MODIFICATION AGREEMENT
This Modification Agreement (the "Agreement") is made and entered into
as of this ___ day of May, 1996 by and between Sundance Associates II, LTD
("Borrower") and Krupp Insured Plus - III Limited Partnership ("KIP").
W I T N E S S E T H:
WHEREAS, the Borrower has obtained from Krupp Mortgage Corporation, now
known as Berkshire Mortgage Finance Corporation (the "First Mortgagee"), a
loan in the original amount of Seven Million Four Hundred Thousand Dollars
($7,400,000) (the "First Mortgage Loan").
WHEREAS, the First Mortgage Loan was made with respect to Sundance
Village Apartments, Phase II (the "Project") located in Miami, Florida upon
certain real property more particularly described in Exhibit A attached
hereto and the terms of the following First Mortgage Loan documents:
A. The First Mortgage Loan is evidenced by a certain Mortgage Note
(the "First Mortgage Note") dated July 26, 1989 from the
Borrower to the First Mortgagee in the original principal sum
of $7,400,000; and
B. The repayment of the indebtedness evidenced by the First
Mortgage Note is secured by, among other things, (a) a Mortgage
dated July 26, 1989 and recorded in the Official Records Book
of Dade County, Florida in Book 14194, Page 1906 (the "First
Mortgage"); and (b) a Regulatory Agreement dated July 26, 1989
and recorded in the Official Records Book of Dade County,
Florida in Book 14194, Page 1918 (the "Regulatory Agreement").
(The First Mortgage Note, First Mortgage and the Regulatory
Agreement are collectively referred to as the "First Mortgage
Loan Documents".)
WHEREAS, the First Mortgage Loan is coinsured by the First Mortgagee
and the Secretary of Housing and Urban Development ("HUD"), as of July 26,
1989 ("HUD Endorsement"), under Section 221(d) (4) pursuant to Section 244
of the National Housing Act. Accordingly, the First Mortgage Loan is
subject to the regulations and requirements of HUD.
WHEREAS, the First Mortgagee obtained the funding for the First
Mortgage Loan through the sale to KIP of a Government National Mortgage
Association Mortgaged Backed Security (the "GNMA MBS") as evidenced by the
GNMA Purchase Agreement dated July 26, 1989. The interest rates on the
First Mortgage Loan and the GNMA MBS were below prevailing rates for
comparable loans and securities, and the lower interest rates inured to the
benefit of the Borrower. KIP was unwilling to acquire the GNMA MBS unless
the Borrower agreed to pay additional interest to KIP through a
participation arrangement.
WHEREAS, the Borrower agreed to pay additional interest to KIP pursuant
to a subordinated promissory note (the "Subordinated Note") made by the
Borrower in favor of KIP which is secured by a subordinated multifamily
mortgage (the "Subordinated Mortgage") dated July 26, 1989 and recorded in
the Official Records Book of Dade County, Florida in Book 14196, Page 2627
(collectively, the Subordinated Loan Documents").
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WHEREAS, the Project has experienced financial difficulties and
Borrower has requested assistance from KIP in regards to the Borrower's
obligations under the First Mortgage Loan Documents and the Subordinated
Loan Documents.
WHEREAS, the Borrower and KIP have agreed to modify the Subordinated
Note in certain respects based on KIP's willingness to provide the
financial assistance described herein. The Borrower and KIP have reached
an agreement to the terms and conditions of which agreement are set forth
below.
WHEREAS, the Borrower and KIP have agreed to modify the Subordinated
Note in certain respects to clarify the intent of the parties as to the
manner in which certain participation payments are to be calculated and
made by Borrower to KIP under this Modification Agreement. The Borrower
and KIP have reached an agreement to the terms and conditions of which
agreement are set forth below.
NOW, THEREFORE, in consideration of the foregoing and one dollar and
other good and valuable consideration in hand paid, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound,
Borrower and KIP hereby agree as follows:
I. KIP Funding. Borrower shall continue to make full monthly debt service
payments in accordance with the First Mortgage Note. Upon receipt of the
full monthly payment then due, commencing with the payment due June 1,
1996 and continuing until the principal balance of the First Mortgage Loan
is paid in full, KIP agrees to rebate to the Borrower an amount equal to
1/12 of 1% per annum of the then-outstanding principal balance.
II. Waiver of Prepayment Penalties. The First Mortgage Note stipulates
that the Borrower must pay a penalty to exercise its right to prepay the
debt evidenced by the First Mortgage Note under specified conditions: a
penalty equal to 9% of the original principal amount for a prepayment that
occurs during the sixth, seventh, eighth or ninth year from the HUD
Endorsement (July 26, 1994 through July 25, 1998) and a penalty equal to 1%
of the original principal amount for a prepayment that occurs during the
tenth year from the HUD Endorsement (July 26, 1998 through July 25, 1999).
Under the GNMA Purchase Agreement, any prepayment penalties imposed under
the First Mortgage Note are for the benefit of KIP. KIP hereby waives its
right to collect a prepayment penalty if the Borrower exercises its right
to prepay the First Mortgage Loan in full prior to July 25, 1999 as a
result of a Sale of the Project or a Refinancing of the Project.
III. Substitution of Shared Participation for Additional Interest.
Section 1, Payment of Additional Interest, appearing on pages two, three,
four and five of the Subordinated Note, is hereby deleted in its entirety.
The following is substituted in lieu thereof:
1. Payment of Shared Participation. The Borrower covenants and agrees to
pay KIP "Shared Participation" which shall mean and include "Shared Cash
Participation" and "Shared Appreciation Participation".
A. "Shared Cash Participation" shall mean twenty-five percent (25%)
of all Surplus Cash generated by the Project, as that term is defined in
the Regulatory Agreement. Shared Cash Participation shall be deemed earned
by KIP in years in which the Project generates Surplus Cash as calculated
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under the Regulatory Agreement definition of Surplus Cash. Such Shared
Cash Participation shall be deemed earned beginning with the calculation
for the fiscal year ending December 31, 1997 and for each fiscal year
thereafter until the entire principal balance of the First Mortgage Loan
has been paid. All Shared Cash Participation is due and payable to KIP
within 120 days of the end of the fiscal year in which there is Surplus
Cash and Surplus Cash may only be distributed at the end of a fiscal year.
B. "Shared Appreciation Participation" shall mean the following.
(i) In the event of a Sale of the Project, Borrower shall pay KIP
twenty-five percent ( 25%) of the "Net Sale Proceeds." Net Sale Proceeds
shall mean all consideration paid in connection with a Sale of the Project
or a beneficial interest in the Project or the Borrower whether direct or
indirect less
(a) prorations and selling expenses, including reasonable
independent third party brokers' commissions, title
searches, survey costs, recording costs, escrowed charges,
transfer taxes and reasonable attorneys' fees incurred by
the Borrower in connection with the Sale;
(b) the unpaid principal balance of the First Mortgage Loan
and all accrued and unpaid interest thereon;
(c) accrued and unpaid management fees due the Borrower or any
Affiliate of the Borrower as described more fully in
Sections IV and V of this Modification Agreement; and
(d) accrued and unpaid operating advances due the Borrower or
any Affiliate of the Borrower as described more fully in
Sections IV and V of this Modification Agreement.
All Shared Appreciation Participation under this Section III,
Paragraph B(i) shall be due and payable to KIP on the date of the Sale of
the Project.
(ii) In the event of a Refinancing of the Project, Borrower
shall pay KIP either twenty-five percent ( 25%) of the "Net Refinancing
Proceeds" or a payment equal to 1% of the then-outstanding First Mortgage
Loan principal balance at the time of the Refinancing, whichever is
greater. A Refinancing of the Project shall mean the payment in full of
the First Mortgage Loan prior to the Maturity Date under the First Mortgage
Loan Documents from the proceeds of a loan or loans secured by the Property
or loans secured by a pledge of any beneficial interest in the Project or
the Borrower. Net Refinancing Proceeds shall mean the difference between
the new debt placed on the Project as a result of such a Refinancing less
(a) the unpaid principal balance of the First Mortgage Loan
and all accrued and unpaid interest thereon;
(b) usual and reasonable costs to obtain the new debt; and
(c) accrued and unpaid management fees due the Borrower or any
Affiliate of the Borrower as described more fully in
Sections IV and V of this Modification Agreement; and
(d) accrued and unpaid operating advances due the Borrower or
any Affiliate of the Borrower as described more fully in
Sections IV and V of this Modification Agreement.
All Shared Appreciation Participation under this Section III,
Paragraph B(ii) shall be due and payable to KIP on the date of the
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Refinancing of the Project.
(iii) On the Maturity Date of the First Mortgage Loan under the
First Mortgage Loan Documents or the Accelerated Maturity Date under the
Subordinated Loan Documents, Borrower shall pay KIP twenty-five percent (
25%) of the difference resulting from the "Value" of the Project less
(a) the unpaid principal balance of the First Mortgage Loan;
(b) accrued and unpaid management fees due the Borrower or any
Affiliate of the Borrower as described more fully in
Sections IV and V of this Modification Agreement; and
(c) accrued and unpaid operating advances due the Borrower or
any Affiliate of the Borrower as described more fully
in Sections IV and V of this Modification Agreement.
"Value" shall be determined by an appraisal of the Project,
prepared at least sixty (60) days prior to the Maturity Date or the
Accelerated Maturity Date. The appraisal shall be prepared by a qualified
M.A.I. appraiser selected by the Maker from a list of three M.A.I.
appraisers selected by the Holder. The determination of appraised value
shall be based, in part, upon the assumption that the rental income from or
with respect to the Project is based on the then prevailing market rates
for comparable rental space in the same vicinity of the Project even if the
actual rent then being paid by lessees is more or less. The appraisal
shall specify:
(a) The Value of the Project assuming the First Mortgage Loan
may be assumed by a purchaser of the Project without
financing charge or expenses imposed by the Holder of the
First Mortgage in connection with such assumption (other
than fees permitted by the Secretary of HUD for approving
a transfer of physical assets); and
(b) the Value of the Project assuming the First Mortgage Loan
may not be assumed.
The Value established under (a) above may be utilized only if
the Holder has not elected to direct the First Mortgagee to declare the
principal sum owing with respect to the First Mortgage Loan to be due and
payable.
In the event the Maker does not agree with the appraisal, the
Maker must notify the Holder within three (3) business days after receipt
thereof, and it may arrange for another appraisal of the Project by a
qualified M.A.I. appraiser, which appraisal must be completed within thirty
(30) days of receipt of the first appraisal.
In the event the Holder does not agree with the appraisal which
is obtained by the Maker, and the Holder and the Maker are unable to agree
upon the Value, the Holder must notify the Maker within three (3) business
cays after the receipt thereof, and the Holder may arrange for another
appraisal of the Project by a qualified M.A.I. appraiser to be selected
jointly by the two appraisers who made the prior appraisals, which
appraisals must be completed within thirty (30) days. The Value
established pursuant to this third appraisal shall be binding upon the
Maker and the Holder.
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The cost of all appraisals shall be borne by the Maker.
Any such Shared Appreciation Participation earned under this
Section II, Paragraph B(iii) shall be payable to KIP on the earlier of the
Accelerated Maturity Date or the Maturity Date.
C. Notwithstanding the foregoing, in the event of a default by the
Borrower under the Subordinated Loan Documents, and upon KIP's election, in
its sole discretion, to accelerate all amounts owing under this Agreement,
KIP shall obtain the appraisal described in Section III, Paragraph B(iii)
above within one hundred twenty (120) days after KIP's election to
accelerate and the Shared Appreciation Participation, if any, owing to KIP
as a result of such appraisal shall be due and payable within ten (10) days
after a copy of the completed appraisal is delivered to Borrower.
D. Notwithstanding the provisions contained in this Section III of
this Modification Agreement for the payments of Shared Participation, on
(i) the date of the Sale of the Project; (ii) the date of a Refinancing of
the Project; or (iii) the Maturity Date under the First Mortgage Loan
Documents or the Accelerated Maturity Date under the Subordinated Loan
Documents, the Borrower expressly understands and agrees to pay to KIP all
Shared Participation which has accrued, but has not been paid, and, if the
Secretary of HUD or his successors or assigns is no longer the coinsurer of
the First Mortgage Note, the principal and accrued interest thereunder.
IV. Affiliate Advances, Loans and Unpaid Management Fees. Due to the
Project's financial difficulties, the Borrower, through various affiliates,
has advanced funds for operations. As of the Project's December 31, 1995
Audited Financial Statements, the Borrower is carrying a total of $624,095
in liabilities due to affiliates, including Eurodevelopment Corporation
("EDC"), the Borrower's general partner; CASCH, S.A., an affiliate of the
Borrower's general partner; and Sundance Associates I, LTD, the ownership
entity of the companion phase of the Project (together collectively,
"Affiliates"). These liabilities are comprised of the following.
A. Advances made by Borrower after First Mortgage Loan closing:
Loan Payable to EDC $20,000
Payable for Payroll Share to EDC $23
Loan Payable to Sundance Associates I 35,000
Payable for Payroll Share to Sundance Associates I 21,971
B. Accrued and Unpaid Management Fees:
Payable for Management Fees to EDC 146,084
C. Advances made by Borrower affiliate after First Mortgage Loan
closing (see Exhibit B):
1991 through 1995 Payable for Advances from CASCH, S.A. 120,766
D. Advances made by Borrower affiliate prior to First Mortgage Loan
closing (see Exhibit B):
1989 Loan and accrued Interest thereon to CASCH, S.A. 182,400
1989 Payable for Advances from CASCH, S.A. 98,278
Should the Project fail to generate sufficient funds to meet all the
Project's operating expenses and its First Mortgage Loan debt service, and
it is necessary for the Borrower or its Affiliates to advance funds in
addition to the amounts listed immediately above in this Section IV,
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Paragraphs A, B and C, Borrower is required to notify KIP as to the
purpose, the amount, and the source of each such advance of additional
funds.
V. Repayment of Affiliate Advances, Loans and Unpaid Management Fees.
Borrower agrees to abide by the following.
A. Prior to the payment in full of the First Mortgage Loan, any
reduction in liabilities due an Affiliate shall be limited to
reimbursements for liabilities listed above in Section IV as they made be
adjusted in amount from time to time for previous reductions or subsequent
increases. Such liabilities may be repaid out of funds generated by the
Project in excess of First Mortgage Loan debt service payments and Project
expenses in any fiscal year in which such funds are available. KIP
acknowledges that the repayment of these specified liabilities may be made
prior to any calculation of Surplus Cash.
B. In the event of a Sale of the Project, Refinancing of the Project,
or on the Maturity Date under the First Mortgage Loan Documents or the
Accelerated Maturity Date under the Subordinated Loan Documents, any
reimbursement of outstanding liabilities due the Borrower or any Affiliate
used in the determination of (a) Net Sale Proceeds under Paragraph III,
Section 1 B (i), (b) Net Refinancing Proceeds under Section III, Paragraph
1 B (ii), or (c) the calculation specified in Section III, Paragraph 1 B
(iii) of this Modification Agreement shall be limited to those liabilities
listed in Section IV of this Modification Agreement.
VI. Other Deletions and Substitutions.
A. References to "Additional Interest" in Sections 3, 4 and 5 of the
Subordinated Note shall be deleted. "Shared Participation" as it is
defined in Section III of this Modification Agreement shall be inserted.
B. Reference to net proceeds of a Sale of the Project in Section 4 B
(iii) of the Subordinated Note shall take the meaning expressed in this
Modification Agreement in Section III, Paragraph B (i).
C. Reference to net proceeds of a refinancing in Section 4 B (iv) of
the Subordinated Note shall take the meaning expressed in this Modification
Agreement in Section III, Paragraph B (ii).
D. The last two full sentences in Section 4 B of the Subordinated Note
shall be deleted in their entirety.
E. Sections 4 D and 4 E of the Subordinated Note shall be deleted in
their entirety.
VII. Notice Requirements.
A. All notices and other communications required or permitted under
this Modification Agreement shall be in writing and, if mailed by prepaid
United States first-class, certified mail, return receipt requested, at any
time other than a general discontinuance of postal service due to strike,
lockout or otherwise, shall be deemed to be received on the earlier of the
date shown on the return receipt or three (3) business days after the post-
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marked day thereof. In addition, notices hereunder may be delivered by
hand or by overnight courier, in which event the notice shall be deemed
effective when delivered. All notices and other communications under this
Modification Agreement shall be given to the parties hereto at the
following addresses:
If to the Borrower:
Sundance Associates II, LTD
3162 Commodore Plaza, No. 2
Coconut Grove, Florida 33133
Attention: Mr. Jose Camprubi
If to KIP:
Berkshire Mortgage Finance Corporation
Harbor Plaza
470 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Ms. Peggy DeMuth
with a copy to:
Powell, Goldstein, Frazer & Murphy
Suite 600
1001 Pennsylvania Avenue, NW
Washington, D.C. 20004
Attention: George L. Daves, Esquire
B. Any party hereto may change the address to which notices shall be
directed under this Section V by giving ten (10) days written notice of
such change to the other parties.
VIII. Loan Documents Not Impaired. Except as expressly set forth herein
with respect to the Subordinated Note, the agreements set forth herein are
not intended to affect or alter the obligations of Borrower under the First
Mortgage Loan Documents or the Subordinated Loan Documents and this
Modification Agreement shall not be construed as a novation, renegotiation
or release under any of these documents.
IX. Representations of Borrower. Borrower hereby acknowledges and confirms
with KIP that:
A. Borrower has no offsets, counterclaims or defenses with respect to
the obligations under the First Mortgage Loan Documents or the Subordinated
Loan Documents and to the extent that Borrower has any offsets,
counterclaims or defenses with respect to the obligations thereunder,
Borrower hereby waives and releases such offsets, counterclaims and
defenses.
B. Borrower ratifies and affirms all obligations under the First
Mortgage Loan Documents and Subordinated Loan Documents.
C. Except for the matters expressly set forth herein, Borrower hereby
releases and forever discharges KIP and all its directors, officers,
employees, administrators, agents, subsidiaries, affiliates, appraisers,
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inspectors, accountants, attorneys, successors and assigns from any and all
present existing causes of action, demands, claims, debts, accounts,
liabilities, costs, expenses, contract, promises, agreements, and damages
whatsoever (hereinafter referred to individually and collectively as the
"Claims") which relate to the First Mortgage Loan Documents and the
Subordinated Loan Documents and also including without limitation any and
all Claims arising out of or relating to the exercise by KIP of any rights
pursuant thereto.
X. Representation of KIP. KIP hereby acknowledges that all payment
obligations identified in this Modification Agreement, First Mortgage Loan
Documents and the Subordinated Loan Documents are nonrecourse.
XI. Binding Effect. The terms and provisions of this Modification
Agreement shall be binding upon the parties hereto and their heirs,
successors and assigns.
XII. Governing Law. This Modification Agreement shall be construed
under the laws of the state in which the Project is located and if any
provisions of this Modification Agreement are held by a court of competent
jurisdiction to be illegal, invalid or unenforceable, then such illegality,
invalidity or unenforceability shall not affect the legality, validity or
enforceablility of the other provisions of this Modification Agreement.
IN WITNESS WHEREOF, the undersigned parties have caused this instrument
to be executed as the of day, month and year first written above.
KIP:
Krupp Insured Plus - III Limited
Partnership, a Massachusetts limited
partnership
By: Krupp Plus Corporation, a
general partner
By:
Ronald Halpern
Its: Senior Vice President Borrower:
Sundance Associates II, LTD, a
Florida limited partnership
By: Eurodevelopment Corporation,
a Florida corporation, a
general partner
By:
Jose Camprubi
Its: President
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