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

In the immediate aftermath of the credit crisis, borrowers experienced the tightening of cash management arrangements in real estate loans, particularly for those loans intended to be securitized. As the commercial real estate market is improving, are borrowers starting to see more borrower-friendly cash management structures? 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 prior to funds being dispersed 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 occurrence of a specified triggering event, such as loan default.