Springing Cash Management Agreement

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Springing Cash Management Agreement

It has become quite common for loans that have been taken out for the CMBS market to contain some form of place locking or springing mechanism. Cash/lock-box management requirements are reinforced by a combination of rating agencies, CMBS bond investors and service providers, all of which have additional security liquidity management. Under the terms of the loan agreement, the borrower is required to deposit all income generated by the property (i.e. rent or other income) into the Lockbox account upon receipt (and are generally required to order tenants to make payments directly into the Lockbox account). The funds are then paid daily or monthly either to the borrower`s operating account or through the cash management cascade, depending on the type of lock-box, as explained below. These requirements apply in addition to the loan documents by which the borrower effectively grants the lender a stake in its lock-box and cash management accounts. A national bank offers most of the cash management and lock-box services, which is why we have included their estimated prices in our descriptions. However, new suppliers are entering the market, which I hope will put downward pressure on pricing. All of the following options require the borrower to pay an installation fee at Lockbox Bank. Currently, approximately $2,500 is charged for the initial installation fee. Month 1: The property generates $100,000 in revenue, which is deposited in the Lockbox.

After going through the cash management cascade, there is $20,000 in excess funds. In a soft lockbox structure, revenue is paid into the lockbox and then “swept” (usually monthly) into the cash management account, where it goes through cash management “waterfall”. However, in a “soft” lock-box, the excess funds leave the “system” and are distributed to the borrower`s operating account under the borrower`s control, after the funds have gone through the cascade. As noted above, the lender generally has no interest in security in the borrower`s operating account and cannot capture the remaining funds. As you can see, the money generated by the property under a hard lock-box never escapes the “system” and therefore offers the greatest security for the lender (and the slightest probability that borrowers have misappropriated funds). An example of a hard lockbox can be found below. This trigger provides some security for the lender, as it then has direct access to the borrower`s cash flow. In addition, this option does not involve periodic fees until the account is created. Hard Lockbox: The borrower has no control over cash flow. Here`s how it works: all rents pass through the lender-controlled account and are then transferred to the cash management account. Tenants are ordered to pay rent directly into the lender`s controlled account or, in the case of a dwelling or hotel, rent must be paid into the account controlled after receipt by the administrator.