Cash Management Structures, Waterfall Provisions, and Reserves in Real Estate Finance Transactions

Under current market conditions, borrowers are experiencing a tightening of cash management arrangements in real estate loans, particularly for those loans intended to be securitized. As the commercial real estate market slowly improves, borrowers may see less stringent cash management structures, but cash management remains an integral part of commercial real estate finance.

Terms and conditions of cash management systems are often very heavily negotiated. Lenders seek to ensure that debt service, property expenses, and reserves are paid before funds are disbursed to the borrower. Hard lockboxes offer the most protection to the lender.

Borrowers, on the other hand, want the most control over the revenues that flow from the property. Springing lockboxes allow the borrower more control over rents or revenues since they require the use of a deposit account only upon the occurrence of a specified triggering event, such as loan default.

Listen as our authoritative panel guides you through current terms and trends in lockbox and cash management systems. The group will discuss structuring cash management waterfall provisions and drafting both cash management agreements and deposit control account agreements.

1. Types and terminology of lockbox/cash management structures
   1. Hard lockboxes
   2. Soft or springing lockboxes
2. Typical cash management waterfall provisions
3. Negotiating and drafting cash management agreements and deposit account control agreements
4. Cash management in mezzanine and non-securitized loans
5. Reserve funds and pledged accounts

The panel will review these and other key issues:

• Current terms and trends in cash management systems and waterfall provisions
• Hard lockboxes vs. springing lockboxes
• Key documents and accounts involved in cash management structures
• Drafting the cash management agreement and the deposit account control agreement