
<TABLE>
<CAPTION>
ANNUAL 1995 SALES ANNUAL 1996 SALES
---------------------- ----------------------
GLA (SF) PER PER
TENANT NAME JUNE 30, 1997 TOTAL SF TOTAL SF
- ------------------------ --------------- -------------- ------ -------------- ------
<S> <C> <C> <C> <C> <C>
Kmart................... 291,627 $ 45,915,113 $157 $ 45,447,228 $156
Ames.................... 192,270 22,947,021 119 22,318,099 116
Price Chopper........... 100,519 37,398,427 372 39,223,907 390
Shoprite Supermarket ... 52,924 28,723,840 543 29,809,255 563
Beacon 8 Theater........ 24,780 NA NA 1,372,042 55
WalMart................. 111,970 47,633,824 425 48,258,621 431
Bruno's Inc............. 47,982 5,764,081 120 4,972,307 104
Big Lots................ 60,537 5,146,384 85 5,653,429 93
Bi-Lo................... 60,094 10,430,889 174 7,069,374 161
Food Lion............... 29,000 7,502,091 259 6,927,170 239
--------------- -------------- ------ -------------- ------
Total/Weighted Average 918,779 $182,737,850 $204 $179,870,135 $201
=============== ============== ====== ============== ======
</TABLE>
Description of the Tenants. Approximately 71.1% of the leased GLA of the
Mark Centers Pool Properties is leased as of June 30, 1997 to tenants with
leased area greater than or equal to 15,000 square feet per lease, which
include leases of supermarkets, drug stores, and value-oriented department
furniture and apparel stores. Tenants in the Mark Centers Pool Properties
generally offer basic consumer necessities, such as food, health and beauty
aids, moderately priced clothing, furniture and home improvement supplies.
The largest single tenant of the Mark Centers Pool Properties is Kmart
whose 3 leases at the Mark Centers Pool Properties generated less than 8.5%
of the annualized base rent of the Mortgaged Properties as of June 30, 1997.
Other than Kmart, no single tenant represented more than 4.0% of the
annualized base rent of the Mark Centers Pool Properties as of June 30, 1997.
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT -- MARK CENTERS POOL LOAN
<TABLE>
<CAPTION>
TENANT OR TENANT NUMBER OF TENANT
PARENT COMPANY(1) STORE NAME LOCATIONS GLA
- ------------------------- -------------------- ----------- -----------
<S> <C> <C> <C>
K-Mart Corp. Kmart 3 291,627
Ames Dept. Stores Ames 3 192,270
Price Chopper Price Chopper 3 100,519
ShopRite Group Shoprite Supermarket 1 52,924
Beacon 8 Theater New Smyrna Beacon 8 1 24,780
Theater
Wal-Mart Stores WalMart 1 111,970
Bruno's Inc. Bruno's Inc. 1 47,982
Consolidated Stores Corp. Big Lots 2 60,537
Royal Ahold Bi-Lo 2 60,094
Food Lion, Inc. Food Lion 1 29,000
-----------
Total/Weighted Average 971,703
Other Major Tenants (more 109 986,083
than 5000sf)
Remaining Tenants 98 200,641
Vacant Space 53 159,036
----------- -----------
Total 278 2,317,463
=========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF TOTAL ANNUALIZED
TENANT OR TENANT % OF TOTAL ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY(1) GLA BASE RENT BASE RENT PER SF
- ------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
K-Mart Corp. 12.6% $ 717,953 8.2% $ 2.46
Ames Dept. Stores 8.3 318,440 3.6 1.66
Price Chopper 4.3 301,000 3.4 2.99
ShopRite Group 2.3 281,278 3.2 5.31
Beacon 8 Theater 1.1 223,020 2.6 9.00
Wal-Mart Stores 4.8 219,975 2.5 1.96
Bruno's Inc. 2.1 192,000 2.2 4.00
Consolidated Stores Corp. 2.6 190,611 2.2 3.15
Royal Ahold 2.6 190,088 2.2 3.16
Food Lion, Inc. 1.3 181,250 2.1 6.25
----------- ------------ ------------ ------------
Total/Weighted Average 41.9% $2,815,615 32.2% $ 2.90
Other Major Tenants (more 42.6 3,443,052 39.4 3.49
than 5000sf)
Remaining Tenants 8.7 2,480,474 28.4 12.36
Vacant Space 6.9 0 0.0 0.00
----------- ------------ ------------ ------------
Total 100.0% $8,739,141 100.0% $ 4.04(2)
=========== ============ ============ ============
</TABLE>
- ------------
(1) The parent company may not be the obligor under the applicable lease.
(2) Excludes vacant space.
S-186
<PAGE>
Lease Expiration. The following table shows scheduled lease expirations
of the Mark Centers Pool Properties as of June 30, 1997, assuming none of the
tenants renew their leases, exercise renewal options or terminate their
leases prior to the scheduled expiration date:(1)
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE ANNUAL CUMULATIVE
LEASES EXPIRING PERCENT OF PERCENT OF ANNUAL BASE RENT PERCENT OF PERCENT OF
EXPIRATION YEAR EXPIRING SF SF SF BASE RENT PER SF BASE RENT BASE RENT
- ---------------------- ----------- ----------- ------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ................ 53 159,036 6.9 % 6.9 % $ 0 $ 0 0 % 0 %
No Expiration Date(2) 7 9,493 0.4 7.3 % 58,734 6.19 0.7 0.7 %
1997 .................. 40 101,760 4.4 11.7 % 615,741 6.05 7.0 7.7 %
1998 .................. 34 174,089 7.5 19.2% 929,529 5.34 10.6 18.4%
1999 .................. 38 699,168 30.2 49.3% 1,966,898 2.81 22.5 40.9%
2000 .................. 26 223,640 9.7 59% 858,159 3.84 9.8 50.7%
2001 .................. 30 301,613 13.0 72% 1,164,821 3.86 13.3 64.0%
2002 .................. 19 103,805 4.5 76.5% 458,677 4.42 5.2 69.3%
2003 .................. 8 50,456 2.2 78.7% 355,717 7.05 4.1 73.3%
Thereafter ............ 23 494,403 21.3 100% 2,330,865 4.71 26.7 100%
----------- ----------- ------------ ------------ ----------- ------------
Total/Weighted
Average............... 278 2,317,463 100.0% $8,739,141 $4.04(3) 100.0%
=========== =========== ============ ============ =========== ============
</TABLE>
- ------------
(1) Lease expiration schedule is based on the rent roll as of June 30,
1997.
(2) The No Expiration Date category includes those leases which are listed
on the rent roll as being either month-to-month, or having expirations
that are prior to the date of the rent roll, or having no expiration
date.
(3) Excludes vacant space.
Property Summary. The following table sets forth certain information
regarding location, GLA, occupancy history, financial history, and the
tenancy of the Mark Centers Pool Properties:
S-187
<PAGE>
THE MARK CENTERS POOL PROPERTY SUMMARY
<TABLE>
<CAPTION>
OCCUPANCY
--------------------
ALLOCATED TOTAL YEAR BUILT/ JUNE 30,
PROPERTY NAME LOCATION LOAN AMOUNT SF/UNITS RENOVATED 1995 1996 1997
- ---------------------- -------------------- ----------- --------- ----------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
25th Street Plaza...... Easton, PA $ 7,996,805 131,477 1955/1987 100% 99% 100%
Monroe Plaza........... Stroudsburg, PA 3,809,944 130,569 1974 100% 100% 100%
Northside Mall......... Dothan, AL 3,411,058 381,678 1969 89% 92% 87%
Birney's Plaza......... Moosic, PA 3,380,086 196,399 1972/1992 99% 99% 99%
Mountainville Plaza ... Allentown, PA 3,189,401 114,801 1959/1993 99% 97% 97%
Martintown Plaza....... North Augusta, SC 2,915,495 133,878 1974/1990 95% 91% 91%
Shillington Plaza...... Reading, PA 2,893,230 150,742 1974/1994 100% 100% 100%
Clound Springs Plaza Fort Ogelthorpe, GA 2,657,421 113,367 1968/1991 100% 98% 96%
Shopping Ctr. ........
Midway Plaza........... Opelika, AL 2,504,438 203,223 1966/1986 71% 63% 77%
Troy Plaza............. Troy, NY 2,408,353 128,479 1966/1988 100% 97% 95%
Kingston Plaza......... Kingston, PA 2,280,900 62,824 1982/1993 100% 100% 100%
Plaza 15............... Lewisburg, PA 2,167,102 113,600 1976/1994 89% 96% 96%
New Smyrna Beach....... New Smyrna Beach, FL 1,535,575 102,130 1963/1993 93% 57% 79%
Kmart/Shamokin Dam ... Shamokin Dam, PA 1,252,664 92,171 1979/1992 100% 100% 100%
Dunmore Plaza.......... Dunmore, PA 1,136,492 45,380 1967/1984 100% 100% 100%
Ames Plaza............. Shamokin, PA 1,018,835 98,210 1967 100% 60% 92%
Kings Fairground....... Danville, VA 891,777 118,535 1972 89% 94% 100%
----------- --------- ----------- ---- -------- ----
Total/Weighted
Average............... $45,449,576 2,317,463 94% 90% 93%
=========== ========= ==== ======== ====
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOI ANNUALIZED PRIMARY TENANTS WITH
---------------------------------- ANNUALIZED BASE RENT GREATER THAN
UNDER- BASE RENT PSF 15,000 SF
PROPERTY NAME 1995 1996 WRITABLE 6/30/97 6/30/97 6/30/97(1)
- -------------------------- ---------- ---------- ---------- ---------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
25th Street Plaza.......... $1,171,304 $1,360,676 $1,209,270 $1,262,295 $9.60 F.W. Woolworth (1998)
Monroe Plaza............... 614,866 631,653 554,339 453,498 $3.47 Shoprite Supermarket (2005),
Ames Department Store (1999)
Northside Mall............. 495,305 662,950 675,225 797,772 $2.40 (2)
Birney's Plaza............. 581,001 597,717 606,341 662,671 $3.41 Kmart (1999), Big Lots (1998)
Mountainville Plaza........ 516,368 545,770 516,813 597,743 $5.37 (3)
Martintown Plaza........... 439,332 465,842 549,780 596,912 $4.90 Belk Store Services (2004),
Bruno's
Inc. (2010)
Shillington Plaza.......... 108,827 553,166 540,183 510,700 $3.39 Kmart (1999), Weiss Market (1999)
Clound Springs Plaza 365,859 374,918 163,587 497,759 $4.57 Big Lots (2000), Food Lion (2011),
Shopping Ctr. ............ W.S. BadCock Corp. (2000)
Midway Plaza............... 394,751 463,537 574,118 609,994 $3.90 (4)
Troy Plaza................. 376,461 428,183 254,653 447,938 $3.67 Ames (2001), Price Chopper (1999)
Kingston Plaza............. 386,968 333,559 369,780 388,440 $6.18 Price Chopper (2006)
Plaza 15................... 148,173 309,164 434,790 384,538 $3.53 G.C. Murphy (2001), Bi-Lo (2001)
New Smyrna Beach........... 100,979 148,408 352,854 581,073 $7.20 New Smyrna Beacon 8 Theater (2005)
Kmart/Shamokin Dam ........ 233,695 243,686 224,235 252,289 $2.74 Kmart (2004)
Dunmore Plaza.............. 187,077 197,533 177,757 151,739 $3.34 Price Chopper (2000)
Ames Plaza................. 210,361 226,343 204,206 206,506 $2.29 Bi-Lo (1999), Ames Distributing
Store (2000)
Kings Fairground........... 193,613 196,885 209,642 337,274 $2.85 Schewel Furniture (2001), The
Kroger
Company (2002)
---------- ---------- ---------- ---------- ----------
Total/Weighted Average .... $6,524,940 $7,739,990 $7,617,573 $8,739,141 $4.04(5)
========== ========== ========== ========== ==========
</TABLE>
- ------------
(1) Lease expirations are listed assuming no renewal options are exercised.
(2) WalMart (1999), Goody's Store (2003), Montgomery Ward (1999), Books A
Million (2006)Montgomery Ward (1999), Troy State University (1998)
(3) Kling's Handyman (1999), Acme Markets Store (1999), Thrift Drug (1999)
(4) Office Depot (2007), Ben Franklin Crafts (2021), Eastwynn Theaters
(2005), Bargain Town Store (1998)
(5) Excludes vacant space.
S-188
<PAGE>
Ground Leases. At each of 11 Mark Centers Pool Properties, all or a
portion of the underlying land is leased to the respective Mark Centers Pool
Borrower Entity pursuant to one or more ground leases (collectively, the
"Mark Centers Pool Ground Leases").
8 Mark Centers Pool Ground Leases (each, a "Mark Centers Pool Intercompany
Ground Lease"), each for a Mark Centers Pool Property in Pennsylvania, are
between MCLP, as lessor, and the respective Mark Centers Pool Borrower
Entity, as lessee. The term of each Mark Centers Pool Intercompany Ground
Lease runs through September 30, 2032 after 1 7-year extension option. The
rent under each Mark Centers Pool Intercompany Ground Lease is $1,000 per
year through September 30, 2025 and, thereafter, fair market rental value as
determined by the lessor and the lessee. The Mark Centers Intercompany Ground
Leases do not provide that the mortgagee has control of the disbursements of
casualty and condemnation proceeds. However, the fee interest of the lessor
under each of the Mark Centers Pool Intercompany Ground Leases is subject and
subordinate to the lien of the Mark Centers Pool Mortgage. See "Risk
Factors--The Mortgage Loans--Leasehold Interests" above.
Monroe Plaza, which is subject to a Mark Centers Pool Intercompany Ground
Lease, is also subject to 2 Mark Centers Pool Ground Leases with unaffiliated
lessors, each for a contiguous parcel of underlying land. In addition, 3 Mark
Centers Pool Properties not in Pennsylvania are each subject to a Mark
Centers Pool Ground Lease with an unaffiliated lessor. Of these, the Mark
Centers Pool Ground Lease for Northside Plaza is for a portion of the
underlying land only; the rest of the land is owned in fee by the applicable
Mark Centers Pool Borrower Entity.
Environmental Reports. Environmental Site Assessments have been performed
on the Mark Centers Pool Properties within the past two years. The
Environmental Site Assessments did not reveal any environmental liability
that the Depositor believes would have a material adverse effect on the
borrower's business, assets or results of operations taken as a whole.
Nevertheless, there can be no assurance that all environmental conditions and
risks were identified in such environmental assessments. See "Risk
Factors--The Mortgage Loans--Environmental Law Considerations."
Engineering Report. Property Condition Reports were completed by a third
party due diligence firm. The Property Condition Reports concluded that the
Mark Centers Pool Properties were generally in good physical condition. At
origination, the Mark Centers Pool Borrower established a deferred
maintenance reserve account and made an initial deposit equal to $254,956 to
fund the cost of addressing the identified items.
Property Management. The Mark Centers Pool Properties are managed by MCLP
pursuant to a management agreement, dated as of October 3, 1996 (the "Mark
Centers Pool Management Agreement"), between MCLP and the Mark Centers Pool
Borrower. The Mark Centers Pool Management Agreement provides for a
management fee of $25,000 per annum for each Mark Centers Pool Property,
payable annually. The Mark Centers Pool Management Agreement is for a term
ending October 3, 2021. MCLP is an affiliate of the Mark Centers Pool
Borrower, as described above under "--The Borrower."
Pursuant to a manager's consent and subordination of management agreement,
the Mark Centers Pool Manager has agreed (i) not to terminate the Mark
Centers Pool Management Agreement without the consent of the mortgagee,
except for non-payment of management fees (in which case the mortgagee has a
60-day cure period), (ii) that all liens, rights and interests owned, claimed
or held by MCLP in and to the Mark Centers Pool Property are and will be in
all respects subordinate to the liens and security interests created by the
Mark Centers Pool Loan, (iii) that on the occurrence of an event of default
under the Mark Centers Pool Loan MCLP will continue performance under the
Mark Centers Pool Management Agreement provided that the mortgagee performs
or causes to be performed the obligations of the Mark Centers Pool Borrower
thereunder, (iv) that, notwithstanding anything in the Mark Centers Pool
Management Agreement to the contrary, the mortgagee, or the Mark Centers Pool
Borrower at the mortgagee's direction, shall have the right to terminate the
Mark Centers Pool Management Agreement (a) upon a default by MCLP under the
Mark Centers Pool Management Agreement, (b) upon a fifty percent (50%) or
more change in control of the ownership of MCLP, (c) upon the filing of a
voluntary petition under the Bankruptcy Code by the Mark Centers Pool REIT or
by MCLP or any of its affiliates, (d) at any time for cause (including, but
not limited to, MCLP's gross negligence, willful misconduct or fraud), or (e)
at such time as the Mark Centers Pool Borrower's net operating income for the
previous twelve calendar month period shall be less than 85% of the Mark
Centers Pool Borrower's net operating income for the period from July 1, 1995
through June 30, 1996, and (vi) not to amend or modify the Mark Centers Pool
Management Agreement without the prior written consent of the mortgagee.
S-189
<PAGE>
MARK CENTERS POOL: THE LOAN
CERTAIN MARK CENTERS POOL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO REFINANCING
SQUARE FOOT(1) VALUE RATIO(2) ACTUAL DSCR(3) DSCR(4)
-------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Cut-Off Date............... $20 63.8% 1.50x 1.59x
At Effective Maturity
Date...................... $16 53.3% 1.80x 1.90x
</TABLE>
- ------------
(1) Based on the aggregate of 2,296,500 square feet of GLA securing the
Mark Centers Pool Loan and the Cut-Off Date Principal Balance or
Balloon Balance, as applicable.
(2) Based on appraisals performed from May 5, 1996, to July 11, 1996 and
Cut-Off Date Principal Balance or Balloon Balance, as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Mark Centers Pool Loan
during the 12 months following the Cut-Off Date, and in the case of
Effective Maturity Date Actual DSCR, 12 months of debt service on the
Mark Centers Pool Loan assuming a balance equal to the Balloon Balance,
a coupon equal to the Mark Centers Pool Initial Interest Rate and an
amortization term equal to 300 months.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of
Cut-Off Date Refinancing DSCR, on annual debt service payment equal to
9.5% of the Cut-Off Date Principal Balance of the Mark Centers Pool
Loan, and in the case of Effective Maturity Date Refinancing DSCR, on
annual debt service equal to 10% of the Balloon Balance.
Security. The Mark Centers Pool Loan is a nonrecourse loan, secured only
by the fee or leasehold estate of the Mark Centers Pool Borrower Entities in
their respective Mark Centers Pool Properties and certain other collateral
relating thereto (including an assignment of leases and rents, an assignment
of certain agreements and the funds in certain accounts). The mortgagee is
the insured under the title insurance policies (which will be assigned to the
Trust Fund) which insure, among other things, that the Mark Centers Pool
Mortgage constitutes a valid and enforceable first lien on each Mark Centers
Pool Property, subject to certain exceptions and exclusions from coverage set
forth therein.
Payment Terms. The Mark Centers Pool Loan matures on November 1, 2021 (the
"Mark Centers Pool Maturity Date") and bears interest at (a) a fixed rate per
annum equal to 8.84% (the "Mark Centers Pool Initial Interest Rate") through
and including October 30, 2006 and (b) from and including October 31, 2006
(the "Mark Centers Pool Effective Maturity Date"), at a fixed rate per annum
(the "Mark Centers Pool Revised Interest Rate") equal to the lesser of (i)
the maximum rate permitted by applicable law, and (ii) the Mark Centers Pool
Initial Interest Rate plus 5%. Any interest accrued at the excess of the Mark
Centers Pool Revised Interest Rate over the Mark Centers Pool Initial
Interest Rate is deferred and added to the outstanding indebtedness under the
Mark Centers Pool Loan and earns interest at the Mark Centers Pool Revised
Interest Rate (such deferred interest and interest thereon, the "Mark Centers
Pool Deferred Interest"). Interest on the Mark Centers Pool Loan is
calculated on the basis of a 360-day year of 30-day months.
The payment date for the Mark Centers Pool Loan is the first business day
of each month, and there is no grace period for a default in payment of
principal or interest. Commencing on December 1, 1996, the Mark Centers Pool
Loan requires 300 constant payments of principal and interest (the "Mark
Centers Pool Monthly Debt Service Payments") of $380,421.23 monthly (based on
a 300-month amortization schedule and the Mark Centers Pool Initial Interest
Rate). On the Mark Centers Pool Maturity Date, payment of the then
outstanding balance of the principal, if any, together with all accrued and
unpaid interest and all other sums payable under the loan documents, is
required. Commencing on the Mark Centers Pool Effective Maturity Date and
continuing on each payment date thereafter, the Mark Centers Pool Borrower is
required to apply 100% of rents and other revenues from the Mark Centers Pool
Properties received on or before such day to the following items in the
following order of priority: (a) to payment of rent under ground leases; (b)
to deposit of the Mark Centers Pool Tax and Insurance Amount (as defined
below under "--Lockbox and Reserves") into the Mark Centers Pool Mortgage
Escrow Account (as defined below under "--Lockbox and Reserves"); (c) to
payment of the Mark Centers Pool Monthly Debt Service Payment, including late
payment charges, if any; (d) to payment of monthly cash expenses pursuant to
the related annual budget approved by the mortgagee; (e) to deposit of the
Mark Centers Pool Capital Expenditure Reserve Amount (as defined below under
"--Lockbox and Reserves") into the Mark Centers Pool Capital Expenditure
Reserve Account (as defined below under "--Lockbox and Reserves"); (f) to
payment of extraordinary, unbudgeted operating expenses approved by the
mortgagee, if any; (g) to payment of outstanding principal until principal is
paid in full; (h) to payment of Mark Centers Pool Deferred Interest,
including interest thereon, if any, accruing at the Mark Centers Pool Default
Rate (as defined below); and (i) to payment of any other amounts due under
the loan documents. The scheduled principal balance of the Mark Centers Pool
Loan as of the Mark Centers Pool Effective Maturity Date will be
approximately $37,962,282.
S-190
<PAGE>
If the Mark Centers Pool Borrower defaults in the payment of any monthly
installment on the payment date, it is required to pay a late payment charge
in an amount equal to 5% of the amount of the installment not paid. An
additional late charge equal to 5% of the monthly payment due will be charged
for each successive month the payment remains outstanding. Upon the
occurrence of any event of default, the entire unpaid principal amount of the
Mark Centers Pool Loan and any other amounts payable, including interest,
will bear interest at a default rate equal to the lesser of (a) the maximum
rate permitted by applicable law and (b) the then applicable interest rate on
the Mark Centers Pool Loan (i.e. the Mark Centers Pool Initial Interest Rate
or the Mark Centers Pool Revised Interest Rate) plus 5% (the "Mark Centers
Pool Default Rate").
Prepayment. Voluntary prepayment is prohibited under the Mark Centers Pool
Loan prior to November 1, 1999. Thereafter, the Mark Centers Pool Loan may be
voluntarily prepaid in whole or in part on any payment date, upon 60 days'
prior written notice and payment of a prepayment premium (the "Mark Centers
Pool Yield Maintenance Premium") equal to the greater of (a) 1% of the
portion of the principal amount being repaid and (b) the product of (i) a
fraction whose numerator is an amount equal to the portion of the principal
balance being prepaid and whose denominator is the entire outstanding
principal balance on the date of such prepayment, multiplied by (ii) an
amount equal to the remainder obtained by subtracting (x) an amount equal to
the entire outstanding principal balance as of the date of such prepayment
from (y) the present value as of the date of such prepayment of the remaining
scheduled payments of principal and interest determined by discounting such
payments at a discount rate equivalent to the Mark Centers Pool Treasury Rate
as of the date of the proposed prepayment. The "Mark Centers Pool Treasury
Rate" means the yield, as of the Mark Centers Pool Effective Maturity Date,
calculated by linear interpolation of the yields of noncallable U.S. Treasury
obligations with terms (one longer and one shorter) most nearly approximating
the period from the Mark Centers Pool Effective Maturity Date to the Mark
Centers Pool Maturity Date. Notwithstanding the foregoing, the Mark Centers
Pool Loan may be prepaid without a prepayment premium during the period
commencing 180 days prior to the Mark Centers Pool Effective Maturity Date.
During the period commencing October 31, 1999 and continuing through the
Mark Centers Pool Maturity Date, voluntary principal prepayments on the Mark
Centers Pool Loan may occur on payment dates by application of the Mark
Centers Pool Prepayment Amount (as defined below) paid in connection with the
release of a Mark Centers Pool Property as described below under "--Release
in Exchange for Prepayment Amount." Principal prepayments on the Mark Centers
Pool Loan may occur on payment dates after the Mark Centers Pool Effective
Maturity Date through application of rents, as described above under
"--Payment Terms," and must be made upon acceleration of the loan following
the occurrence of an event of default. Prepayments made following an event of
default will be subject to the payment of the Mark Centers Pool Yield
Maintenance Premium.
To the extent that the Mark Centers Pool Borrower is not permitted to
apply any casualty insurance or condemnation proceeds to the restoration of
the related Mark Centers Pool Property under the Mark Centers Pool Loan, the
mortgagee will apply such proceeds to prepay the Mark Centers Pool Loan. No
yield maintenance premium is required to be paid in connection with any
prepayment resulting from such application of casualty or condemnation
proceeds. See "--Condemnation and Casualty" below.
Release in Exchange for Prepayment Amount. During the period commencing
October 31, 1999 and continuing through the Mark Centers Pool Maturity Date,
the Mark Centers Pool Borrower may obtain the release from the lien of the
Mortgage of (x) one Mark Centers Pool Property selected from among Kingston
Plaza, Monroe Plaza, 25th Street Plaza, Shillington Plaza, Park Plaza and
Troy Plaza and (y) up to four Mark Centers Pool Properties selected from
among the other eleven Mark Centers Pool Properties; provided that, with
respect to each release of a Mark Centers Pool Property, among other
conditions, (a) the Mark Centers Pool Borrower shall have given 60 days'
prior written notice of such proposed release, (b) the release shall occur on
a payment date, (c) no event of default shall have occurred and be continuing
with respect to the Mark Centers Pool Loan, (d) the Mark Centers Pool
Borrower shall pay an amount (the "Mark Centers Pool Minimum Release Price")
sufficient to pay 125% of the Allocated Loan Amount for such Mark Centers
Pool Property (the "Mark Centers Pool Prepayment Amount"), accrued interest
and principal payments thereon (assuming an interest rate equal to the
greater of 10.09% and the actual interest rate on the Note, through and
including the release date), and the Mark Centers Pool Yield Maintenance
Premium, (e) after giving effect to such proposed release, the Mark Centers
Pool DSCR (as defined below) shall be at least equal to the greater of 1.28:1
or the Mark Centers Pool DSCR with respect to the 12 month period immediately
preceding the release and (f) the Mark Centers Pool Borrower shall have
delivered or caused to be delivered certain required certificates,
endorsements to title insurance policies, appraisals, legal opinions and
financial statements.
The "Mark Centers Pool DSCR" for any period means the ratio of aggregate
net operating income on the Mark Centers Pool Properties, calculated in
accordance with GAAP, to debt service on the Mark Centers Pool Loan (based on
a debt service constant equal to the greater of 10.09% per annum and the
actual debt service constant on the Note) for such period.
S-191
<PAGE>
Lockbox and Reserves. The Mark Centers Pool Borrower has established with
Fleet National Bank (the "Mark Centers Pool Lockbox Bank") a cash collateral
account (the "Mark Centers Pool Lockbox"). Pursuant to the terms of the Mark
Centers Pool Loan, the Mark Centers Pool Borrower is required to direct
tenants to pay all rents directly into the Mark Centers Pool Lockbox and has
covenanted to deposit all revenues received by it directly into the Mark
Centers Pool Lockbox within one business day of receipt.
The Mark Centers Pool Borrower has established (a) an interest escrow
account (the "Mark Centers Pool Interest Escrow Account") to be funded each
month before the Mark Centers Pool Effective Maturity Date in an amount equal
to the amount of interest and principal due on the next payment date, (b) a
mortgage escrow account (the "Mark Centers Pool Mortgage Escrow Account")
funded at the initial closing of the Mark Centers Pool Loan in the amount of
$1,137,704.84 and to be funded each month before the Mark Centers Pool
Effective Maturity Date in an additional amount equal to 1/12 of the annual
amount of insurance premiums and taxes (the "Mark Centers Pool Tax and
Insurance Amount"), and into which Mark Centers Pool Reserve Amounts (as
defined below), if any, are deposited, (c) a deferred maintenance reserve
account (the "Mark Centers Pool Deferred Maintenance Reserve Account") funded
in the amount of $554,029 at the initial closing of the Mark Centers Pool
Loan to provide for certain deferred maintenance specified in the Mark
Centers Pool Mortgage, (d) an environmental reserve account (the "Mark
Centers Pool Environmental Reserve Account") funded in the amount of
$3,000,000 at the initial closing of the Mark Centers Pool Loan to provide
for certain environmental remediation as described below, (e) a security
deposit account (the "Mark Centers Pool Security Deposit Account") into which
all tenants, upon irrevocable instructions of the Mark Centers Pool Borrower,
directly deposit all security deposits required by tenant leases, (f) a
capital expenditure reserve account (the "Mark Centers Pool Capital
Expenditure Reserve Account") funded each month before the Mark Centers Pool
Effective Maturity Date in an amount (the "Mark Centers Pool Capital
Expenditure Reserve Amount") equal to 1/12 of an annual amount equal to $0.15
per square foot for each Mortgaged Property to reimburse the Mark Centers
Pool Borrower for capital expenditures approved by the mortgagee and (g) an
additional collateral account (the "Mark Centers Pool Additional Collateral
Account") funded at the initial closing of the Mark Centers Pool Loan in the
amount of $1,110,000 released and to be released to the Mark Centers Pool
Borrower when it enters into satisfactory replacement leases as described
below.
"Mark Centers Pool Reserve Amounts" means an amount, transferred upon the
instruction of the Mark Centers Pool Borrower from the Mark Centers Pool
Lockbox (as defined below) to the Mark Centers Pool Mortgage Escrow Account,
equal to 125% of any accounts payable which exceed $250,000 in the aggregate
and are being contested by the Mark Centers Pool Borrower in good faith, less
$250,000.
Until the Mark Centers Pool Effective Maturity Date, the Mark Centers Pool
Lockbox Bank will withdraw from the Mark Centers Pool Lockbox on the first
business day of each month or as soon thereafter as there shall be sufficient
collected funds on deposit in the Mark Centers Pool Lockbox, funds in the
following amounts and in the following order of priority: (i) funds in an
amount equal to the Mark Centers Pool Tax and Insurance Amount, for deposit
into the Mark Centers Pool Mortgage Escrow Account; (ii) funds in an amount
equal to the interest and principal due on the next payment date, for deposit
into the Mark Centers Pool Interest Escrow Account; (iii) funds in an amount
equal to the Mark Centers Pool Reserve Amounts, if any, for deposit into the
Mark Centers Pool Mortgage Escrow Account; and (iv) funds in an amount equal
to the Mark Centers Pool Capital Expenditure Reserve Amount, for deposit into
the Mark Centers Pool Capital Expenditure Reserve Account.
After the Mark Centers Pool Effective Maturity Date, the Mark Centers Pool
Lockbox Bank will withdraw from the Mark Centers Pool Lockbox on the first
business day of each month or as soon thereafter as there shall be sufficient
collected funds on deposit in the Mark Centers Pool Lockbox, funds in the
following amounts and in the following order of priority: (i) an amount equal
to the Mark Centers Pool Tax and Insurance Amount, for deposit into the Mark
Centers Pool Mortgage Escrow Account; (ii) an amount equal to the amount of
interest due on the next payment date at the Mark Centers Pool Initial
Interest Rate, including, if applicable, interest at the Mark Centers Pool
Default Rate applicable prior to the Mark Centers Pool Effective Maturity
Date, together with principal due on the next payment date, for deposit into
the Mark Centers Pool Interest Escrow Account; (iii) an amount equal to the
Mark Centers Pool Reserve Amounts, if any, for deposit into the Mark Centers
Pool Mortgage Escrow Account; (iv) an amount equal to the Mark Centers Pool
Capital Expenditure Reserve Amount, for deposit into the Mark Centers Pool
Capital Expenditure Reserve Account; (v) an amount equal to the monthly
allocation of operating expenses in the related annual budget approved by the
mortgagee and any extraordinary, unbudgeted operating expenses approved by
the mortgagee, for payment to the Mark Centers Pool Borrower; (vi) funds to
be applied against the outstanding principal until such principal amount is
paid in full; and (vii) an amount equal to the Mark Centers Pool Deferred
Interest.
S-192
<PAGE>
Approximately $254,956 is on reserve in the Mark Centers Deferred
Maintenance Reserve Account as of the Cut-Off Date. Funds on deposit in the
Mark Centers Pool Environmental Reserve Account have been and are to be
disbursed to reimburse the Mark Centers Pool Borrower upon completion of
certain environmental remediation required under the Mark Centers Pool
Mortgage. All such required environmental remediation has been completed
except items for which approximately $225,179 is on reserve in the Marks
Centers Pool Environmental Reserve Account as of the Cut-Off Date. Funds
remaining on deposit in the Mark Centers Pool Additional Collateral Account
are to be released to the Mark Centers Pool Borrower when it enters into
satisfactory replacement leases at Ames Plaza. $435,082 is on reserve in the
Marks Centers Additional Collateral Account as of the Cut-Off Date.
At any time prior to the Mark Centers Pool Effective Maturity Date, if (i)
no event of default has occurred and is continuing, (ii) the Mark Centers
Pool Borrower has certified that (x) no accounts payable are more than 60
days past due, unless the same are being contested by the Mark Centers Pool
Borrower in good faith, and no other obligations are past due and (y) the
Mark Centers Pool Borrower has caused the deposit into the Mark Centers Pool
Mortgage Escrow Account of all Mark Centers Pool Reserve Amounts in
connection with accounts payable being contested in good faith and (iii) all
deposits required to be made into accounts as described above have been made,
then the Mark Centers Pool Borrower may instruct the Mark Centers Pool
Lockbox Bank to transfer any excess amounts remaining on a payment date in
the Mark Centers Pool Lockbox to or at the direction of the Mark Centers Pool
Borrower.
Transfer of Properties and Interests in Borrower; Encumbrance; Other
Debt. The Mark Centers Pool Borrower is generally prohibited from
transferring or encumbering the Mark Centers Pool Properties except for a
transfer of a Mortgaged Property that has been released as described under
"--Release in Exchange for Prepayment Amount" above.
The Mark Centers Pool Loan generally prohibits the transfer of any
interest in the Mark Centers Pool Borrower, except that mortgagee's consent
shall not be required with respect to transfers of direct or indirect
beneficial interests in the Mark Centers Pool Borrower, provided that (i) no
event of default shall have occurred and be continuing, (ii) the Mark Centers
Pool Borrower (or the transferor of such interest) shall deliver notice
thereof to the mortgagee and the Rating Agencies at least 15 business days
prior to the effective date of such transfer, (iii) the Mark Centers Pool
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 (or any group of affiliates) owning, directly or indirectly, 50% or
more of the beneficial ownership interests of the Mark Centers Pool Borrower,
and (v) MCLP shall at all times directly or indirectly own not less than 51%
of the beneficial interests in the Mark Centers Pool Borrower, and if the
Mark Centers Pool Borrower shall be a partnership, all general partners
thereof shall be wholly-owned subsidiaries of the Mark Centers Pool REIT. If
10% or more of direct beneficial interests in the Mark Centers Pool Borrower
are transferred or if any transfer shall result in a person or a group of
affiliates acquiring more than a 50% interest as set forth above, the Mark
Centers Pool Borrower shall deliver or cause to be delivered to the Rating
Agencies and the mortgagee a satisfactory opinion of counsel as to
nonconsolidation in bankruptcy.
The Mark Centers Pool Borrower is not permitted to incur any additional
indebtedness other than unsecured indebtedness for operating expenses
incurred in the ordinary course of business which (i) is paid within 60 days
of the date incurred, unless (a) the Mark Centers Pool Borrower is in good
faith contesting its obligation to pay such indebtedness in a manner
satisfactory to the mortgagee, (b) adequate reserves with respect thereto are
maintained on the books of the Mark Centers Pool Borrower in accordance with
GAAP, (c) such contest operates to suspend collection of such amounts or
enforcement of such obligations and (d) no event of default has occurred and
is continuing, and (ii) does not exceed, at any time, for all Mark Centers
Pool Properties, 5% of the Mark Centers Pool Loan.
Insurance. The Mark Centers Pool Borrower is required to maintain for each
Mark Centers Pool Property (a) insurance against all perils included within
the classification "All Risks of Physical Loss" with extended coverage in an
amount equal to the full replacement cost of the improvements, equipment and
inventory, (b) comprehensive general liability insurance in such amounts as
are generally required by institutional lenders for comparable properties but
in no event less than $1,000,000 per occurrence and with an aggregate limit
of not less than $5,000,000 per Mark Centers Pool Property, (c) statutory
workers compensation insurance, (d) business interruption and/or loss of
"rental value" insurance to cover the loss of at least 18 months, (e) during
any period of repair or restoration, builder's "all risk" insurance in an
amount not less than the full insurable value of the Mark Centers Pool
Property, (f) broad-form boiler and machinery insurance and insurance against
loss of occupancy or use arising from any related breakdown in such amounts
as are generally available at commercially reasonable premiums and are
generally required by institutional lenders for properties comparable to each
Mark Centers Pool Property, (g) flood insurance, if available, with respect
to any of the Mark Centers Pool Properties located within a federally
designated flood hazard zone in an amount equal to the lesser of the
Allocated Loan Amount for the
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<PAGE>
applicable Mark Centers Pool Property and the maximum limit of coverage
available, (h) with respect to New Smyrna Plaza only, windstorm insurance
coverage with such limits and deductibles as are generally required by
institutional lenders for similar properties in the geographic area where
such Mark Centers Pool Property is located, in any event at least equal to
the lesser of the Allocated Loan Amount for such Mark Centers Pool Property
and the maximum limit of coverage available with respect to such Mark Centers
Pool Property, and (i) at the 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. Any such insurance may be effected under a blanket
policy so long as any such blanket policy shall specify, except in the case
of public liability insurance, the portion of the total coverage of such
policy that is allocated to the Mark Centers Pool Properties and any
sublimits in such blanket policy applicable to the Mark Centers Pool
Properties, which amounts shall not be less than the amounts required
pursuant to, and which shall in any case comply in all other respects with
the requirements of, the Mark Centers Pool Loan. The Mark Centers Pool Loan
requires the Mark Centers Pool Borrower to obtain the insurance described
above from insurance carriers having claims paying abilities rated (x) not
less than "A" by S&P and "A" or its equivalent by one or more of the other
Rating Agencies and (y) not less than "A" by Alfred M. Best Company, Inc.
with a financial size category of not less than IX. See "Risk Factors--The
Mortgage Loans--Availability of Earthquake, Flood and Other Insurance."
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of any Mark Centers Pool Property or a
condemnation of a portion of any Mark Centers Pool Property, in either case
which does not constitute a Mark Centers Pool Total Loss, the Mark Centers
Pool Borrower is obligated promptly either (1) to pay in full the principal
and interest and all other amounts due on the loan or (2) to commence and
diligently prosecute to completion the repair, restoration and rebuilding of
such Mark Centers Pool Property.
A "Mark Centers Pool Total Loss" means (x) a casualty, damage or
destruction of a Mark Centers Pool Property, the cost of restoration of which
would exceed 50% of the Allocated Loan Amount or (y) a permanent taking by
condemnation of 25% or more of the GLA of such Mark Centers Pool Property, in
either case, such that it would be impractical, in the mortgagee's sole
discretion, even after restoration, to operate such Mark Centers Pool
Property as an economically viable whole and with respect to which the
applicable tenant leases do not require restoration.
Following a casualty or condemnation at any Mark Centers Pool Property,
any insurance proceeds and condemnation proceeds will be applied (after
payment of the mortgagee's reasonable expenses of collection thereof) to
amounts due under the Mark Centers Pool Loan and the prepayment of the
principal amount outstanding thereon, if: (i) an event of default has
occurred and is continuing, (ii) a Mark Centers Pool Total Loss (as defined
below) has occurred, (iii) the work of restoration cannot be completed before
the earlier of (a) the date which is six months before the Mark Centers Pool
Maturity Date or (b) the date on which the business interruption insurance
required to be carried by the Mark Centers Pool Borrower expires, or (iv) the
Mark Centers Pool Borrower is unable to demonstrate to the mortgagee's
reasonable satisfaction its continuing ability to pay the loan.
In the event of (i) a Mark Centers Pool Total Loss resulting from a
casualty, damage or destruction, if either (A) the cost to repair such Mark
Centers Pool Property would exceed $500,000 in the case of 25th Street Plaza
or, in the case of any other Mark Centers Pool Property, the greater of
$250,000 or 10% of the Allocated Loan Amount for such Mark Centers Pool
Property (in each case, the "Mark Centers Pool Threshold Amount") and the
restoration of the Mark Centers Pool Property cannot reasonably be completed
before the date which is the later to occur of (x) the date of expiration of
any business interruption insurance or (y) the date of expiration of any
letter of credit posted in lieu thereof or in addition thereto and under such
circumstances the Mark Centers Pool Borrower is not required under any tenant
lease to restore the Mark Centers Pool Property or (B) the mortgagee elects
not to permit the Mark Centers Pool Borrower to restore the Mark Centers Pool
Property, or (ii) a Mark Centers Pool Total Loss resulting from a
condemnation, then the Mark Centers Pool Borrower must prepay the Mark
Centers Pool Loan to the extent of the casualty proceeds or condemnation
proceeds received, up to an amount equal to the outstanding principal
thereof.
If any insurance and condemnation proceeds (other than business
interruption insurance proceeds) are in excess of the Mark Centers Pool
Threshold Amount, then all such proceeds will be applied (after payment of
the mortgagee's reasonable expenses of collection thereof) to amounts due
under the Mark Centers Pool Loan and the prepayment of the principal amount
outstanding thereon, without prepayment premium or penalty, only if: (A)(i)
the amount of such proceeds is equal to or greater than the outstanding
principal amount, (ii) the casualty or condemnation occurs less than 180 days
before the Mark Centers Pool Maturity Date, or (iii) more than 25% of the
rentable area of the applicable Mark Centers Pool Property has been the
subject of the casualty or condemnation, or (B) such proceeds are
condemnation proceeds received in excess
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<PAGE>
of the amount needed to restore the Mark Centers Pool Property after a
partial taking as required by the loan documents, in which case prepayment
will be made to the extent of such unneeded proceeds or they will be
deposited in the Mark Centers Pool Capital Improvements Reserve Account for
use at the Mark Centers Pool Property.
If any casualty or condemnation proceeds exceed the Mark Centers Pool
Threshold Amount, all casualty and condemnation proceeds are required to be
paid directly to the mortgagee. If such proceeds do not in the aggregate
exceed the Mark Centers Pool Threshold Amount, they are to be paid to the
Mark Centers Pool Borrower to be used for restoration. In the event that any
insurance or condemnation proceeds (other than business interruption
insurance proceeds) are in excess of the Mark Centers Pool Threshold Amount
and are not required to be applied to the payment or prepayment of the loan
as described above, then the mortgagee is obligated to make all insurance and
condemnation proceeds (other than business interruption insurance proceeds)
available to the Mark Centers Pool Borrower or the applicable tenant for
payment or reimbursement of the costs and expenses of the repair, restoration
and rebuilding of the applicable Mark Centers Pool Property if, among other
conditions, (i) the mortgagee is furnished with an estimate of the cost of
the work accompanied by appropriate plans and specifications for the work of
restoration and an independent architect's certification as to such costs and
(ii) if the cost of the work exceeds the proceeds, the Mark Centers Pool
Borrower, at its option, either deposits with or delivers to the mortgagee
(and promptly following any such deposit or delivery, provides written notice
of same to the Rating Agencies) (A) cash and cash equivalents, (B) a letter
or letters of credit in an amount equal to the estimated cost of the work
less the proceeds available, or (C) such other evidence of the Mark Centers
Pool Borrower's ability to meet such excess costs as is reasonably
satisfactory to the mortgagee and the Rating Agencies.
Approval Rights. Under the Mark Centers Pool Loan, the Mark Centers Pool
Borrower is required to submit to the mortgagee, for the mortgagee's written
approval, an annual budget not later than 60 days prior to the commencement
of each calendar year after the Mark Centers Effective Maturity Date. If the
mortgagee notifies the Mark Centers Pool Borrower within 10 days of any
objections to such budget, the Mark Centers Pool Borrower is required
promptly to revise the same and resubmit it to the mortgagee until an annual
budget is approved. In the event that the Mark Centers Pool Borrower must
incur an extraordinary operating expense or a capital expense not set forth
in the approved annual budget, it is required promptly to deliver to the
mortgagee, for the mortgagee's approval, a reasonably detailed explanation of
such proposed expense.
Without the mortgagee's consent (which may not be unreasonably withheld,
delayed or conditioned), the Mark Centers Pool Borrower may not enter into
any management agreement. If during the term of the Mark Centers Pool Loan,
the Mark Centers Pool Borrower wishes to designate another property manager
acceptable to the mortgagee for all or any of the Mark Centers Pool
Properties, the Mark Centers Pool Borrower must notify the mortgagee and the
Rating Agencies in writing and obtain from the Rating Agencies written
confirmation that the retention of the proposed property manager will not
result in a downgrade, withdrawal or qualification of the then ratings of the
Certificates. The mortgagee has the right to direct the retention of a new
property manager at any time following the occurrence and during the
continuance of an event of default and at any time after October 4, 2006.
Provided that no event of default shall have occurred and be continuing,
the Mark Centers Pool Borrower has the right, without the mortgagee's
consent, to undertake any alteration, improvement, demolition or removal of
the Mark Centers Pool Property or any portion thereof (any such alteration,
improvement, demolition or removal, a "Mark Centers Pool Alteration") so long
as (i) the Mark Centers Pool Borrower provides the mortgagee with prior
written notice of any Mark Centers Pool Alteration which, when aggregated
with all related Mark Centers Pool Alterations constituting a single project,
involves an estimated cost exceeding the greater of the Mark Centers Pool
Threshold Amount or $250,000 with respect to Mark Centers Pool Alterations
being undertaken at a single Mark Centers Pool Property or $2,000,000 with
respect to Mark Centers Pool Alterations being undertaken at all the Mark
Centers Pool Properties at such time (in each case, a "Mark Centers Pool
Material Alteration") and (ii) any Mark Centers Pool Alteration will not upon
completion materially adversely (A) affect the value, use or operation of the
affected Mark Centers Pool Property taken as a whole or (B) reduce the net
operating income for such Mark Centers Pool Property from the level available
immediately prior to commencement of such Mark Centers Pool Alteration. Any
Mark Centers Pool Material Alteration is required to be conducted under the
supervision of an independent architect and no Mark Centers Pool Material
Alteration may be undertaken until 5 business days after there shall have
been filed with the mortgagee, for information purposes only and not for
approval by the mortgagee, detailed plans and specifications and cost
estimates therefor, prepared by such independent architect. Notwithstanding
anything to the contrary contained in the foregoing, no Mark Centers Pool
Material Alteration nor any Mark Centers Pool Alterations which, when
aggregated with all other Mark Centers Pool Alterations (other than Mark
Centers Pool Material Alterations)
S-195
<PAGE>
then being undertaken by the Mark Centers Pool Borrower, exceeds the Mark
Centers Pool Threshold Amount may be performed unless the Mark Centers Pool
Borrower has first delivered to the mortgagee cash and cash equivalents
and/or a letter of credit as security in an amount not less than the
estimated cost of the Mark Centers Pool Material Alteration or the Mark
Centers Pool Alterations in excess of $2,000,000.
The Mark Centers Pool Borrower may not, without the consent of the
mortgagee, amend, modify or waive the provisions of any tenant lease or
terminate, reduce rents under or shorten the term of any tenant lease (x) in
any manner which would have a material adverse effect on the applicable Mark
Centers Pool Property taken as a whole, or (y) affecting 15,000 or more
rentable square feet.
Financial Reporting. The Mark Centers Pool Borrower is required to furnish
to the mortgagee: (a) annually within 90 days after the end of each fiscal
year, a copy of the Mark Centers Pool Borrower's year-end financial statement
audited by a "Big Six" accounting firm or other firm reasonably acceptable to
the mortgagee; (b) annually within 45 days after each fiscal year, year-end
unaudited financial statements; (c) quarterly within 45 days after the end of
each calendar quarter, quarterly unaudited financial statements; (d) monthly
within 20 days after the end of each calendar month, and quarterly (as to the
preceding calendar quarter) within 45 days each calendar quarter, a complete
rent roll; (e) annually within 45 days after the end of each calendar year, a
summary of all capital expenditures made at each Mark Centers Pool Property
during the prior twelve-month period; and (f) promptly, such further
information regarding the Mark Centers Pool Properties, as the mortgagee may
reasonably request. Concurrently with delivery of the financial statements to
the mortgagee, the Mark Centers Pool Borrower is required to provide a copy
of the foregoing items to the Rating Agencies. The Mark Centers Pool Borrower
is also required to provide the mortgagee with updated information concerning
the tax and insurance costs for the next succeeding fiscal year prior to the
termination of each fiscal year.
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<PAGE>
WESTGATE MALL: THE BORROWER; THE PROPERTY
The Loan. The Westgate Mall Loan was made by TIAA on December 13, 1996,
and acquired by MSMC on June 18, 1997. The Westgate Mall Loan had a principal
balance at the date it was refinanced by TIAA of $43,023,167.99 and has a
principal balance as of the Cut-Off Date of approximately $42,681,517. The
Westgate Mall Loan was made by TIAA to refinance prior TIAA loans in the same
amount which were originated in 1986 and 1987. It is secured by, among other
things, a Mortgage (the "Westgate Mall Mortgage") encumbering a regional mall
known as the Westgate Mall, located in Fairview Park, Ohio (the "Westgate
Mall Property").
The Borrower. Westgate Joint Venture ("the Westgate Mall Borrower") is an
Ohio general partnership whose purpose and business is acquiring, owning,
developing, financing, refinancing, constructing, improving, operating,
managing, renting, leasing, selling, exchanging and otherwise dealing in the
real property comprising Westgate Mall and certain adjacent real property,
and other related purposes. The general partners of the Westgate Mall
Borrower are JG Westgate Ltd., an Ohio limited liability company (80%),
Boykin Westgate Co., an Ohio general partnership (10%) and various trusts to
which a 10% partnership interest initially held by Visconsi Westgate Co. was
transferred upon the dissolution of Visconsi Westgate Co. The Westgate Mall
Borrower owns no material assets other than the Westgate Mall Property and
related interests. JG Westgate Ltd. is beneficially owned by The Richard E.
Jacobs Group, Inc.
The Property. The Westgate Mall Property was originally built in 1954 and
remodeled and expanded at various times, most recently in 1996. The Westgate
Mall Property is comprised of the Westgate Mall Borrower's fee simple
interest in the Westgate Mall, an enclosed one-level, 3-anchor, regional mall
located in the City of Fairview Park, Ohio, approximately eight miles from
downtown Cleveland, Ohio. The Westgate Mall is anchored by Dillard's North,
Dillard's South, and Kohl's and contains approximately 789,222 total square
feet, of which approximately 225,553 square feet is mall store GLA,
approximately 172,000 square feet is self-owned anchor store GLA,
approximately 289,031 square feet is anchor store GLA in which tenants own
the improvements thereon, approximately 67,343 square feet is outparcel GLA
and approximately 35,295 square feet is outparcel GLA in which tenants own
the improvements thereon. To the extent any improvements and related land are
owned by the anchor tenants, only the portion of the property owned by the
Westgate Mall Borrower secures the Westgate Mall Loan. The portion of the
Westgate Mall that secures the Westgate Mall Loan consists of 617,222 square
feet. Westgate Mall is situated on approximately 50.76 acres and contains
approximately 3,719 parking spaces with cross utilization provided under
reciprocal easement agreements with adjoining property owners. The ratio of
parking spaces per 1,000 square feet of GLA is 4.71 to 1. An appraisal
completed by Landauer Associates, Inc. on September 18, 1997, determined a
market value of $65,000,000 for the Westgate Mall Borrower's ownership
interest in the property.
The table below summarizes the components of total square feet at the
Westgate Mall Property as of June 30, 1997.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA
--------- -----------
<S> <C> <C>
Self-Owned Anchor Stores
- ----------------------------------------
Dillard's South ........................ 172,000 21.8%
Anchor Stores (Anchor-Owned
Improvements)
---------------------------------------
Dillard's North ........................ 194,531 24.6
Kohl's ................................. 94,500 12.0
--------- -----------
Total Anchor Stores (Anchor-Owned
Improvements) ......................... 289,031 36.6%
Mall Store Space......................... 225,553 28.6
Outparcels .............................. 67,343 8.5
Outparcels (Tenant-Owned Improvements) . 35,295 4.5
--------- -----------
GLA Total ............................. 789,222 100.0%
========= ===========
</TABLE>
Location/Access. Fairview Park is located 10 miles west of Cleveland,
Ohio, between Interstate Highways 90 and 480, two of the primary arterial
roadways serving the Cleveland metropolitan area. The Westgate Mall Property
is located in an in-fill location in the Cleveland suburb of Fairview Park,
Ohio. The surrounding community is primarily single and multi-family
residences. The property is located 0.5 miles south of Interstate 90, a
primary transportation artery on Cleveland's west side, which provides
east/west access to the site.
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<PAGE>
Operating History. The following table shows certain information
regarding the operating history of the Westgate Mall Property (see
Underwritable Cash Flow definition):
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1994 1995 1996 NOI
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues ............. $ 7,778,697 $ 8,192,137 $ 8,415,211 $ 8,380,267
Expenses ............. (2,406,279) (2,645,815) (2,898,619) (2,793,983)
------------- ------------- ------------- ---------------
Net Operating Income $ 5,372,418 $ 5,546,322 $ 5,516,592 $ 5,586,284
============= ============= ============= ===============
</TABLE>
Occupancy History. The occupancy history for the mall store space of the
Westgate Mall Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
PERCENT LEASED
--------------
<S> <C>
Occupancy as of:
- ------------------
June 30, 1997..... 88.5%
December 31, 1996 92.9%
</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 13.5% for 1996.
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<PAGE>
Tenant Sales. The Westgate Mall Property's historical mall store sales,
anchor store sales and outparcels are summarized as follows:
<TABLE>
<CAPTION>
SQUARE
FOOTAGE ANNUAL 1995 SALES(1) ANNUAL 1996 SALES(1)
----------- --------------------- ----------------------
TOTAL PER TOTAL PER
1996 (000S) SF (000S) SF
----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Anchor Store Sales
- -------------------------
Dillard's North ......... 194,531 $ 25,779 $133 $ 25,026 $129
Dillard's South.......... 172,000 18,375 $107 17,275 $100
Kohl's .................. 70,875(2) N/A N/A 12,485(3) $176
----------- ---------- --------- ----------- ---------
Total Anchor Store .... 437,406 $ 44,154 $120 $ 54,786 $125
=========== ========= =========
Mall Store Sales
------------------------
Comparable Store......... 183,401 $ 45,419 $248 $ 44,995 $245
Non-Comparable Store .... 33,197 3,471 $137(4) 3,892 $199(4)
----------- ---------- --------- ----------- ---------
Total Mall Store....... 216,598 $ 48,891 $234 $ 48,887 $241
=========== ========= =========
Outparcel Sales
------------------------
Dillard's Home Store .... 60,000 $ 4,909 $ 82 $ 4,661 $ 78
Longhorn Steak House .... 5,320 2,389 $449 2,270 $427
Applebee's............... 5,001 2,678 $536 2,612 $522
General Cinema........... 24,974 2,272 $ 91 2,184 $ 87
Ohio Motorists Assoc.
(7)..................... 7,343 N/A N/A N/A N/A
----------- ---------- --------- ----------- ---------
Total Outparcel........ 102,638 $ 12,249 $129 $ 11,727 $123
=========== ========= =========
Gross Sales--Anchors, Mall Stores and
Outparcels. $105,293 $115,400
========== ===========
</TABLE>
- ------------
(1) Based on the December 31, 1996 sales report. Information is based
solely upon the sales figures provided by the Westgate Mall Borrower
from data provided by the tenants.
(2) Actual Kohl's square footage is 94,500. Square footage of 70,875
reflects average square footage for 1996 based on Kohl's April 1996
open date.
(3) Kohl's 1996 sales of $12,484,500 are actual sales for the period April
through December 1996.
(4) Non-comparable store tenants may not be in occupancy for a full
calendar year and therefore non-comparable sales per square foot may
not be reflective of full year sales per square foot.
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<PAGE>
Mall Stores. The Westgate Mall Property tenant base is primarily
comprised of national retailers such as Ann Taylor, Bath and Body Works, The
Limited, Victoria's Secret, Lerner New York, Lane Bryant, Express, Gap Kids,
The Gap, Foot Locker, American Eagle and Waldenbooks. 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 ten largest
mall store tenants by Annualized Base Rent (percentage rent and tenant
reimbursement obligations are not included):
TEN LARGEST MALL STORE AND ANCHOR TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
TENANT OR TENANT TENANT % OF TOTAL
PARENT COMPANY STORE NAME GLA GLA
- ------------------------- ---------------------- --------- ------------
<S> <C> <C> <C>
The Limited Inc. Bath and Body Works 45,347 20.1%
Compagnie Int. Express
Lane Bryant
Lerner New York
Limited Too
Structure
The Limited
Victoria's Secret
The Gap Inc. Baby Gap 12,386 5.5
Gap Kids
The Gap
Woolworth Corp. Foot Locker 12,209 5.4
Koenig Sporting Goods
Consolidated Stores Inc. All for One 7,388 3.3
Kay-Bee Toy and Hobby
Sterling Inc. Rogers Jewelers 2,789 1.2
J.B. Robinson Jewelers
Borders Group Inc. Waldenbooks/Waldenkids 7,018 3.1
Camelot Music Inc. Camelot Music 3,239 1.4
The Bombay Company The Bombay Company 4,120 1.8
Cozad's Hallmark Cozad's Hallmark 3,112 1.4
Gantos Inc. Gantos 6,080 2.7
--------- ------------
Total/Weighted Average
(10 Largest) 103,687 46.0%
Remaining (excluding
non-owned anchors) 95,925 42.5
Vacant Space 25,941 11.5
--------- ------------
Total (excluding
non-owned anchors) 225,553 100.0%
--------- ============
Dillard Dept. Stores Inc. Dillard's North 194,531
Kohl's Dept. Stores Inc. Kohl's 94,500
---------
Total (including
non-owned anchors) 514,584
=========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF TOTAL
TENANT OR TENANT ANNUALIZED ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY BASE RENT BASE RENT PER SF
- ------------------------- ------------ ------------ --------------------
<S> <C> <C> <C>
The Limited Inc. $ 811,340 18.8% $17.89
The Gap Inc. 291,668 6.8 23.55
Woolworth Corp. 190,836 4.4 15.63
Consolidated Stores Inc. 162,798 3.8 22.04
Sterling Inc. 158,061 3.7 56.67
Borders Group Inc. 140,354 3.3 20.00
Camelot Music Inc. 129,540 3.0 40.00
The Bombay Company 107,131 2.5 26.00
Cozad's Hallmark 102,680 2.4 33.00
Gantos Inc. 97,280 2.3 16.00
------------ ------------ --------------------
Total/Weighted Average
(10 Largest) $2,191,689 50.9% $21.14
Remaining (excluding
non-owned anchors) 2,115,135 49.1 22.05
Vacant Space 0 0.0 0
------------ ------------ --------------------
Total (excluding
non-owned anchors) $4,306,824 100.0% $21.58(2)
------------ ============ --------------------
Dillard Dept. Stores Inc. 750,000 3.86
Kohl's Dept. Stores Inc. 206,000 2.18
------------ --------------------
Total (including
non-owned anchors) $5,262,824 $10.77(2)
============ ====================
</TABLE>
- ------------
(1) Based on June 30, 1997 rent roll.
(2) Does not include vacant and open expiration square footage.
S-200
<PAGE>
Mall Store Lease Expiration. The following table shows scheduled lease
expirations of mall store GLA at the Westgate Mall Property as of June 30,
1997, assuming none of the tenants renew their leases, exercise renewal
options or terminate their leases prior to the scheduled expiration date.(1)
See "--Anchor Stores" below for anchor lease or REA expirations.
LEASE EXPIRATION SCHEDULE
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE ANNUAL CUMULATIVE
LEASES EXPIRING PERCENT OF PERCENT OF ANNUALIZED BASE RENT PERCENT OF PERCENT OF
YEAR EXPIRATION EXPIRING SF SF BASE RENT BASE RENT PER SF BASE RENT BASE RENT
- ------------------- ----------- ---------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant.............. 25,941 11.50% 11.50% $ 0 $ 0.00 0.00% 0.00%
No expiration date . 1 100 0.04 11.55% 500 5.00 0.01 0.01%
1997................ 4 8,373 3.71 15.26% 98,946 11.82 2.30 2.31%
1998................ 10 12,314 5.46 20.72% 401,967 32.64 9.33 11.64%
1999................ 8 17,892 7.93 28.65% 337,271 18.85 7.83 19.47%
2000................ 16 15,500 6.87 35.52% 534,915 34.51 12.42 31.89%
2001................ 12 38,546 17.09 52.61% 813,827 21.11 18.90 50.79%
2002................ 6 14,054 6.23 58.84% 293,395 20.88 6.81 57.60%
2003................ 2 4,323 1.92 60.76% 59,208 13.70 1.37 58.98%
2004................ 3 7,013 3.11 63.87% 155,226 22.13 3.60 62.58%
2005................ 8 41,808 18.54 82.40% 791,024 18.92 18.37 80.95%
2006................ 5 21,417 9.50 91.90% 488,699 22.82 11.35 92.29%
2007 or Later....... 5 18,272 8.10 100.00% 331,846 18.16 7.71 100.00%
----------- ---------- ------------ ------------ ------------ ------------
Total/Weighted
Avg............... 80 225,553 100.00% $4,306,824 $21.58(2) 100.00%
=========== ========== ============ ============ ============ ============
</TABLE>
- ------------
(1) Based on the June 30, 1997 rent roll.
(2) Does not include vacant square footage.
Anchor Stores. The following table shows certain information for each of
Westgate Mall's anchor tenants (and each respective corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING OF
PARENT OPERATING
COMPANY(1) ANCHOR- LEASE COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) GLA OWNED/COLLATERAL EXPIRATION(2) EXPIRATION(3) TERMINATION
- --------------- ------------------------- ---------------- --------- ---------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DILLARD'S NORTH DILLARD DEPT. STORES INC. A+/A2 194,531 COLLATERAL(4) 7/31/2017 7/31/2017(5) 5/31/2017(5)
DILLARD'S SOUTH DILLARD DEPT. STORES INC. A+/A2 172,000 ANCHOR-OWNED N/A 12/31/2000(5) PERPETUAL
KOHL'S KOHL'S DEPT. STORES, INC. BBB/BAA1 94,500 COLLATERAL(4) 6/30/2036(5) 6/30/2016(5) N/A
</TABLE>
- ------------
(1) Reflects long-term debt rating as of September 22, 1997.
(2) Includes initial term and options identified in the lease.
(3) Date of operating covenant expiration is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into
account co-tenancy or other operating requirements.
(4) Represents collateral in which the anchor owns the improvements
thereon.
(5) Based on the latest required term commencement date of the lease. The
actual commencement date and expiration date may be earlier.
Operating Agreement. The Reciprocal Operating Agreement (the
"Associated-Higbee ROA") dated June 3, 1986 by and among the Westgate Mall
Borrower, Associated Dry Goods Corporation ("Associated") and The Higbee
Company ("Higbee") contains operating covenants affecting the operation of
the anchor stores in the Westgate Mall. The Associated-Higbee ROA, in part,
requires that (i) Higbee operates a retail department store at the Westgate
Mall until December 31, 2000 under the name "Higbee" or such other name as
may then be used to identify the chain operating under such name (Dillard's
South), or for as long as (ii) Associated operates a retail department store
at the Westgate Mall under the name "Horne's" or such other name as may then
be used to identify the chain operating under such name (Dillard's
S-201
<PAGE>
North) (subject to certain lease terms). The Westgate Mall Borrower is
required to continuously operate the Westgate Mall as a shopping center
having a minimum of 160,000 square feet of floor area for a term of 20 years
after the opening of the Westgate Mall. If such requirements are not met and
the Westgate Mall Borrower fails to cure such default within 12 months after
notice thereof, each of Dillard's South and Dillard's North shall be relieved
of its operating covenant after notice of the intention to cease operating is
provided to the Westgate Mall Borrower.
Market Overview and Competition. According to the September 18, 1997
Landauer Associates, Inc. appraisal, the Westgate Mall Property trade area
(estimated by Landauer Associates, Inc. to be a 10-mile radius), is
estimated, as of 1996, to have 640,546 people in approximately 263,028
households with an average household income of $41,680. These estimates
represent a compound annual growth rate from 1990 to 1996 of .06%, .52% and
2.03%, respectively.
Including the Westgate Mall Property, there are a total of five
super-regional and regional malls located in west and south suburban
Cleveland.
The following table shows an overview of the competition to the Westgate
Mall Property:
<TABLE>
<CAPTION>
APPROXIMATE DISTANCE
YEAR BUILT/ OWNER/ FROM WESTGATE ANCHORS/ SIZE
MALL/RETAIL PROPERTY RENOVATED MANAGEMENT (MILES) MALL STORES (SF)
<S> <C> <C> <C> <C> <C>
- --------------------- ------------- -------------- -------------------- ----------------- -----------
Subject Property
Westgate Mall 1954/1996 The Richard E. Dillard's (North) 194,531
Jacobs Group Dillard's (South) 172,000
Kohl's 94,500
Mall Stores 225,553
Outparcels 102,638
-----------
Total 789,222
Competition
Parmatown Mall 1956 Forest City 8 Dillard's 189,958
Enterprises JC Penney 157,414
Kaufmann's 297,997
Mall Stores 654,631
-----------
Total 1,300,000
Great Northern Mall 1976 CGR Advisors 4 JC Penney 165,638
Kaufmann's 222,854
Sears 173,702
Mall Stores 329,285
-----------
Total 891,479
South Park Center 1996 The Richard E. 10 JC Penney N/A
Jacobs Group Sears N/A
Dillard's N/A
Kaufmann's N/A
Mall Stores N/A
-----------
Total 1,384,555
Midway Mall 1966 The Richard E. 13 Dillard's N/A
Jacobs JC Penney N/A
Group Kaufmann's N/A
Sears N/A
Mall Stores N/A
-----------
Total 1,184,004
</TABLE>
- ------------
Source: Landauer Associates, Inc.
S-202
<PAGE>
Environmental Report. A Phase I site assessment, dated August 22, 1997,
was performed on the Westgate Mall Property. The Phase I 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. Neverthless, there can be no assurance that all
environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loan--Environmental Law
Considerations."
Engineering Report. A Property Condition Report was completed on the
Westgate Property on November 25, 1996 by a third party due diligence firm.
The Property Condition Report concluded that the Westgate Property was
generally in good physical condition and identified approximately $505,900 in
deferred maintenance requirements.
Property Management. The manager of the Westgate Mall Property is JG
Shopping Center Management LLC (the "Westgate Mall Manager"), an affiliate of
The Richard E. Jacobs Group, which is also the beneficial owner of JG
Westgate Ltd., the 80% general partner of the Westgate Mall Borrower,
pursuant to a management agreement, dated January 1, 1997 (the "Westgate Mall
Management Agreement"), between the Westgate Mall Manager and the Westgate
Mall Borrower. The Westgate Mall Management Agreement provides for (i) a
management fee of 5% of all revenues received from tenants or occupants of
and income from facilities within the improvements on the Westgate Mall
Property. In addition, certain affiliates of the Westgate Mall Borrower
provide leasing services for leasing commissions equal to 3% of total fixed
minimum rent over the lease term for initial and replacement leases, and 2%
of the total fixed minimum rent over the lease term for renewal leases.
The Westgate Mall Management Agreement is for a term ending December 31,
2006, with automatic extensions on a yearly basis unless election by either
party to terminate the agreement as of the next succeeding December 31 is
given to the other party not later than November 1 of that year. The Westgate
Mall loan documents do not provide the mortgagee with any right to replace or
terminate the Westgate Mall Manager.
The Westgate Mall Manager is affiliated with the Richard E. Jacobs Group,
Inc., which is also the beneficial owner of the 80% general partner of the
Westgate Mall Borrower. In the industry trade publication Shopping Center
World (March 1996), the Richard E. Jacobs Group, Inc. has been ranked as the
6th largest retail property manager in the nation, with approximately
38,295,968 square feet under management.
S-203
<PAGE>
WESTGATE MALL: THE LOAN
CERTAIN WESTGATE MALL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO REFINANCING
SQUARE FOOT (1) VALUE RATIO (2) ACTUAL DSCR (3) DSCR (4)
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date $143 65.7% 1.20x 1.39x
At Maturity $120 55.2% 1.44x 1.65x
</TABLE>
- ------------
(1) Based on the 292,896 square feet of GLA securing the Westgate Mall loan
(617,222 collateral square feet net of square footage to tenants which
own their improvements), and the Cut-Off Date Principal Balance or
Balloon Balance, as applicable, adjusted for tenants which own their
improvements.
(2) Based on the September 18, 1997 Landauer Associates, Inc. appraised
market value and the Cut-Off Date Principal Balance or Balloon Balance,
as applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Westgate Mall Loan during
the 12 months following the Cut-Off Date, and in the case of Maturity
Date Actual DSCR, 12 months of debt service on the Westgate Mall Loan
assuming a balance equal to the Balloon Balance, a coupon equal to the
Westgate Mall Interest Rate and an amortization term equal to 300
months.
(4) Based on (a) 1997 Underwritable Cash Flow and (b) in the case of the
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
9.0% of the Cut-Off Date Principal Balance of the Loan, and in the case
of Maturity Date Refinancing DSCR an annual debt service payment equal
to 9.0% of the Balloon Balance.
Security. The Westgate Mall Loan is a non-recourse loan, secured only by
the fee estate of the Westgate Mall Borrower in the Westgate Mall Property
and certain other collateral (including, without limitation, an assignment of
leases and rents). The mortgagee is the insured under a title insurance
policy issued by Chicago Title Insurance Company, Inc., insuring that the
Westgate Mall Mortgage is a valid and enforceable first lien on the Westgate
Mall Property subject to the exceptions listed therein.
Payment Terms. The Westgate Mall Loan matures on December 1, 2006 (the
"Westgate Mall Maturity Date") and bears interest at a fixed rate per annum
equal to 9.25% (the "Westgate Mall Interest Rate"). The Westgate Mall Loan
does not specify the day count fraction to be used to calculate interest;
however, the Westgate Mall Loan has been serviced as if such Note provided
for interest on the Westgate Mall Loan to be calculated on the basis of a
360-day year of 30-day months.
The payment date for the Westgate Mall Loan is the first business day of
each month, and there is a five day grace period after the mailing or actual
communication of notice to the borrower for a default in payment of principal
or interest. The Westgate Mall Loan requires equal monthly payments of
principal and interest in the sum of $368,442.60 (based on a 300-month
amortization schedule and the Westgate Mall Interest Rate). On the Westgate
Mall Maturity Date, payment of the then outstanding balance of the principal,
if any, together with all accrued and unpaid interest and all other sums
payable under the loan documents, is required. The principal balance of the
Westgate Mall Loan on the Westgate Mall Maturity Date, based on scheduled
amortization will be $35,890,982.
If the Westgate Mall Borrower fails to pay any monthly installment of
principal or interest within 4 days after the payment date due, it is
required to pay a late payment charge in an amount equal to 5% of the amount
of such installment. Upon the occurrence of any event of default and
acceleration of the Westgate Mall Loan, or upon failure to repay the
principal of the Westgate Mall Loan at the Westgate Mall Maturity Date, the
entire unpaid principal amount of the Westgate Mall Loan and any other
amounts payable, including interest, will bear interest at a default rate
equal to the lesser of (a) the maximum rate permitted by applicable law and
(b) the Westgate Mall Interest Rate plus 3% (the "Westgate Mall Default
Rate").
Prepayment. Voluntary prepayment is prohibited under the Westgate Mall
Loan prior to December 1, 2000. Thereafter, the Westgate Mall Loan may be
voluntarily prepaid in whole, but not in part, on any payment date upon
payment of a prepayment premium (the "Westgate Mall Yield Maintenance
Premium") equal to the greater of (a) 2% of the unpaid principal balance for
the period from December 1, 2000 through November 31, 2001, 1.5% of the
unpaid principal balance for the period December 1, 2002 through November 31,
2003, and 1% of the unpaid principal balance for the period December 1, 2003
through September 30, 2006, and (b) an amount (the "Westgate Mall Yield
Maintenance Amount") equal to the remainder obtained by subtracting (x) an
amount equal to the entire outstanding principal balance as of the date of
such prepayment (including any final installment of principal payable on the
Westgate Mall Maturity Date) from (y) the present value as of the date of
such prepayment of the remaining scheduled payments of principal and interest
determined by discounting such payments at a discount rate equivalent to
0.50% plus the Westgate Mall Discount Rate. The "Westgate
S-204
<PAGE>
Mall Discount Rate" means a rate equal to the yield of U.S. Treasury
obligations to be selected by the mortgagee, as published by the Bloomberg
News Service two weeks prior to prepayment, having a maturity date
corresponding to the original maturity date of the Westgate Mall Loan.
Notwithstanding the foregoing, the Westgate Mall Loan may be prepaid without
a prepayment premium commencing on September 1, 2006.
Principal prepayments on the Westgate Mall Loan must be made, at the
mortgagee's option, upon acceleration of the loan following the occurrence of
an event of default. Prepayments made following an event of default will be
subject to the payment of a prepayment premium equal to the greater of (a) 3%
of the unpaid principal balance of the Westgate Mall Note on the date of
prepayment, or (b) the Westgate Mall Yield Maintenance Amount, provided,
however, that the discount rate used to calculate such amount shall be the
Westgate Mall Discount Rate, less 50 basis points.
To the extent that the Westgate Mall Borrower is not permitted to apply
any insurance or condemnation proceeds to the restoration of the Westgate
Mall Property under the Westgate Mall Loan, the mortgagee has the option to
apply such proceeds to prepay the Westgate Mall Loan. No yield maintenance
premium is required to be paid in connection with any prepayment resulting
from the application of insurance proceeds or condemnation proceeds.
Lockbox and Reserves. The Westgate Mall Mortgage requires monthly impounds
of 1/12th of the annual amount of taxes, assessments, water, sewer,
governmental payments and insurance premiums. In connection therewith, the
Westgate Mall Borrower has executed and delivered to the mortgagee a Real
Estate Tax Pledge Agreement, dated December 13, 1996 (the "Westgate Mall Tax
Agreement"), providing for the impounding of property taxes (the "Westgate
Mall Tax Impound"). The Westgate Mall Tax Impound is held by Key Trust
Company of Ohio, NA, a national bank (the "Westgate Mall Escrow Holder") in
an interest bearing escrow account in the name of the mortgagee, which
account is pledged to the mortgagee as additional collateral for the Westgate
Mall Loan. The Westgate Mall Tax Agreement does not provide for the
impounding of insurance premiums. The Westgate Mall Loan documents do not
provide for any lock boxes or collection accounts except for the tax impound.
In addition to the foregoing escrow, the Westgate Mall Mortgage grants to
the mortgagee the right at any time to have an independent engineer or other
qualified expert survey the adequacy of the maintenance of the Westgate Mall
Property. If any deficiencies in maintenance are found, the Westgate Mall
Borrower is obligated within 60 days after written demand to deposit with the
mortgagee a sum equal to the estimated costs of repairs and replacements
together with the costs of the inspection.
Transfer of Property and Interest in Borrower; Encumbrance; Other
Debt. The Westgate Mall Borrower is generally prohibited from transferring or
encumbering the Westgate Mall Property. The Westgate Mall Loan also generally
prohibits the transfer of any interest in the Westgate Mall Borrower without
the prior written consent of the mortgagee. However, mortgagee's consent is
not required with respect to certain transfers of the Property or certain
transfers of direct or indirect beneficial interests in the Westgate Mall
Borrower, provided that (i) at least 30 days' prior written notice shall be
received by the mortgagee and (ii) no event of default shall have occurred
and be continuing as of the date of such notice or the date of such transfer.
Without the consent of the mortgagee, the Westgate Mall Property may be
conveyed to or otherwise become part of a Real Estate Investment Trust
consisting of the real estate assets of The Richard E. Jacobs Group, Inc.
(the "Jacobs Group REIT"), and the Westgate Mall Loan may be assumed by the
entity to which the Westgate Mall Property is conveyed in connection with the
Jacobs Group REIT. In addition, so long as the Westgate Mall Property is
managed by (i) the Westgate Mall Manager or (ii) a similar management company
affiliated with the Richard E. Jacobs Group, Inc., as approved by the
mortgagee, or (iii) the Jacobs Group REIT or an affiliate of the Jacobs Group
REIT, the following additional transfers are permitted without the
mortgagee's consent:
(a) Any transfer of the Westgate Mall Property by the Westgate Mall
Borrower to any entity in which Jacobs Realty Investors Limited
Partnership ("JRILP"), Richard E. Jacobs, The Richard E. Jacobs Trust
dated April 23, 1987 (the "REJ Trust"), or The David H. Jacobs Trust
dated August 24, 1987 (the "DHJ Trust"), or any of them in the
aggregate, directly or indirectly own not less than 51% of each of
the capital, income and loss and voting interests;
(b) Any transfer to JRILP, Richard E. Jacobs, the REJ Trust or the DHJ
Trust;
(c) Any transfer of any direct or indirect interest in the Westgate Mall
Borrower owned at the time of such transfer by JRILP, Richard E.
Jacobs, the REJ Trust or the DHJ Trust, if such transfer (i) occurs
by reason of the death or disability of Richard E. Jacobs or a
beneficiary of the REJ Trust or DHJ Trust or (ii) is to a trust or
other entity owned or controlled by, or benefiting, one or more of
JRILP, Richard E. Jacobs, the REJ Trust, the DHJ Trust or members of
the immediate family of Richard E. Jacobs or David H. Jacobs;
S-205
<PAGE>
(d) Any transfer of any direct or indirect interest in Westgate Mall
Borrower so long as after such transfer, JRILP, Richard E. Jacobs,
the REJ Trust, the DHJ Trust or any trust created for the benefit of
members of the immediate family of Richard E. Jacobs or David H.
Jacobs, the adult members of the immediate family of Richard E.
Jacobs or David H. Jacobs, or any of them, in the aggregate,
directly or indirectly own not less than 51% of each of the capital,
income and loss, and voting interests in the Westgate Mall Borrower;
(e) Any transfers of beneficial interest in or any transfers of all or a
portion of its interest in Westgate Mall Borrower by any of the
DAV-JVJ Trust under Agreement dated January 4, 1993, the Tom Visconsi
Trust, the Olsen Family Trust, the C.P.M. Rini Trust or the Vince
Vermes Trust; or
(f) Transfers of any portions of partnership interest in or any transfer
of all or a portion of its interest in Westgate Mall Borrower by
Boykin Westgate Co., an Ohio general partnership.
The Westgate Mall Loan documents do not require such permitted transferees
to assume the Westgate Mall Loan or pay any assumption fee in connection with
such transfer.
In addition, as described below under "Right of First Refusal," the
Westgate Mall Property may be sold to certain institutional transferees if
the mortgagee fails to exercise the option to purchase described under such
heading.
The Westgate Mall Mortgage prohibits the Westgate Mall Borrower from
further encumbering or suffering to exist any lien against all or any portion
of the Westgate Mall Property other than the Westgate Mall Mortgage. The
Westgate Mall Loan documents do not contain other restrictions on the
Westgate Mall Borrower's right to incur indebtedness.
Right of First Refusal. The Westgate Mall Mortgage contains a right of
first refusal whereby the Westgate Mall Mortgagee is given the right to elect
to purchase the Westgate Mall Borrower's interest in the Westgate Mall
Property on the same terms and conditions as any bona fide offer received by
the Westgate Mall Borrower from a purchaser meeting certain "suitability
standards". The mortgagee must exercise the option within 45 days after
receiving written notice and a copy of the sales contract, together with
sufficient information to determine whether the purchaser meets the
suitability standards. If the mortgagee declines to exercise the right of
first refusal, the Westgate Mall Borrower may sell the Westgate Mall Property
under the same terms as the contract, provided that the mortgagee has
determined that such buyer (i) has a net worth of at least $100,000,000, (ii)
is a responsible developer or manager of regional shopping centers engaged in
the business of operating enclosed mall shopping centers containing a total
of not less than 5 million square feet of gross leaseable area or is a
"Westgage Mall Institutional Investor" (as defined below), (iii) if required
under the purchase contract, the buyer has expressly assumed the obligations
of the developer under any operating agreements and as landlord under the
leases, and (iv) Richard E. Jacobs and The David H. Jacobs Trust have
ratified their environmental indemnities or provided a substitute
environmental indemnity. "Westgate Mall Institutional investor" is defined as
a commercial bank, charitable foundation, insurance company, real estate
investment trust, pension fund or investment advisor registered under the
Investment Advisors Act of 1940.
Insurance. The Westgate Mall Borrower is obligated to insure the Westgate
Mall Property against loss or damage by, and abatement of rental income
resulting from, fire and such other hazards, casualties, and contingencies
(including, but not limited to war risk insurance, if available, and
earthquake and sink hole insurance) in such amounts (but never less than the
full replacement costs) and for such periods as the mortgagee reasonably
requires, but not in amounts exceeding any limitations imposed by law. The
Westgate Mall Borrower is also obligated to carry and maintain such liability
and indemnity insurance (including, but not limited to, water damage and so
called assumed and contractual liability insurance) as the mortgagee requires
from time to time.
Casualty and Condemnation. The mortgagee is obligated to make insurance
and condemnation proceeds available for restoration of the Westgate Mall
Property if (i) there exist no defaults under the Westgate Mall Loan
documents, (ii) all leases continue in effect, (iii) the mortgagee shall
first be given satisfactory proof that such improvements have been fully
restored or that by the expenditure of such money will be fully restored free
and clear of liens, (iv) the Westgate Mall Borrower deposits any shortfall of
funds necessary to complete the restoration, (v) the Westgate Mall Borrower
obtains waiver of rights of subrogation on insurance policies, and (vi) that
the aggregate minimum monthly rental payable thereafter under all leases
shall not be less than the sum of one-twelfth of the annual premiums for
insurance, one twelfth of the annual taxes and assessments, and the monthly
installments of principal and interest or otherwise if less than such sum,
then so much insurance proceeds shall first be applied upon the said
indebtedness without giving rise to any pre-payment premium, so that upon
payment monthly of an amount equal to such aggregate monthly minimum rentals,
when applied monthly to pro-rata ground rent, if any, taxes and assessments
and insurance premiums, then to interest and the balance to principal will
service the
S-206
<PAGE>
remaining principal balance at an annual constant rate of 10.277% in which
later event the monthly installment under the Westgate Mall Note shall be
reduced accordingly. In the event any of the above conditions are not
satisfied, the mortgagee may apply the insurance proceeds or condemnation
award to the Westgate Mall Loan, without premium or penalty.
The Westgate Mall Loan Documents do not specifically require that the
Westgate Mall Borrower repair the Westgate Mall Property following a casualty
or condemnation. The Westgate Mall Borrower is, however, obligated to keep
and maintain the Westgate Mall Property in thorough repair and condition,
make all replacements necessary to keep the Westgate Mall Property in
continuous good condition, and effect such other repairs as the mortgagee
reasonably requires.
Approval Rights. The Westgate Mall Borrower is not permitted to alter,
remove or demolish any of the improvements without the mortgagee's written
consent. The Westgate Mall Borrower is not permitted to enter into any lease,
sublease, license or other agreement affecting the use, occupancy or
utilization of all or any portion of the Westgate Mall Property securing the
Westgate Mall Loan without mortgagee's express prior written approval.
Financial Reporting. Within 120 days following the expiration of each
fiscal year, Westgate Mall Borrower is obligated to provide financial
statements showing all earnings and expenses since the last such statement,
prepared by an independent certified public accountant in accordance with
generally accepted accounting principles, and verified by the affidavit of
the Westgate Mall Borrower. The financial statements are to show all sales
made on the premises and a rent roll if so requested by the mortgagee. In
addition, the Westgate Mall Borrower is obligated to furnish the foregoing
financial statements within 30 days after demand therefore by the mortgagee,
and provide such other financial information that the Westgate Mall Mortgagee
shall reasonably require.
S-207
<PAGE>
WESTSHORE MALL: THE BORROWER; THE PROPERTY
The Loan. The Westshore Mall Loan was originated by Secore and acquired by
MSMC on January 31, 1997. The Westshore Mall Loan had a principal balance at
origination of $21,000,000 and has a principal balance as of the Cut-Off Date
of approximately $20,900,775. It is secured by, among other things, a first
lien Mortgage, Security Agreement, Financing Statement, Fixture Filing and
Assignment of Leases, Rents and Security Deposits (the "Westshore Mall
Mortgage") encumbering a regional mall located in Holland, Michigan (the
"Westshore Mall Property").
The Borrower. Westshore Properties, L.L.C. (the "Westshore Mall Borrower")
is a special purpose Delaware limited liability company whose purpose is
limited to owning and operating the Westshore Mall Property. The managing
member of the Westshore Mall Borrower is Ivanhoe Wilmorite Westshore, Inc., a
special purpose Delaware corporation whose purpose is limited to serving as
the managing member of the Westshore Mall Borrower and engaging in related
activities. The Westshore Mall Borrower is indirectly owned by Ivanhoe, Inc.
(85%), the real estate group of the Canadian pension fund Caisse De Depot Et
Placement du Quebec ("Ivanhoe") and by Wilmorite, Inc. (15%) ("Wilmorite").
The Property. The Westshore Mall Property was originally built in 1988.
The Westshore Mall Property is comprised of the Westshore Mall Borrower's fee
simple interest in the Westshore Mall, an enclosed, single-level, 4-anchor
regional mall, located in the City of Holland, Ottawa County, Michigan. The
Westshore Mall Property is anchored by JC Penney, Sears, Younkers and
Steketee's and contains approximately 473,619 total square feet, of which
approximately 213,817 square feet is anchor GLA, 143,034 square feet is mall
store GLA, approximately 105,757 square feet is an adjacent Target-anchored
strip center, and approximately 11,011 square feet is outparcel GLA as to
which tenants own the improvements thereon. The portion of Westshore Mall
that secures the Westshore Mall Loan consists of 393,949 square feet
(including anchor stores, mall stores, outparcels, and community shopping
center stores, other than Target). The Westshore Mall is situated on
approximately 51.4 acres and contains approximately 2,292 surface parking
spaces. The ratio of parking spaces per 1,000 square feet of GLA is 4.84 to
1. An appraisal completed by Landauer Associates, Inc. on December 31, 1996
determined a market value of $33,000,000 for the Westshore Borrower's
ownership interest in the property.
The table below summarizes the components of total square feet at the
Westshore Mall Property as of July 1, 1997.
<TABLE>
<CAPTION>
% OF
GLA TOTAL GLA
--------- -----------
<S> <C> <C>
Anchor Stores
- ---------------------------------------- --------- -----------
Younkers ............................... 69,148 14.6%
Sears .................................. 52,515 11.1
JC Penney .............................. 51,399 10.9
Steketee's ............................. 40,755 8.6
--------- -----------
Total Anchor Stores ................... 213,817 45.1%
Self-Owned Community Center Anchor
Stores
- ----------------------------------------
Target.................................. 79,670 16.8%
Mall Store Space ........................ 143,034 30.2
Non-Target Community Shopping Center ... 26,087 5.5
Outparcels (Tenant-Owned Improvements) .. 11,011 2.3
--------- -----------
GLA Total ............................. 473,619 100.0%
========= ===========
</TABLE>
Location/Access. The Westshore Mall Property is located in an in-fill
area of Holland, Michigan. Holland is a west Michigan community located
approximately 35 minutes south of Grand Rapids. Holland is an employment and
population center for Ottawa County. Area employers include Haworth, Herman
Miller, Prince Corporation and Donnelley Corporation. Access to the site is
provided by U.S. Route 31, a primary north/south thoroughfare to the
community.
S-208
<PAGE>
Operating History. The following table shows certain information
regarding the operating history of the Westshore Mall Property (see
Underwritable Cash Flow definition):
ADJUSTED NET OPERATING INCOME
<TABLE>
<CAPTION>
UNDERWRITABLE
1994 1995 1996 NOI
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues.............. $ 5,038,171 $ 4,656,406 $ 5,185,601 $ 5,118,829
Expenses.............. (2,051,082) (1,571,771) (1,733,301) (1,754,610)
------------- ------------- ------------- ---------------
Net Operating
Income............... $ 2,987,089 $ 3,084,635 $ 3,452,300 $ 3,364,219
============= ============= ============= ===============
</TABLE>
Occupancy History. The occupancy history for the mall store space of the
Westshore Mall Property is as follows:
<TABLE>
<CAPTION>
MALL STORES
PERCENT LEASED
--------------
<S> <C>
Occupancy as of:
- ------------------
June 30, 1997 ... 95.3%
December 31, 1996 95.3%
</TABLE>
Occupancy Costs. According to Landauer Associates, Inc., the estimated
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 11.33% for 1997.
Tenant Sales. The Westshore Mall Property's historical mall store sales,
anchor store sales and outparcel sales are summarized as follows:
<TABLE>
<CAPTION>
ANNUAL 1995
SF SALES(1) ANNUAL 1996 SALES(1)
--------- ------------------- --------------------
TOTAL PER TOTAL PER
1996 (000S) SF (000S) SF
--------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Anchor Store Sales
- ------------------------------------------------
JC Penney....................................... 51,399 $ 8,981 $ 175 $ NA(2) $ NA(2)
Sears........................................... 52,515 12,835 244 12,892 26
Younkers........................................ 69,148 9,885 143 10,482 152
Steketee's...................................... 40,755 3,452 85 3,339 82
--------- --------- -------- --------- ---------
Total Anchor Store............................. 213,817 $35,154 $ 164 $26,714 $ 164(3)
========= ======== =========
Mall Store Sales
- ------------------------------------------------
Comparable Store................................ 127,027 $28,905 $ 228 $28,806 $ 227
Non-Comparable Store............................ 13,954 2,167 155(4) 2,988 214(4)
Drug/Food Market Stores......................... 150 184 1,229 180 1,201
Entertainment................................... 5,355 375 70 367 68
--------- --------- -------- --------- ---------
Total Mall Store............................... 146,486 $31,632 $ 216 $32,341 $ 221
========= ======== =========
Outparcel Sales
- ------------------------------------------------
Total Outparcel................................ 22,100 $ 1,789 $80.94 $ 1,812 $81.97
========= ======== --------- =========
Gross Sales--Anchors, Mall Stores and Outparcels $68,574 $60,866
========= =========
</TABLE>
- ------------
(1) Based on the September 30, 1996 sales report. The 1996 sales listed
above are based on rolling 12-month sales data in the report.
Information is based solely upon the sales figures provided by the
Westshore Mall Borrower from data provided by the tenants.
(2) The 1996 JC Penney rolling 12-month sales are not reported in the
September 30, 1996 sales report.
(3) Based on anchor store square footage, net of JC Penney, which did not
report sales in the September 30, 1996 sales report.
(4) Non-comparable store tenants may not be in occupancy for a full
calendar year and therefore non-comparable sales per square foot may
not be reflective of full year sales per square foot.
S-209
<PAGE>
Mall Stores. The Westshore Mall Property tenant base is primarily
comprised of a mix of national retailers such as The Limited, Lerner New
York, Lane Bryant, WaldenBooks, Kinney Shops and Northern Reflections. 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 ten largest
mall store tenants by Annualized Base Rent (percentage rent and tenant
reimbursement obligations are not included):
TEN LARGEST MALL STORE AND ANCHOR TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
TENANT OR TENANT TENANT % OF TOTAL
PARENT COMPANY STORE NAME GLA GLA
- ----------------------- -------------------- --------- ------------
<S> <C> <C> <C>
The Limited Inc. Bath and Body Works 22,178 15.5%
Express
Lane Bryant
Lerner New York
The Limited
Woolworth Corp. Afterthoughts 9,840 6.9
Foot Locker
Kinney Shoes
Lady Foot Locker
Northern Reflections
Maurice's Inc. Maurice's 5,428 3.8
Deb Shops Inc. Deb 5,911 4.1
County Seat Stores Inc. County Seat 3,535 2.5
J.J. Finnegan's J.J. Finnegan's 5,995 4.2
Musicland Musicland 4,910 3.4
CalMed Inc. Imperial Sports 3,320 2.3
The Buckle Inc. Buckle 5,058 3.5
Paul Harris Paul Harris 4,500 3.1
--------- ------------
Total/Weighted Average 70,675 49.4%
(10 Largest)
Remaining (excluding 65,590 45.9
non-owned anchors)
Vacant Space 6,769 4.7
--------- ------------
Total (excluding 143,034 100.0%
============
non-owned anchors)
Sears Roebuck & Co. Sears 52,515
J.C. Penney Co., Inc. JC Penney 51,399
Proffitt's Inc. Younker's 69,148
Paul Steketee & Sons Steketee's 40,755
---------
Total (including 356,851
=========
non-owned anchors)
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
% OF TOTAL
TENANT OR TENANT ANNUALIZED ANNUALIZED ANNUALIZED BASE RENT
PARENT COMPANY BASE RENT BASE RENT PER SF
- ----------------------- ------------ ------------ --------------------
<S> <C> <C> <C>
The Limited Inc. $ 320,918 14.3% $14.47
Woolworth Corp. 191,751 8.6 19.49
Maurice's Inc. 86,034 3.8 15.85
Deb Shops Inc. 82,262 3.7 13.92
County Seat Stores Inc. 78,300 3.5 22,15
J.J. Finnegan's 77,945 3.5 13.00
Musicland 68,740 3.1 14.00
CalMed Inc. 63,080 2.8 19.00
The Buckle Inc. 55,638 2.5 11.00
Paul Harris 54,000 2.4 12.00
------------ ------------ --------------------
Total/Weighted Average $1,078,668 48.1% $15.26
(10 Largest)
Remaining (excluding 1,161,624 51.9 17.71
non-owned anchors)
Vacant Space 0 0 0
------------ ------------ --------------------
Total (excluding $2,240,292 100.0% $16.44(2)
============ ============
non-owned anchors)
Sears Roebuck & Co. 157,545 3.00
J.C. Penney Co., Inc. 188,370 3.66
Proffitt's Inc. 224,808 3.25
Paul Steketee & Sons 171,018 4.20
------------ --------------------
Total (including $2,982,033 $ 8.52(2)
============ ====================
non-owned anchors)
</TABLE>
- ------------
(1) Based on June 30, 1997 rent roll.
(2) Does not include vacant square footage.
S-210
<PAGE>
Mall Store Lease Expiration. The following table shows scheduled lease
expirations of mall store GLA at the Westshore Mall Property as of July 1,
1997, assuming none of the tenants renew their leases, exercise renewal
options or terminate their leases prior to the scheduled expiration date(1).
See Anchor Stores below for Anchor Lease or REA expirations.
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE ANNUAL CUMULATIVE
LEASES EXPIRING PERCENT OF PERCENT OF ANNUAL BASE RENT PERCENT OF PERCENT OF
YEAR EXPIRATION EXPIRING SF SF BASE RENT BASE RENT PER SF BASE RENT BASE RENT
- ------------------ ----------- ---------- ------------ ------------ ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vacant ............ 0 6,769 4.73% 4.73% $ 0 $ 0.00 0.00% 0.00%
1997............... 3 1,874 1.31 6.04% 61,388 32.76 2.74 2.74%
1998............... 15 26,703 18.67 24.71% 468,306 17.54 20.90 23.64%
1999............... 11 29,915 20.91 45.63% 503,600 16.83 22.48 46.12%
2000............... 6 19,944 13.94 59.57% 342,804 17.19 15.30 61.42%
2001............... 8 9,952 6.96 66.53% 234,542 23.57 10.47 71.89%
2002............... 3 6,346 4.44 70.96% 81,958 12.91 3.66 75.55%
2003............... 5 14,345 10.03 80.99% 165,305 11.52 7.38 82.92%
2004............... 3 13,010 9.10 90.09% 165,940 12.75 7.41 90.33%
2005............... 3 7,318 5.12 95.21% 128,411 17.57 5.74 96.07%
2006............... 1 5,058 3.54 98.74% 55,638 11.00 2.48 98.55%
2007 or Later...... 1 1,800 1.26 100.00% 32,400 18.00 1.45 100.00%
----------- ---------- ------------ ------------- ----------- ------------
Total/Weighted
Avg............... 59 143,034 100.00% $2,240,292 $16.44(2) 100.00%
=========== ========== ============ ============= =========== ============
</TABLE>
- ------------
(1) Based on the July 1, 1997 rent roll.
(2) Does not include vacant square footage.
Anchor Stores. The following table shows certain information for each of
the Westshore Mall's anchor tenants (and its corporate parent):
<TABLE>
<CAPTION>
CREDIT RATING
OF PARENT LEASE OPERATING
COMPANY(1) ANCHOR-OWNED/ EXPIRATION COVENANT REA
ANCHORS PARENT COMPANY (S&P/MOODY'S) GLA COLLATERAL YEAR(2) EXPIRATION (3) TERMINATION
- ------------ ------------------------- --------------- -------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Younker's.... Proffitt's Inc. NA/Ba2 69,148 Collateral 10/31/2023(4) 10/31/2003 N/A
JC Penney.... J.C. Penney Co., Inc. A/A2 51,399 Collateral 2033(4) 2003 N/A
Sears........ Sears Roebuck & Co. A-/A2 52,515 Collateral 2028(4) 2003 N/A
Steketee's .. Paul Steketee & Sons NA/NA 40,755 Collateral 7/31/2028 7/31/2003 N/A
Target....... Dayton Hudson Corporation NA/NA 79,670 Anchor-Owned N/A 8/23/2067 N/A
</TABLE>
- ------------
(1) Reflects long-term debt rating as of September 22, 1997.
(2) Includes initial term and options identified in the lease.
(3) Date of operating covenant expiration is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into
account co-tenancy or other operating requirements.
(4) Based on the latest required term commencement date of the lease. The
actual commencement date and expiration date may be earlier.
S-211
<PAGE>
Operating Agreement. Pursuant to the Lease Agreement dated November 5,
1987 between the Westshore Mall Limited Partnership ("WMLP") and Sears,
Roebuck & Co., as amended on December 7, 1988, Sears must operate for 10
years and an additional 5 years as a department store (as Sears or another
name) for so long as at least one of JC Penney or Younkers is open and
operating and at least 60% of the mall store space is open and operating. If
such requirements are not met and the mortgagor fails to cure within 12
months, Sears may terminate its lease by written notice delivered to
mortgagor within 30 days after the end of such 12 month period.
Pursuant to the Lease Agreement dated August 1, 1986 between WMLP and J.C.
Penney Company, Inc., as amended on August 5, 1988, December 1, 1988, and
December 6, 1988, JC Penney, (or such other name under which a majority of
the tenant's retail department stores are then being operated) must operate
for 10 years and an additional 5 years as a retail department store for so
long as at least 2 of Sears, Steketee's and Younkers is open and operating
during the same period and at least 65% of the mall store space is open and
operating. If such requirements are not met, JC Penney may terminate
compliance with its operating covenant upon 30 days prior written notice to
the mortgagor.
Pursuant to the Lease Agreement dated August 24, 1987 between WMLP and
H.C. Prange Company, Younkers is required to operate for 15 years for so long
as at least 2 department stores other than Younkers occupying no fewer than
92,000 square feet is open and operating and at least 100,000 square feet of
non-department store space is open and operating. If such requirements are
not met and mortgagor fails to cure within 6 months after receiving written
notice, Younkers shall have the option to pay alternate rent in lieu of
minimum rent and percentage rent (as provided under such lease). In addition,
if such default is not cured within 18 months of mortgagor's receipt of
notice, either party may terminate the lease upon written notice within 30
days after the end of the 18 month period.
Pursuant to the Lease Agreement dated October 29, 1987 between Westshore
Mall Limited Partnership and Paul Steketee & Sons Company, Steketee's is not
obligated to pay its minimum annual rent unless any two of Sears, JC Penney
and Younker's are operating in the Westshore Mall and a total of at least 70%
of the remaining rental area in the shopping center is leased and open for
business (excluding Steketee's). For so long as Steketee's is operating as a
retail department store and is not in default on its lease, the Westshore
Mall Borrower covenants to operate the shopping center with at least 330,000
square feet of rentable area.
S-212
<PAGE>
Market Overview and Competition. According to the December 31, 1996
Landauer Associates, Inc. appraisal, the Westshore Mall Property trade area
(estimated by Landauer Associates, Inc. to be a 15-mile radius) is estimated,
as of 1996, to have 170,301 people in approximately 57,514 households with an
average household income of $48,650. These estimates represent a compound
annual growth rate from 1990 to 1996 of 2.59%, 2.98% and 2.37%, respectively.
Including the Westshore Mall Property, there are a total of five regional
and outlet malls located in the greater Holland/Western Michigan area. Future
retail competition is expected with the proposed mall development in
Grandville, Michigan approximately 30 minutes from the Westshore Mall
Property. The proposed Grandville Mall anchors include Hudson's, Sears and JC
Penney.
The following table shows an overview of the competition to the Westshore
Mall Property:
<TABLE>
<CAPTION>
YEAR BUILT/ OWNER/ ANCHORS/ SIZE
MALL/RETAIL PROPERTY RENOVATED MANAGEMENT MALL STORES (SF)
<S> <C> <C> <C> <C>
- -------------------------- ------------- ----------------- ------------------------ -----------
Subject Property
Westshore Mall 1988 Wilmorite/ JC Penney 51,399
Ivanhoe Sears 52,515
Steketee's 40,755
Younkers 69,148
Target (Westshore Plaza) 79,670
Mall Stores 143,034
Strip Center 26,087
Outparcels 11,011
-----------
Total 473,619
Competition
Woodland Mall 1968/84 Taubman Realty Hudson's 132,614
Group JC Penney 239,110
Sears 265,228
Mall Stores 425,000
-----------
Total 1,100,100
Manufacturers 1988/90 Horizon Phase I 112,600
Marketplace/Dutch Village Phase II 73,200
Total 185,800
-----------
Muskegon Mall 1976/89/ Erie Dev. Sears 123,651
92 (Richard Perlman) Steketee's 51,585
Mall Stores 167,764
-----------
Total 343,000
Eastbrook Mall N/A Eastbrook LP Kingman Furniture 140,806
(Visser Day Co.) Burlington Coat 63,873
Steketee's 99,075
Menards 78,595
Mall Stores 350,000
-----------
Total 732,000
Orchards Mall 1979/93 Equitable Elder-Beerman 70,403
JC Penney 103,283
Sears 127,747
Mall Stores 222,911
-----------
Total 524,344
- ------------
Source: Landauer Associates, Inc.
</TABLE>
S-213
<PAGE>
Environmental Report. A Phase I site assessment, dated October 15, 1996,
was performed on the Westshore Mall Property. No material environmental
conditions were identified which warranted further evaluation. The Phase I
did not reveal any environmental liability that the Depositor believes would
have a material adverse effect on the borrower's business, assets or results
of operations taken as a whole. Nevertheless, there can be no assurance that
all environmental conditions and risks were identified in such environmental
assessment. See "Risk Factors--The Mortgage Loans--Environmental Law
Considerations."
Engineering Report. A Property Condition Report was completed on the
Westshore Property on December 16, 1996 by a third party due diligence firm.
The Property Condition Report concluded that the Westshore Property was
generally in good physical condition and identified approximately $171,000 in
deferred maintenance requirements. At origination, the Westshore Borrower
established a deferred maintenance reserve account and made an initial
deposit equal to $213,750, to fund the cost of addressing the identified
items.
Property Management. The Westshore Mall Property is managed by
Wilmorite-Ivanhoe Property Management, L.L.C. (the "Westshore Mall Manager"),
an affiliate of the Westshore Mall Borrower, pursuant to a management and
operating agreement dated December 31, 1996 (the "Westshore Mall Management
Agreement") between the Westshore Mall Manager and the Westshore Mall
Borrower. The Westshore Mall Manager of the Westshore Mall Property receives
an annual management fee equal to 4% of the sum of (i) fixed annual minimum
rent paid under all leases for each operating year, (ii) the percentage rent
paid under all leases for each operating year and (iii) the income derived
from termination of any of the leases for each operating year. With respect
to any new lease or the renewal of any existing lease and the amendment or
restatement of any reciprocal easement agreement (the "Westshore Mall REA")
whereby the amount of square feet in the retail stores operated by any new or
existing party to the Westshore Mall REA is constructed or increased, the
Westshore Mall Manager is paid a commission of (a) $4.00 per square foot for
any lease or amended Westshore Mall REA for space equal to or less than
60,000 square foot, or (b) $2.50 per square foot for any lease or amended
Westshore Mall REA equal to more than 60,000 square foot.
The Westshore Mall Management Agreement is for a term ending December 31,
2001, with 1 automatic extension for an additional 5-year term and,
thereafter, consecutive automatic extension terms of 1 year. The mortgagee,
or the Westshore Mall Borrower at the mortgagee's direction, has the right to
terminate the Westshore Mall Manager (i) upon or after an occurrence of an
event of default under the Westshore Mall Loan or by Westshore Mall Manager
under the Westshore Mall Management Agreement that continues beyond any grace
or cure periods, (ii) at any time for cause (including Westshore Mall
Manager's gross negligence, willful misconduct or fraud), (iii) if the
Westshore Mall Borrower fails to maintain a debt service coverage ratio of
1.15:1, or (iv) at any time after the first anniversary of the Westshore Mall
Effective Maturity Date (as defined below) on 30 days' prior written notice.
The debt service coverage ratio must be achieved by the Westshore Mall
Borrower, within 30 days at the end of each calendar quarter. The Westshore
Mall Borrower may avoid mortgagee's termination of Westshore Mall Manager for
failure to maintain the debt service coverage ratio by pledging cash, cash
equivalents or a letter of credit (the "Westshore Mall Debt Service
Collateral") to mortgagee in an amount which, if treated as income from
operations of the Westshore Mall Property, would increase operating income
sufficient to maintain the debt service coverage ratio in excess of 1.15:1.
The Westshore Mall Debt Service Collateral will be released to the Westshore
Mall Borrower, so long as no event of default has occurred and is continuing,
upon the earlier to occur of (i) the date on which the debt service coverage
ratio has been greater than 1.15:1 for four consecutive quarters or (ii) the
date MSMC sells the Westshore Mall Loan to an unaffiliated third party. The
debt service coverage ratio is defined as the ratio of net operating income
to debt service (calculated on the basis of a loan constant of the higher of
10% and the actual debt service constant on the Note).
The Westshore Mall Manager is owned by Ivanhoe and Wilmorite, the indirect
owners of the Westshore Mall Borrower. In the industry trade publication
Shopping Center World (March 1996), Wilmorite has been ranked as the 31st
largest retail property managers in the United States, with approximately
14,755,000 square feet under management. Ivanhoe is the real estate group of
the Canadian pension fund Caisse De Depot Et Placement du Quebec.
S-214
<PAGE>
WESTSHORE MALL: THE LOAN
CERTAIN WESTSHORE MALL LOAN STATISTICS
<TABLE>
<CAPTION>
LOAN PER LOAN TO REFINANCING
SQUARE FOOT(1) VALUE RATIO(2) ACTUAL DSCR(3) DSCR(4)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cut-Off Date $53 63.3% 1.68x 1.66x
At Effective Maturity Date $49 58.9% 1.81x 1.78x
</TABLE>
- ------------
(1) Based on the 393,949 square feet of GLA securing the Westshore Mall
Loan and the Cut-Off Date Principal Balance or Balloon Balance as
applicable.
(2) Based on the December 31, 1996, Landauer Associates, Inc. appraised
market value and Cut-Off Date Principal Balance or Balloon Balance, as
applicable.
(3) Based on (a) Underwritable Cash Flow and (b) in the case of Cut-Off
Date Actual DSCR, actual debt service on the Westshore 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 Westshore
Mall Loan assuming a balance equal to the Balloon Balance, a coupon
equal to the Westshore Mall Initial Interest Rate and an amortization
term equal to 360 months.
(4) Based on (a) 1997 Underwritable Cash Flow and, in the case of the
Cut-Off Date Refinancing DSCR, an annual debt service payment equal to
9.0% of the Cut-Off Date Principal Balance of the Loan and (b) in the
case of the Effective Maturity Date Refinancing DSCR, an annual debt
service payment equal to 9.0% of the Balloon Balance.
Security. The Westshore Mall Loan is a non-recourse loan, secured only by
the Westshore Mall Borrower's fee interest in the Westshore Mall Property and
certain other collateral relating thereto (including an assignment of leases,
rents and security deposits, funds in certain accounts and from time to time,
letters of credit).
The mortgagee is the named insured under a title insurance policy which
insures that the Westshore Mall Mortgage constitutes a valid and enforceable
first lien on the Westshore Mall Property, subject to certain exceptions and
exclusions from coverage set forth therein.
Payment Terms. The Westshore Mall Loan matures on March 1, 2027 (the
"Westshore Mall Maturity Date") and bears interest (a) at a fixed rate per
annum of 8.07% (the "Westshore Mall Initial Interest Rate") through and
including February 29, 2004 and (b) from and including March 1, 2004 (the
"Westshore Mall Effective Maturity Date"), at a fixed rate per annum (the
"Westshore Mall Revised Interest Rate") equal to the lesser of (i) the
maximum rate permitted by applicable law and (ii) the Westshore Mall Initial
Interest Rate plus 5%. Any interest accrued after the Westshore Mall
Effective Maturity Date at the excess of the Westshore Mall Revised Interest
Rate over the Westshore Mall Initial Interest Rate shall be deferred and
added to the outstanding indebtedness under the Westshore Mall and shall, to
the extent permitted by applicable law, earn interest at the Westshore Mall
Revised Interest Rate (such deferred interest and interest thereon, the
"Westshore Mall Deferred Interest"). Interest on the Westshore Mall Loan is
calculated on the basis of a 360-day year of 30-day months.
The payment date for the Westshore Mall Loan is the first business day of
each month, and there is a grace period of 1 business day for a default in
payment of principal or interest. The Westshore Mall Loan requires 360 equal
installments of principal and interest (the "Westshore Mall Monthly Debt
Service Payments") of $155,116.56 monthly (based on a 360-month amortization
schedule and the Westshore Mall Initial Interest Rate). On the Westshore Mall
Maturity Date, payment of the then outstanding balance of the principal, if
any, together with all accrued and unpaid interest and all other sums payable
under the loan documents, is required. The principal balance of the Westshore
Mall Loan on the Westshore Mall Effective Maturity Date, based on scheduled
amortization, is $19,438,469. In the event that the Westshore Mall Borrower
has not paid the principal of and interest on the Westshore Mall Loan in full
on or before the Westshore Mall Effective Maturity Date, then commencing on
the Westshore Mall Effective Maturity Date and continuing on each payment
date thereafter, the Westshore Mall Borrower is required to apply 100% of
rents and other revenues from the Westshore Mall Property to the following
items in the following order of priority: (a) to payment of required monthly
amounts of taxes and insurance premiums; (b) to payment of the Westshore Mall
Monthly Debt Service Payment and to payment of interest accruing at the
Westshore Mall Default Rate (as defined below) and late payment charges, if
any; (c) to payments of required monthly deposits into the Westshore Mall
Capital Reserve Account (as defined below under "--Lockbox and Reserves");
(d) to payment of monthly cash expenses pursuant to the annual budget
approved by the mortgagee; (e) to payment of extraordinary, unbudgeted
operating expenses approved by the mortgagee, if any; (f) to payments to be
applied against the outstanding principal of the Westshore Mall Loan until
such principal amount is paid in full; (g) to payment of the Westshore Mall
Deferred Interest; (h) to payment of any other amounts due under the
Westshore Mall Loan documents; and (i) lastly, to payment to the Westshore
Mall Borrower of any excess amounts.
S-215
<PAGE>
If the Westshore Mall Borrower fails to pay any monthly installment of
principal and/or interest within the grace period of 1 business day after the
payment date, it is required to pay a late payment charge in an amount equal
to 5% of the amount of the installment not paid. Upon the occurrence of any
event of default, the entire unpaid principal amount of the Westshore Mall
Loan and any other amounts payable, including interest, will bear interest at
a default rate equal to the lesser of (a) the maximum rate permitted by
applicable law and (b) the then applicable interest rate on the Westshore
Mall Loan (i.e., the Westshore Mall Initial Interest Rate or the Westshore
Mall Revised Interest Rate) plus 5% (the "Westshore Mall Default Rate").
Prepayment. Voluntary prepayment is prohibited under the Westshore Mall
Loan prior to March 1, 2002. Thereafter, upon 45 days' prior written notice,
the Westshore Mall Loan may be voluntarily prepaid in whole or in part on any
payment date upon payment of a prepayment premium (the "Westshore Mall Yield
Maintenance Premium") equal to the greater of (a) 1% of the portion of the
principal amount being prepaid and (b) the product of (i) a fraction whose
numerator is an amount equal to the portion of the principal balance being
prepaid and whose denominator is the entire outstanding principal balance on
the date of such prepayment, multiplied by (ii) an amount equal to the
remainder obtained by subtracting (x) an amount equal to the outstanding
principal balance as of the date of such prepayment from (y) the present
value as of the date of such prepayment of the remaining scheduled payments
of principal and interest (including any final installment of principal
payable on the Westshore Mall Effective Maturity Date) determined by
discounting such payments at a discount rate (the "Westshore Mall Discount
Rate") equivalent to the rate which, when compounded monthly, equals the
yield calculated by linear interpolation of the yields of noncallable U.S.
Treasury obligations with terms (one longer and one shorter) most nearly
approximating the period from the Westshore Mall Effective Maturity Date to
the Westshore Mall Maturity Date.
Notwithstanding the foregoing, the Note may be prepaid without a
prepayment premium on any payment date commencing on the date that is 90 days
prior to the Westshore Mall Effective Maturity Date.
Principal prepayments on the Westshore Mall Loan may occur on payment
dates after the Westshore Mall Effective Maturity Date through application of
rents, as described above under "--Payment Terms," and must be made, at the
mortgagee's option, upon acceleration of the Westshore Mall Loan following
the occurrence of an event of default. Prepayments made following an event of
default will be subject to the payment of the Westshore Mall Yield
Maintenance Premium.
To the extent that the Westshore Mall Borrower is not permitted to apply
any insurance or condemnation proceeds to the restoration of the Westshore
Mall Property under the Westshore Mall Loan, the mortgagee has the option to
apply such proceeds to prepay the Westshore Mall Loan. No yield maintenance
premium is required to be paid in connection with any prepayment resulting
from the application of insurance or condemnation proceeds.
Release in Exchange for Substitute Collateral. At any time during the
period beginning 2 years after the Closing Date, provided no event of default
under the Westshore Mall Loan has occurred and is then continuing, the
Westshore Mall Borrower is permitted, on any regularly scheduled payment date
selected by the Westshore Mall Borrower with at least thirty days' notice to
the mortgagee (the "Westshore Mall Defeasance Date"), to defease all of the
Westshore Mall Loan (a "Westshore Mall Defeasance") (and release the lien of
the Mortgage with respect to the entire Westshore Mall Property), provided
that, among other conditions, the Westshore Mall Borrower pays on the
Westshore Mall Defeasance Date the Westshore Mall Defeasance Deposit (as
defined below). In addition, in connection with any such defeasance, the
Westshore Mall Borrower is required (a) to grant to the mortgagee a valid
perfected first priority security interest in the Westshore Mall Defeasance
Deposit and (b) to deliver to the mortgagee, among other things, a written
confirmation from each Rating Agency that such defeasance will not result in
the qualification, downgrade or withdrawal of the ratings of the Certificates
and certain required opinion letters.
The "Westshore Mall Defeasance Deposit" means any direct noncancellable
obligations of the United States Government, including, without limitation,
treasury bills, notes and bonds in an amount sufficient to provide payments
on or prior to, but as close as possible to, all successive scheduled payment
dates upon which interest and/or principal payments are required under the
Westshore Mall Loan from and after the Westshore Mall Defeasance Date through
and including the Westshore Mall Effective Maturity Date and in amounts equal
to the payments due on such dates under the Westshore Mall Loan and in the
amount of the full outstanding principal balance of the Westshore Mall Loan
and all deferred interest thereon on the Westshore Mall Effective Maturity
Date. Upon the satisfaction of such conditions, the entire Westshore Mall
Property will be released from the lien of the Westshore Mall Mortgage and
the Westshore Mall Defeasance Deposit will serve as the sole collateral for
the repayment of the Westshore Mall Loan. In connection with a Westshore Mall
Defeasance, the Westshore Mall Borrower may elect to have the Westshore Mall
Loan assumed by a successor borrower, which is required to be a special
purpose entity.
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Lockbox and Reserves. Pursuant to the terms of the Westshore Mall Loan,
the Westshore Mall Borrower has established in the name of Manufacturers and
Traders Trust Company, as agent for the mortgagee, as secured party, a cash
collateral account (the "Westshore Mall Lockbox") with such bank (the
"Westshore Mall Lockbox Bank"). The Westshore Mall Borrower has instructed
and is required to instruct all tenants either to mail all checks or to wire
all funds with respect to rent due under their leases to the Westshore Mall
Lockbox, and has covenanted to deposit all operating revenue from the
Westshore Mall Property into the Westshore Mall Lockbox.
The Westshore Mall Borrower has established (a) a debt service escrow
account (the "Westshore Mall Debt Service Escrow Account") to be funded each
month in an amount equal to the Westshore Mall Monthly Debt Service Payment,
(b) a mortgage escrow account (the "Westshore Mall Mortgage Escrow Account")
to be funded each month in an amount equal to 1/12 of annual taxes and
insurance premiums (the "Westshore Mall Tax and Insurance Amount"), into
which Westshore Mall Contested Payables Reserve Amounts (as defined below)
may also be deposited from time to time, (c) a capital expenditures and
tenant improvement and leasing commissions reserve account (the "Westshore
Mall Capital Reserve Account") to be funded each month before the Westshore
Mall Effective Maturity Date in the amount (the "Westshore Mall Capital
Reserve Amount") of 1/12 of the annual amount required for capital
expenditures and tenant improvements and leasing commissions, (d) a deferred
maintenance reserve account (the "Westshore Mall Deferred Maintenance Reserve
Account") in the amount of $213,750 (unless the items for which such reserve
is to be established have been satisfactorily addressed) and (e) an account
for collection of tenants' security deposits (the "Westshore Mall Security
Deposit Account").
"Westshore Mall Contested Payables Reserve Amount" means an amount to be
deposited in the Westshore Mall Mortgage Escrow Account equal to 125% of any
payables which exceed $250,000 in the aggregate and are being contested by
the Westshore Mall Borrower in good faith.
Until the Westshore Mall Effective Maturity Date, the Westshore Mall
Lockbox Bank will withdraw from the Westshore Mall Lockbox on the first
business day of each month funds in the following amounts and in the
following order of priority: (i) funds in an amount equal to the Westshore
Mall Tax and Insurance Amount, for deposit into the Westshore Mall Mortgage
Escrow Account; (ii) funds in an amount equal to the Westshore Mall Monthly
Debt Service Payment, for deposit into the Westshore Mall Debt Service Escrow
Account; (iii) funds in an amount equal to the Westshore Mall Contested
Payables Reserve Amount, if any, for deposit into the Westshore Mall Mortgage
Escrow Account and (iv) funds in an amount equal to the Westshore Mall
Capital Reserve Amount, for deposit into the Westshore Mall Capital Reserve
Account.
If the Westshore Mall Borrower has not paid the Westshore Mall Loan in
full on or before the Westshore Mall Effective Maturity Date, the Westshore
Mall Lockbox Bank will withdraw from the Westshore Mall Lockbox on the first
business day of each month following the Westshore Mall Effective Maturity
Date funds in the following amounts and in the following order of priority:
(i) funds in an amount equal to the Westshore Mall Tax and Insurance Amount,
for deposit into the Westshore Mall Mortgage Escrow Account; (ii) funds in an
amount equal to the Westshore Mall Monthly Debt Service Payment and any
unpaid interest accrued at the Westshore Mall Default Rate applicable prior
to the Westshore Mall Effective Maturity Date, for deposit into the Westshore
Mall Debt Service Escrow Account; (iii) funds in an amount equal to the
Westshore Mall Contested Payables Reserve Amount, if any, for deposit into
the Westshore Mall Mortgage Escrow Account, (iv) funds in an amount equal to
the Westshore Mall Capital Reserve Amount, for deposit into the Westshore
Mall Capital Reserve Account, (v) funds in an amount equal to the monthly
allocation of operating expenses in the annual budget approved by the
mortgagee and any extraordinary expenses approved by the mortgagee, for
disbursement to the Westshore Mall Borrower, (vi) funds to be applied by the
mortgagee against the outstanding principal due under the Westshore Mall Loan
until such principal amount is paid in full, (vii) funds in an amount equal
to the Westshore Mall Deferred Interest until the same is paid in full,
including, if applicable, interest thereon at the Westshore Mall Default Rate
applicable from and after the Westshore Mall Effective Maturity Date and
(viii) the remainder to the Westshore Mall Borrower.
Transfer of Properties and Interest in Borrower; Encumbrance; Other
Debt. The Westshore Mall Borrower is generally prohibited from transferring
or encumbering the Westshore Mall Property except that the Westshore Mall
Borrower has the right to (x) transfer or ground lease to a retail or other
compatible user one or more non-income producing pads consisting of
undeveloped land, which may not be located immediately adjacent to the
applicable improvements, (y) transfer or ground lease to a retail or other
compatible user pads subject to existing leases; provided, however, that in
the case of any transfer or ground lease described in clauses (x) or (y)
above, the Rating Agencies shall have provided written reaffirmation that
such transfer or ground lease will not adversely affect the then ratings of
any of the Certificates and (if any such transfer or ground lease is of a pad
whose value is in excess of 10% of the value of the Westshore Mall Property)
the Westshore Mall Borrower shall have caused to be delivered an acceptable
tax opinion and nondisqualification opinion, and (z) sell, not more than 1
time
S-217
<PAGE>
during the term of the Westshore Mall Loan, in whole its interest in the
Westshore Mall Property, to a Westshore Mall Qualified Purchaser subject to
the prior written approval of the mortgagee and to the satisfaction of the
following conditions, among others: (i) the Westshore Mall Borrower shall
give at least 30 days' prior written notice of the date proposed for such
sale (the "Westshore Mall Sale Date"); (ii) no event of default shall have
occurred and be continuing as of the date of such notice or the Westshore
Mall Sale Date; (iii) the Westshore Mall Borrower shall provide evidence of
real estate experience, qualifications and creditworthiness and management
ability of the proposed transferee and its property manager; (iv) the
Westshore Mall Qualified Purchaser shall have expressly agreed to assume the
obligations of the Westshore Mall Borrower under the Westshore Mall Loan; (v)
the mortgagee shall receive acceptable opinions of counsel, including an
acceptable nonconsolidation opinion; and (vi) the Westshore Mall Borrower
shall pay a transfer fee equal to 0.1% of the then outstanding principal
amount of the loan.
A "Westshore Mall Qualified Purchaser" means a single purpose entity which
is (a) acceptable to the mortgagee and the Rating Agencies in their sole and
absolute discretion, meeting such requirements of creditworthiness and real
estate experience ownership and/or management as the mortgagee determines in
its reasonable discretion, and (b) an experienced owner and operator of
regional mall properties that has national anchors as tenants.
The Westshore Mall Loan generally prohibits the transfer of any interest
in the Westshore Mall Borrower without the prior written consent of the
mortgagee. However, mortgagee's consent is not required with respect to
transfers of direct or indirect beneficial interests in the Westshore Mall
Borrower, provided that (i) no event of default shall have occurred and be
continuing, (ii) the Westshore Mall Borrower (or the transferor of such
interest) shall deliver notice thereof to the mortgagee and the Rating
Agencies at least 15 business days prior to the effective date of such
transfer, (iii) the Westshore Mall Borrower shall remain a single purpose
entity and (iv) Thomas C. Wilmot ("Wilmot") and/or Ivanhoe shall own not less
than 51% of the beneficial interest in the Westshore Mall Borrower. If 10% or
more of direct beneficial interests in the Westshore Mall Borrower are
transferred or if any transfer results in a person or a group of affiliates
other than Wilmot and Ivanhoe acquiring more than a 51% interest as set forth
above, the Westshore Mall Borrower is required to deliver or cause to be
delivered to the Rating Agencies and the mortgagee a satisfactory opinion of
counsel as to nonconsolidation in bankruptcy.
The Westshore Mall Borrower is not permitted to incur any additional
indebtedness other than (i) unsecured indebtedness for operating expenses
incurred in the ordinary course of business which does not exceed, at any
time, $840,000 and is paid within 100 days of the date incurred unless (a)
the Westshore Mall Borrower is in good faith contesting its obligation to pay
such indebtedness in a manner satisfactory to the mortgagee, (b) adequate
reserves with respect thereto are maintained on the books of the Westshore
Mall Borrower in accordance with GAAP, (c) such contest operates to suspend
collection of such amounts or enforcement of such obligations and (d) no
event of default exists and is continuing, (ii) unsecured indebtedness (not
evidenced by a note or other instrument for borrowed money) for amounts
payable or reimbursable to any tenant on account of work performed at the
Westshore Mall Property by such tenant or for costs incurred by such tenant
in connection with its occupancy of space, including for tenant improvements
and (iii) unsecured indebtedness to one or more affiliates of the Westshore
Mall Borrower which (A) is payable only to the extent that net operating
income is available after the payment of all amounts then due and payable on
all other indebtedness of the Westshore Mall Borrower, (B) prohibits such
affiliate from exercising any remedy, accelerating any indebtedness or
commencing any action in bankruptcy against the Westshore Mall Borrower so
long as the Westshore Mall Loan is outstanding, (C) is on terms no more
favorable to such affiliate than those which would be negotiated at arm's
length, (D) does not, together with the indebtedness under the Westshore Mall
Loan, exceed 80% of the then current value of the Westshore Mall Property and
(E) is satisfied (or converted into an equity interest) upon any transfer of
the Westshore Mall Property or refinancing of the Westshore Mall Loan.
Insurance. The Westshore Mall Borrower is required to maintain for the
Westshore Mall Property (a) insurance against all perils included within the
classification "All Risks of Physical Loss" with extended coverage in an
amount at all times sufficient to prevent the Westshore Mall Borrower from
becoming a co-insurer, but in any event equal to the full insurable value of
the improvements and equipment, (b) comprehensive general liability insurance
in such amounts as are generally required by institutional lenders for
comparable properties but in no event less than $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 and/or loss of "rental
value" insurance to cover the loss of at least 12 months, (e) during any
period of repair or restoration, builder's "all risk" insurance in an amount
not less than the full insurable value of the Westshore Mall Property, (f)
broad-form boiler and machinery insurance and insurance against loss of
occupancy or use arising from any related breakdown in such amounts as are
generally available at a commercially reasonable premium and are generally
required by institutional lenders for properties comparable to the Westshore
Mall Property, (g) flood insurance in an amount equal to the lesser of the
outstanding
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principal amount of the loan and the maximum limit of coverage available, (h)
earthquake insurance if available and in such amounts as are customarily
required by other institutional lenders with similar loans, and (i) at the
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.
Any such insurance may be effected under a blanket policy so long as any
such blanket policy shall specify, except in the case of public liability
insurance, the portion of the total coverage of such policy that is allocated
to the Westshore Mall Property and any sublimits in such blanket policy
applicable to the Westshore Mall Property, which amounts may not be less than
the amounts required pursuant to, and which must in any case comply in all
other respects with the requirements of, the Westshore Mall Loan. All
insurance policies are required to name the mortgagee as an additional named
insured, to provide that all proceeds (except with respect to proceeds of
general liability and workers' compensation insurance) be payable to the
mortgagee except as described below under "--Casualty and Condemnation" and
to contain: (i) a standard "non-contributory mortgagee" endorsement or its
equivalent relating, inter alia, to recovery by the mortgagee notwithstanding
the negligent or willful acts or omissions of the Westshore Mall Borrower;
(ii) a waiver of subrogation endorsement in favor of the mortgagee; (iii) an
endorsement providing that no policy shall be impaired or invalidated by
virtue of any act, failure to act, negligence of, or violation of
declarations, warranties or conditions contained in such policy by the
Westshore Mall Borrower, the mortgagee or any other named insured, additional
insured or loss payee, except for the willful misconduct of the mortgagee
knowingly in violation of the conditions of such policy; (iv) an endorsement
providing for a deductible per loss of an amount not more than that which is
customarily maintained by prudent owners of first class properties comparable
to and in the general vicinity of the Westshore Mall Property, but in no
event in excess of $100,000 except in the case of earthquake coverage, if
applicable, for which such deductible shall not be in excess of that
generally required by institutional lenders on loans secured by comparable
properties; and (v) a provision that such policies shall not be canceled,
terminated or expired without at least 30 days' prior written notice to the
mortgagee, in each instance. The Westshore Mall Loan requires the Westshore
Mall Borrower to obtain the insurance described above from insurance carriers
having claims paying abilities rated (x) not less than "AA" by S&P and "AA"
or its equivalent by one or more of the other Rating Agencies and (y) not
less than "A" by Best's with a financial size category of not less than IX.
At closing of the Westshore Mall Loan, the Originator permitted the Westshore
Mall Borrower to obtain liability insurance from Lumbermen Mutual Casualty
Co., which has a claims paying ability of A+ by S&P. See "Risk Factors -- The
Mortgage Loans--Availability of Earthquake, Flood and Other Insurance."
Condemnation and Casualty. Promptly after the occurrence of any damage or
destruction to all or any portion of the Westshore Mall Property or a
condemnation of a portion of the Westshore Mall Property, in either case
which does not constitute a Westshore Mall Total Loss, the Westshore Mall
Borrower is obligated promptly either (1) to pay in full the principal and
interest and all other amounts due on the loan or (2) to commence and
diligently prosecute to completion the repair, restoration and rebuilding of
the Westshore Mall Property.
A "Westshore Mall Total Loss" means (x) a casualty, damage or destruction
of the Westshore Mall Property, the cost of restoration of which would exceed
50% of the outstanding principal balance of the loan or (y) a permanent
taking by condemnation of 25% or more of the GLA of the Westshore Mall
Property, in either case, such that it would be impractical, in the
mortgagee's sole discretion, even after restoration, to operate the Westshore
Mall Property as an economically viable whole and with respect to which the
applicable tenant leases do not require restoration.
Following a casualty or condemnation at the Westshore Mall Property, any
insurance and condemnation proceeds will be applied (after payment of the
mortgagee's reasonable expenses of collection thereof) to amounts due under
the Westshore Mall Loan and the prepayment of the principal amount
outstanding thereon, if: (i) the proceeds equal or exceed the outstanding
principal balance of the Westshore Mall Loan, (ii) an event of default has
occurred or is continuing, (iii) a Westshore Mall Total Loss has occurred,
(iv) the work of restoration cannot be completed before the earlier of (a)
the date which is 6 months before the Westshore Mall Maturity Date or (b) the
date on which the business interruption insurance expires, (v) the Westshore
Mall Property is not capable of being restored substantially to its condition
prior to the casualty or condemnation, or (vi) the Westshore Mall Borrower is
unable to demonstrate to the mortgagee's reasonable satisfaction its
continuing ability to pay the Westshore Mall Loan.
In the event of (i) a Westshore Mall Total Loss resulting from a casualty,
damage or destruction, if either (A) the cost to repair the Westshore Mall
Property would exceed $2,100,000 (the "Westshore Mall Threshold Amount") and
the restoration of the Westshore Mall Property cannot reasonably be completed
before the date which is the later to occur of the date of expiration of any
business interruption insurance or the date of expiration of any letter of
credit posted in lieu thereof
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<PAGE>
or in addition thereto and under such circumstances the Westshore Mall
Borrower is not required under any tenant lease to make the proceeds
available to restore the Westshore Mall Property or (B) the mortgagee elects
not to permit the Westshore Mall Borrower to restore the Westshore Mall
Property, or (ii) a Westshore Mall Total Loss resulting from a condemnation,
then the Westshore Mall Borrower must prepay the loan to the extent of the
casualty or condemnation proceeds received up to an amount equal to the
outstanding principal thereof.
If any insurance or condemnation proceeds (other than business
interruption insurance proceeds) are in excess of the Westshore Mall
Threshold Amount, then all such proceeds will be applied to amounts due under
the Westshore Mall Loan and the prepayment of the principal amount
outstanding thereon, without prepayment premium or penalty, only if: (A)(i)
the amount of such proceeds is equal to or greater than the outstanding
principal amount of the Westshore Mall Loan, or (ii) the casualty or
condemnation occurs less than 180 days before the Westshore Mall Maturity
Date, or (iii) more than 25% of the rentable area of the Westshore Mall
Property has been the subject of the casualty or condemnation, or (B) such
proceeds are condemnation proceeds received in excess of the amount needed to
restore the Westshore Mall Property after a partial taking by condemnation,
in which case prepayment will be made to the extent of such unneeded proceeds
or they will be deposited in the Westshore Mall Capital Reserve Account for
use at the Westshore Mall Property.
If any casualty or condemnation proceeds exceed $500,000, all casualty and
condemnation proceeds are required to be paid directly to the mortgagee. If
such proceeds do not exceed the Westshore Mall Threshold Amount, they are to
be paid to the Westshore Mall Borrower to be used for restoration. In the
event that any insurance or condemnation proceeds (other than business
interruption insurance proceeds) are in excess of the Westshore Mall
Threshold Amount and are not required to be applied to the payment or
prepayment of the loan as described above, then the mortgagee is obligated to
make all casualty and condemnation proceeds (other than business interruption
insurance proceeds) available to the Westshore Mall Borrower or the
applicable tenant for payment or reimbursement of the costs and expenses of
the repair, restoration and rebuilding of the Westshore Mall Property if,
among other conditions, the mortgagee is furnished with an estimate of the
cost of the work accompanied by appropriate plans and specifications for the
work of restoration and an independent architect's certification as to such
costs.
Approval Rights. Under the Westshore Mall Loan, the Westshore Mall
Borrower is required to submit to the mortgagee, for the mortgagee's written
approval, an annual budget not later than 45 days prior to the commencement
of each calendar year. In the event that the Westshore Mall Borrower must
incur an extraordinary operating expense or a capital expense not set forth
in the approved annual budget, it is required promptly to deliver to the
mortgagee, for the mortgagee's approval, a reasonably detailed explanation of
such proposed expense. In the event that the Westshore Mall Borrower must
repair or expend funds for an unforeseen expense as immediately required to
preserve the value of the Westshore Mall Property, the Westshore Mall
Borrower may make such payments without prior approval of the mortgagee.
Without the mortgagee's consent (which may not be unreasonably withheld,
delayed or conditioned), the Westshore Mall Borrower may not enter into any
management agreement. If during the term of the Westshore Mall Loan, the
Westshore Mall Borrower wishes to designate another property manager
acceptable to the mortgagee, the Westshore Mall Borrower must notify the
mortgagee and the Rating Agencies in writing and obtain from the Rating
Agencies written confirmation that the retention of the proposed property
manager will not result in a downgrade, withdrawal or qualification of the
then ratings of the Certificates. The mortgagee has the right to replace the
property manager upon the occurrence of events described above under
"--Property Management" and to direct the retention of a new property manager
at any time following the occurrence and during the continuance of an event
of default and at any time after March 1, 2005.
Provided that no event of default shall have occurred and be continuing,
the Westshore Mall Borrower has the right, without the mortgagee's consent,
to undertake any alteration, improvement, demolition or removal of the
Westshore Mall Property or any portion thereof (any such alteration,
improvement, demolition or removal, a "Westshore Mall Alteration") so long as
(i) the Westshore Mall Borrower provides the mortgagee with prior written
notice of any Westshore Mall Alteration which, when aggregated with all
related Westshore Mall Alterations, involves an estimated cost exceeding the
Westshore Mall Threshold Amount (a "Westshore Mall Material Alteration") and
(ii) any Westshore Mall Alteration will not upon completion materially
adversely (A) affect the value, use or operation of the Westshore Mall
Property taken as a whole or (B) reduce the net operating income for the
Westshore Mall Property from the level available immediately prior to
commencement of such Westshore Mall Alteration. Any Westshore Mall Material
Alteration is required to be conducted under the supervision of an
independent architect and no Westshore Mall Material Alteration may be
undertaken until 5 business days after there shall have been filed with the
mortgagee, for information purposes only and not for approval by the
mortgagee, detailed plans and specifications and cost estimates therefor,
prepared by such independent architect.
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<PAGE>
Notwithstanding anything to the contrary contained in the foregoing, no
Westshore Mall Material Alteration nor any Westshore Mall Alterations which,
when aggregated with all other Westshore Mall Alterations (other than
Westshore Mall Material Alterations) then being undertaken by the Westshore
Mall Borrower, exceeds the Westshore Mall Threshold Amount may be performed
unless the Westshore Mall Borrower has first delivered to the mortgagee cash
and cash equivalents and/or a letter of credit as security in an amount not
less than the estimated cost of the Westshore Mall Material Alteration or the
Westshore Mall Alterations in excess of the Westshore Mall Threshold Amount.
The Westshore Mall Borrower may not, without the consent of the mortgagee,
amend, modify or waive the provisions of any tenant lease or terminate,
reduce rents under or shorten the term of any tenant lease in any manner
which would have a material adverse effect on the Westshore Mall Property
taken as a whole.
Financial Reporting. The Westshore Mall Borrower is required to furnish to
the mortgagee: (a) annually within 90 days after the end of each fiscal year,
a copy of its year-end financial statement audited by a "Big Six" accounting
firm or other firm reasonably acceptable to the mortgagee; (b) quarterly
within 45 days of the end of each calendar quarter (except the fourth quarter
of any calendar year), quarterly unaudited financial statements; (c)
quarterly within 45 days of the end of each calendar quarter, a complete rent
roll and, annually within 60 days after each calendar year, specified leasing
information with respect to the preceding year; (d) annually within 45 days
after the end of each calendar year, a summary of all capital expenditures
made at the Westshore Mall Property during the prior 12-month period; and (e)
as soon as practicable, such further information regarding the Westshore Mall
Property as the mortgagee or the Rating Agencies may reasonably request in
writing. Concurrently with delivery of the financial statements to the
mortgagee, the Westshore Mall Borrower is required to provide a copy of the
foregoing items to the Rating Agencies. The Westshore Mall Borrower is also
required to provide the mortgagee with updated information concerning the tax
costs for the next succeeding fiscal year no later than 20 business days
after the 1st day of such fiscal year.
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<PAGE>
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement and will
consist of fourteen classes (each, a "Class") to be designated as the Class
A-1 Certificates, the Class A-2 Certificates and the Class A-3 Certificates
(collectively, the "Class A Certificates"), the Class B Certificates, the
Class C Certificates, the Class D Certificates, the Class E Certificates, the
Class F Certificates, the Class G Certificates, the Class H Certificates, the
Class X Certificates, the Class Q Certificates, the Class R Certificates and
the Class LR Certificates. The Class G, Class H, Class Q, Class R and Class
LR Certificates (collectively, the "Private Certificates") are not offered
hereby.
The Certificates represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting of: (i) the Mortgage Loans and
all payments under and proceeds of the Mortgage Loans due after the Cut-Off
Date; (ii) any Mortgaged Property acquired on behalf of the Trust Fund
through foreclosure or deed in lieu of foreclosure (upon acquisition, an "REO
Property"); (iii) such funds or assets as from time to time are deposited in
the Collection Account, the Lower-Tier Distribution Account, the Upper-Tier
Distribution Account, the Interest Reserve Account, the Deferred Interest
Distribution Account, the Class Q Distribution Account and any account
established in connection with REO Properties (an "REO Account"); (iv) the
rights of the mortgagee under all insurance policies with respect to the
Mortgage Loans; (v) certain rights and remedies under the Loan Sale
Agreement; and (vi) all of the mortgagee's right, title and interest in the
Reserve Accounts, the Cash Collateral Accounts and the Lock Box Accounts. The
Certificates do not represent an interest in or obligation of the Depositor,
MSMC, the Master Servicer, the Trustee, the Fiscal Agent, the Underwriter,
the borrowers, the property managers or any of their respective affiliates.
Upon initial issuance, the Class A-1, Class A-2, Class A-3, Class B, Class
C, Class D, Class E, Class F, Class G and Class H Certificates (collectively,
the "Principal Balance Certificates") and the Class X Certificates will have
the following Certificate Principal Amount or Notional Amount (in each case,
subject to a variance of plus or minus 5%):
<TABLE>
<CAPTION>
INITIAL CERTIFICATE PRINCIPAL
CLASS AMOUNT OR NOTIONAL AMOUNT
- ------------ -----------------------------
<S> <C>
Class A-1 .. $238,000,000
Class A-2 .. $ 64,000,000
Class A-3 .. $226,171,000
Class B ..... $ 22,636,000
Class C ..... $ 22,636,000
Class D ..... $ 45,271,000
Class E ..... $ 45,271,000
Class F ..... $ 41,499,000
Class G ..... $ 26,408,000
Class H ..... $ 22,639,157
Class X ..... $754,531,157
</TABLE>
The Certificate Principal Amount of any Class of Principal Balance
Certificates outstanding at any time represents the maximum amount which the
holders thereof are entitled to receive as distributions allocable to
principal from the cash flow on the Mortgage Loans and the other assets in
the Trust Fund; provided, however, that in the event that Realized Losses
previously allocated to a Class of Certificates in reduction of their
Certificate Principal Amounts are recovered subsequent to the reduction of
the Certificate Principal Amount of such Class to zero, such Class may
receive distributions in respect of such recoveries in accordance with the
priorities set forth under "--Distributions--Payment Priorities" herein. The
respective Certificate Principal Amount of each Class of Certificates
entitled to distributions of principal will in each case be reduced by
amounts actually distributed thereon that are allocable to principal and by
any Realized Losses allocated to such Class of Certificates.
The Class X will not have a Certificate Principal Amount. Such Class will
represent the right to receive distributions of interest accrued as described
herein on a notional principal amount (a "Notional Amount"). The Notional
Amount of the Class X Certificates will generally equal the aggregate
Certificate Principal Amounts of the Class A-1, Class A-2, Class A-3, Class
B, Class C, Class D, Class E, Class F, Class G and Class H Certificates
outstanding from time to time, plus the amount of any unpaid Interest
Shortfall on such Classes. For convenience in describing interest
distributions, the Class X Certificates will be deemed to consist of 10
components, the "Class A-1 Component", the "Class A-2 Component", the "Class
A-3
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Component", the "Class B Component", the "Class C Component", the "Class D
Component", the "Class E Component", the "Class F Component", the "Class G
Component" and the "Class H Component", each of which will have a notional
amount (each, a "Component Notional Amount") allocable to principal and by
any Realized Losses allocated to such Class of Certificates. The Notional
Amount of the Class X Certificates will be reduced to the extent of all
reductions in the aggregate of the Certificate Principal Amounts of the
Principal Balance Certificates. The Notional Amount of the Class X
Certificates will for purposes of distributions on each Distribution Date
equal the aggregate of the Certificate Principal Amounts of the Principal
Balance Certificates as of the first day of the related Interest Accrual
Period.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the third Business Day of each month, commencing on November 5, 1997
(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 thereof has been reduced to zero) of such Certificate at the
location specified in the notice to the Certificateholder thereof of such
final distribution. All distributions made with respect to a Class of
Certificates on each Distribution Date will be allocated pro rata among the
outstanding Certificates of such Class based on their respective Percentage
Interests. The "Percentage Interest" evidenced by any Offered Certificate is
equal to the initial denomination thereof as of the Closing Date divided by
the initial Certificate Principal Amount of the related Class.
The aggregate distribution to be made on the Certificates on any
Distribution Date will equal the Available Funds. The "Available Funds" for a
Distribution Date will be the sum of (i) all Monthly Payments, Balloon
Payments or other receipts on account of principal and interest on or in
respect of the Mortgage Loans (including Unscheduled Payments and Net REO
Proceeds, if any) received by the Master Servicer in the related Collection
Period, (ii) all other amounts required to be deposited in the Collection
Account by the Master Servicer pursuant to the Pooling Agreement in respect
of such Distribution Date that are allocable to the Mortgage Loans, including
all P&I Advances made by the Master Servicer, the Trustee or the Fiscal
Agent, as applicable, in respect of such Distribution Date, and any interest
or other income earned on funds in the Interest Reserve Account, and (iii)
any late payments of Monthly Payments 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, the Trustee or the Fiscal Agent, 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, the Trustee or Fiscal Agent 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;
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(f) Prepayment Premiums;
(g) Default Interest;
(h) Deferred Interest;
(i) with respect to the North Shore Towers Loan, amounts paid to John
Hancock with respect to the Hancock Retained Interest;
(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, but not including any Balloon Payment. The
Monthly Payment with respect to an REO Mortgage Loan for any Distribution
Date is the monthly payment that would otherwise have been payable on the
related Due Date had the related Note not been discharged, determined as set
forth in the Pooling Agreement.
"Balloon Payment" means with respect to the North Shore Towers Loan, the
Edens & Avant Pool Loan, the Arrowhead Towne Center Loan, the Westgate Mall
Loan and the Yorktown Shopping Center Loan, the payments due on their
respective stated maturity dates.
"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.
"Prepayment Premiums" are payments received on a Mortgage Loan as the
result of the receipt of certain Unscheduled Payments, other than any amount
paid in connection with the release of the related Mortgaged Property through
defeasance, which are intended to compensate the mortgagee for an early and
unscheduled receipt of principal.
"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 on November 5, 1997, 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, the Trustee or Fiscal Agent, 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.
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"Excess Rate" with respect to each of the Mortgage Loans (other than the
North Shore Towers Loan, the Edens & Avant Pool Loan, the Arrowhead Towne
Center Loan, the Westgate Mall Loan and the Yorktown Shopping Center Loan) is
the excess of the related Revised Interest Rate over the related Initial
Interest Rate.
"Deferred Interest" with respect to each of the Mortgage Loans (other than
the North Shore Towers Loan, the Edens & Avant Pool Loan, the Arrowhead Towne
Center Loan, the Westgate Mall Loan and the Yorktown Shopping Center Loan) is
the interest accrued at the related Excess Rate in respect of such Mortgage
Loan, plus interest thereon, to the extent permitted by applicable law, at
the related Revised Interest Rate.
Payment Priorities. As used below in describing the priorities of
distribution of Available Funds for each Distribution Date, the terms set
forth below will have the following meanings.
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
6.70%.
The Pass-Through Rate on the Class A-2 Certificates will be equal to
6.85%, provided, however, that in no event shall the Class A-2 Pass-Through
Rate exceed the WAC Rate.
The Pass-Through Rate on the Class A-3 Certificates will be equal to
6.95%, provided, however, that in no event shall the Class A-3 Pass-Through
Rate exceed the WAC Rate.
The Pass-Through Rate on the Class B Certificates is equal to the WAC Rate
minus 1.13%.
The Pass-Through Rate on the Class C Certificates is equal to the WAC Rate
minus 1.08%.
The Pass-Through Rate on the Class D Certificates is equal to the WAC Rate
minus 1.00%.
The Pass-Through Rate on the Class E Certificates is equal to the WAC Rate
minus 0.90%.
The Pass-Through Rate on the Class F Certificates is equal to the WAC Rate
minus 0.65%.
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The Pass-Through Rate on the Class G Certificates will be equal to 6.70%
per annum.
The Pass-Through Rate on the Class H Certificates will be equal to 6.70%
per annum.
The Pass-Through Rate on the Class X Certificates is a per annum rate
equal to the weighted average of the Pass-Through Rates on the Class A-1
Component, the Class A-2 Component, the Class A-3 Component, the Class B
Component, the Class C Component, the Class D Component, the Class E
Component, the Class F Component, the Class G Component and the Class H
Component, weighted on the basis of their respective Component Notional
Amounts. The Pass-Through Rate on the Class A-1 Component is a per annum rate
equal to the WAC Rate minus the Pass-Through Rate on the Class A-1
Certificates. The Pass-Through Rate on the Class A-2 Component is a per annum
rate equal to the WAC Rate minus the Pass-Through Rate on the Class A-2
Certificates. The Pass-Through Rate on the Class A-3 Component is a per annum
rate equal to the WAC Rate minus the Pass-Through Rate on the Class A-3
Certificates. The Pass-Through Rate on the Class B Component is a per annum
rate equal to 1.13%. The Pass-Through Rate on the Class C Component is a per
annum rate equal to 1.08%. The Pass-Through Rate on the Class D Component is
a per annum rate equal to 1.00%. The Pass-Through Rate on the Class E
Component is a per annum rate equal to 0.90%. The Pass-Through Rate on the
Class F Component is a per annum rate equal to 0.65%. The Pass-Through Rate
on the Class G Component is a per annum rate equal to the WAC Rate minus the
Pass-Through Rate on the Class G Certificates. The Pass-Through Rate on the
Class H Component is a per annum rate equal to the WAC Rate minus the
Pass-Through Rate on the Class H Certificates.
The "WAC Rate" for any Distribution Date is the weighted average of the
Net Mortgage Rates in effect for the Mortgage Loans as of their Due Date in
the month preceding the month in which such Distribution Date occurs weighted
on the basis of their respective Stated Principal Balances on such Due Date.
The "Regular Certificates" are the Class A-1, Class A-2, Class A-3, Class
B, Class C, Class D, Class E, Class F, Class G, Class H and Class X
Certificates.
The "Net Mortgage Rate" with respect to any Mortgage Loan is a per annum
rate equal to the related Mortgage Rate in effect from time to time minus the
Servicing Fee Rate, and, in the case of the North Shore Towers Loan, minus
the Hancock Retained Interest. However, for purposes of calculating
Pass-Through Rates, the Net Mortgage Rate of such Mortgage Loan shall be
determined without regard to any modification, waiver or amendment of the
terms, whether agreed to by the Special Servicer or resulting from a
bankruptcy, insolvency or similar proceeding involving the related borrower.
The "Mortgage Rate" with respect to any Mortgage Loan is the per annum
rate at which interest accrues on such Mortgage Loan as stated in the related
Note in each case without giving effect to the Excess Rate or the Default
Rate. Notwithstanding the foregoing, if any Mortgage Loan does not accrue
interest on the basis of a 360-day year consisting of twelve 30-day months,
then, for purposes of calculating Pass-Through Rates, the Mortgage Rate of
such Mortgage Loan for any one-month period preceding a related Due Date will
be the annualized rate at which interest would have to accrue in respect of
such Mortgage Loan on the basis of a 360-day year consisting of twelve 30-day
months in order to produce the aggregate amount of interest actually accrued
in respect of such Mortgage Loan during such one-month period at the related
Mortgage Rate.
The "Stated Principal Balance" of any Mortgage Loan at any date of
determination will equal (a) the principal balance as of the Cut-Off Date of
such Mortgage Loan, minus (b) the sum of (i) the principal portion of each
Monthly Payment or, if applicable, Extended Monthly Payment due on such
Mortgage Loan after the Cut-Off Date and prior to such date of determination,
if received from the borrower or advanced by the Master Servicer, Trustee or
Fiscal Agent, (ii) all Balloon Payments, voluntary and involuntary principal
prepayments and other unscheduled collections of principal received with
respect to such Mortgage Loan, to the extent distributed to holders of the
Certificates or applied to other payments required under the Pooling
Agreement before such date of determination and (iii) any adjustment thereto
as a result of a reduction of principal by a bankruptcy court or as a result
of a modification reducing the principal amount due on such Mortgage Loan.
The Stated Principal Balance of a Mortgage Loan with respect to which title
to the related Mortgaged Property has been acquired by the Trust Fund is
equal to the principal balance thereof outstanding on the date on which such
title is acquired less any Net REO Proceeds allocated to principal on such
Mortgage Loan. The Stated Principal Balance of a defaulted Mortgage Loan with
respect to which the Master Servicer or the Special Servicer has determined
that it has received all payments and recoveries which it expects to be
finally recoverable on such Mortgage Loan is zero.
The "Principal Distribution Amount" for any Distribution Date will be
equal to the sum, without duplication, of:
(i) the principal component of all scheduled Monthly Payments (other than
Balloon Payments) due on the Due Date immediately preceding such
Distribution Date (if received, or advanced by the Master Servicer,
Trustee or Fiscal Agent, in respect of such Distribution Date) with
respect to the Mortgage Loans;
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(ii) the principal component of all Extended Monthly Payments due on the
related Due Date (if received, or advanced by the Master Servicer, Trustee
or Fiscal Agent, in respect of such Distribution Date) with respect to the
Mortgage Loans;
(iii) the principal component of any payment (including any Balloon
Payment) on any Mortgage Loan received on or after the maturity date
thereof in the related Collection Period; and
(iv) the portion of Unscheduled Payments allocable to principal of any
Mortgage Loan received or applied during the related Collection Period,
net of the principal portion of any unreimbursed P&I Advances related to
such Mortgage Loan.
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
On each Distribution Date prior to the Cross-over Date, the Available
Funds for such Distribution Date will be distributed in the following amounts
and order of priority:
First, pro rata, in respect of interest, to the Class A-1, Class A-2,
Class A-3 and Class X Certificates, up to an amount equal to, and pro rata
as among such Classes in accordance with, the Interest Distribution
Amounts of such Classes;
Second, to the Class A Certificates, in reduction of their respective
Certificate Principal Amounts in the following order: first, to the Class
A-1 Certificates, second, to the Class A-2 Certificates, and third, to the
Class A-3 Certificates, in each case up to an amount equal to the lesser
of (i) the Certificate Principal Amount thereof and (ii) the Principal
Distribution Amount for such Distribution Date;
Third, to the Class B Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Fourth, to the Class B Certificates, in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Fifth, to the Class B Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Sixth, to the Class C Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Seventh, to the Class C Certificates, in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Eighth, to the Class C Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Ninth, to the Class D Certificates in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Tenth, to the Class D Certificates, in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Eleventh, to the Class D Certificates, an amount equal to the aggregate
of unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Twelfth, to the Class E Certificates in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Thirteenth, to the Class E Certificates in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
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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;
Seventeenth, to the Class F Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest thereon at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated
to such Class;
Eighteenth, to the Class G Certificates in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Nineteenth, to the Class G Certificates in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal
Distribution Amount less the portion of the Principal Distribution Amount
distributed pursuant to all prior clauses, until the Certificate Principal
Amount thereof is reduced to zero;
Twentieth to the Class G Certificates, an amount equal to the aggregate
of unreimbursed Realized Losses previously allocated to such Class, plus
interest thereon at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Twenty-first, to the Class H Certificates in respect of interest, up to
an amount equal to the aggregate Interest Distribution Amount of such
Class;
Twenty-second, to the Class H Certificates in reduction of the
Certificate Principal Amount thereof, up to an amount equal to the
Principal Distribution Amount less the portion of the Principal
Distribution Amount distributed pursuant to all prior clauses, until the
Certificate Principal Amount thereof is reduced to zero;
Twenty-third, to the Class H Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest thereon at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated
to such Class; and
Twenty-fourth, to the Class R Certificates, any amounts remaining in the
Upper-Tier Distribution Account, and to the Class LR Certificates, any
amounts remaining in the Lower-Tier Distribution Account.
On each Distribution Date occurring on and after the Cross-over Date,
regardless of the allocation of principal payments described in priority
Second above, an amount equal to the aggregate of the Principal Distribution
Amounts will be distributed, first, to the Class A-1, Class A-2 and, Class
A-3 Certificates, pro rata, based on their respective Certificate Principal
Amounts, in reduction of their respective Certificate Principal Amounts,
until the Certificate Principal Amount of each such Class is reduced to zero,
and, second, to the Class A-1, Class A-2 and Class A-3 Certificates for
unreimbursed amounts of Realized Losses previously allocated to such Classes,
pro rata in accordance with the amount of such unreimbursed Realized Losses
so allocated. The "Cross-over Date" is the Distribution Date on which the
Certificate Principal Amount of each Class of Certificates entitled to
distributions of principal (other than the Class A-1, Class A-2 and Class A-3
Certificates) has been reduced to zero.
All references to "pro rata" in the preceding clauses, unless otherwise
specified, mean pro rata based upon the amount distributable pursuant to such
clause.
Prepayment Premiums. On any Distribution Date, Prepayment Premiums
collected during the related Collection Period (other than, with respect to
the North Shore Towers Loan, the portion of the Prepayment Premiums payable
to John Hancock as described under "Description of the Mortgaged Properties
and the Mortgage Loans--North Shore Towers: The Loan--Prepayment" herein)
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 Premium in an
aggregate amount (allocable among such Classes if more than one such Class
remains
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outstanding, as described below) equal to the product of (a) the amount of
such Prepayment Premium, multiplied by (b) the lesser of (x) 25% and (y) a
fraction, expressed as a percentage, the numerator of which is equal to the
excess, if any, of the then current Pass-Through Rate applicable to the most
senior of such Classes of Principal Balance Certificates (or, in the case of
two or more classes of Class A Certificates remaining outstanding, the one
with the earliest payment priority), over the relevant Discount Rate, and the
denominator of which is equal to the excess, if any, of the Mortgage Rate for
the prepaid Mortgage Loan over the relevant Discount Rate. If there is more
than one Class of Principal Balance Certificates entitled to distributions of
principal on such Distribution Date, the aggregate amount described in the
preceding sentence will be allocated among such Classes on a pro rata basis,
in accordance with the relative amounts of such distributions of principal.
Any portion of such Prepayment Premium 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 Premium equal to the greater of (a) 75%
of such Prepayment Premium, and (b) an amount equal to the product of such
Prepayment Premium, multiplied by a fraction, the numerator of which is equal
to the sum of the Servicing Fee Rate (and, in the case of the North Shore
Towers Loan, the Hancock Retained Interest) 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
(and, in the case of the North Shore Towers Loan, the Hancock Retained
Interest). Any portion of such Prepayment Premium that is not so distributed
to the holders of the Class X Certificates will be distributed to the holders
of one or more of the Class B, Class C, Class D, Class E and Class F
Certificates in an amount equal to the product of (a) the related Class
Prepayment Percentage for such Distribution Date and (b) such remaining
portion of the Prepayment Premium.
With respect to any Class of Certificates (other than the Class X and
Residual Certificates) and any Distribution Date, the "Class Prepayment
Percentage" will be equal to a fraction, expressed as a percentage, the
numerator of which is the portion of the Principal Distribution Amount to be
distributed to the holders of such Class of Certificates on such Distribution
Date, and the denominator of which is the total Principal Distribution Amount
for such Distribution Date.
For purposes of the foregoing, the "Discount Rate" is the rate which, when
compounded monthly, is equivalent to the Treasury Rate when compounded
semi-annually. The "Treasury Rate" is the yield calculated by the linear
interpolation of the yields, as reported in Federal Reserve Statistical
Release H.15--Selected Interest Rates under the heading "U.S. government
securities/Treasury constant maturities" for the week ending prior to the
date of the relevant principal prepayment, of U.S. Treasury constant
maturities with a maturity date (one longer and one shorter) most nearly
approximating the maturity of the Mortgage Loan prepaid. If Release H.15 is
no longer published, the Trustee will select a comparable publication to
determine the Treasury Rate.
See "Certain Legal Aspects of the Mortgage Loans and the Leases--Default
Interest, Prepayment Charges and Prepayments" in the Prospectus regarding the
enforceability of Prepayment Premiums.
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: 5% to the Class B Certificates, 7% to the Class
C Certificates, 15% to the Class D Certificates, 15% to the Class E
Certificates, 17% to the Class F Certificates, 19% to the Class G
Certificates and 22% to the Class H Certificates.
Class Q Distributions. On each Distribution Date, Net Default Interest
received in the related Collection Period with respect to a default on a
Mortgage Loan will be distributed solely to the Class Q Certificates, to the
extent set forth in the Pooling Agreement. The Class Q Certificates are not
entitled to any other distributions.
Realized Losses. The Certificate Principal Amount of each Class of
Certificates entitled to distributions of principal will be reduced without
distribution on any Distribution Date as a write-off to the extent of any
Realized Loss allocated to such Class on such Distribution Date. As referred
to herein, the "Realized Loss" with respect to any Distribution Date shall
mean the amount, if any, by which the aggregate Certificate Principal Amount
of all such Classes of Certificates after giving effect to distributions made
on such Distribution Date exceeds the aggregate Stated Principal Balance of
the Mortgage Loans after giving effect to any payments of principal received
or advanced with respect to the Due Date occurring immediately prior to such
Distribution Date. Any such write-offs will be applied to such Classes of
Certificates in the following order, until each is reduced to zero: first, to
the Class H Certificates; second, to the Class G Certificates; third, to the
Class F Certificates; fourth, to the Class E Certificates; fifth, to the
Class D Certificates; sixth, to the Class C Certificates; seventh, to the
Class B
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Certificates and, finally, pro rata, to the Class A-1, Class A-2, and Class
A-3 Certificates, based on their respective Certificate Principal Amounts.
Any amounts recovered in respect of any amounts previously written off as
Realized Losses will be distributed to the Classes of Certificates described
above in reverse order of allocation of Realized Losses thereto.
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. Excess
Prepayment Interest Shortfalls will be allocated to each Class of
Certificates, pro rata, based upon the amount of interest which would have
otherwise been distributable to each Class. The Notional Amount of the Class
X Certificates will be reduced to reflect reductions in the Certificate
Principal Amount of the Class A-1, Class A-2, Class A-3, Class B, Class C,
Class D, Class E, Class F, Class G and Class H Certificates resulting from
allocations of Realized Losses.
The "Prepayment Interest Shortfall", with respect to any Distribution Date
and any Mortgage Loan, is equal to the amount of any shortfall in collections
of interest, adjusted to the applicable Net Mortgage Rate, resulting from a
Principal Prepayment on such Mortgage Loan during the related Collection
Period and prior to the Due Date in such Collection Period. Such shortfall
may result because interest on a Principal Prepayment in full is paid by the
related borrower only to the date of prepayment.
The "Excess Prepayment Interest Shortfall" with respect to any
Distribution Date, is the aggregate amount by which the Prepayment Interest
Shortfall with respect to all Principal Prepayments received during the
related Collection Period exceeds the aggregate Servicing Fee (minus the
Trustee Fee and the Mansion Grove Subservicing 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 "--Appraisal
Reductions" below, and (ii) the Voting Rights of certain Classes will be
reduced as described under "The Pooling Agreement--Amendment" herein. The
reduction of interest advanced by the Master Servicer will have the effect of
reducing the amount available to be distributed as interest on the then most
subordinate Class or Classes of Certificates.
The Certificate Principal Amount of each of the Class H, Class G, Class F,
Class E, Class D, Class C and Class B Certificates will be notionally reduced
(solely for purposes of determining the Voting Rights of the related Classes)
on any Distribution Date to the extent of any Appraisal Reduction Amounts
allocated to such Class on such Distribution Date. To the extent that the
aggregate of the Appraisal Reduction Amounts for any Distribution Date exceed
such Certificate Principal Amount, such excess will be applied, subject to
any reversal described below, to notionally reduce the Certificate Principal
Amount of the next most subordinate Class of Certificates on the next
Distribution Date. Any such reductions will be applied in the following order
of priority: first, to the Class H Certificates; second, to the Class G
Certificates; third, to the Class F Certificates; fourth, to the Class E
Certificates; fifth, to the Class D Certificates; sixth, to the Class C
Certificates; and finally, to the Class B Certificates (provided in each case
that no Certificate Principal Amount in respect of any such Class may be
notionally reduced below zero). See "--Payment Priorities" above and
"--Appraisal Reductions" below.
SUBORDINATION
As a means of providing a certain amount of protection to the holders of
the Class A-1, Class A-2, Class A-3 and Class X Certificates against losses
associated with delinquent and defaulted Mortgage Loans, the rights of the
holders of the Class B, Class C, Class D, Class E, Class F, Class G and Class
H Certificates to receive distributions of interest (other than Deferred
Interest) and principal, as applicable, will be subordinated to such rights
of the holders of the Class A-1, Class A-2, Class A-3 and Class X
Certificates. This subordination will be effected in two ways: (i) by the
preferential right of the holders of a Class of Certificates to receive on
any Distribution Date the amounts of interest and principal distributable in
respect of such Certificates on such date prior to any distribution being
made on such Distribution Date in respect of any Classes of Certificates
subordinate thereto and (ii) by the allocation of Realized Losses first, to
the Class H Certificates; second, to the Class G Certificates; third, to the
Class F Certificates; fourth to the Class E Certificates; fifth, to the Class
D Certificates; sixth, to the Class C Certificates; seventh, to the Class B
Certificates; and, finally, to the Class A-1, Class A-2 and Class A-3
Certificates, pro rata, based on their respective Certificate Principal
Amounts. No other form of credit enhancement will be available for the
benefit of the holders of the Offered Certificates.
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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) 90 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) 60 days after a receiver has been appointed, (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, the Trustee or
the Fiscal Agent, all unpaid interest on such Mortgage Loan at a per annum
rate equal to the Mortgage Rate (in the case of the North Shore Towers Loan,
net of the Hancock Retained Interest), (B) all unreimbursed Advances and
interest thereon at the Advance Rate in respect of such Mortgage Loan and (C)
all currently due and unpaid real estate taxes and assessments and insurance
premiums and all other amounts, including, if applicable, ground rents, due
and unpaid under the Mortgage Loan (which taxes, premiums and other amounts
have not been the subject of an Advance). If no independent MAI appraisal has
been obtained within twelve months prior to the first Distribution Date on or
after an Appraisal Reduction Event has occurred, the Special Servicer will be
required to estimate the value of the related Mortgaged Properties (the
"Special Servicer's Appraisal Reduction Estimate") and such estimate will be
used for purposes of determining the Appraisal Reduction Amount. Within 60
days after the Special Servicer receives notice or is otherwise aware of an
Appraisal Reduction Event, the Special Servicer will be required to obtain an
independent MAI appraisal, the cost of which will be paid by the Master
Servicer as a Property Advance. On the first Distribution Date occurring on
or after the delivery of such independent MAI appraisal, the Special Servicer
will be required to adjust the Appraisal Reduction Amount to take into
account such appraisal (regardless of whether the independent MAI appraisal
is higher or lower than the Special Servicer's Appraisal Reduction Estimate).
Annual updates of such independent MAI appraisal will be obtained during the
continuance of an Appraisal Reduction Event and the Appraisal Reduction
Amount will be adjusted accordingly.
Upon payment in full or liquidation of any Mortgage Loan for which an
Appraisal Reduction Amount has been determined, such Appraisal Reduction
Amount will be eliminated.
DELIVERY, FORM AND DENOMINATION
The Offered Certificates (other than the Class X Certificates) will be
issued, maintained and transferred in the book-entry form only in
denominations of $10,000 initial Certificate Principal Amount, and in
multiples of $1 in excess thereof, and the Class X Certificates will be
issued, maintained and transferred in the book-entry form only in
denominations of $100,000 initial Notional Amount, and in multiples of $1 in
excess thereof.
The Offered Certificates will initially be represented by one or more
global Certificates for each such Class registered in the name of the nominee
of DTC. The Depositor has been informed by DTC that DTC's nominee will be
Cede & Co. No holder of an Offered Certificate will be entitled to receive a
certificate issued in fully registered, certificated form (each, a
"Definitive Certificate") representing its interest in such Class, except
under the limited circumstances described below under "--Definitive
Certificates." Unless and until Definitive Certificates are issued, all
references to actions by holders of the Offered Certificates will refer to
actions taken by DTC upon instructions received from holders of Offered
Certificates through its participating organizations (together with CEDEL and
Euroclear participating organizations, the "Participants"), and all
references herein to payments, notices, reports, statements and other
information to holders of Offered Certificates will refer to payments,
notices, reports and statements to DTC or Cede & Co., as the registered
holder of the Offered Certificates, for distribution to holders of Offered
Certificates through its Participants in accordance with DTC procedures;
provided, however, that to the extent that the party to the Pooling Agreement
responsible for distributing any report, statement or other information has
been provided with the name of the beneficial owner of a Certificate (or the
prospective transferee of such beneficial owner), such report, statement or
other information will be provided to such beneficial owner (or prospective
transferee).
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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 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.
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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.
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
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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, Class E and Class F Certificate (each, a
"Subordinated Offered Certificate" and, collectively, the "Subordinated
Offered Certificates") will bear a legend substantially to the effect that
such Certificate may not be purchased by a transferee that is (A) an employee
benefit plan or other retirement arrangement, including an individual
retirement account or a Keogh plan, which is subject to Title I of ERISA, or
Section 4975 of the Code, or a "governmental plan" (as defined in Section
3(32) of ERISA) that is subject to any federal, state or local law ("Similar
Law") which is, to a material extent, similar to the foregoing provisions of
ERISA of the Code (each, a "Plan"), or (B) a collective investment fund in
which Plans are invested, an insurance company using assets of separate
accounts or general accounts which include assets of Plans (or which are
deemed pursuant to ERISA or any Similar Law to include assets of Plans) or
other person acting on behalf of any such Plan or using the assets of any
such Plan, other than an insurance company using the assets of its general
account under circumstances whereby such purchase and the subsequent holding
of such Certificate by such insurance company would be exempt from the
prohibited transaction provisions of ERISA and the Code under Prohibited
Transaction Class Exemption 95-60.
Holders of Subordinated Offered Certificates that are in book-entry form
will be deemed to have represented that they are not persons or entities
referred to in clause (A) or (B) of the legend described in the preceding
paragraph. In the event that holders of the Subordinated Offered Certificates
become entitled to receive Definitive Certificates under the circumstances
described under "--Definitive Certificates," each prospective transferee of a
Subordinated Offered Certificate that is a Definitive Certificate will be
required to either deliver to the Seller, the Certificate Registrar and the
Trustee a representation letter substantially in the form set forth as an
exhibit to the Pooling Agreement stating that such transferee is not a person
or entity referred to in clause (A) or (B) of the legend or provide an
opinion to the Seller, the Certificate Registrar and the Trustee as described
in the Pooling Agreement. Any transfer of a Subordinated Offered Certificate
that would result in a prohibited transaction under ERISA or Section 4975 of
the Code, or a materially similar characterization under any Similar Law will
be deemed absolutely null and void ab initio.
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YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
YIELD
The yield to maturity on the Offered Certificates will depend upon the
price paid by the Certificateholders, the rate and timing of the
distributions in reduction of Certificate Principal Amounts or Notional
Amounts, as applicable, of the related Classes of Certificates and the rate,
timing and severity of losses on the Mortgage Loans and the extent to which
such losses are allocable in reduction of the Certificate Principal Amounts
or Notional Amounts, as applicable, of such Classes of Certificates, as well
as prevailing interest rates at the time of payment or loss realization.
The rate of distributions in reduction of the Certificate Principal Amount
or Notional Amount, as applicable, of any Class of Offered Certificates, the
aggregate amount of distributions on any Class of Offered Certificates and
the yield to maturity of any Class of Offered Certificates will be directly
related to the rate of payments of principal (both scheduled and unscheduled)
on the Mortgage Loans and the amount and timing of borrower defaults. In
addition, such distributions in reduction of Certificate Principal Amount or
Notional Amount, as applicable, may result from repurchases of Mortgage Loans
made by MSMC due to missing or defective documentation or breaches of
representations and warranties with respect to the Mortgage Loans as
described herein under "The Pooling Agreement--Representations and
Warranties; Repurchase" or purchases of the Mortgage Loans in the manner
described under "The Pooling Agreement--Optional Termination; Optional
Mortgage Loan Purchase."
Disproportionate principal payments (whether resulting from differences in
amortization terms, prepayments following expirations of the respective
Prepayment Lockout Periods or otherwise) on the Mortgage Loans affect the
Pass-Through Rates of the Class A-2, Class A-3, Class X, Class B, Class C,
Class D, Class E and Class F Certificates for one or more future periods and
therefore the yield on such Classes.
The Certificate Principal Amount of any Class of Offered Certificates may
be reduced without distributions thereon as a result of the occurrence and
allocation of Realized Losses, reducing the maximum amount distributable in
respect of Certificate Principal Amount, if applicable, as well as the amount
of interest that would have accrued on such Certificates in the absence of
such reduction. In general, a Realized Loss occurs when the aggregate
principal balance of a Mortgage Loan is reduced without an equal distribution
to applicable Certificateholders in reduction of the Certificate Principal
Amounts of the Certificates. Realized Losses are likely to occur only in
connection with a default on a Mortgage Loan and the liquidation of the
related Mortgaged Properties or a reduction in the principal balance of a
Mortgage Loan by a bankruptcy court.
Because the Notional Amount of the Class X Certificates is based upon the
Certificate Principal Amounts of the Class A-1, Class A-2, Class A-3, Class
B, Class C, Class D, Class E, Class F, Class G and Class H Certificates, the
yield to maturity on the Class X Certificates will be extremely sensitive to
the rate and timing of prepayments of principal (including both voluntary and
involuntary prepayments, delinquencies, defaults and liquidations) on the
Mortgage Loans and any repurchase with respect to breaches of representations
and warranties with respect to the Mortgage Loans to the extent such payments
of principal are allocated to each such Class in reduction of the Certificate
Principal Amount thereof. Although the payment of a Prepayment Premium 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 Premiums, or that such Prepayment Premiums would
be held to be enforceable if challenged. In addition, approximately 77.9% of
any Prepayment Premium received in connection with the North Shore Towers
Loan is required to be paid to John Hancock, and will not be available for
distribution to Certificateholders. 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.
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
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Lockout Period, the extent to which Prepayment Premiums 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 defease all or a portion of the Mortgage
Loan, and any increase in the interest rate and the application of Excess
Cash Flow, if applicable, to prepay the related Mortgage Loan) may affect the
rate of principal payments on Mortgage Loans, and consequently, the yield to
maturity of the Classes of Offered Certificates. See "Mortgage Pool
Characteristics" and "Description of the Mortgaged Properties and the
Mortgage Loans" herein.
The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
even if the average rate of principal payments experienced over time is
consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the Mortgage Loans, the greater the effect on such
investor's yield to maturity. As a result, the effect on such investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during the period immediately following the
issuance of the Offered Certificates would not be fully offset by a
subsequent like reduction (or increase) in the rate of principal payments.
No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates. In addition, although Excess Cash Flow is applied to reduce
principal of the respective Mortgage Loans (other than with respect to the
North Shore Towers Loan, the Edens & Avant Pool Loan, the Arrowhead Towne
Center Loan, the Westgate Mall Loan and the Yorktown Shopping Center Loan)
after their respective Effective Maturity Dates, there can be no assurance
that any of such Mortgage Loans will be prepaid on that date or any date
prior to maturity. An investor is urged to make an investment decision with
respect to any Class of Offered Certificates based on the anticipated yield
to maturity of such Class of Offered Certificates resulting from its purchase
price and such investor's own determination as to anticipated Mortgage Loan
prepayment rates under a variety of scenarios. The extent to which any Class
of Offered Certificates is purchased at a discount or a premium and the
degree to which the timing of payments on such Class of Offered Certificates
is sensitive to prepayments will determine the extent to which the yield to
maturity of such Class of Offered Certificates may vary from the anticipated
yield. An investor should carefully consider the associated risks, including,
in the case of any Offered Certificates purchased at a discount, the risk
that a slower than anticipated rate of principal payments on the Mortgage
Loans could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of any Offered Certificates purchased at a
premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield to such investor that is lower than the
anticipated yield.
An investor should consider the risk that rapid rates of prepayments on
the Mortgage Loans, and therefore of amounts distributable in reduction of
the principal balance of Offered Certificates entitled to distributions of
principal, may coincide with periods of low prevailing interest rates. During
such periods, the effective interest rates on securities in which an investor
may choose to reinvest such amounts distributed to it may be lower than the
applicable Pass-Through Rate. Conversely, slower rates of prepayments on the
Mortgage Loans, and therefore, of amounts distributable in reduction of
principal balance of the Offered Certificates entitled to distributions of
principal, may coincide with periods of high prevailing interest rates.
During such periods, the amount of principal distributions resulting from
prepayments available to an investor in such Certificates for reinvestment at
such high prevailing interest rates may be relatively small.
The effective yield to holders of Offered Certificates will be lower than
the yield otherwise produced by the applicable Pass-Through Rate and
applicable purchase prices because while interest will accrue during each
Interest Accrual Period, the distribution of such interest will not be made
until the Distribution Date immediately following such Interest Accrual
Period, and principal paid on any Distribution Date will not bear interest
during the period from the end of such Interest Accrual Period to the
Distribution Date that follows.
YIELD ON THE OFFERED CERTIFICATES
The yield to maturity of Offered Certificates will be sensitive to the
rate and timing of principal payments (including voluntary and involuntary
prepayments and repurchases), delinquencies and liquidations on the Mortgage
Loans.
The following tables indicate the assumed purchase price (before adding
accrued interest, if any), expressed as a percentage of the applicable
Certificate Principal Amount, and the hypothetical pre-tax yield to maturity
on the Offered Certificates, stated on a corporate bond equivalent basis,
based on certain hypothetical scenarios. The pre-tax yields to maturity set
forth in the tables below were calculated by determining the monthly discount
rate that, when applied to the assumed stream of cash flows to be paid on the
Offered Certificates, would cause the discounted present value of such
assumed cash flows to equal the assumed purchase price thereof, plus accrued
interest, if any, as basis points and by converting such monthly rates to
corporate bond equivalent rates. Such calculations of yield do not take into
account
S-236
<PAGE>
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.
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>
CUT-OFF REMAINING TERM REMAINING
DATE TO EFFECTIVE TERM TO
PRINCIPAL MATURITY DATE MATURITY INTEREST SERVICING ASSUMED NET
MORTGAGE LOAN BALANCE (MONTHS) (MONTHS) ACCRUAL FEE CASH FLOW
------------------------ -------------- -------------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. 605 Third Avenue $120,000,000 120 360 30/360 .0355% $19,403,628
2. Edens & Avant Pool $82,750,000 119 119 30/360 .0355% $20,253,312
3. Ashford Financial Pool $73,537,438 111 232 30/360 .0355% $16,886,490
4. Mansion Grove Apartments $72,862,226 117 357 30/360 .0455% $9,246,143
5. North Shore Towers $70,280,966 86 86 30/360 .0255% $20,124,264
6. Fashion Mall $64,864,238 116 357 30/360 .0355% $9,748,888
7. Yorktown Shopping Center $57,304,459 81 81 30/360 .0355% $7,570,166
8. Grand Kempinski Hotel $55,000,000 120 300 30/360 .0355% $9,289,725
9. Arrowhead Town Center $48,899,962 51 51 30/360 .0355% $8,356,914
10. Mark Centers Pool $45,449,576 108 289 30/360 .0355% $6,847,352
11. Westgate Mall $42,681,517 110 110 30/360 .0355% $5,321,105
12. Westshore Mall $20,900,775 77 353 30/360 .0355% $3,119,597
</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 17, 1997; (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 Premiums are collected except as
otherwise noted in the tables; (ix) there are no Prepayment Interest
Shortfalls or Appraisal Reduction Amounts; (x) distributions on the Offered
Certificates are made on the 3rd day of the month (each assumed to be a
Business Day); (xi) no Balloon Payment is extended beyond its maturity date;
(xii) each Mortgage Loan bears interest at the related Mortgage Rate as
described herein; (xiii) the Offered Certificates bear interest at the
related Pass-Through Rates as described herein; and (xiv) unless otherwise
specified in the Scenarios described below, the Mortgage Loans do not prepay
(assumptions (i) through (xiv) above are collectively referred to as the
"Mortgage Loan Assumptions").
In the case of Scenario 1 below, it is assumed that all of the Mortgage
Loans having Effective Maturity Dates are prepaid in full ("Scenario 1") on
their respective Effective Maturity Dates and, in the case of the Edens &
Avant Pool Loan, the North Shore Towers Loan, the Arrowhead Towne Center
Loan, the Westgate Mall Loan and the Yorktown Shopping Center Loan, the
Balloon Payments due on such Mortgage Loans are paid on the respective
maturity dates for such Mortgage Loans. 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
Premium and without defeasance. Scenarios 1 and 2 are collectively referred
to herein as the "Scenarios".
S-237
<PAGE>
CLASS A-1
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
100-16 ......... 6.674% 6.671%
100-20 ......... 6.646% 6.643%
100-24 ......... 6.618% 6.614%
100-28 ......... 6.590% 6.586%
101-00 ......... 6.562% 6.557%
101-04 ......... 6.535% 6.529%
101-08 ......... 6.507% 6.501%
101-12 ......... 6.479% 6.473%
101-16 ......... 6.452% 6.445%
101-20 ......... 6.424% 6.416%
101-24 ......... 6.397% 6.388%
101-28 ......... 6.369% 6.360%
102-00 ......... 6.342% 6.332%
102-04 ......... 6.315% 6.304%
102-08 ......... 6.287% 6.277%
102-12 ......... 6.260% 6.249%
102-16 ......... 6.233% 6.221%
</TABLE>
CLASS A-2
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
100-16 ......... 6.864% 6.863%
100-20 ......... 6.845% 6.843%
100-24 ......... 6.825% 6.823%
100-28 ......... 6.806% 6.803%
101-00 ......... 6.787% 6.784%
101-04 ......... 6.767% 6.764%
101-08 ......... 6.748% 6.744%
101-12 ......... 6.729% 6.725%
101-16 ......... 6.710% 6.705%
101-20 ......... 6.690% 6.685%
101-24 ......... 6.671% 6.666%
101-28 ......... 6.652% 6.646%
102-00 ......... 6.633% 6.627%
102-04 ......... 6.614% 6.607%
102-08 ......... 6.595% 6.588%
102-12 ......... 6.576% 6.569%
102-16 ......... 6.557% 6.549%
</TABLE>
CLASS A-3
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
100-16 ......... 6.972% 6.971%
100-20 ......... 6.953% 6.952%
100-24 ......... 6.935% 6.934%
100-28 ......... 6.917% 6.915%
101-00 ......... 6.898% 6.897%
101-04 ......... 6.880% 6.878%
101-08 ......... 6.862% 6.860%
101-12 ......... 6.844% 6.842%
101-16 ......... 6.826% 6.823%
101-20 ......... 6.807% 6.805%
101-24 ......... 6.789% 6.787%
101-28 ......... 6.771% 6.768%
102-00 ......... 6.753% 6.750%
102-04 ......... 6.735% 6.732%
102-08 ......... 6.717% 6.714%
102-12 ......... 6.699% 6.695%
102-16 ......... 6.681% 6.677%
</TABLE>
S-238
<PAGE>
CLASS B
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
100-16 ......... 6.943% 6.941%
100-20 ......... 6.925% 6.923%
100-24 ......... 6.907% 6.905%
100-28 ......... 6.890% 6.887%
101-00 ......... 6.872% 6.869%
101-04 ......... 6.854% 6.851%
101-08 ......... 6.836% 6.833%
101-12 ......... 6.819% 6.816%
101-16 ......... 6.801% 6.798%
101-20 ......... 6.783% 6.780%
101-24 ......... 6.766% 6.762%
101-28 ......... 6.748% 6.745%
102-00 ......... 6.730% 6.727%
102-04 ......... 6.713% 6.709%
102-08 ......... 6.695% 6.692%
102-12 ......... 6.678% 6.674%
102-16 ......... 6.660% 6.656%
</TABLE>
CLASS C
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
100-16 ......... 6.994% 6.992%
100-20 ......... 6.976% 6.974%
100-24 ......... 6.959% 6.956%
100-28 ......... 6.941% 6.938%
101-00 ......... 6.923% 6.920%
101-04 ......... 6.905% 6.902%
101-08 ......... 6.887% 6.884%
101-12 ......... 6.869% 6.867%
101-16 ......... 6.852% 6.849%
101-20 ......... 6.834% 6.831%
101-24 ......... 6.816% 6.813%
101-28 ......... 6.799% 6.795%
102-00 ......... 6.781% 6.778%
102-04 ......... 6.764% 6.760%
102-08 ......... 6.746% 6.742%
102-12 ......... 6.728% 6.725%
102-16 ......... 6.711% 6.707%
</TABLE>
CLASS D
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
100-16 ......... 7.077% 7.074%
100-20 ......... 7.059% 7.056%
100-24 ......... 7.041% 7.038%
100-28 ......... 7.023% 7.020%
101-00 ......... 7.005% 7.002%
101-04 ......... 6.987% 6.984%
101-08 ......... 6.970% 6.966%
101-12 ......... 6.952% 6.948%
101-16 ......... 6.934% 6.930%
101-20 ......... 6.916% 6.912%
101-24 ......... 6.899% 6.894%
101-28 ......... 6.881% 6.877%
102-00 ......... 6.864% 6.859%
102-04 ......... 6.846% 6.841%
102-08 ......... 6.828% 6.823%
102-12 ......... 6.811% 6.806%
102-16 ......... 6.793% 6.788%
</TABLE>
S-239
<PAGE>
CLASS E
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
100-16 ......... 7.180% 7.177%
100-20 ......... 7.162% 7.159%
100-24 ......... 7.144% 7.140%
100-28 ......... 7.126% 7.122%
101-00 ......... 7.108% 7.104%
101-04 ......... 7.090% 7.086%
101-08 ......... 7.072% 7.068%
101-12 ......... 7.054% 7.050%
101-16 ......... 7.037% 7.032%
101-20 ......... 7.019% 7.014%
101-24 ......... 7.001% 6.996%
101-28 ......... 6.983% 6.978%
102-00 ......... 6.966% 6.960%
102-04 ......... 6.948% 6.943%
102-08 ......... 6.931% 6.925%
102-12 ......... 6.913% 6.907%
102-16 ......... 6.895% 6.889%
</TABLE>
CLASS F
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
100-16 ......... 7.436% 7.433%
100-20 ......... 7.418% 7.415%
100-24 ......... 7.400% 7.397%
100-28 ......... 7.382% 7.378%
101-00 ......... 7.364% 7.360%
101-04 ......... 7.345% 7.342%
101-08 ......... 7.327% 7.323%
101-12 ......... 7.309% 7.305%
101-16 ......... 7.291% 7.287%
101-20 ......... 7.273% 7.269%
101-24 ......... 7.256% 7.251%
101-28 ......... 7.238% 7.233%
102-00 ......... 7.220% 7.214%
102-04 ......... 7.202% 7.196%
102-08 ......... 7.184% 7.178%
102-12 ......... 7.166% 7.160%
102-16 ......... 7.149% 7.142%
</TABLE>
CLASS X
<TABLE>
<CAPTION>
ASSUMED
PURCHASE PRICE SCENARIO SCENARIO
(%) 1 2
- ---------------- ---------- ----------
<S> <C> <C>
6-24............ 8.299% 7.957%
6-25............ 8.174% 7.831%
6-26............ 8.049% 7.706%
6-27............ 7.926% 7.582%
6-28............ 7.803% 7.458%
6-29............ 7.681% 7.336%
6-30............ 7.560% 7.214%
6-31............ 7.440% 7.094%
7-00............ 7.321% 6.974%
</TABLE>
S-240
<PAGE>
It is highly unlikely that principal of the Mortgage Loans will be repaid
consistent with the assumptions underlying any one of the Scenarios. The
Mortgage Loans will not have all of the characteristics assumed for purposes
of the Scenarios. Yield will be affected by prepayment rates, Balloon Payment
extensions, and may differ significantly from the Mortgage Loan Assumptions.
There can be no assurance that the pre-tax yields, on the Offered
Certificates will correspond to any of the pre-tax yields or discounted
margins, as applicable, shown herein or that the aggregate purchase prices of
the Offered Certificates will be as assumed. Investors must make their own
decisions as to the appropriate prepayment assumptions to be used in deciding
whether to purchase the Offered Certificates.
RATED FINAL DISTRIBUTION DATE
The "Rated Final Distribution Date" is the Distribution Date occurring
three years after the latest maturity date of any Mortgage Loan. Because
certain of the Mortgage Loans have maturity dates that occur earlier than the
latest maturity date, and because certain of the Mortgage Loans may be
prepaid prior to maturity, it is possible that the Certificate Principal
Amount of each Class of Offered Certificates will be reduced to zero
significantly earlier than the Rated Final Distribution Date. However,
delinquencies on Mortgage Loans could result in final distributions in
reduction of the Certificate Principal Amount of one or more Classes after
the Rated Final Distribution Date of such Class or Classes.
WEIGHTED AVERAGE LIFE OF OFFERED CERTIFICATES
Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution or
allocation to the investor of each dollar in reduction of Certificate
Principal Amount. The weighted average lives of the Offered Certificates will
be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may occur as a result of scheduled
amortization, voluntary or involuntary prepayments or liquidations.
The weighted average lives of the Offered Certificates may also be
affected to the extent that additional distributions in reduction of the
Certificate Principal Amount of such Certificates occur as a result of the
repurchase or purchase of Mortgage Loans from the Trust Fund as described
under "The Pooling Agreement--Representations and Warranties; Repurchase" or
"--Optional Termination; Optional Mortgage Loan Purchase" herein. Such a
repurchase or purchase from the Trust Fund will have the same effect on
distributions to the holders of Certificates as if the related Mortgage Loans
had prepaid in full, except that no Prepayment Premiums 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 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.
S-241
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS A-1
<TABLE>
<CAPTION>
DISTRIBUTION DATE SCENARIO 1 SCENARIO 2
- ------------------------- -------------- --------------
<S> <C> <C>
Initial Percent .......... 100% 100%
November 3, 1998 ......... 97% 97%
November 3, 1999 ......... 94% 94%
November 3, 2000 ......... 91% 91%
November 3, 2001 ......... 87% 68%
November 3, 2002 ......... 64% 64%
November 3, 2003 ......... 60% 60%
November 3, 2004 ......... 27% 0%
November 3, 2005 ......... 0% 0%
November 3, 2006 ......... 0% 0%
November 3, 2007 ......... 0% 0%
November 3, 2008 ......... 0% 0%
November 3, 2009 ......... 0% 0%
November 3, 2010 ......... 0% 0%
November 3, 2011 ......... 0% 0%
November 3, 2012 ......... 0% 0%
November 3, 2013 ......... 0% 0%
November 3, 2014 ......... 0% 0%
November 3, 2015 ......... 0% 0%
November 3, 2016 ......... 0% 0%
November 3, 2017 ......... 0% 0%
November 3, 2018 ......... 0% 0%
Weighted Average Life
(in years) .............. 5.58 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).
S-242
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS A-2
<TABLE>
<CAPTION>
DISTRIBUTION DATE SCENARIO 1 SCENARIO 2
- ------------------------- -------------- --------------
<S> <C> <C>
Initial Percent .......... 100% 100%
November 3, 1998 ......... 100% 100%
November 3, 1999 ......... 100% 100%
November 3, 2000 ......... 100% 100%
November 3, 2001 ......... 100% 100%
November 3, 2002 ......... 100% 100%
November 3, 2003 ......... 100% 100%
November 3, 2004 ......... 100% 100%
November 3, 2005 ......... 88% 88%
November 3, 2006 ......... 15% 0%
November 3, 2007 ......... 0% 0%
November 3, 2008 ......... 0% 0%
November 3, 2009 ......... 0% 0%
November 3, 2010 ......... 0% 0%
November 3, 2011 ......... 0% 0%
November 3, 2012 ......... 0% 0%
November 3, 2013 ......... 0% 0%
November 3, 2014 ......... 0% 0%
November 3, 2015 ......... 0% 0%
November 3, 2016 ......... 0% 0%
November 3, 2017 ......... 0% 0%
November 3, 2018 ......... 0% 0%
Weighted Average Life
(in years) .............. 8.74 8.52
</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).
S-243
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS A-3
<TABLE>
<CAPTION>
DISTRIBUTION DATE SCENARIO 1 SCENARIO 2
- ------------------------- -------------- --------------
<S> <C> <C>
Initial Percent .......... 100% 100%
November 3, 1998 ......... 100% 100%
November 3, 1999 ......... 100% 100%
November 3, 2000 ......... 100% 100%
November 3, 2001 ......... 100% 100%
November 3, 2002 ......... 100% 100%
November 3, 2003 ......... 100% 100%
November 3, 2004 ......... 100% 100%
November 3, 2005 ......... 100% 100%
November 3, 2006 ......... 100% 88%
November 3, 2007 ......... 0% 0%
November 3, 2008 ......... 0% 0%
November 3, 2009 ......... 0% 0%
November 3, 2010 ......... 0% 0%
November 3, 2011 ......... 0% 0%
November 3, 2012 ......... 0% 0%
November 3, 2013 ......... 0% 0%
November 3, 2014 ......... 0% 0%
November 3, 2015 ......... 0% 0%
November 3, 2016 ......... 0% 0%
November 3, 2017 ......... 0% 0%
November 3, 2018 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.51 9.38
</TABLE>
- ------------
(1) Assuming that the 3rd day of each of the months indicated is the
Distribution Date occurring in such month.
(2) The weighted average life of the Class A-3 Certificates is determined
by (i) multiplying the amount of each distribution in reduction of
Certificate Principal Amount of such Class by the number of years from
the date of determination to the related Distribution Date, (ii) adding
the results and (iii) dividing the sum by the aggregate distributions
in reduction of Certificate Principal Amount referred to in clause (i).
S-244
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS B
<TABLE>
<CAPTION>
DISTRIBUTION DATE SCENARIO 1 SCENARIO 2
- ------------------------- -------------- --------------
<S> <C> <C>
Initial Percent .......... 100% 100%
November 3, 1998 ......... 100% 100%
November 3, 1999 ......... 100% 100%
November 3, 2000 ......... 100% 100%
November 3, 2001 ......... 100% 100%
November 3, 2002 ......... 100% 100%
November 3, 2003 ......... 100% 100%
November 3, 2004 ......... 100% 100%
November 3, 2005 ......... 100% 100%
November 3, 2006 ......... 100% 100%
November 3, 2007 ......... 0% 0%
November 3, 2008 ......... 0% 0%
November 3, 2009 ......... 0% 0%
November 3, 2010 ......... 0% 0%
November 3, 2011 ......... 0% 0%
November 3, 2012 ......... 0% 0%
November 3, 2013 ......... 0% 0%
November 3, 2014 ......... 0% 0%
November 3, 2015 ......... 0% 0%
November 3, 2016 ......... 0% 0%
November 3, 2017 ......... 0% 0%
November 3, 2018 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.88 9.79
</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).
S-245
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS C
<TABLE>
<CAPTION>
DISTRIBUTION DATE SCENARIO 1 SCENARIO 2
- ------------------------- -------------- --------------
<S> <C> <C>
Initial Percent .......... 100% 100%
November 3, 1998 ......... 100% 100%
November 3, 1999 ......... 100% 100%
November 3, 2000 ......... 100% 100%
November 3, 2001 ......... 100% 100%
November 3, 2002 ......... 100% 100%
November 3, 2003 ......... 100% 100%
November 3, 2004 ......... 100% 100%
November 3, 2005 ......... 100% 100%
November 3, 2006 ......... 100% 100%
November 3, 2007 ......... 0% 0%
November 3, 2008 ......... 0% 0%
November 3, 2009 ......... 0% 0%
November 3, 2010 ......... 0% 0%
November 3, 2011 ......... 0% 0%
November 3, 2012 ......... 0% 0%
November 3, 2013 ......... 0% 0%
November 3, 2014 ......... 0% 0%
November 3, 2015 ......... 0% 0%
November 3, 2016 ......... 0% 0%
November 3, 2017 ......... 0% 0%
November 3, 2018 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.88 9.79
</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).
S-246
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS D
<TABLE>
<CAPTION>
DISTRIBUTION DATE SCENARIO 1 SCENARIO 2
- ------------------------- -------------- --------------
<S> <C> <C>
Initial Percent .......... 100% 100%
November 3, 1998 ......... 100% 100%
November 3, 1999 ......... 100% 100%
November 3, 2000 ......... 100% 100%
November 3, 2001 ......... 100% 100%
November 3, 2002 ......... 100% 100%
November 3, 2003 ......... 100% 100%
November 3, 2004 ......... 100% 100%
November 3, 2005 ......... 100% 100%
November 3, 2006 ......... 100% 100%
November 3, 2007 ......... 0% 0%
November 3, 2008 ......... 0% 0%
November 3, 2009 ......... 0% 0%
November 3, 2010 ......... 0% 0%
November 3, 2011 ......... 0% 0%
November 3, 2012 ......... 0% 0%
November 3, 2013 ......... 0% 0%
November 3, 2014 ......... 0% 0%
November 3, 2015 ......... 0% 0%
November 3, 2016 ......... 0% 0%
November 3, 2017 ......... 0% 0%
November 3, 2018 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.93 9.79
</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).
S-247
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS E
<TABLE>
<CAPTION>
DISTRIBUTION DATE SCENARIO 1 SCENARIO 2
- ------------------------- -------------- --------------
<S> <C> <C>
Initial Percent .......... 100% 100%
November 3, 1998 ......... 100% 100%
November 3, 1999 ......... 100% 100%
November 3, 2000 ......... 100% 100%
November 3, 2001 ......... 100% 100%
November 3, 2002 ......... 100% 100%
November 3, 2003 ......... 100% 100%
November 3, 2004 ......... 100% 100%
November 3, 2005 ......... 100% 100%
November 3, 2006 ......... 100% 100%
November 3, 2007 ......... 0% 0%
November 3, 2008 ......... 0% 0%
November 3, 2009 ......... 0% 0%
November 3, 2010 ......... 0% 0%
November 3, 2011 ......... 0% 0%
November 3, 2012 ......... 0% 0%
November 3, 2013 ......... 0% 0%
November 3, 2014 ......... 0% 0%
November 3, 2015 ......... 0% 0%
November 3, 2016 ......... 0% 0%
November 3, 2017 ......... 0% 0%
November 3, 2018 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.96 9.79
</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).
S-248
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS F
<TABLE>
<CAPTION>
DISTRIBUTION DATE SCENARIO 1 SCENARIO 2
- ------------------------- -------------- --------------
<S> <C> <C>
Initial Percent .......... 100% 100%
November 3, 1998 ......... 100% 100%
November 3, 1999 ......... 100% 100%
November 3, 2000 ......... 100% 100%
November 3, 2001 ......... 100% 100%
November 3, 2002 ......... 100% 100%
November 3, 2003 ......... 100% 100%
November 3, 2004 ......... 100% 100%
November 3, 2005 ......... 100% 100%
November 3, 2006 ......... 100% 100%
November 3, 2007 ......... 0% 0%
November 3, 2008 ......... 0% 0%
November 3, 2009 ......... 0% 0%
November 3, 2010 ......... 0% 0%
November 3, 2011 ......... 0% 0%
November 3, 2012 ......... 0% 0%
November 3, 2013 ......... 0% 0%
November 3, 2014 ......... 0% 0%
November 3, 2015 ......... 0% 0%
November 3, 2016 ......... 0% 0%
November 3, 2017 ......... 0% 0%
November 3, 2018 ......... 0% 0%
Weighted Average Life
(in years) .............. 9.96 9.79
</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 F 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).
S-249
<PAGE>
THE POOLING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of October 1, 1997 (the "Pooling Agreement"), by and
among the Depositor, the Master Servicer, the Special Servicer, the Trustee
and the Fiscal Agent.
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, the
Fiscal Agent or any of their respective affiliates will be obligated to
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<PAGE>
purchase a Mortgage Loan if MSMC defaults on its obligation to repurchase or
cure, and no assurance can be given that MSMC will fulfill such obligations.
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.
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 the case of the North Shore Towers
Loan, net of the Hancock Retained Interest), 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 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 or on behalf of itself, 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; or (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 (the "Servicing Standard"). The Master Servicer
and the Special Servicer are permitted, at their own expense, to employ
subservicers, agents or attorneys in performing any of their respective
obligations under the Pooling Agreement. The North Shore Towers Loan will be
subserviced by John Hancock. The Mansion Grove Loan will be subserviced by
Trowbridge, Kieselhorst & Co. Inc. 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 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.
S-251
<PAGE>
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, the Trustee and/or the Fiscal Agent 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 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 efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans consistent
with the Servicing Standard. Consistent with the above, the Master Servicer
or the Special Servicer may, in its discretion, waive any late payment charge
or penalty fee in connection with any delinquent Monthly Payment with respect
to any Mortgage Loan. For any Mortgage Loan with respect to which, under the
terms of the related loan documents, the mortgagee may, in its discretion,
apply insurance proceeds, condemnation awards or escrowed funds to the
prepayment of such loan prior to the expiration of the related Prepayment
Lockout Period, the Master Servicer or Special Servicer, as applicable, may
only require such a prepayment if the Master Servicer or Special Servicer, as
applicable, has determined in accordance with the Servicing Standard that
such prepayment is in the best interest of all Certificateholders. The Master
Servicer and the Special Servicer will be directed in the Pooling Agreement
not to take any enforcement action other than requests for payment with
respect to payment of Deferred Interest or principal in excess of the
principal component of the Monthly Payment prior to the final maturity date.
The Master Servicer will also be permitted to forgive the payment of Deferred
Interest under the circumstances described under "--Realization Upon Mortgage
Loans; Modifications" below. With respect to any defaulted Mortgage Loan,
subject to the restrictions set forth below under "--Realization Upon
Mortgage Loans; Modifications," the Special Servicer will be entitled to
pursue any of the remedies set forth in the related Mortgage, including the
right to acquire, through foreclosure, all or any of the Mortgaged Properties
securing such Mortgage Loan. The Special Servicer may elect to extend a
Specially Serviced Mortgage Loan (subject to conditions described herein)
notwithstanding its decision to foreclose on certain of the Mortgaged
Properties.
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
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<PAGE>
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 or (b) the Monthly Payment (with
interest calculated at the Net Mortgage Rate plus the Trustee Fee Rate) that
was due prior to the maturity date; provided, however, that the Master
Servicer will not be required to make a P&I Advance to the extent it
determines that such Advance would not ultimately be recoverable out of
related late payments, net insurance proceeds, net condemnation proceeds, net
liquidation proceeds and certain other collections with respect to such
Mortgage Loan as to which such Advances were made. The Master Servicer will
not be required or permitted to make an advance for Deferred Interest,
Default Interest, Prepayment Premiums or Balloon Payments. The amount
required to be advanced by the Master Servicer with respect to any
Distribution Date in respect of scheduled payments (or Extended Monthly
Payments) on Mortgage Loans that have been subject to an Appraisal Reduction
Event will equal (i) the amount required to be advanced by the Master
Servicer without giving effect to such Appraisal Reduction Amounts less (ii)
an amount equal to the product of (x) the amount required to be advanced by
the Master Servicer in respect to delinquent payments of interest without
giving effect to such Appraisal Reduction Amounts, and (y) a fraction, the
numerator of which is the Appraisal Reduction Amount with respect to such
Mortgage Loan and the denominator of which is the Stated Principal Balance as
of the last day of the related Collection Period.
The Master Servicer will also be obligated (subject to the limitations
described herein) to make cash advances ("Property Advances," and together
with P&I Advances, "Advances") to pay delinquent real estate taxes, ground
lease rent payments, assessments and hazard insurance premiums and to cover
other similar costs and expenses necessary to preserve the priority of or
enforce the related Mortgage or to maintain such Mortgaged Property. In
addition, the Special Servicer may be obligated to make certain Property
Advances with respect to Specially Serviced Mortgage Loans.
The obligation of the Master Servicer, the Special Servicer, the Trustee
or the Fiscal Agent, 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, the Trustee or the Fiscal Agent
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, the Trustee or the Fiscal Agent, 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, the Trustee or the Fiscal Agent, 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, the Trustee or the
Fiscal Agent, 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 or Fiscal Agent, the
Depositor) setting forth such judgment or determination of nonrecoverability
and the procedures and considerations of the Master Servicer, the Special
Servicer, the Trustee or the Fiscal Agent, 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,
the Trustee or the Fiscal Agent, as applicable, and an independent appraisal
performed in accordance with MAI standards and methodologies on the
applicable Mortgaged Properties).
To the extent the Master Servicer or Special Servicer fails to make an
Advance it is required to make under the Pooling Agreement, the Trustee,
subject to a determination of recoverability, will make such required Advance
or, in the event the Trustee fails to make such Advance, the Fiscal Agent,
subject to a determination of recoverability, will make such Advance, in each
case pursuant to the terms of the Pooling Agreement. The Trustee and the
Fiscal Agent (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" and "--Duties of the
Fiscal Agent" below.
The Master Servicer, the Special Servicer, the Trustee or the Fiscal
Agent, 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.
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<PAGE>
The Master Servicer, the Special Servicer, the Trustee and the Fiscal
Agent 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, the Trustee or the Fiscal Agent, 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
Lockbox Accounts. With respect to each Mortgage Loan other than the North
Shore Towers Loan, Yorktown Shopping Center Loan, Arrowhead Towne Center Loan
and Westgate Mall Loan, one or more accounts in the name of the mortgagee
(the "Lockbox Accounts") have been established into which rents or other
revenues from the related Mortgaged Properties are directly deposited by the
related tenants, credit card companies or borrower or into which funds in
related property collection accounts (into which rents, credit card
receivables or other revenues are directly deposited) are swept on a regular
basis. See "Description of the Mortgage Loans and the Mortgaged
Properties--Description of the Mortgage Loans". Agreements governing the
Lockbox Accounts provide that the borrower has no withdrawal or transfer
rights with respect thereto and that funds on deposit in the Lockbox Accounts
are periodically swept into the Collection Account. Upon the occurrence of an
Edens & Avant Pool Lockbox Event, the Edens & Avant Pool Borrower is required
to establish a Lockbox Account. The Reserve Accounts generally will be
sub-accounts of the related Lockbox Account. Any excess over the amount
necessary to fund the Monthly Payment, the Reserve Accounts and any other
amounts due under the Mortgage Loans will be returned to or retained by the
related borrower provided no event of default of which the Master Servicer is
aware has occurred and is continuing with respect to such Mortgage Loan.
However, after the respective Effective Maturity Date all amounts in the
related Lockbox Account in excess of the amount necessary to fund the Monthly
Payment and Reserve Accounts will be applied to (i) operating and capital
expenses, (ii) the reduction of the principal balance of the related Mortgage
Loan until such principal is paid in full and (iii) if applicable, Deferred
Interest, in that order. The Lockbox Accounts will not be an asset of the
Trust REMICs.
Collection Account. On each Due Date, the Master Servicer will be required
to withdraw from each Lockbox Account 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 or the Fiscal Agent will deposit
all P&I Advances into the Lower-Tier Distribution Account as described
herein. On each Distribution Date, the Trustee will withdraw amounts
distributable on such date on the Regular Certificates and on the Class R
Certificates (which are expected to be zero) from the Lower-Tier Distribution
Account and deposit such amounts in the Upper-Tier Distribution Account. See
"Description of the Offered Certificates--Distributions" herein.
The Trustee will also establish and maintain one or more segregated
accounts for the "Deferred Interest Distribution Account" in the name of the
Trustee for the benefit of the Certificateholders entitled to distributions
therefrom and the "Class Q Distribution Account" in the name of the Trustee
for the benefit of the holders of the Class Q Certificates.
The Cash Collateral Accounts, the Collection Account, the Lower-Tier
Distribution Account, the Upper-Tier Distribution Account, the Interest
Reserve 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 Cash
Collateral Accounts and the Collection Account. Each of the Cash Collateral
Accounts, Collection Account, any REO Account, the Lower-Tier Distribution
Account, the Upper-Tier Distribution Account, any escrow account, the
Deferred Interest Distribution Account
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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, Cash
Collateral Accounts and Collection Account, the long term unsecured debt
obligations (or short-term unsecured debt obligations if the account holds
funds for less than 30 days) of which are rated at least "AA" by Fitch, "AA-"
by S&P and "Aa3" by Moody's 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").
Amounts on deposit in the Collection Account, the Cash Collateral 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 and the
Cash Collateral Accounts will be paid to the Master Servicer (except, in the
case of the Cash Collateral 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 Premiums (net of
the portion of any Prepayment Premium required to be paid to John Hancock)
and (II) the Trustee Fee for such Distribution Date, (B) to the Class Q
Distribution Account an amount equal to the Net Default Interest received in
the related Collection Period, if any, (C) to the Deferred Interest
Distribution Account an amount equal to the Deferred Interest received in the
related Collection Period, if any, (ii) to pay or reimburse the Master
Servicer, the Special Servicer, the Trustee or the Fiscal Agent, 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, the Trustee's or the Fiscal Agent'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, the
Fiscal Agent and/or the Depositor for unpaid Servicing Compensation (in the
case of the Master Servicer, the Special Servicer or the Trustee), and
certain other unreimbursed expenses incurred by such person pursuant to and
to the extent reimbursable under the Pooling Agreement and to satisfy any
indemnification obligations of the Trust Fund under the Pooling Agreement;
(vi) to pay to the Trustee amounts requested by it to pay any taxes imposed
on the Upper-Tier REMIC or the Lower-Tier REMIC; (vii) to withdraw any amount
deposited into the Collection Account that was not required to be deposited
therein; and (viii) to clear and terminate the Collection Account pursuant to
a plan for termination and liquidation of the Trust Fund.
SUCCESSOR MANAGER
With respect to each Mortgage Loan, the Master Servicer or the Special
Servicer, as applicable, will enforce the Trustee's rights with respect to
the manager under the related Mortgage Loan and management agreement. In the
event the Master Servicer or the Special Servicer is entitled itself to
terminate, or to cause the related borrower to terminate, the manager under
the Mortgage Loan, the Master Servicer or the Special Servicer, as the case
may be, will promptly give notice of its 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
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Successor Manager (as defined below). Holders of Certificates representing
Voting Rights of greater than 50% of such subordinate Class of Certificates
will have ten 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 qualification, withdrawal or downgrading of any of the
ratings then assigned to the Certificates by the Rating Agencies, as
evidenced in writing, and shall be a professional management corporation or
business entity which manages, and is experienced in managing, other
comparable commercial properties and meets any criteria in the related loan
documents.
ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
Subject to certain exceptions in the case of certain of the Mortgage Loans
(see "Description of the Mortgaged Properties and the Mortgage Loans"
herein), the Mortgage Loans contain provisions in the nature of "due-on-sale"
clauses, which by their terms (a) provide that the Mortgage Loans shall, at
the mortgagee's option, become due and payable upon the sale or other
transfer of an interest in the related Mortgaged Property or (b) provide that
the Mortgage Loans may not be assumed without the consent of the related
mortgagee in connection with any such sale or other transfer. The Master
Servicer or the Special Servicer, with respect to Specially Serviced Mortgage
Loans, will not be required to enforce such due-on-sale clauses and in
connection therewith will not be required to (i) accelerate payments thereon
or (ii) withhold its consent to such an assumption if (x) such provision is
not exercisable under applicable law or such provision is reasonably likely
to result in meritorious legal action by the borrower or (y) the Master
Servicer or the Special Servicer, as applicable, determines, in accordance
with the Servicing Standard, that granting such consent would be likely to
result in a greater recovery, on a present value basis (discounting at the
related Mortgage Rate), than would enforcement of such clause. If the Master
Servicer or the Special Servicer, as applicable, determines that granting
such consent would be likely to result in a greater recovery, the Master
Servicer or the Special Servicer, as applicable, is authorized to take or
enter into an assumption agreement from or with the proposed transferee as
obligor thereon, provided that (a) the proposed transfer is in compliance
with the terms of the related Mortgage and (b) the Master Servicer or the
Special Servicer, as applicable, has received written confirmation from each
Rating Agency that such assumption or substitution would not, in and of
itself, cause a downgrade, qualification or withdrawal of any of the then
current ratings assigned to the Certificates.
Subject to certain exceptions in the case of certain of the Mortgage Loans
(see "Description of the Mortgaged Properties and the Mortgage Loans"
herein), the Mortgage Loans contain provisions in the nature of a
"due-on-encumbrance" clause which by their terms (a) provide that the
Mortgage Loans shall, at the mortgagee's option, become due and payable upon
the creation of any lien or other encumbrance on the related Mortgaged
Property, or (b) require the consent of the related mortgagee to the creation
of any such lien or other encumbrance on the related Mortgaged Property. The
Master Servicer or the Special Servicer, as applicable, will not be required
to enforce such due-on-encumbrance clauses and in connection therewith will
not be required to (i) accelerate payments thereon or (ii) withhold its
consent to such lien or encumbrance if the Master Servicer or the Special
Servicer, as applicable, (x) determines, in accordance with the Servicing
Standard, that such enforcement would not be in the best interests of the
Trust Fund and (y) receives prior written confirmation from each Rating
Agency that granting such consent would not, in and of itself, cause a
downgrade, qualification or withdrawal of any of the then current ratings
assigned to the Certificates.
See "Certain Legal Aspects of the Mortgage Loans and the Leases --
Due-on-Sale and Due-on-Encumbrance" in the Prospectus.
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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, in each case commencing in October
1998 (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, (b) is delinquent for 60 days or (c) 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 April 15 of each year, beginning April
15, 1998, 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 Coporation, except for such exceptions stated in such report.
The Pooling Agreement also requires each of the Master Servicer and the
Special Servicer to deliver to the Trustee, on or before April 15 of each
year, beginning April 15, 1998, an officers' certificate of the Master
Servicer or the Special Servicer, as the case may be, stating that, to the
best of each such officer's knowledge, the Master Servicer or the Special
Servicer, as the case may be, has fulfilled its obligations under the Pooling
Agreement in all material respects throughout the preceding calendar year or,
if there has been a default, specifying each default known to each such
officer, and that it has maintained an effective internal control system over
the servicing of mortgage loans including the Mortgage Loans.
CERTAIN MATTERS REGARDING THE DEPOSITOR, THE MASTER SERVICER AND THE SPECIAL
SERVICER
Each of the Master Servicer and the Special Servicer may assign its rights
and delegate its duties and obligations under the Pooling Agreement, provided
that certain conditions are satisfied including obtaining the consent of the
Trustee and written confirmation of each of the Rating Agencies that such
assignment or delegation will not cause a qualification, withdrawal or
downgrading of the then current ratings assigned to the Certificates. The
Pooling Agreement provides that the Master Servicer or the Special Servicer,
as the case may be, may not otherwise resign from its obligations and duties
as Master Servicer or the Special Servicer, as the case may be, thereunder,
except upon the determination that performance of its duties is no longer
permissible under applicable law and provided that such determination is
evidenced by an opinion of counsel delivered to the Trustee. No such
resignation may become effective until a successor Master Servicer or Special
Servicer has assumed the obligations of the Master Servicer or the Special
Servicer under the Pooling Agreement. The Trustee or any other successor
Master Servicer or Special Servicer assuming the obligations of the Master
Servicer or the Special Servicer under the Pooling Agreement will be entitled
to the compensation to which the Master Servicer or the Special Servicer
would have been entitled. If no successor Master Servicer or Special Servicer
can be obtained to perform such obligations for such compensation, additional
amounts payable to such successor Master Servicer or Special Servicer will be
treated as Realized Losses.
The Pooling Agreement also provides that none of the Depositor, the Master
Servicer, the Special Servicer, nor any director, officer, employee or agent
of the Depositor, the Master Servicer or the Special Servicer will be under
any liability to the Trust Fund or the holders of Certificates for any action
taken or for refraining from the taking of any action in good faith pursuant
to the Pooling Agreement, or for errors in judgment; provided, however, that
neither the Depositor, the Master Servicer, the Special Servicer nor any such
person will be protected against any liability which would otherwise be
imposed by reason of (i) any breach of warranty or representation, or other
representation or specific liability provided in the Pooling
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Agreement, or (ii) any willful misconduct, bad faith, fraud or negligence in
the performance of duties thereunder or by reason of reckless disregard of
obligations or 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 of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder, in each case by the person
being indemnified; (ii) imposed by any taxing authority if such loss,
liability or expense is not specifically reimbursable pursuant to the terms
of the Pooling Agreement, or (iii) 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 or the Master Servicer may be merged
or consolidated, or any person resulting from any merger or consolidation to
which the Depositor or the Master Servicer is a party, or any person
succeeding to the business of the Depositor or the Master Servicer, will be
the successor of the Depositor or the Master Servicer, as the case may be,
under the Pooling Agreement, and shall be deemed to have assumed all of the
liabilities and obligations of the Depositor or the Master Servicer under the
Pooling Agreement.
EVENTS OF DEFAULT
Events of default of the Master Servicer (each, with respect to the Master
Servicer, an "Event of Default") under the Pooling Agreement consist, among
other things, of (i) any failure by the Master Servicer to remit to the
Collection Account or any failure by the Master Servicer to remit to the
Trustee for deposit into the Upper-Tier Distribution Account, Lower-Tier
Distribution Account, Deferred Interest Distribution Account or Class Q
Distribution Account any amount required to be so remitted at the time
required to be remitted pursuant to the Pooling Agreement; (ii) any failure
by the Master Servicer duly to observe or perform in any material respect any
of its other covenants or agreements or the material breach of its
representations or warranties under the Pooling Agreement which continues
unremedied for thirty (30) days after the giving of written notice of such
failure to the Master Servicer by the Depositor or the Trustee, or to the
Master Servicer and to the Depositor and the Trustee by the holders of
Certificates evidencing Percentage Interests of at least 25% of any affected
Class and if such default is not capable of being cured within such 30 day
period and the Master Servicer is diligently pursuing such cure, the Master
Servicer shall be entitled to an additional 30 day period; (iii) any failure
by the Master Servicer to make any Advances as required pursuant to the
Pooling Agreement; (iv) confirmation in writing by any Rating Agency that not
terminating the Master Servicer would, in and of itself, cause the
then-current rating assigned to any Class of Certificates to be qualified,
withdrawn or downgraded; or (v) certain events of bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings and certain actions by, on behalf of or against the Master
Servicer indicating its insolvency or inability to pay its obligations.
Events of default of the Special Servicer (each, with respect to the
Special Servicer, an "Event of Default") under the Pooling Agreement consist,
among other things, of (i) any failure by the Special Servicer to remit to
the Collection Account any amount so required under the Pooling Agreement;
(ii) any failure by the Special Servicer duly to observe or perform in any
material respect any of its other covenants or agreements, or the material
breach of its representations or warranties
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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, 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,
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 or the Fiscal Agent is not at least "AA" by Fitch and S&P and
"Aa2" by Moody's or if the Rating Agencies do not provide written
confirmation that the succession of the Trustee as Master Servicer or Special
Servicer will not cause a qualification, withdrawal or downgrading of the
then current ratings assigned to the Certificates, the Trustee must appoint,
or petition a court of competent jurisdiction for the appointment of, a
mortgage loan servicing institution the appointment of which will not result
in the downgrading, qualification or withdrawal of the then current ratings
assigned to any Class of Certificates as evidenced in writing by each Rating
Agency to act as successor to the Master Servicer or Special Servicer under
the Pooling Agreement. Pending such appointment, the Trustee is obligated to
act in such capacity. The Trustee and any such successor may agree upon the
servicing compensation to be paid. If the compensation payable to such
successor exceeds that to which the predecessor Master Servicer was entitled,
the additional servicing compensation will be allocated to the Certificates
in the same manner as Realized Losses.
If the Special Servicer is not the Master Servicer and an Event of Default
with respect to the Special Servicer occurs, 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, terminate the Special Servicer and
the Trustee will succeed to all the power and authority of the Special
Servicer under the Pooling Agreement, unless such termination and succession
would result in the downgrading, qualification or withdrawal of the then
current ratings assigned to any Class of Certificates, as evidenced in
writing by each Rating Agency, in which case, a successor Special Servicer
shall be appointed in accordance with the Pooling Agreement. The Trustee or
other successor Special Servicer which succeeds to the power and authority of
the Special Servicer will be entitled to the compensation to which the
Special Servicer would have been entitled.
No Certificateholder will have any right under the Pooling Agreement to
institute any proceeding with respect to the Pooling Agreement or the
Mortgage Loans, unless, with respect to the Pooling Agreement, such holder
previously shall have given to the Trustee a written notice of a default
under the Pooling Agreement, and of the continuance thereof, and unless also
the holders of Certificates of each Class affected thereby evidencing
Percentage Interests of at least 25% of such Class shall have made written
request of the Trustee to institute such proceeding in its own name as
Trustee under the Pooling Agreement and shall have offered to the Trustee
such reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute such proceeding.
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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, the Trustee and the Fiscal Agent
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, the Trustee and the
Fiscal Agent 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, the Trustee or the Fiscal Agent to
make a P&I Advance or Property Advance or alter the servicing standards set
forth in the Pooling Agreement; (iii) change the percentages of Voting Rights
of holders of Certificates which are required to consent to any action or
inaction under the Pooling Agreement; or (iv) amend the section in the
Pooling Agreement relating to the amendment of the Pooling Agreement, in each
case without the consent of the holders of all Certificates representing all
the Percentage Interests of the Class or Classes affected thereby.
The "Voting Rights" assigned to each Class shall be (a) 0% in the case of
the Class Q, Class R and Class LR Certificates, (b) 4% in the case of the
Class X Certificates (the "Fixed Voting Rights Percentage"), and (c) in the
case of the Class A-1, Class A-2, Class A-3, Class B, Class C, Class D, Class
E, Class F, Class G and Class H Certificates, a percentage equal to the
product of (i) 100% minus the Fixed Voting Rights Percentage multiplied by
(ii) a fraction, the numerator of which is equal to the aggregate outstanding
Certificate Principal Amount of any such Class (which will be reduced for
this purpose by the amount of any Appraisal Reduction Amounts notionally
allocated to such Class, if applicable) and the denominator of which is equal
to the aggregate outstanding Certificate Principal Amounts of all Classes of
Certificates. The Voting Rights of any Class of Certificates shall be
allocated among holders of Certificates of such Class in proportion to their
respective Percentage Interests.
REALIZATION UPON MORTGAGE LOANS; MODIFICATIONS
Specially Serviced Mortgage Loans; Appraisals; Extensions. Within 60 days
following the occurrence of an Appraisal Reduction Event, the Special
Servicer will be required to obtain an appraisal of the Mortgaged Property or
REO Property, as the case may be, from an independent appraiser in accordance
with MAI standards (an "Updated Appraisal"); provided, that, the Special
Servicer will not be required to obtain an Updated Appraisal of any Mortgaged
Property with respect to which there exists an appraisal which is less than
twelve months old. The cost of any Updated Appraisal shall be a Property
Advance to be paid by the Master Servicer.
Following a default in the payment of any principal balance and accrued
interest remaining unpaid on the maturity date of a Mortgage Loan, the
Special Servicer may either foreclose or elect to grant up to three
consecutive one-year extensions of the Specially Serviced Mortgage Loan;
provided that the Special Servicer may only extend such Mortgage Loan if (i)
immediately prior to the default on the maturity date (or the first
anniversary thereof in the case of the second extension),
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the related borrower had made twelve consecutive Monthly Payments (or
Extended Monthly Payments in the case of the second 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 agree to any extension of a Mortgage Loan
beyond the date which is two years prior to the Rated Final Distribution
Date. If such borrower fails to make an Extended Monthly Payment during the
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.
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 Special Servicer as a Property Advance.
If the Special Servicer elects to proceed with a non-judicial foreclosure
in accordance with the laws of the state where the Mortgaged Property is
located, the Special Servicer shall not be required to pursue a deficiency
judgment against the related Mortgagor, if available, or any other liable
party if the laws of the state do not permit such a deficiency judgment after
a non-judicial foreclosure or if the Special Servicer determines, in its best
judgment, that the likely recovery if a deficiency judgment is obtained will
not be sufficient to warrant the cost, time, expense and/or exposure of
pursuing the deficiency judgment and such determination is evidenced by an
officers' certificate delivered to the Trustee.
Notwithstanding anything herein to the contrary, the Pooling Agreement
will provide that the Special Servicer will not, on behalf of the Trust Fund,
obtain title to a Mortgaged Property as a result of or in lieu of foreclosure
or otherwise, and will not otherwise acquire possession of, or take any other
action with respect to, any Mortgaged Property if, as a result of any such
action, the Trustee, or the Trust Fund or the holders of Certificates, would
be considered to hold title to, to be a "mortgagee-in-possession" of, or to
be an "owner" or "operator" of, such Mortgaged Property within the meaning of
CERCLA or any comparable law, unless the Special Servicer has previously
determined, based on an environmental assessment report prepared by an
independent person who regularly conducts environmental audits, that: (i)
such Mortgaged Property is in compliance with applicable environmental laws
or, if not, after consultation with an environmental consultant that it would
be in the best economic interest of the Trust Fund to take such actions as
are necessary to bring such Mortgaged Property in compliance therewith and
(ii) there are no circumstances present at such Mortgaged Property relating
to the use, management or disposal of any hazardous materials for which
investigation, testing, monitoring, containment, clean-up or
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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 shall 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 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; provided,
however, that with respect to the 605 Third Avenue Loan the Special Servicer
may offer to sell such Mortgage Loan only (i) to MSMC or any of its
affiliates, or (ii) to an institutional lender meeting certain financial and
other criteria set forth in the related loan documents. See "Description of
the Mortgaged Properties and the Mortgage Loans--605 Third Avenue: The
Loan--Transfers by Lender" herein. The Special Servicer is required to give
the Trustee not less than five days' prior written notice of its intention to
sell any Specially Serviced Mortgage Loan or REO Property, in which case the
Special Servicer is required to accept the highest offer (of at least three
offers) received from any person for any Specially Serviced Mortgage Loan or
any REO Property in an amount at least equal to the Repurchase Price or, at
its option, if it has received no offer at least equal to the Repurchase
Price therefor, purchase the Specially Serviced Mortgage Loan or REO Property
at such Repurchase Price.
In the absence of any such offer (or purchase by the Special Servicer),
the Special Servicer shall accept the highest offer received from any person
that is determined by the Special Servicer to be a fair price for such
Specially Serviced Mortgage
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Loan or REO Property, if the highest offeror is a person not affiliated with
the Special Servicer, or is determined to be a fair price by the Trustee
(based solely upon updated independent appraisals received by the Trustee),
if the highest offeror is affiliated with the Special Servicer. Neither the
Trustee, in its individual capacity, nor any of its affiliates may make an
offer for or purchase any Specially Serviced Mortgage Loan or any REO
Property.
The Pooling Agreement will not obligate the Special Servicer to accept the
highest offer if the Special Servicer determines, in accordance with the
Servicing Standard, that rejection of such offer would be in the best
interests of the holders of Certificates. In addition, the Special Servicer
may accept a lower offer if it determines, in accordance with the Servicing
Standard, that acceptance of such offer would be in the best interests of the
holders of Certificates (for example, if the prospective buyer making the
lower offer is more likely to perform its obligations, or the terms offered
by the prospective buyer making the lower offer are more favorable), provided
that the offeror is not a person affiliated with the Special Servicer. The
Special Servicer is required to use its best efforts to sell all Specially
Serviced Mortgage Loans and REO Property prior to the Rated Final
Distribution Date.
Following a default in the payment of principal or interest on a Mortgage
Loan, the Special Servicer, after consultation with, and agreement by, the
Master Servicer, may elect not to foreclose or institute similar proceedings
or modify such Mortgage Loan (as described below) and instead the Master
Servicer shall continue to make P&I Advances with respect to such
delinquencies so long as the Special Servicer, in its reasonable judgment,
after consultation with, and agreement by, the Master Servicer, concludes (a)
that the election not to foreclose or modify would likely result in a greater
recovery, on a present value basis, than would foreclosure or modification
and (b) such P&I Advances will not be Nonrecoverable Advances. With respect
to such conclusions, the Master Servicer may conclusively rely (absent
manifest error) on the Special Servicer's computations and analysis.
Modifications. During the term of a Specially Serviced Mortgage Loan, the
Special Servicer, may, consistent with the Servicing Standard, agree to
modify such Mortgage Loan to reduce the amount of principal (but, except as
otherwise provided below, not interest) payable monthly on such Mortgage Loan
provided that (a) a material default in respect of payment on such Mortgage
Loan has occurred or, in the Special Servicer's reasonable and good faith
judgment, a default in respect of payment on such Mortgage Loan is reasonably
foreseeable, and such modification is reasonably likely to produce a greater
recovery to Certificateholders, on a net present value basis, than would
liquidation; (b) the Special Servicer terminates the related manager (unless
the Special Servicer determines that retaining such manager is conducive to
maintaining the value of the related Mortgaged Properties); and (c) the
Special Servicer may only agree to reductions of principal lasting a period
of no more than twelve consecutive months and, in the aggregate, to no more
than three reductions of twelve months or less each; provided, however,
Certificateholders representing greater than 66 2/3% of all Voting Rights may
direct the Special Servicer not to agree to any such modification. The
Special Servicer will promptly provide a copy of such proposed modification
to the Master Servicer, the Rating Agencies and the Trustee. The Trustee
will, within five Business Days, notify, in writing, all of the
Certificateholders that have Voting Rights for such proposed modification.
For purposes of determining whether Certificateholders representing 66 2/3%
of all Voting Rights have directed the Special Servicer not to agree to such
modification, each Certificateholder will have 15 days to respond to such
notice, and any Certificateholder that has not responded within such time
period will be deemed to have consented to such modification. In the event
that the Special Servicer is directed not to agree to such modification, the
Special Servicer will continue to have the options described elsewhere
herein, including foreclosure, subject to the following paragraph, or, if
applicable, extension of the related Mortgage Loan.
Additionally, the Special Servicer may, consistent with the Servicing
Standard, agree to any modification, waiver or amendment of any term or
forgive or defer interest on and principal of, and/or add collateral for, any
Specially Serviced Mortgage Loan with the consent of Certificateholders
representing 100% of the Percentage Interests of the most subordinate Class
of Certificates then outstanding (the "Directing Class"), subject, however,
to each of the following limitations, conditions and restrictions: (a) a
material default in respect of such Mortgage Loan has occurred or, in the
Special Servicer's reasonable and good faith judgment, a default in respect
of payment on such Mortgage Loan is reasonably foreseeable, and such
modification, waiver, amendment or other action is reasonably likely to
produce a greater recovery to Certificateholders on a net present value
basis, than would liquidation; (b) no reduction in the scheduled monthly
payment of interest on any Mortgage Loan as a result of such modification,
waiver or amendment may result in an Interest Shortfall to any Class other
than the Directing Class, determined as of the date of such modification,
waiver or amendment; (c) any reduction in the scheduled monthly payment of
principal and/or interest on any Mortgage Loan must require that all cash
flow on all related Mortgaged Properties in excess of amounts required to
operate and maintain such Mortgaged Properties be applied to payments of
principal and interest on such Mortgage Loan; (d) the Special Servicer may
only agree to reductions of principal
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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 Premium 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 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. For the purpose of
determining the Percentage Interest of the Directing Class, the Certificates
held by any Certificateholder that holds, or whose affiliate holds, any debt
of any of the borrowers, or any of the affiliates of the borrowers, under the
Mortgage Loans, shall not be taken into consideration. If the
Certificateholders representing 100% of the Percentage Interests of the
second most subordinate Class of Certificates then outstanding consent to
such modification, waiver or amendment, the Directing Class for purposes of
the determinations made in clauses (b) and (f) shall include the second most
subordinate Class of Certificates and the amount by which principal can be
reduced shall not be in excess of 80% of the aggregate principal balance of
both such Classes less the items specified in clauses (f)(x) and (y) above. A
modification pursuant to this paragraph is not subject to the veto of
Certificateholders set forth in the preceding paragraph.
Notwithstanding the foregoing, pursuant to the terms of the Hancock
Agreement, so long as no North Shore Towers Credit Event has occurred, any
material modification to any economic or priority-related terms of the North
Shore Towers Loan must be approved by John Hancock, provided that such
approval may not be unreasonably withheld. "North Shore Towers Credit Events"
include the failure to make a scheduled monthly payment for 60 or more days,
the failure to make a balloon payment when due, the failure or imminent
failure to make any payment that is not likely to be cured by the borrower
within 60 days, certain events of insolvency, and events of foreclosure. In
addition, the Hancock Agreement provides that in the event that only a
partial interest payment is received from the borrower, or if the North Shore
Towers Loan is modified or restructured and the North Shore Towers Interest
Rate is reduced, the Monthly Payments must first be applied to interest and
such interest is required to be allocated to John Hancock and the Trust Fund
pro rata, based on the ratio of the Hancock Retained Interest or the North
Shore Towers Net Interest Rate, as applicable, to the North Shore Towers
Interest Rate.
The Master Servicer or the Special Servicer, as applicable, shall be
permitted to modify, waive or amend any term of a Mortgage Loan that is not
in default or as to which default is not reasonably foreseeable if, and only
if, such modification, waiver or amendment (a) would not be "significant" as
such term is defined in Code Section 1001 or Treasury Regulations Section
1.860G-2(b)(3), as evidenced by an Opinion of Counsel, (b) would be in
accordance with the Servicing Standard and (c) would not adversely affect in
any material respect the interest of any Certificateholder not consenting
thereto. The consent thereto of the majority of Percentage Interests of each
Class of Certificates affected thereby or written confirmation from each
Rating Agency that such modification, waiver or amendment will not result in
a qualification, withdrawal or downgrading of the then-current ratings
assigned to the Certificates shall not be required but shall be conclusive
evidence that such modification, waiver or amendment would not adversely
affect in any material respect the interest of any Certificateholder not
consenting thereto. The Master Servicer or the Special Servicer, as
applicable, shall provide copies of any modifications, waiver or amendment to
each Rating Agency.
OPTIONAL TERMINATION; OPTIONAL MORTGAGE LOAN PURCHASE
The Depositor and, if the Depositor does not exercise its option, the
Master Servicer and, if neither the Depositor nor the Master Servicer
exercises its option, the holders of the Class LR Certificates representing
greater than a 50% Percentage Interest of the Class LR Certificates will have
the option to purchase all of the Mortgage Loans and all property acquired in
respect of any Mortgage Loan remaining in the Trust Fund, and thereby effect
termination of the Trust Fund and early retirement of the then outstanding
Certificates, on any Distribution Date on which the aggregate Stated
Principal Balance of the Mortgage Loans remaining in the Trust Fund is less
than 1% of the aggregate Stated Principal Balance of such Mortgage Loans as
of the Cut-Off Date. The purchase price payable upon the exercise of such
option on such a Distribution Date will be an amount equal to the greater of
(i) the sum of (A) 100% of the outstanding principal balance of each Mortgage
Loan included in the Trust Fund as of the last day of the month preceding
such Distribution Date; (B) the fair market value
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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, but, in
the case of the North Shore Towers Loan, net of the Hancock Retained Yield)
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
LaSalle National Bank, a national banking association with its principal
offices in Chicago, Illinois, will act as Trustee pursuant to the Pooling
Agreement. The Trustee's corporate trust office is located at 135 South
LaSalle Street, Chicago, Illinois 60674-4107, Attention: Asset Backed
Securities Trust Services Group--Morgan Stanley 1997-XL1.
The Trustee may resign at any time by giving written notice to the
Depositor, the Master Servicer and the Rating Agencies, provided that no such
resignation shall be effective until a successor has been appointed. Upon
such notice, the Depositor will appoint a successor trustee reasonably
acceptable to the Master Servicer. If no successor trustee is appointed
within one month after the giving of such notice of resignation, the
resigning Trustee may petition the court for appointment of a successor
trustee.
The Depositor may remove the Trustee and the Fiscal Agent 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 and the Fiscal Agent upon written notice to the Depositor, the Master
Servicer, the Trustee and the Fiscal Agent. Any resignation or removal of the
Trustee and the Fiscal Agent and appointment of a successor trustee and, if
such trustee is not rated at least "AA" by Fitch and S&P and "Aa2" by
Moody's, fiscal agent, will not become effective until acceptance of the
appointment by the successor trustee and, if necessary, fiscal agent.
Notwithstanding the foregoing, upon any termination of the Trustee and the
Fiscal Agent under the Pooling Agreement, the Trustee and the Fiscal Agent
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. 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 and the Fiscal Agent 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 or the Fiscal Agent, as
applicable. Neither the Trustee nor the Fiscal Agent will be required to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties under the Pooling Agreement, or in the
exercise of any of its rights or powers, if in the Trustee's or the Fiscal
Agent's opinion, as applicable, the repayment of such funds or adequate
indemnity
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against such risk or liability is not reasonably assured to it. The Master
Servicer and the Special Servicer each indemnify the Trustee, the Fiscal
Agent, 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 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 Lock
Box Accounts, Cash Collateral Accounts, Reserve Accounts, Collection Account,
Upper-Tier Distribution Account, Lower-Tier Distribution Account, Deferred
Interest Distribution Account, Class Q Distribution Account or any other
account maintained by or on behalf of the Master Servicer or the Special
Servicer, nor will the Trustee be required to perform, or be responsible for
the manner of performance of, any of the obligations of the Master Servicer
or the Special Servicer under the Pooling Agreement.
In addition, pursuant to the Pooling Agreement, the Trustee, at the cost
and expense of the Depositor, based upon reports, documents, and other
information provided to the Trustee, will 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 FISCAL AGENT
ABN AMRO Bank N.V., a Netherlands banking corporation, will act as Fiscal
Agent pursuant to the Pooling Agreement. The Fiscal Agent's office is located
at 135 South LaSalle Street, Chicago, Illinois, 60674-4107.
The Fiscal Agent may not resign except (i) in the event of the resignation
or removal of the Trustee (in which event, the Fiscal Agent shall be deemed
to have been removed), (ii) upon determination that it may no longer perform
such obligations and duties under applicable law, or (iii) upon written
confirmation from the Rating Agencies that such resignation, without the
appointment of a successor Fiscal Agent, will not in and of itself result in
a downgrade, qualification or withdrawal of the then current rating of any
Class of Certificates. Any such determination is required to be evidenced by
an opinion of counsel
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to such effect delivered to the Depositor and the Trustee. Except as provided
in (iii) above, no resignation or removal of the Fiscal Agent shall become
effective until a successor fiscal agent acceptable to each Rating Agency, as
evidenced in writing (which may be the Trustee) shall have assumed the Fiscal
Agent's obligations and duties under the Pooling Agreement.
DUTIES OF THE FISCAL AGENT
The Fiscal Agent will make no representation as to the validity or
sufficiency of the Pooling Agreement, the Certificates, the Mortgage Loan,
this Prospectus Supplement (except for the information in the first sentence
under the preceding section with the heading "--The Fiscal Agent") or related
documents. The duties and obligations of the Fiscal Agent consist only of
making Advances as described below and in "--Advances" above; the Fiscal
Agent shall not be liable except for the performance of such duties and
obligations. The Fiscal Agent 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 Lock
Box Accounts, Cash Collateral Accounts, Reserve Accounts, Collection Account,
Upper-Tier Distribution Account, Lower-Tier Distribution Account, Deferred
Interest Distribution Account, Class Q Distribution Account or any other
account maintained by or on behalf of the Master Servicer or the Special
Servicer, nor will the Fiscal Agent 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 the event that the Master Servicer and the Trustee fail to make a
required Advance, the Fiscal Agent will be obligated to make such Advance,
provided that the Fiscal Agent will not be obligated to make any Advance that
it deems to be nonrecoverable. The Fiscal Agent shall be entitled to rely
conclusively on any determination by the Master Servicer, Special Servicer or
the Trustee, as applicable, that an Advance, if made, would not be
recoverable. The Fiscal Agent will be entitled to reimbursement for each
Advance made by it in the same manner and to the same extent as the Trustee
and the Master Servicer.
THE MASTER SERVICER
GMAC Commercial Mortgage Corporation ("GMACCM") will initially act as the
Master Servicer. The following information has been provided by GMACCM. 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.
GMACCM, a corporation organized under the laws of the State of California,
is a wholly-owned direct subsidiary of GMAC Mortgage Group, Inc. The
principal offices of GMACCM are located at 650 Dresher Road, Horsham,
Pennsylvania 19044. Its telephone number is (215) 328-4622. As of December
31, 1996, GMACCM was the servicer of a portfolio of multifamily and
commercial mortgage loans totaling approximately $24.8 billion in aggregate
outstanding principal amount. Neither the Master Servicer, its parent nor any
of its affiliates will guarantee the Certificates or the assets included in
the Trust Fund.
Pursuant to the terms of the Pooling Agreement, the Master Servicer will
be required to indemnify the Depositor and the Trustee for any losses, fines,
judgments, costs and expenses incurred by them as a result of the Master
Servicer's willful misfeasance, bad faith or negligent failure to comply with
its duties and obligations under the Pooling Agreement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the Pooling Agreement, the Master Servicer will be entitled to
withdraw monthly from the Collection Account its portion of the Servicing
Fee. The monthly servicing fee (the "Servicing Fee") for any Distribution
Date is an amount per Interest Accrual Period equal to the sum for each
Mortgage Loan of the product of (i) 1/12 times a per annum rate equal to (a)
with respect to the North Shore Towers Loan, 0.0205%, (b) with respect to the
Mansion Grove Loan, 0.0505%, and (c) with respect to all other Mortgage
Loans, 0.0355% (in each case, 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 (which includes, in the case of the Mansion Grove Loan, a fee (the
"Mansion Grove Subservicing Fee") payable to the subservicer equal to 0.030%
per annum) and the Trustee Fee. With respect to any
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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 (but not the fees payable to the Trustee or
the Mansion Grove Subservicing Fee) for the related Distribution Date shall
be reduced up to the amount sufficient to fully offset such Prepayment
Interest Shortfalls. The Master Servicer's portion of the Servicing Fee
relating to each Mortgage Loan will be retained by the Master Servicer from
payments and collections (including insurance proceeds, condemnation proceeds
and liquidation proceeds) in respect of such Mortgage Loan. The Master
Servicer will also be entitled to retain as additional servicing compensation
all investment income earned on amounts on deposit in the Collection Account
and the Reserve Accounts (to the extent not payable to the related borrower
under the related Mortgage Loan or applicable law).
In addition, the Master Servicer shall be entitled to receive, as
additional servicing compensation, to the extent permitted by applicable law
and the related Mortgage Loans, any late payment charges, assumption fees,
loan modification fees, extension fees, loan service transaction fees,
beneficiary statement charges or similar items (but not including any yield
maintenance charge or prepayment premiums), in each case to the extent
received and not required to be deposited or retained in the Collection
Account pursuant to the Pooling Agreement.
The Master Servicer will 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
GMACCM will initially be appointed as special servicer of the Mortgage
Loans (in such capacity, the "Special Servicer"). See "--The Master Servicer"
herein. 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 information concerning GMACCM set forth herein has been provided by
GMACCM and none of the Depositor, the Master Servicer, the Trustee, the
Fiscal Agent or the Underwriter makes any representation or warranty as to
the accuracy thereof.
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 provides that holders of Certificates
evidencing greater than 50% of the Percentage Interests of the most
subordinate Class of Certificates then outstanding (provided, however, that
for purposes of determining the most subordinate Class, in the event that the
Class A Certificates and the Class X Certificates are the only Classes
outstanding, the Class A Certificates and the Class X Certificates together
will be treated as the subordinate Class) may replace the Special Servicer,
provided that each Rating Agency confirms to the Trustee in writing that such
replacement, will not cause a qualification, withdrawal or downgrading of the
then-current ratings assigned to any Class of Certificates.
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 0.35% 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 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) 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.
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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, (ii)
any Certificateholder that is also the holder of any debt of any of the
affiliates of any of the borrowers under the Mortgage Loans may not vote with
respect to selecting, or directing the actions of the Special Servicer with
respect to such Mortgage Loan, and (iii) the Special Servicer may not be the
holder of any debts of the affiliates of the borrowers under the Mortgage
Loans.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee is obligated to mail 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. Certain information made available on the
monthly reports to Certificateholders can be retrieved via facsimile through
LaSalle National Bank's ASAP System by calling (312) 904-2200, and requesting
statement No. 284. 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 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). Certain
information regarding the Mortgage Loans will be made available by the
Trustee in electronic format through a dial-up bulletin board service
available by calling (714) 282-3990. 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 to furnish to each person who at any
time during such calendar year was the holder of a Certificate a statement
containing certain information with respect to the Certificates required
pursuant to the Pooling Agreement, aggregated for such calendar year or
portion thereof during which such person was a Certificateholder. See
"Description of the Certificates--Reports to Certificateholders" in the
Prospectus.
Additionally, the Master Servicer shall make available (to the extent not
inconsistent with the related borrower's rights under the Mortgage Loan or
applicable law) to the Rating Agencies and to the Trustee, which shall make
available to the Certificateholders upon written request (provided that each
such Certificateholder will be required to pay any expenses incurred by the
Trustee in connection with the provision of such information), information
relating to the Mortgaged Properties or the borrowers which has been provided
to the Master Servicer pursuant to the Mortgage Loans, including financial
and operating statements and other information specified on the list
described in the previous sentence and provided to the Master Servicer
pursuant to the Mortgage Loans.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans in New York (approximately 26.40% of the Mortgage Loans by
Cut-Off Date Allocated Loan Amount), California (approximately 12.50% of the
Mortgage Loans by Cut-Off Date Allocated Loan Amount), Texas (approximately
9.00% of the Mortgage Loans by Cut-Off Date Allocated Loan Amount), Indiana
(approximately 8.60% of the Mortgage Loans by Cut-Off Date Allocated Loan
Amount), South Carolina (approximately 8.30% of the Mortgage Loans by Cut-Off
Date Allocated Loan Amount), Illinois (approximately 7.60% of the Mortgage
Loans by Cut-Off Date Allocated Loan Amount), Arizona (approximately 6.50% of
the Mortgage Loans by Cut-Off Date Allocated Amount), and Ohio (approximately
5.70% of the Mortgage Loans by Cut-Off Date Allocated Loan Amount) which are
general in nature. The summaries do not purport to be complete and are
qualified in their entirety by reference to the applicable federal and state
laws governing the Mortgage Loans.
New York, California Texas, Indiana, South Carolina, Illinois, Arizona and
Ohio and various other states have imposed statutory prohibitions or
limitations that limit the remedies of a mortgagee under a mortgage or a
beneficiary under a deed of trust. All of the Mortgage Loans are nonrecourse
loans as to which, in the event of default by a borrower, recourse may be had
only against the specific property pledged to secure the Mortgage Loan and
not against the borrower's other assets. Even if recourse is available
pursuant to the terms of the Mortgage Loan, certain states have adopted
statutes which impose prohibitions against or limitations on such recourse.
The limitations described below and similar or other restrictions in other
jurisdictions where Mortgaged Properties are located may restrict the ability
of the Master Servicer or the Special Servicer, as applicable, to realize on
the Mortgage Loans and may adversely affect the amount and timing of receipts
on the Mortgage Loans.
Under New York law, while a foreclosure may proceed either judicially or
non-judicially, nonjudicial foreclosures are virtually unused today. Under
New York law, upon default of a mortgage, a mortgagee is generally presented
with the choice of either proceeding in equity to foreclose upon the
mortgaged property or to proceed at law and sue on the note. New York law
does not require that the mortgagee must bring a foreclosure action before
being entitled to sue on the note. However, once having begun a foreclosure
action or an action to sue on the note or guaranty, a mortgagee is generally
not permitted to initiate the other without leave of court. New York does not
restrict a mortgagee from seeking a deficiency judgment. In order to obtain a
deficiency judgment, a series of procedural and substantive requirements must
be satisfied. In New York, liens for unpaid real estate taxes take priority
over the lien of a previously recorded mortgage.
California statutes limit the right of the beneficiary to obtain a
deficiency judgment against the trustor (i.e., obligor) following a
non-judicial foreclosure sale under a deed of trust. A deficiency judgment is
a personal judgment against the obligor in most cases equal to the difference
between the amount due to the beneficiary and the fair market value of the
collateral. No deficiency judgment is permitted under California law
following a nonjudicial sale under the power of sale provision in a deed of
trust. Other California statutes require the beneficiary to exhaust the
security afforded under the deed of trust by foreclosure in an attempt to
satisfy the full debt before bringing a personal action (if otherwise
permitted) against the obligor for recovery of the debt except in certain
cases involving environmentally impaired real property. California case law
has held that acts such as an offset of an unpledged account or the
application of rents from secured property prior to foreclosure, under some
circumstances, constitute violations of such statutes. Violations of such
statutes may result in the loss of some or all of the security under the
loan. Finally, other statutory provisions in California limit any deficiency
judgment (if otherwise permitted) against the former trustor following a
judicial sale to the excess of the outstanding debt over the greater of (i)
the fair market value of the property at the time of the public sale or (ii)
the amount of the winning bid in the foreclosure, and give the borrower a
one-year period within which to redeem the property. California statutes also
provide priority to certain tax liens over the lien of previously recorded
deeds of trust.
Under Texas law, a deed of trust is foreclosed by non-judicial process;
judicial process is generally not used. Generally, there is no election of
remedies observed in Texas. Accordingly, a mortgagee does not preclude its
ability to sue on a recourse note by instituting foreclosure proceedings.
Unless a longer period or other curative rights are provided by the loan
documents, 21 days notice prior to foreclosure is required. Deficiency
judgments are obtainable under Texas law. To determine the amount of any
deficiency judgment, a borrower is given credit for the greater of the actual
sale price (excluding trustee's and other allowable costs) or the fair market
value of the property. Under a relation-back theory, the entire amount of any
mechanic's or materialmen's lien takes priority over the lien of a deed of
trust if the lien claimant began work or delivered its first materials prior
to recordation of the deed of trust.
Mortgages on Indiana real estate may be foreclosed only by judicial
proceedings; a private power of sale is not permitted under Indiana law.
Mortgagees may sue on both the note and the mortgage simultaneously. Indiana
law allows a mortgagee
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to obtain a deficiency judgment. Following entry of judgment in a foreclosure
action, Indiana real estate may not be sold to satisfy that judgment for
three (3) months. The owner of the foreclosed-upon real estate may waive the
benefit of that statutorily-imposed delay, but in consideration of such
waiver the judgment holder is required to relinquish its rights to a
deficiency judgment. All foreclosure sales are conducted by the sheriff of
the county in which the real estate is located. Property may be redeemed by
the borrower prior to the sheriff's sale by payment in full of the judgment
amount, including interest and costs. Following the sheriff's sale of the
property, the borrower has no further right of redemption. In Indiana, liens
for unpaid real estate taxes take priority over all mortgages.
Under South Carolina law, mortgages are foreclosed only judicially at a
public auction sale. The note can be sued on in lieu of foreclosure. The
court may also render judgment against the parties liable for the debt and at
the same time direct the sale of the mortgaged property. Deficiency judgments
are permitted. When a foreclosure sale is made, any balance of the mortgage
debt over the purchase price of the property shall not be extinguished by
reason of the mortgagee or his assignee becoming the purchaser at the sale,
whether the mortgage contains such a provision to that effect or not. No
foreclosure sale under a mortgage conferring a power upon the mortgagee to
sell shall be valid to pass title unless the underlying debt is first
established in a court of competent jurisdiction or unless the amount of the
debt is consented to in writing by the debtor subsequent to the maturity of
the debt. There is no right to redeem after the foreclosure sale is final.
Mortgage loans in Illinois are generally secured by mortgages on the
related real estate. Foreclosure of a mortgage is accomplished only by
judicial proceedings; there is no private power of sale under Illinois law.
Common law remedy of strict foreclosure is still available in Illinois.
Foreclosure is regulated by statute and is subject to the court's equitable
powers. Generally, a mortgagee may obtain, where applicable, and seek to
recover, a deficiency judgment. A mortgagor has a statutory right of
redemption which, as to mortgagors of non-residential real estate, may be
waived. A mortgagor also has a statutory right of reinstatement which may be
granted only once in any given five year period. The right of reinstatement
allows a mortgagor, whose loan has been accelerated due to a default, to cure
said default (by paying principal amount due, including costs, expenses,
attorneys' fees and other fees, but excluding the portion of principal which
would not have been due in absence of acceleration) within ninety days from
the date the court obtains jurisdiction over mortgagor. The reinstatement
right cannot be waived by the mortgagor. Illinois statutes also provide
priority to certain tax liens over the lien of previously recorded mortgages.
Under Arizona law, a deed of trust may be foreclosed by court action
(i.e., judicially) or by means of the power of sale conferred upon the
trustee (i.e., non-judicially). A judicial foreclosure is subject to the
general risks outlined above. In a judicial foreclosure, the beneficiary may
accelerate the loan subject to the trustee's right to pay the loan in full
prior to entry of the foreclosure judgment. Once a foreclosure judgment is
entered, the trust property is sold by the county sheriff at a public
auction. Following sale, the grantor and holders of subordinate liens or
encumbrances have a period of six months within which to redeem the trust
property. In a non-judicial foreclosure under Arizona law, the trust property
is sold at public auction by the trustee (or its successor). The trustee's
sale can be held after the 90th day following recordation in the county
records of a notice of trustee's sale. The trustor and any person holding a
subordinate lien or encumbrance on the trust property have a nonwaivable
right to reinstate the loan. A reinstatement may be effected by payment to
the beneficiary or trustee on or before 5:00 p.m. on the last Business Day
prior to a scheduled trustee's sale of the entire amount then due on the loan
other than such portion of the principal as would not then be due had no
default occurred and by curing all other defaults.
Under Ohio law, foreclosure of a mortgage can occur only through judicial
process. There is no private power of sale or strict foreclosure available in
Ohio. Foreclosure is regulated by statute and is subject to the court's
equitable powers. Mortgagees may sue both on the note and mortgage
simultaneously and generally may recover a deficiency judgment unless the
mortgage loan is nonrecourse. Mortgagors have a nonwaivable statutory right
of redemption and the statutes further provide that the real estate generally
cannot be sold in foreclosure for less than two-thirds of its appraised
value. Mortgagors have no right of reinstatement. Ohio statutes also provide
for priority of liens for unpaid real estate taxes over the lien of a
previously recorded mortgage.
In some states, foreclosure may result in automatic termination of
subordinate leases in the absence of either (i) an agreement to the contrary
between the foreclosing lender and the tenant or (ii) circumstances in which
it would be inequitable to permit such termination. In addition, in all
states, real property taxes have priority over the lien of previously
recorded mortgages or deeds of trust and in some states and under certain
circumstances, mechanics' liens and materialmen's liens may also take
priority over the lien of previously recorded mortgages or deeds of trust.
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Foreclosure under either a mortgage or a deed of trust or the sale by the
referee or other designated official or by the trustee is often a public
sale. However, because of the difficulty a potential buyer at the sale might
have in determining the exact status of title to the property subject to the
lien of the mortgage or deed of trust and the redemption rights that may
exist, and because the physical condition and financial performance of the
property may have deteriorated during the foreclosure proceedings and/or for
a variety of other reasons, a third party may be unwilling to purchase the
property at the foreclosure sale. Some states require that the lender
disclose to potential bidders at a trustee's sale all known facts materially
affecting the value of the property. Such disclosure may have an adverse
effect on the trustee's or mortgagee's ability to sell the property or upon
the sale price.
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 Reserve Accounts, the Lock Box Accounts, the Cash Collateral Accounts,
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 Reserve Accounts, the Cash Collateral
Accounts and the Lock Box Accounts will be treated as beneficially owned by
the respective borrowers for federal income tax purposes. The Lower-Tier
REMIC will hold the Mortgage Loans (exclusive of the Deferred Interest and
the Default Interest), proceeds therefrom, the Collection Account, the
Lower-Tier Distribution Account and any REO Property, and will issue (i)
certain uncertificated classes of regular interests (the "Lower-Tier Regular
Interests") to the Upper-Tier REMIC and (ii) the Class LR Certificates, which
will represent the sole class of residual interests in the Lower-Tier REMIC.
The Upper-Tier REMIC will hold the Lower-Tier Regular Interests, and the
Upper-Tier Distribution Account in which distributions thereon will be
deposited and will issue (i) classes of regular interests represented by the
Regular Certificates and (ii) the Class R Certificates, which will represent
the sole class of residual interests in the Upper-Tier REMIC. In addition,
the Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates will represent pro rata undivided beneficial interests in
designated portions of the Deferred Interest and the related portions of the
Deferred Interest Distribution Account, which portion of the Trust Fund will
be treated as part of a grantor trust for federal income tax purposes.
Although holders of these Classes of Certificates will be required to
allocate their purchase price between their interests in the regular
interests in the Upper-Tier REMIC and their beneficial interests in Deferred
Interest based on the relative fair market values of each, it is anticipated
that the rights to Deferred Interest will have negligible value as of the
Closing Date. The Class Q Certificates will represent 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)(5)(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)(5)(A) and 856(c)(3)(B) in
their entirety if at least 95% of the REMICs' assets qualify for such
treatment, and otherwise will qualify to the extent of the REMICs' percentage
of such assets. A Mortgage Loan that has been defeased with U.S. Treasury
securities will not qualify for such treatment. A beneficial owner's interest
in an Offered Certificate will constitute "loans . . . secured by an interest
in real property which is . . . residential real property" within the meaning
of Code Section 7701(a)(19)(C)(v) in the case of a domestic building and loan
association only to the extent of the portion of the Offered Certificate
allocable to the Mansion Grove Loan and to the North Shore Towers Loan (in
each case, to the extent not allocable to commercial use with respect
thereto). 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
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<PAGE>
on the regular interests represented by the Offered Certificates in
accordance with the accrual method of accounting and any income from Deferred
Interest as such amounts are received or accrued by the Trust Fund, based on
their own methods of accounting. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--General" in the Prospectus.
[It is anticipated that the Class Certificates will be issued with
original issue discount for federal income tax purposes in an amount equal to
the excess of the initial Certificate Principal Amounts thereof over their
respective issue prices (including accrued interest). It is also anticipated
that the regular interests represented by the Class Certificates will be
issued at a premium and that the regular interests represented by the Class
Certificates will be issued with de minimis original issue discount for
federal income tax purposes.]
Although unclear for federal income tax purposes, it is anticipated that
the Class X Certificates will be treated as issued with original issue
discount in an amount equal to the excess of all distributions of interest
expected to be received thereon over their respective issue prices (including
accrued interest). Any "negative" amounts of original issue discount on the
Class X Certificates attributable to rapid prepayment with respect to the
Mortgage Loans will not be deductible currently, but may be offset against
future positive accruals of original issue discount, if any. Finally, a
holder of a Class X Certificate may be entitled to a loss deduction to the
extent it becomes certain that such holder will not recover a portion of its
basis in such Certificate, assuming no further prepayments. In the
alternative, it is possible that rules similar to the "noncontingent bond
method" of the contingent interest rules in the OID Regulations, as amended
on June 12, 1996, may be promulgated with respect to the Class X
Certificates. Under the noncontingent bond method, if the interest payable
for any period is greater or less than the amount projected, the amount of
income included for that period would be either increased or decreased
accordingly. Any net reduction in the income accrual for the taxable year
below zero (a "Negative Adjustment") would be treated by a Certificateholder
as ordinary loss to the extent of prior income accruals and would be carried
forward to offset future interest accruals. At maturity, any remaining
Negative Adjustment would be treated as a loss on retirement of the
Certificate. The legislative history of relevant Code provisions indicates,
however, that negative amounts of original issue discount on an instrument
such as a REMIC regular interest may not give rise to taxable losses in any
accrual period prior to the instrument's disposition or retirement. Thus, it
is not clear whether any losses resulting from a Negative Adjustment would be
recognized currently or be carried forward until disposition or retirement of
the debt obligation. However, unless and until otherwise required under
applicable regulations, the Depositor does not intend to treat the payments
of interest on the Class X Certificates as contingent interest.
The prepayment assumption that will be used to accrue original issue
discount, to amortize premium of an initial owner, or to determine whether
original issue discount is de minimis 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.
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, Class E and Class F Certificates (the "Subordinated Offered
Certificates") is restricted. See "Description of the Offered
Certificates--Transfer Restrictions." Accordingly, except as specifically
referenced herein, the following discussion does not purport to discuss the
considerations under ERISA or Section 4975 of the Code with respect to the
purchase, holding or disposition of the Subordinated Offered Certificates.
For purposes of the following discussion all references to the Offered
Certificates, unless otherwise indicated, shall be deemed to exclude the
Subordinated Offered Certificates.
As described in the Prospectus under "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
S-273
<PAGE>
Code. There are certain exemptions issued by the United States Department of
Labor (the "Department") that may be applicable to an investment by a Plan in
the Offered Certificates. The Department has granted to the Underwriter an
administrative exemption (Prohibited Transaction Exemption 90-24, 55 Fed.
Reg. 20548 (May 17, 1990)), referred to herein as the "Exemption," for
certain mortgage-backed and asset-backed certificates underwritten in whole
or in part by the Underwriter. The Exemption might be applicable to the
initial purchase, the holding, and the subsequent resale by a Plan of certain
certificates, such as the Offered Certificates, underwritten by the
Underwriter, representing interests in pass-through trusts that consist of
certain receivables, loans and other obligations, provided that the
conditions and requirements of the Exemption are satisfied. The loans
described in the Exemption include mortgage loans such as the Mortgage Loans.
However, it should be noted that in issuing the Exemption, the Department may
not have considered interests in pools of the exact nature as some of the
Offered Certificates.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of Offered Certificates by a Plan is on terms
(including the price for the Offered Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with
an unrelated party;
(2) The rights and interests evidenced by Offered Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced by
other Certificates of the Trust Fund;
(3) The Offered Certificates acquired by the Plan have received a rating
at the time of such acquisition that is in one of the three highest
generic rating categories from any of Moody's, S&P, Fitch or Duff & Phelps
Credit Rating Co. ("DCR");
(4) The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of Offered Certificates represents not
more than reasonable compensation for underwriting the Offered
Certificates. The sum of all payments made to and retained by the
Depositor pursuant to the assignment of the Mortgage Loans to the Trust
Fund represents not more than the fair market value of such Mortgage
Loans. The sum of all payments made to and retained by the Master Servicer
and any other servicer represents not more than reasonable compensation
for such person's services under the Pooling Agreement and reimbursement
of such person's reasonable expenses in connection therewith; and
(6) The Plan investing in the Offered Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
The Trust Fund must also meet the following requirements:
(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.
S-274
<PAGE>
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"). 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.
The Underwriter believes that the conditions to the applicability of the
Exemption will generally be met with respect to the Offered Certificates,
other than possibly those conditions which are dependent on facts unknown to
the Underwriter or which it cannot control, such as those relating to the
circumstances of the Plan purchaser or the Plan fiduciary making the decision
to purchase any such Class of Offered Certificates. However, before
purchasing an Offered Certificate, a fiduciary of a Plan should make its own
determination as to the availability of the exemptive relief provided by the
Exemption or the availability of any other prohibited transaction exemptions,
and whether the conditions of any such exemption will be applicable to the
Offered Certificates. THE CLASS B, CLASS C, CLASS D, CLASS E AND CLASS F
CERTIFICATES ARE SUBORDINATE TO ONE OR MORE OTHER CLASSES OF CERTIFICATES
AND, ACCORDINGLY, SUCH CERTIFICATES MAY NOT BE PURCHASED BY OR TRANSFERRED TO
A PLAN OR ANY PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN,
UNLESS SUCH PERSON IS AN INSURANCE COMPANY INVESTING THE ASSETS OF ITS
GENERAL ACCOUNT UNDER CIRCUMSTANCES WHEREBY THE PURCHASE AND HOLDING OF ANY
SUCH CERTIFICATE WOULD BE EXEMPT FROM THE PROHIBITED TRANSACTION PROVISIONS
OF ERISA AND THE CODE UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60.
Any fiduciary of a Plan considering whether to purchase an Offered
Certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment. See "ERISA Considerations" in the
Prospectus. A fiduciary of a governmental plan should make its own
determination as to the need for and the availability of any exemptive relief
under Similar Law.
The sale of Offered Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by Plans
generally or any particular Plan, or that this investment is appropriate for
Plans generally or any particular Plan.
LEGAL INVESTMENT
The Class A-1, Class A-2, Class A-3, Class X, Class B and Class C
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 $ , plus
accrued interest, if any, from October 1, 1997, 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.
S-275
<PAGE>
MSMC, an affiliate of the Underwriter and the Depositor, currently holds
the Grand Kempinski Mezzanine Loan, and if MSMC were to foreclose on the
collateral for this loan following an event of default, MSMC would become the
owner of the Grand Kempinski Borrower. Certain affiliates of the Underwriter,
including MSMC, engage in, and intend to continue to engage in, the
acquisition, development, operation, financing and disposition of real
estate-related assets in the ordinary course of their business, and are not
prohibited in any way from engaging in business activities similar to or
competitive with those of the borrowers. See "Risk Factors--The Mortgage
Loans--Other Financing", "--Conflicts of Interest", "Description of the
Mortgaged Properties and the Mortgage Loans--Grand Kempinski Hotel: The
Borrower; The Property--Mezzanine Debt" herein.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities,
including liabilities under the Securities Act of 1933.
In connection with the offering, the Underwriter may purchase and sell the
Offered Certificates in the open market. These transactions may include
purchases to cover short positions created by the Underwriter in connection
with the offering. Short positions created by the Underwriter involve the
sale by the Underwriter of a greater number of Certificates than they are
required to purchase from the Depositor in the offering. The Underwriter also
may impose a penalty bid, whereby selling concessions allowed to broker-deals
in respect of the securities sold in the offering may be reclaimed by the
Underwriter if such Certificates are repurchased by the Underwriter in
covering transactions. These activities may maintain or otherwise affect the
market price of the Certificates, which may be higher than the price that
might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be
affected in the over-the-counter market or otherwise.
This Prospectus Supplement and the Prospectus may only be issued or passed
on in the United Kingdom to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom this Prospectus Supplement and
the Prospectus may otherwise lawfully be issued or passed on.
The Trust Fund described in this Prospectus Supplement may only be
promoted (whether by the issuing or passing on of documents as referred to in
the foregoing restriction or otherwise) by an authorized person under Chapter
III of the Financial Services Act of 1986 of the United Kingdom ("FSA") to a
person in the United Kingdom if that person is of a kind described in section
76(2) of the FSA or as permitted by the Financial Services (Promotion of
Unregulated Schemes) Regulation 1991 (as amended).
EXPERTS
Cushman & Wakefield, Inc., Hospitality Valuation Services International,
O. Marshall Dodds Company, Inc., Regional Appraisal Associates, Landauer
Associates, Inc. and CB Commercial Real Estate Group, Inc. are each an
independent real estate brokerage, appraisal, management and consulting firm,
and have either appraised or rendered an opinion on the current fair market
value of the Mortgaged Properties or prepared a market study of the Mortgaged
Properties. The results of such appraisals, marketability study and market
studies and references to such firms are set forth in the information
included in this Prospectus Supplement under the heading "Description of the
Mortgaged Properties and the Mortgage Loans--Description of the Borrowers and
the Properties" and in the complete report available for inspection at the
corporate trust office of the Trustee, and such summary report, together with
information based on the complete report included in this Prospectus
Supplement, have been included in this Prospectus Supplement in reliance upon
the authority of Cushman & Wakefield, Inc., Hospitality Valuation Services
International, O. Marshall Dodds Company, Inc., Regional Appraisal Associate,
Landauer Associates, Inc. and CB Commercial Real Estate Group, Inc. as
experts on real estate appraisals.
VALIDITY OF OFFERED CERTIFICATES
The validity of the Offered Certificates will be passed upon for the
Depositor and for the Underwriter by Cadwalader, Wickersham & Taft, New York,
New York. The material federal income tax consequences of the Offered
Certificates will be passed upon for the Depositor by Cadwalader, Wickersham
& Taft.
RATINGS
It is a condition to the issuance of the Offered Certificates that (i)
each of the Class A-1, Class A-2 and Class A-3 Certificates be rated "AAA" by
Fitch, "Aaa" by Moody's and "AAA" by S&P; (ii) the Class B Certificates be
rated "AAA"
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<PAGE>
by Fitch, "Aaa" by Moody's and "AA+" by S&P; (iii) the Class C Certificates
be rated "AA+" by Fitch, "Aa1" by Moody's and "AA" by S&P; (iv) the Class D
Certificates be rated "A+" by Fitch, "A2" by Moody's and "A" by S&P; (v) the
Class E Certificates be rated "BBB" by Fitch, "Baa2" by Moody's and "BBB" by
S&P; (vi) the Class F Certificates be rated "BBB-" by Fitch; and (vii) the
Class X Certificates be rated "AAA" by Fitch and "Aaa" by Moody's. 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 Premiums,
Net Default Interest or Deferred Interest or the tax treatment of the
Certificates. The ratings do not address the fact that the Pass-Through Rates
of the Offered Certificates, to the extent that they are based on the WAC
Rate, will be affected by changes therein due to variations in the rates of
amortization of the Mortgage Loans. See "Risk Factors" herein and "Yield
Considerations" in the Prospectus.
The Rating Agencies' ratings take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
Certificates, and the extent to which the payment stream in the mortgage pool
is adequate to make payments required under the Certificates. Ratings on
mortgage pass-through certificates do not, however, represent an assessment
of the likelihood, timing or frequency of principal prepayments (both
voluntary and involuntary) by mortgagors, or the degree to which such
prepayments might differ from those originally anticipated. In general, the
ratings thus address credit risk and not prepayment risk. Also, a security
rating does not represent any assessment of the yield to maturity that
investors may experience or the possibility that the holders of the Class X
Certificates might not fully recover their initial investment in the event of
delinquencies or defaults or rapid prepayments of the Mortgage Loans
(including both voluntary and involuntary prepayments) or the application of
Realized Losses. As described herein, the amounts payable with respect to the
Class X Certificates consist only of interest. If all of the Mortgage Loans
were to prepay in the initial month, with the result that the Class X
Certificateholders receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amount "due" to such holders
will nevertheless have been paid, and such result is consistent with the
rating received on the Class X Certificates. Accordingly, the ratings of the
Class X Certificates should be evaluated independently from similar ratings
on other types of securities.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating and, if so,
what such rating would be. A rating assigned to the Offered Certificates by a
rating agency that has not been requested by the Depositor to do so may be
lower than the rating assigned by the Rating Agencies pursuant to the
Depositor's request.
The rating of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency.
S-277
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
605 Third Avenue Loan ...................................... S-13
AA Rating .................................................. S-130
ACMs ....................................................... S-44
ADA ........................................................ S-54
Additional Fisher Persons .................................. S-83
ADR ........................................................ S-15, S-106
Advance Rate ............................................... S-254
Advances ................................................... S-253
Allocated Loan Amount ...................................... S-66
Annual Debt Service ........................................ S-66
Annualized Base Rent ....................................... S-66
Anticipated Term ........................................... S-67
Applicable Third Avenue Defeasance Deposit ................. S-80
Appraisal Reduction Amount ................................. S-231
Appraisal Reduction Event .................................. S-231
Arrowhead Borrower ......................................... S-20, S-176
Arrowhead Discount Rate .................................... S-183
Arrowhead Discounted Value ................................. S-182
Arrowhead Interest Rate .................................... S-20, S-182
Arrowhead Management Agreement ............................. S-181
Arrowhead Manager .......................................... S-181
Arrowhead Maturity Date .................................... S-20, S-182
Arrowhead Mortgage ......................................... S-176
Arrowhead Non-REIT Transferee .............................. S-183
Arrowhead Note Payments .................................... S-182
Arrowhead Opening Date ..................................... S-181
Arrowhead Permitted Partnership Transfer ................... S-183
Arrowhead Permitted Transfer ............................... S-183
Arrowhead Permitted Transferee ............................. S-183
Arrowhead Property ......................................... S-20, S-176
Arrowhead Qualified Affiliate Transferee ................... S-183
Arrowhead REA .............................................. S-179
Arrowhead REIT Transferee .................................. S-183
Arrowhead Released Parcel .................................. S-183
Arrowhead Towne Center Loan ................................ S-20
Arrowhead Yield Maintenance ................................ S-182
Arrowhead Yield Maintenance Premium ........................ S-182
Ashford Alteration ......................................... S-121
Ashford Approved Bank ...................................... S-116
Ashford Borrower ........................................... S-105
Ashford Borrowers .......................................... S-15, S-105
Ashford Contested Payables Reserve Amount .................. S-115
Ashford Default Rate ....................................... S-114
Ashford Deferred Interest .................................. S-16, S-113
Ashford Deferred Maintenance Reserve Account ............... S-115
Ashford Discount Rate ...................................... S-115
Ashford DSCR Determination Date ............................ S-120
Ashford Effective Maturity Date ............................ S-15, S-113
Ashford FF&E Reserve Account ............................... S-115
S-278
<PAGE>
Ashford FF&E Reserve Amount ................................ S-115
Ashford Financial Pool Ground Leases ....................... S-50
Ashford Financial Pool Loan ................................ S-15
Ashford Initial Interest Rate .............................. S-15, S-113
Ashford Interest Escrow Account ............................ S-115
Ashford Lockbox Accounts ................................... S-115
Ashford Lockbox Bank ....................................... S-115
Ashford Management Agreement ............................... S-111
Ashford Management Agreements .............................. S-111
Ashford Management Replacement DSCR ........................ S-120
Ashford Manager ............................................ S-111
Ashford Managers ........................................... S-111
Ashford Manager's Subordination ............................ S-111
Ashford Material Alteration ................................ S-121
Ashford Maturity Date ...................................... S-15, S-113
Ashford Minimum DSCR ....................................... S-120
Ashford Monthly Debt Service Payments ...................... S-113
Ashford Mortgage Escrow Account ............................ S-115
Ashford Mortgage Escrow Security ........................... S-116
Ashford Mortgages .......................................... S-105
Ashford Multistate Note .................................... S-50, S-105
Ashford Notes .............................................. S-105
Ashford Parking Garage Ground Lease ........................ S-108
Ashford Permitted Transferees .............................. S-117
Ashford Pool Defeasance Collateral ......................... S-114
Ashford Pool Properties .................................... S-15, S-105
Ashford Pool Total Loss .................................... S-119
Ashford Property Accounts .................................. S-115
Ashford Radisson Plaza Ground Lease ........................ S-108
Ashford Revised Interest Rate .............................. S-15, S-113
Ashford Saddle Brook Ground Lease .......................... S-110
Ashford Sale Date .......................................... S-116
Ashford Tax, Insurance and Ground Rent Amount .............. S-115
Ashford Threshold Amount ................................... S-119
Ashford Westbury Borrower .................................. S-105
Ashford Westbury Ground Lease .............................. S-110
Ashford Westbury Note ...................................... S-50, S-105
Ashford Westbury Sublease .................................. S-110
Ashford Yield Maintenance Premium .......................... S-114
Associated ................................................. S-201
Associated-Higbee ROA ...................................... S-201
Available Funds ............................................ S-223
Average Base Rent Per Square Foot .......................... S-66
Balloon Balance ............................................ S-67
Balloon Payment ............................................ S-224
Bankruptcy Code ............................................ S-42
Bennett Related Person ..................................... S-117
Business Day ............................................... S-12
Carson ..................................................... S-159
CEDEL ...................................................... S-1, S-12
CEDEL Participants ......................................... S-233
S-279
<PAGE>
CERCLA ..................................................... S-44
Certificate Owners ......................................... S-233
Certificate Principal Amount ............................... S-3
Certificate Registrar ...................................... S-232
Certificateholder .......................................... S-232
Certificates ............................................... S-1, S-11
Chase Realty ............................................... S-61
City ....................................................... S-55, S-181
Class ...................................................... S-1, S-222
Class A Certificates ....................................... S-25, S-222
Class A-1 Component ........................................ S-222
Class A-2 Component ........................................ S-222
Class A-3 Component ........................................ S-222
Class B Component .......................................... S-223
Class C Component .......................................... S-223
Class D Component .......................................... S-223
Class E Component .......................................... S-223
Class F Component .......................................... S-223
Class G Component .......................................... S-223
Class H Component .......................................... S-223
Class Prepayment Percentage ................................ S-229
Class Q Distribution Account ............................... S-254
Code ....................................................... S-32
Collection Account ......................................... S-254
Collection Period .......................................... S-224
Commission ................................................. S-266
Component Notional Amount .................................. S-223
Controlling Entity ......................................... S-128
Cross-over Date ............................................ S-28, S-228
Cut-Off Date Allocated Loan Amount ......................... S-66
Cut-Off Date LTV ........................................... S-66
DCR ........................................................ S-274
Debt Service Coverage Ratio ................................ S-66
Default Interest ........................................... S-224
Default Rate ............................................... S-224
Deferred Interest .......................................... S-59, S-62, S-225
Deferred Interest Distribution Account ..................... S-254
Definitive Certificate ..................................... S-231
Department ................................................. S-274
Depositor .................................................. S-1, S-11
Depositories ............................................... S-232
DHCR ....................................................... S-40
DHJ Trust .................................................. S-205
Directing Class ............................................ S-263
Discount Rate .............................................. S-229
Distribution Date .......................................... S-3, S-223
DNS Trust .................................................. S-122
DSCR ....................................................... S-66
DTC ........................................................ S-1, S-12
DTSC ....................................................... S-45
Edens & Avant Partial Release Parcel ....................... S-98
S-280
<PAGE>
Edens & Avant Pool Alteration .............................. S-104
Edens & Avant Pool Borrower ................................ S-14, S-89
Edens & Avant Pool Capital Expenditure Reserve Account .... S-100
Edens & Avant Pool Capital Expenditure Reserve Amount ..... S-100
Edens & Avant Pool Default Rate ............................ S-97
Edens & Avant Pool Defeasance Collateral ................... S-98
Edens & Avant Pool Deferred Maintenance Reserve Account ... S-100
Edens & Avant Pool Discount Rate ........................... S-98
Edens & Avant Pool DSCR .................................... S-98
Edens & Avant Pool DSCR Determination Date ................. S-103
Edens & Avant Pool Environmental Reserve Account .......... S-100
Edens & Avant Pool GP ...................................... S-89
Edens & Avant Pool Ground Leases ........................... S-50, S-95
Edens & Avant Pool Interest Escrow Account ................. S-99
Edens & Avant Pool Interest Escrow Amount .................. S-99
Edens & Avant Pool Interest Rate ........................... S-15, S-97
Edens & Avant Pool Loan .................................... S-14
Edens & Avant Pool Lockbox Bank ............................ S-99
Edens & Avant Pool Lockbox Event ........................... S-99
Edens & Avant Pool Management Agreement .................... S-95
Edens & Avant Pool Management Replacement DSCR ............. S-103
Edens & Avant Pool Manager ................................. S-95
Edens & Avant Pool Manager's Subordination ................. S-96
Edens & Avant Pool Material Alteration ..................... S-104
Edens & Avant Pool Maturity Date ........................... S-15, S-97
Edens & Avant Pool Monthly Debt Service Payments .......... S-97
Edens & Avant Pool Mortgage Escrow Account ................. S-99
Edens & Avant Pool Mortgages ............................... S-89
Edens & Avant Pool Operating Account ....................... S-99
Edens & Avant Pool Operating Partnership ................... S-89
Edens & Avant Pool Properties .............................. S-14, S-89
Edens & Avant Pool Replaced Property ....................... S-99
Edens & Avant Pool Substitute Property ..................... S-98
Edens & Avant Pool Tax and Insurance Amount ................ S-100
Edens & Avant Pool Total Loss .............................. S-102
Edens & Avant Pool Transferee .............................. S-100
Edens & Avant Pool Treasury Rate ........................... S-98
Edens & Avant Pool Yield Maintenance Premium ............... S-98
Effective Maturity Date .................................... S-62, S-66
Effective Maturity Date Balance, ........................... S-66
Effective Maturity Date LTV ................................ S-66
Eligible Bank .............................................. S-255
EMD ........................................................ S-62
EMD LTV .................................................... S-66
EMD Mortgage Loans ......................................... S-62
Environmental Site Assessments ............................. S-44
EPA ........................................................ S-45
ERISA ...................................................... S-32
Euroclear .................................................. S-1, S-12
Euroclear Participants ..................................... S-233
Event of Default ........................................... S-258
S-281
<PAGE>
Event of Default ........................................... S-258
Excess Cash Flow ........................................... S-59, S-62
Excess Prepayment Interest Shortfall ....................... S-230
Excess Rate ................................................ S-225
Exemption .................................................. S-32, S-274
Extended Monthly Payment ................................... S-261
Fashion Mall Additional Collateral ......................... S-153
Fashion Mall Alteration .................................... S-154
Fashion Mall Approved Bank ................................. S-153
Fashion Mall Borrower ...................................... S-17, S-142
Fashion Mall Capital Reserve Account ....................... S-149
Fashion Mall Capital Reserve Amount ........................ S-149
Fashion Mall Contested Payables Reserve Amount ............. S-150
Fashion Mall Debt Service Collateral ....................... S-153
Fashion Mall Default Rate .................................. S-149
Fashion Mall Deferred Interest ............................. S-18, S-148
Fashion Mall Discount Rate ................................. S-149
Fashion Mall DSCR .......................................... S-153
Fashion Mall Effective Maturity Date ....................... S-18, S-148
Fashion Mall Ground Rent Amount ............................ S-150
Fashion Mall Ground Rent Escrow Account .................... S-149
Fashion Mall Initial Interest Rate ......................... S-18, S-148
Fashion Mall Interest Escrow Account ....................... S-149
Fashion Mall Lockbox ....................................... S-149
Fashion Mall Lockbox Bank .................................. S-149
Fashion Mall Management Agreement .......................... S-147
Fashion Mall Manager ....................................... S-147
Fashion Mall Material Alteration ........................... S-154
Fashion Mall Maturity Date ................................. S-18, S-148
Fashion Mall Monthly Debt Service Payments ................. S-148
Fashion Mall Mortgage Escrow Account ....................... S-149
Fashion Mall Mortgage ...................................... S-142
Fashion Mall Property ...................................... S-17, S-142
Fashion Mall Property Account .............................. S-149
Fashion Mall Qualified Purchaser ........................... S-150
Fashion Mall Revised Interest Rate ......................... S-18, S-148
Fashion Mall Sale Date ..................................... S-150
Fashion Mall Tax and Insurance Amount ...................... S-149
Fashion Mall Threshold Amount .............................. S-152
Fashion Mall Total Loss .................................... S-152
Fashion Mall Treasury Rate ................................. S-148
Fashion Mall Yield Maintenance Premium ..................... S-149
First P&I Date ............................................. S-67
Fiscal Agent ............................................... S-1, S-11
Fisher 40th & 3rd .......................................... S-75
Fisher Manager ............................................. S-78
Fisher Mezzanine SPC ....................................... S-75
Fisher Owner ............................................... S-75
Fisher Principal ........................................... S-78
Fisher Principals .......................................... S-83
Fisher Related Persons ..................................... S-83
S-282
<PAGE>
Fisher SPC ................................................. S-75
Fitch ...................................................... S-33
Fixed Voting Rights Percentage ............................. S-260
Form 8-K ................................................... S-74
FSA ........................................................ S-276
GAAP ....................................................... S-64
Getty Related Person ....................................... S-117
GLA ........................................................ S-13, S-66
GMACCM ..................................................... S-267
Grand Kempinski Alteration ................................. S-173
Grand Kempinski Borrower ................................... S-19, S-166
Grand Kempinski Borrower Termination Ratio ................. S-168
Grand Kempinski Budgeted Expenses .......................... S-170
Grand Kempinski Cash Expense Account ....................... S-170
Grand Kempinski Debt Service Escrow Account ................ S-170
Grand Kempinski Default Rate ............................... S-170
Grand Kempinski Deferred Interest .......................... S-19
Grand Kempinski Discount Rate .............................. S-170
Grand Kempinski Effective Maturity Date .................... S-19, S-169
Grand Kempinski Extraordinary Expenses ..................... S-170
Grand Kempinski FF&E Amount ................................ S-170
Grand Kempinski FF&E Reserve Account ....................... S-170
Grand Kempinski GP ......................................... S-166
Grand Kempinski Initial Interest Rate ...................... S-19, S-169
Grand Kempinski Intercreditor Agreement .................... S-173
Grand Kempinski Loan ....................................... S-19
Grand Kempinski Lockbox .................................... S-170
Grand Kempinski Lockbox Bank ............................... S-170
Grand Kempinski LP ......................................... S-166
Grand Kempinski Management Agreement ....................... S-168
Grand Kempinski Manager .................................... S-168
Grand Kempinski Material Alteration ........................ S-173
Grand Kempinski Maturity Date .............................. S-19, S-169
Grand Kempinski Mezzanine Borrower ......................... S-173
Grand Kempinski Mezzanine Lender ........................... S-173
Grand Kempinski Mezzanine Loan ............................. S-173
Grand Kempinski Mezzanine Loan Account ..................... S-171
Grand Kempinski Monthly Debt Service Payments .............. S-169
Grand Kempinski Mortgage ................................... S-166
Grand Kempinski Mortgage Escrow Account .................... S-170
Grand Kempinski Pledged Interests .......................... S-173
Grand Kempinski Property ................................... S-19, S-166
Grand Kempinski Property Account ........................... S-170
Grand Kempinski Property Transferee ........................ S-174
Grand Kempinski Repair Reserve Account ..................... S-170
Grand Kempinski Revised Interest Rate ...................... S-19, S-169
Grand Kempinski Tax and Insurance Amount ................... S-170
Grand Kempinski Yield Maintenance Premium .................. S-170
Hancock Agreement .......................................... S-58
Hancock Retained Interest .................................. S-17
Hawaiian Affiliate ......................................... S-83
S-283
<PAGE>
Hawaiian Mezzanine SPC ..................................... S-75
Hawaiian Owner ............................................. S-75
Hawaiian Realty ............................................ S-75
Hawaiian SPC ............................................... S-75
Higbee ..................................................... S-201
Highland ................................................... S-159
holder ..................................................... S-232
Holders .................................................... S-234
Indirect Participants ...................................... S-232
Initial Interest Rate ...................................... S-59, S-62
Interest Accrual Amount .................................... S-28, S-225
Interest Accrual Period .................................... S-225
Interest Distribution Amount ............................... S-28, S-225
Interest Shortfall ......................................... S-29, S-225
Ivanhoe .................................................... S-208
Jacobs Group REIT .......................................... S-205
John Hancock ............................................... S-11, S-61, S-134
JRILP ...................................................... S-205
Kempinski .................................................. S-168
LaSalle .................................................... S-159
LC ......................................................... S-65
Liquidation Fee ............................................ S-268
Loan Sale Agreement ........................................ S-61
Loan to Value Ratio ........................................ S-66
Lockbox Accounts ........................................... S-254
Long ....................................................... S-162
Lower-Tier Distribution Account ............................ S-254
Lower-Tier Regular Interests ............................... S-272
Lower-Tier REMIC ........................................... S-3, S-31, S-272
LTM ........................................................ S-67
LTV ........................................................ S-62, S-66
LUSTs ...................................................... S-45
Major Institutional Lender ................................. S-84
Mansion Grove Affiliated Properties ........................ S-129
Mansion Grove Alteration ................................... S-132
Mansion Grove Approved Bank ................................ S-128
Mansion Grove Borrower ..................................... S-16, S-122
Mansion Grove Capital Reserve Account ...................... S-127
Mansion Grove Capital Reserve Amount ....................... S-127
Mansion Grove Contested Payables Reserve Amount ........... S-127
Mansion Grove Default Rate ................................. S-126
Mansion Grove Deferred Interest ............................ S-125
Mansion Grove Discount Rate ................................ S-126
Mansion Grove DSCR Determination Date ...................... S-131
Mansion Grove DSCR ......................................... S-132
Mansion Grove Effective Maturity Date ...................... S-16, S-125
Mansion Grove GP ........................................... S-122
Mansion Grove Initial Interest Rate ........................ S-16, S-125
Mansion Grove Interest Escrow Account ...................... S-126
Mansion Grove Loan ......................................... S-16
Mansion Grove Lockbox ...................................... S-126
S-284
<PAGE>
Mansion Grove Lockbox Bank ................................. S-126
Mansion Grove Management Agreement ......................... S-124
Mansion Grove Management Replacement DSCR .................. S-131
Mansion Grove Manager ...................................... S-124
Mansion Grove Manager's Subordination ...................... S-124
Mansion Grove Material Alteration .......................... S-132
Mansion Grove Maturity Date ................................ S-16, S-125
Mansion Grove Monthly Debt Service Payments ................ S-125
Mansion Grove Mortgage ..................................... S-122
Mansion Grove Mortgage Escrow Account ...................... S-127
Mansion Grove Mortgage Escrow Security ..................... S-127
Mansion Grove Property ..................................... S-16, S-122
Mansion Grove Property Account ............................. S-126
Mansion Grove Qualified Purchaser .......................... S-128
Mansion Grove Revised Interest Rate ........................ S-16, S-125
Mansion Grove Sale Date .................................... S-128
Mansion Grove Siding Litigation Recovery ................... S-131
Mansion Grove Subservicing Fee ............................. S-267
Mansion Grove Tax and Insurance Amount ..................... S-127
Mansion Grove Threshold Amount ............................. S-130
Mansion Grove Total Loss ................................... S-130
Mansion Grove Treasury Rate ................................ S-125
Mansion Grove Yield Maintenance Premium .................... S-126
Mark Centers Pool Additional Collateral Account ........... S-192
Mark Centers Pool Alteration ............................... S-195
Mark Centers Pool Borrower ................................. S-185
Mark Centers Pool Borrower Entity .......................... S-185
Mark Centers Pool Borrower GPs ............................. S-185
Mark Centers Pool Borrowers ................................ S-20
Mark Centers Pool Capital Expenditure Reserve Account ..... S-192
Mark Centers Pool Capital Expenditure Reserve Amount ...... S-192
Mark Centers Pool Default Rate ............................. S-191
Mark Centers Pool Deferred Interest ........................ S-21
Mark Centers Pool Deferred Maintenance Reserve Account .... S-192
Mark Centers Pool DSCR ..................................... S-191
Mark Centers Pool Effective Maturity Date .................. S-21, S-190
Mark Centers Pool Environmental Reserve Account ........... S-192
Mark Centers Pool Ground Leases ............................ S-50
Mark Centers Pool Initial Interest Rate .................... S-21, S-190
Mark Centers Pool Intercompany Ground Lease ................ S-189
Mark Centers Pool Interest Escrow Account .................. S-192
Mark Centers Pool Loan ..................................... S-20
Mark Centers Pool Management Agreement ..................... S-189
Mark Centers Pool Material Alteration ...................... S-195
Mark Centers Pool Maturity Date ............................ S-21, S-190
Mark Centers Pool Minimum Release Price .................... S-191
Mark Centers Pool Monthly Debt Service Payments ........... S-190
Mark Centers Pool Mortgage ................................. S-185
Mark Centers Pool Mortgage Escrow Account .................. S-192
Mark Centers Pool Prepayment Amount ........................ S-191
Mark Centers Pool Properties ............................... S-20, S-185
S-285
<PAGE>
Mark Centers Pool REIT ..................................... S-185
Mark Centers Pool Reserve Amounts .......................... S-192
Mark Centers Pool Revised Interest Rate .................... S-21, S-190
Mark Centers Pool Security Deposit Account ................. S-192
Mark Centers Pool Tax and Insurance Amount ................. S-192
Mark Centers Pool Threshold Amount ......................... S-194
Mark Centers Pool Total Loss ............................... S-194
Mark Centers Pool Yield Maintenance Premium ................ S-191
Master Servicer ............................................ S-1, S-11
Master Servicer Remittance Date ............................ S-252
MCLP ....................................................... S-185
Mezzanine Loans ............................................ S-47
Michigan ................................................... S-101
Monthly Payment ............................................ S-224
Moody's .................................................... S-33
Mortgage ................................................... S-12, S-61
Mortgage Loan Assumptions .................................. S-237
Mortgage Loans ............................................. S-1
Mortgage Pool .............................................. S-1, S-12
Mortgage Rate .............................................. S-27, S-226
Mortgaged Properties ....................................... S-1, S-12
Mortgaged Property ......................................... S-61
MSMC ....................................................... S-1, S-11
Multistate Borrowers ....................................... S-105
Negative Adjustment ........................................ S-273
Net Default Interest ....................................... S-224
Net Mortgage Rate .......................................... S-26, S-226
Net Operating Income ....................................... S-64
Net REO Proceeds ........................................... S-224
Neuberger Space ............................................ S-82
NOI ........................................................ S-64
North Shore Towers Alterations ............................. S-140
North Shore Towers Borrower ................................ S-17, S-134
North Shore Towers Credit Events ........................... S-264
North Shore Towers Default Rate ............................ S-137
North Shore Towers Interest Rate ........................... S-17, S-137
North Shore Towers Loan .................................... S-17
North Shore Towers Management Agreement .................... S-136
North Shore Towers Management Contract Transaction ........ S-140
North Shore Towers Manager ................................. S-135
North Shore Towers Maturity Date ........................... S-17, S-137
North Shore Towers Monthly Debt Service Payments .......... S-137
North Shore Towers Mortgage ................................ S-134
North Shore Towers Net Interest Rate ....................... S-17
North Shore Towers Property ................................ S-17, S-134
North Shore Towers Space Leases ............................ S-139
North Shore Towers Tax Reserve Fund ........................ S-138
North Shore Towers Total Loss .............................. S-140
North Shore Towers Treasury Rate ........................... S-138
North Shore Towers Yield Maintenance Premium ............... S-137
Note ....................................................... S-12, S-61
S-286
<PAGE>
Notional Amount ............................................ S-3, S-222
OCC ........................................................ S-66
Occupancy .................................................. S-66
Occupancy Costs ............................................ S-67
Offered Certificates ....................................... S-1
Original Principal Balance ................................. S-67
Originators ................................................ S-61
Owning Trusts .............................................. S-122
Parking Garage Defeasance .................................. S-80
Participants ............................................... S-231
Pass-Through Rate .......................................... S-3, S-25, S-225
PCBs ....................................................... S-44
Pehrson .................................................... S-162
Penney ..................................................... S-159
Percentage Interest ........................................ S-223
Permitted Investments ...................................... S-255
P&I Advance ................................................ S-30, S-252
Plan ....................................................... S-32, S-234
Pooling Agreement .......................................... S-11, S-250
Prepayment Interest Shortfall .............................. S-230
Prepayment Lockout Period .................................. S-58
Prepayment Premiums ........................................ S-224
Prime Rate ................................................. S-254
Principal Balance Certificates ............................. S-25, S-222
Principal Distribution Amount .............................. S-29, S-226
Principal Prepayments ...................................... S-224
Principal Window ........................................... S-9
Private Certificates ....................................... S-1, S-222
pro rata ................................................... S-228
Property Advances .......................................... S-253
Property Condition Reports ................................. S-73
psf ........................................................ S-67
Rated Final Distribution Date .............................. S-241
Rating Agencies ............................................ S-33
REA ........................................................ S-145
Realized Loss .............................................. S-229
Regular Certificates ....................................... S-32, S-226
Rehabilitation Fee ......................................... S-268
REJ Trust .................................................. S-205
REMIC ...................................................... S-3, S-31
REO Account ................................................ S-222
REO Mortgage Loan .......................................... S-227
REO Property ............................................... S-222
Repurchase Price ........................................... S-251
Reserve Accounts ........................................... S-62
Residual Certificates ...................................... S-32
Restricted Group ........................................... S-33, S-275
Revised Interest Rate ...................................... S-59, S-62
RevPAR ..................................................... S-15, S-106
Rules ...................................................... S-233
Sales per SF ............................................... S-67
S-287
<PAGE>
Scenario 1 ................................................. S-237
Secore ..................................................... S-23
Senior Offered Certificates ................................ S-33
Servicing Compensation ..................................... S-223
Servicing Fee .............................................. S-267
Servicing Fee Rate ......................................... S-267
Servicing Standard ......................................... S-251
SF/Units ................................................... S-66
Similar Law ................................................ S-234
SMMEA ...................................................... S-34
Soros Related Person ....................................... S-117
S&P ........................................................ S-33
Special Servicer ........................................... S-11, S-268
Special Servicer's Appraisal Reduction Estimate ........... S-231
Special Servicing Fee ...................................... S-268
Specially Serviced Mortgage Loan ........................... S-252
sponsor .................................................... S-40
Stated Principal Balance ................................... S-226
Stock Owners ............................................... S-86
Subordinated Offered Certificate ........................... S-234
Subordinated Offered Certificates .......................... S-234, S-273
Successor Manager .......................................... S-256
SVE ........................................................ S-45
tenant-stockholder ......................................... S-40
Terms and Conditions ....................................... S-233
Third Avenue Alteration .................................... S-85
Third Avenue Borrower ...................................... S-13, S-75
Third Avenue Building ...................................... S-13
Third Avenue Default Rate .................................. S-80
Third Avenue Defeasance Date ............................... S-80
Third Avenue Deferred Interest ............................. S-14, S-79
Third Avenue Discount Rate ................................. S-81
Third Avenue DSCR .......................................... S-78
Third Avenue Effective Maturity Date ....................... S-14, S-79
Third Avenue Initial Interest Rate ......................... S-13, S-79
Third Avenue Initial Monthly Debt Service Payments ........ S-79
Third Avenue Intercreditor Agreement ....................... S-86
Third Avenue Lockbox ....................................... S-81
Third Avenue Management Agreement .......................... S-77
Third Avenue Manager ....................................... S-77
Third Avenue Material Alteration ........................... S-85
Third Avenue Maturity Date ................................. S-14, S-79
Third Avenue Mezzanine Borrowers ........................... S-86
Third Avenue Mezzanine Lender .............................. S-86
Third Avenue Mezzanine Loan ................................ S-46, S-86
Third Avenue Monetary Default .............................. S-87
Third Avenue Monthly Debt Service Payments ................. S-79
Third Avenue Mortgage ...................................... S-75
Third Avenue Neutral Arbitrator ............................ S-86
Third Avenue Pledged Interests ............................. S-86
Third Avenue Principal Amortization Letters of Credit ..... S-14, S-79
S-288
<PAGE>
Third Avenue Property ...................................... S-13, S-75
Third Avenue Revised Interest Rate ......................... S-14, S-79
Third Avenue Revised Monthly Debt Service Payments ........ S-79
Third Avenue Threshold Amount .............................. S-85
Third Avenue Total Defeasance .............................. S-80
Third Avenue Total Loss .................................... S-85
Third Avenue Yield Maintenance Premium ..................... S-81
TI ......................................................... S-65
TIAA ....................................................... S-23, S-61
Total Revenue .............................................. S-64
Total Value ................................................ S-65
Treasury Rate .............................................. S-229
Trowbridge ................................................. S-11
Trust Fund ................................................. S-1
Trust REMICs ............................................... S-3
Trustee .................................................... S-1, S-11, S-61
Trustee Fee ................................................ S-265
Trustee Fee Rate ........................................... S-265
Underwritable Cash Flow .................................... S-64
Underwriter ................................................ S-1, S-11
Unscheduled Payments ....................................... S-224
Updated Appraisal .......................................... S-260
Upper-Tier Distribution Account ............................ S-254
Upper-Tier REMIC ........................................... S-3, S-31, S-272
Value ...................................................... S-65
Von Maur REA ............................................... S-159
Voting Rights .............................................. S-260
WAC Rate ................................................... S-26, S-226
Ward ....................................................... S-159
Weighted Average Life ...................................... S-9
Westcor II ................................................. S-176
Westgate Mall Borrower ..................................... S-21, S-197
Westgate Mall Default Rate ................................. S-204
Westgate Mall Escrow Holder ................................ S-205
Westgate Mall Interest Rate ................................ S-21, S-204
Westgate Mall Loan ......................................... S-21
Westgate Mall Management Agreement ......................... S-203
Westgate Mall Manager ...................................... S-203
Westgate Mall Maturity Date ................................ S-21, S-204
Westgate Mall Mortgage ..................................... S-197
Westgate Mall Property ..................................... S-21, S-197
Westgate Mall Tax Agreement ................................ S-205
Westgate Mall Tax Impound .................................. S-205
Westgate Mall Yield Maintenance Amount ..................... S-204
Westgate Mall Yield Maintenance Premium .................... S-204
Westshore Mall Alteration .................................. S-220
Westshore Mall Borrower .................................... S-22, S-208
Westshore Mall Capital Reserve Account ..................... S-217
Westshore Mall Capital Reserve Amount ...................... S-217
Westshore Mall Contested Payables Reserve Amount .......... S-217
Westshore Mall Debt Service Collateral ..................... S-214
S-289
<PAGE>
Westshore Mall Debt Service Escrow Account ................. S-217
Westshore Mall Default Rate ................................ S-216
Westshore Mall Defeasance .................................. S-216
Westshore Mall Defeasance Date ............................. S-216
Westshore Mall Defeasance Deposit .......................... S-216
Westshore Mall Deferred Interest ........................... S-215
Westshore Mall Deferred Maintenance Reserve Account ....... S-217
Westshore Mall Discount Rate ............................... S-216
Westshore Mall Effective Maturity Date ..................... S-22, S-215
Westshore Mall Initial Interest Rate ....................... S-22, S-215
Westshore Mall Loan ........................................ S-22
Westshore Mall Lockbox ..................................... S-217
Westshore Mall Lockbox Bank ................................ S-217
Westshore Mall Management Agreement ........................ S-214
Westshore Mall Manager ..................................... S-214
Westshore Mall Material Alteration ......................... S-220
Westshore Mall Maturity Date ............................... S-22, S-215
Westshore Mall Monthly Debt Service Payments ............... S-215
Westshore Mall Mortgage .................................... S-208
Westshore Mall Mortgage Escrow Account ..................... S-217
Westshore Mall Property .................................... S-22, S-208
Westshore Mall Qualified Purchaser ......................... S-218
Westshore Mall REA ......................................... S-214
Westshore Mall Revised Interest Rate ....................... S-215
Westshore Mall Sale Date ................................... S-218
Westshore Mall Security Deposit Account .................... S-217
Westshore Mall Tax and Insurance Amount .................... S-217
Westshore Mall Threshold Amount ............................ S-219
Westshore Mall Yield Maintenance Premium ................... S-216
Wilder ..................................................... S-162
Wiley Space ................................................ S-82
Wilmot ..................................................... S-218
WMLP ....................................................... S-212
WRLP ....................................................... S-176
Yorktown Applicable Percentage ............................. S-163
Yorktown Assumed Reinvestment Rate ......................... S-163
Yorktown Discount Rate ..................................... S-163
Yorktown Escrow Holder ..................................... S-164
Yorktown Managers .......................................... S-162
Yorktown Mortgage .......................................... S-155
Yorktown Property .......................................... S-18, S-155
Yorktown Shopping Center Borrower .......................... S-18
Yorktown Shopping Center Default Rate ...................... S-163
Yorktown Shopping Center Interest Rate ..................... S-19, S-163
Yorktown Shopping Center Loan .............................. S-18
Yorktown Shopping Center Maturity Date ..................... S-19, S-163
Yorktown Tax Impound ....................................... S-164
Yorktown-Pehrson Management Agreement ...................... S-162
Zoning Ordinance ........................................... S-51, S-167
</TABLE>
S-290
<PAGE>
EXHIBIT A
FINANCIAL INFORMATION
<PAGE>
EXHIBIT A-1
SUMMARIZED FINANCIAL INFORMATION FOR
605 THIRD AVENUE PROPERTY
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Gross Income.................................. $42,170,859 $42,468,646 $42,054,849 $21,043,701
Less: Interest & Other Inv. Income............ 260,147 340,865 398,097 72,264
Gross Income from Operations.................. 41,910,712 42,127,781 41,656,752 20,971,437
----------------- ----------------- ----------------- ----------------
Total Expenses................................ 37,462,244 38,230,956 38,737,518 19,362,285
----------------- ----------------- ----------------- ----------------
Less Non-Operating Expenses:
Depreciation(A).............................. 766,342 774,146 766,521 379,186
Financial Expenses(B)........................ 17,530,468 17,479,110 17,455,092 8,726,506
Subtotal Non-Operating Expenses.............. 18,306,810 18,253,256 18,221,613 9,105,692
----------------- ----------------- ----------------- ----------------
Operating Expenses............................ 19,155,434 19,977,700 20,515,905 10,256,593
----------------- ----------------- ----------------- ----------------
Income from Operations, Exclusive of Interest
Income, Depreciation and Financial Expenses . $22,755,278 $22,150,081 $21,140,847 $10,714,844
================= ================= ================= ================
</TABLE>
- ------------
(A) Includes depreciation on building, improvements and garage equipment.
(B) Includes interest on mortgage, amortization of mortgage expenses, and
interest on affiliate loan.
A-1
<PAGE>
EXHIBIT A-2
SUMMARIZED FINANCIAL INFORMATION FOR
EDENS & AVANT GROUP
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Total Revenues........................................................ $31,849,194 $39,479,815
Total Expenses........................................................ 37,655,014 49,841,761
Less Non-Operating Expenses:
Depreciation and amortization....................................... 5,008,435 5,799,471
Interest Expense.................................................... 16,880,548 26,549,394
Subtotal Non-Operating Expenses..................................... 21,888,983 32,348,865
----------------- -----------------
Operating Expenses.................................................... 15,766,031 17,492,896
----------------- -----------------
Income from Operations, Exclusive of Interest Income, Depreciation
and Financial Expenses............................................... $16,083,163 21,986,919
================= =================
</TABLE>
- ------------
A-2
<PAGE>
EXHIBIT B
REPRESENTATIONS AND WARRANTIES
For purposes of the representations and warranties, the date of
origination of each of the North Shore Towers Loan, the Yorktown Shopping
Center Loan, the Arrowhead Towne Center Loan and the Westgate Mall Loan is
the date on which MSMC took an assignment of the existing note and mortgage
from the prior lender. With respect to each Mortgage Loan, as of the Closing
Date (except as may be specified in the related representation and warranty
or on Schedule 1 to this Exhibit B):
(i) The information set forth in the mortgage loan schedule attached to
the Loan Sale Agreement as to the Mortgage Loan is complete, true and correct
in all material respects;
(ii) MSMC is the sole owner and holder of the Mortgage Loan and has good
and marketable title thereto, has full right, power and authority to sell and
assign such Mortgage Loan free and clear of any interest or claim of a third
party;
(iii) The Mortgage Loan has not been since the date of origination by the
applicable Originator, and currently is not, thirty or more days delinquent,
and the mortgagor is not in default thereunder beyond any applicable grace
period for the payment of any obligation to pay principal and interest,
taxes, insurance premiums and required reserves;
(iv) MSMC has not advanced funds, or knowingly received any advance of
funds from a party other than the mortgagor subject to the related Mortgage,
directly or indirectly, for the payment of any amount required by the
Mortgage Loan;
(v) (A) The Mortgage Loan documents have been duly and properly executed,
and (B) the Mortgage Loan documents are legal, valid and binding obligations
of the mortgagor, and their terms are enforceable against the mortgagor,
subject only to bankruptcy, insolvency, moratorium, fraudulent transfer,
fraudulent conveyance and similar laws affecting rights of creditors
generally and to the application of general principles of equity;
(vi) The lien of each Mortgage is insured by an ALTA lender's title
insurance policy or its equivalent as adopted in the applicable jurisdiction
issued by one or more nationally recognized title insurance companies,
insuring the Originator, its successors and assigns, as to the first priority
lien of the Mortgage in the original principal amount of the Mortgage Loan
after all advances of principal, subject only to (a) the lien of current real
property taxes, ground rents, water charges, sewer rents and assessments not
yet due and payable, (b) covenants, conditions and restrictions, rights of
way, easements and other matters of public record, none of which,
individually or in the aggregate, in the reasonable judgment of MSMC,
materially interferes with the current use of the related Mortgaged Property
or the security intended to be provided by such Mortgage or with the
mortgagor's ability to pay its obligations when they become due or the value
of the related Mortgaged Property and (c) the exceptions (general and
specific) set forth in such policy, none of which, individually or in the
aggregate, in the reasonable judgment of MSMC, materially interferes with the
current use of the related Mortgaged Property or security intended to be
provided by such Mortgage, with the mortgagor's ability to pay its
obligations when they become due or the value of the related Mortgaged
Property (or if a title insurance policy has not yet been issued in respect
of the Mortgage Loan, a policy meeting the foregoing description is evidenced
by a commitment for title insurance "marked-up" at the closing of the
Mortgage Loan). To the actual knowledge of MSMC, no material claims have been
made under such title policy and no claims have been made thereunder;
(vii) As of the date of origination of the Mortgage Loan there were no,
and to the best knowledge of MSMC there are no, mechanics', materialman's or
other similar liens or claims which have been filed for work, labor or
materials affecting the Mortgaged Property which are or may be liens prior
to, or equal or coordinate with, the lien of the Mortgage, unless such lien
is insured against under the related title insurance policy;
(viii) (A) each building or other improvement located on any Mortgaged
Property 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 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;
B-1
<PAGE>
(ix) As of the most recent date of inspection of each Mortgaged Property
by MSMC, based solely on MSMC's review of the Property Condition Reports
issued with respect to the Mortgage Loan and the most recent visual
inspection (as described in (xviii) below) of the Mortgaged Property, no
building or other improvement on any Mortgaged Property has been affected in
any material manner or suffered any material loss as a result of any fire,
wind, explosion, accident, riot, war, or act of God or the public enemy, and
each Mortgaged Property is free of any material damage that would affect
materially and adversely the value of the Mortgaged Property as security for
the Mortgage Loan and is in good repair. MSMC has neither received notice,
nor is otherwise aware, of any proceedings pending for the total condemnation
of any Mortgaged Property or a partial condemnation of any portion material
to the borrower's ability to perform its obligations under its related
Mortgage Loan;
(x) To MSMC's best knowledge, after review of compliance confirmations
from applicable municipalities, surveys and/or title insurance endorsements,
none of the improvements included for the purpose of determining the
appraised value of each Mortgaged Property at the time of the origination of
the Mortgage Loan lies outside of the boundaries and building restriction
lines of the Mortgaged Property, and no improvements on adjoining properties
materially encroach upon the Mortgaged Property except those which are
insured against by the title insurance policy (including endorsements
thereto) issued in connection with the Mortgage Loan and all improvements on
the Mortgaged Property comply with the applicable zoning laws and/or set-back
ordinances in force when improvements were added;
(xi) The Mortgage Loan does not violate applicable usury laws;
(xii) Since the date of origination of the Mortgage Loan, the terms of the
Mortgage Loan have not been impaired, waived, altered, satisfied, canceled,
subordinated or modified in any respect (except with respect to modifications
the economic terms of which are reflected in the mortgage loan schedule and
which are evidenced by documents in the Mortgage Loan file delivered to the
Trustee) and no portion of the Mortgaged Property has been released from the
lien of the Mortgage in any manner;
(xiii) All applicable mortgage recording taxes and other filing fees have
been paid in full or deposited with the issuer of the title insurance policy
issued in connection with the Mortgage Loan for payment upon recordation of
the relevant documents;
(xiv) Each assignment of leases and rents, if any, creates a valid
assignment of, or a valid security interest in, certain rights under the
related leases, subject only to a license granted to the relevant mortgagor
to exercise certain rights and to perform certain obligations of the lessor
under such leases, including the right to operate the related Mortgaged
Property, subject only to those exceptions described in clause (vi) above. To
the best of MSMC's knowledge and without affirmative investigation, no person
other than the relevant mortgagor owns any interest in any payments due under
such leases that is superior to or of equal priority with the mortgagee's
interest therein, subject only to those exceptions described in clause (vi)
above;
(xv) Each Mortgage, upon due recordation, is a valid and enforceable first
lien on the related Mortgaged Property, subject only to those exceptions
described in clause (vi) above;
(xvi) MSMC has not taken any action, nor has knowledge that the mortgagor
has taken any action, that would cause the representations and warranties
made by the mortgagor in the Mortgage Loan documents not to be true;
(xvii) The proceeds of the Mortgage Loan have been fully disbursed and
there is no requirement for future advances thereunder and MSMC covenants
that it will not make any future advances under the Mortgage Loan to the
mortgagor. Except for the escrows and disbursements therefrom as contemplated
by the mortgage loan documents, any mortgagor requirements for on or off-site
improvements or as to disbursement of any escrow funds therefor have been
complied with;
(xviii) MSMC has inspected or caused to be inspected each Mortgaged
Property within the past twelve months preceding the date hereof;
(xix) The Mortgage Loan does not have a shared appreciation feature, other
contingent interest feature or negative amortization, except with those
Mortgage Loans that provide for Deferred Interest;
(xx) The Mortgage Loan is a whole loan and contains no equity
participation (other than the Hancock Retained Interest) by the lender;
(xxi) No fraudulent acts were committed by MSMC in connection with the
origination process of the Mortgage Loan;
(xxii) All taxes and governmental assessments that prior to the date of
origination of the Mortgage Loan became due and owing in respect of each
Mortgaged Property have been paid, or an escrow of funds in an amount
sufficient to cover such payments has been established or are insured against
by the title insurance policy issued in connection with the origination of
the Mortgage Loan;
B-2
<PAGE>
(xxiii) To the extent required under applicable law, MSMC was authorized
to transact and do business in each jurisdiction in which a Mortgaged
Property is located at all times when it held the Mortgage Loan;
(xxiv) To the best knowledge of MSMC, there is no material default,
breach, violation or event of acceleration existing under any of the Mortgage
Loan documents and MSMC has not received actual notice of any event (other
than payments due but not yet delinquent) which, with the passage of time or
with notice and the expiration of any grace or cure period, would and does
constitute a default, breach, violation or event of acceleration; no waiver
of the foregoing exists and no person other than the holder of the Note may
declare any of the foregoing;
(xxv) Each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against each related Mortgaged Property of the material benefits
of the security, including realization by judicial or, if applicable,
non-judicial foreclosure, and there is no exemption available to the
mortgagor which would materially interfere with such right to foreclosure;
(xxvi) (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. MSMC has reviewed each such report and update. (B) MSMC, having
made no independent inquiry other than reviewing the environmental reports
and updates referenced herein and without other investigation or inquiry, has
no knowledge of any material and adverse environmental condition or
circumstance affecting any Mortgaged Property that was not disclosed in the
related report and/or update. MSMC has not received any actual notice of a
material violation of CERCLA or any applicable federal, state or local
environmental law with respect to any Mortgaged Property that was not
disclosed in the related report and/or update. (C) MSMC has not taken any
actions which would cause any Mortgaged Property not to be in compliance with
all federal, state and local laws pertaining to environmental hazards;
(xxvii) The Mortgage Loan agreement contains provisions for the
acceleration of the payment of the unpaid principal balance of the Mortgage
Loan if (A) the mortgagor voluntarily transfers or encumbers all or any
portion of any related Mortgaged Property, or (B) any direct or indirect
interest in mortgagor is voluntarily transferred or assigned, other than, in
each case, as permitted under the terms and conditions of the Mortgage Loan
documents;
(xxviii) To the best of MSMC's knowledge and without affirmative
investigation or inquiry, there is no pending action, suit or proceeding,
arbitration or governmental investigation against the mortgagor or any
Mortgaged Property an adverse outcome of which could materially affect the
mortgagor's performance of its obligations under the Mortgage Loan documents;
(xxix) The servicing and collection practices used by MSMC, and to the
best of MSMC's knowledge, the origination practices of the related
Originator, have been in all respects legal, proper and prudent and have met
customary industry standards except to the extent that, in connection with
its origination, such standards were modified by the applicable Originator in
its reasonable discretion;
(xxx) In connection with the assignment, transfer or conveyance of any
individual Mortgage, the Note and Mortgage contain no provision limiting the
right or ability of the applicable Originator to assign, transfer and convey
the Mortgage to any other person or entity;
(xxxi) If any Mortgaged Property is subject to any leases (other than any
ground lease referred to in (xxxv) below), to the best of MSMC's knowledge,
the mortgagor is the owner and holder of the landlord's interest under any
leases, and the related Mortgage and assignment of leases and rents, if any,
provides for the appointment of a receiver for rents or allows the mortgagee
to enter into possession to collect rent or provide for rents to be paid
directly to mortgagee in the event of a default, subject to the exceptions
described in clause (vi) hereof;
(xxxii) If a Mortgage is a deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly designated and currently
so serves and is named in the deed of trust, and no fees or expenses are or
will become payable to the trustee under the deed of trust, except in
connection with the sale or release of the Mortgaged Property following
default or payment of the loan;
(xxxiii) Any insurance proceeds in respect of a casualty loss or taking
will be applied either to the repair or restoration of all or part of the
related Mortgaged Property, with the mortgagee or a trustee appointed by it
having the right to hold and disburse such proceeds (provided that such
proceeds exceed the threshold amount described in the loan documents) as the
repair or restoration progresses, or to the payment of the outstanding
principal balance of the Mortgage Loan together with any accrued interest
thereon, except to the extent of any excess proceeds after restoration;
B-3
<PAGE>
(xxxiv) Based on MSMC's review of 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, lessee, 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.
C. The borrower's interest in the ground lease is assignable to the
holder of the Mortgage upon notice to, but without the consent of, the
lessor thereunder and, in the event that it is so assigned, it is further
assignable by the trustee and its successors and assigns upon notice to,
but without a need to obtain the consent of, such lessor.
D. To the best of MSMC's knowledge, as of the origination date of the
Mortgage Loan, the ground lease was in full force and effect and no
material default had occurred under the ground lease and there was no
existing condition which, but for the passage of time or the giving of
notice, would result in a default under the terms of the ground lease. No
notice of default under the ground lease has been received by MSMC.
E. The ground lease requires the lessor thereunder to give notice of any
default by the lessee to the mortgagee; and the ground lease, or an
estoppel letter received by the mortgagee from the lessor, further
provides that notice of termination given under the ground lease is not
effective against the mortgagee unless a copy of the notice has been
delivered to the mortgagee in the manner described in such ground lease or
estoppel letter.
F. The mortgagee is permitted a reasonable opportunity (including, where
necessary, sufficient time to gain possession of the interest of the
lessee under the ground lease) to cure any default under the ground lease
which is curable after the receipt of notice of any default, before the
lessor thereunder may terminate the ground lease.
G. The ground lease either (i) has a term which extends not less than 10
years beyond the maturity date of the related Mortgage Loan or (ii) grants
the lessee the option to extend the term of the lease for a period (in the
aggregate) which exceeds 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 interests of the mortgagee.
I. Under the terms of the ground lease and the related Mortgage, taken
together, any related insurance proceeds will be applied either to the
repair or restoration of all or part of the related Mortgaged Property,
with the mortgagee or a trustee appointed by it having the right to hold
and disburse the proceeds as the repair or restoration progresses, or to
the payment of the outstanding principal balance of the Mortgage Loan
together with any accrued interest thereon.
J. Such ground lease does not impose any material restrictions on
subletting.
K. Either the ground lease or the related Mortgage contains the
borrower's covenant that such ground lease shall not be amended, canceled,
or terminated without the prior written consent of the mortgagee.
L. Either the ground lease or an estoppel letter contains a covenant
that the lessor thereunder is not permitted, in the absence of an uncured
default under the ground lease, to disturb the possession, interest or
quiet enjoyment of any lessee in the relevant portion of the Mortgaged
Property subject to such ground lease for any reason, or in any manner,
which would materially adversely affect the security provided by the
related Mortgage;
(xxxvi) (A) the Mortgage Loan is directly secured by a Mortgage on a
commercial real property, 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
B-4
<PAGE>
Loan, or as determined by MSMC based on market studies and pursuant to its
underwriting standards, was at least equal to 80% of the principal amount of
the Mortgage Loan (I) at origination (or if the Mortgage Loan has been
modified in a manner that constituted a deemed exchange under Section 1001 of
the Code at a time when the Mortgage Loan was not in default or default with
respect thereto was not reasonably foreseeable, the date of the last such
modification) or (II) at the Closing Date; provided that the fair market
value of the real property interest must first be reduced by (1) the amount
of any lien on the real property interest that is senior to the Mortgage Loan
(unless such senior lien also secures a Mortgage Loan, in which event the
computation described in (I) and (II) shall be made on an aggregated basis)
and (2) a proportionate amount of any lien that is in parity with the
Mortgage Loan (unless such other lien secures a Mortgage Loan that is
cross-collateralized with such Mortgage Loan, in which event the computation
described in (I) and (II) shall be made on an aggregate basis); and
(xxxvii) To the best knowledge of MSMC, certificates of occupancy and
building permits, as applicable, have been issued with respect to the
Mortgaged Property;
(xxxviii) Any escrow accounts for taxes or other reserves required to be
funded on the date of origination of the Mortgage Loan pursuant to the
Mortgage Loan documents have been funded and all such escrow accounts
required to have been funded as of the Cut-Off Date (taking into account any
applicable notice and grace period) have been funded;
(xxxix) The related Assignment of Mortgage constitutes a legal, valid and
binding assignment of such Mortgage to the Depositor, and the related
reassignment of assignment of leases and rents, if any, constitutes a legal,
valid and binding assignment thereof to the Depositor;
(xl) The related Note is not, and has not been since the date of
origination of the Mortgage Loan, secured by any collateral except the lien
of the related Mortgage, any related assignment of leases and rents and any
related security agreement and escrow agreement; the security for the
Mortgage Loan consists only of the related Mortgaged Property or Properties,
any leases (including without limitation any credit leases) thereof, and any
appurtenances, fixtures and other property located thereon; and such
Mortgaged Property or Properties do not secure any mortgage loan other than
the Mortgage Loan being transferred and assigned to the Depositor under the
Loan Sale Agreement (except for Mortgage Loans, if any, which are
cross-collateralized with other Mortgage Loans being conveyed to the
Depositor or subsequent transferee under the Loan Sale Agreement and
identified on the mortgage loan schedule); and
(xli) To MSMC's knowledge, based on due diligence that it customarily
performs in the origination of comparable mortgage loans, as of the date of
origination of each Mortgage Loan, the related Mortgagor was in possession of
all material licenses, permits and franchises required by applicable law for
the ownership and operation of the related Mortgaged Property as it was then
operated.
B-5
<PAGE>
SCHEDULE 1 TO EXHIBIT B
<TABLE>
<CAPTION>
REPRESENTATION EXCEPTION
- ------------------ ----------------------------------------------------------------
<S> <C>
(vii) Arrowhead Towne Center: there are two liens (each relating to City
of Glendale bond obligations) shown on the title policy, one in the
amount of approximately $5.6 million and the other in the amount of
approximately $9.5 million, each payable in annual installments of
principal, plus semi-annual installments of interest at 6%.
(viii) Yorktown Shopping Center: the mortgage loan documents obligate the
mortgagor to maintain all insurance as described in the loan documents,
but do not specifically authorize the mortgagee to pay for insurance
at the mortgagor's cost and expense and seek reimbursement.
Westgate Mall: the mortgage loan documents obligate the mortgagor
to maintain all insurance as described in the loan documents, but
do not specifically authorize the mortgagee to pay for insurance at
the mortgagor's cost and expense and seek reimbursement.
Westshore Mall: certain insurers providing property damage and rental
loss insurance are rated by S&P lower than "AA," the rating required
under the related mortgage, or have a Best financial size category
less than IX, as the mortgage requires.
Fashion Mall: one insurer providing property damage and rental loss
insurance is rated by S&P lower than "AA," the rating required under
the related mortgage; and one insurer providing liability insurance
has a Best financial size category less than IX, as the mortgage requires.
605 Third Avenue: most insurers providing property damage, rental
loss and liability insurance are rated by S&P lower than "AA," the
rating required under the related mortgage; and one insurer providing
property damage and rental loss insurance has a Best financial size
category less than IX, as the mortgage requires.
(x) Grand Kempinski Hotel: (a) notwithstanding that a zoning ordinance
requires 1,438 parking spaces, the Grand Kempinski Hotel has 861 parking
spaces. A City of Addison informal policy relating to hotel parking
requirements, which de facto supersedes the zoning ordinance in the
city's practical enforcement of parking requirements, would require
1,019 spaces. The City of Addison has confirmed in writing that it
does not consider the Grand Kempinski Hotel to be non-conforming because
of parking issues, and an unqualified certificate of occupancy has
been issued and is in effect; (b) although the same zoning ordinance
limits the height of the Grand Kempinski Hotel to either 117 feet,
or "as approved by [the] FAA," the Grand Kempinski Hotel is 192 feet
tall. However, the city has no documentation regarding the FAA approval
height, and the city has delivered a letter stating that the structure's
height is acceptable and does not encroach onto air traffic.
(xviii) Mark Centers Trust Pool: MSMC caused the Mark Centers Pool Properties
to be inspected during the past 18 months preceding the date hereof,
rather than the past 12 months.
(xxvii) Yorktown Shopping Center: (B) TIAA entered into letter agreements
which predate the mortgage and contemplate the mortgage; such letter
agreements include the basis upon which TIAA would grant a waiver
to certain terms of the mortgage such as those relating to transfers
of interest and releases.
(xxx) 605 Third Avenue: the mortgagee may only assign or otherwise transfer
the mortgage loan (without the consent of the mortgagor)(i) to Morgan
Stanley Mortgage Capital Inc., (ii) to any affiliate of the lender
or Morgan Stanley Mortgage Capital Inc., (iii) in connection with
any securitization (as defined in the loan documents) of the mortgage
loan, and/or (iv) to a Major Institutional Lender; a "Major Institutional
Lender" means: (i) Morgan Stanley Mortgage Capital Inc. or any affiliate
thereof, or (ii) an insurance company, bank, savings and loan
association, trust company, commercial credit corporation, pension
plan, pension fund or pension fund advisory firm, mutual fund or other
investment company, governmental entity or plan, "qualified
institutional buyer" within the meaning of Rule 144A under the Securities
Act of 1933, as amended (other than a broker/dealer) or an institution
substantially similar to any of the foregoing, in each case under
this clause (ii) having at least $250,000,000 in capital/statutory
surplus or shareholder's equity and at least $12,000,000,000 in total
assets, and being experienced in making commercial real estate loans,
or (iii) any entity wholly-owned by any one or more institutions meeting
the foregoing criteria.
B-6
<PAGE>
REPRESENTATION EXCEPTION
- ------------------ ----------------------------------------------------------------
(xxxiii) Edens & Avant Pool: Blockbuster Broad River (11)--(a) insurance proceeds
may be disbursed to the mortgagor who may restore the property, defease
the mortgage loan with respect to the related mortgaged property or
substitute in a qualified substitute property; or (b) if proceeds
are required to be paid to the mortgagee, the mortgagee must use such
proceeds to prepay the mortgage loan.
North Shore Towers: John Hancock entered into a letter agreement whereby
it agreed to permit the use of any fire insurance loss proceeds received
by it for restoration.
(xxxiv) Edens & Avant: Capital Square
Crossroads S/C
Edisto Village
Lawndale Village
Northside-Clinton
Shoppers Port
Trenholm Plaza
Woodberry Plaza
Ashford
Financial Pool: St. Petersburg Florida
Woburn, Massachusetts Howard Johnson
Mark Centers
Trust Pool: Northside Mall
Ames Plaza
Kings Fairground
(xxxv)(A) Ashford Financial Pool: The Ashford Westbury Sublease is silent as
to whether the interest of the lessee thereunder may be encumbered
by the related Mortgage.
(B) Edens & Avant Pool: Ravenel Town Center (52) --no estoppel certificate
was obtained with respect to the lease; however, the lease provides
that the leasehold estate is indefeasible for the term and the lessor's
sole and exclusive remedy for a breach by the lessee is an action
for specific performance or damages.
(E) Ashford Financial Pool: The Ashford Westbury Sublease does not provide
the protections to the mortgagee set forth in this subsection.
Edens & Avant Pool: Blockbuster Broad River (11) --the lease does
not specifically provide that a notice of termination is not effective
against the mortgagee unless a copy of the notice has been delivered
to the mortgagee.
Edens & Avant Pool: Stephen's Plaza (6) --neither the lease nor the
estoppel specifically provide that a notice of termination is not
effective against the mortgagee unless a copy of the notice has been
delivered to the mortgagee.
(F) Ashford Financial Pool: The Ashford Westbury Sublease does not provide
the protections to the mortgagee set forth in this subsection.
(G) Ashford Financial Pool: Both the Ashford Westbury Sublease and the
Ashford Westbury Ground Lease expire, with no further renewals, in
2014, which is prior to the Maturity Date of the Ashford Financial
Pool Loan. However, thereafter, there will be no leasehold estate
in the applicable property and the mortgage will be secured by the
fee estate in such property.
(H) Ashford Financial Pool: The Ashford Westbury Sublease does not provide
the protections to the mortgagee set forth in this subsection.
B-7
<PAGE>
REPRESENTATION EXCEPTION
- ------------------ ----------------------------------------------------------------
(I) Edens & Avant Pool: Blockbuster Broad River (11)-the lease does
not specifically entitle the mortgagee or trustee to casualty insurance
proceeds; in addition see the corresponding exception to (xxxiii).
Ashford Financial Pool: neither the Ashford Radisson Plaza Ground
Lease nor the Ashford Parking Garage Ground Lease provides that the
mortgagee has the right to supervise and control the receipt and
disbursement of the proceeds. In addition, the Ashford Parking Garage
Ground Lease provides that the lessee shall be entitled to recover
all insurance proceeds if lessee is obligated to restore the property;
however, the lease provides that the insurance policy may make the
mortgagee the loss payee.
(xl) 605 Third Avenue: the note is also secured by a $5,000,000 letter
of credit which increases to $15,000,000 over a six year period; the
letter of credit can be applied to principal if the mortgage loan
is not repaid by the mortgagor by the Effective Maturity Date.
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT C
FORM OF REPORT TO CERTIFICATEHOLDERS
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9 WAC:
Chicago, IL 60603 WAMM:
===================================================================================================================================
<S> <C> <C>
Number Of Pages
---------------
Table of Contents 1
REMIC Certificate Report 1
Other Related Information 2
Asset Backed Facts Sheets 1
Delinquency Loan Detail 1
Mortgage Loan Characteristics 2
Loan Level Listing 1
TOTAL PAGES INCLUDED IN THIS PACKAGE 2
Specially Serviced Loan Detail Appendix A
Modified Loan Detail Appendix B
Realized Loss Detail Appendix C
===================================================================================================================================
Page 1 of 9
C-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9 WAC:
Chicago, IL 60603 WAMM:
===================================================================================================================================
ORIGINAL OPENING PRINCIPAL PRINCIPAL NEGATIVE CLOSING INTEREST INTEREST PASS-THROUGH
CLASS FACE VALUE(1) BALANCE PAYMENT ADJ. OR LOSS AMORTIZATION BALANCE PAYMENT ADJUSTMENT RATE(2)
CUSIP Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Next Rate(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
===================================================================================================================================
Total P&I Payment 0.00
===========================
Page 2 of 9
Note: (1) N denotes notional balance not included in total
(2) Interest Paid minus Interest Adjustment minus Deferred Interest equals Accrual
(3) Estimated
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 OTHER RELATED INFORMATION
<S> <C> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
Certificate Excess Prepay Unpaid APR Reduction Debt Maint.
Class Interest Shortfall Interest Amount Premium
----------- ------------------ -------- ------------- -----------
-------------------------------------------------------------------------------------------
Total: 0.00 0.00 0.00 0.00 0.00
-------------------------------------------------------------------------------------------
Advances (Interest or Credit)
-----------------------------------------------------
Prior Outstanding Current Month Recovered Advances Outstanding
------------------------- ------------------------- ------------------------ --------------------------
Principal Interest Principal Interest Principal Interest Principal Interest
------------ ---------- ------------ ---------- ------------ ---------- ------------ -----------
Servicer:
Trustee:
Fiscal Agent:
---------------------------------------------------------------------------------------------------------------
Total: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------------------------------------------------------------------------------------------------------------
Current Period Collected Servicing Fees:
Current Period Special Servicing Fees:
Additional Servicing Compensation:
===================================================================================================================================
Page 3 of 9
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 OTHER RELATED INFORMATION
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Summary of REO Property:
---------------------------------------------------------------------------------------------------------------
Date of Amount
Principal Book Final of Agg. Other
Property Name Date of REO Balance Value Recovery Proceeds Rec. Collected
------------- ----------- --------- ----- -------- -------- --------------
---------------------------------------------------------------------------------------------------------------
Total: 0.00 0.00 0.00 0.00
---------------------------------------------------------------------------------------------------------------
Appraised value of real estate acquired through foreclosure or grant ---------------
of a deed in lieu of foreclosure:
---------------
Summary of Appraisal Reductions:
---------------------------------------------------------------------------------------------------------------
Principal Appraisal Appraisal Date of
Property Name Loan Number Balance Reduction Amount Date Reduction
------------- ----------- --------- ---------------- --------- ---------
---------------------------------------------------------------------------------------------------------------
Total: 0.00 0.00 0.00
---------------------------------------------------------------------------------------------------------------
===================================================================================================================================
Page 4 of 9
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603
===================================================================================================================================
Delinq Delinq Delinq Foreclosure/ Modifi- Pre- Curr
1 Month 2 Months 3+ Months Bankruptcy REO cations payments Weighted Avg.
----------- ----------- ----------- ------------ ----------- ----------- ----------- --------------
Distribution
Date # Balance # Balance # Balance # Balance # Balance # Balance # Balance Coupon Remit
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/03/97 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
Note: Foreclosure and REO Totals are Included in the Appropriate Delinquency Aging Category.
Page 5 of 9
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 DELINQUENT LOAN DETAIL
===================================================================================================================================
Disclosure Paid Outstanding Out. Property Special
Doc Thru Current P&I P&I Protection Advance Servicer Foreclosure Bankruptcy REO
Control # Date Advance Advances** Advances Description(1) Transfer Date Date Date Date
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
A. P&I Advance - Loan in Grace Period 1. P&I Advance - Loan delinquent 1 month 3. P&I Advance - Loan delinquent 3 months or More
B. P&I Advance - Late Payment but 2. P&I Advance - Loan delinquent 2 months 4. Matured Balloon/Assumed Schedule Payment
< one month delinq
===================================================================================================================================
** Outstanding P&I Advances include the current period P&I Advance
</TABLE>
Page 6 of 9
C-6
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 POOL TOTAL
DISTRIBUTION OF PRINCIPAL BALANCES
- -------------------------------------------------------------------------
(2) Current Scheduled Number (2) Scheduled Based on
Balances of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
$0 to $500,000
$500,000 to $1,000,000
$1,000,000 to $1,500,000
$1,500,000 to $2,000,000
$2,000,000 to $2,500,000
$2,500,000 to $3,000,000
$3,000,000 to $3,500,000
$3,500,000 to $4,000,000
$4,000,000 to $5,000,000
$5,000,000 to $6,000,000
$6,000,000 to $7,000,000
$7,000,000 to $8,000,000
$8,000,000 to $9,000,000
$9,000,000 to $10,000,000
$10,000,000 to $11,000,000
$11,000,000 to $12,000,000
$12,000,000 to $13,000,000
$13,000,000 to $14,000,000
$14,000,000 to $15,000,000
$15,000,000 & Above
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
</TABLE>
Average Scheduled Balance is 0
Maximum Scheduled Balance is 0
Minimum Scheduled Balance is 0
<TABLE>
<CAPTION>
DISTRIBUTION OF PROPERTY TYPES
- -------------------------------------------------------------------------
Number (2) Scheduled Based on
Property Types of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF MORTGAGE INTEREST RATES
- -------------------------------------------------------------------------
Current Mortgage Number (2) Scheduled Based on
Interest Rate of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
7.000% or less
7.000% to 7.125%
7.125% to 7.375%
7.375% to 7.625%
7.625% to 7.875%
7.875% to 8.125%
8.125% to 8.375%
8.375% to 8.625%
8.625% to 8.875%
8.875% to 9.125%
9.125% to 9.375%
9.375% to 9.625%
9.625% to 9.875%
9.875% to 10.125%
10.125% & Above
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
</TABLE>
W/Avg Mortgage Interest Rate is 0.0000%
Minimum Mortgage Interest Rate is 0.0000%
Maximum Mortgage Interest Rate is 0.0000%
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
- -------------------------------------------------------------------------
Number (2) Scheduled Based on
Geographic Location of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
California
Maryland
Virginia
Georgia
Florida
New Jersey
Arizona
Pennsylvania
Texas
Rhode Island
North Carolina
New York
Kentucky
Utah
Connecticut
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
</TABLE>
Page 7 of 9
C-7
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 POOL TOTAL
LOAN SEASONING
- -------------------------------------------------------------------------
Number (2) Scheduled Based on
Number of Years of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
Weighted Average Seasoning is 0.0
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF AMORTIZATION TYPE
- -------------------------------------------------------------------------
Number (2) Scheduled Based on
Amortization Type of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF REMAINING TERM
FULLY AMORTIZING
- -------------------------------------------------------------------------
Fully Amortizing Number (2) Scheduled Based on
Mortgage Loans of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
60 months or less
61 to 120 months
121 to 180 months
181 to 240 months
241 to 360 months
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
Weighted Average Months to Maturity is 0
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF REMAINING TERM
BALLOON LOANS
- -------------------------------------------------------------------------
Balloon Number (2) Scheduled Based on
Mortgage Loans of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
12 months or less
13 to 24 months
25 to 36 months
37 to 48 months
49 to 60 months
61 to 120 months
121 to 180 months
181 to 240 months
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
Weighted Average Months to Maturity is 0
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF DSCR
- -------------------------------------------------------------------------
Debt Service Number (2) Scheduled Based on
Coverage Ratio (1) of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
0.500 or less
0.500 to 0.625
0.625 to 0.750
0.750 to 0.875
0.875 to 1.000
1.000 to 1.125
1.125 to 1.250
1.250 to 1.375
1.375 to 1.500
1.500 to 1.625
1.625 to 1.750
1.750 to 1.875
1.875 to 2.000
2.000 to 2.125
2.125 & above
Unknown
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
Weighted Average Debt Service Coverage Ratio is 0.000
</TABLE>
<TABLE>
<CAPTION>
NOI AGING
- -------------------------------------------------------------------------
Number (2) Scheduled Based on
NOI Date of Loans Balance Balance
=========================================================================
<S> <C> <C> <C>
1 year or less
1 to 2 years
2 Years or More
Unknown
=========================================================================
Total 0 0 0.00%
- -------------------------------------------------------------------------
</TABLE>
- ----------
(1) Debt Service Coverage Ratios are calculated as described in the prospectus,
values are updated periodically as new NOI figures became available from
borrowers on an asset level. Neither the Trustee, Servicer, Special
Servicer or Underwriter makes any representation as to the accuracy of the
data provided by the borrower for this calculation.
Page 8 of 9
C-8
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 LOAN LEVEL DETAIL
===================================================================================================================================
Appraisal Property Operating Ending Loan
Disclosure Reduction Type Maturity Statement Principal Note Scheduled Prepayment Status
Control # Amounts Code Date DSCR NOI Date Balance Rate P&I Prepayment Date Code (1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
* NOI and DSCR, if available and reportable under the terms of the trust agreement, are based on information obtained from the
related borrower, and no other party to the agreement shall be held liable for the accuracy or methodology used to determine such
figures.
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Legend: A. P&I Adv in Grace Period 1. P&I Adv-delinquent 1 month 5. Prepaid in full 9. REO
2. P&I Adv-delinquent 2 months 6. Specially Serviced 10. DPO
B. P&I Adv < one month delinq 3. P&I Adv-delinquent 3+ months 7. Foreclosure 11. Modification
4. Mat Balloon/Assumed P&I 8. Bankruptcy
===================================================================================================================================
</TABLE>
Page 9 of 9
C-9
<TABLE>
<CAPTION>
<PAGE>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 SPECIALLY SERVICED LOAN DETAIL
===================================================================================================================================
Beginning Specially
Disclosure Scheduled Interest Maturity Property Serviced
Control # Balance Rate Date Type Status Code (1) Comments
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
(1) Legend:
1) Request for waiver of Prepayment Penalty 4) Loan with Borrower Bankruptcy 7) Loans Paid Off
2) Payment default 5) Loan in Process of Foreclosure 8) Loans Returned to Master Servicer
3) Request for Loan Modification or Workout 6) Loan now REO Property
===================================================================================================================================
</TABLE>
APPENDIX A
C-10
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 MODIFIED LOAN DETAIL
===================================================================================================================================
Disclosure Modification Modification
Control # Date Description
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
===================================================================================================================================
</TABLE>
APPENDIX B
C-11
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO
LaSalle National Bank
MORGAN STANLEY CAPITAL I INC. Statement Date: 11/03/97
GMAC COMMERCIAL MORTGAGE CORPORATION, AS SERVICER Payment Date: 11/03/97
Administrator: COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment: N/A
SERIES 1997-XL1 Record Date: 10/31/97
Alyssa Stahl (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 REALIZED LOSS DETAIL
===================================================================================================================================
Beginning Gross Proceeds Aggregate Net Net Proceeds
Dist. Disclosure Appraisal Appraisal Scheduled Gross as a % of Liquidation Liquidation as a % of Realized
Date Control # Date Value Balance Proceeds Sched Principal Expenses * Proceeds Sched. Balance Loss
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Current Total 0.00 0.00 0.00 0.00 0.00
Cumulative 0.00 0.00 0.00 0.00 0.00
===================================================================================================================================
* Aggregate liquidation expenses also include outstanding P&I advances and unpaid servicing fees, unpaid trustee fees, etc.
</TABLE>
APPENDIX C
C-12
<PAGE>
EXHIBIT D
PRELIMINARY TERM SHEET
<PAGE>
MORGAN STANLEY September 24, 1997
Real Estate Debt Capital Markets
Mortgage/Asset Capital Markets
[MORGAN STANLEY DEAN WITTER LOGO]
CMBS NEW ISSUE
PRELIMINARY TERM SHEET
-------------------------------------
EXPECTED PRICING DATE: OCTOBER [ ], 1997
-------------------------------------
$754,531,157
(APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
------------------------------------
LARGE
LOAN
MORGAN STANLEY DEAN WITTER
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by
the Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
<PAGE>
LARGE September 24, 1997
LOAN PRELIMINARY TERM SHEET
$754,531,157 (APPROXIMATE)
MORGAN STANELY MORTGAGE CAPITAL I INC.
COMMERICAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
<TABLE>
<CAPTION>
OVERVIEW OF THE CERTIFICATES
- -----------------------------------------------------------------------------------------------------------------------------
EXPECTED
FINAL FINAL ANTICIPATED
AMOUNT(1) RATINGS SUBORDINATION AVERAGE LIFE PRINCIPAL DISTRIBUTION PASS-THROUGH
CLASS ($MM) (FITCH/MOODY'S/S&P) % (YRS)(3) WINDOW(3)(4) DATE(3) RATE(5)(6)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PUBLIC CERTIFICATES:
- -------------------
A-1 $238.0 AAA/Aaa/AAA 30.0% 5.58 1-86 12/3/04 6.70%
A-2 64.0 AAA/Aaa/AAA 30.0 8.74 86-110 12/3/06 6.85
A-3 226.2 AAA/Aaa/AAA 30.0 9.51 110-119 9/3/07 6.95
X 754.5 AAA/Aaa/NR - - 1-120 10/3/07 Variable Rate
B 22.6 AAA/Aaa/AA+ 27.0 9.88 119 9/3/07 WAC-113bp
C 22.6 AA+/Aa1/AA 24.0 9.88 119 9/3/07 WAC-108bp
D 45.3 A+/A2/A 18.0 9.93 119-120 10/3/07 WAC-100bp
E 45.3 BBB/Baa2/BBB 12.0 9.96 120 10/3/07 WAC-90bp
F 41.5 BBB-/NR/NR 6.5 9.96 120 10/3/07 WAC-65bp
PRIVATE CERTIFICATES:
- --------------------
G 26.4 BB/Ba3/BB 3.0 9.96 120 10/3/07 6.70
H 22.6 B-/B2/B - 9.96 120 10/3/07 6.70
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(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 Assumpions 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) Other than the Class X Certificates, in the case of A-1, A-2, A-3, G and H classes, interest will accrue at a fixed rate,
and in the case of the B, C, D, E and F classes, interest will accrue at the Weighted Average Net Mortgage Rate
for such Distribution Date less a fixed interest strip.
(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 Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
2
<PAGE>
LARGE PRELIMINARY TERM SHEET September 24, 1997
LOAN
$754,531.157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
1. ISSUE CHARACTERISTICS
---------------------
ISSUE TYPE: The Class A-1, A-2 A-3, X, B, C, D, E, and F
Certificates will be offered publicly through a
Prospectus Supplement (and accompanying
Prospectus) to be dated October , 1997, and
the Class G and H 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 September ,
1997.
COLLATERAL: The collateral consists of approximately $754.5
million pool of 12 fixed rate commercial
mortgage loans.
SECURITIES ISSUED: $754,531,157 monthly pay, multi-class
sequential pay, commercial mortgage REMIC
pass-through certificates, including ten
principal and interest Classes (Classes A-1,
A-2, A-3, B, C, D, E, F, G and H and an
interest-only Class (Class X) whose Notional
Amount consists of ten separate strip
components, each corresponding to the Classes
of the Principal Balance Certificates.
DEPOSITER: Morgan Stanley Mortgage Capital Inc.
LEAD MANAGER: Morgan Stanley & Co. Incorporated
MASTER SERVICER: GMAC Commercial Mortgage Corporation
SPECIAL SERVICER: GMAC Commercial Mortgage Corporation
TRUSTEE/FISCAL AGENT: LaSalle National Bank/ABN Amro Bank, N.V.
EXPECTED PRICING DATE: On or about October [ ], 1997
EXPECTED CLOSING DATE: On or about October 15, 1997
DISTRIBUTION DATES: The 3rd business day of each month, commencing
November 5, 1997
MINIMUM DENOMINATIONS: $10,000 for Public Certificates (other than the
Class X Certificates); $100,000 for all other
Certificates
SETTLEMENT TERMS: DTC, Euroclear and Cedel, same day funds, with
accrued interest
LEGAL/REGULATORY STATUS: Class A-1, A-2, A-3, X, B and C Certificates
are expected to be eligible for exemptive relief
under ERISA. Class A-1, A-2, A-3, X, B and C
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 property.
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 Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
3
<PAGE>
LARGE PRELIMINARY TERM SHEET September 24, 1997
LOAN
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
II. STRUCTURE CHARACTERISTICS
-------------------------
ANTICIPATED PASS-THROUGH
RATES: Class A-1: 6.70%
Class A-2: 6.85
Class A-3: 6.95
Class B: WAC - 113bp
Class C: WAC - 108bp
Class D: WAC - 100bp
Class E: WAC - 90bp
Class F: WAC - 65bp
Class G: 6.70
Class H: 6.70
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 any
Class of Principal Balance
Certificates will, in general,
equal the excess, if any, of the
Weighted Average Net Mortgage
Rate over the Pass-Through rates
applicable to the Classes of
Principal Balance 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 (other than the
Class R 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 H Certificates are
reduced to zero, payments of principal to the
Class A-1, A-2 and A-3 Certificates will be
made on a pro rata basis.
PREPAYMENT PREMIUM ALLOCATION: Prepayment Premiums (to the extent received)
will be allocated among the Class X
Certificates and the Principal Balance
Certificates (other than Classes G and H)
entitled to distributions in respect of
principal on any Distribution Date, as
described in the Prospectus Supplement under
DESCRIPTION OF THE OFFERED CERTIFICATES -
Distributions - Prepayment Premiums.
<PAGE>
CREDIT ENHANCEMENT: Each Class of Certificates (other than Classes
A-1, A-2, A-3, Q 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 property taxes and
insurance, but only to the extent that such
Advances are deemed recoverable.
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by
the Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
4
<PAGE>
LARGE LOAN PRELIMINARY TERM SHEET September 24, 1997
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
REALIZED LOSSES AND EXPENSE LOSSES: Realized Losses and trust fund expenses,
if any, will be allocated to the Class H,
Class G, Class F, Class E, Class D, Class
C and Class B Certificates, in that order,
and then to Classes A-1, A-2 and A-3, 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
in subsequent periods, subject to
available funds.
PREPAYMENT INTEREST SHORTFALLS: For any Distribution Date, any Net
Aggregate Prepayment Interest Shortfall
not offset by the Servicing Fee for such
Distribution Date, will generally be
allocated pro rata to each Class of
Certificates in proportion to its
entitlement to interest.
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 Advances
for such loan, which reduction will be
borne, in general, by a reduction of
interest distributable to the most
subordinate Class of Principal Balance
Certificate outstanding.
An Appraisal Reduction will be reduced to
zero as of the date the related Mortgage
Loan has been brought current for at least
three consecutive months, paid in full,
liquidated, repurchased or otherwise
disposed of.
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.
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 Scheduled
Principal Balances of the Mortgage Loans,
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 upon request. A Report
containing information 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 Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED
HEREIN ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS
SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering,
these materials, including any description of the Mortgage Loans contained
herein, shall be deemed superseded in their entirety by such Prospectus and
Prospectus Supplement or Private Placement Memorandum. To our Readers
Worldwide: In addition, please note that this information has been provided by
Morgan Stanley & Co. Incorporated and approved by Morgan Stanley & Co.
International Limited, a member of the Securities and Future Authority, and
Morgan Stanley Japan Ltd. We recommend that investors obtain the advice of
their Morgan Stanley & Co. International Limited or Morgan Stanley Japan Ltd.
representative about the investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
5
<PAGE>
LARGE LOAN PRELIMINARY TERM SHEET September 24, 1997
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
BOND STRUCTURE
[CHART TO COME]
- -------------------------------------------------------------------------------
(1) The Class X Notional Amount is generally equal to the sum of the
Certificate Principal Amounts of each Principal Balance Certificate
outstanding from time to time. The Pass-Through Rate on the Class X
Certificates on each Distribution Date will equal, in general, the
weighted average of the Class X Strip Rates for the respective
Principal Balance Certificates for such Distribution Date. The Class
X Strip Rate in respect of any Class of Principal Balance Certificates
will, in general, equal the excess, if any, of the Weighted Average
Net Mortgage Rate over the Pass-Through rates applicable to the
Classes of Principal Balance Certificates. The Class X Certificates
will be rated AAA/Aaa by Fitch and Moody's.
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by
the Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED
HEREIN ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS
SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering,
these materials, including any description of the Mortgage Loans contained
herein, shall be deemed superseded in their entirety by such Prospectus and
Prospectus Supplement or Private Placement Memorandum. To our Readers
Worldwide: In addition, please note that this information has been provided by
Morgan Stanley & Co. Incorporated and approved by Morgan Stanley & Co.
International Limited, a member of the Securities and Future Authority, and
Morgan Stanley Japan Ltd. We recommend that investors obtain the advice of
their Morgan Stanley & Co. International Limited or Morgan Stanley Japan Ltd.
representative about the investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
6
<PAGE>
LARGE LOAN PRELIMINARY TERM SHEET September 24, 1997
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
The Class A-1, A-2, A-3, B, C, D, E, F, G and H 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
[CHART TO COME]
REMAINING TERM TO EFFECTIVE MATURITY DATE
[CHART TO COME]
- -------------------------------------------------------------------------------
(1) The Class A-1, A-2, A-3 and X Certificates will be paid interest on
a pro rata basis.
(2) The above analysis is based on the Modeling Assumptions and Scenario
described in the Prospectus Supplement.
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by
the Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED
HEREIN ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS
SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering,
these materials, including any description of the Mortgage Loans contained
herein, shall be deemed superseded in their entirety by such Prospectus and
Prospectus Supplement or Private Placement Memorandum. To our Readers
Worldwide: In addition, please note that this information has been provided by
Morgan Stanley & Co. Incorporated and approved by Morgan Stanley & Co.
International Limited, a member of the Securities and Future Authority, and
Morgan Stanley Japan Ltd. We recommend that investors obtain the advice of
their Morgan Stanley & Co. International Limited or Morgan Stanley Japan Ltd.
representative about the investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
7
<PAGE>
LARGE LOAN PRELIMINARY TERM SHEET September 24, 1997
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
III. COLLATERAL CHARACTERISTICS
- -------------------------------------------------------------------------------
Cut-Off Date Principal Balance: (as of October 1, 1997) $754,531,157
Number of Mortgage Loans: 12
Number of Properties: 104
Weighted Average Coupon: 8.34%
Weighted Average Cut-Off Date LTV: 52.7%
Weighted Average LTV at Effective Maturity Date: 45.5%
Weighted Average DSCR: 2.00x
Weighted Average Original Amortization Term: 322 months
Weighted Average Original Term to Effective Maturity Date: 116 months
Weighted Average Remaining Term to Effective Maturity Date: 105 months
Weighted Average Seasoning: 11 months
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
CUT-OFF BALANCE AT ORIGINAL REMAINING
DATE PERCENT OF EFFECTIVE EFFECTIVE TERM TO TERM TO
PRINCIPAL CUT-OFF MATURITY CUT-OFF MATURITY ORIGINAL EFFECTIVE EFFECTIVE
BALANCE DATE PRINCIPAL DATE DATE DATE AMORTIZATION MATURITY MATURITY
LOAN NAME ($000s) BALANCE COUPON ($000s) LTV LTV DSCR(1) TERM DATE DATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
605 Third Avenue $120,000 15.9% 7.917% $105,000(2) 66.7% 58.3% 2.04x N/A 120 120
Edens and Avant 82,750 11.0 7.300 82,750 36.8 36.8 3.35 N/A 120 119
Ashford Financial 73,537 9.7 8.600 52,575 50.9 36.4 2.16 240 119 111
Mansion Grove 72,862 9.7 8.350 64,492 61.7 54.7 1.39 360 120 117
North Shore Towers 70,281 9.3 9.32(3) 64,482 20.1 18.4 2.83 360 120 86
Keystone at the Crossing
Fashion Mall 64,864 8.6 7.850 56,941 55.9 49.1 1.73 360 119 116
Yorktown Shopping Center 57,304 7.6 8.250 48,766 48.0 40.8 1.33 300 120 81
The Grand Kempinski 55,000 7.3 8.630 45,114 61.1 50.1 1.73 300 120 120
Arrowhead Towne Center 48,900 6.5 8.600 46,597 46.6 44.4 1.79 360 84 51
Mark Centers Trust Portfolio 45,450 6.0 8.840 37,962 63.8 53.3 1.50 300 119 108
Westgate Mall 42,682 5.7 9.250 35,891 65.7 55.2 1.20 300 119 110
Westshore Mall 20,901 2.8 8.070 19,438 63.3 58.9 1.68 360 84 77
-------- ------ ------ -------- ----- ----- ----- ------ --- ---
TOTALS/WEIGHTED AVERAGES $754,531 100.0% 8.339% $660,009 52.7% 45.5% 2.00x 322(4) 116 105
======== ===== ===== ======== ==== ==== ==== === === ===
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on underwritable net cash flow.
(2) Effective Maturity Date Balance after accounting for a $15,000,000 LOC
which will be available at the Effective Maturity Date.
(3) The North Shore Towers mortgage coupon is 9.32%, however, John Hancock is
retaining a 2.57% strip leaving a pass-through coupon of 6.75%.
(4) Weighted average original amortization term excludes 605 Third Avenue and
Edens and Avant.
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>
LARGE LOAN PRELIMINARY TERM SHEET September 24, 1997
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
LOAN FEATURES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BANKRUPTCY- FUNDED
REMOVAL OF CAPITAL LOCK BOX/ REMOTE TAX AND
PRINCIPAL PROPERTY RESERVE SWEEP CROSS BORROWING INSURANCE
LOAN NAME CALL PROTECTION REPAYMENT MANAGER(1) ACCOUNTS ACCOUNT COLLATERALIZATION ENTITY ESCROW
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
605 Third Avenue Locked 24 mos., Defeasance Effective No Yes Yes N/A Yes Yes
Maturity
Edens and Avant Locked 24 mos., Defeasance Balloon Yes Yes Yes Yes Yes Yes
Ashford Financial Locked 24 mos., Defeasance Effective Yes Yes Yes Yes Yes Yes
Maturity
Mansion Grove Locked 57 mos., Yld Maint Effective Yes Yes Yes N/A Yes Yes
Minimum 1% Maturity
North Shore Towers Yld Maint Balloon No No No N/A No Yes(2)
Minimum 1%
Fashion Mall-
Keystone at
the Crossing Locked 24 mos., Yld Maint +50bp Effective Yes Yes Yes N/A Yes Yes
Minimum 1% Maturity
Yorktown Shopping
Center Locked 21 mos., Yld Maint +50bp Balloon No No No N/A No Yes
Minimum 2% declining
.25% annually to 1%
The Grand Kempinski Locked 35 mos., Yld Maint Effective Yes Yes Yes N/A Yes Yes
Minimum 1% Maturity
Arrowhead Towne Center Yld Maint Balloon No No No N/A No Yes(2)
Minimum 2% declining
.5% annually to 1%
Mark Centers Trust
Portfolio Locked 25 mos., Yld Maint Effective Yes Yes Yes Yes Yes Yes
Minimum 1% Maturity
Westgate Mall Locked 38 mos., Yld Maint +50bp Balloon No No No N/A No Yes
Minimum 2% declining
.5% annually to 1%
Westshore Mall Locked 53 mos., Yld Maint Effective Yes Yes Yes N/A Yes Yes
Minimum 1% Maturity
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Subject to various conditions as outlined in the prospectus supplement.
(2) Taxes only.
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>
LARGE PRELIMINARY TERM SHEET September 24, 1997
LOAN
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
PRELIMINARY PROPERTY OVERVIEW
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PROPERTY YEAR BUILT/
LOAN NAME LOCATION BORROWER/SPONSOR TYPE RENOVATED
- ----------------------- --------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
603 Third Avenue New York, NY Fisher Brothers/ Office 1963/1996
National Bulk Carriers
Edens and Avant SC, NC, TN, GA State of Michigan Community Shopping Various
Retirement System Centers (61), Office
(2)
Ashford Financial CA, FL, TX, NY, NJ, Fisher Brothers/Getty/ Hotel (14), Office Various
MA, VA, NE Soros (1)
Mansion Grove Santa Clara, CA Sanford Diller Multifamily 1989
North Shore Towers Floral Park, NY 1,547 Co-op Owners/ Multifamily 1971
Fashion Mall-
Keystone at the
Crossing Indianapolis, IN Royal British Shell Pension Regional Mall 1973/1992
Yorktown Shopping
Center Lombard, IL Estate of E.D. Pehrson/ Super-Regional Mall 1968/1994
Wilder Group
The Grand Kempinski Dallas, TX The Rolaco Group Hotel 1983
Arrowhead Towne Center Glendale, AZ Westcor/JCP Super-Regional Mall 1993
Mark Centers Trust
Portfolio PA, AL, SC, GA, NY, Mark Centers Trust Community Shopping Various
FL, VA Centers (17)
Westgate Mall Fairview Park, OH R.E. Jacobs Group Regional Mall 1954/1996
Westshore Mall Holland Township, MI Ivanhoe/Wilmorite Regional Mall 1988
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
CUT-OFF DATE SQUARE FEET/
LOAN NO. OF LOAN PSF/ APPRAISED
LOAN NAME AMOUNT UNITS(5) PER UNIT OCCUPANCY(3) VALUE
- ---------------------------- -------------- -------------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
605 Third Avenue $120,000,000 946,369 $ 116(1) 98.0% $ 180,000,000
Edens and Avant 82,750,000 4,439,665 19 90.6 225,036,809
Ashford Financial 73,537,438 2,923 23,943(2) 66.3 144,450,000
Mansion Grove 72,862,226 877 83,081 96.8 118,000,000
North Shore Towers 70,280,966 1,844 38,113 92.0 350,000,000
Fashion Mall-
Keystone at the Crossing 64,864,238 682,912 95 87.5 116,000,000
Yorktown Shopping Center 57,304,459 480,539 119 91.0 119,500,000
The Grand Kempinski 55,000,000 528 104,167 69.9 90,000,000
Arrowhead Towne Center 48,899,962 394,297 124 88.7 105,000,000
Mark Centers Trust Portfolio 45,449,576 2,317,463 20 93.2 71,200,000
Westgate Mall 42,681,517 617,222 143 (4) 88.5 65,000,000
Westshore Mall 20,900,775 393,949 53 95.3 33,000,000
-------------- ---------------
TOTAL $754,531,157 $1,617,186,809
============== ===============
</TABLE>
- ------------------------------------------------------------------------------
(1) Based on a Loan Amount of $120,000,000 less the $10,000,000 allocated to the
parking garage, or $110,000,000.
(2) Based on a Loan Amount of $73,537,438 less the $3,553,487 allocated to the
Admiralty Office Building.
(3) Regional Mall Occupancy figures reflect Mall Store Tenants only.
(4) Adjusted for tenants which own their own improvements.
(5) Self-owned anchors are excluded from square feet.
<PAGE>
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>
LARGE PRELIMINARY TERM SHEET September 24, 1997
LOAN
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
GEOGRAPHIC DIVERSIFICATION
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUT-OFF CUT-OFF
DATE DATE
NUMBER OF ALLOCATED ALLOCATED
STATE PROPERTIES LOAN AMOUNT LOAN AMOUNT(1)
- ---------- ------------ -------------- --------------
<S> <C> <C> <C>
NY 6 $199,500,169 26.4%
CA 3 94,577,979 12.5
TX 2 68,226,868 9.0
IN 1 64,864,238 8.6
SC 45 62,865,695 8.3
IL 1 57,304,459 7.6
AZ 1 48,899,962 6.5
OH 1 42,681,517 5.7
PA 10 29,125,458 3.9
FL 4 21,770,709 2.9
MI 1 20,900,775 2.8
NC 11 10,677,820 1.4
TN 3 8,656,771 1.1
GA 6 6,122,631 0.8
AL 2 5,915,496 0.8
NJ 2 4,244,443 0.6
MA 2 3,553,487 0.5
VA 2 3,556,893 0.5
NE 1 1,085,788 0.1
------------ -------------- --------------
TOTALS/
WEIGHTED
AVERAGES 104 $754,531,157 100.0%
============ ============== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF WEIGHTED
TOTAL WEIGHTED TOTAL AVERAGE
UNDERWRITTEN UNDERWRITTEN AVERAGE APPRAISED APPRAISED CUT-OFF
STATE CASH FLOW CASH FLOW(1) DSCR VALUE VALUE(1) DATE LTV
- ---------- -------------- --------------- ---------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
NY 41,005,056 30.1% 2.32 $ 543,800,000 33.6% 49.7%
CA 14,373,039 10.6 1.57 155,400,000 9.6 59.3
TX 12,440,513 9.1 1.81 115,850,000 7.2 59.1
IN 9,748,888 7.2 1.73 116,000,000 7.2 55.9
SC 15,081,865 11.1 3.27 166,030,757 10.3 38.0
IL 7,570,166 5.6 1.33 119,500,000 7.4 48.0
AZ 8,356,914 6.1 1.79 105,000,000 6.5 46.6
OH 5,321,105 3.9 1.20 65,000,000 4.0 65.7
PA 4,120,484 3.0 1.50 45,200,000 2.8 63.8
FL 4,195,753 3.1 2.11 39,100,000 2.4 51.8
MI 3,119,597 2.3 1.68 33,000,000 2.0 63.3
NC 2,695,100 2.0 3.35 29,945,550 1.9 36.8
TN 2,151,718 1.6 3.35 23,907,979 1.5 36.8
GA 1,219,842 0.9 2.55 13,277,522 0.8 48.5
AL 970,193 0.7 1.50 8,675,000 0.5 63.8
NJ 1,763,005 1.3 2.16 14,200,000 0.9 50.9
MA 1,159,565 0.9 2.16 11,200,000 0.7 50.9
VA 763,523 0.6 2.00 8,500,000 0.5 54.1
NE 111,263 0.1 2.16 3,600,000 0.2 50.9
-------------- --------------- ---------- -------------- --------------- ----------
TOTALS/
WEIGHTED
AVERAGES $136,167,585 100.0% 2.00x $1,617,186,809 100.0% 52.7%
============== =============== ========== ============== =============== ==========
</TABLE>
- ---------------------------------------------------------------------------
(1) Numbers may not add to 100% due to rounding.
<PAGE>
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>
LARGE September 24, 1997
LOAN PRELIMINARY TERM SHEET
$754,531,157 (APPROXIMATE)
MORGAN STANLEY MORTGAGE CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1997-XL1
PROPERTY TYPE DIVERSIFICATION
- -----------------------------------------------------------------------
RETAIL
16.6%
REGIONAL
[PROPERTY TYPE MALL
DIVERSIFICATION 31.1%
HOTEL CHART TO COME]
16.6%
OFFICE MULTIFAMILY
16.9% 19.0%
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
CUT-OFF CUT-OFF PERCENTAGE OF PERCENTAGE OF WEIGHTED
DATE DATE TOTAL WEIGHTED TOTAL AVERAGE
NUMBER OF ALLOCATED ALLOCATED UNDERWRITTEN UNDERWRITTEN AVERAGE APPRAISED APPRAISED CUT-OFF
PROPERTY TYPE PROPERTIES LOAN AMOUNT LOAN AMOUNT CASH FLOW CASH FLOW DSCR VALUE VALUE DATE LTV
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Regional Mall 5 $234,650,951 31.1% 34,116,670 25.1% 1.55x $ 438,500,000 27.1% 54.5%
Multifamily 2 143,143,192 19.0 29,370,407 21.6 2.10 468,000,000 28.9 41.3
Office 4 127,493,934 16.9 21,055,602 15.5 2.09 196,348,327 12.1 65.3
Hotel 15 124,983,951 16.6 25,455,590 18.7 1.97 228,450,000 14.1 55.4
Retail 78 124,259,130 16.6 26,169,315 19.2 2.68 285,888,481 17.7 46.7
---- ------------- ----- ----------- ----- ----- ------------- ----- -----
TOTAL/WEIGHTED
AVERAGE 104 $754,531,158 100.0% $136,167,585 100.0% 2.00x $1,617,186,809 100.0% 52.7%
==== ============= ===== ============ ===== ===== ============== ===== ====
- ------------------------------------------------------------------------------------------------------------------------------------
</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>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN 605 THIRD AVENUE
LOAN INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $120,000,000 $120,000,000
ORIGINATION DATE: September 10, 1997
INTEREST RATE: 7.917%
AMORTIZATION: Interest-only payments through Effective Maturity Date, thereafter, 20 year
amortization. In lieu of amortization, borrower has posted an initial LOC of
$5MM which will be increased in equal annual installments to achieve a $15MM
balance by October 1, 2007.
HYPERAMORTIZATION: After the Effective Maturity Date, interest rate increases to 12.917%. All
excess cash flow is used to reduce 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, 2007
MATURITY DATE: October 1, 2027
BORROWER/SPONSOR: 605 Third Avenue LLC, a special-purpose New York limited liability company
indirectly owned and controlled by the Fisher Brothers and National Bulk
Carriers, Inc.
CALL PROTECTION: Two year prepayment lockout from the date of securitization with U.S. Treasury
defeasance thereafter. Loan prepayabale at par beginning 90 days prior the
Effective Maturity Date.
REMOVAL OF
PROPERTY MANAGER: As long as the Fisher Brothers manage the property, the manager can only be
replaced, (i) upon a monetary event of default, (ii) upon acceleration of the loan,
or (iii) if the manager has engaged in gross negligence or willful misconduct. If
the Fisher Brothers are not managing the property, the manager can be replaced upon
the above-mentioned events and if at the end of each calendar quarter, the DSCR for
the trailing twelve months, drops below 1.15x together with certain other conditions
outlined in the loan documents.
UP FRONT RESERVES: Deferred Maintenance: $ 70,000
Leasing Rollover Reserve: $5,000,000
GENERAL MONTHLY RESERVES: Property Taxes, Insurance in appropriate amounts and Replacement Reserves
of $219,728 annually
ADDITIONAL MONTHLY
RESERVES: Leasing Rollover: Replenished to $5,000,000
(capped at $200,000/month)
Wiley Rollover: $165,000/month through
October 1, 2002
Neuberger Rollover: $25,000/month through
October 1, 2002,
$165,000/month through
October 1, 2006
COLLECTION ACCOUNT: Hard Lockbox
CROSS-COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: Yes, $12,000,000. Currently held by the Fisher Brothers.
PROPERTY INFORMATION
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Office
LOCATION: 605 Third Avenue, New York, New York
YEAR BUILT/RENOVATED: 1963/Various through 1996
THE COLLATERAL: 43 story office building containing 984,447 SF of GLA (946,369 net rentable SF) and
adjacent 750 space parking garage.
Major tenants include John Wiley & Sons, Neuberger & Berman, Grant Thornton and
ESPN, Inc.
PROPERTY MANAGEMENT: Fisher Brothers Management Co.
OCCUPANCY
(JUNE 30, 1997): 98%
1996 NET OPERATING
INCOME: $22,8223,422
UNDERWRITABLE NET
CASH FLOW: $19,403,628
APPRAISED VALUE: $180,000,000
CUT-OFF DATE
LOAN/PSF(1): $116
APRAISED BY: Cushman & Wakefield, Inc.
APPRAISAL DATE: August 1, 1997
LTV: CUT-OFF DATE AT MATURITY
66.7% 58.3%
DSCR(2): 2.04x 2.33x
(1) Based on the Cut-Off Date Loan Balance reduced by the $10,000,000 allocated to the parking garage.
(2) Based on Underwritable Net Cash Flow.
</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>
LARGE LOAN PRELIMINARY COLLATERAL TERM SHEET:
605 THIRD AVENUE
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TENANT OR PERCENT PERCENT OF TOTAL ANNUALIZED
PARENT COMPANY TENANT OF TOTAL ANNUALIZED ANNUALIZED BASE RENT
OF TENANT TENANT NAME NRA (SF) NRA (SF)(4) BASE RENT BASE RENT(4) PSF
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John Wiley & Sons, Inc. John Wiley & Sons, Inc. 231,047 24.4% $ 8,682,754 27.1% $37.58
Neuberger & Berman Management Neuberger & Berman 139,448 14.7 4,677,992 14.6 33.55
Unisys Corporation (2) Unisys Corporation 77,144 8.2 3,092,463 9.7 40.09
Aon Risk Services, Inc. of New York(3) Rollins Hudig Hall 71,080 7.5 2,772,120 8.7 39.00
Grant Thornton, LLP Grant Thornton 55,688 5.9 1,733,016 5.4 31.12
Disney ESPN, Inc. 53,674 5.7 1,573,947 4.9 29.32
Univision Television Group, Inc. Univision Holdings, Inc. 35,814 3.8 1,157,508 3.6 32.32
Veeba Corporation Stinnes Corporation 25,560 2.7 945,720 3.0 37.00
Snow, Becker, Kroll Et. Al. Snow, Becker, Kroll Et. Al. 25,270 2.7 717,830 2.2 28.41
Esanu Katsky Korins & Siger Esanu Katsky Korins & Siger 19,867 2.1 566,210 1.8 28.50
------- ----- ----------- ----- ------
TOTAL/AVERAGE MAJOR TENANTS 734,592 77.6% $25,919,560 81.0% $35.28
OTHER TENANTS 193,082 20.4 6,090,083 19.0 31.54
VACANT 18,695 2.0 0 0.0 0.00
------- ----- ----------- ----- ------
TOTAL NET RENTABLE AREA 946,369 100.0% $32,009,643 100.0% $34.51(5)
======= ===== =========== ===== ======
</TABLE>
HISTORICAL OCCUPANCY
- ---------------------------------------------------------------------------
AVERAGE
YEAR OCCUPANCY
- ---------------------------------------------------------------------------
1996 98.1%
1995 98.6
1994 100.0
1993 99.5
1992 99.5
1991 85.2
1990 99.0
1989 92.8
1988 100.0
1987 100.0
1986 100.0
-----
AVERAGE 97.6%
=====
- ---------------------------------------------------------------------------
(1) Based on June 30, 1997 Rent Roll.
(2) Neuberger and Berman currently sub-leases and has an executed lease
beginning in 1999 for 66,625 of the 77,144 sq. ft. occupied by Unisys.
The remaining 10,519 sq. ft. is currently sub-leased to Cosmetics Plus.
(3) Space has been re-measured to 74,780 sq. ft. Neuberger and Berman has
an executed lease beginning in 2000 for two-thirds of this space
(56,085 sq. ft.). Neuberger is currently subleasing this space.
(4) Numbers may not total 100.0% due to rounding.
(5) Annualized Base Rent PSF excludes 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.
14
<PAGE>
<TABLE>
<CAPTION>
LARGE LOAN PRELIMINARY COLLATERAL TERM SHEET:
605 THIRD AVENUE
LEASE EXPIRATION SCHEDULE(1)
- ------------------------------------------------------------------------------------
PERCENT OF TOTAL ANNUALIZED
YEAR ENDING EXPIRING PERCENT OF ANNUALIZED ANNUALIZED BASE RENT
DEC. 31 SF TOTAL SF(3) BASE RENT BASE RENT PER SQ. FT.
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vacant 18,695 2.0% - - -
1997 17,996 1.9 452,400 1.4% 25.14
1999(2) 150,722 15.9 5,530,256 17.3 36.69
2000 95,844 10.1 3,660,384 11.4 38.19
2001 8,000 0.8 225,500 0.7 28.19
2003 231,047 24.4 8,682,754 27.1 37.58
2004 72,321 7.6 2,127,207 6.6 29.41
2005 69,468 7.3 2,185,268 6.8 31.46
2006 29,568 3.1 1,161,952 3.6 39.30
2007 or Later 252,708 26.7 7,983,922 24.9 31.59
------- ----- ----------- ----- ------
TOTAL 946,369 100.0% $32,009,643 100.0% $34.51
======= ===== =========== ===== ======
- ---------------------------------------------------------------------------
(1) Based on June 30, 1997 Rent Roll.
(2) 1999 expirations include: Unysis (77,144 sq. ft.), Grant Thornton (53,688 sq. ft.),
and Smith Barney (17,890 sq. ft.). Neuberger & Berman has already executed leases
for 66,625 sq. ft. of the space leased by Unysis. Neuberger & Berman is currently
subleasing this space.
(3) Numbers may not add to 100.0% 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>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN EDENS & AVANT
LOAN INFORMATION
ORIGINAL: CUT-OFF DATE
PRINCIPAL BALANCE: $82,750,000 $82,750,000
ORIGINATION DATE: July 15, 1997
INTEREST DATE: 7.30%
AMORTIZATION: Interest only for 10 years with balloon payment
at maturity
HYPERAMORTIZATION: Not Applicable
EFFECTIVE MATURITY DATE: Not Applicable
MATURITY DATE: August 31, 2007
BORROWER/SPONSOR: Edens & Avant Financing Limited Partnership, a
Delaware limited partnership, controlled by the
State of Michigan Retirement System 83.5%, and a
group consisting of Joseph Edens and other
principals and employees of Edens & Avant, Inc.
16.5%
CALL PROTECTION: Two-year prepayment lockout from the date of
securitization, with U.S. Treasury defeasence
thereafter. Loan prepayable at par beginning 60
days prior to the Maturity Date.
REMOVAL OF PROPERTY
MANAGER: Management may be terminated (i) if at the end of
each calendar quarter DSCR for the trailing 12
months (less than) 1.25:1.0 unless borrower
deposits additional collateral to enable the loan
to meet the test (ii) upon a 50% or more change in
control of the manager, (iii) upon a default by the
manager under the management agreement (iv) upon an
event of default under the loan documents or (v) at
any time for cause.
UP FRONT RESERVES: Deferred Maintenance $ 317,009
Environmental Reserve: $ 391,188
Capital Expenditure and TI: $4,795,088
GENERAL MONTHLY
RESERVES: Property Taxes, Insurance, Debt Service and Capital
Expenditure reserves of $73,994 monthly.
COLLECTION ACCOUNT: "Sweep Account" whereby borrower deposits gross
receipts daily into a cash collateral account used
to establish the escrows listed above; "Springing
Lockbox" whereby upon DSCR (less than) 1.5:1.0 or
the occurrence of certain events of default, a hard
lockbox is established.
CROSS-COLLATERALIZATION/
DEFAULT: Yes
MEZZANINE LOANS: None
PROPERTY INFORMATION
SINGLE ASSET/PORTFOLIO: Portfolio
PROPERTY TYPE: 61 retail centers, 2 office buildings
LOCATION: Location by Allocated Loan Amount
Georgia 4.2%
North Carolina 12.8%
South Carolina 72.6%
Tennessee 10.4%
YEAR BUILT: See Property Description Table
THE COLLATERAL: 54 community and neighborhood retail shopping
centers, 7 freestanding retail stores and 2 office
buildings encompassing total GLA of 4,439,655 SP.
Anchors include Food Lion, Wal-Mart, Bi-Lo, Revco,
Family Dollar and Winn Dixie.
PROPERTY MANAGEMENT: Edens & Avant Properties Limited Partnerships
AVERAGE OCCUPANCY
(APRIL 8, 1997): 91%
1996 NET OPERATING
INCOME: $ 20,238,540
UNDERWRITABLE
NET CASH FLOW: $ 20,253,312
CALCULATED VALUE AT
A 9% CAP RATE: $225,036,809
CUT-OFF DATE LOAN/PSF: $19
CUT-OFF DATE AT MATURITY
LTV: 36.8% 36.8%
DSCR(1): 3.35x 3.35x
(1) Based on Underwritable Net Cash Flow.
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>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN EDENS & AVANT
PROPERTY DESCRIPTION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUT-OFF DATE
YEAR BUILT/ OCCUPANCY ALLOCATED LOAN
PROPERTY LOCATION NRA LAST RENOVATED APRIL 8, 1997 AMOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Florence Mall Florence, SC 247,064 1965/1984 100% $5,516,883
Trenholm Plaza Forest Acres, SC 172,957 1960/1997 86 4,399,870
NBSC Building Columbia, SC 147,890 1970/1994 80 3,588,694
Hampton Plaza Clarksville, TN 189,302 1988 97 3,021,907
Cumberland Plaza McMinnville, TN 143,951 1988 97 2,835,486
Cunningham Place Clarksville, TN 149,744 1987 100 2,799,378
Bay Village Conway, SC 133,480 1988 99 2,381,777
Belvedere Plaza Anderson, SC 158,739 1965/1992 73 2,331,027
Lakeside Shopping Center Anderson, SC 137,507 1979 96 2,134,162
Triangle Village Lexington, SC 115,754 1986 97 2,031,662
Widewater Square Columbia, SC 95,700 1976/1990 95 2,028,788
Palmetto Plaza Sumter, SC 97,864 1964/1996 98 2,013,032
Edisto Village Orangeburg, SC 108,668 1972/1994 98 1,980,334
Gateway Plaza Sumter, SC 91,150 1989 88 1,956,673
Shoppers Port Charleston, SC 74,400 1974/1992 100 1,890,984
Raleigh Blvd. Shopping Center Raleigh, NC 72,232 1990 94 1,755,941
Kalmia Plaza Aiken, SC 215,330 1967 75 1,747,952
Westland Square West Columbia, SC 62,735 1987/1996 96 1,692,883
Woodberry Plaza West Columbia, SC 82,930 1976/1994 100 1,645,846
Northway Plaza Columbia, SC 74,689 1974/1988 93 1,580,781
Western Square Laurens, SC 80,764 1978 82 1,379,182
Lawndale Village Greensboro, NC 46,337 1987 100 1,323,007
Raeford-Hoke Village Raeford, NC 73,530 1982 100 1,319,807
Fairfield Square Winnsboro, SC 54,640 1987 100 1,306,443
Northside Plaza-Henderson Henderson, NC 66,090 1981/1995 90 1,283,456
St. George Plaza St. George, SC 53,211 1982/1997 78 1,282,442
Waterway Plaza Little River, SC 49,750 1991 100 1,282,040
Northside Plaza-Clinton Clinton, NC 80,030 1982 92 1,234,189
Ravenel Town Center Ravenel, SC 48,050 1996 100 1,153,951
South Square Shopping Center Lancaster, SC 44,350 1992 100 1,148,991
Barnwell Plaza Barnwell, SC 70,725 1985 100 1,148,471
Capitol Squre West Columbia, SC 79,921 1974/1993 75 1,048,824
Blowing Rock Square Blowing Rock, NC 42,559 1990 100 1,047,320
Bainbridge Mall Bainbridge, GA 145,124 1973 91 1,046,440
Three Fountains Plaza West Columbia, SC 41,450 1986/1996 95 1,009,260
Crossroads Shopping Center Asheboro, NC 51,440 1981 100 1,000,793
</TABLE>
continued
- -------------------------------------------------------------------------------
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 Ltv.
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
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN EDENS & AVANT
PROPERTY DESCRIPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CUT-OFF DATE
YEAR BUILT/ OCCUPANCY ALLOCATED LOAN
PROPERTY LOCATION NRA LAST RENOVATED APRIL 8, 1997 AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Saluda Town Centre Saluda, SC 37,450 1996 100% $972,557
Clusters of Whitehall Columbia, SC 68,029 1973/1988 64 970,542
Lexington Village Lexington, SC 30,764 1988 95 954,392
Dreher Plaza West Columbia, SC 20,276 1989 100 931,594
Tri-County Plaza Royston, GA 63,510 1986 89 929,948
Clover Plaza Clover, SC 45,575 1990 98 903,605
Stephens Plaza Toccoa, GA 47,850 1989 100 804,486
Goldrush Shopping Center McCormick, SC 39,700 1993 100 757,251
Mitchell Plaza Batesburg, SC 39,970 1987 100 751,239
Blockbuster/Taco Bell-Lexington Lexington, SC 9,200 1990 100 662,593
Rosewood Extension Columbia, SC 13,188 1989 88 641,374
Edgecombe Square Tarboro, NC 85,740 1990 42 603,720
Forest Drive Shopping Ctr Columbia, SC 16,399 1988 85 519,033
Friarsgate Plaza Irmo, SC 68,235 1981/1996 82 491,790
Catawba Village Newton-Conover, NC 58,450 1978 86 477,676
Waynesville Shopping Center Waynesville, NC 33,300 1985 100 426,181
Shotwell Center Bainsbridge, GA 42,037 1980 100 403,332
Mauldin Square Mauldin, SC 15,800 1986 100 352,348
1634 Main Street Building Columbia, SC 13,994 1934/1988 89 351,753
Blockbuster-Irmo Irmo, SC 6,000 1988 100 333,806
Blockbuster-Decker Blvd. Columbia, SC 6,000 1989 100 321,007
Blockbuster-Warner Robbins Warner Robbins, GA 6,400 1989 100 281,004
Blockbuster-Broad River Columbia, SC 6,000 1988 100 222,634
Jackson Plaza Expansion Sylva, NC 8,000 1985 100 205,730
Edens KW Winnsboro Winnsboro, SC 7,200 1989 100 71,575
Taco Cid West Columbia, SC 2,090 1980 100 60,155
Lakeside Square Anderson, SC 48,441 1975 34 N/A
--------- --- -----------
TOTALS/WEIGHTED AVERAGES 4,439,655 91% $82,750,000
========= === ===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by
the Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
18
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN EDENS & AVANT
PROPERTY DESCRIPTION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUT-OFF DATE ANNUALIZED PRIMARY TENANTS WITH
ALLOCATED LOAN UNDERWRITABLE BASE RENT PSF GREATER THAN 15,000 SQ.FT.
PROPERTY AMOUNT NET CASH FLOW APRIL 8, 1997 APRIL 8, 1997(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florence Mall $5,516,883 $1,311,100 $6.59 (2)
Trenholm Plaza 4,399,870 1,093,249 9.07 (3)
NBSC Building 3,588,694 849,396 13.06 National Bank of South Carolina (2001)
Hampton Plaza 3,021,907 765,676 4.74 (4)
Cumberland Plaza 2,835,486 695,624 5.53 Wal-Mart (2008), Food Lion (2009)
Cunningham Place 2,799,378 690,419 4.89 Winn Dixie (2007), Wal-Mart (2007)
Bay Village 2,381,777 570,345 4.98 (5)
Belvedere Plaza 2,331,027 560,524 6.27 Hamrick's Inc. (2000), Farmers
Furniture (1999)
Lakeside Shopping Center 2,134,162 523,182 4.66 Wal-Mart (2000), Bi-Lo (2011)
Triangle Village 2,031,662 508,128 4.95 Food Lion (2006), Wal-Mart (2005)
Widewater Square 2,028,788 483,524 6.19 Bi-Lo (2011)
Palmetto Plaza 2,013,032 480,719 4.64 McCrory (1999), Food Lion (2017)
Edisto Village 1,980,334 476,356 5.48 (6)
Gateway Plaza 1,956,673 495,289 6.57 Bi-Lo (2008)
Shoppers Port 1,890,984 452,297 7.26 Food Lion (2010)
Raleigh Blvd. Shopping Center 1,755,941 444,884 7.84 Food Lion (2010)
Kalmia Plaza 1,747,952 502,886 3.14 Food Lion (2017), Roses Stores (1998)
Westland Square 1,692,883 401,253 7.70 Food Lion (2016)
Woodberry Plaza 1,645,846 398,658 5.76 Winn Dixie (2014), Big Lots (2000)
Northway Plaza 1,580,781 380,015 5.02 Food Lion (2017)
Western Square 1,379,182 336,422 6.49 Bi-Lo (2012)
Lawndale Village 1,323,007 322,415 7.26 Winn-Dixie (2007)
Raeford-Hoke Village 1,319,807 317,052 5.27 B.C. Moore & Sons, Inc. (2004)
Food Lion (2015)
Fairfield Square 1,306,443 314,566 6.40 Food Lion (2007)
Northwide Plaza-Henderson 1,283,456 318,495 4.78 Food Lion (2017)
St. George Plaza 1,282,442 311,420 5.10 Food Lion (2017)
Waterway Plaza 1,282,040 313,929 7.32 Food Lion (2016)
Northwide Plaza-Clinton 1,234,189 299,409 5.26 Food Lion (2016), Maxway (2001)
Ravenel Town Centre 1,153,951 282,401 6.03 Food Lion (2016)
South Square Shopping Center 1,148,991 288,227 7.64 Food Lion (2017)
Barnwell Plaza 1,148,471 290,073 4.79 Food Lion Inc. (2005), Wal-Mart (2005)
Capitol Square 1,048,824 255,399 5.13 Bi-Lo (2010)
continued
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Lease expirations are listed assuming no renewal options are exercised.
(2) Rogers Brothers Fabrics (2000), Books A Million (2005), Fleet Mortgage Group (1998), Piggly Wiggly (2009), Peebles-Kimbrell
Company (1997)
(3) Publix Super Markets (2017), Books a Million (2004), Fresh Market (2007)
(4) Gregg Appliances, Inc. (2006), Wal-Mart (2008), Central Tractor Farm & Country (2000), Michaels Arts & Craft (2001)
(5) Big Lots (1998), Wal-mart (2008), Goody's Family Clothing (Open Expiration)
(6) Bi-Lo (2014), Badcock Furniture (1998), Maxway Store (1999)
(7) Belk-Simpson (1998), Heilig-Myers Furniture (2002), Good's Family Clothing (1998), Bargain Town (1998)
</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.
19
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN EDENS & AVANT
PROPERTY DESCRIPTION
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUT-OFF DATE ANNUALIZED PRIMARY TENANTS WITH
ALLOCATED LOAN UNDERWRITABLE BASE RENT PSF GREATER THAN 15,000 SQ. FT.
PROPERTY AMOUNT NET CASH FLOW APRIL 8, 1997 APRIL 8, 1997(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Blowing Rock Square $ 1,047,320 $ 268,436 $ 7.21 Food Lion (2016)
Bainbridge Mall 1,046,440 267,154 2.90 (7)
Three Fountains Plaza 1,009,260 250,318 7.54 Food Lion (2016)
Crossroads Shopping Center 1,000,793 243,919 5.89 Food Lion (2006)
Saluda Town Centre 972,557 240,931 7.76 Food Lion (2016)
Clusters of Whitehall 970,542 209,177 6.71 N/A
Lexington Village 954,392 221,538 9.16 N/A
Dreher Plaza 931,594 217,762 12.61 N/A
Tri-County Plaza 929,948 210,770 4.73 Bi-Lo (2006)
Clover Plaza 903,605 234,122 6.22 Food Lion (2010)
Stephens Plaza 804,486 204,690 6.05 Bi-Lo (2009)
Goldrush Shopping Center 757,251 187,330 5.65 Food Lion (2013)
Mitchell Plaza 751,239 189,323 6.01 Food Lion (2006)
Blockbuster/Taco Bell-Lexington 662,593 157,958 19.41 N/A
Rosewood Extension 641,374 150,873 14.17 N/A
Edgecombe Square 603,720 164,470 6.65 Food Lion (2015)
Forest Drive Shopping Ctr 519,033 123,118 9.96 N/A
Friarsgate Plaza 491,790 107,720 3.32 Bi-Lo (2001)
Catawba Village 477,676 151,734 4.05 Bi-Lo (1998)
Waynesville Shopping Center 426,181 118,770 4.47 Food Lion (2006)
Shotwell Center 403,332 86,742 3.74 Harvey's Supermarket (2000)
Maudlin Square 352,348 80,514 7.02 N/A
1634 Main Street Building 351,753 81,953 12.77 N/A
Blockbuster-Irmo 333,806 78,315 13.75 N/A
Blockbuster-Decker Blvd 321,007 75,260 14.75 N/A
Blockbuster-Warner Robbins 281,004 65,621 12.25 N/A
Blockbuster-Broad River 222,634 51,778 16.76 N/A
Jackson Plaza Expansion 205,730 45,516 5.65 N/A
Edens KW Winnsboro 71,575 18,886 4.75 N/A
Taco Cid 60,155 13,529 10.33 N/A
Lakeside Square N/A 2,036 3.18 N/A
-------------- --------------- --------------- ---------------------------
Totals/Weighted Averages $82,750,000 $20,253,312 $ 6.06
============== =============== ===============
</TABLE>
- ---------------------------------------------------------------------------
(1) Lease expirations are listed assuming no renewal options are exercised.
(2) Rogers Brothers Fabrics (2000), Books A Million (2005), Fleet Mortgage
Group (1998), Piggly Wiggly (2009), Peebles-Kimbrell Company (1997)
(3) Publix Super Markets (2017), Books a Million (2004), Fresh Market
(2007)
(4) Gregg Appliances, Inc. (2006), Wal-Mart (2008), Central Tractor Farm &
Country (2000), Michaels Arts & Craft (2001)
(5) Big Lots (1998), Wal-Mart (2008), Goody's Family Clothing (Open
Expiration)
(6) Bi-Lo (2014), Badcock Furniture (1998), Maxway Store (1999)
(7) Belk-Simpson (1998), Heilig-Myers Furniture (2002), Goody's Family
Clothing (1998), Bargain Town (1998)
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>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN EDENS & AVANT
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT(1)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
TENANT OR OF TOTAL
PARENT COMPANY TENANT GLA
OF TENANT STORE NAME GLA (SF) (SF)(5)
- ------------------------- --------------------- ----------- ----------
<S> <C> <C> <C>
Food Lion, Inc. Food Lion 721,290 16.2%
Royal Ahold Bi-Lo 304,799 6.9
Wal-Mart Stores(3) Wal-Mart (3) 446,483 10.1
Revco DS, Inc. Revco 232,821 5.2
Blockbuster Entertainment Blockbuster Video 50,128 1.1
Winn-Dixie Stores Winn-Dixie 115,844 2.6
National Bank of S.C. National Bank of S.C. 46,350 1.0
Eckerd Corp. Eckerd's 59,662 1.3
Cato Corp. Cato 60,460 1.4
Publix Supermarkets Publix Supermarkets 37,912 0.9
----------- ----------
TOTALS/WEIGHTED AVERAGE
(10 LARGEST) 2,075,749 46.8%
OTHER MAJOR TENANTS (MORE
THAN 5,000 SQ. FT.) 1,440,959 32.5
REMAINING TENANTS 503,013 11.3
VACANT SPACE(2) 419,934 9.5
----------- ----------
TOTAL 4,439,655 100.0%
=========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PERCENT
TENANT OR OF TOTAL ANNUALIZED
PARENT COMPANY ANNUALIZED ANNUALIZED BASE RENT
OF TENANT BASE RENT BASE RENT(5) PSF
- ------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Food Lion, Inc. $ 4,170,035 17.1% $ 5.78
Royal Ahold 1,581,702 6.5 5.19
Wal-Mart Stores(3) 1,499,524 6.2 3.36
Revco DS, Inc. 1,383,127 5.7 5.94
Blockbuster Entertainment 817,699 3.4 16.31
Winn-Dixie Stores 747,224 3.1 6.45
National Bank of S.C. 637,565 2.6 13.76
Eckerd Corp. 423,779 1.7 7.10
Cato Corp. 423,443 1.7 7.00
Publix Supermarkets 318,456 1.3 8.40
------------- ------------ ------------
TOTALS/WEIGHTED AVERAGE
(10 LARGEST) $12,002,554 49.3% $ 5.78
OTHER MAJOR TENANTS (MORE
THAN 5,000 SQ. FT.) 6,161,447 25.3 4.28
REMAINING TENANTS 6,133,856 25.2 12.19
VACANT SPACE(2) 46,800 0.2 0.11
------------- ------------ ------------
TOTAL $24,344,657 100.0% $ 6.06
============= ============ ============
</TABLE>
- --------------------------------------------------------------------------------
LEASE EXPIRATION SCHEDULE(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF ANNUALIZED
YEAR ENDING EXPIRING PERCENT OF ANNUALIZED TOTAL AMORTIZED BASE RENT
DEC. 31 SF TOTAL SF(5) BASE RENT BASE RENT(5) PER SQ. FT.
- ------------------------ ----------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Vacant(2) 419,934 9.5% $ 46,800 0.2% $0.11
Open Expiration(4) 76,452 1.7 358,015 1.5 4.68
1997 164,590 3.7 1,322,361 5.4 8.03
1998 653,786 14.7 3,769,348 15.5 5.77
1999 379,753 8.6 2,694,931 11.1 7.10
2000 417,548 9.4 2,516,703 10.3 6.03
2001 371,125 8.4 2,641,518 10.9 7.12
2002 126,621 2.9 783,637 3.2 6.19
2003 55,770 1.3 323,573 1.3 5.80
Thereafter 1,774,076 40.0 9,887,770 40.6 5.57
----------- ------------ ------------- --------------- -------------
TOTALS/WEIGHTED AVERAGES 4,439,655 100.0% $24,344,657 100.0% $6.06
=========== ============ ============= =============== =============
</TABLE>
- -------------------------------------------------------------------------------
(1) Based on the April 8, 1997 rent roll.
(2) The $46,800 of Annualized Base Rent is from a vacated Cato at Western
square. Cato is still obligated to pay rent under its lease through
January 1999.
(3) Of the seven Wal-Mart Stores, four have vacated their space. In two of
the four cases, Wal-Mart has sub-leased the space. Wal-Mart remains
obligated under their lease terms for these centers.
(4) Open expiration category includes those leases which are listed on the
rent roll as being either month-to-month, or having expirations that
are prior to the date of the rent roll or having no expiration date.
(5) Numbers may not total 100.0% due to rounding.
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>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN ASHFORD
LOAN INFORMATION
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $74,500,000 $73,537,438
ORIGINATION DATE: January 21,1997
INTEREST RATE: 8.60%
AMORTIZATION: 240 months
HYPERAMORTIZATION: After the Effective Maturity Date, interest rate
increases to 13.60%. All excess cash flow is
used to reduce 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: January 21, 2007
MATURITY DATE: February 1, 2017
BORROWER/SPONSOR: 15 separate special-purpose borrowing entities,
each a Delaware limited partnership controlled
by the Fisher Brothers, Gordon Getty and George
Soros.
CALL PROTECTION: Two year prepayment 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 at the end
of each calendar quarter DSCR for the trailing
12 months is <1.15:1 and RevPAR at the
properties is <72.9% of RevPAR at specified
competitive properties as reported in the Smith
Travel Research Report for the trailing 12
months, (ii) upon a 50% or more change of
control of the manager without lender consent,
(iii) following acceleration or a monetary
event of default, (iv) for manager's gross
negligence, willful misconduct or fraud, or (v)
upon appointment of a receiver.
UP FRONT RESERVES: Deferred Maintenance: $318,000
GENERAL MONTHLY Property Taxes, Insurance, Debt Service, Ground
RESERVES: Lease, FF&E Reserves in the amount of $273,520
monthly.
COLLECTION ACCOUNT: Hard Lockbox.
CROSS-COLLATERALIZATION: Yes.
CROSS-DEFAULT: A default of the Westbury Loan ($2.5m) does not
default the rest of this loan, however a default
of the rest of the loan does default the
Westbury Loan.
MEZZANINE LOANS: None
PROPERTY INFORMATION
SINGLE ASSET/PORTFOLIO: Portfolio
PROPERTY TYPE: 14 hotels, 1 office building
LOCATION: LOCATION BY ALLOCATED LOAN ACCOUNT
Nebraska 1.5%
California 29.5%
Florida 27.6%
Texas 18.0%
New York 9.2%
New Jersey 5.7%
Massachusetts 4.9%
Virginia 3.6%
YEAR BUILT: See Property Description Table
THE COLLATERAL: 14 franchised hotels, with a total of 2,923
rooms, and one office building with GLA of
93,773 SF.
PROPERTY MANAGEMENT: Remington Hotel Corporation Affiliates
AVERAGE OCCUPANCY: HOTEL OFFICE
(LTM MAY 31, 1997) 66.3% 93.5%
ADR: $74.19 NA
(LTM MAY 31, 1997)
REVPAR: $49.19 NA
(LTM MAY 31, 1997)
1996 NET OPERATING
INCOME: $18,215,700
UNDERWRITABLE
NET CASH FLOW: $16,886,490
APPRAISED VALUE: $144,450,000
APPRAISED BY: Hospitality Valuation Services
APPRAISAL DATE: January 1, 1997
CUT-OFF DATE
LOAN/PER ROOM(1): $23,943
CUT-OFF DATE AT MATURITY
LTV: 50.9% 36.4%
DSCR(2): 2.16x 3.06x
(1) Based on Underwritable Net Cash Flow.
(2) Loan per Room excludes the $3,553,487 loan amount allocated to the office
building
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>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN ASHFORD
PORTFOLIO OVERVIEW
<TABLE>
<CAPTION>
YEAR
PROPERTY LOCATION ROOMS/SQ.FT. YEAR BUILT RENOVATED
<S> <C> <C> <C> <C>
Newark/Fremont Hilton Newark, CA 311 1984 1994
Radisson Plaza Fort Worth, TX 517 1921/1969 1980
Embassy Suites Palm Beach
Gardens Palm Beach Gardens, FL 160 1989 1995
St. Petersburg Bayfront Hotel St. Petersburg, FL 333 1971 1995
Holiday Inn Select, Beverly
Hills Beverly Hills Beverly Hills, CA 260 1973 1994
Admiralty Office Building Palm Beach Gardens, FL 93,773 1989 NA
Holiday Inn Select, Clark Clark, NJ 191 1973 1995
Howard Johnson Hotel Woburn, MA 100 1972 1994
Ramada Inn Seminary Plaza Alexandria, VA 193 1975 1995
Howard Johnson Lodge Middletown, NY 117 1975 1984
Howard Johnson Motor Lodge Westbury, NY 80 1967 1994
Howard Johnson Bed N Breakfast Commack, NY 109 1971 1995
Howard Johnson Plaza Saddle Brook, NJ 141 1969 1994
Ramada Inn Omaha, NE 215 1973 1995
Woburn Ramada Hotel Woburn, MA 196 1972 1995
----------
TOTAL 2,923 ROOMS/
93,773 SQ.FT.
=============
</TABLE>
<TABLE>
<CAPTION>
CUT-OFF DATE
ALLOCATED LOAN LOAN OCCUPANCY ADR UNDERWRITTEN
PROPERTY AMOUNT PER ROOM/PSF LTM MAY 31, 1997(1) LTM MAY 31. 1997 CASH FLOW
<S> <C> <C> <C> <C> <C>
Newark/Fremont
Hilton $14,016,532 $45,069 81.4% $86.92 $ 3,568,915
Radisson Plaza 13,226,868 25,584 59.4 85.74 3,150,788
Embassy Suites Palm
Beach Gardens 8,883,717 55,523 79.8 98.08 1,497,892
St. Petersburg
Bayfront Hotel 7,797,930 23,417 64.9 71.00 1,537,748
Holiday Inn Select,
Beverly Hills 7,699,222 29,612 75.7 68.84 1,557,977
Admiralty Office
Building 3,553,487 38 93.5 N/A 720,625
Holiday Inn Select,
Clark 3,059,947 16,021 69.8 82.54 1,410,192
Howard Johnson Hotel 2,763,823 27,638 72.4 68.38 578,386
Ramada Inn Seminary
Plaza 2,665,115 13,809 60.9 69.36 594,895
Howard Johnson Lodge 2,566,407 21,935 53.3 55.95 394,591
Howard Johnson Motor
Lodge 2,467,699 30,846 81.1 71.44 485,653
Howard Johnson Bed N
Breakfast 1,776,743 16,300 59.3 65.38 343,573
Howard Johnson Plaza 1,184,496 8,401 62.0 67.66 352,813
Ramada Inn 1,085,788 5,050 53.1 48.35 111,263
Woburn Ramada Hotel 789,664 4,029 61.7 66.07 581,179
--------- ------ ---- ----- -------
TOTAL/WEIGHTED
AVERAGES $73,537,438 $23,943/$38 66.3% $74.19 $16,886,490
=========== =========== ==== ====== ===========
</TABLE>
(1) Numbers may not total 100.0% due to rounding.
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>
LARGE
LOAN
PRELIMINARY COLLATERAL TERM SHEET:
MANSION GROVE
LOAN INFORMATION
<TABLE>
<CAPTION>
ORIGINAL CUT-OFF DATE
<S> <C> <C>
PRINCIPAL BALANCE: $73,000,000 $72,862,226
ORIGINATION DATE: June 9, 1997
INTEREST RATE: 8.35%
AMORTIZATION: 360 months
HYPERAMORTIZATION: After the Effective Maturity Date, interest rate
increases to the greater of 10.35% or the 20 year
UST + 2%, capped at 13.35%. All excess cash flow is
used to reduce outstanding principal balance; the
additional interest accrues interest at the
increased rate and is deferred until the principal
balance is zero.
EFFECTIVE MATURITY
DATE: July 1, 2007
MATURITY DATE: July 1, 2027
BORROWER/SPONSOR: Lick Mill Creek Apartments, a California limited
partnership. The limited partners are three family
trusts controlled by Sanford Diller 89%, Mark Kroll
5% and Robert Wagner 6%. The sole general partner is
Santa Clara Citimarc Devco, Inc., which is controlled
by Sanford Diller.
CALL PROTECTION: Prepayment lockout prior to July 1, 2002, thereafter
prepayable with a prepayment premium equal to the
greater of, (i) yield maintenance at U.S. Treasury
flat and (ii) 1% of the outstanding loan balance.
Loan prepayable at par beginning 90 days prior to the
Effective Maturity Date.
REMOVAL OF PROPERTY
MANAGER: Management may be terminated (i) if at the end of a
calendar quarter DSCR for the trailing twelve months
less than 1.10:1 and property is not being managed as
well as other properties in the market and continues
as such for 90 days (ii) upon the occurrence of an
event of default and appointment of a receiver, or
(iii) after the Effective Maturity Date.
UP FRONT RESERVES: None
GENERAL MONTHLY
RESERVES: Property Taxes, Insurance and Replacement reserves of
$29,200 montly.
COLLECTION ACCOUNTS: "Sweep Account" whereby borrower deposits gross
receipts daily into a property account which is swept
regularly into a cash collateral account used to
establish the escrows listed above; however, debt
service is not funded through the sweep account
unless Borrower defaults on payment or loan goes into
default.
CROSS-COLLATERALIZATION/ Not Applicable
DEFAULT:
MEZZANINE LOANS: None
</TABLE>
<PAGE>
PROPERTY INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Multifamily
LOCATION: 502 Mansion Park Drive
Santa Clara, California
YEAR BUILT: 1987 to 1989
THE COLLATERAL: 877-unit residential complex consisting of 24
three-story buildings and one cottage used as a
maintenance and concierge office in Santa Clara,
California Residential: 725,350 SF
Parking: 1,625 spaces of which 1,124 are located
within subterranean parking garages.
AMENITIES: 3 pools, 3 spas, 3 tennis courts, a 1,296 square foot
convenience store, weight and aerobic rooms
PROPERTY MANAGEMENT: Prometheus Management Group, Inc. d/b/a Maxim
Property Management
OCCUPANCY
(JUNE 26, 1997): 97%
1996 NET OPERATING
INCOME: $9,363,629
UNDERWRITABLE NET CASH
FLOW: $9,246,143
APPRAISED VALUE: $118,000,000
APPRAISED BY: Landauer Associates, Inc.
APPRAISAL DATE: April 9, 1997
CUT-OFF DATE
LOAN/PER UNIT: $83,081
CUT-OFF DATE AT MATURITY
LTV: 61.7% 54.7%
DSCR(1): 1.39x 1.58x
</TABLE>
- --------------
(1) Based On Underwritable Net Cash Flow.
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>
LARGE LOAN
PRELIMINARY COLLATERAL TERM SHEET:
MANSION GROVE
RESIDENTIAL UNIT SUMMARY(1)
<TABLE>
<CAPTION>
AVERAGE TOTAL TOTAL
AVERAGE TOTAL MARKET MONTHLY MARKET MONTHLY MARKET ANNUAL
TYPE NO. UNITS SQUARE FEET SQUARE FEET RENT/UNIT RENT/UNIT RENT/UNIT
- ------------------------ ----------- ------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
2 bedroom, 2 bath 1 1,000 1,000 $1,800 $ 1,800 $ 21,600
1 bedroom, 1 bath 438 700 306,600 1,250 547,500 6,570,000
2 bedroom, 2 bath 150 961 144,150 1,600 240,000 2,880,000
2 bedroom, 2 bath 288 950 273,600 1,550 446,400 5,356,800
----------- ------------- -------------- -------------- -------------- ---------------
TOTALS/WEIGHTED AVERAGES 877 827 725,350 $1,409 $1,235,700 $14,828,400
=========== ============= ============== ============== ============== ===============
</TABLE>
- -----------------------------------------------------------------------------
(1) Source: Landauer Associates, Inc.
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>
LARGE LOAN
PRELIMINARY COLLATERAL TERM SHEET:
NORTH SHORE TOWERS
LOAN INFORMATION
<TABLE>
<CAPTION>
ORIGINAL CUT-OFF DATE
<S> <C> <C>
PRINCIPAL BALANCE: $71,700,000 $70,280,966
ORIGINATION DATE: November 21, 1994
INTEREST RATE: 9.32%; 2.57% retained by John
Hancock, leaving a
pass-through coupon of 6.75%
AMORTIZATION: 360 months
HYPERAMORTIZATION: None Applicable
EFFECTIVE MATURITY
DATE: Not Applicable
MATURITY DATE: December 1, 2004
BORROWER/SPONSOR: The borrower is North Shore
Towers Apartments
Incorporated, a New York
Corporation and the sponsor is
Three Towers Holding, Inc., a
co-operative housing unit.
CALL PROTECTION: Prepayable in full with a
prepayment premium equal to
the greater of: (i) yield
maintenance and; (ii) 1% of
the outstanding loan balance.
Loan prepayable at par
beginning 90 days prior to
the Maturity Date.
REMOVAL OF PROPERTY
MANAGER: None.
UP FRONT RESERVES:
[(BALANCE AS OF CUT-OFF
DATE)]: None
GENERAL MONTHLY
RESERVES: Property Taxes
COLLECTION ACCOUNTS: None
CROSS-COLLATERALIZATION/
DEFAULTS: Not Applicable
MEZZANINE LOAN: None
</TABLE>
PROPERTY INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: High-rise Multifamily Cooperative
LOCATION: 269-10, 270-10, and 271-10 Grand
Central Parkway
Floral Park, New York
YEAR BUILT: 1971
THE COLLATERAL: Three 33-story, 1,844-unit
multifamily buildings in Queens
County, New York:
Residential: 1,743,792 NRSF
Parking: 2,374 spaces in a below
grade parking garage, plus 547
surface parking spaces.
AMENITIES: 18-hole golf course, swimming
pool, tennis courts, movie
theater, plus commercial tenants
including;
Chase Manhattan Bank, Towers Card
and Gift Shop, Towers Fruit and
HBA Travel.
PROPERTY MANAGEMENT: North Shore Towers Management
Incorporated affiliate of sponsor
OCCUPANCY: Sponsor Held Units (295 Total),
were 92% occupied as of August 22, 1997.
1996 NET OPERATING INCOME: N/A
UNDERWRITABLE NET CASH
FLOW: $20,124,264
APPRAISED VALUE: $350,000,000
APPRAISED BY: Regional Appraisal Associates
APPRAISAL DATE: June 30, 1997
CUT-OFF DATE
LOAN/PER UNIT: $38,113
CUT-OFF DATE AT MATURITY
LTV: 20.1% 18.4%
DSCR(1): 2.83x 3.14x
</TABLE>
(1) Based on Underwritable Net Cash Flow.
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>
LARGE LOAN
PRELIMINARY COLLATERAL TERM SHEET:
NORTH SHORE TOWERS
RESIDENTIAL APARTMENT UNITS SUMMARY
<TABLE>
<CAPTION>
NO. NO. TOTAL SQ. FT./ TOTAL SQ.
TYPE UNITS ROOMS ROOMS UNIT FT.
- -------------- ------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
One Bed-Arcade 1 3.0 3 684 684
Two Bed-Arcade 1 4.0 4 712 712
Two Bed-Arcade 1 5.0 5 1,216 1,216
Studio-Arcade 6 2.0 12 300 1,800
Studio 22 2.0 44 450 9,900
Studio 137 2.5 343 600 82,200
One Bed 403 3.0 1,209 700 282,100
One Bed 706 4.0 2,824 930 656,580
Two Bed 444 5.0 2,220 1,200 532,800
Two Bed 13 7.0 91 1,800 23,400
Three Bed 104 6.0 624 1,350 140,400
Three Bed 6 8.0 48 2,000 12,000
------- ------- -----------
TOTALS 1,844 7,427 1,743,792
======= ======= ===========
</TABLE>
- -----------------------------------------------------------------------------
SPONSOR HELD RESIDENTIAL APARTMENT UNITS SUMMARY
<TABLE>
<CAPTION>
STABILIZED
NO. NO. TOTAL SQ. FT./ TOTAL MONTHLY MONTHLY
TYPE/SQ.FT OF UNITS OF ROOMS ROOMS UNIT SQ. FT. RENT MAINTENANCE(1)
- ------------ ---------- ---------- ------- ---------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Studio 1 2.0 2 450 450 $ 690 $ 440
Studio 1 2.5 3 600 600 1,145 617
One Bed 54 3.0 162 700 37,800 49,159 37,542
One Bed 131 4.0 524 930 121,830 165,300 151,225
Two Bed 93 5.0 465 1,200 111,600 155,222 152,982
Three Bed 14 6.0 84 1,350 18,900 26,347 31,879
Three Bed 1 8.0 8 2,000 2,000 4,037 3,905
---------- ------- --------- ------------ --------------
TOTALS 295 1,248 293,180 $401,900 $378,590
========== ======= ========= ============ ==============
</TABLE>
- -----------------------------------------------------------------------------
(1) Monthly Maintenance is calculated by allocating the maintenance charges
per available share, including electricity, from the December 31, 1996
financial statement to individual units based on their share allocation
outlined in the Offering Plan September 16, 1985.
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.
<PAGE>
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
27
<PAGE>
LARGE LOAN
PRELIMINARY COLLATERAL TERM SHEET:
FASHION MALL -- KEYSTONE AT THE CROSSING
LOAN INFORMATION
<TABLE>
<CAPTION>
ORIGINAL CUT-OFF DATE
<S> <C> <C>
PRINCIPAL BALANCE: $65,000,000 $64,864,238
ORIGINATION DATE: June 13, 1997
INTEREST RATE: 7.85%
AMORTIZATION: 360 MONTHS
HYPERAMORTIZATION: After the Effective Maturity
Date, interest rate increases
to the greater of 9.85% or the
20 year UST + 2%, capped at
12.85%. All excess cash flow is
used to reduce outstanding
principal balance; the
additional interest accrues
interest at the increased rate
and is deferred until the
principal balance is zero.
EFFECTIVE MATURITY DATE: June 13, 2007
MATURITY DATE: July 1, 2027
THE BORROWER/SPONSOR: Galahad Real Estate
Corporation, a wholly-owned
subsidiary of Pendragon Real
Estate Corporation, which is a
wholly-owned subsidiary of
Shell Pensions Trust Ltd.,
United Kingdom, as trustee of
the Shell Contribution Pension
Fund.
CALL PROTECTION: Two year prepayment lockout
from the date of the
securitization; thereafter,
prepayable with a prepayment
premium equal to the greater
of: (i) yield maintenance at
U.S. Treasury plus 50bp and
(ii) 1% of the outstanding loan
balance. Loan prepayable at par
beginning 90 days prior to the
Effective Maturity Date.
REMOVAL OF PROPERTY
MANAGER: Management may be replaced by
lender if as of the end of any
calendar quarter DSCR less than
1.10:1, or following an event
of default or at any time after
the Effective Maturity Date.
UP-FRONT RESERVES: None
ONGOING RESERVES: Property Taxes, Insurance, Debt
Service, Ground Rent and
Replacement Reserves of $8,518
monthly.
COLLECTION ACCOUNT: Hard Lockbox
CROSS-COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: None
</TABLE>
PROPERTY INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Regional Mall
LOCATION: 8702 Keystone Crossing,
Indianapolis, Indiana
YEAR BUILT/RENOVATED AND
EXPANDED: 1973/various times to 1992.
<PAGE>
THE COLLATERAL: Two-story, two-anchor regional
mall, with a total GLA of 682,912
SF, mall store space of 349,222
SF, 249,721 SF of anchor stores,
54,829 SF of outparcel space and
29,140 SF is an adjacent
one-story strip center.
Collateral GLA is 682,912.
Anchors are Parisian and
Jacobson.
PROPERTY MANAGEMENT: Urban Shopping Centers, Inc. a
NYSE company
PERCENT OF MALL STORE SPACE
LEASED (MAY 31, 1997): 88.0%
1996 NET OPERATING INCOME: $10,170,268
UNDERWRITABLE NET CASH
FLOW: $9,748,888
APPRAISED VALUE: $116,000,000
APPRAISED BY: Landauer Associates, Inc.
APPRAISAL DATE: March 18, 1997
CUT-OFF DATE
LOAN/PSF: $95
CUT-OFF DATE AT MATURITY
LTV: 55.9% 49.1%
DSCR(1): 1.73x 1.97x
MALL STORE SALES 1995 1996
PSF(2): $372 $359
</TABLE>
(1) Based on Underwritable Net Cash Flow.
(2) 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.
28
<PAGE>
LARGE LOAN
PRELIMINARY COLLATERAL TERM SHEET:
FASHION MALL -- KEYSTONE AT THE CROSSING
TEN LARGEST MALL STORE TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
PERCENT PERCENT
TENANT OR OF TOTAL OF TOTAL ANNUALIZED
PARENT COMPANY TENANT GLA ANNUALIZED ANNUALIZED BASE RENT
OF TENANT STORE NAME GLA (SF) (SF)(3) BASE RENT BASE RENT(3) PSF
- ------------------------------------- ------------------------------- --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
The Limited Inc. Limited 37,531 10.7% $ 716,383 9.9% $19.09
Abercrombie and Fitch
Structure
Bath & Body Works
Victoria's Secret
Williams-Sonoma, Inc. Hold Everything 20,148 5.8 424,119 5.8 21.05
Pottery Barn
Williams-Sonoma
The Gap Inc. Banana Republic 15,537 4.4 418,696 5.8 26.95
Gap
Gap Kids
Baby Gap
Spiegel, Inc. Edie Bauer 17,534 5.0 403,282 5.6 23.00
J. Crew Group, Inc. J. Crew 8,566 2.5 308,376 4.3 36.00
Talbots Talbots 9,508 2.7 218,176 3.0 22.95
Talbots Kids
Laura Ashley Holdings, Plc. Laura Ashley 8,000 2.3 208,000 2.9 26.00
Marks & Spencer, Plc. Brooks Brothers 6,678 1.9 153,594 2.1 23.00
Jos. A. Bank Clothiers Jos. A. Bank Clothiers 7,608 2.2 144,552 2.0 19.00
Raleigh Limited Raleigh Limited 6,000 1.7 135,900 1.9 22.65
--------- ---------- ------------ ------------ ---------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 137,110 39.3% $3,131,077 43.2% $22.84
REMAINING (EXCLUDING NON-OWNED ANCHORS) 168,199 48.2 4,121,583 56.8 24.50
VACANT 43,913 12.6 0 0.0 0.00
--------- ---------- ------------ ------------ ---------
TOTAL (EXCLUDING NON-OWNED ANCHORS) 349,222 100.0% $7,252,660 100.0% $23.89(2)
========= ========== ============ ============ =========
</TABLE>
- -----------------------------------------------------------------------------
(1) Based on the May 1997 Rent Roll. Mall Store Space only includes Fashion
Mall East and Fashion Mall West. Excludes Keystone Shoppes and
outparcels.
(2) Does not include vacant and open expiration square footage and base
rent.
(3) Numbers may not total 100.0% due to rounding.
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>
LARGE LOAN
PRELIMINARY COLLATERAL TERM SHEET:
FASHION MALL -- KEYSTONE AT THE CROSSING
<TABLE>
<CAPTION>
CREDIT
RATING OF
PARENT ANCHOR- OPERATING
PARENT COMPANY(1) OWNED LEASE COVENANT REA
ANCHORS COMPANY S&P/MOODY'S GLA COLLATERAL EXPIRATION(2) EXPIRATION(3)(4) TERMINATION
- ------------ -------------------- --------------- --------- ------------ --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parisian Proffitt's Inc. Na/Ba2 129,721 Collateral 2043 2013 NA
Jacobson's Jacobson Stores Inc. NA/Ba3 120,000 Collateral 2048(4) 2013(4) NA
</TABLE>
- -----------------------------------------------------------------------------
MALL STORE LEASE EXPIRATION SCHEDULE (5)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF TOTAL
YEAR ENDING PERCENT OF ANNUALIZED TENANT ANNUALIZED BASE ANNUALIZED BASE
DECEMBER 31 EXPIRING SF TOTAL SF(7) BASE RENT RENT(7) RENT PSF
- -------------- ------------- -------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Vacant 43,913 12.57% $ 0 0.00% $ 0.00
Month to Month 9,979 2,86 198,384 2.74 19.88
1997 6,570 1.88 174,528 2.41 26.56
1998 22,338 6.40 597,891 8.24 26.77
1999 36,733 10.52 834,907 11.51 22.73
2000 40,208 11.51 749,370 10.33 18,64
2001 10,113 2.90 247,411 3.41 24.46
2002 4,529 1.30 126,471 1.74 27.92
2003 22,069 6.32 646,354 8.91 29.29
2004 35,063 10.04 794,538 10.96 22.66
2005 46,512 13.32 1,071,285 14.77 23.03
2006 35,310 10.11 998,131 13.76 28.27
2007 or Later 35,885 10.28 813,389 11.22 22.67
------------- -------------- ----------------- ---------------- ---------------
TOTAL 349,222 100.00% $7,252,660 100.00% $23.89(6)
============= ============== ================= ================ ===============
</TABLE>
- -----------------------------------------------------------------------------
(1) Reflects long-term debt rating as of September 22, 1997.
(2) Includes initial term and options identified in the lease.
(3) Date of operating covenant expiration is the expiration date of the
covenant requiring the anchor store to be open and operating (inclusive
of current store name and other store names) without taking into
account co-tenancy or other operating requirements.
(4) Based on the latest required term commencement date of the lease. The
actual commencement date, and expiration date, may be earlier.
(5) Based on the May 1997 Rent Roll. Mall Store Space only includes Fashion
Mall East and Fashion Mall West. Excludes Keystone Shoppes and
outparcels.
(6) Weighted average annualized base rent PSF excludes vacant space and
month-to-month tenants.
(7) Numbers may not total 100.00% due to rounding.
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>
LARGE
LOAN
PRELIMINARY COLLATERAL TERM SHEET:
YORKTOWN SHOPPING CENTER
LOAN INFORMATION
<TABLE>
<CAPTION>
ORIGINAL CUT-OFF DATE
<S> <C> <C>
PRINCIPAL BALANCE: $60,000,000 $57,304,459
ORIGINATION DATE: June 28, 1994, refinancing existing loans made
between 1968 and 1986
INTEREST RATE: 8.25%
AMORTIZATION: 300 months
HYPERAMORTIZATION: N/A
EFFECTIVE MATURITY
DATE: N/A
MATURITY DATE: July 1, 2004
BORROWER/SPONSOR: Yorktown Joint Venture, an Illinois general
partnership. The general partners are the
Estate of E.D. Pehrson et. al. (52.0%) the
Rogers Brothers (21.0%), Pehrson Yorktown
Investments, L.P. (14.06%) Carroll Yorktown
Investments, L.P. (8.44%), Joel B. Wilder
(3.5%) and Sumner Schein (1.0%)
CALL PROTECTION: Prepayment lockout through July 1, 1999;
thereafter, payable with a prepayment premium
equal to the greater of: (i) yield maintenance
at U.S. Treasury plus 50bp and (ii) 2%
declining 1/4% annually to 1% of the
outstanding loan balance. Loan prepayable at
par 90 days prior to the Effective Maturity
Date.
REMOVAL OF PROPERTY
MANAGER: None
UP FRONT RESERVES: None
ONGOING RESERVES: Property Taxes and Insurance
COLLECTION ACCOUNT: None
CROSS-COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: None; however, mortgage allows borrower to
secure secondary financing provided certain
DSCR (combined greater than 1.25x), LTV
(combined less than 90%), and occupancy
(greater than 85%) tests are met and mortgagee
approves form and content of documents.
PROPERTY INFORMATION
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Super Regional Mall
LOCATION: 203 Yorktown Avenue, Lombard, Illinois
YEAR BUILT/RENOVATED
AND EXPANDED: 1968/1994
THE COLLATERAL: Two-story, four-anchor super regional mall
with a total GLA of 1,305,907 SF, mall store
space of 392,658, 825,368 SF of self-owned
anchor stores and 87,881 SF of outparcel
space. Collateral GLA is 480,539.
Anchors include JC Penney, Von Maur,
Montgomery Ward and Carson, Pirie, Scott & Co.
PROPERTY MANAGEMENT: R. Long, E.D. Pehrson Associates, Wilder
Management
PERCENT OF MALL STORE
SPACE LEASED
(JUNE 30, 1997): 91.7%
1996 NET OPERATING
INCOME: $8,253,907
UNDERWRITABLE NET
CASH FLOW: $7,570,166
APPRAISED VALUE: $119,500,000
APPRAISED BY: Landauer Associates Inc.
APPRAISAL DATE: September 9, 1997
CUT-OFF DATE
LOAN/PSF: $119
CUT-OFF DATE AT MATURITY
LTV: 48.0% 40.8%
DSCR(1): 1.33x 1.64x
MALL STORE SALES 1995 1996
PSF(2): $ 281 $ 297
</TABLE>
- ------------
(1) Based on Underwritable Net Cash Flow.
(2) 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.
31
<PAGE>
LARGE
LOAN
PRELIMINARY COLLATERAL TERM SHEET:
YORKTOWN SHOPPING CENTER
TEN LARGEST MALL STORE TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
PERCENT PERCENT
TENANT OR OF TOTAL OF TOTAL ANNUALIZED
PARENT COMPANY TENANT GLA ANNUALIZED ANNUALIZED BASE RENT
OF TENANT STORE NAME GLA (SF) (SF)(3) BASE RENT BASE RENT(3) PSF
- ------------------------ ------------------- --------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
The Limited Inc. Express, Inc. 41,381 10.5% $853,320 12.9% $20.62
Lane Bryant
Lerners
Limited
Structure
Victoria's Secrets
Wooldworth Corp. Woolworths 58,967 15.0 362,735 5.5 6.15
Footlocker
Lady Footlocker
Champs sports
NA The Gap 10,094 2.6 238,856 3.6 23.66
The Gap Kids
NA Evans 15,719 4.0 223,989 3.4 14.25
Casual Corner Group Inc. Casual Corner 7,000 1.8 175,355 2.6 25.05
Petite Sophisticate
Mark Bros. Jewelers Mark Bros. Jewelers 1,938 0.5 172,200 2.6 88.85
Lundstrom Jewelers
Musicland Sam Goody 12,486 3.2 163,000 2.5 13.05
Disney Store Disney Store 6,432 1.6 141,504 2.1 22.00
NA Rogers Jewelers 1,887 0.5 113,220 1.7 60.00
NA Bachrachs 5,058 1.8 105,510 1.6 20.86
--------- ---------- ------------ ------------ ------------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 160,962 41.0% $2,549,689 38.4% $15.84
REMAINING (EXCLUDING NON-OWNED ANCHORS) 199,190 50.7 4,088,086 61.6 20.52
VACANT 32,506 8.3 0 0.0 0.00
--------- ---------- ------------ ------------ ------------
TOTAL (EXCLUDING NON-OWNED ANCHORS) 392,658 100.0% $6,637,775 100.0% $19.57(2)
========= ========== ============ ============ ============
</TABLE>
- ------------
(1) Based on the June 30, 1997 Rent roll.
(2) Weighted Average annualized base rent PSF excludes vacant space and
month to month tenants.
(3) Numbers may not total 100.0% due to rounding.
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
LARGE LOAN PRELIMINARY COLLATERAL TERM SHEET:
YORKTOWN SHOPPING CENTER
ANCHOR SUMMARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CREDIT RATING OF OPERATING REA
PARENT PARENT COMPANY(1) ANCHOR-OWNED/ LEASE COVENANT TERMINATION
ANCHOR TENANT COMPANY (S&P)(MOODY'S) GLA COLLATERAL EXPIRATION EXPIRATION(2) YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J.C. Penney J.C. Penney Co., Inc. A/A2 239,110 Anchor-Owned NA Expired 2010
Carson, Pirie, Scott Carson, Pirie, Scott & Co. NA/NA 214,534 Anchor-Owned NA Expired 2010
Von Maur Von Maur and Company NA/NA 206,342 Anchor-Owned NA 2009 2033
Montgomery Ward Montgomery Ward & Co. NA/NA(3) 165,382 Anchor-Owned NA Expired 2010
</TABLE>
MALL STORE LEASE EXPIRATION SCHEDULE(4)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ANNUALIZED
YEAR ENDING EXPIRING PERCENT OF ANNUALIZED PERCENT OF TOTAL BASE RENT
DECEMBER 31 SF TOTAL SF(6) BASE RENT ANNUALIZED BASE RENT(6) PER SQ. FT.
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vacant 32,506 8.28% $ 0 0.00% $ 0.00
Month to Month 36,591 9.32 306,465 4.62 8.38
1997 43,049 10.96 313,444 4.72 7.28
1998 30,247 7.70 615,685 9.28 20.36
1999 58,020 14.78 316,329 4.77 5.45
2000 17,257 4.39 537,791 8.10 31.16
2001 11,409 2.91 409,744 6.17 35.91
2002 15,247 3.88 556,692 8.39 36.51
2003 9,323 2.37 555,479 8.37 59.58
2004 23,227 5.92 644,130 9.70 27.73
2005 16,910 4.31 463,219 6.98 27.39
2006 52,592 13.39 1,100,928 16.59 20.93
2007 or Later 46,280 11.79 817,869 12.32 17.67
------- ------ ---------- ------ -----
TOTAL/WEIGHTED AVERAGE 392,658 100.00% $6,637,775 100.00% $19.57(5)
======= ====== ========== ====== ======
- -------------------------------------------------------------------------------
(1) Reflects long-term debt rating of the parent company as of September 1997.
(2) Date of operating covenant expiration is the expiration date of the covenant
requiring the anchor store to be open and operating (inclusive of current
name and other store names), without taking into account co-tenancy or other
operating requirements.
(3) See information in the Prospectus Supplement regarding Montgomery Ward & Co.
bankruptcy.
(4) Data is based on the June 30, 1997 Rent Roll.
(5) Weighted average annualized base rent PSF excludes vacant space and month to
month tenants.
(6) Numbers may not total 100.00% 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.
33
<PAGE>
LARGE LOAN PRELIMINARY COLLATERAL TERM SHEET:
GRAND KEMPINSKI
LOAN INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $55,000,000 $55,000,000
ORIGINATION DATE: September 11, 1997
INTEREST RATE: 8.63%
AMORTIZATION: 300 months
HYPERAMORTIZATION: After the Effective Maturity Date, interest rate
increases to 13.63%. All excess cash flow is used to
reduce 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, 2007
MATURITY DATE: October 1, 2022
BORROWER/SPONSOR: Registry Dallas Associates L.P., a special-purpose
Delaware limited partnership controlled by the Rolaco
Group.
CALL PROTECTION: Prepayment lockout through September 11, 2000;
thereafter, prepayable with a prepayment premium of
the greater of: (i) yield maintenance at U.S. Treasury
flat and (ii) 1% of the outstanding loan balance.
Loan prepayable at par beginning on the Effective
Maturity Date.
REMOVAL OF PROPERTY
MANAGER: Management may be replaced by leader if as of the
end of any calendar quarter DSCR <1.10 or following
an event of default.
UP FRONT RESERVES: Repair Fund: $127,750
GENERAL MONTHLY
RESERVES: Property Taxes, Insurance, Debt Service, FF&E
Reserves equal to 1/12 of 4% of annual operating
income, Operating Expenses, Mezzanine Escrow.
COLLECTION ACCOUNT: Hard Lockbox
CROSS-COLLATERALIZING/
DEFAULT: N/A
MEZZANINE LOANS: Yes. $7,000,000. Currently held by Morgan Stanley
Mortgage Capital Inc.
</TABLE>
PROPERTY INFORMATION
<TABLE>
<CAPTION>
<S> <C>
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Hotel
LOCATION: 15201 Dallas Parkway, Dallas, Texas
YEAR BUILT: 1983
THE COLLATERAL: Four-star, 15-story luxury convention hotel with 528
rooms, 76,318 square feet of meeting space and 860
parking spaces.
PROPERTY MANAGEMENT: Kempinski International, Inc. Inter-Continental, Inc.
will be managing the hotel by November 15, 1997
(approximately). Inter-Continental, Inc. has executed
a new management contract.
AVERAGE OCCUPANCY
(LTM JUNE 30, 1997): 69.9%
ADR
(LTM JUNE 30, 1997): $110.99
REVPAR
(LTM JUNE 30, 1997): $77.58
1996 NET OPERATING INCOME: $11,416,707
UNDERWRITABLE
NET CASH FLOW: $9,289,725
APPRAISED VALUE: $90,000,000
APPRAISED BY: Hospitality Valuation Services.
APPRAISAL DATE: April 1, 1997
CUT-OFF DATE LOAN/ROOM: $104,167
CUT-OFF DATE AT MATURITY
LTV: 61.1% 50.1%
DSCR(1): 1.73x 2.11x
(1) Based on Underwritable Net Cash Flow.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by
the Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
34
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN GRAND KEMPINSKI
PROPERTY OVERVIEW
- ---------------------------------------------------
<TABLE>
<CAPTION>
GUESTROOMS UNITS
- --------------------------------------- ---------
<S> <C>
King Beds 293
Double/Doubles 204
Suites 31
---------
TOTAL 528
=========
FOOD/BEVERAGE FACILITY SEATS
- --------------------------------------- ---------
Le Cafe (Coffee Shop/Restaurant) 250
Monte Carlo (French/Italian Restaurant) 230
La Gala (Reception Hall) 150
Malachite (Showroom) 750
Bristol Lounge (Lobby Lounge/Bar) 120
Kempi's (Nightclub) 750
---------
TOTAL 2,250
=========
MEETING AND BANQUET ROOM SQ. FT.
- --------------------------------------- ---------
Crystal Ballroom (8 sections) 25,400
Crystal Ballroom Foyer 20,000
Lalique Ballroom (2 sections) 4,560
Lalique Foyer 2,000
Malachite Showroom 9,280
Le Gala Reception Hall 3,180
3 Conference Rooms (2 sections each) 3,300
2 Board Rooms 1,100
2 Meeting Rooms
Cosmopolitan 650
Metroplex 650
Addison Hospitality Suite 1,030
Garden Court 5,168
---------
TOTAL 76,318
=========
</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.
35
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN GRAND KEMPINSKI
ANALYSIS OF ACCOMMODATION UTILIZATION(1)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GRAND KEMPINSKI MARKETWIDE
------------------------------- ---------------------------
ROOM RIGHTS ROOM RIGHTS PERCENT OF
MARKET SEGMENT SUPPLIED PERCENT OF TOTAL SUPPLIED TOTAL
- ---------------- ------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Meetings & Group 64,000 46% 206,000 36%
Commercial 55,000 40 269,000 47
Leisure 10,000 7 88,000 15
Airline 10,000 7 10,000 2
------------- ---------------- ------------- ------------
TOTALS 139,000 100% 572,000 100%
============= ================ ============= ============
</TABLE>
ANALYSIS OF PRIMARY COMPETITORS(1)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER MEETING ESTIMATED 1995
PROPERTY OF ROOMS SPACE OCCUPANCY ADR
- ------------------------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Grand Kempinski 528 76,000 73.5% $ 97.40
Dallas Marriot Qorum 547 16,000 82.0 94.00
Westin Galleria 431 35,978 81.0 131.00
Doubletree Lincoln Center 502 25,000 72.0 90.00
---------- --------- ----------- ---------------
TOTALS/WEIGHTED AVERAGES 2,008 152,978 77.1% $102.30
========== ========= =========== ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ESTIMATED 1996
PROPERTY REVFAR OCCUPANCY ADR REVPAR
- ------------------------- -------- ----------- -------------- --------
<S> <C> <C> <C> <C>
Grand Kempinski $ 71.60 71.9% $104.60 $ 75.21
Dallas Marriot Qorum 77.08 84.0 102.00 85.68
Westin Galleria 106.11 83.0 144.00 119.52
Doubletree Lincoln Center 64.80 74.0 100.00 74.00
-------- ----------- -------------- --------
TOTALS/WEIGHTED AVERAGES $ 78.80 78.2% $111.70 $ 87.27
======== =========== ============== ========
</TABLE>
- ---------------------------------------------------------------------------
(1) Source: Hospitality Valuation Services, April 1, 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.
<PAGE>
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
36
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN ARROWHEAD TOWNE CENTER
LOAN INFORMATION
ORIGINAL CUT-OFF DATE
PRINCIPAL BALANCE: $50,000,000 $48,899,962
ORIGINATION DATE: December 28, 1994
INTEREST RATE: 8.60%
AMORTIZATION: 360 months
HYPERAMORTIZATION: N/A
EFFECTIVE/MATURITY
DATE N/A
MATURITY DATE: January 1, 2002
BORROWER/SPONSOR: New River Associates, single asset Arizona
general partnership. The general partners are
wholly-owned affiliates of Westcor Realty Limited
Partnership, General Growth Properties Inc. and
JCP Realty Inc., each with a one-third general
partnership interest.
CALL PROTECTION: Prepayable with a prepayment premium equal to
the greater of: (i) yield maintenance at U.S.
Treasury flat and (ii) 2% in 1997 and then
declining 1/2% annually to 1% of the outstanding
loan balance. Loan prepayable at par 120 days
prior to the Maturity Date.
REMOVAL OF PROPERTY
MANAGER: None
UP FRONT RESERVES: None
GENERAL MONTHLY
RESERVES: Property Taxes
COLLECTION ACCOUNT: None
CROSS COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOAN: None
PROPERTY INFORMATION
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Super-Regional Mall
LOCATION: 7700 West Bell Road Glendale, Arizona
YEAR BUILT: 1993
THE COLLATERAL: Two-story, five-anchor super-regional mall
with a total of 1,132,244 SF, mall space of
394,297 SF and 737,947 of self-owned anchor
stores. Collateral GLA is 394,297 SF.
Anchors include Dillard's, JC Penney, Mervyn's,
Montgomery Ward and Robinson May.
PROPERTY
MANAGEMENT: Westcor Partners
PERCENT OF MALL STORE
SPACE LEASED
(JUNE 30, 1997): 89.2%
1996 NET
OPERATING INCOME: $8,516,785
UNDERWRITABLE NET
CASH FLOW: $8,356,914
APPRAISED VALUE: $105,000,000
APPRAISED BY: Landauer Associates, Inc.
APPRAISAL DATE: September 4, 1997
CUT-OFF DATE
LOAN/PSF: $124
LTV: CUT-OFF DATE: AT MATURITY
46.6% 44.4%
DSCR(1): 1.79x 1.93x
MALL STORE SALES 1995 1996
PSF(2): $254 $281
(1) Based on Underwritable Net Cash Flow.
(2) 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.
37
<PAGE>
LARGE LOAN PRELIMINARY COLLATERAL TERM SHEET:
ARROWHEAD TOWNE CENTER
TEN LARGEST MALL STORE TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TENANT OR PERCENT PERCENT OF TOTAL ANNUALIZED
PARENT COMPANY TENANT OF TOTAL ANNUALIZED ANNUALIZED BASE RENT
OF TENANT STORE NAME GLA(SF) GLA(SF)(4) BASE RENT BASE RENT(4) PSF
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Limited Inc. Compagnie Int'l Express 41,704 10.6% $ 625,560 7.2% $15.00
Lerner New York
Limited, The
Victoria's Secret
Structure
Woolworth Corp. Champs 8,869 2.2 211,442 2.4 23.84
Footlocker
Lady Footlocker
Trans World Entertainment Corp. Record Town 7,613 1.9 182,712 2.7 24.00
Chevy's Mexican Restaurant Chevy's Mexican Restaurant 7,114 1.8 170,736 2.5 24.00
Spiegel, Inc. Eddie Bauer 6,000 1.5 150,000 2.2 25.00
The Gap Inc. Gap, The 5,277 1.3 131,925 2.0 25.00
Brown Group Inc. Famous Footwear 5,664 1.4 131,877 1.5 23.28
Naturalizer
Pocket Change Pocket Change 4,690 1.2 131,320 1.9 28.00
Charolette Russe Charolette Russe 7,291 1.8 109,365 1.6 15.00
Arizona Outfitters Arizona Outfitters 5,664 1.4 107,616 1.6 19.00
------- ----- ---------- ----- ------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 99,886 25.3% $1,952,553 22.3% $19.55
REMAINING (EXCLUDING NON-OWNED ANCHORS) 252,168 61.0 6,758,386 77.1 25.15
VACANT & SIGNED NOT OPENED 42,243 10.7 55,000 0.6 27.11(2)
------- ----- ---------- ----- ------
TOTAL (EXCLUDING NON-OWNED ANCHORS) 394,297 100.0% $8,766,439 100.0% $24.76(3)
======= ===== ========== ===== ======
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Based on the June 30, 1997 Rent Roll.
(2) Annualized base rent PSF reflects signed not opened leases only.
(3) Does not include vacant and open expiration square footage and base rent.
(4) Numbers may not total 100.0% 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.
<PAGE>
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
38
<PAGE>
LARGE LOAN PRELIMINARY COLLATERAL TERM SHEET:
ARROWHEAD TOWNE CENTER
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CREDIT RATING OF OPERATING REA
PARENT PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT TERMINATION
ANCHOR TENANT COMPANY(1) (S&P/MOODY'S) GLA COLLATERAL EXPIRATION EXPIRATION(2) YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dillard's Dillard Dept. Store Inc. NA/A2 204,198 Anchor-Owned N/A 2007 2042
J.C. Penney J.C. Penney Co., Inc. A/A2 140,387 Anchor-Owned N/A 2007 2042
Robinson's Mag May Department Stores A/A2 191,500 Anchor-Owned N/A 2007 2042
Montgomery Ward Montgomery Ward & Co. NA/NA 119,862 Anchor-Owned N/A 2007 2042
Mervyn's Dayton Hudson Corp. BBB+/Baa1 82,000 Anchor-Owned N/A 2007 2042
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MALL STORE LEASE EXPIRATION SUMMARY(3)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDING EXPIRING PERCENT OF ANNUALIZED PERCENT OF TOTAL ANNUALIZED BASE
DECEMBER 31 SF TOTAL SF BASE RENT ANNUALIZED BASE RENT RENT PSF
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vacant(4) 40,196 10.2% $ 0 0.0% $ 0.00
Signed Not Opened 2,047 0.5 55,500 0.6 27.11
1997 11,533 2.9 310,500 3.5 26.92
1998 8,050 2.0 310,423 3.5 38.56
1999 5,376 1.4 155,289 1.8 28.89
2000 2,833 0.7 94,849 1.1 33.48
2001 14,155 3.6 476,035 5.4 33.63
2002 4,879 1.2 157,275 1.8 32.24
2003 110,400 28.0 3,517,251 40.1 31.86
2004 20,877 5.3 630,336 7.2 30.19
2005 31,680 8.0 679,421 7.8 21.45
2006 81,198 20.6 1,609,579 18.4 19.82
2007 or Later 61,073 15.5 769,981 8.8 12.61
------- ----- ---------- ----- ------
TOTAL 394,297 100.0% $8,766,439 100.0 $24.76(5)
======= ===== ========== ===== ======
- -----------------------------------------------------------------------------------------------------------------------------------
(1) In certain cases the parent company is not the obligor under the lease or operating covenant.
(2) Date of operating covenant expiration is the expiration date of the covenant requiring the anchor store to be open (inclusive
of current store name and other store names) without taking into account co-tenancy or other operating requirements.
(3) Data is based on the June 30, 1997 Rent Roll.
(4) Vacant square footage listed as "uncommitted" space on June 30, 1997 Rent Roll.
(5) Total annual base rent per square foot is net of base rent and shown footage figures for vacant space.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by
the Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
39
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN MARK CENTERS TRUST PORTFOLIO
LOAN INFORMATION
<TABLE>
<CAPTION>
ORIGINAL CUT-OFF DATE
<S> <C> <C>
PRINCIPAL BALANCE: $45,929,800 $45,449,576
ORIGINATION DATE: October 4, 1996
INTEREST RATE: 8.84%
AMORTIZATION: 300 months
HYPERAMORTIZATION: After the Effective Maturity Date, interest rate increases to 13.84%. 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 31, 2006
MATURITY DATE: November 1, 2021
BORROWER/SPONSOR: Ten separate special-purpose borrowing entities controlled by Mark Centers Limited
Partnership, the operating subsidiary of Mark Centers Trust, a publicly traded REIT.
CALL PROTECTION: Prepayment lockout through November 1, 1999; thereafter, prepayabale with a
prepayment premium equal to the greater of (i) yield maintenance at U.S. Treasury flat
or (ii) 1% of the outstanding loan balance. Loan payable at par beginning 180 days prior
to the Effective Maturity Date.
REMOVAL OF PROPERTY MANAGER: Management may be terminated (i) if NOI for the trailing 12 months is 85% of NOI for the
12 months preceding June 30, 1996, (ii) upon a 50% or more change in control of the
manager, (iii) upon default by the manager under the management agreement, (iv) if the
manager, Mark Centers Trust or any affiliate files a voluntary petition in bankruptcy, or
(v) at any time for cause.
UP FRONT RESERVES: Deferred Maintenance: $ 554,029
Environmental Reserve(1): $ 562,500
Security Deposits: $ 144,013
Additional Collateral: $1,110,000
GENERAL MONTHLY RESERVES: Property Taxes, Insurance, Debt Service and Replacement Reserves of $0.15 PSF annually
COLLECTIVE ACCOUNT: Hard Lockbox
CROSS COLLATERALIZATION/
DEFAULT: Yes
MEZZANINE LOANS: None
PROPERTY INFORMATION
SINGLE ASSET/PORTFOLIO: Portfolio
PROPERTY TYPE: Retail
LOCATION: LOCATION BY ALLOCATED LOAN AMOUNT
[PROPERTY INFORMATION CHART TO COME]
YEAR BUILT: See Property Description Table
THE COLLATERAL: 17 community and neighborhood retail shopping centers, encompassing total NRA of
2,317,463 SF.
Anchors include Bi-Lo, Ames, Price Chopper and K-mart.
PROPERTY MANAGEMENT: Mark Centers Limited Partnership
AVERAGE OCCUPANCY:
(JUNE 30, 1997) 93%
1996 NET
OPERATING INCOME: $7,591,264
UNDERWRITABLE
NET CASH FLOW: $6,847,352
APPRAISED VALUE: $71,200,000
APPRAISED BY: CB Commercial Real Estate Group, Inc.
APPRAISAL DATE: May 15, 1996 - July 2, 1996
CUT-OFF DATE
LOAN/NRSF: $20
CUT-OFF DATE AT MATURITY
LTV: 63.8% 53.3%
DSCR(1): 1.50x 1.81x
(1) Based on Underwritable Net Cash Flow
</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.
40
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN MARK CENTERS TRUST PORTFOLIO
PROPERTY DESCRIPTION
<TABLE>
CAPTION> CUT-OFF DATE
YEAR BUILT/ OCCUPANCY ALLOCATED LOAN
PROPERTY LOCATION NRA RENOVATED JUNE 30, 1997(1)(2) AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
25th Street Plaza Easton, PA 131,477 1955/1987 100% $ 7,996,805
Monroe Plaza Stroudsburg, PA 130,569 1974 100 3.809,944
Northside Mall Dothan, AL 381,678 1969 87 3,411,058
Birney's Plaza Moosic, PA 196,399 1972/1992 99 3,380,086
Mountainville Plaza Allentown, PA 114,801 1959/1993 97 3,189,401
Martintown Plaza North Augusta, SC 133,878 1974/1990 91 2,915,495
Shillington Plaza Reading, PA 150,742 1974/1994 100 2,893,230
Clound Springs Plaza Shopping Ctr. Fort Oglethorpe, GA 113,367 1968 96 2,657,421
Midway Plaza Opelika, AL 203,223 1966/1986 77 2,504,438
Troy Plaza Troy, NY 128,479 1966/1988 95 2,408,353
Kingston Plaza Kingston, PA 64,824 1982/1993 100 2,280,900
Plaza 15 Lewisburg, PA 113,600 1976/1994 96 2,167,102
New Smyrna Beach New Smyrna Beach, FL 102,130 1963/1993 79 1,535,575
K-Mart/Shamokin Dam Shamokin Dam, PA 92,171 1979/1992 100 1,252,664
Dunmore Plaza Dunmore, PA 45,380 1967/1984 100 1,136,492
Ames Plaza Shamokin, PA 98,210 1967 92 1,018,835
Kings Fairground Danville, PA 118,535 1972 100 891,777
--------- --- -----------
TOTAL/WEIGHTED AVERAGES 2,317,463 93% $45,449,576
========= === ===========
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Percent of GLA leased as of June 30, 1997
(2) 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.
41
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN MARK CENTERS TRUST PORTFOLIO
PROPERTY DESCRIPTION
<TABLE>
<CAPTION>
CUT-OFF DATE
ALLOCATED ANNUALIZED PRIMARY TENANTS WITH
LOAN UNDERWRITABLE BASE RENT PSF GREATER THAN 15,000 SQ. FT.
PROPERTY AMOUNT NET CASH FLOW JUNE 30, 1997 JUNE 30, 1997(1)
- ---------------------------------- ------------- ------------- -----------------------------------------------
<S> <C> <C> <C> <C>
25th Street Plaza $ 7,996,805 $1,089,931 $9.60 F.W. Woolworth (1998)
Monroe Plaza 3,809,944 484,949 3.47 Shoprite Supermarket (2005), Ames
Department Store (1999)
Northside Mall 3,411,058 474,685 2.40 (2)
Birney's Plaza 3,380,086 522,894 3.41 K-Mart(1999), Big Lots (1998)
Mountainville Plaza 3,189,401 454,665 5.37 (3)
Martintown Plaza 2,915,495 510,347 4.90 Belk Store Services (2004),
Bruno's Inc. (2010)
Shillington Plaza 2,893,230 435,864 3.39 K-Mart (1999), Weiss Market (1999)
Clound Springs Plaza Shopping Ctr. 2,657,421 384,865 4.57 Big Lots (2000), Food Lion (2011),
W.S. BodCock Corp. (2000)
Midway Plaza 2,504,438 495,09 3.90 (4)
Troy Plaza 2,480,353 253,347 3.67 Ames (2001), Price Chopper (1999)
Kingston Plaza 2,280,900 298,851 6.18 Price Chopper (2006)
Plaza 15 2,167,102 382,483 3.53 G.C. Murphy (2001), B-Lo (2001)
New Smyrna Beach 1,535,575 439,488 7.20 New Smyrna Beacon 8 Theatre (2005)
K-Mart/Shamokin Dam 1,252,664 168,094 2.74 K-Mart (2004)
Dunmore Plaza 1,136,492 140,533 3.34 Price Chopper (2000)
Ames Plaza 1,018,835 142,220 2.29 Bi-Lo (1999), Ames Distribution
Store (2000)
Kings Fairground 891,777 168,628 2.85 Schewel Furniture (2001), The
Kroger Company (2002)
------------- ------------- -----------------------------------------------
TOTALS/WEIGHTED AVERAGES $45,449,576 $6,847,352 $4.04
============= ============= =============
</TABLE>
- -------------------------------------------------------------------------------
(1) Lease expirations are listed assuming no renewal options are exercised.
(2) WalMart (1999), Goody's Store (2003), Montgomery Ward (1999), Books A
Million (2006), Montgomery Ward (1999), Troy State University (1998)
(3) Kling's Handyman (1999), Acme Markets Store (1999), Thrift Drug (1999)
(4) Office Depot (2007), Ben Franklin Crafts (2021), Eastwynn Theaters
(2005), Bargain Town Store (1998)
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.
42
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN MARK CENTERS TRUST PORTFOLIO
<TABLE>
<CAPTION>
TEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT(1)
- -----------------------------------------------------------------------------------------------------------------------------
PERCENT
TENANT OR OF TOTAL ANNUALIZED
PARENT COMPANY TENANT PERCENT OF TOTAL ANNUALIZED ANNUALIZED BASE RENT
OF TENANT STORE NAME GLA (SF) GLA (SF)(4) BASE RENT BASE RENT(4) PSF
- ------------------------- ------------------ -------------------------- -------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
K-Mart Corp. K-Mart 291,627 12.6% $ 717,953 8.2% $ 2.46
Ames Dept. Stores Ames 192,270 8.3 318,440 3.6 1.66
Price Chopper Price Chopper 100,519 4.3 301,000 3.4 2.99
ShopRite Group ShopRite 52,924 2.3 281,278 3.2 5.31
Supermarket
Beacon 8 Theater New Smyrna Beacon 24,780 1.1 223,020 2.6 9.00
8 Theater
Wal-Mart Stores Wal-Mart 111,970 4.8 219,975 2.5 1.96
Bruno's Inc. Bruno's Inc. 47,982 2.1 192,000 2.2 4.00
Consolidated Stores Corp. Big Lots 60,537 2.6 190,611 2.2 3.15
Royal Ahold Bi-Lo 60,094 2.6 190,088 2.2 3.16
Food Lion, Inc. Food Lion 29,000 1.3 181,250 2.1 6.25
-------------------------- -------------- ------------------------
TOTAL/WEIGHTED AVERAGE 971,703 41.9% $2,815,615 32.2% $ 2.90
(10 LARGEST)
OTHER MAJOR TENANTS(2) 986,083 42.6 3,443,052 39.4 3.49
OTHER TENANTS 200,641 8.7 2,480,474 28.4 12.36
VACANT 159,036 6.9 0 0.0 0.00
-------------------------- -------------- ------------------------
Total 2,317,463 100.0% $ 8,739,141 100.0% $ 4.04
========================== ============== ========================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
LEASE EXPIRATION SCHEDULE(1)
- -----------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF PERCENT OF TOTAL ANNUALIZED
EXPIRATION LEASES EXPIRING TOTAL ANNUALIZED ANNUALIZED BASE RENT
YEAR EXPIRING SQ. FT. SQ. FT.(4) BASE RENT BASE RENT(4) PER SQ. FT.
- --------------------- ----------- ----------- ------------ ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vacant 53 159,036 6.9% $ 0 0.0% $0.00
No Expiration Date(3) 7 9,493 0.4 58,734 0.7 6.19
1997 40 101,760 4.4 615,741 7.0 6.05
1998 34 174,089 7.5 929,529 10.6 5.34
1999 38 699,168 30.2 1,966,898 22.5 2.81
2000 26 223,640 9.7 858,159 9.8 3.84
2001 30 301,613 13.0 1,164,821 13.3 3.86
2002 19 103,805 4.5 458,677 5.2 4.42
2003 8 50,456 2.2 355,717 4.1 7.05
Thereafter 23 494,403 21.3 2,330,865 26.7 4.71
----------- ----------- ------------ ------------ ---------------- -------------
TOTAL 278 2,317,463 100.0% $8,739,141 100.0% $4.04
=========== =========== ============ ============ ================ =============
</TABLE>
- ------------------------------------------------------------------------------
(1) Based on the June 30, 1997 Rent Roll.
(2) Other Major Tenants include tenants with leases with greater than 5,000
sq. ft. of GLA.
(3) The No Expiration Date category includes those leases which are listed
on then rent roll as either being month-to-month, or having expirations
that are prior to the date of the rent roll, or having no expiration
date.
(4) Totals may not add to 100.0% due to rounding.
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.
43
<PAGE>
LARGE
LOAN
PRELIMINARY COLLATERAL TERM SHEET:
WESTGATE MALL
LOAN INFORMATION
<TABLE>
<CAPTION>
ORIGINAL CUT-OFF DATE
<S> <C> <C>
PRINCIPAL BALANCE: $43,023,167 $42,681,517
ORIGINATION DATE: December 13, 1996
INTEREST RATE: 9.25%
AMORTIZATION: 300 months
HYPERAMORTIZATION: N/A
EFFECTIVE MATURITY
DATE: N/A
MATURITY DATE: December 1, 2006
BORROWER/SPONSOR: Westgate Joint Venture, a single-asset Ohio
general partnership. The general partners are
Richard JG Westgate Ltd (80%), Boykin Westgate
Co. (10%), and Visconsi Westgate Co. (10%).
CALL PROTECTION: Prepayment lockout through December 1, 2000;
thereafter, payable in full with a prepayment
premium equal to the greater of: (i) yield
maintenance computed with U.S. Treasury
discounting plus 50bp and (ii) 2% declining
1/2% annually to a minimum of 1% of the
outstanding loan balance. Loan prepayable at
par beginning 90 days prior to maturity.
REMOVAL OF PROPERTY
MANAGER: None
UP FRONT RESERVES: None
GENERAL MONTHLY
RESERVES: Property Taxes and Insurance
COLLECTION ACCOUNT: None
CROSS-COLLATERALIZATION/
DEFAULT: N/A
MEZZANINE LOANS: None
PROPERTY INFORMATION
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Regional Mall
LOCATION: West 210th Street and Center Ridge Road
Fairview Park, Ohio
YEAR BUILT/RENOVATED
AND EXPANDED: 1954/1996
THE COLLATERAL: One-, two-, and three-story, three anchor
regional mall, with a total GLA of 789,222 SF
with mall store space of 225,553 SF, 172,000
SF or self-owned anchor stores, and 324,326 SF
occupied by ground-leased tenants including
24,974 SF occupied by a General Cinema theatre
and 5,320 SF occupied by a restaurant.
Collateral GLA's 617,222 SF.
Anchors include Dillard's South, Dillard's
North, and Kohl's.
PROPERTY MANAGEMENT: Richard E. Jacobs Group
PERCENT OF MALL STORE
SPACE LEASED
(JUNE 30, 1997): 88.5%
1996 NET OPERATING
INCOME: $5,516,592
UNDERWRITABLE NET
CASH FLOW: $5,321,105
APPRAISED VALUE: $65,000,000
APPRAISED BY: Landauer Associates Inc.
APPRAISAL DATE: September 18, 1997
<PAGE>
CUT-OFF DATE
LOAN/PSF: $143(1)
CUT-OFF DATE AT MATURITY
LTV: 65.7% 55.2%
DSCR(2): 1.20x 1.44x
MALL STORE SALES 1995 1996
PSF(3): $248 $245
</TABLE>
- ------------
(1) Adjusted for tenants which own their own improvements.
(2) Based on Underwritable Net Cash Flow.
(3) 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.
44
<PAGE>
LARGE
LOAN
PRELIMINARY COLLATERAL TERM SHEET:
WESTGATE MALL
TEN LARGEST MALL STORE TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
PERCENT PERCENT
TENANT OR OF TOTAL OF TOTAL ANNUALIZED
PARENT COMPANY TENANT GLA ANNUALIZED ANNUALIZED BASE RENT
OF TENANT STORE NAME GLA (SF) (SF)(3) BASE RENT BASE RENT(3) PSF
- ------------------------ ------------------------ --------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
The Limited, Inc. Bath & Body Works 45,347 20.1% $ 811,340 18.8% $17.89
Compagnie Int. Express
Lane Bryant
Lerner New York
Limited Too
Structure
The Limited
Victoria's Secrets
The Gap, Inc. Baby Gap 12,386 5.5 291,668 6.8 23.55
Gap Kids
The Gap
Woolworth Corp. Foot Locker 12,209 5.4 190,836 4.4 15.63
Koenig Sporting Goods(2)
Consolidated Stores Inc. All for One 7,388 3.3 162,798 3.8 22.04
Kay-Bee Toy and Hobby
Sterling Inc. Rogers Jewelers 2,789 1.2 158,016 3.7 56.66
J.B. Robinson Jewelers
Borders Group Inc. Walden Books/Walden Kids 7,018 3.1 140,354 3.3 20.00
Camelot Music, Inc. Camelot Music 3,239 1.4 129,540 3.0 40.00
The Bombay Company The Bombay Company 4,120 1.8 107,131 2.5 26.00
Cozod's Hallmark Cozad's Hallmark 3,112 1.4 102,680 2.4 33.00
Gantos, Inc. Gantos 6,080 2.7 97,280 2.3 16.00
--------- ---------- ------------ ------------ ------------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 103,687 46.0% $2,191,689 50.9% $21.14
REMAINING (EXCLUDING NON-OWNED ANCHORS) 95,925 42.5 2,115,135 49.1 22.05
VACANT 25,941 11.5 0 0.0 0.00
--------- ---------- ------------ ------------ ------------
TOTAL (EXCLUDING NON-OWNED ANCHORS) 225,553 100.0% $4,306,824 100.0% $19.58
========= ========== ============ ============ ============
</TABLE>
- ------------
(1) Based on the June 30, 1997 Rent Roll.
(2) Does not include square footage or rent figures for vacant spaces and
tenants with no expiration date.
(4) Numbers may not total 100.0% due to rounding.
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.
45
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN WESTGATE MALL
<TABLE>
<CAPTION>
CREDIT RATING OF OPERATING REA
PARENT PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT TERMINATION
ANCHOR TENANT COMPANY (S&P, MOODY'S)(1) GLA COLLATERAL EXPIRATION(2) EXPIRATION(3) YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dillard's North Dillard's Dept. Store Inc. NA/A2 194,531 Ground Lease 2017 2017(4) 2017
Collateral
Dillard's South Dillard's Dept. Store Inc. NA/A2 172,200 Anchor-Owned 2000 - Perpetual
Kohl's Kohl's Dept. Store Inc. BBB/Baa1 94,500 Ground Lease 2035(4) 2016(4) -
Collateral
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MALL STORE LEASE EXPIRATION SCHEDULE(5)
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
YEAR ENDING EXPIRING % OF TOTAL ANNUALIZED % OF TOTAL BASE RENT
DECEMBER 31 SF SF(7) BASE RENT(6) BASE RENT(6)(7) PER SQ.FT.(6)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vacant(5) 25,941 11.50% $ 0 0.00% $0.00
No expiration date 100 0.04 500 0.01 5.00
1997 8,373 3.71 98,946 2.30 11.82
1998 12,314 5.46 401,967 9.33 32.64
1999 17,892 7.93 337,271 7.83 18.85
2000 15,500 6.87 534,915 12.42 34.51
2001 38,546 17.09 813,827 18.90 21.11
2002 14,054 6.23 293,395 6.81 20.88
2003 4,323 1.92 59,208 1.37 13.70
2004 7,013 3.11 155,226 3.60 22.13
2005 41,808 18.54 791,024 18.37 18.92
2006 21,417 9.50 488,699 11.35 22.82
2007 or later 18,272 8.10 331,846 7.71 18.16
------- ------ ---------- ------ ------
TOTAL 225,553 100.00% $4,306,824 100.00% $21.58(5)
======= ====== ========== ====== ======
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Reflects long-term debt rating as of September 22, 1997.
(2) Includes initial term options identified in the lease. For Dillard's North, initial term expires 2007; there is one ten-year
renewal option. For Dillard's South, initial term expires 2016; there are two ten-year renewal options. For Kohl's initial
term expires 2005; there are two ten-year renewal options.
(3) Date of operating covenant expiration is the expiration date of the covenant requiring the anchor store to be open and
operating (inclusive of current store name and other store names) without taking into account co-tenancy or other operating
requirements.
(4) Based on the latest required term commencement date of the lease. The actual commencement date, and expiration date, may be
earlier.
(5) Data is based on the June 30, 1997 Rent Roll.
(6) Total annual base rent per square foot is net of base rent and square footage figures for vacant tenants and tenants with no
expiration date.
(7) Numbers may not total 100.0% 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.
46
<PAGE>
LARGE PRELIMINARY COLLATERAL TERM SHEET:
LOAN WESTSHORE MALL
<TABLE>
<CAPTION>
LOAN INFORMATION
ORIGINAL CUT-OFF DATE
<S> <C> <C>
PRINCIPAL BALANCE: $21,000,000 $20,900,775
ORIGINATION DATE: January 31, 1997
INTEREST RATE: 8.07%
AMORTIZATION: 360 months
HYPERAMORTIZATION: After the Effective Maturity Date, interest rate increases to 13.07%. All excess cash flow
is used to reduce 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: March 1, 2004
MATURITY DATE: March 1, 2027
BORROWER/SPONSOR: Westshore Properties L.L.C., a special purpose, bankruptcy remote limited liability company
controlled by Wilmorite, Inc. (15%), and Ivanhoe (85%), the retail real estate group of the
Canadian pension fund Caisse de Depot et Placement du Quebec.
CALL PROTECTION: Prepayment lockout through March 1, 2002 (except that defeasance is allowed two years after
securitization); thereafter, prepayable with a prepayment premium equal to the greater of;
(i) yield maintenance computed with U.S. Treasury discounting and; (ii) 1% of the outstanding
loan balance. Loan prepayable at par beginning 90 days prior to the Effective Maturity Date.
REMOVAL OF PROPERTY MANAGER: Management may be terminated (i) if at the end of each calendar quarter the DSCR for the
trailing twelve months <1.15:1 unless additional collateral is pledged, (ii) upon event of
default or; (iii) after March 1, 2005.
UP FRONT RESERVES: Deferred Maintenance: $213,750
GENERAL MONTHLY RESERVES: Property Taxes, Insurance, Debt Service and replacement reserves of $0.50 psf/annually
COLLECTION ACCOUNT: Hard Lockbox
CROSS-COLLATERALIZATION/
DEFAULT: N/A
PARTNER LOANS: None
PROPERTY INFORMATION
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Regional Mall
LOCATION: 12331 James Street Holland, Michigan
YEAR BUILT: 1988
THE COLLATERAL: One story, four-anchor regional mall with a total GLA of 473,619 SF, mall store space of
143,034 SF, 213,817 SF of self-owned anchor stores, 11,011 SF of outparcel space and
106,757 SF is an adjacent Target-anchored strip center. Collateral GLA is 393,949 SF.
Anchors include JC Penney, Sears, Yonkers and Steketee's.
PROPERTY MANAGEMENT: Genesee Management and Wilmorite-Ivanhoe
Property Management, L.L.C.
MALL STORE
SPACE LEASED
(JULY 1, 1997): 95.4%
1996 NET OPERATING INCOME: $3,452,300
UNDERWRITABLE
NET CASH FLOW: $3,119,597
APPRAISED VALUE: $33,000,000
APPRAISED BY: Landauer Associates, Inc.
APPRAISAL DATE: December 31, 1996
CUT-OFF DATE
LOAN/PSF: $53
CUT-OFF DATE AT MATURITY
LTV: 63.3% 58.9%
DSCR(1): 1.68x 1.81x
MALL STORE SALES 1995 1996
PSF(2): $228 $227
(1) Based on Underwritable Net Cash Flow.
(2) Comparable Mall Store Sales.
</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.
47
<PAGE>
LARGE LOAN PRELIMINARY COLLATERAL TERM SHEET:
WESTSHORE MALL
TEN LARGEST MAIL STORE TENANTS BASED ON ANNUALIZED BASE RENT(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PERCENT
TENANT OR PERCENT OF TOTAL ANNUALIZED
PARENT COMPANY TENANT OF TOTAL ANNUALIZED ANNUALIZED BASE RENT
OF TENANT STORE NAME GLA(SF) GLA(SF) BASE RENT BASE RENT PSF
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Limited Inc. Bath & Body Works 22,178 15.5% $ 320,918 14.3% $14.47
Express
Lane Bryant
Lerner
Limited
Woolworth Corp. Afterthoughts 9,840 6.9 191,751 8.6 19.49
Footlocker
Kinney Shoes
Lady Footlocker
Northern Reflections
Maurice's, Inc. Maurice's 5,428 3.8 86,034 3.8 15.85
Deb Shops, Inc. Deb 5,911 4.1 82,262 3.7 13.92
County Seat Stores, Inc. County Seat 3,535 2.5 78,300 3.5 22.15
J. J. Finnegan's J.J. Finnegan's 5,995 4.2 77,945 3.5 13.00
Musicland Musicland 4,910 3.4 68,740 3.1 14.00
Cal Mad, Inc. Imperial Sports 3,320 2.3 63,080 2.8 19.00
The Buckle, Inc. Buckle 5,058 3.5 55,638 2.5 11.00
Paul Harris Paul Harris 4,500 3.1 54,000 2.4 12.00
------- ----- ---------- ----- ------
TOTAL/WEIGHTED AVERAGE (10 LARGEST) 70,675 49.4% $1,078,668 48.1% $15.26
REMAINING (EXCLUDING NON-OWNED ANCHORS) 65,590 45.9 1,161,624 51.9 17.71
VACANT 6,769 4.7 0 0.0 0.00
------- ----- ---------- ----- ------
TOTAL (EXCLUDING NON-OWNED ANCHORS) 143,034 100.0% $2,240,292 100.0% $16.44(2)
- --------------------------------------------------------------------------------------------------------------------------
(1) Based on the July 4, 1997 Rent Roll.
(2) Does not include vacant square footage.
</TABLE>
This information has been prepared in connection with the issuance of the
securities referenced above and is based in part on information provided by
the Mortgage Loan Sellers with respect to the expected characteristics of the
Mortgage Loans in which these securities will represent undivided beneficial
interests. The actual characteristics and performance of the Mortgage Loans
will differ from the assumptions used in preparing these materials, which are
hypothetical in nature. Changes in the assumptions may have a material impact
on the information set forth in these materials. No representation is made that
any performance or return hypothesized herein will be achieved. For example,
it is very unlikely that the Mortgage Loans will prepay at a constant rate or
follow a predictable pattern. NO REPRESENTATION IS MADE AS TO THE
APPROPRIATENESS, USEFULNESS, ACCURACY OR COMPLETENESS OF THESE MATERIALS OR
THE ASSUMPTIONS ON WHICH THEY ARE BASED. Additional information is available
upon request. These materials do not constitute an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument in any
jurisdiction or to participate in any particular trading strategy. ANY SUCH
OFFER TO BUY OR SELL ANY SECURITY WOULD BE MADE ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT MEMORANDUM PREPARED
BY THE ISSUER WHICH WOULD CONTAIN MATERIAL INFORMATION NOT CONTAINED IN THESE
MATERIALS. SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR PRIVATE PLACEMENT
MEMORANDUM WILL CONTAIN ALL MATERIAL INFORMATION IN RESPECT OF ANY SUCH
SECURITY OFFERED THEREBY AND ANY DECISION TO INVEST IN SUCH SECURITIES SHOULD
BE MADE SOLELY IN RELIANCE UPON SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. ANY CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN
ARE TO BE READ IN CONJUNCTION WITH SUCH PROSPECTUS AND PROSPECTUS SUPPLEMENT OR
PRIVATE PLACEMENT MEMORANDUM. In the event of any such offering, these
materials, including any description of the Mortgage Loans contained herein,
shall be deemed superseded in their entirety by such Prospectus and Prospectus
Supplement or Private Placement Memorandum. To our Readers Worldwide: In
addition, please note that this information has been provided by Morgan Stanley
& Co. Incorporated and approved by Morgan Stanley & Co. International Limited,
a member of the Securities and Future Authority, and Morgan Stanley Japan Ltd.
We recommend that investors obtain the advice of their Morgan Stanley & Co.
International Limited or Morgan Stanley Japan Ltd. representative about the
investment concerned.
<PAGE>
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K. SECURITIES AND
FUTURES AUTHORITY.
48
<PAGE>
LARGE LOAN PRELIMINARY COLLATERAL TERM SHEET:
WESTSHORE MALL
ANCHOR SUMMARY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CREDIT RATING OF OPERATING R&A
PARENT PARENT COMPANY ANCHOR-OWNED/ LEASE COVENANT TERMINATION
ANCHOR TENANT COMPANY (SLP/MOODY'S)(1) GLA COLLATERAL EXPIRATION(2) EXPIRATION(3) YEAR
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Younkers Proffitt's Inc. Na/Ba2 69,148 Collateral 2023 2003(4) NA
J.C. Penney J.C. Penney Co., Inc. A/A2 51,399 Collateral 2033 2003(4) NA
Sears Sears Roebuck & Co. A-/A2 52,515 Collateral 2028 2003(4) NA
Steketee's Paul Steketee & Sons NA/NA 40,755 Collateral 2028 2003(4) NA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MALL STORE LEASE EXPIRATION SCHEDULE(5)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
YEAR ENDING PERCENT OF ANNUALIZED TENANT PERCENT OF TOTAL ANNUALIZED BASE RENT
DECEMBER 31 EXPIRING SF TOTAL SF(7) BASE RENT ANNUALIZED BASE RENT(7) PER SQ. FT.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vacant 6,769 4.73% $ 0 0.00% $ 0.00
1997 1,874 1.31 61,388 2.74 32.76
1998 26,703 18.67 468,306 20.90 17.54
1999 29,915 20.91 503,600 22.48 16.83
2000 19,944 13.94 342,804 15.30 17.19
2001 9,952 6.96 234,542 10.47 23.57
2002 6,346 4.44 81,958 3.66 12.91
2003 14,345 10.03 165,305 7.38 11.52
2004 13,010 9.10 165,940 7.41 12.75
2005 7,318 5.12 128,411 5.74 17.57
2006 5,058 3.54 55,638 2.48 11.00
2007 or Later 1,800 1.26 32,400 1.45 18.00
------- ------ ---------- ------ ------
TOTAL 143,034 100.00% $2,240,292 100.00% $16.44(6)
======= ====== ========== ====== ======
- --------------------------------------------------------------------------------------------------------------
(1) Reflects long-term debt rating as of September, 1997
(2) Includes initial term and options identified in the lease. For Younker's initial term expires 2003; there
are four 5-year renewal options. For JC Penney initial term expires 2003; there are six 5-year renewal options.
For Sears initial term expires 2003; there are five 5-year renewal options. For Steketee's initial term expires
2003; there is a renewal option for up to 25 years.
(3) Date of Operating Covenant expiration is the expiration date of the covenant requiring the anchor store to be
open and operating (inclusive of curent store name and other store names) without taking into account co-tenancy
or other operating requirements.
(4) Based on the latest required term commencement date of the lease. The actual commencement date, and expiration
date, may be earlier.
(5) Data is based on the July 4, 1997 Rent Rol.
(6) Does not include vacant square footage.
(7) Numbers may not total 100.0% 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.
49
<PAGE>
ANNEX A
MORTGAGED PROPERTIES CHARACTERISTICS
Annex A-1
<PAGE>
ANNEX A
MORTGAGED PROPERTIES CHARACTERISTICS
<TABLE>
<CAPTION>
MORTGAGE PROPERTY
LOAN PROPERTY NAME TYPE ADDRESS CITY
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
<S> <C> <C> <C> <C>
605 THIRD AVENUE 605 Third Avenue Office 605 Third Ave. Between 39th and 40th St. New York
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
EDENS & AVANT POOL
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
1 Florence Mall Retail 104 West Evans St. Florence
2 Trenholm Plaza Retail Forest Dr. & Trenholm Rd. Forest Acres
3 NBSC Building Office 1241 Main Street Columbia
4 Hampton Plaza Retail 2864 Wilma Rudolph Blvd. Clarksville
5 Cumberland Plaza Retail 1339 New Smithville Hwy McMinnville
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
6 Cunningham Place Retail 1600 Fort Campbell Blvd. Clarksville
7 Bay Village Retail 2300 Church Street Conway
8 Belvedere Plaza Retail 3100 North Main Street Anderson
9 Lakeside Shopping Ctr. Retail 302 Pearman Dairy Road Anderson
10 Triangle Village Retail 912-934 North Lake Drive Lexington
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
11 Widewater Square Retail 3315 Broad River Road Columbia
12 Palmetto Plaza Retail 493 Guignard Drive Sumter
13 Edisto Village Retail 398 Riverside Drive Orangeburg
14 Gateway Plaza Retail 1324 Broad Street Extension Sumter
15 Shoppers Port Retail 2049 Savannah Highway Charleston
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
16 Raleigh Boulevard Shopping Ctr. Retail 1100 Raleigh blvd. Raleigh
17 Kalmia Plaza Retail 1680 Richland Avenue-West Aiken
18 Westland Square Retail 2250 Sunset Boulevard West Columbia
19 Woodberry Plaza Retail 3234 August Road West Columbia
20 Northway Plaza Retail 5100 Fairfield Road Columbia
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
21 Western Square Retail 1500 West Main Street Laurens
22 Lawndale Village Retail 4701 Lawndale Ave. Greensboro
23 Raeford-Hoke Village Retail 234 Cole Avenue Raeford
24 Fairfield Square Retail 102 Fairfield Square Winnsboro
25 Northside Plaza -Henderson Retail 1600 North Garnett Street Henderson
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
26 St. George Plaza Retail 5974 Jim Bilton Boulevard St. George
27 Waterway Plaza Retail 3369 Highway 9 East Little River
28 Northside Plaza -Clinton Retail 318 North Boulevard Clinton
29 Ravenel Town Center Retail 6323 Savannah Hwy Ravenel
30 South Square Shopping Ctr. Retail 1730 Airport Road Lancaster
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
31 Barnwell Plaza Retail 1019 Dunbarton Blvd. Barnwell
32 Capitol Square Retail 431 Sunset Boulevard West Columbia
33 Blowing Rock Square Retail 175 U.S. Highway 321 By-Pass Blowing Rock
34 Bainbridge Mall Retail 1400 East Shotwell Street Bainbridge
35 Three Fountains Plaza Retail 3979 Platt Springs Rd. West Columbia
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
36 Crossroads Shopping Ctr. Retail 1317 East Dixie Drive Asheboro
37 Saluda Town Centre Retail U.S. Highway 378 @ Clemson Road Saluda
38 Clusters of Whitehall Retail 300 St. Andrews Rd. Columbia
39 Lexington Village Retail 205 Columbia Avenue Lexington
40 Dreher Plaza Retail 100 Dreher Road West Columbia
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
41 Tri-County Plaza Retail 1075 Franklin Springs Road Royston/Franklin Springs
42 Clover Plaza Retail 809 Bethel Road Clover
43 Stephens Plaza Retail 328 South Big A Road Toccoa
44 Goldrush Shopping Ctr. Retail 316 S. Mine St. McCormick
45 Mitchell Plaza Retail 215 West Columbia Avenue Batesburg
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
46 Blockbuster/Taco Bell -Lexington Retail 509-515 West Main Street Lexington
47 Rosewood Extension Retail 4450 Rosewood Dr. Columbia
48 Edgecombe Square Retail 1102-1110 Western Blvd. Tarboro
49 Forest Drive Shopping Ctr. Retail 1551 Sunnyside Lane Columbia
50 Friarsgate Plaza Retail 7948 Broad River Road Irmo
- ------------------ --------------------------------- -------- ---------------------------------------- ------------------------
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
CUT-OFF
DATE
ALLOCATED CUT-OFF 1994
MORTGAGE ZIP TOTAL OCCUPANCY LOAN APPRAISED DATE TOTAL
LOAN STATE CODE YEAR BUILT SF/UNITS OCCUPANCY AS OF DATE AMOUNT VALUE LTV REVENUE
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------- -----------
605 THIRD AVENUE NY 10017 1963 946,369 98% 30-Jun-97 $120,000,000 $180,000,000 66.7% $42,062,429
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
EDENS & AVANT POOL
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
1 SC 29502 1965/1984 247,064 100% 08-Apr-97 $ 5,516,883 $ 14,567,776 36.8% $ 1,276,384
2 SC 29206 1960/1997 172,957 86% 08-Apr-97 $ 4,399,870 $ 12,147,216 (1) $ 1,116,510
3 SC 29202 1970/1994 147,890 80% 08-Apr-97 $ 3,588,694 $ 9,437,738 (1) $ 706,363
4 TN 37040 1988 189,302 97% 08-Apr-97 $ 3,021,907 $ 8,507,510 (1) --
5 TN 37110 1988 143,951 97% 08-Apr-97 $ 2,835,486 $ 7,729,152 (1) --
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
6 TN 37042 1987 149,744 100% 08-Apr-97 $ 2,799,378 $ 7,671,318 (1) --
7 SC 29526 1988 133,480 99% 08-Apr-97 $ 2,381,777 $ 6,337,171 (1) --
8 SC 29622 1965/1992 158,739 73% 08-Apr-97 $ 2,331,027 $ 6,228,040 (1) $ 802,942
9 SC 29624 1979 137,507 96% 08-Apr-97 $ 2,134,162 $ 5,835,761 (1) --
10 SC 29072 1986 115,754 97% 08-Apr-97 $ 2,031,662 $ 5,645,862 (1) --
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
11 SC 29526 1976/1990 95,700 95% 08-Apr-97 $ 2,028,788 $ 5,372,492 (1) $ 621,512
12 SC 29150 1964/1996 97,864 98% 08-Apr-97 $ 2,013,032 $ 5,341,321 (1) $ 496,180
13 SC 29113 1972/1994 108,668 98% 08-Apr-97 $ 1,980,334 $ 5,292,841 (1) $ 476,134
14 SC 29150 1989 91,150 88% 08-Apr-97 $ 1,956,673 $ 5,503,214 (1) $ 243,951
15 SC 29401 1974/1992 74,400 100% 08-Apr-97 $ 1,890,984 $ 5,025,523 (1) $ 511,455
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
16 NC 27610 1990 72,232 94% 08-Apr-97 $ 1,755,941 $ 4,943,153 (1) $ 503,006
17 SC 29801 1967 215,330 75% 08-Apr-97 $ 1,747,952 $ 5,587,618 (1) $ 872,176
18 SC 29033 1987/1996 62,735 96% 08-Apr-97 $ 1,692,883 $ 4,458,371 (1) $ 404,352
19 SC 29033 1976/1994 82,930 100% 08-Apr-97 $ 1,645,846 $ 4,429,538 (1) $ 399,745
20 SC 29203 1974/1988 74,689 93% 08-Apr-97 $ 1,580,781 $ 4,222,393 (1) $ 404,213
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
21 SC 29360 1978 80,764 82% 08-Apr-97 $ 1,379,182 $ 3,738,018 (1) $ 448,304
22 NC 27408 1987 46,337 100% 08-Apr-97 $ 1,323,007 $ 3,582,391 (1) $ 374,449
23 NC 28376 1982 73,530 100% 08-Apr-97 $ 1,319,807 $ 3,522,802 (1) $ 263,228
24 SC 29180 1987 54,640 100% 08-Apr-97 $ 1,306,443 $ 3,495,183 (1) $ 356,466
25 NC 27536 1981/1995 66,090 90% 08-Apr-97 $ 1,283,456 $ 3,538,831 (1) $ 330,492
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
26 SC 29477 1982/1997 53,211 78% 08-Apr-97 $ 1,282,442 $ 3,460,222 (1) $ 243,149
27 SC 29566 1991 49,750 100% 08-Apr-97 $ 1,282,040 $ 3,488,095 (1) $ 358,770
28 NC 28328 1982 80,030 92% 08-Apr-97 $ 1,234,189 $ 3,326,763 (1) $ 189,044
29 SC 29470 1996 48,050 100% 08-Apr-97 $ 1,153,951 $ 3,137,788 (1) --
30 SC 29720 1992 44,350 100% 08-Apr-97 $ 1,148,991 $ 3,202,526 (1) $ 367,709
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
31 SC 29812 1985 70,725 100% 08-Apr-97 $ 1,148,471 $ 3,223,032 (1) --
32 SC 29033 1974/1993 79,921 75% 08-Apr-97 $ 1,048,824 $ 2,837,762 (1) $ 378,526
33 NC 28605 1990 42,559 100% 08-Apr-97 $ 1,047,320 $ 2,982,618 (1) $ 306,356
34 GA 31717 1973 145,124 91% 08-Apr-97 $ 1,046,440 $ 2,968,377 (1) --
35 SC 29170 1986/1996 41,450 95% 08-Apr-97 $ 1,009,260 $ 2,781,315 (1) $ 228,920
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
36 NC 27203 1981 51,440 100% 08-Apr-97 $ 1,000,793 $ 2,710,208 (1) $ 85,605
37 SC 29138 1996 37,450 100% 08-Apr-97 $ 972,557 $ 2,677,011 (1) --
38 SC 29212 1973/1988 68,029 64% 08-Apr-97 $ 970,542 $ 2,324,183 (1) $ 443,913
39 SC 29072 1988 30,764 95% 08-Apr-97 $ 954,392 $ 2,461,536 (1) $ 266,551
40 SC 29169 1989 20,276 100% 08-Apr-97 $ 931,594 $ 2,419,578 (1) $ 281,032
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
41 GA 30662 1986 63,510 89% 08-Apr-97 $ 929,948 $ 2,341,893 (1) $ 165,027
42 SC 29710 1990 45,575 98% 08-Apr-97 $ 903,605 $ 2,601,357 (1) $ 323,620
43 GA 30577 1989 47,850 100% 08-Apr-97 $ 804,486 $ 2,274,328 (1) $ 286,058
44 SC 29835 1993 39,700 100% 08-Apr-97 $ 757,251 $ 2,081,442 (1) $ 231,684
45 SC 29006 1987 39,970 100% 08-Apr-97 $ 751,239 $ 2,103,594 (1) $ 249,223
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
46 SC 29072 1990 9,200 100% 08-Apr-97 $ 662,593 $ 1,751,944 (1) $ 186,611
47 SC 29209 1989 13,188 88% 08-Apr-97 $ 641,374 $ 1,676,369 (1) $ 209,953
48 NC 27886 1990 85,740 42% 08-Apr-97 $ 603,720 $ 1,827,445 (1) $ 436,802
49 SC 29204 1988 16,399 85% 08-Apr-97 $ 519,033 $ 1,367,975 (1) $ 146,311
50 SC 29063 1981/1996 68,235 82% 08-Apr-97 $ 491,790 $ 1,196,889 (1) $ 253,232
- ------------------ ------- ------ ----------- -------- --------- ---------- ------------ ------------ ------ -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995 1996
TOTAL TOTAL 1994 1995 1996 UNDERWRITABLE
REVENUE REVENUE TOTAL NOI TOTAL NOI TOTAL NOI CASH FLOW DSCR FEE/LEASEHOLD
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
$42,742,254 $41,790,566 $24,490,657 $24,335,430 $22,823,422 $19,403,628 2.04 Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 1,573,385 $ 1,872,469 $ 838,005 $ 1,212,016 $ 1,455,783 $ 1,311,100 3.35 Fee
$ 1,185,790 $ 1,058,628 $ 771,188 $ 888,547 $ 813,906 $ 1,093,249 (1) Fee
$ 1,358,959 $ 1,523,409 $ 168,861 $ 629,258 $ 824,054 $ 849,396 (1) Fee
-- $ 953,571 -- -- $ 781,197 $ 765,676 (1) Fee
-- $ 944,689 -- -- $ 763,145 $ 695,624 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
-- $ 879,977 -- -- $ 721,321 $ 690,419 (1) Fee
-- $ 775,068 -- -- $ 626,742 $ 570,345 (1) Fee
$ 931,001 $ 801,659 $ 645,669 $ 755,482 $ 633,309 $ 560,524 (1) Fee
-- $ 464,648 -- -- $ 382,626 $ 523,182 (1) Fee
$ 552,579 $ 678,996 -- $ 457,390 $ 569,913 $ 508,128 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 646,816 $ 716,471 $ 441,732 $ 480,744 $ 552,949 $ 483,524 (1) Fee
$ 505,660 $ 502,911 $ 334,266 $ 377,185 $ 405,067 $ 480,719 (1) Fee
$ 618,703 $ 639,689 $ 359,332 $ 508,410 $ 522,835 $ 476,356 (1) Fee
$ 561,388 $ 638,133 $ 143,002 $ 404,198 $ 524,229 $ 495,289 (1) Fee
$ 514,076 $ 340,115 $ 356,875 $ 376,494 $ 247,359 $ 452,297 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 507,863 $ 576,652 $ 390,286 $ 392,579 $ 447,969 $ 444,884 (1) Fee
$ 740,488 $ 752,278 $ 605,328 $ 513,263 $ 472,148 $ 502,886 (1) Fee
$ 401,420 $ 478,158 $ 301,822 $ 313,524 $ 405,525 $ 401,253 (1) Fee
$ 525,212 $ 559,916 $ 296,462 $ 395,610 $ 433,989 $ 398,658 (1) Fee
$ 418,308 $ 416,762 $ 287,622 $ 307,721 $ 316,010 $ 380,015 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 454,234 $ 467,136 $ 367,836 $ 369,630 $ 406,709 $ 336,422 (1) Fee
$ 396,740 $ 397,043 $ 299,578 $ 319,903 $ 334,921 $ 322,415 (1) Fee
$ 397,756 $ 444,978 $ 205,300 $ 316,682 $ 348,292 $ 317,052 (1) Fee
$ 380,443 $ 377,586 $ 264,748 $ 298,788 $ 297,506 $ 314,566 (1) Fee
$ 314,254 $ 345,326 $ 243,186 $ 236,050 $ 264,741 $ 318,495 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 255,222 $ 245,268 $ 183,413 $ 195,054 $ 193,730 $ 311,420 (1) Fee
$ 401,899 $ 402,354 $ 274,242 $ 317,599 $ 325,972 $ 313,929 (1) Fee
$ 215,405 $ 250,539 $ 129,911 $ 165,653 $ 190,241 $ 299,409 (1) Fee
-- $ 275,796 -- -- $ 250,848 $ 282,401 (1) Leasehold
$ 361,841 $ 359,228 $ 303,962 $ 292,215 $ 293,716 $ 288,227 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 342,958 $ 401,878 -- $ 283,679 $ 340,256 $ 290,073 (1) Fee
$ 392,249 $ 374,688 $ 288,595 $ 291,520 $ 289,527 $ 255,399 (1) Fee
$ 340,526 $ 324,585 $ 226,681 $ 270,922 $ 271,699 $ 268,436 (1) Fee
$ 172,460 $ 516,968 -- $ 89,014 $ 302,407 $ 267,154 (1) Fee
$ 222,378 $ 262,545 $ 176,115 $ 171,010 $ 204,675 $ 250,318 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 327,687 $ 338,713 $ 22,166 $ 250,624 $ 253,833 $ 243,919 (1) Fee
-- $ 53,491 -- -- $ 50,148 $ 240,931 (1) Fee
$ 425,281 $ 452,687 $ 324,400 $ 296,926 $ 350,336 $ 209,177 (1) Fee
$ 290,043 $ 307,276 $ 196,485 $ 226,936 $ 242,398 $ 221,538 (1) Fee
$ 288,437 $ 293,797 $ 226,760 $ 230,745 $ 245,187 $ 217,762 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 335,030 $ 334,674 $ 121,774 $ 279,402 $ 276,523 $ 210,770 (1) Fee
$ 327,564 $ 284,800 $ 251,400 $ 258,037 $ 221,453 $ 234,122 (1) Fee
$ 294,121 $ 334,600 $ 176,738 $ 169,792 $ 212,771 $ 204,690 (1) Leasehold
$ 271,954 $ 246,845 $ 186,176 $ 220,994 $ 199,132 $ 187,330 (1) Fee
$ 250,249 $ 252,238 $ 186,537 $ 187,583 $ 195,230 $ 189,323 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 204,173 $ 198,025 $ 164,183 $ 175,127 $ 169,250 $ 157,675 (1) Fee
$ 213,353 $ 212,303 $ 171,733 $ 175,522 $ 179,432 $ 150,873 (1) Fee
$ 336,087 $ 267,190 $ 307,787 $ 210,907 $ 184,919 $ 164,470 (1) Fee
$ 154,876 $ 165,299 $ 114,724 $ 118,399 $ 131,983 $ 123,118 (1) Fee
$ 240,188 $ 227,955 $ 178,878 $ 167,774 $ 160,735 $ 107,720 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
<PAGE>
MORTGAGE PROPERTY
LOAN PROPERTY NAME TYPE ADDRESS CITY
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
51 Catawba Village Retail 807 U.S. Highway 70 Newton-Conover
52 Waynesville Plaza Retail 121 Eagles Nest Road Waynesville
53 Shotwell Square Retail 1614 Shotwell Street Bainbridge
54 Mauldin Square Retail 306 North Main Street Mauldin
55 1634 Main Street Office 1634 Main Street Columbia
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
56 Blockbuster -Irmo Retail 7249 St. Andrews Road Irmo
57 Blockbuster -Decker Retail 2525 Decker Boulevard Columbia
58 Blockbuster -Warner Robbins Retail 1871 Watson Boulevard Warner Robbins
59 Blockbuster -Broad River Retail 2419 Broad River Road Columbia
60 Jackson Plaza Expansion Retail 403 Gridstaff Road Sylva
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
61 Edens KW Winnsboro Retail 160 South 321 By-Pass Winnsboro
62 Taco Cid Retail 1416 Charleston Highway West Columbia
63 Lakeside Square Retail 300 Pearman Dairy Road Anderson
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
ASHFORD FINANCIAL POOL
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
1 Newark/Fremont Hilton Hotel 39900 Balentine Drive Newark
2 Radisson, Fort Worth Hotel 815 8th Street Fort Worth
3 Embassy Suites Palm Beach Gardens Hotel 4350 PGA Boulevard Palm Beach
Gardens
4 St. Petersburg Bayfront Hilton Hotel 333 1st Street South St. Petersburg
5 Holiday Inn Select, Beverly Hills Hotel 1150 South Beverly Drive Beverly Hills
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
6 Admiralty Bank Building Office 4400 PGA Boulevard Palm Beach
Gardens
7 Holiday Inn Select, Clark Hotel 36 Valley Road Clark
8 Howard Johnson, Woburn Hotel 1 Mack Road Woburn
9 Ramada Inn Seminary Plaza Hotel 4641 Kenmore Avenue Alexandria
10 Howard Johnson, Middletown Hotel 511 Route 211 East Middletown
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
11 Howard Johnson, Westbury Hotel 120 Jericho Turnpike Westbury
12 Howard Johnson, Commack Hotel 450 Moreland Road Commack
13 Howard Johnson, Saddle Brook Hotel 129 Pehle Avenue Saddle Brook
14 Ramada Inn, Omaha Hotel 7007 Grover Street Omaha
15 Ramada Hotel, Woburn Hotel 15 Middlesex Canal Park Road Woburn
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
MANSION GROVE APARTMENTS Multifamily 502 Mansion Park Dr. Santa Clara
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
NORTH SHORE TOWERS Multifamily 269-10, 270-10, 271-10 Grand Central Pkwy Floral Park
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
FASHION MALL Regional Mall 8702 Keystone Crossing Indianapolis
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
YORKTOWN SHOPPING CENTER Regional Mall 203 Yorktown Ave. Lombard
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
GRAND KEMPINSKI HOTEL Hotel 15201 Dallas Parkway Dallas
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
ARROWHEAD TOWNE CENTER Regional Mall 7700 West Bell Road Glendale
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
MARK CENTERS POOL
- ------------------------------------------------------ ------------- ----------------------------------------- --------------
1 25th Street Plaza Retail Routes 248 & 22 Easton
2 Monroe Plaza Retail Third & McConnell Sts Stroudsburg
3 Northside Mall Retail US Hwy 231 & Ross Clark Circle Dothan
4 Birney's Plaza Retail Route 11 at Pittson Avenue Moosic
5 Mountainville Plaza Retail South Fourth St. Allentown
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
6 Martintown Plaza Retail NEC Martintown & Knox North Augusta
7 Shillington Plaza Retail 1 Parkside Avenue Reading
8 Clound Springs Plaza Shopping Ctr. Retail SWC US Highway 27/Cloud Springs Road Fort Ogelthorpe
9 Midway Plaza Retail Pepperell Parkway & US Hwy 29 Opelika
10 Troy Plaza Retail 156 Hossik Street Troy
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
11 Kingston Plaza Retail Third Avenue and East Pierce St. Kingston
12 Plaza 15 Retail NWC Route 15/Hospital Drive Lewisburg
13 New Smyrna Beach Retail 1430 South Dixie Freeway New Smyrna Beach
14 K-Mart/Shamokin Dam Retail Routes 11 and 15 Shamokin Dam
15 Dunmore Plaza Retail 1400 Monroe Avenue Dunmore
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
16 Ames Plaza Retail Route 61 Shamokin
17 Kings Fairground Retail 83 Piney Forest Road Danville
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
WESTGATE MALL Westgate Mall Regional Mall West 210th Street & Center Ridge Rd Fairview Park
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
WESTSHORE MALL Westshore Mall Regional Mall 12331 James Street Holland Township
- ------------------ ---------------------------------- ------------- ----------------------------------------- --------------
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
CUT-OFF
DATE
ALLOCATED CUT-OFF 1994
MORTGAGE ZIP TOTAL OCCUPANCY LOAN APPRAISED DATE TOTAL
LOAN STATE CODE YEAR BUILT SF/UNITS OCCUPANCY AS OF DATE AMOUNT VALUE LTV REVENUE
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
51 NC 28658 1978 58,450 86% 08-Apr-97 $ 477,676 $ 1,685,934 (1) $ 157,698
52 NC 28786 1985 33,300 100% 08-Apr-97 $ 426,181 $ 1,319,670 (1) $ 156,908
53 GA 31717 1980 42,037 100% 08-Apr-97 $ 403,332 $ 963,801 (1) $ 163,268
54 SC 29662 1986 15,800 100% 08-Apr-97 $ 352,348 $ 894,596 (1) $ 81,137
55 SC 29201 1934/1988 13,994 89% 08-Apr-97 $ 351,753 $ 910,589 (1) $ 142,438
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
56 SC 29210 1988 6,000 100% 08-Apr-97 $ 333,806 $ 870,170 (1) $ 92,991
57 SC 29206 1989 6,000 100% 08-Apr-97 $ 321,007 $ 836,226 (1) $ 99,383
58 GA 31093 1989 6,400 100% 08-Apr-97 $ 281,004 $ 729,122 (1) $ 85,780
59 SC 29210 1988 6,000 100% 08-Apr-97 $ 222,634 $ 575,311 (1) $ 108,388
60 NC 28779 1985 8,000 100% 08-Apr-97 $ 205,730 $ 505,735 (1) $ 54,478
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
61 SC 29180 1989 7,200 100% 08-Apr-97 $ 71,575 $ 209,846 (1) $ 33,000
62 SC 29169 1980 2,090 100% 08-Apr-97 $ 60,155 $ 150,323 (1) --
63 SC 29625 1975 48,441 34% 08-Apr-97 NA NA NA --
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
ASHFORD FINANCIAL
POOL
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
1 CA 94560 1984 311 81% LTM 5/30/97 $14,016,532 $ 21,800,000 50.9% --
2 TX 76102 1921 517 59% LTM 5/30/97 $13,226,868 $ 25,850,000 (2) --
3 FL 33410 1989 160 80% LTM 5/30/97 $ 8,883,717 $ 15,000,000 (2) --
4 FL 33701 1971 333 65% LTM 5/30/97 $ 7,797,930 $ 14,300,000 (2) --
5 CA 90035 1973 260 76% LTM 5/30/97 $ 7,699,222 $ 15,600,000 (2) --
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
6 FL 33410 1989 93,773 93% 30-Jun-97 $ 3,553,487 $ 6,000,000 (2) --
7 NJ 07066 1973 191 70% LTM 5/30/97 $ 3,059,947 $ 10,700,000 (2) --
8 MA 01801 1972 100 72% LTM 5/30/97 $ 2,763,823 $ 5,200,000 (2) --
9 VA 22304 1975 193 61% LTM 5/30/97 $ 2,665,115 $ 6,600,000 (2) --
10 NY 10940 1975 117 53% LTM 5/30/97 $ 2,566,407 $ 3,300,000 (2) --
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
11 NY 11753 1967 80 81% LTM 5/30/97 $ 2,467,699 $ 3,800,000 (2) --
12 NY 11725 1971 109 59% LTM 5/30/97 $ 1,776,743 $ 3,200,000 (2) --
13 NJ 07662 1969 141 62% LTM 5/30/97 $ 1,184,496 $ 3,500,000 (2) --
14 NE 68106 1973 215 53% LTM 5/30/97 $ 1,085,788 $ 3,600,000 (2) --
15 MA 01801 1972 196 62% LTM 5/30/97 $ 789,664 $ 6,000,000 (2) --
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
MANSION GROVE
APARTMENTS CA 95050 1989 877 97% 26-Jun-97 $72,862,226 $118,000,000 61.7% $9,886,752
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
NORTH SHORE TOWERS NY 11005 1971 1,844 92% 22-Aug-97 $70,280,966 $350,000,000 20.1% --
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
FASHION MALL IN 46204 1973 682,912 88% 01-May-97 $64,864,238 $116,000,000 55.9% --
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
YORKTOWN SHOPPING
CENTER IL 60148 1968 480,539 92% 30-Jun-97 $57,304,459 $119,500,000 48.0% $9,114,578
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
GRAND KEMPINSKI
HOTEL TX 75248 1983 528 70% LTM 6/30/97 $55,000,000 $ 90,000,000 61.1% --
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
ARROWHEAD TOWNE
CENTER AZ 85301 1993 394,297 89% 30-May-97 $48,899,962 $105,000,000 46.6% $9,444,379
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
MARK CENTERS POOL
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
1 PA 18045 1955/1987 131,477 100% 30-Jun-97 $ 7,996,805 $ 11,900,000 63.8% $1,464,653
2 PA 18360 1974 130,569 100% 30-Jun-97 $ 3,809,944 $ 5,700,000 (3) $ 787,413
3 AL 36303 1969 381,678 87% 30-Jun-97 $ 3,411,058 $ 5,375,000 (3) $1,009,771
4 PA 18507 1972/1992 196,399 99% 30-Jun-97 $ 3,380,086 $ 5,000,000 (3) $ 884,665
5 PA 18103 1959/1993 114,801 97% 30-Jun-97 $ 3,189,401 $ 5,000,000 (3) $ 724,791
- ------------------ ------- ------ ----------- -------- -------- ----------- ----------- ------------ ------- ----------
6 SC 29841 1974/1990 133,878 91% 30-Jun-97 $ 2,915,495 $ 4,125,000 (3) $ 605,376
7 PA 19607 1974/1994 150,742 100% 30-Jun-97 $ 2,893,230 $ 4,800,000 (3) $ 144,139
8 GA 30742 1968/1991 113,367 96% 30-Jun-97 $ 2,657,421 $ 4,000,000 (3) $ 442,968
9 AL 36801 1966/1986 203,223 77% 30-Jun-97 $ 2,504,438 $ 3,300,000 (3) $ 515,891
10 NY 12180 1966/1988 128,479 95% 30-Jun-97 $ 2,408,353 $ 3,500,000 (3) $ 792,763
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
11 PA 18704 1982/1993 62,824 100% 30-Jun-97 $ 2,280,900 $ 3,300,000 (3) $ 505,967
12 PA 17837 1976/1994 113,600 96% 30-Jun-97 $ 2,167,102 $ 3,400,000 (3) $ 152,833
13 FL 32168 1963/1993 102,130 79% 30-Jun-97 $ 1,535,575 $ 3,800,000 (3) $ 226,267
14 PA 17876 1979/1992 92,171 100% 30-Jun-97 $ 1,252,664 $ 2,300,000 (3) $ 332,013
15 PA 18509 1967/1984 45,380 100% 30-Jun-97 $ 1,136,492 $ 1,800,000 (3) $ 288,935
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
16 PA 17872 1967 98,210 92% 30-Jun-97 $ 1,018,835 $ 2,000,000 (3) $ 288,602
17 VA 24540 1972 118,535 100% 30-Jun-97 $ 891,777 $ 1,900,000 (3) $ 291,111
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
WESTGATE MALL OH 44126 1954 617,222 89% 30-Jun-97 $42,681,517 $ 65,000,000 65.7% $7,778,697
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
WESTSHORE MALL MI 49423 1988 393,949 95% 01-Jul-97 $20,900,775 $ 33,000,000 63.3% $5,038,171
- ------------------ ------- ------ ----------- -------- --------- ----------- ----------- ------------ ------- ----------
<PAGE>
1995 1996
TOTAL TOTAL 1994 1995 1996 UNDERWRITABLE
REVENUE REVENUE TOTAL NOI TOTAL NOI TOTAL NOI CASH FLOW DSCR FEE/LEASEHOLD
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 167,818 $ 176,084 $ 113,475 $ 113,655 $ 139,314 $ 151,734 (1) Fee
$ 148,520 $ 158,530 $ 130,429 $ 113,202 $ 114,667 $ 118,770 (1) Fee
$ 159,963 $ 170,968 $ 115,189 $ 105,294 $ 122,197 $ 86,742 (1) Fee
$ 105,138 $ 123,721 $ 55,548 $ 74,905 $ 92,941 $ 80,514 (1) Fee
$ 144,418 $ 115,929 $ 81,372 $ 73,057 $ 57,060 $ 81,953 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 92,617 $ 101,276 $ 79,100 $ 79,467 $ 88,121 $ 78,315 (1) Fee
$ 97,388 $ 97,603 $ 85,638 $ 83,598 $ 85,698 $ 75,260 (1) Fee
$ 84,863 $ 84,281 $ 75,371 $ 75,840 $ 75,126 $ 65,621 (1) Fee
$ 108,178 $ 101,473 $ 63,437 $ 63,111 $ 56,650 $ 51,778 (1) Mixed
$ 61,715 $ 62,910 $ 41,475 $ 46,703 $ 47,723 $ 45,516 (1) Leasehold
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 33,824 $ 33,968 $ 26,443 $ 20,013 $ 21,237 $ 18,886 (1) Fee
$ 21,168 $ 23,400 -- $ 15,572 $ 21,709 $ 13,529 (1) Fee
-- $ 56,845 -- -- $ 27,454 $ 2,036 (1) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 8,557,030 $10,528,127 -- $2,386,246 $ 3,584,474 $ 3,568,915 2.16 Fee
$11,699,233 $13,486,790 -- $2,508,653 $ 3,526,146 $ 3,150,788 (2) Mixed
$ 4,277,876 $ 4,703,656 -- $1,166,437 $ 1,624,318 $ 1,497,892 (2) Fee
$ 7,753,492 $ 8,420,930 -- $1,557,034 $ 2,031,243 $ 1,537,748 (2) Fee
$ 4,937,668 $ 5,991,931 -- $ 747,380 $ 1,714,187 $ 1,557,977 (2) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 1,382,654 $ 1,453,685 -- $ 825,821 $ 778,325 $ 720,625 (2) Fee
$ 3,988,820 $ 4,047,602 -- $ 468,732 $ 811,208 $ 1,410,192 (2) Fee
$ 1,608,802 $ 1,942,972 -- $ 445,830 $ 654,728 $ 578,386 (2) Fee
$ 3,309,124 $ 3,501,141 -- $ 454,917 $ 580,732 $ 594,895 (2) Fee
$ 1,425,751 $ 1,536,424 -- $ 488,222 $ 551,390 $ 394,591 (2) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 1,621,805 $ 1,758,862 -- $ 476,479 $ 588,802 $ 485,653 (2) Mixed
$ 1,442,977 $ 1,574,373 -- $ 342,720 $ 418,900 $ 343,573 (2) Fee
$ 1,846,184 $ 2,331,202 -- $ 39,921 $ 459,954 $ 352,813 (2) Mixed
$ 2,635,888 $ 2,553,729 -- $ 303,313 $ 224,712 $ 111,263 (2) Fee
$ 3,223,899 $ 4,311,186 -- $ 41,048 $ 666,581 $ 581,179 (2) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$10,664,852 $12,248,641 $6,410,725 $7,535,274 $ 9,363,629 $ 9,246,143 1.39 Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
-- -- -- -- -- $20,124,264 2.83 Mixed
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$13,619,519 $13,946,994 -- $9,850,921 $10,170,268 $ 9,748,888 1.73 Leasehold
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 9,711,467 $10,365,552 $6,949,626 $7,646,725 $ 8,253,907 $ 7,570,166 1.33 Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$28,618,019 $31,432,514 -- $9,565,048 $11,416,707 $ 9,289,725 1.73 Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$12,121,878 $13,687,319 $4,979,051 $6,991,129 $ 8,516,785 $ 8,356,914 1.79 Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 1,648,131 $ 1,552,485 $1,171,304 $1,360,676 $ 1,209,270 $ 1,089,931 1.50 Fee
$ 821,189 $ 782,426 $ 614,866 $ 631,653 $ 554,339 $ 484,949 (3) Leasehold
$ 1,192,082 $ 1,226,620 $ 495,305 $ 662,950 $ 675,225 $ 474,685 (3) Mixed
$ 880,298 $ 885,695 $ 581,001 $ 597,717 $ 606,341 $ 522,894 (3) Leasehold
$ 730,334 $ 753,908 $ 516,368 $ 545,770 $ 516,813 $ 454,665 (3) Leasehold
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 611,844 $ 665,812 $ 439,332 $ 465,842 $ 549,780 $ 510,347 (3) Leasehold
$ 703,365 $ 703,868 $ 108,842 $ 553,166 $ 540,183 $ 435,864 (3) Fee
$ 486,069 $ 555,654 $ 365,859 $ 374,918 $ 163,587 $ 384,865 (3) Fee
$ 552,751 $ 581,960 $ 394,751 $ 463,537 $ 574,118 $ 495,509 (3) Fee
$ 799,060 $ 775,509 $ 376,371 $ 428,183 $ 254,653 $ 253,347 (3) Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 491,434 $ 486,779 $ 386,968 $ 333,559 $ 369,780 $ 298,851 (3) Leasehold
$ 361,478 $ 575,901 $ 148,173 $ 309,164 $ 434,790 $ 382,483 (3) Leasehold
$ 275,657 $ 497,820 $ 100,979 $ 148,408 $ 352,854 $ 439,488 (3) Fee
$ 330,011 $ 313,392 $ 233,695 $ 243,686 $ 224,235 $ 168,094 (3) Leasehold
$ 296,199 $ 281,867 $ 187,077 $ 197,533 $ 177,757 $ 140,533 (3) Leasehold
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 300,398 $ 286,819 $ 210,361 $ 226,343 $ 204,206 $ 142,220 (3) Leasehold
$ 302,140 $ 316,681 $ 193,613 $ 196,885 $ 209,642 $ 168,628 (3) Leasehold
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 8,192,137 $ 8,415,211 $5,372,418 $5,546,322 $ 5,516,592 $ 5,321,105 1.20 Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
$ 4,656,406 $ 5,185,601 $2,987,089 $3,084,635 $ 3,452,300 $ 3,119,597 1.68 Fee
- ------------- ------------- ------------- ------------- ------------- --------------- ------ ---------------
</TABLE>
(1) Edens & Avant Pool Properties Cut-Off Date LTV and DSCR calculated on a
pool basis and equal 36.8% and 3.35x respectively
(2) Ashford Pool Properties Cut-Off Date LTV and DSCR calculated on a pool
basis and equal 50.9% and 2.16x respectively
(3) Mark Centers Pool Properties Cut-Off Date LTV and DSCR calculated on a
pool basis and equal 63.8% and 1.50x respectively
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in one or more
series. Each series of Certificates will represent in the aggregate the
entire beneficial ownership interest in a trust fund (with respect to any
series, the "Trust Fund") consisting of one or more segregated pools of
various types of multifamily or commercial mortgage loans (the "Mortgage
Loans"), mortgage participations, mortgage pass-through certificates,
mortgage-backed securities evidencing interests therein or secured thereby
(the "MBS"), certain direct obligations of the United States, agencies
thereof or agencies created thereby (the "Government Securities") or a
combination of Mortgage Loans, MBS and/or Government Securities (with respect
to any series, collectively, "Assets"). If so specified in the related
Prospectus Supplement, some or all of the Mortgage Loans will include
assignments of the leases of the related Mortgaged Properties (as defined
herein) and/or assignments of the rental payments due from the lessees under
such leases (each type of assignment, a "Lease Assignment"). A significant or
the sole source of payments on certain Commercial Loans (as defined herein)
and, therefore, of distributions on certain series of Certificates, will be
such rent payments. The Mortgage Loans and MBS are collectively referred to
herein as the "Mortgage Assets." If so specified in the related Prospectus
Supplement, the Trust Fund for a series of Certificates may include letters
of credit, insurance policies, guarantees, reserve funds or other types of
credit support, or any combination thereof (with respect to any series,
collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with
respect to any series, collectively, "Cash Flow Agreements"). See
"Description of the Trust Funds," "Description of the Certificates" and
"Description of Credit Support."
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based
on fixed, variable or adjustable rates; (ii) be senior or subordinate to one
or more other classes of Certificates in respect of certain distributions on
the Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be
entitled to interest distributions, with disproportionately low, nominal or
no principal distributions; (v) provide for distributions of accrued interest
thereon commencing only following the occurrence of certain events, such as
the retirement of one or more other classes of Certificates of such series;
(vi) provide for distributions of principal sequentially, based on specified
payment schedules or other methodologies; and/or (vii) provide for
distributions based on a combination of two or more components thereof with
one or more of the characteristics described in this paragraph, to the extent
of available funds, in each case as described in the related Prospectus
Supplement. Any such classes may include classes of Offered Certificates. See
"Description of the Certificates."
(cover continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Investors should consider, among other things, certain risks set forth
under the caption "Risk Factors" herein and in the related Prospectus
Supplement.
Prior to issuance there will have been no market for the Certificates of
any series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement
for such series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
MORGAN STANLEY & CO.
INCORPORATED
September 26, 1997
<PAGE>
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any series will be made only from the assets of the related
Trust Fund.
The Certificates of each series will not represent an obligation of or
interest in the Depositor, Morgan Stanley & Co. Incorporated, any Master
Servicer, any Sub-Servicer, any Special Servicer or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor any assets in the related
Trust Fund will be guaranteed or insured by any governmental agency or
instrumentality or by any other person, unless otherwise provided in the
related Prospectus Supplement. The assets in each Trust Fund will be held in
trust for the benefit of the holders of the related series of Certificates
pursuant to a Pooling and Servicing Agreement or a Trust Agreement, as more
fully described herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein
and in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "Risk Factors" herein and such information as may be set forth under
the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Certificate.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof
as a "real estate mortgage investment conduit" for federal income tax
purposes. See also "Certain Federal Income Tax Consequences" herein.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES COVERED BY SUCH PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE
REQUIRED TO DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND
PROSPECTUS SUPPLEMENT WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each series will, among other things, set
forth with respect to such Certificates, as appropriate: (i) a description of
the class or classes of Certificates, the payment provisions with respect to
each such class and the Pass-Through Rate or method of determining the
Pass-Through Rate with respect to each such class; (ii) the aggregate
principal amount and distribution dates relating to such series and, if
applicable, the initial and final scheduled distribution dates for each
class; (iii) information as to the assets comprising the Trust Fund,
including the general characteristics of the assets included therein,
including the Mortgage Assets and any Credit Support and Cash Flow Agreements
(with respect to the Certificates of any series, the "Trust Assets"); (iv)
the circumstances, if any, under which the Trust Fund may be subject to early
termination; (v) additional information with respect to the method of
distribution of such Certificates; (vi) whether one or more REMIC elections
will be made and designation of the regular interests and residual interests;
(vii) the aggregate original percentage ownership interest in the Trust Fund
to be evidenced by each class of Certificates; (viii) information as to any
Master Servicer, any Sub-Servicer, any Special Servicer (or provision for the
appointment thereof) and the Trustee, as applicable; (ix) information as to
the nature and extent of subordination with respect to any class of
Certificates that is subordinate in right of payment to any other class; and
(x) whether such Certificates will be initially issued in definitive or
book-entry form.
2
<PAGE>
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the
Offered Certificates. This Prospectus and the Prospectus Supplement relating
to each series of Certificates contain summaries of the material terms of the
documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661; and New York
Regional Office, Seven World Trade Center, New York, New York 10048.
To the extent described in the related Prospectus Supplement, some or all
of the Mortgage Loans may be secured by an assignment of the lessors' (i.e.,
the related mortgagors') rights in one or more leases (each, a "Lease") of
the related Mortgaged Property. Unless otherwise specified in the related
Prospectus Supplement, no series of Certificates will represent interests in
or obligations of any lessee (each, a "Lessee") under a Lease. If indicated,
however, in the Prospectus Supplement for a given series, a significant or
the sole source of payments on the Mortgage Loans in such series, and,
therefore, of distributions on such Certificates, will be rental payments due
from the Lessees under the Leases. Under such circumstances, prospective
investors in the related series of Certificates may wish to consider publicly
available information, if any, concerning the Lessees. Reference should be
made to the related Prospectus Supplement for information concerning the
Lessees and whether any such Lessees are subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Offered Certificates or an offer of the Offered Certificates to any person in
any state or other jurisdiction in which such offer would be unlawful. The
delivery of this Prospectus at any time does not imply that information
herein is correct as of any time subsequent to its date; however, if any
material change occurs while this Prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Certificates, pursuant to the applicable Agreement. Such reports may
be available to holders of interests in the Certificates (the
"Certificateholders") upon request to their respective DTC participants. See
"Description of the Certificates--Reports to Certificateholders" and
"Description of the Agreements--Evidence as to Compliance." The Depositor
will file or cause to be filed with the Commission such periodic reports with
respect to each Trust Fund as are required under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations of
the Commission thereunder.
3
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge to
each person to whom this Prospectus is delivered in connection with the
offering of one or more classes of Offered Certificates, a copy of any or all
documents or reports incorporated herein by reference, in each case to the
extent such documents or reports relate to one or more of such classes of
such Offered Certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests to the Depositor should be directed in writing to Morgan Stanley
Capital I Inc., c/o Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th
Floor, New York, New York 10036, Attention: John E. Westerfield, or by
telephone at (212) 761-4700. The Depositor has determined that its financial
statements are not material to the offering of any Offered Certificates.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS SUPPLEMENT..................................... 2
AVAILABLE INFORMATION..................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ........ 4
SUMMARY OF PROSPECTUS..................................... 5
RISK FACTORS.............................................. 13
DESCRIPTION OF THE TRUST FUNDS............................ 20
USE OF PROCEEDS........................................... 26
YIELD CONSIDERATIONS...................................... 27
THE DEPOSITOR............................................. 30
DESCRIPTION OF THE CERTIFICATES........................... 30
DESCRIPTION OF THE AGREEMENTS............................. 38
DESCRIPTION OF CREDIT SUPPORT............................. 55
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE
LEASES................................................... 57
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................... 74
STATE TAX CONSIDERATIONS.................................. 98
ERISA CONSIDERATIONS...................................... 99
LEGAL INVESTMENT.......................................... 101
PLAN OF DISTRIBUTION...................................... 103
LEGAL MATTERS............................................. 103
FINANCIAL INFORMATION..................................... 103
RATING.................................................... 104
INDEX OF PRINCIPAL DEFINITIONS............................ 105
</TABLE>
4
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared
and delivered in connection with the offering of such series. An Index of
Principal Definitions is included at the end of this Prospectus.
Title of Certificates ......... Mortgage Pass-Through Certificates, issuable
in series (the "Certificates").
Depositor ..................... Morgan Stanley Capital I Inc., a
wholly-owned subsidiary of Morgan Stanley
Group Inc. See "The Depositor."
Master Servicer ............... The master servicer (the "Master Servicer"),
if any, for each series of Certificates,
which may be an affiliate of the Depositor,
will be named in the related Prospectus
Supplement. See "Description of the
Agreements--Collection and Other Servicing
Procedures."
Special Servicer .............. The special servicer (the "Special
Servicer"), if any, for each series of
Certificates, which may be an affiliate of
the Depositor, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus
Supplement. See "Description of the
Agreements--Special Servicers."
Trustee ....................... The trustee (the "Trustee") for each series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Agreements--The Trustee."
The Trust Assets .............. Each series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting primarily of:
(a) Mortgage Assets .......... The Mortgage Assets with respect to each
series of Certificates will consist of a
pool of multifamily and/or commercial
mortgage loans (collectively, the "Mortgage
Loans") and mortgage participations,
mortgage pass-through certificates or other
mortgage-backed securities evidencing
interests in or secured by Mortgage Loans
(collectively, the "MBS") or a combination
of Mortgage Loans and MBS. The Mortgage
Loans will not be guaranteed or insured by
the Depositor or any of its affiliates or,
unless otherwise provided in the Prospectus
Supplement, by any governmental agency or
instrumentality or other person. As more
specifically described herein, the Mortgage
Loans will be secured by first or junior
liens on, or security interests in,
properties consisting of (i) residential
properties consisting of five or more rental
or cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, retail stores,
hotels or motels, nursing homes, hospitals
or other health-care related facilities,
mobile home parks,
5
<PAGE>
warehouse facilities, mini-warehouse
facilities or self-storage facilities,
industrial plants, congregate care
facilities, mixed use or other types of
commercial properties (the "Commercial
Properties"). The term "Mortgaged
Properties" shall refer to Multifamily
Properties or Commercial Properties, or
both.
To the extent described in the related
Prospectus Supplement, some or all of the
Mortgage Loans may also be secured by an
assignment of one or more leases (each, a
"Lease") of one or more lessees (each, a
"Lessee") of all or a portion of the related
Mortgaged Properties. Unless otherwise
specified in the related Prospectus
Supplement, a significant or the sole source
of payments on certain Commercial Loans (as
defined herein) will be the rental payments
due under the related Leases. In certain
circumstances, with respect to Commercial
Properties, the material terms and
conditions of the related Leases may be set
forth in the related Prospectus Supplement.
See "Description of the Trust
Funds--Mortgage Loans--Leases" and "Risk
Factors--Limited Assets" herein.
The Mortgaged Properties may be located in
any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico.
The Prospectus Supplement will indicate
additional jurisdictions, if any, in which
the Mortgaged Properties may be located.
Unless otherwise provided in the related
Prospectus Supplement, all Mortgage Loans
will have individual principal balances at
origination of not less than $25,000 and
original terms to maturity of not more than
40 years. All Mortgage Loans will have been
originated by persons other than the
Depositor, and all Mortgage Assets will have
been purchased, either directly or
indirectly, by the Depositor on or before
the date of initial issuance of the related
series of Certificates. The related
Prospectus Supplement will indicate if any
such persons are affiliates of the
Depositor.
Each Mortgage Loan may provide for no
accrual of interest or for accrual of
interest thereon at an interest rate (a
"Mortgage Rate") that is fixed over its term
or that adjusts from time to time, or that
may be converted from an adjustable to a
fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, from time to time
at the mortgagor's election, in each case as
described in the related Prospectus
Supplement. Adjustable Mortgage Rates on the
Mortgage Loans in a Trust Fund may be based
on one or more indices. Each Mortgage Loan
may provide for scheduled payments to
maturity, payments that adjust from time to
time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain
events, and may provide for negative
amortization or accelerated amortization, in
each case as described in the related
Prospectus Supplement. Each Mortgage Loan
may be fully amortizing or require a balloon
payment due on its stated maturity date, in
each case as described in the related
Prospectus Supplement. Each Mortgage Loan
may contain prohibitions on prepayment
6
<PAGE>
or require payment of a premium or a yield
maintenance penalty in connection with a
prepayment, in each case as described in the
related Prospectus Supplement. The Mortgage
Loans may provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such
other interval as is specified in the
related Prospectus Supplement. See
"Description of the Trust Funds--Assets."
(b) Government Securities .... If so provided in the related Prospectus
Supplement, the Trust Fund may include, in
addition to Mortgage Assets, certain direct
obligations of the United States, agencies
thereof or agencies created thereby which
provide for payment of interest and/or
principal (collectively, "Government
Securities").
(c) Collection Accounts ...... Each Trust Fund will include one or more
accounts established and maintained on
behalf of the Certificateholders into which
the person or persons designated in the
related Prospectus Supplement will, to the
extent described herein and in such
Prospectus Supplement, deposit all payments
and collections received or advanced with
respect to the Mortgage Assets and other
assets in the Trust Fund. Such an account
may be maintained as an interest bearing or
a non-interest bearing account, and funds
held therein may be held as cash or invested
in certain short-term, investment grade
obligations, in each case as described in
the related Prospectus Supplement. See
"Description of the Agreements--Certificate
Account and Other Collection Accounts."
(d) Credit Support ........... If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series,
which other classes may include one or more
classes of Offered Certificates, or by one
or more other types of credit support, such
as a letter of credit, insurance policy,
guarantee, reserve fund or another type of
credit support, or a combination thereof
(any such coverage with respect to the
Certificates of any series, "Credit
Support"). The amount and types of coverage,
the identification of the entity providing
the coverage (if applicable) and related
information with respect to each type of
Credit Support, if any, will be described in
the Prospectus Supplement for a series of
Certificates. The Prospectus Supplement for
any series of Certificates evidencing an
interest in a Trust Fund that includes MBS
will describe any similar forms of credit
support that are provided by or with respect
to, or are included as part of the trust
fund evidenced by or providing security for,
such MBS. See "Risk Factors--Credit Support
Limitations" and "Description of Credit
Support."
(e) Cash Flow Agreements ..... If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
7
<PAGE>
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements,
such as interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects of
interest rate or currency exchange rate
fluctuations on the Assets or on one or more
classes of Certificates. (Currency exchange
agreements might be included in the Trust
Fund if some or all of the Mortgage Assets
(such as Mortgage Loans secured by Mortgaged
Properties located outside the United
States) were denominated in a non-United
States currency.) The principal terms of any
such guaranteed investment contract or other
agreement (any such agreement, a "Cash Flow
Agreement"), including, without limitation,
provisions relating to the timing, manner
and amount of payments thereunder and
provisions relating to the termination
thereof, will be described in the Prospectus
Supplement for the related series. In
addition, the related Prospectus Supplement
will provide certain information with
respect to the obligor under any such Cash
Flow Agreement. The Prospectus Supplement
for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS
will describe any cash flow agreements that
are included as part of the trust fund
evidenced by or providing security for such
MBS. See "Description of the Trust
Funds--Cash Flow Agreements." Description of
Certificates.
Distributions on Certificates . Each series of Certificates evidencing an
interest in a Trust Fund that includes
Mortgage Loans as part of its assets will be
issued pursuant to a pooling and servicing
agreement, and each series of Certificates
evidencing an interest in a Trust Fund that
does not include Mortgage Loans will be
issued pursuant to a trust agreement.
Pooling and servicing agreements and trust
agreements are referred to herein as the
"Agreements." Each series of Certificates
will include one or more classes. Each
series of Certificates (including any class
or classes of Certificates of such series
not offered hereby) will represent in the
aggregate the entire beneficial ownership
interest in the Trust Fund. Each class of
Certificates (other than certain Stripped
Interest Certificates, as defined below)
will have a stated principal amount (a
"Certificate Balance") and (other than
certain Stripped Principal Certificates, as
defined below), will accrue interest thereon
based on a fixed, variable or adjustable
interest rate (a "Pass-Through Rate"). The
related Prospectus Supplement will specify
the Certificate Balance, if any, and the
Pass-Through Rate for each class of
Certificates or, in the case of a variable
or adjustable Pass-Through Rate, the method
for determining the Pass-Through Rate.
Each series of Certificates will consist of
one or more classes of Certificates that may
(i) provide for the accrual of interest
thereon based on fixed, variable or
adjustable rates; (ii) be senior
(collectively, "Senior Certificates") or
subordinate (col-
8
<PAGE>
lectively, "Subordinate Certificates") to
one or more other classes of Certificates in
respect of certain distributions on the
Certificates; (iii) be entitled to principal
distributions, with disproportionately low,
nominal or no interest distributions
(collectively, "Stripped Principal
Certificates"); (iv) be entitled to interest
distributions, with disproportionately low,
nominal or no principal distributions
(collectively, "Stripped Interest
Certificates"); (v) provide for
distributions of accrued interest thereon
commencing only following the occurrence of
certain events, such as the retirement of
one or more other classes of Certificates of
such series (collectively, "Accrual
Certificates"); (vi) provide for
distributions of principal sequentially,
based on specified payment schedules or
other methodologies; and/or (vii) provide
for distributions based on a combination of
two or more components thereof with one or
more of the characteristics described in
this paragraph, including a Stripped
Principal Certificate component and a
Stripped Interest Certificate component, to
the extent of available funds, in each case
as described in the related Prospectus
Supplement. Any such classes may include
classes of Offered Certificates. With
respect to Certificates with two or more
components, references herein to Certificate
Balance, notional amount and Pass-Through
Rate refer to the principal balance, if any,
notional amount, if any, and the
Pass-Through Rate, if any, for any such
component.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person,
unless otherwise provided in the related
Prospectus Supplement. See "Risk
Factors--Limited Assets" and "Description of
the Certificates."
(a) Interest ................. Interest on each class of Offered
Certificates (other than Stripped Principal
Certificates and certain classes of Stripped
Interest Certificates) of each series will
accrue at the applicable Pass-Through Rate
on the outstanding Certificate Balance
thereof and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of the
specified dates on which distributions are
to be made, a "Distribution Date").
Distributions with respect to interest on
Stripped Interest Certificates may be made
on each Distribution Date on the basis of a
notional amount as described in the related
Prospectus Supplement. Distributions of
interest with respect to one or more classes
of Certificates may be reduced to the extent
of certain delinquencies, losses, prepayment
interest shortfalls, and other contingencies
described herein and in the related
Prospectus Supplement. See "Risk
Factors--Average Life of Certificates;
Prepayments; Yields," "Yield Considerations"
and "Description of the
Certificates--Distributions of Interest on
the Certificates."
(b) Principal ................ The Certificates of each series initially
will have an aggregate Certificate Balance
no greater than the outstanding principal
9
<PAGE>
balance of the Assets as of, unless the
related Prospectus Supplement provides
otherwise, the close of business on the
first day of the month of formation of the
related Trust Fund (the "Cut-off Date"),
after application of scheduled payments due
on or before such date, whether or not
received. The Certificate Balance of a
Certificate outstanding from time to time
represents the maximum amount that the
holder thereof is then entitled to receive
in respect of principal from future cash
flow on the assets in the related Trust
Fund. Unless otherwise provided in the
related Prospectus Supplement, distributions
of principal will be made on each
Distribution Date to the class or classes of
Certificates entitled thereto until the
Certificate Balances of such Certificates
have been reduced to zero. Unless otherwise
specified in the related Prospectus
Supplement, distributions of principal of
any class of Certificates will be made on a
pro rata basis among all of the Certificates
of such class or by random selection, as
described in the related Prospectus
Supplement or otherwise established by the
related Trustee. Stripped Interest
Certificates with no Certificate Balance
will not receive distributions in respect of
principal. See "Description of the
Certificates--Distributions of Principal of
the Certificates."
Advances ...................... Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer
will be obligated as part of its servicing
responsibilities to make certain advances
that in its good faith judgment it deems
recoverable with respect to delinquent
scheduled payments on the Whole Loans in
such Trust Fund. Neither the Depositor nor
any of its affiliates will have any
responsibility to make such advances.
Advances made by a Master Servicer are
reimbursable generally from subsequent
recoveries in respect of such Whole Loans
and otherwise to the extent described herein
and in the related Prospectus Supplement. If
and to the extent provided in the Prospectus
Supplement for any series, the Master
Servicer will be entitled to receive
interest on its outstanding advances,
payable from amounts in the related Trust
Fund. The Prospectus Supplement for any
series of Certificates evidencing an
interest in a Trust Fund that includes MBS
will describe any corresponding advancing
obligation of any person in connection with
such MBS. See "Description of the
Certificates--Advances in Respect of
Delinquencies."
Termination ................... If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination
through the repurchase of the Assets in the
related Trust Fund by the party specified
therein, under the circumstances and in the
manner set forth therein. If so provided in
the related Prospectus Supplement, upon the
reduction of the Certificate Balance of a
specified class or classes of Certificates
by a specified percentage or amount or on
and after a date specified in such
Prospectus Supplement, the party specified
therein will solicit
10
<PAGE>
bids for the purchase of all of the Assets
of the Trust Fund, or of a sufficient
portion of such Assets to retire such class
or classes, or purchase such Assets at a
price set forth in the related Prospectus
Supplement. In addition, if so provided in
the related Prospectus Supplement, certain
classes of Certificates may be purchased
subject to similar conditions. See
"Description of the
Certificates--Termination."
Registration of Certificates .. If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an
interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event that
definitive certificates are issued under the
limited circumstances described herein. See
"Risk Factors--Book-Entry Registration" and
"Description of the Certificates--Book-Entry
Registration and Definitive Certificates."
Tax Status of the Certificates The Certificates of each series will
constitute either (i) "regular interests"
("REMIC Regular Certificates") and "residual
interests" ("REMIC Residual Certificates")
in a Trust Fund treated as a REMIC under
Sections 860A through 860G of the Code, or
(ii) interests ("Grantor Trust
Certificates") in a Trust Fund treated as a
grantor trust under applicable provisions of
the Code.
(a) REMIC .................... REMIC Regular Certificates generally will be
treated as debt obligations of the
applicable REMIC for federal income tax
purposes. Certain REMIC Regular Certificates
may be issued with original issue discount
for federal income tax purposes. See
"Certain Federal Income Tax Consequences" in
the Prospectus Supplement.
A portion (or, in certain cases, all) of the
income from REMIC Residual Certificates (i)
may not be offset by any losses from other
activities of the holder of such REMIC
Residual Certificates, (ii) may be treated
as unrelated business taxable income for
holders of REMIC Residual Certificates that
are subject to tax on unrelated business
taxable income (as defined in Section 511 of
the Code), and (iii) may be subject to
foreign withholding rules. See "Certain
Federal Income Tax
Consequences--REMICs--Taxation of Owners of
REMIC Residual Certificates".
The Offered Certificates will be treated as
(i) assets described in section
7701(a)(19)(C) of the Internal Revenue Code
of 1986, as amended (the "Code") and (ii)
"real estate assets" within the meaning of
section 856(c)(5)(A) of the Code, in each
case to the extent described herein and in
the Prospectus. See "Certain Federal Income
Tax Consequences" herein and in the
Prospectus.
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<PAGE>
(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 "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 "ERISA Considerations" herein and in the
related Prospectus Supplement.
Legal Investment .............. The related Prospectus Supplement will
specify whether any class or classes of the
Offered Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984, as amended. Investors whose
investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether and to what
extent the Offered Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the related
Prospectus Supplement.
Rating ........................ At the date of issuance, as to each series,
each class of Offered Certificates will be
rated not lower than investment grade by one
or more nationally recognized statistical
rating agencies (each, a "Rating Agency").
See "Rating" herein and in the related
Prospectus Supplement.
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<PAGE>
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates of
any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such
series remain outstanding. Any such secondary market may provide less
liquidity to investors than any comparable market for securities evidencing
interests in single family mortgage loans. The market value of Certificates
will fluctuate with changes in prevailing rates of interest. Consequently,
sale of Certificates by a holder in any secondary market that may develop may
be at a discount from 100% of their original principal balance or from their
purchase price. Furthermore, secondary market purchasers may look only
hereto, to the related Prospectus Supplement and to the reports to
Certificateholders delivered pursuant to the related Agreement as described
herein under the heading "Description of the Certificates--Reports to
Certificateholders", "--Book-Entry Registration and Definitive Certificates"
and "Description of the Agreements--Evidence as to Compliance" for
information concerning the Certificates. Except to the extent described
herein and in the related Prospectus Supplement, Certificateholders will have
no redemption rights and the Certificates are subject to early retirement
only under certain specified circumstances described herein and in the
related Prospectus Supplement. See "Description of the
Certificates--Termination". Morgan Stanley & Co. Incorporated currently
expects to make a secondary market in the Offered Certificates, but has no
obligation to do so.
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, or any of their affiliates. The only
obligations with respect to the Certificates or the Assets will be the
obligations (if any) of the Warrantying Party (as defined herein) pursuant to
certain limited representations and warranties made with respect to the
Mortgage Loans, the Master Servicer's, any Special Servicer's and any
Sub-Servicer's servicing obligations under the related Pooling and Servicing
Agreement (including the limited obligation to make certain advances in the
event of delinquencies on the Mortgage Loans, but only to the extent deemed
recoverable). Since certain representations and warranties with respect to
the Mortgage Assets may have been made and/or assigned in connection with
transfers of such Mortgage Assets prior to the Closing Date, the rights of
the Trustee and the Certificateholders with respect to such representations
or warranties will be limited to their rights as an assignee thereof. Unless
otherwise specified in the related Prospectus Supplement, none of the
Depositor, the Master Servicer or any affiliate thereof will have any
obligation with respect to representations or warranties made by any other
entity. Unless otherwise specified in the related Prospectus Supplement,
neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by
the Depositor, the Master Servicer, any Special Servicer, any Sub-Servicer or
any of their affiliates. Proceeds of the assets included in the related Trust
Fund for each series of Certificates (including the Assets and any form of
credit enhancement) will be the sole source of payments on the Certificates,
and there will be no recourse to the Depositor or any other entity in the
event that such proceeds are insufficient or otherwise unavailable to make
all payments provided for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a series
of Certificates will not have any claim against or security interest in the
Trust Funds for any other series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts
maintained as Credit Support, may be withdrawn under certain conditions, as
described in the related Prospectus Supplement. In the event of such
withdrawal, such amounts will not be available for future payment of
principal of or interest on the Certificates. If so provided in the
Prospectus Supplement for a series of Certificates consisting of one or more
classes of Subordinate
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<PAGE>
Certificates, on any Distribution Date in respect of which losses or
shortfalls in collections on the Assets have been incurred, the amount of
such losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by the remaining classes of
Certificates in the priority and manner and subject to the limitations
specified in such Prospectus Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets in
any Trust Fund generally will result in a faster rate of principal payments
on one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on
the Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans
varies between pools and from time to time is influenced by a variety of
economic, demographic, geographic, social, tax, legal and other factors.
There can be no assurance as to the rate of prepayment on the Mortgage Assets
in any Trust Fund or that the rate of payments will conform to any model
described herein or in any Prospectus Supplement. If prevailing interest
rates fall significantly below the applicable mortgage interest rates,
principal prepayments are likely to be higher than if prevailing rates remain
at or above the rates borne by the Mortgage Loans underlying or comprising
the Mortgage Assets in any Trust Fund. As a result, the actual maturity of
any class of Certificates could occur significantly earlier than expected. A
series of Certificates may include one or more classes of Certificates with
priorities of payment and, as a result, yields on other classes of
Certificates, including classes of Offered Certificates, of such series may
be more sensitive to prepayments on Mortgage Assets. A series of Certificates
may include one or more classes offered at a significant premium or discount.
Yields on such classes of Certificates will be sensitive, and in some cases
extremely sensitive, to prepayments on Mortgage Assets and, where the amount
of interest payable with respect to a class is disproportionately high, as
compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A series of Certificates may include one or
more classes of Certificates, including classes of Offered Certificates, that
provide for distribution of principal thereof from amounts attributable to
interest accrued but not currently distributable on one or more classes of
Accrual Certificates and, as a result, yields on such Certificates will be
sensitive to (a) the provisions of such Accrual Certificates relating to the
timing of distributions of interest thereon and (b) if such Accrual
Certificates accrue interest at a variable or adjustable Pass-Through Rate,
changes in such rate. See "Yield Considerations" herein and, if applicable,
in the related Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders
of Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an
investor purchasing a Certificate at a significant premium might fail to
recoup its initial investment under certain prepayment scenarios. Each
Prospectus Supplement will identify any payment to which holders of Offered
Certificates of the related series are entitled that is not covered by the
applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such series.
Such criteria are sometimes based upon an actuarial analysis of the behavior
of mortgage loans in a larger group. Such analysis is often the basis upon
which each Rating Agency determines the amount of credit support required
with respect to each such class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately
reflect future experience nor any assurance that the data derived from a
large pool of mortgage loans accurately predicts the delinquency,
14
<PAGE>
foreclosure or loss experience of any particular pool of Mortgage Assets. No
assurance can be given that values of any Mortgaged Properties have remained
or will remain at their levels on the respective dates of origination of the
related Mortgage Loans. Moreover, there is no assurance that appreciation of
real estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans underlying or comprising
the Mortgage Assets in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional
lenders. In addition, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect
to any Trust Fund. To the extent that such losses are not covered by the
Credit Support, if any, described in the related Prospectus Supplement, such
losses will be borne, at least in part, by the holders of one or more classes
of the Certificates of the related series. See "Description of Credit
Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds--Assets." The ability of a
mortgagor to repay a loan secured by an income-producing property typically
is dependent primarily upon the successful operation of such property rather
than any independent income or assets of the mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a mortgagor to repay
a single family loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the mortgagor's income tends not to
reflect directly the value of such property. A decline in the net operating
income of an income-producing property will likely affect both the
performance of the related loan as well as the liquidation value of such
property, whereas a decline in the income of a mortgagor on a single family
property will likely affect the performance of the related loan but may not
affect the liquidation value of such property. Moreover, a decline in the
value of a Mortgaged Property will increase the risk of loss particularly
with respect to any related junior Mortgage Loan. See "--Junior Mortgage
Loans."
The performance of a mortgage loan secured by an income-producing property
leased by the mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants
or, if applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
mortgagor default, recourse may be had only against the specific property and
such other assets, if any, as have been pledged to secure the related
Mortgage Loan. With respect to those Mortgage Loans that provide for recourse
against the mortgagor and its assets generally, there can be no assurance
that such recourse will ensure a recovery in respect of a defaulted Mortgage
Loan greater than the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of
single family loans both because the Mortgage Assets in a Trust Fund will
generally consist of a smaller number of loans than would a single family
pool of comparable aggregate unpaid principal balance and because of the
higher principal balance of individual Mortgage Loans. Mortgage Assets in a
Trust Fund may consist of only a limited number of Mortgage Loans and/or
relate to Leases to only a single Lessee or a limited number of Lessees.
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<PAGE>
If applicable, certain legal aspects of the Mortgage Loans for a series of
Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each mortgagor under
a Commercial Loan may be an entity created by the owner or purchaser of the
related Commercial Property solely to own or purchase such property, in part
to isolate the property from the debts and liabilities of such owner or
purchaser. Unless otherwise specified, each such Commercial Loan will
represent a nonrecourse obligation of the related mortgagor secured by the
lien of the related Mortgage and the related Lease Assignments. Whether or
not such loans are recourse or nonrecourse obligations, it is not expected
that the mortgagors will have any significant assets other than the
Commercial Properties and the related Leases, which will be pledged to the
Trustee under the related Agreement. Therefore, the payment of amounts due on
any such Commercial Loans, and, consequently, the payment of principal of and
interest on the related Certificates, will depend primarily or solely on
rental payments by the Lessees. Such rental payments will, in turn, depend on
continued occupancy by, and/or the creditworthiness of, such Lessees, which
in either case may be adversely affected by a general economic downturn or an
adverse change in their financial condition. Moreover, to the extent a
Commercial Property was designed for the needs of a specific type of tenant
(e.g., a nursing home, hospital, hotel or motel), the value of such property
in the event of a default by the Lessee or the early termination of such
Lease may be adversely affected because of difficulty in re-leasing the
property to a suitable substitute lessee or, if re-leasing to such a
substitute is not possible, because of the cost of altering the property for
another more marketable use. As a result, without the benefit of the Lessee's
continued support of the Commercial Property, and absent significant
amortization of the Commercial Loan, if such loan is foreclosed on and the
Commercial Property liquidated following a lease default, the net proceeds
might be insufficient to cover the outstanding principal and interest owing
on such loan, thereby increasing the risk that holders of the Certificates
will suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and,
thus, will require substantial principal payments (i.e., balloon payments) at
their stated maturity. Mortgage Loans with balloon payments involve a greater
degree of risk because the ability of a mortgagor to make a balloon payment
typically will depend upon its ability either to timely refinance the loan or
to timely sell the related Mortgaged Property. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage interest rates at the time of sale
or refinancing, the mortgagor's equity in the related Mortgaged Property, the
financial condition and operating history of the mortgagor and the related
Mortgaged Property, tax laws, rent control laws (with respect to certain
Multifamily Properties and mobile home parks), reimbursement rates (with
respect to certain hospitals, nursing homes and convalescent homes),
renewability of operating licenses, prevailing general economic conditions
and the availability of credit for commercial or multifamily real properties,
as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case
of liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans
will be greater with respect to junior Mortgage Loans. See "--Risks
Associated with Mortgage Loans and Mortgaged Properties."
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OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Whole Loans, a Master Servicer, a Sub-Servicer or a
Special Servicer will be permitted (within prescribed parameters) to extend
and modify Whole Loans that are in default or as to which a payment default
is imminent, including in particular with respect to balloon payments. In
addition, a Master Servicer, a Sub-Servicer or a Special Servicer may receive
a workout fee based on receipts from or proceeds of such Whole Loans. While
any such entity generally will be required to determine that any such
extension or modification is reasonably likely to produce a greater recovery
on a present value basis than liquidation, there can be no assurance that
such flexibility with respect to extensions or modifications or payment of a
workout fee will increase the present value of receipts from or proceeds of
Whole Loans that are in default or as to which a payment default is imminent.
Additionally, if so specified in the related Prospectus Supplement, certain
of the Mortgage Loans included in the Mortgage Pool for a Series may have
been subject to workouts or similar arrangements following periods of
delinquency and default.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of single family mortgage loans. The mortgagor's sophistication and
form of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, guarantees, reserve funds or other types of
credit support, or combinations thereof. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all
potential losses or risks; for example, Credit Support may or may not cover
fraud or negligence by a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce
the risk to holders of Senior Certificates of delinquent distributions or
ultimate losses, the amount of subordination will be limited and may decline
under certain circumstances. In addition, if principal payments on one or
more classes of Certificates of a series are made in a specified order of
priority, any limits with respect to the aggregate amount of claims under any
related Credit Support may be exhausted before the principal of the lower
priority classes of Certificates of such series has been repaid. As a result,
the impact of significant losses and shortfalls on the Assets may fall
primarily upon those classes of Certificates having a lower priority of
payment. Moreover, if a form of Credit Support covers more than one series of
Certificates (each, a "Covered Trust"), holders of Certificates evidencing an
interest in a Covered Trust will be subject to the risk that such Credit
Support will be exhausted by the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes
of Certificates, will be determined on the basis of criteria established by
each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies, other losses or other factors. There can,
however, be no assurance that the loss experience on the related Mortgage
Assets will not exceed such assumed levels. See "--Limited Nature of
Ratings," "Description of the Certificates" and "Description of Credit
Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. The Master
Servicer will generally be permitted to reduce, terminate or substitute all
or a portion of the credit enhancement for any series of Certificates, if the
applicable Rating Agency indicates that the then-current rating thereof will
not be adversely affected. The rating of any series of Certificates by any
applicable Rating Agency may be lowered following the initial issuance
thereof as a result of the
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downgrading of the obligations of any applicable credit support provider, or
as a result of losses on the related Mortgage Assets substantially in excess
of the levels contemplated by such Rating Agency at the time of its initial
rating analysis. None of the Depositor, the Master Servicer or any of their
affiliates will have any obligation to replace or supplement any credit
enhancement, or to take any other action to maintain any rating of any series
of Certificates.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES; EFFECT OF LOSSES ON THE ASSETS
The rights of Subordinate Certificateholders to receive distributions to
which they would otherwise be entitled with respect to the Assets will be
subordinate to the rights of the Master Servicer (to the extent that the
Master Servicer is paid its servicing fee, including any unpaid servicing
fees with respect to one or more prior Due Periods, and is reimbursed for
certain unreimbursed advances and unreimbursed liquidation expenses) and the
Senior Certificateholders to the extent described herein. As a result of the
foregoing, investors must be prepared to bear the risk that they may be
subject to delays in payment and may not recover their initial investments in
the Subordinate Certificates. See "Description of the Certificates--General"
and "--Allocation of Losses and Shortfalls."
The yields on the Subordinate Certificates may be extremely sensitive to
the loss experience of the Assets and the timing of any such losses. If the
actual rate and amount of losses experienced by the Assets exceed the rate
and amount of such losses assumed by an investor, the yields to maturity on
the Subordinate Certificates may be lower than anticipated.
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells,
transfers or conveys the related Mortgaged Property or its interest in the
Mortgaged Property. Mortgages may also include a debt-acceleration clause,
which permits the lender to accelerate the debt upon a monetary or
non-monetary default of the mortgagor. Such clauses are generally enforceable
subject to certain exceptions. The courts of all states will enforce clauses
providing for acceleration in the event of a material payment default. The
equity courts of any state, however, may refuse the foreclosure of a mortgage
or deed of trust when an acceleration of the indebtedness would be
inequitable or unjust or the circumstances would render the acceleration
unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
mortgagor typically assigns its right, title and interest as landlord under
the leases on the related Mortgaged Property and the income derived therefrom
to the lender as further security for the related Mortgage Loan, while
retaining a license to collect rents for so long as there is no default. In
the event the mortgagor defaults, the license terminates and the lender is
entitled to collect rents. Such assignments are typically not perfected as
security interests prior to actual possession of the cash flows. Some state
laws may require that the lender take possession of the Mortgaged Property
and obtain a judicial appointment of a receiver before becoming entitled to
collect the rents. In addition, if bankruptcy or similar proceedings are
commenced by or in respect of the mortgagor, the lender's ability to collect
the rents may be adversely affected. See "Certain Legal Aspects of the
Mortgage Loans and the Leases--Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") a lender may be liable, as
an "owner" or "operator," for costs of addressing releases or threatened
releases of hazardous substances that require remedy at a property, if agents
or employees of the lender have become sufficiently involved in the
operations of the mortgagor, regardless of whether or not the environmental
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damage or threat was caused by a prior owner. A lender also risks such
liability on foreclosure of the mortgage. Unless otherwise specified in the
related Prospectus Supplement, each Pooling and Servicing Agreement will
provide that none of the Master Servicer, the Sub-Servicer or the Special
Servicer, acting on behalf of the Trust Fund, may acquire title to a
Mortgaged Property securing a Mortgage Loan or take over its operation unless
the Master Servicer has previously determined, based upon a report prepared
by a person who regularly conducts environmental audits, that: (i) the
Mortgaged Property is in compliance with applicable environmental laws, and
there are no circumstances present at the Mortgaged Property relating to the
use, management or disposal of any hazardous substances, hazardous materials,
wastes, or petroleum based materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation; or (ii) if the Mortgaged Property
is not so in compliance or such circumstances are so present, then it would
be in the best economic interest of the Trust Fund to acquire title to the
Mortgaged Property and further to take such actions as would be necessary and
appropriate to effect such compliance and/or respond to such circumstances.
See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Environmental Legislation."
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject
to ERISA are urged to consult their own counsel regarding consequences under
ERISA of acquisition, ownership and disposition of the Offered Certificates
of any series.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING REMIC RESIDUAL
CERTIFICATES
Except as provided in the Prospectus Supplement, REMIC Residual
Certificates, if offered hereunder, are anticipated to have "phantom income"
associated with them. That is, taxable income is anticipated to be allocated
to the REMIC Residual Certificates in the early years of the existence of the
related REMIC, even if the REMIC Residual Certificates receive no
distributions from the related REMIC, with a corresponding amount of losses
allocated to the REMIC Residual Certificates in later years. Accordingly, the
present value of the tax detriments associated with the REMIC Residual
Certificates may significantly exceed the present value of the tax benefits
related thereto, and the REMIC Residual Certificates may have a negative
"value." Moreover, the REMIC Residual Certificates will in effect be
allocated an amount of gross income equal to the non-interest expenses of the
REMIC, but such expenses will be deductible by holders of the REMIC Residual
Certificates that are individuals only as itemized deductions (and be subject
to all the limitations applicable to itemized deductions). Accordingly,
investment in the REMIC Residual Certificates will generally not be suitable
for individuals or for certain pass-through entities, such as partnerships or
S corporations, that have individuals as partners or shareholders. In
addition, REMIC Residual Certificates are subject to certain restrictions on
transfer. Finally, prospective purchasers of a REMIC Residual Certificate
should be aware that recently issued temporary regulations provide
restrictions on the ability to mark-to-market certain "negative value" REMIC
residual interests. See "Certain Federal Income Tax Consequences--REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making
under the related Agreement ("Voting Rights") will be required to direct, and
will be sufficient to bind all Certificateholders of such series to, certain
actions, including directing the Special Servicer or the Master Servicer with
respect to actions to be taken with respect to certain Mortgage Loans and REO
Properties and amending the related Agreement in certain circumstances. See
"Description of the Agreements--Events of Default," "--Rights Upon Event of
Default," "--Amendment" and "--List of Certificateholders."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will
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not be registered in the names of the Certificateholders or their nominees.
Because of this, unless and until Definitive Certificates are issued,
Certificateholders will not be recognized by the Trustee as
"Certificateholders" (as that term is to be used in the related Agreement).
Hence, until such time, Certificateholders will be able to exercise the
rights of Certificateholders only indirectly through DTC and its
participating organizations. See "Description of the Certificates--Book-Entry
Registration and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the "Assets") will include (i)
multifamily and/or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans
or other similar participations, certificates or securities ("MBS"), (iii)
direct obligations of the United States, agencies thereof or agencies created
thereby which are not subject to redemption prior to maturity at the option
of the issuer and are (a) interest-bearing securities, (b)
non-interest-bearing securities, (c) originally interest-bearing securities
from which coupons representing the right to payment of interest have been
removed, or (d) interest-bearing securities from which the right to payment
of principal has been removed (the "Government Securities"), or (iv) a
combination of Mortgage Loans, MBS and Government Securities. As used herein,
"Mortgage Loans" refers to both whole Mortgage Loans and Mortgage Loans
underlying MBS. Mortgage Loans that secure, or interests in which are
evidenced by, MBS are herein sometimes referred to as Underlying Mortgage
Loans. Mortgage Loans that are not Underlying Mortgage Loans are sometimes
referred to as "Whole Loans." Any mortgage participations, pass-through
certificates or other asset-backed certificates in which an MBS evidences an
interest or which secure an MBS are sometimes referred to herein also as MBS
or as "Underlying MBS." Mortgage Loans and MBS are sometimes referred to
herein as "Mortgage Assets." The Mortgage Assets will not be guaranteed or
insured by Morgan Stanley Capital I Inc. (the "Depositor") or any of its
affiliates or, unless otherwise provided in the Prospectus Supplement, by any
governmental agency or instrumentality or by any other person. Each Asset
will be selected by the Depositor for inclusion in a Trust Fund from among
those purchased, either directly or indirectly, from a prior holder thereof
(an "Asset Seller"), which may be an affiliate of the Depositor and, with
respect to Mortgage Assets, which prior holder may or may not be the
originator of such Mortgage Loan or the issuer of such MBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of
any other trust fund established by the Depositor. If specified in the
related Prospectus Supplement, the assets of a Trust Fund will consist of
certificates representing beneficial ownership interests in another trust
fund that contains the Assets.
MORTGAGE LOANS
General
The Mortgage Loans will be secured by liens on, or security interests in,
Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively-owned dwelling units in high-rise,
mid-rise or garden apartment buildings ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, shopping
centers, retail stores, hotels or motels, nursing homes, hospitals or other
health care-related facilities, mobile home parks, warehouse facilities,
mini-warehouse facilities or self-storage facilities, industrial plants,
congregate care facilities, mixed use or other types of commercial properties
("Commercial Properties" and the related loans, "Commercial Loans") located,
unless otherwise specified in the related Prospectus Supplement, in any one
of the fifty states, the District of Columbia or the Commonwealth of Puerto
Rico. To the extent specified in the related Prospectus Supplement, the
Mortgage Loans will be secured by first or junior mortgages or deeds of trust
or other similar security instruments creating a first or junior lien on
Mortgaged Property. 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.
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Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is
typically dependent upon the successful operation of such property rather
than upon the liquidation value of the real estate. Unless otherwise
specified in the Prospectus Supplement, the Mortgage Loans will be
non-recourse loans, which means that, absent special facts, the mortgagee may
look only to the Net Operating Income from the property for repayment of the
mortgage debt, and not to any other of the mortgagor's assets, in the event
of the mortgagor's default. Lenders typically look to the Debt Service
Coverage Ratio of a loan secured by income-producing property as an important
measure of the risk of default on such a loan. The "Debt Service Coverage
Ratio" of a Mortgage Loan at any given time is the ratio of the Net Operating
Income for a twelve-month period to the annualized scheduled payments on the
Mortgage Loan. "Net Operating Income" means, for any given period, unless
otherwise specified in the related Prospectus Supplement, the total operating
revenues derived from a Mortgaged Property during such period, minus the
total operating expenses incurred in respect of such Mortgaged Property
during such period other than (i) non-cash items such as depreciation and
amortization, (ii) capital expenditures and (iii) debt service on loans
secured by the Mortgaged Property. The Net Operating Income of a Mortgaged
Property will fluctuate over time and may be sufficient or insufficient to
cover debt service on the related Mortgage Loan at any given time.
As the primary component of Net Operating Income, rental income (as well
as maintenance payments from tenant-stockholders of a Cooperative) is subject
to the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in
market or business conditions than do properties leased, occupied or used for
longer periods, such as (typically) warehouses, retail stores, office
buildings and industrial plants. Commercial Loans may be secured by
owner-occupied Mortgaged Properties or Mortgaged Properties leased to a
single tenant. Accordingly, a decline in the financial condition of the
mortgagor or single tenant, as applicable, may have a disproportionately
greater effect on the Net Operating Income from such Mortgaged Properties
than would be the case with respect to Mortgaged Properties with multiple
tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal
property tax rates and other operating expenses, including energy costs;
changes in governmental rules, regulations and fiscal policies, including
environmental legislation; and acts of God may also affect the risk of
default on the related Mortgage Loan. As may be further described in the
related Prospectus Supplement, in some cases leases of Mortgaged Properties
may provide that the Lessee, rather than the mortgagor, is responsible for
payment of some or all of these expenses; however, because leases are subject
to default risks as well when a tenant's income is insufficient to cover its
rent and operating expenses, the existence of such "net of expense"
provisions will only temper, not eliminate, the impact of expense increases
on the performance of the related Mortgage Loan. See "--Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and
hospitals, the income from which and the operating expenses of which are
subject to state and/or federal regulations, such as Medicare and Medicaid,
and multifamily properties and mobile home parks, which may be subject to
state or local rent control regulation and, in certain cases, restrictions on
changes in use of the property. Low-and moderate-income housing in particular
may be subject to legal limitations and regulations but, because of such
regulations, may also be less sensitive to fluctuations in market rents
generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect
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to a Balloon Mortgage Loan, for example, the risk of default as a result of
the unavailability of a source of funds to finance the related balloon
payment at maturity on terms comparable to or better than those of such
Balloon Mortgage Loans could be significant even though the related Debt
Service Coverage Ratio is high.
The liquidation value of any Mortgaged Property may be adversely affected
by risks generally incident to interests in real property, including declines
in rental or occupancy rates. Lenders generally use the Loan-to-Value Ratio
of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the mortgagor.
Appraised values of income-producing properties may be based on the market
comparison method (recent resale value of comparable properties at the date
of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of
value based upon the property's projected net cash flow), or upon a selection
from or interpolation of the values derived from such methods. Each of these
appraisal methods presents analytical challenges. It is often difficult to
find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections
of income and expense and the selection of an appropriate capitalization
rate. Where more than one of these appraisal methods are used and create
significantly different results, or where a high Loan-to-Value Ratio
accompanies a high Debt Service Coverage Ratio (or vice versa), the analysis
of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the
Multifamily and Commercial Loans, or that, for any of such Mortgage Loans,
they are complete or relevant. See "Risk Factors--Risks Associated with
Mortgage Loans and Mortgaged Properties," "--Balloon Payments," "--Junior
Mortgage Loans," "--Obligor Default" and "--Mortgagor Type."
Loan-to-Value Ratio
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance
of the Mortgage Loan to the Value of the related Mortgaged Property. The
"Value" of a Mortgaged Property, other than with respect to Refinance Loans,
is generally the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of such loan and (b) the sales
price for such property. "Refinance Loans" are loans made to refinance
existing loans. Unless otherwise set forth in the related Prospectus
Supplement, the Value of the Mortgaged Property securing a Refinance Loan is
the appraised value thereof determined in an appraisal obtained at the time
of origination of the Refinance Loan. The Value of a Mortgaged Property as of
the date of initial issuance of the related series of Certificates may be
less than the value at origination and will fluctuate from time to time based
upon changes in economic conditions and the real estate market.
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable
Cut-off Date, (ii) the type of property securing the Mortgage Loans (e.g.,
Multifamily Property or Commercial Property and the type of property in each
such category), (iii) the weighted average (by principal balance) of the
original and remaining terms to maturity of the Mortgage Loans, (iv) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(v) the weighted average (by principal balance) of the Loan-to-Value Ratios
at origination of the Mortgage Loans, (vi) the Mortgage Rates or range of
Mortgage Rates and the weighted average Mortgage Rate borne by the Mortgage
Loans, (vii) the state or states in which most of the Mortgaged Properties
are located, (viii) information with respect to the
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prepayment provisions, if any, of the Mortgage Loans, (ix) the weighted
average Retained Interest, if any, (x) with respect to Mortgage Loans with
adjustable Mortgage Rates ("ARM Loans"), the index, the frequency of the
adjustment dates, the highest, lowest and weighted average note margin and
pass-through margin, and the maximum Mortgage Rate or monthly payment
variation at the time of any adjustment thereof and over the life of the ARM
Loan and the frequency of such monthly payment adjustments, (xi) the Debt
Service Coverage Ratio either at origination or as of a more recent date (or
both) and (xii) information regarding the payment characteristics of the
Mortgage Loans, including without limitation balloon payment and other
amortization provisions. The related Prospectus Supplement will also contain
certain information available to the Depositor with respect to the provisions
of leases and the nature of tenants of the Mortgaged Properties and other
information referred to in a general manner under "--Mortgage Loans--Default
and Loss Considerations with Respect to the Mortgage Loans" above. If
specific information respecting the Mortgage Loans is not known to the
Depositor at the time Certificates are initially offered, more general
information of the nature described above will be provided in the Prospectus
Supplement, and specific information will be set forth in a report which will
be available to purchasers of the related Certificates at or before the
initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Securities and Exchange Commission within fifteen days
after such initial issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination
of not less than $25,000, (ii) have original terms to maturity of not more
than 40 years and (iii) provide for payments of principal, interest or both,
on due dates that occur monthly, quarterly or semi-annually or at such other
interval as is specified in the related Prospectus Supplement. Each Mortgage
Loan may provide for no accrual of interest or for accrual of interest
thereon at an interest rate (a "Mortgage Rate") that is fixed over its term
or that adjusts from time to time, or that may be converted from an
adjustable to a fixed Mortgage Rate, or from a fixed to an adjustable
Mortgage Rate, from time to time pursuant to an election or as otherwise
specified on the related Mortgage Note, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may provide for scheduled
payments to maturity or payments that adjust from time to time to accommodate
changes in the Mortgage Rate or to reflect the occurrence of certain events,
and may provide for negative amortization or accelerated amortization, in
each case as described in the related Prospectus Supplement. Each Mortgage
Loan may be fully amortizing or require a balloon payment due on its stated
maturity date, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may contain prohibitions on prepayment (a
"Lock-out Period" and the date of expiration thereof, a "Lock-out Date") or
require payment of a premium or a yield maintenance penalty (a "Prepayment
Premium") in connection with a prepayment, in each case as described in the
related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated. A Mortgage Loan may also contain provisions
entitling the mortgagee to a share of profits realized from the operation or
disposition of the Mortgaged Property ("Equity Participations"), as described
in the related Prospectus Supplement. In the event that holders of any class
or classes of Offered Certificates will be entitled to all or a portion of an
Equity Participation, the related Prospectus Supplement will specify the
terms and provisions of the Equity Participation and the method or methods by
which distributions in respect thereof will be allocated among such
Certificates.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture
or similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the "MBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced
by the MBS.
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Distributions of any principal or interest, as applicable, will be made on
MBS on the dates specified in the related Prospectus Supplement. The MBS may
be issued in one or more classes with characteristics similar to the classes
of Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the MBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying MBS
evidenced by or securing such MBS and other factors and generally will have
been established for the MBS on the basis of requirements of either any
Rating Agency that may have assigned a rating to the MBS or the initial
purchasers of the MBS.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that include MBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the MBS to be included
in the Trust Fund, (ii) the original and remaining term to stated maturity of
the MBS, if applicable, (iii) whether such MBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or
bond rate of the MBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the MBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the MBS
Issuer, MBS Servicer and MBS Trustee, as applicable, (vii) certain
characteristics of the credit support, if any, such as subordination, reserve
funds, insurance policies, letters of credit or guarantees relating to the
related Underlying Mortgage Loans, the Underlying MBS or directly to such
MBS, (viii) the terms on which the related Underlying Mortgage Loans or
Underlying MBS for such MBS or the MBS may, or are required to, be purchased
prior to their maturity, (ix) the terms on which Mortgage Loans or Underlying
MBS may be substituted for those originally underlying the MBS, (x) the
servicing fees payable under the MBS Agreement, (xi) the type of information
in respect of the Underlying Mortgage Loans described under "--Mortgage
Loans--Mortgage Loan Information in Prospectus Supplements" above, and the
type of information in respect of the Underlying MBS described in this
paragraph, (xii) the characteristics of any cash flow agreements that are
included as part of the trust fund evidenced or secured by the MBS and (xiii)
whether the MBS is in certificated form, book-entry form or held through a
depository such as The Depository Trust Company or the Participants Trust
Company.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Certificates evidencing
interests in Assets of a Trust Fund that include Government Securities will
specify, to the extent available, (i) the aggregate approximate initial and
outstanding principal amounts or notional amounts, as applicable, and types
of the Government Securities to be included in the Trust Fund, (ii) the
original and remaining terms to stated maturity of the Government Securities,
(iii) whether such Government Securities are entitled only to interest
payments, only to principal payments or to both, (iv) the interest rates of
the Government Securities or the formula to determine such rates, if any, (v)
the applicable payment provisions for the Government Securities and (vi) to
what extent, if any, the obligation evidenced thereby is backed by the full
faith and credit of the United States.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or
persons designated in the related Prospectus Supplement will, to the extent
described herein and in such Prospectus Supplement deposit all payments and
collections received or advanced with respect to the Assets and other assets
in the Trust Fund. Such an account may be maintained as an interest bearing
or a non-interest bearing account, and funds held therein may be held as cash
or invested in certain short-term, investment grade obligations, in each case
as described in the related Prospectus Supplement. See "Description of the
Agreement--Certificate Account and Other Collection Accounts."
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CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the
related series in the form of subordination of one or more other classes of
Certificates in such series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee, reserve fund or
another type of credit support, or a combination thereof (any such coverage
with respect to the Certificates of any series, "Credit Support"). The amount
and types of coverage, the identification of the entity providing the
coverage (if applicable) and related information with respect to each type of
Credit Support, if any, will be described in the Prospectus Supplement for a
series of Certificates. See "Risk Factors--Credit Support Limitations" and
"Description of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements,
such as interest rate exchange agreements, interest rate cap or floor
agreements, currency exchange agreements or similar agreements provided to
reduce the effects of interest rate or currency exchange rate fluctuations on
the Assets or on one or more classes of Certificates. (Currency exchange
agreements might be included in the Trust Fund if some or all of the Mortgage
Assets (such as Mortgage Loans secured by Mortgaged Properties located
outside the United States) were denominated in a non-United States currency.)
The principal terms of any such guaranteed investment contract or other
agreement (any such agreement, a "Cash Flow Agreement"), including, without
limitation, provisions relating to the timing, manner and amount of payments
thereunder and provisions relating to the termination thereof, will be
described in the Prospectus Supplement for the related series. In addition,
the related Prospectus Supplement will provide certain information with
respect to the obligor under any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to
time, but the timing and amount of offerings of Certificates will depend on a
number of factors, including the volume of Assets acquired by the Depositor,
prevailing interest rates, availability of funds and general market
conditions.
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YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted
average life of the Assets in the related Trust Fund (which may be affected
by prepayments, defaults, liquidations or repurchases). See "Risk Factors."
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the
interest rates borne by the Assets in the related Trust Fund. The Prospectus
Supplement with respect to any series of Certificates will specify the
Pass-Through Rate for each class of such Certificates or, in the case of a
variable or adjustable Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage
Asset on the Pass-Through Rate of one or more classes of Certificates; and
whether the distributions of interest on the Certificates of any class will
be dependent, in whole or in part, on the performance of any obligor under a
Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled to
payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while
interest may accrue on each Asset during a certain period, the distribution
of such interest will be made on a day which may be several days, weeks or
months following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution
Date will include interest accrued during the Interest Accrual Period for
such Distribution Date. As indicated above under "--Pass-Through Rate," if
the Interest Accrual Period ends on a date other than a Distribution Date for
the related series, the yield realized by the holders of such Certificates
may be lower than the yield that would result if the Interest Accrual Period
ended on such Distribution Date. In addition, if so specified in the related
Prospectus Supplement, interest accrued for an Interest Accrual Period for
one or more classes of Certificates may be calculated on the assumption that
distributions of principal (and additions to the Certificate Balance of
Accrual Certificates) and allocations of losses on the Assets may be made on
the first day of the Interest Accrual Period for a Distribution Date and not
on such Distribution Date. Such method would produce a lower effective yield
than if interest were calculated on the basis of the actual principal amount
outstanding during an Interest Accrual Period. The Interest Accrual Period
for any class of Offered Certificates will be described in the related
Prospectus Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Assets (including principal prepayments on Mortgage
Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). Such payments may be directly dependent upon the
payments on Leases underlying such Mortgage Loans. The rate at which
principal prepayments occur on the Mortgage Loans will be affected by a
variety of factors, including, without limitation, the terms of the Mortgage
Loans, the level of prevailing interest rates, the availability of mortgage
credit and economic, demographic, geographic, tax, legal and other factors.
In general, however, if prevailing interest rates fall significantly below
the Mortgage Rates on the Mortgage Loans comprising or underlying the Assets
in a particular Trust Fund, such Mortgage Loans are likely to be the subject
of higher principal prepayments than if prevailing rates remain at or above
the rates borne by such Mortgage Loans. In this regard, it should be noted
that certain Assets may consist of Mortgage Loans with different Mortgage
Rates and the stated pass-through or pay-through interest rate of certain MBS
may be a number of percentage points
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higher or lower than certain of the underlying Mortgage Loans. The rate of
principal payments on some or all of the classes of Certificates of a series
will correspond to the rate of principal payments on the Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Assets, and by the extent to which the servicer of any such
Mortgage Loan is able to enforce such provisions. Mortgage Loans with a
Lock-out Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal
prepayments than otherwise identical Mortgage Loans without such provisions,
with shorter Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Certificate offered at a premium calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is slower than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. In either
case, if so provided in the Prospectus Supplement for a series of
Certificates, the effect on yield on one or more classes of the Certificates
of such series of prepayments of the Assets in the related Trust Fund may be
mitigated or exacerbated by any provisions for sequential or selective
distribution of principal to such classes.
When a full prepayment is made on a Mortgage Loan, the mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for
the number of days in the month actually elapsed up to the date of the
prepayment. Unless otherwise specified in the related Prospectus Supplement,
the effect of prepayments in full will be to reduce the amount of interest
paid in the following month to holders of Certificates entitled to payments
of interest because interest on the principal amount of any Mortgage Loan so
prepaid will be paid only to the date of prepayment rather than for a full
month. Unless otherwise specified in the related Prospectus Supplement, a
partial prepayment of principal is applied so as to reduce the outstanding
principal balance of the related Mortgage Loan as of the Due Date in the
month in which such partial prepayment is received. As a result, unless
otherwise specified in the related Prospectus Supplement, the effect of a
partial prepayment on a Mortgage Loan will be to reduce the amount of
interest passed through to holders of Certificates in the month following the
receipt of such partial prepayment by an amount equal to one month's interest
at the applicable Pass-Through Rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even
if the average rate of distributions of principal is consistent with an
investor's expectation. In general, the earlier a principal payment is
received on the Mortgage Assets and distributed on a Certificate, the greater
the effect on such investor's yield to maturity. The effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the
rate anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets included
in or comprising a Trust Fund and the rate at which payments are made from
any Credit Support or Cash Flow Agreement for the related series of
Certificates may affect the ultimate maturity and the weighted average life
of each class of such series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes
of the Certificates of the related series.
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of Certificates may have a final scheduled Distribution
Date, which is the date on or prior to which the Certificate Balance thereof
is scheduled to be reduced to zero, calculated on the basis of the
assumptions applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted
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average life of a class of Certificates of a series will be influenced by the
rate at which principal on the Mortgage Loans comprising or underlying the
Mortgage Assets is paid to such class, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments, in whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be affected
by the varying maturities of the Mortgage Loans comprising or underlying the
MBS. If any Mortgage Loans comprising or underlying the Assets in a
particular Trust Fund have actual terms to maturity of less than those
assumed in calculating final scheduled Distribution Dates for the classes of
Certificates of the related series, one or more classes of such Certificates
may be fully paid prior to their respective final scheduled Distribution
Dates, even in the absence of prepayments. Accordingly, the prepayment
experience of the Assets will, to some extent, be a function of the mix of
Mortgage Rates and maturities of the Mortgage Loans comprising or underlying
such Assets. See "Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans for the
life of such loans.
Neither CPR nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was
developed based upon historical prepayment experience for single family
loans. Thus, it is likely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any series will not conform to any
particular level of CPR.
The Depositor is not aware of any meaningful publicly available prepayment
statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage
of the initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the assumptions stated
in such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans comprising or underlying the related Assets are made at rates
corresponding to various percentages of CPR or at such other rates specified
in such Prospectus Supplement. Such tables and assumptions are intended to
illustrate the sensitivity of weighted average life of the Certificates to
various prepayment rates and will not be intended to predict or to provide
information that will enable investors to predict the actual weighted average
life of the Certificates. It is unlikely that prepayment of any Mortgage
Loans comprising or underlying the Mortgage Assets for any series will
conform to any particular level of CPR or any other rate specified in the
related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement, be permitted to modify Mortgage Loans that are
in default or as to which a payment default is imminent. Any defaulted
balloon payment or modification that extends the maturity of a Mortgage Loan
will tend to extend the weighted average life of the Certificates, thereby
lengthening the period of time elapsed from the date of issuance of a
Certificate until it is retired.
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Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets that are foreclosed in relation
to the number and principal amount of Mortgage Loans that are repaid in
accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related series of Certificates. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy
proceedings, may also have an effect upon the payment patterns of particular
Mortgage Loans and thus the weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of
the Mortgage Loans comprising or underlying the Assets may include
"due-on-sale" clauses or "due-on-encumbrance" clauses that allow the holder
of the Mortgage Loans to demand payment in full of the remaining principal
balance of the Mortgage Loans upon sale or certain other transfers of or the
creation of encumbrances upon the related Mortgaged Property. With respect to
any Whole Loans, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer, on behalf of the Trust Fund, will be
required to exercise (or waive its right to exercise) any such right that the
Trustee may have as mortgagee to accelerate payment of the Whole Loan in a
manner consistent with the Servicing Standard. See "Certain Legal Aspects of
the Mortgage Loans and the Leases--Due-on-Sale and Due-on-Encumbrance" and
"Description of the Agreements--Due-on-Sale and Due-on-Encumbrance
Provisions."
THE DEPOSITOR
Morgan Stanley Capital I Inc., the Depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of the
Depositor are located at 1585 Broadway, 37th Floor, New York, New York 10036.
Its telephone number is (212) 761-4700.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be entitled to interest
distributions, with disproportionately low, nominal or no principal
distributions (collectively, "Stripped Interest Certificates"); (v) provide
for distributions of accrued interest thereon commencing only following the
occurrence of certain events, such as the retirement of one or more other
classes of Certificates of such series (collectively, "Accrual
Certificates"); (vi) provide for payments of principal sequentially, based on
specified payment schedules, from only a portion of the Assets in such Trust
Fund or based on specified calculations, to the extent of available funds, in
each case as described in the related Prospectus Supplement; and/or (vii)
provide for distributions based on a combination of two or more components
thereof with one or more of the characteristics described in this paragraph
including a Stripped Principal Certificate component and a Stripped Interest
Certificate component. Any such classes may include classes of Offered
Certificates.
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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:
(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
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(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 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
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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:
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(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by any
Special Servicer and any Sub-Servicer) and such other customary information
as any such Master Servicer or the Trustee deems necessary or desirable, or
that a Certificateholder reasonably requests, to enable Certificateholders to
prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on such
Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of business
on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled payments
are delinquent, (c) three or more scheduled payments are delinquent and (d)
foreclosure proceedings have been commenced;
(viii) 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
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Distribution Date, separately identifying any reduction in such Certificate
Balance due to the allocation of any loss and increase in the Certificate
Balance of a class of Accrual Certificates in the event that Accrued
Certificate Interest has been added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xvii) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution Date;
(xix) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xx) in the case of Certificates with an adjustable Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date occurs,
the adjustable Pass-Through Rate applicable to such Distribution Date and the
immediately succeeding Distribution Date as calculated in accordance with the
method specified in the related Prospectus Supplement;
(xxi) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xxii) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees collected
during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xviii) and (xix) above, such amounts shall also be provided
with respect to each component, if any, of a class of Certificates. The
Master Servicer or the Trustee, as specified in the related Prospectus
Supplement, will forward or cause to be forwarded to each holder, to the
Depositor and to such other parties as may be specified in the Agreement, a
copy of any statements or reports received by the Master Servicer or the
Trustee, as applicable, with respect to any MBS. The Prospectus Supplement
for each series of Offered Certificates will describe any additional
information to be included in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall
be provided by the Master Servicer or the Trustee pursuant to any
requirements of the Code as are from time to time in force. See "Description
of the Certificates--Book-Entry Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreement for each series of Certificates
will terminate upon the payment to Certificateholders of that series of all
amounts held in the Certificate Account or by the Master Servicer, if any, or
the Trustee and required to be paid to them pursuant to such Agreement
following the earlier of (i) the final payment or other liquidation of the
last Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such
termination, under the circumstances and in the manner set forth in the
related Prospectus Supplement. In no event, however,
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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 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.
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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.
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
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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 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.
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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.
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
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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 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
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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,
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Prepayment Premiums or Equity Participations on the Mortgage Assets;
(xi) all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy described
under "Hazard Insurance Policies";
(xii) any amount required to be deposited by a Master Servicer or the
Trustee in connection with losses realized on investments for the benefit of
the Master Servicer or the Trustee, as the case may be, of funds held in the
Certificate Account; and
(xiii) any other amounts required to be deposited in the Certificate
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
Withdrawals
A Master Servicer or the Trustee may, from time to time, unless otherwise
provided in the related Agreement and described in the related Prospectus
Supplement, make withdrawals from the Certificate Account for each Trust Fund
for any of the following purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced as
described under "Description of the Certificates Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by the Master Servicer as late collections of
interest (net of related servicing fees and Retained Interest) on and
principal of the 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";
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(x) unless otherwise provided in the related Prospectus Supplement, to pay
a Master Servicer, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the Certificate
Account;
(xi) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master Servicer
as recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the proper
operation, management and maintenance of any Mortgaged Property acquired for
the benefit of Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise, such payments to be made out of income received on
such property;
(xiii) if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to the
extent described under "Certain Federal Income Tax
Consequences--REMICS--Prohibited Transactions Tax and Other Taxes";
(xiv) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a defaulted
Whole Loan or a property acquired in respect thereof in connection with the
liquidation of such Whole Loan or property;
(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
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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."
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.
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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
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:
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(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 within two years of
acquisition, 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 two years after its acquisition 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."
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.
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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 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.
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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 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.
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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 errors in records that, in the
opinion of the firm, either the Audit
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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
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Agreement and which in its opinion may involve it in any expense or
liability. Any such Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties
thereto and the interests of the Certificateholders thereunder. In such
event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the
Certificateholders, and the Master Servicer or the Depositor, as the case may
be, will be entitled to be reimbursed therefor and to charge the Certificate
Account.
Any person into which the Master Servicer or the Depositor may be merged
or consolidated, or any person resulting from any merger or consolidation to
which the Master Servicer or the Depositor is a party, or any person
succeeding to the business of the Master Servicer or the Depositor, will be
the successor of the Master Servicer or the Depositor, as the case may be,
under the related Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, Events of Default under the related Agreement
will include (i) any failure by the Master Servicer to distribute or cause to
be distributed to Certificateholders, or to remit to the Trustee for
distribution to Certificateholders, any required payment; (ii) any failure by
the Master Servicer duly to 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
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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 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.
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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 the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a
breach of any representation, warranty or covenant of the Trustee made
therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor
trustee acceptable to the Master Servicer, if any. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a
successor trustee.
If at any time the Trustee shall cease to be eligible to continue as such
under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then
the Depositor may remove the Trustee and appoint a successor trustee
acceptable to the Master Servicer, if any. Holders of the Certificates of any
series entitled to at least 51% of the Voting Rights for such series may at
any time remove the Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Assets. Credit Support
may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies, guarantees, the
establishment of one or more reserve funds or another method of Credit
Support described in the related Prospectus Supplement, or any combination of
the foregoing. If so provided in the related Prospectus Supplement, any form
of Credit Support may be structured so as to be drawn upon by more than one
series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection
against all risks of loss and will not guarantee repayment of the entire
Certificate Balance of the Certificates and interest thereon. If losses or
shortfalls occur that exceed the amount covered by Credit Support or that are
not covered by Credit Support, Certificateholders will bear their allocable
share of deficiencies. Moreover, if a form of Credit Support covers more than
one series of Certificates (each, a "Covered Trust"), holders of Certificates
evidencing interests in any of such Covered Trusts will be subject to the
risk that such Credit Support will be exhausted by the claims of other
Covered Trusts prior to such Covered Trust receiving any of its intended
share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of
coverage under such Credit Support, (b) any conditions to payment thereunder
not otherwise described herein, (c) the conditions (if any) under which the
amount of coverage under such Credit Support may be reduced and under which
such Credit Support may be terminated or replaced and (d) the material
provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement. See "Risk Factors--Credit Support Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest
from the Certificate Account on any Distribution Date will be subordinated to
such rights of the holders of Senior Certificates. If so provided in the
related Prospectus Supplement, the subordination of a class may apply only in
the event of (or may be limited to) certain types of losses or shortfalls.
The related Prospectus Supplement will set forth information concerning the
amount of subordination of a class or classes of Subordinate Certificates in
a series, the circumstances in which such subordination will be applicable
and the manner, if any, in which the amount of subordination will be
effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such
provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of Certificates,
the Whole Loans in the related Trust Fund will be covered for various default
risks by insurance policies or guarantees. A copy
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of any such material instrument for a series will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be filed within
15 days of issuance of the Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to
honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified
in the related Prospectus Supplement of the aggregate principal balance of
the Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified
in the related Prospectus Supplement, the letter of credit may permit draws
in the event of only certain types of losses and shortfalls. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder and may otherwise be reduced
as described in the related Prospectus Supplement. The obligations of the L/C
Bank under the letter of credit for each series of Certificates will expire
at the earlier of the date specified in the related Prospectus Supplement or
the termination of the Trust Fund. A copy of any such letter of credit for a
series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed within 15 days of issuance of the Certificates of the
related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of
principal on the basis of a schedule of principal distributions set forth in
or determined in the manner specified in the related Prospectus Supplement. A
copy of any such instrument for a series will be filed with the Commission as
an exhibit to a Current Report on Form 8-K to be filed with the Commission
within 15 days of issuance of the Certificates of the related series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more reserve funds in which cash, a
letter of credit, Permitted Investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in such Prospectus
Supplement. The reserve funds for a series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely
distributions of principal of and interest on the Certificates. If so
specified in the related Prospectus Supplement, reserve funds may be
established to provide limited protection against only certain types of
losses and shortfalls. Following each Distribution Date amounts in a reserve
fund in excess of any amount required to be maintained therein may be
released from the reserve fund under the conditions and to the extent
specified in the related Prospectus Supplement and will not be available for
further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited
to the related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
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Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund
may be applied to make distributions to Certificateholders and use of
investment earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Certificates,
the MBS in the related Trust Fund and/or the Mortgage Loans underlying such
MBS may be covered by one or more of the types of Credit Support described
herein. The related Prospectus Supplement will specify as to each such form
of Credit Support the information indicated above with respect thereto, to
the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state,
nor to encompass the laws of all states in which the security for the
Mortgage Loans is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage
Loans. See "Description of the Trust Funds--Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which
may be mortgages, deeds of trust, security deeds or deeds to secure debt,
depending upon the prevailing practice and law in the state in which the
Mortgaged Property is located. Mortgages, deeds of trust and deeds to secure
debt are herein collectively referred to as "mortgages." Any of the foregoing
types of mortgages will create a lien upon, or grant a title interest in, the
subject property, the priority of which will depend on the terms of the
particular security instrument, as well as separate, recorded, contractual
arrangements with others holding interests in the mortgaged property, the
knowledge of the parties to such instrument as well as the order of
recordation of the instrument in the appropriate public recording office.
However, recording does not generally establish priority over governmental
claims for real estate taxes and assessments and other charges imposed under
governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties--a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of
a mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a security deed or a
deed to secure debt. Under a deed of trust, the mortgagor grants the
property, irrevocably until the debt is paid, in trust, generally with a
power of sale as security for the indebtedness evidenced by the related note.
A deed to secure debt typically has two parties. By executing a deed to
secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until such time as the
underlying debt is repaid, generally with a power of sale as security for the
indebtedness evidenced by the related mortgage note. In case the mortgagor
under a mortgage is a land trust, there would be an additional party because
legal title to the property is held by a land trustee under a land trust
agreement for the benefit of the mortgagor. At origination of a mortgage loan
involving a land trust, the mortgagor executes a separate undertaking to make
payments on the mortgage note. The mortgagee's authority under a mortgage,
the trustee's authority under a deed of trust and the grantee's authority
under a deed
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to secure debt are governed by the express provisions of the mortgage, the
law of the state in which the real property is located, certain federal laws
(including, without limitation, the Soldiers' and Sailors' Civil Relief Act
of 1940) and, in some cases, in deed of trust transactions, the directions of
the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property
such as a tenant's interest in a lease of land or improvements, or both, and
the leasehold estate created by such lease. An instrument covering an
interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage, deed
of trust, security deed or deed to secure debt, to protect the mortgagee
against termination of such interest before the mortgage, deed of trust,
security deed or deed to secure debt is paid. Unless otherwise specified in
the Prospectus Supplement, the Depositor or the Asset Seller will make
certain representations and warranties in the Agreement with respect to the
Mortgage Loans which are secured by an interest in a leasehold estate. Such
representation and warranties will be set forth in the Prospectus Supplement
if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining
a license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's
interest in rents may depend on whether the mortgagor's assignment was
absolute or one granted as security for the loan. Failure to properly perfect
the mortgagee's interest in rents may result in the loss of substantial pool
of funds, which could otherwise serve as a source of repayment for such loan.
If the mortgagor defaults, the license terminates and the lender is entitled
to collect the rents. Local law may require that the lender take possession
of the property and/or obtain a court-appointed receiver before becoming
entitled to collect the rents. In most states, hotel and motel room revenues
are considered accounts receivable under the UCC; generally these revenues
are either assigned by the mortgagor, which remains entitled to collect such
revenues absent a default, or pledged by the mortgagor, as security for the
loan. In general, the lender must file financing statements in order to
perfect its security interest in the revenues and must file continuation
statements, generally every five years, to maintain perfection of such
security interest. Even if the lender's security interest in room revenues is
perfected under the UCC, the lender will generally be required to commence a
foreclosure or otherwise take possession of the property in order to collect
the room revenues after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service
the mortgage debt if the leases on the property are at below-market rents, or
as the result of excessive maintenance, repair or other obligations which a
lender succeeds to as landlord.
Lenders that actually take possession of the property, however, may incur
potentially substantial risks attendant to being a mortgagee in possession.
Such risks include liability for environmental clean-up costs and other risks
inherent in property ownership. See "Environmental Legislation" below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value
from personal property which does not constitute "fixtures" under applicable
state real property law and, hence, would not be subject to the lien of a
mortgage. Such
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property is generally pledged or assigned as security to the lender under the
UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such
security interest, file continuation statements generally every five years.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated
by the service of legal pleadings upon all parties having a subordinate
interest of record in the real property and all parties in possession of the
property, under leases or otherwise, whose interests are subordinate to the
mortgage. Delays in completion of the foreclosure may occasionally result
from difficulties in locating defendants. When the lender's right to
foreclose is contested, the legal proceedings can be time-consuming. Upon
successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance
with procedures that vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court
may alter the specific terms of a loan to the extent it considers necessary
to prevent or remedy an injustice, undue oppression or overreaching, or may
require the lender to undertake affirmative and expensive actions to
determine the cause of the mortgagor's default and the likelihood that the
mortgagor will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's and have required that lenders
reinstate loans or recast payment schedules in order to accommodate
mortgagors who are suffering from a temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose if the
default under the mortgage is not monetary, e.g., the mortgagor failed to
maintain the mortgaged property adequately or the mortgagor executed a junior
mortgage on the mortgaged property. The exercise by the court of its equity
powers will depend on the individual circumstances of each case presented to
it. Finally, some courts have been faced with the issue of whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that a mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a
public sale under a mortgage providing for a power of sale does not involve
sufficient state action to afford constitutional protections to the
mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court
determines that the sale was for less than fair
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consideration and such sale occurred while the mortgagor was insolvent (or
the mortgagor was rendered insolvent as a result of such sale) and within one
year (or within the state statute of limitations if the trustee in bankruptcy
elects to proceed under state fraudulent conveyance law) of the filing of
bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from
the beneficiary/lender to the trustee to sell the property upon any default
by the mortgagor under the terms of the mortgage note or the mortgage
instrument and after notice of sale is given in accordance with the terms of
the mortgage instrument, as well as applicable state law. In some states,
prior to such sale, the trustee under a deed of trust must record a notice of
default and notice of sale and send a copy to the mortgagor and to any other
party who has recorded a request for a copy of a notice of default and notice
of sale. In addition, in some states the trustee must provide notice to any
other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more
newspapers. The mortgagor or junior lienholder may then have the right,
during a reinstatement period required in some states, to cure the default by
paying the entire actual amount in arrears (without acceleration) plus the
expenses incurred in enforcing the obligation. In other states, the mortgagor
or the junior lienholder is not provided a period to reinstate the loan, but
has only the right to pay off the entire debt to prevent the foreclosure
sale. Generally, the procedure for public sale, the parties entitled to
notice, the method of giving notice and the applicable time periods are
governed by state law and vary among the states. Foreclosure of a deed to
secure debt is also generally accomplished by a non-judicial sale similar to
that required by a deed of trust, except that the lender or its agent, rather
than a trustee, is typically empowered to perform the sale in accordance with
the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such
property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. For these reasons, it is common for the
lender to purchase the mortgaged property for an amount equal to or less than
the underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs
and expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property.
For example, the lender will have the obligation to pay debt service on any
senior mortgages, to pay taxes, obtain casualty insurance and to make such
repairs at its own expense as are necessary to render the property suitable
for sale. Frequently, the lender employs a third party management company to
manage and operate the property. The costs of operating and maintaining a
commercial or multifamily residential property may be significant and may be
greater than the income derived from that property. The costs of management
and operation of those mortgaged properties which are hotels, motels,
restaurants, nursing or convalescent homes or hospitals may be particularly
significant because of the expertise, knowledge and, with respect to nursing
or convalescent homes or hospitals, regulatory compliance, required to run
such operations and the effect which foreclosure and a change in ownership
may have on the public's and the industry's (including franchisors')
perception of the quality of such operations. The lender will commonly obtain
the services of a real estate broker and pay the broker's commission in
connection with the sale of the property. Depending upon market conditions,
the ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Moreover, a lender commonly incurs substantial
legal fees and court costs in acquiring a mortgaged property through
contested foreclosure and/or bankruptcy proceedings. Furthermore, a few
states require that any environmental contamination at certain types of
properties be cleaned up before a property may be resold. In addition, a
lender may be responsible under
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federal or state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "Environmental Legislation." Generally
state law controls the amount of foreclosure expenses and costs, including
attorneys' fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required
to pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans, if any, that are junior
mortgage loans, if the lender purchases the property the lender's title will
be subject to all senior mortgages, prior liens and certain governmental
liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in
order of their priority, whether or not the mortgagor is in default. Any
additional proceeds are generally payable to the mortgagor. The payment of
the proceeds to the holders of junior mortgages may occur in the foreclosure
action of the senior mortgage or a subsequent ancillary proceeding or may
require the institution of separate legal proceedings by such holders.
REO Properties
If title to any Mortgaged Property is acquired by the Trustee on behalf of
the Certificateholders, the Master Servicer or any related Sub-servicer or
the Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property within two years of acquisition, 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 for more than two years after its
acquisition will not result in the imposition of a tax on the Trust Fund or
cause any REMIC created pursuant to the Pooling and Servicing Agreement to
fail to qualify as a REMIC under the Code. Subject to the foregoing, the
Master Servicer or any related Sub-servicer or the Special Servicer will
generally be required to solicit bids for any Mortgaged Property so acquired
in such a manner as will be reasonably likely to realize a fair price for
such property. The Master Servicer or any related Sub-servicer or the Special
Servicer may retain an independent contractor to operate and manage any REO
Property; however, the retention of an independent contractor will not
relieve the Master Servicer or any related Sub-servicer or the Special
Servicer of its obligations with respect to such REO Property.
In general, the Master Servicer or any related Sub-servicer or the Special
Servicer or an independent contractor employed by the Master Servicer or any
related Sub-servicer or the Special Servicer at the expense of the Trust Fund
will be obligated to operate and manage any Mortgaged Property acquired as
REO Property in a manner that would, to the extent commercially feasible,
maximize the Trust Fund's net after-tax proceeds from such property. After
the Master Servicer or any related Sub-servicer or the Special Servicer
reviews the operation of such property and consults with the Trustee to
determine the Trust Fund's federal income tax reporting position with respect
to the income it is anticipated that the Trust Fund would derive from such
property, the Master Servicer or any related Sub-servicer or the Special
Servicer could determine (particularly in the case of an REO Property that is
a hospitality or residential health care facility) that it would not be
commercially feasible to manage and operate such property in a manner that
would avoid the imposition of a tax on "net income from foreclosure
property," within the meaning of Section 857(b)(4)(B) of the Code or a tax on
"prohibited transactions" under Section 860F of the Code (either such tax
referred to herein as an "REO Tax"). To the extent that income the Trust Fund
receives from an REO Property is subject to a tax on (i) "net income from
foreclosure property" such income would be subject to federal income tax at
the highest marginal corporate tax rate (currently 35%) or (ii) "prohibited
transactions," such income would be subject to federal income tax at a 100%
rate. 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
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REO Property. Generally, income from an REO Property that is directly
operated by the Master Servicer or any related Sub-servicer or the Special
Servicer would be apportioned and classified as "service" or "non-service"
income. The "service" portion of such income could be subject to federal
income tax either at the highest marginal corporate tax rate or at the 100%
rate on "prohibited transactions," and the "non-service" portion of such
income could be subject to federal income tax at the highest marginal
corporate tax rate or, although it appears unlikely, at the 100% rate
applicable to "prohibited transactions." 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 for more than two years. 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 for more than two years 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
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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 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
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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.
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
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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.
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.
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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 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
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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 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.
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Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and under the law of certain
states, a secured party which takes a deed-in-lieu of foreclosure, purchases
a mortgaged property at a foreclosure sale, or operates a Mortgaged Property
may become liable in some circumstances either to the government or to
private parties for cleanup costs, even if the lender does not cause or
contribute to the contamination. Liability under some federal or state
statutes may not be limited to the original or unamortized principal balance
of a loan or to the value of the property securing a loan. CERCLA imposes
strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of
the property, regardless of whether they caused or contributed to the
contamination. Many states have laws similar to CERCLA.
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 ambiguity appears to have been resolved 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 lists permissible actions that may be
undertaken by a lender holding security in a contaminated facility without
exceeding the bounds of the secured creditor exemption, subject to certain
conditions and limitations. The Asset Conservation Act provides that in order
to be deemed to have participated in the management of a secured property, a
lender must actually participate in the operational affairs of the property
or the borrower. The Asset Conservation Act also provides that a lender will
continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell
the mortgaged property at the earliest practicable commercially reasonable
time on commercially reasonable terms. The protections afforded lenders under
the Asset Conversion Act are subject to terms and conditions that have not
been clarified by the courts.
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. In addition, the
secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA. CERCLA's jurisdiction extends to the
investigation and remediation of releases of "hazardous substances." The
definition of "hazardous substances" under CERCLA specifically excludes
petroleum products. Therefore, a federal statute of particular significance
is Subtitle I of the Resource Conservation and Recovery Act ("RCRA"), which
governs the operation and management of underground petroleum storage tanks.
Under the Asset Conservation Act, the protections accorded to lenders under
CERCLA are also accorded to the holders of security interests in underground
storage tanks. 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.
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Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to
hazardous environmental conditions on a property. While it may be more
difficult to hold a lender liable in such cases, unanticipated or uninsurable
liabilities of the borrower may jeopardize the borrower's ability to meet its
loan obligations.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment proof. It is possible
that cleanup costs could become a liability of the Trust Fund and occasion a
loss to Certificateholders in certain circumstances described above if such
remedial costs were incurred.
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
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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 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.
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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
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
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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 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
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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 Sidley & Austin or Latham & Watkins or
Brown & Wood LLP or such other counsel as may be specified in the related
Prospectus Supplement, counsel to the Depositor. This summary is based on
laws, regulations, including the REMIC regulations promulgated by the
Treasury Department (the "REMIC Regulations"), rulings and decisions now in
effect or (with respect to regulations) proposed, all of which are subject to
change either prospectively or retroactively. This summary does not address
the federal income tax consequences of an investment in Certificates
applicable to all categories of investors, some of which (for example, banks
and insurance companies) may be subject to special rules. Prospective
investors should consult their tax advisors regarding the federal, state,
local and any other tax consequences to them of the purchase, ownership and
disposition of Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to
a particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC
election will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Sidley & Austin or Latham & Watkins or
Brown & Wood LLP or 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 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 (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. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share
of
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income and deductions as and when collected by or paid to the Master
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions
as they become due or are paid to the Master Servicer, whichever is earlier.
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, as to
each Series of Certificates, Sidley & Austin or Latham & Watkins or Brown &
Wood LLP or such other counsel as may be specified in the related Prospectus
Supplement 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)(5)(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; and
(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).
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 which 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
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Certificateholder that makes this election for a Mortgage Asset or any other
debt instrument that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder acquires during the year
of the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate representing an
interest in a Mortgage Asset or Mortgage Loan acquired at a premium should
recognize a loss if a Mortgage Loan (or an underlying mortgage loan with
respect to a Mortgage Asset) prepays in full, equal to the difference between
the portion of the prepaid principal amount of such Mortgage Loan (or
underlying mortgage loan) that is allocable to the Certificate and the
portion of the adjusted basis of the Certificate that is allocable to such
Mortgage Loan (or underlying mortgage loan). If a reasonable prepayment
assumption is used to amortize such premium, it appears that such a loss
would be available, if at all, only if prepayments have occurred at a rate
faster than the reasonable assumed prepayment rate. It is not clear whether
any other adjustments would be required to reflect differences between an
assumed prepayment rate and the actual rate of prepayments.
Original Issue Discount. The Internal Revenue Service (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
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and (ii) a fraction, the numerator of which is the OID accruing during the
period and the denominator of which is the total remaining OID at the
beginning of the accrual period. For Grantor Trust Certificates issued
without OID, the amount of market discount that accrues during a period is
equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other
obligations securing such instruments, the same prepayment assumption
applicable to calculating the accrual of OID will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a Grantor
Trust Certificate purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to
purchase or carry such Grantor Trust Certificate purchased with market
discount. For these purposes, the de minimis rule referred to above applies.
Any such deferred interest expense would not exceed the market discount that
accrues during such taxable year and is, in general, allowed as a deduction
not later than the year in which such market discount is includible in
income. If such holder elects to include market discount in income currently
as it accrues on all market discount instruments acquired by such holder in
that taxable year or thereafter, the interest deferral rule described above
will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in 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 Internal Revenue Service 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").
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Servicing fees in excess of reasonable servicing fees ("excess servicing")
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Mortgage Asset principal
balance) or the Certificates are initially sold with a de minimis discount
(assuming no prepayment assumption is required), any non-de minimis discount
arising from a subsequent transfer of the Certificates should be treated as
market discount. The IRS appears to require that reasonable servicing fees be
calculated on a Mortgage Asset by Mortgage Asset basis, which could result in
some Mortgage Assets being treated as having more than 100 basis points of
interest stripped off. See "--Non-REMIC Certificates" and "Multiple Classes
of Grantor Trust Certificates--Stripped Bonds and Stripped Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if
the discount on a Mortgage Asset is larger than a de minimis amount (as
calculated for purposes of the OID rules) a purchaser of such a Certificate
will be required to accrue the discount under the OID rules of the Code. See
"--Non-REMIC Certificates" and "--Single Class of Grantor Trust
Certificates--Original Issue Discount" herein. However, a purchaser of a
Stripped Bond Certificate will be required to account for any discount on the
Mortgage Assets as market discount rather than OID if either (i) the amount
of OID with respect to the Mortgage Assets is treated as zero under the OID
de minimis rule when the Certificate was stripped or (ii) no more than 100
basis points (including any amount of servicing fees in excess of reasonable
servicing fees) is stripped off of the Trust Fund's Mortgage Assets. Pursuant
to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of Stripped
Bond Certificates using an inconsistent method of accounting must change
their method of accounting and request the consent of the IRS to the change
in their accounting method on a statement attached to their first timely tax
return filed after August 8, 1991.
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. However, based on certain
provisions of the OID Regulations, it appears that all payments from a
Mortgage Asset underlying a Stripped Coupon Certificate should 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, based on policy considerations, each class of Grantor Trust
Certificates, unless otherwise specified in the related Prospectus
Supplement, should be
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considered to represent "real estate assets" within the meaning of Code
Section 856(c)(5)(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,
directly or indirectly, by an interest in real property" within the meaning
of Code Section 860G(a)(3).
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 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
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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 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
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Certificateholder when such amount accrues. Furthermore, the addition of
Deferred Interest to the Grantor Trust Certificate's principal balance will
result in additional income (including possibly OID income) to the Grantor
Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate.
Such adjusted basis generally will equal the seller's purchase price for the
Grantor Trust Certificate, increased by the OID included in the seller's
gross income with respect to the Grantor Trust Certificate, and reduced by
principal payments on the Grantor Trust Certificate previously received by
the seller. Such gain or loss will be capital gain or loss to an owner for
which a Grantor Trust Certificate is a "capital asset" within the meaning of
Code Section 1221, and will be long-term or short-term depending on whether
the Grantor Trust Certificate has been owned for the long-term capital gain
holding period (currently more than one year). Lower capital gains rates
generally will apply to individuals who hold Grantor Trust Certificates for
more than 18 months.
It is possible that capital gain realized by holders of one or more
classes of Grantor Trust Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A
sale of a Grantor Trust Certificate will be part of a "conversion
transaction" if substantially all of the holder's expected return is
attributable to the time value of the holder's net investment, and (i) the
holder entered the contract to sell the Grantor Trust Certificate
substantially contemporaneously with acquiring the Grantor Trust Certificate,
(ii) the Grantor Trust Certificate is part of a straddle, (iii) the Grantor
Trust 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 Grantor Trust Certificate
is part of a conversion transaction, all or any portion of the gain realized
upon the sale or other disposition of the Grantor Trust Certificate 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. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such
payments would not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Mortgage Assets issued after July
18, 1984, by natural persons if such Grantor Trust Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the Grantor Trust Certificateholder under penalties of perjury,
certifying that such Grantor Trust Certificateholder is not a U.S. Person and
providing the name and address of such Grantor Trust Certificateholder).
Additional restrictions apply to Mortgage Assets where the mortgagor is not a
natural person in order to qualify for the exemption from withholding.
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, 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
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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.
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. 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.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal
income tax (see, however "--Taxation of Owners of REMIC Residual
Certificates" and "--Prohibited Transactions" below), if a Trust Fund with
respect to which a REMIC election is made fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable
year, including the implementation of restrictions on the purchase and
transfer of the residual interests in a REMIC as described below under
"Taxation of Owners of REMIC Residual Certificates," the Code provides that a
Trust Fund will not be treated as a REMIC for such year and thereafter. In
that event, such entity may be taxable as a separate corporation, and the
related Certificates (the "REMIC Certificates") may not be accorded the
status or given the tax treatment described below. While the Code authorizes
the Treasury Department to issue regulations providing relief in the event of
an inadvertent termination of the status of a trust fund as a REMIC, no such
regulations have been issued. Any such relief, moreover, may be accompanied
by sanctions, such as the imposition of a corporate tax on all or a portion
of the REMIC's income for the period in which the requirements for such
status are not satisfied. With respect to each Trust Fund that elects REMIC
status, Sidley & Austin or Latham & Watkins or Brown & Wood LLP or 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)(5)(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.
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Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related
Trust Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master
REMIC") for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Sidley & Austin or Latham & Watkins or Brown & Wood LLP or
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
REMIC Regular Certificates or REMIC Residual Certificates in the related
REMIC within the meaning of the REMIC provisions.
Only REMIC Certificates, other than the residual interest in a Subsidiary
REMIC, 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)(5)(A) of the Code; (ii)
"loans secured by an interest in real property" under Section 7701(a)(19)(C)
of the Code; and (iii) whether the income on such Certificates is interest
described in Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC
or its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may be
issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular
Certificate and its "issue price." Holders of any class of Certificates
issued with OID will be required to include such OID in gross income for
federal income tax purposes as it accrues, in accordance with a constant
interest method based on the compounding of interest as it accrues rather
than in accordance with receipt of the interest payments. The following
discussion is based in part on the OID Regulations and in part on the
provisions of the Tax Reform Act of 1986 (the "1986 Act"). Holders of REMIC
Regular Certificates (the "REMIC Regular Certificateholders") should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the REMIC Regular
Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated
reinvestment rate, if any, relating to the REMIC Regular Certificates and
prescribe a method for adjusting the amount and rate of accrual of such
discount where the actual prepayment rate differs from the Prepayment
Assumption. Under the Code, the Prepayment Assumption must be determined in
the manner prescribed by regulations, which regulations have not yet been
issued. The legislative history of the 1986 Act (the "Legislative History")
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in
determining the initial offering price of such REMIC Regular Certificates.
The Prospectus Supplement for each Series of REMIC Regular Certificates will
specify the Prepayment Assumption to be used for the purpose of 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
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price of a REMIC Regular Certificate also includes the amount paid by an
initial Certificateholder for accrued interest that relates to a period prior
to the issue date of the REMIC Regular Certificate. The stated redemption
price at maturity of a REMIC Regular Certificate includes the original
principal amount of the REMIC Regular Certificate, but generally will not
include distributions of interest if such distributions constitute "qualified
stated interest." Qualified stated interest generally means interest payable
at a single fixed rate or qualified variable rate (as described below)
provided that such interest payments are unconditionally payable at intervals
of one year or less during the entire term of the REMIC Regular Certificate.
Interest is payable at a single fixed rate only if the rate appropriately
takes into account the length of the interval between payments. Distributions
of interest on REMIC Regular Certificates with respect to which Deferred
Interest will accrue will not constitute qualified stated interest payments,
and the stated redemption price at maturity of such REMIC Regular
Certificates includes all distributions of interest as well as principal
thereon.
Where the interval between the issue date and the first Distribution Date
on a REMIC Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount (disregarding
the rate in the first period) and any interest foregone during the first
period is treated as the amount by which the stated redemption price at
maturity of the Certificate exceeds its issue price for purposes of the de
minimis rule described below. The OID Regulations suggest that all interest
on a long first period REMIC Regular Certificate that is issued with non-de
minimis OID, as determined under the foregoing rule, will be treated as OID.
Where the interval between the issue date and the first Distribution Date on
a REMIC Regular Certificate is shorter than the interval between subsequent
Distribution Dates, interest due on the first Distribution Date in excess of
the amount that accrued during the first period would be added to the
Certificates, stated redemption price at maturity. REMIC Regular
Certificateholders should consult their own tax advisors to determine the
issue price and stated redemption price at maturity of a REMIC Regular
Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included
in the stated redemption price at maturity of the REMIC Regular Certificate
and the denominator of which is the stated redemption price at maturity of
the REMIC Regular Certificate. Although currently unclear, it appears that
the schedule of such distributions should be determined in accordance with
the Prepayment Assumption. The Prepayment Assumption with respect to a Series
of REMIC Regular Certificates will be set forth in the related Prospectus
Supplement. Holders generally must report de minimis OID pro rata as
principal payments are received, and such income will be capital gain if the
REMIC Regular Certificate is held as a capital asset. However, accrual method
holders may elect to accrue all de minimis OID as well as market discount
under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances
(the "Super-Premium Certificates"). The income tax treatment of such REMIC
Regular Certificates is not entirely certain. For information reporting
purposes, the Trust Fund intends to 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
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IRS with respect to contingent payment instruments. These proposed
regulations, if applicable, generally would require holders of Regular
Interest Certificates to take the payments considered contingent interest
payments into income on a yield to maturity basis in accordance with a
schedule of projected payments provided by the Depositor and to make annual
adjustments to income to account for the difference between actual payments
received and projected payment amounts accrued. In the alternative, the IRS
could assert that the stated redemption price at maturity of such REMIC
Regular Certificates should be limited to their principal amount (subject to
the discussion below under "--Accrued Interest Certificates"), so that such
REMIC Regular Certificates would be considered for federal income tax
purposes to be issued at a premium. If such a position were to prevail, the
rules described below under "--Taxation of Owners of REMIC Regular
Certificates--Premium" would apply. It is unclear when a loss may be claimed
for any unrecovered basis for a Super-Premium Certificate. It is possible
that a holder of a Super-Premium Certificate may only claim a loss when its
remaining basis exceeds the maximum amount of future payments, assuming no
further prepayments or when the final payment is received with respect to
such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular
Certificate generally should not be treated as a Super-Premium Certificate
and the rules described below under "--REMIC Regular Certificates--Premium"
should apply. However, it is possible that holders of REMIC Regular
Certificates issued at a premium, even if the premium is less than 25% of
such Certificate's actual principal balance, will be required to amortize the
premium under an original issue discount method or contingent interest method
even though no election under Code Section 171 is made to amortize such
premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the "daily portions," as determined below, of the OID that accrues on a REMIC
Regular Certificate for each day a Certificateholder holds the REMIC Regular
Certificate, including the purchase date but excluding the disposition date.
In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on
the first day or first business day of the immediately preceding month,
interest may be treated as payable on the last day of the immediately
preceding month) and begins on the day after the end of the immediately
preceding accrual period (or on the issue date in the case of the first
accrual period). This will be done, in the case of each full accrual period,
by (i) adding (a) the present value at the end of the accrual period
(determined by using as a discount factor the original yield to maturity of
the REMIC Regular Certificates as calculated under the Prepayment Assumption)
of all remaining payments to be received on the REMIC Regular Certificates
under the Prepayment Assumption and (b) any payments included in the stated
redemption price at maturity received during such accrual period, and (ii)
subtracting from that total the adjusted issue price of the REMIC Regular
Certificates at the beginning of such accrual period. The adjusted issue
price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount
of any payment other than a payment of qualified stated interest made at the
end of or during that accrual period. The OID accrued during an accrual
period will then be divided by the number of days in the period to determine
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
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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 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 each distribution representing amounts
included in such certificate's stated redemption
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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
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election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder acquires during the year
of the election or thereafter. It is not clear whether the Prepayment
Assumption would be taken into account in determining the life of the REMIC
Regular Certificate for this purpose. However, the Legislative History states
that the same rules that apply to accrual of market discount (which rules
require use of a Prepayment Assumption in accruing market discount with
respect to REMIC Regular Certificates without regard to whether such
Certificates have OID) will also apply in amortizing bond premium under Code
Section 171. The Code provides that amortizable bond premium will be
allocated among the interest payments on such REMIC Regular Certificates and
will be applied as an offset against such interest payment. On June 27, 1996,
the IRS published in the Federal Register proposed regulations on the
amortization of bond premium. The foregoing discussion is based in part on
such proposed regulations. The proposed regulations generally would be
effective for Certificates acquired on or after the date 60 days after the
date they are published as final regulations in the Federal Register.
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.
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.
It is possible that capital gain realized by holders of one or more
classes of REMIC Regular Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A
sale of a REMIC Regular Certificate will be part of a "conversion
transaction" if substantially all of the holder's expected return is
attributable to the time value of the holder's net investment, and (i) the
holder entered the contract to sell the REMIC Regular Certificate
substantially contemporaneously with acquiring the REMIC Regular Certificate,
(ii) the REMIC Regular
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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
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period could significantly exceed the amount of cash distributed to such
holder in that period. The holder will eventually be allowed a loss (or will
be allowed to report a lesser amount of income) to the extent that the
aggregate amount of distributions on the Subordinated Certificate is reduced
as a result of defaults and delinquencies on the Mortgage Assets.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as
an ordinary loss any loss sustained during the taxable year on account of any
such Certificates becoming wholly or partially worthless, and that, in
general, holders of Certificates that are not corporations should be allowed
to deduct as a short-term capital loss any loss sustained during the taxable
year on account of any such Certificates becoming wholly worthless. Potential
investors and holders of the Certificates are urged to consult their own tax
advisors regarding the appropriate timing, amount and character of any loss
sustained with respect to such Certificates, including any loss resulting
from the failure to recover previously accrued interest or discount income.
Special loss rules are applicable to banks and thrift institutions, including
rules regarding reserves for bad debts. Such taxpayers are advised to consult
their tax advisors regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a
trade or business within the United States will not be subject to federal
withholding tax if (i) such REMIC Regular Certificateholder does not actually
or constructively own 10 percent or more of the combined voting power of all
classes of equity in the Issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the Issuer; and (iii) such REMIC Regular Certificateholder
complies with certain identification requirements (including delivery of a
statement, signed by the REMIC Regular 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.
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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. 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.
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.
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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 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
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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.
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.
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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.
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
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distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the
REMIC Residual Certificate is held as a capital asset. However, REMIC
Residual Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from sale of a
REMIC Residual Certificate by a bank 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.
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 Master Servicer's,
Trustee's or Asset Seller's obligations, as the case may be, under the
related Agreement for such Series, such tax will be borne by such Master
Servicer, Trustee or Asset Seller, as the case may be, out of its own funds
or (ii) the Asset Seller's obligation to repurchase a Mortgage Loan, such tax
will be borne by the Asset Seller. In the event that such Master Servicer,
Trustee or Asset Seller, 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
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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.
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
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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. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the
interest held by the disqualified organization and (B) the highest marginal
federal income tax rate applicable to corporations. The pass-through entity
otherwise liable for the tax, for any period during which the disqualified
organization is the record holder of an interest in such entity, will be
relieved of liability for the tax if such record holder furnishes to such
entity an affidavit that such record holder is not a disqualified
organization and, for such period, the pass-through entity does not have
actual knowledge that the affidavit is false. For this purpose, a
"pass-through entity" means (i) a regulated investment company, real estate
investment trust or common trust fund, (ii) a partnership, trust or estate
and (iii) certain cooperatives. Except as may be provided in Treasury
regulations not yet issued, any person holding an interest in a pass-through
entity as a nominee for another will, with respect to such interest, be
treated as a pass-through entity. The tax on pass-through entities is
generally effective for periods after March 31, 1988, except that in the case
of regulated investment companies, real estate investment trusts, common
trust funds and publicly-traded partnerships the tax shall apply only to
taxable years of such entities beginning after December 31, 1988.
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
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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 Agreement will provide that no record or beneficial ownership
interest in a REMIC Residual Certificate may be transferred, directly or
indirectly, to a non-U.S. Person unless such person provides the Trustee with
a duly completed IRS Form 4224 and the Trustee consents to such transfer in
writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the Offered Certificates. State income tax law may differ substantially
from the corresponding federal law, and this discussion does not purport to
describe any aspect of the income
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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.
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,
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 be fiduciaries subject to the fiduciary responsibility provisions
of Title I of ERISA, or may otherwise be 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 any
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 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, 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
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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.
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"). 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, or secured by, 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, state-chartered
savings banks, commercial banks, savings and loan associations and insurance
companies, as well as trustees and state government employee retirement
systems) created pursuant to or existing under the laws of the United States
or of any state (including the District of Columbia and Puerto Rico) whose
authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Pursuant to SMMEA, a
number of states enacted legislation, before the October 4, 1991 cutoff
established by SMMEA for such enactments, limiting to varying extents the
ability of certain entities (in particular, insurance companies) to invest in
mortgage related securities, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement
Act of 1994, which amended the definition of "mortgage related security"
(effective December 31, 1996) to include, in relevant part, Offered
Certificates satisfying the rating, first lien and qualified originator
requirements for "mortgage related securities," but representing interests
in, or secured by, 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. Investors
affected by such legislation 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
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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. Federal credit unions should review the
National Credit Union Administration ("NCUA") Letter to Credit Unions No. 96,
as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R. Section
Section 703.5(f)-(k), which prohibit federal credit unions from investing in
certain mortgage related securities (including securities such as certain
series or classes of Offered Certificates), except under limited
circumstances. Effective January 1, 1998, the NCUA has amended its rules
governing investments by federal credit unions at 12 C.F.R. Part 703; the
revised rules will permit investments in "mortgage related securities" under
certain limited circumstances, but will prohibit investments in stripped
mortgage related securities, residual interests in mortgage related
securities, and commercial mortgage related securities, unless the credit
union has obtained written approval from the NCUA to participate in the
"investment pilot program" described in 12 C.F.R. Section 703.140.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "Policy
Statement") of the Federal Financial Institutions Examination Council. The
Policy Statement, which has been adopted by the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the OCC
and the Office of Thrift Supervision, and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain series
or classes of the Offered Certificates), except under limited circumstances,
and sets forth certain investment practices deemed to be unsuitable for
regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to, "prudent investor" provisions, percentage-of-assets limits,
provisions which may restrict or prohibit investment in securities which are
not "interest bearing" or "income paying," and, with regard to any Offered
Certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization
of such Offered Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase such
Offered Certificates, may be subject to significant interpretive
uncertainties.
Except as to the status of SMMEA 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 or financial institution regulatory
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.
Investors 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.
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PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates
may be effected from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying
prices to be determined at the time of sale or at the time of commitment
therefor. If so specified in the related Prospectus Supplement, the Offered
Certificates will be distributed in a firm commitment underwriting, subject
to the terms and conditions of the underwriting agreement, by Morgan Stanley
& Co. Incorporated ("Morgan Stanley") acting as underwriter with other
underwriters, if any, named therein. In such event, the Prospectus Supplement
may also specify that the underwriters will not be obligated to pay for any
Offered Certificates agreed to be purchased by purchasers pursuant to
purchase agreements acceptable to the Depositor. In connection with the sale
of Offered Certificates, underwriters may receive compensation from the
Depositor or from purchasers of Offered Certificates in the form of
discounts, concessions or commissions. The Prospectus Supplement will
describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Morgan Stanley acting as agent or in some
cases as principal with respect to Offered Certificates that it has
previously purchased or agreed to purchase. If Morgan Stanley acts as agent
in the sale of Offered Certificates, Morgan Stanley will receive a selling
commission with respect to such Offered Certificates, depending on market
conditions, expressed as a percentage of the aggregate Certificate Balance or
notional amount of such Offered Certificates as of the Cut-off Date. The
exact percentage for each series of Certificates will be disclosed in the
related Prospectus Supplement. To the extent that Morgan Stanley elects to
purchase Offered Certificates as principal, Morgan Stanley may realize losses
or profits based upon the difference between its purchase price and the sales
price. The Prospectus Supplement with respect to any series offered other
than through underwriters will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Offered Certificates of such series.
The Depositor will indemnify Morgan Stanley and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Morgan Stanley and any underwriters may
be required to make in respect thereof.
In the ordinary course of business, Morgan Stanley and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 in connection with reoffers
and sales by them of Offered Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by the Depositor,
and may be sold by the Depositor at any time in private transactions.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the
Depositor by Sidley & Austin, New York, New York or Latham & Watkins, New
York, New York or 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
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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>
<CAPTION>
PAGE(S) ON WHICH
TERM IS DEFINED
TERM IN THE PROSPECTUS
- ------ -----------------
<S> <C>
Accrual Certificates ............................................ 30
ADA ............................................................. 72
Applicable Amount ............................................... 93
ARM Loans ....................................................... 24, 79
Asset Conservation Act .......................................... 68
Asset Seller .................................................... 20
Assets .......................................................... 1, 20
Balloon Mortgage Loans .......................................... 16
Bankruptcy Code ................................................. 63
Book-Entry Certificates ......................................... 31
Cash Flow Agreement ............................................. 26
Cash Flow Agreements ............................................ 1
Cede ............................................................ 3, 37
CERCLA .......................................................... 18, 68
Certificate Account ............................................. 41
Certificate Owners .............................................. 37
Certificateholders .............................................. 3
Closing Date .................................................... 83
Commercial Loans ................................................ 20
Commercial Properties ........................................... 20
Commission ...................................................... 3
Contributions Tax ............................................... 95
Cooperatives .................................................... 21
Covered Trust ................................................... 17, 55
CPR ............................................................. 29
Credit Support .................................................. 1, 26
Crime Control Act ............................................... 73
Deferred Interest ............................................... 80
Definitive Certificates ......................................... 31, 38
Depositor ....................................................... 20
Determination Date .............................................. 31
DTC ............................................................. 3, 37
Due Period ...................................................... 31
Environmental Hazard Condition .................................. 69
Equity Participations ........................................... 24
ERISA ........................................................... 99
ERISA Plans ..................................................... 99
Exchange Act .................................................... 3
Exemption ....................................................... 100
FDIC ............................................................ 41
FHLMC ........................................................... 50
FNMA ............................................................ 69
Government Securities ........................................... 1, 20
Indirect Participants ........................................... 37
Insurance Proceeds .............................................. 42
IRS ............................................................. 76
Labor ........................................................... 99
L/C Bank ........................................................ 56
Lease ........................................................... 3
Lease Assignment ................................................ 1
Legislative History ............................................. 83
105
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Lessee ................................................................ 3
Liquidation Proceeds .................................................. 42
Lock-out Date ......................................................... 24
Lock-out Period ....................................................... 24
Mark-to-Market Regulations ............................................ 93
Master REMIC .......................................................... 83
MBS ................................................................... 1, 20
MBS Agreement ......................................................... 24
MBS Issuer ............................................................ 24
MBS Servicer .......................................................... 24
MBS Trustee ........................................................... 24
Morgan Stanley ........................................................ 103
Mortgage Loans ........................................................ 1, 20
Mortgage Notes ........................................................ 21
Mortgage Rate ......................................................... 24
Mortgages ............................................................. 21
Multifamily Loans ..................................................... 20
Multifamily Properties ................................................ 20
NCUA .................................................................. 102
Nonrecoverable Advance ................................................ 34
Offered Certificates .................................................. 1
OID ................................................................... 74, 76
OID Regulations ....................................................... 76
Originator ............................................................ 21
Participants .......................................................... 37
Pass-Through Rate ..................................................... 32
Payment Lag Certificates .............................................. 89
Permitted Investments ................................................. 41
Plans ................................................................. 99
Prepayment Assumption ................................................. 79
Prepayment Premium .................................................... 24
Prohibited Transactions Tax ........................................... 95
RCRA .................................................................. 68
Record Date ........................................................... 31
Related Proceeds ...................................................... 34
Relief Act ............................................................ 72
REMIC Certificates .................................................... 82
REMIC Regular Certificateholders ...................................... 83
REMIC Regular Certificates ............................................ 82
REMIC Regulations ..................................................... 74
REMIC Residual Certificateholder ...................................... 90
REMIC Residual Certificates ........................................... 82
REO Extension ......................................................... 61
REO Tax ............................................................... 61
Restricted Group ...................................................... 100
RICO .................................................................. 73
Senior Certificates ................................................... 30
Servicing Standard .................................................... 45
SMMEA ................................................................. 101
SMMEA Certificates .................................................... 101
Special Servicer ...................................................... 45
Stripped ARM Obligations .............................................. 80
Stripped Bond Certificates ............................................ 77
Stripped Coupon Certificates .......................................... 77
Stripped Interest Certificates ........................................ 30
106
<PAGE>
Stripped Principal Certificates ....................................... 30
Subordinate Certificates .............................................. 30
Sub-Servicer .......................................................... 45
Sub-Servicing Agreement ............................................... 45
Subsidiary REMIC ...................................................... 83
Super-Premium Certificates ............................................ 84
Title V ............................................................... 71
Trust Assets .......................................................... 2
Trust Fund ............................................................ 1
UCC ................................................................... 37
Voting Rights ......................................................... 19
Warrantying Party ..................................................... 40
</TABLE>
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INSTRUCTIONS TO READ CD-ROM FOR MORGAN STANLEY CAPITAL I
ACCESSING APPRAISALS IN ADOBE ACROBAT(1) PDF (PORTABLE DOCUMENT FORMAT)
FOR USERS WITH PRE-INSTALLED ACROBAT READERS
o Insert the disk in the CD-ROM drive and double-click on your CD-ROM drive
icon.
o Please note that the folder names correspond to the respective mortgage
loans. Double-click on the folder that you are interested in reviewing.
Within each main folder, you will find two sub-folders: one entitled "PDF"
and the other "RTF". To access the Acrobat version of the appraisal,
double-click on the PDF folder. In the case of a single mortgage, you will
see only one Acrobat file. For pooled mortgages, you will see a complete
list of Acrobat files for that pool.
o Double-click on the file you wish to review.
o Acrobat Reader will launch and 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.
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 If you are a Windows 95 or Windows NT 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
folder names correspond to the respective mortgage loans. Double-click on
the folder that you are interested in reviewing. Within each main folder,
you will find two sub-folders: one entitled "PDF" and the other "RTF". To
access the Acrobat version of the appraisal, double-click on the PDF
folder. In the case of a single mortgage, you will see only one Acrobat
file. For pooled mortgages, you will see a complete list of Acrobat files
for that pool.
o Double-click on the file you wish to review.
o Acrobat Reader will launch and 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.
ACCESSING APPRAISALS IN RTF (RICH TEXT FORMAT) (SUITABLE FOR WORDPERFECT,
WORD AND EXCEL)
o Accessing the RTF files requires only that you have one of the following
word processing applications: MICROSOFT(2) WORD (version 6.0 or later) or
WORDPERFECT(3) (version 6.0/6.1 or later). Viewing an appraisal in RTF
will allow you to cut and paste blocks of text into another word
processing file and/or cut and paste tabular data directly into a
spreadsheet program such as EXCEL, preserving the delimited data fields.
(NOTE: The RTF files consist of the same material content as the PDF
files.)
o Insert the disk in the CD-ROM drive.
o Start your word processor, and go through the File/Open drop-down menu and
dialog box to locate your CD-ROM drive and double-click on the folder of
the mortgage or pool that you are interested in reviewing. Within each
main folder, you will find two sub-folders: one entitled "PDF" and the
other "RTF". To access the RTF version of the appraisal, double-click on
the RTF folder. In the case of a single mortgage, you will see only one
RTF file. For pooled mortgages, you will see a complete list of RTF files
for that pool.
o Double-click on the file you wish to open.
- ------------
(1) Adobe and Acrobat are registered trademarks of Adobe Systems
Incorporated.
(2) Microsoft, Word and Excel are registered trademarks of Microsoft
Corporation.
(3) WordPerfect is a registered trademark of Corel Corporation Limited.
<PAGE>
This CD ROM contains an electronic version of appraisals for the Mortgaged
Properties in both PDF and RTF format. The appraisals for the Mortgaged
Properties were prepared prior to the date of this Prospectus Supplement.
Accordingly, the information included in such appraisals may not reflect the
current economic, competitive, market and other conditions with respect to
the Mortgaged Properties. The information contained in this CD ROM does not
appear elsewhere in paper form in this Prospectus Supplement and must be
considered together with the information contained elsewhere in this
Prospectus Supplement and the Prospectus. The information contained in this
CD ROM has been filed by the Seller with the Securities and Exchange
Commission as part of a Current Report on Form 8-K, which is incorporated by
reference in this Prospectus Supplement, and is also available through the
public reference branch of the Securities and Exchange Commission. Defined
terms used in this CD ROM but not otherwise defined therein shall have the
respective meanings assigned to them in the paper portion of the Prospectus
Supplement and the Prospectus. All of the information contained in this CD
ROM is subject to the same limitations and qualifications contained in this
Prospectus Supplement and the Prospectus. Prospective investors are strongly
urged to read the paper portion of this Prospectus Supplement and the
Prospectus in its entirety prior to accessing this CD ROM. If this CD ROM was
not received in a sealed package, there can be no assurances that it remains
in its original format and should not be relied upon for any purpose.
Prospective investors may contact Cecilia Tarrant of Morgan Stanley & Co.
Incorporated at (212) 761-6028 to receive an original copy of the CD ROM.
If and when the words "expects," "intends," "anticipates," "estimates" and
analogous expressions are used on the CD-ROM, such statements are subject to
a variety of risks and uncertainties that could cause results to differ
materially from those projected. Such risks and uncertainties include, among
others, general economic and business conditions, competition, changes in
political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, and various other events,
conditions and circumstances, many of which are beyond the control of the
Depositor and the Underwriter, the Trustee, the Fiscal Agent, the Master
Servicer, the Special Servicer, MSMC and the Originators. Any forward-looking
statements speak only as of their date. The Depositor expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statement contained in the CD-ROM to reflect any change in
events, conditions or circumstances on which any such statement is based.
This diskette contains Loan Characteristics/Schedule of Additional
Information for Mortgage Loans in Microsoft Excel(1) Version 7.0 format. The
information contained in this diskette appears elsewhere in paper form in
this Prospectus Supplement and must be considered as part of, and together
with, the information contained elsewhere in this Prospectus Supplement and
the Prospectus. Defined terms used in this diskette but not otherwise defined
therein shall have the respective meanings assigned to them in the paper
portion of the Prospectus Supplement and Prospectus. All of the information
contained in this diskette is subject to the same limitations and
qualifications contained elsewhere in this Prospectus Supplement and the
Prospectus. Prospective investors are strongly urged to read the paper
portion of this Prospectus Supplement and the Prospectus in its entirety
prior to accessing this diskette. If this diskette was not received in a
sealed package, there can be no assurances that it remains in its original
format and should not be relied upon for any purpose. Prospective investors
may contact Cecilia Tarrant of Morgan Stanley & Co. Incorporated at (212)
761-6028 to receive an original copy of the diskette. Upon opening the
Microsoft Excel file contained on this diskette, a legend will be displayed,
which should be read carefully.
- ------------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
<PAGE>
INSIDE BACK COVER:
[GRAPHICS OR IMAGE MATERIAL OMITTED]
Photographs of: Birney Plaza, Martintown Plaza, Westgate Mall, Westshore Mall,
The Grand Kempinski, Arrowhead Towne Center, Yorktown Shopping Center
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement and the Prospectus, and if given or made, such information or
representation must not be relied upon as having been authorized by the
Seller or by the Underwriter. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby by anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make any such offer or solicitation. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that
information herein or therein is correct as of any time since the date of
this Prospectus Supplement or the Prospectus.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Executive Summary .................................. S-8
Summary of Prospectus Supplement ................... S-11
Risk Factors ....................................... S-35
Mortgage Pool Characteristics ...................... S-61
Description of the Mortgage Loans and the Mortgaged
Properties......................................... S-75
Description of the Offered Certificates ............ S-221
Yield, Prepayment and Maturity Considerations ..... S-234
The Pooling Agreement .............................. S-249
Certain Legal Aspects of the Mortgage Loans ........ S-269
Use of Proceeds .................................... S-271
Certain Federal Income Tax Consequeces ............. S-271
ERISA Considerations ............................... S-272
Legal Investment ................................... S-274
Plan of Distribution ............................... S-274
Experts ............................................ S-275
Validity of the Offered Certificates ............... S-275
Ratings ............................................ S-275
Index of Significant Definitions ................... S-277
Exhibit A--Financial Information ................... A-1
Exhibit B--Representations and Warranties ......... B-1
Exhibit C--Form of Report to Certificateholders ... C-1
Exhibit D--Preliminary Term Sheet .................. D-1
Annex A--Mortgaged Properties Characteristics ..... Annex A-1
PROSPECTUS
Prospectus Supplement .............................. 2
Available Information............................... 3
Incorporation of Certain Information By Reference . 4
Summary of Prospectus .............................. 5
Risk Factors ....................................... 13
Description of the Trust Funds ..................... 20
Use of Proceeds .................................... 26
Yield Considerations ............................... 27
The Depositor ...................................... 30
Description of the Certificates .................... 30
Description of the Agreements ...................... 38
Description of Credit Support ...................... 55
Certain Legal Aspects of the Mortgage Loans and the
Leases ............................................ 57
Certain Federal Income Tax Consequences ............ 74
State Tax Considerations ........................... 98
ERISA Considerations ............................... 99
Legal Investment ................................... 101
Plan of Distribution ............................... 103
Legal Matters ...................................... 103
Financial Information .............................. 103
Rating ............................................. 104
Index of Principal Definitions ..................... 105
</TABLE>
<PAGE>
$705,484,000
(APPROXIMATE)
MORGAN STANLEY
CAPITAL I INC.
DEPOSITOR
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 1997-XLI
PROSPECTUS SUPPLEMENT
CLASS A-1 CERTIFICATES $238,000,000
CLASS A-2 CERTIFICATES $ 64,000,000
CLASS A-3 CERTIFICATES $226,171,000
CLASS X CERTIFICATES $754,531,157
CLASS B CERTIFICATES $ 22,636,000
CLASS C CERTIFICATES $ 22,636,000
CLASS D CERTIFICATES $ 45,271,000
CLASS E CERTIFICATES $ 45,271,000
CLASS F CERTIFICATES $ 41,499,000
MORGAN STANLEY
DEAN WITTER
October , 1997
