Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-71033
The information contained in this prospectus supplement is not complete and may
be changed. This prospectus supplement is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state where
such offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 26, 2004
Prospectus Supplement to Prospectus dated March 26, 2004.
$826,459,000
(Approximate)
GS MORTGAGE SECURITIES CORPORATION II
AS DEPOSITOR
GOLDMAN SACHS MORTGAGE COMPANY
PRUDENTIAL MORTGAGE CAPITAL FUNDING, LLC
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
COMMERZBANK AG, NEW YORK BRANCH
AS LOAN SELLERS
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2004-C1
The Commercial Mortgage Pass-Through Certificates, Series 2004-C1 will
include 6 classes of certificates that we are offering pursuant to this
prospectus supplement. The Series 2004-C1 certificates represent the beneficial
ownership interests in a trust. The trust's main assets will be a pool of 67
fixed rate mortgage loans with original terms to maturity of not more than 85
months, secured by first liens on various types of commercial and multifamily
properties.
EXPECTED
INITIAL CERTIFICATE PASS-THROUGH RATINGS RATED FINAL
PRINCIPAL AMOUNT(1) RATE DESCRIPTION (MOODY'S/FITCH) DISTRIBUTION DATE
--------------------- -------------- ------------- ----------------- ------------------
Class A-1 ......... $579,105,000 % Fixed Aaa/AAA October 10, 2028
Class A-2 ......... $190,472,000 % Fixed Aaa/AAA October 10, 2028
Class B ........... $ 20,076,000 % Fixed Aa2/AA October 10, 2028
Class C ........... $ 7,808,000 % Fixed Aa3/AA- October 10, 2028
Class D ........... $ 16,730,000 % Fixed A2/A October 10, 2028
Class E ........... $ 12,268,000 % Fixed A3/A- October 10, 2028
- ---------
(Footnotes to table on page S-6)
- --------------------------------------------------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE S-22 OF THIS
PROSPECTUS SUPPLEMENT AND PAGE 3 OF THE PROSPECTUS.
Neither the certificates nor the underlying mortgage loans are insured or
guaranteed by any governmental agency or instrumentality or any other person or
entity.
The certificates will represent interests in the trust fund only. They will not
represent interests in or obligations of the depositor, any of its affiliates or
any other entity.
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS ARE TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. GS MORTGAGE SECURITIES
CORPORATION II WILL NOT LIST THE OFFERED CERTIFICATES ON ANY SECURITIES EXCHANGE
OR ON ANY AUTOMATED QUOTATION SYSTEM OF ANY SECURITIES ASSOCIATION.
THE UNDERWRITERS, GOLDMAN, SACHS & CO., GREENWICH CAPITAL MARKETS, INC.,
BANC OF AMERICA SECURITIES LLC, MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED AND WACHOVIA CAPITAL MARKETS, LLC WILL PURCHASE THE OFFERED
CERTIFICATES FROM GS MORTGAGE SECURITIES CORPORATION II AND WILL OFFER THEM TO
THE PUBLIC AT NEGOTIATED PRICES, PLUS, IN CERTAIN CASES, ACCRUED INTEREST,
DETERMINED AT THE TIME OF SALE. GOLDMAN, SACHS & CO. IS ACTING AS SOLE
BOOKRUNNER AND AS LEAD MANAGER FOR THIS OFFERING. GREENWICH CAPITAL MARKETS,
INC., BANC OF AMERICA SECURITIES LLC, MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED AND WACHOVIA CAPITAL MARKETS, LLC ARE ACTING AS CO-MANAGERS FOR
THIS OFFERING.
The underwriters expect to deliver the offered certificates to purchasers
in book-entry form only through the facilities of The Depository Trust Company
in the United States and Clearstream Banking, societe anonyme and Euroclear
Bank, as operator of the Euroclear System in Europe against payment in New
York, New York on or about April , 2004. We expect to receive from this
offering approximately $ , plus accrued interest from April 1,
2004, before deducting expenses payable by us.
GOLDMAN, SACHS & CO.
RBS GREENWICH CAPITAL BANC OF AMERICA SECURITIES LLC
MERRILL LYNCH & CO. WACHOVIA SECURITIES
April , 2004
GS MORTGAGE SECURITIES CORPORATION II
-------------------------------------------------------------
Commercial Mortgage Pass-Through Certificates, Series 2004-C1
[Map of the United States Omitted]
Texas Virginia Wisconsin
12 properties 3 properties 4 properties
13.2% of total 7.1% of total 2.3% of total
Mississippi Maryland Minnesota
1 property 1 property 7 properties
0.4% of total 1.8% of total 4.8% of total
Alabama New York Idaho
1 property 31 properties 1 property
1.0% of total 11.3% of total 1.0% of total
Florida Pennsylvania Nevada
6 properties 1 property 3 properties
7.5% of total 0.5% of total 2.4% of total
Georgia Ohio California
1 property 4 properties 9 properties
0.6% of total 5.3% of total 10.2% of total
South Carolina Michigan Arizona
1 property 3 properties 4 properties
0.4% of total 4.3% of total 8.8% of total
North Carolina Illinois Colorado
7 properties 3 properties 2 properties
6.5% of total 7.6% of total 3.1% of total
DISTRIBUTION OF PROPERTY TYPES
Anchored Retail 36.7%
Office 30.8%
Multifamily 18.9%
Industrial 9.5%
Hotel 3.6%
Self-Storage 0.5%
LEGEND
[ ] (less than/equal to) 1.00%
of initial pool balance
[ ] 1.01% - 5.00%
of initial pool balance
[ ] 5.01% - 10.00%
of initial pool balance
[ ] (greater than/equal to) 10.01%
of initial pool balance
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. IF THE TERMS OF THE OFFERED
CERTIFICATES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT.
You should rely only on the information contained in this prospectus
supplement and the prospectus. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus
supplement and the prospectus. The information contained in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the Series 2004-C1 certificates and the trust in abbreviated form:
Certificate Summary, commencing on page S-6 of this prospectus
supplement, which sets forth important statistical information relating to
the Series 2004-C1 certificates:
Summary of Prospectus Supplement, commencing on page S-7 which gives a
brief introduction to the key features of the Series 2004-C1 certificates
and a description of the underlying mortgage loans; and
Risk Factors, commencing on page S-22 of this prospectus supplement,
which describes risks that apply to the Series 2004-C1 certificates which
are in addition to those described in the prospectus with respect to the
securities issued by the trust generally.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus supplement and the
prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Significant Definitions" commencing on page S-129 of this prospectus
supplement. The capitalized terms used in the prospectus are defined on the
pages indicated under the caption "Index of Defined Terms" commencing on page
81 of the prospectus.
In this prospectus supplement, the terms "Depositor," "we," "us" and "our"
refer to GS Mortgage Securities Corporation II.
FORWARD-LOOKING STATEMENTS
In this prospectus supplement and the prospectus, we use certain
forward-looking statements. Such forward-looking statements are found in the
material, including each of the tables, set forth under "Risk Factors" and
"Yield, Prepayment and Maturity Considerations." Forward-looking statements are
also found elsewhere in this prospectus supplement and prospectus and include
words like "expects," "intends," "anticipates," "estimates" and other similar
words. Such statements are intended to convey our projections or expectations
as of the date of this prospectus supplement. Such statements are inherently
subject to a variety of risks and uncertainties. Actual results could differ
materially from those we anticipate due to changes in, among other things:
o economic conditions and industry competition,
o political and/or social conditions, and
o the law and government regulatory initiatives.
We will not update or revise any forward-looking statement to reflect
changes in our expectations or changes in the conditions or circumstances on
which such statements were originally based.
S-3
TABLE OF CONTENTS
PAGE
----
SUMMARY OF PROSPECTUS
SUPPLEMENT ...................................... S-7
RISK FACTORS ....................................... S-22
Special Yield Considerations ................. S-22
Risks Relating to Enforceability of
Prepayment Premiums or
Defeasance Periods ......................... S-22
Commercial and Multifamily Lending Is
Dependent Upon Net Operating
Income ..................................... S-23
Limitations of Appraisals .................... S-24
Tenant Concentration Entails Risk ............ S-24
Mortgaged Properties Leased to
Multiple Tenants Also Have Risks ........... S-25
Mortgaged Properties Leased to
Borrowers or Borrower Affiliated
Entities Also Have Risks ................... S-25
Tenant Bankruptcy Entails Risks .............. S-25
Certain Additional Risks Relating to
Tenants .................................... S-26
Terrorist Attacks and Military Conflicts
May Adversely Affect Your
Investment ................................. S-27
Risks Relating to Loan Concentrations S-27
Risks Relating to Enforceability of
Cross-Collateralization .................... S-28
The Borrower's Form of Entity May
Cause Special Risks ........................ S-29
Tenancies in Common May Hinder
Recovery ................................... S-30
Condominium Ownership May Limit
Use and Improvements. ...................... S-30
Retail Properties Have Special Risks ......... S-30
Office Properties Have Special Risks ......... S-31
Multifamily Properties Have Special
Risks ...................................... S-32
Industrial Properties Have Special
Risks ...................................... S-33
Hotel Properties Have Special Risks .......... S-34
Risks Relating to Affiliation with a Hotel
Management Company ......................... S-34
Lack of Skillful Property Management
Entail Risks ............................... S-35
Risks Relating to Prepayments and
Repurchases ................................ S-35
Mortgage Loans Are Nonrecourse and
Are Not Insured or Guaranteed .............. S-36
Risks of Different Timing of Mortgage
Loan Amortization .......................... S-36
PAGE
----
Bankruptcy Proceedings Entail Certain
Risks ...................................... S-37
Geographic Concentration ..................... S-38
Environmental Risks .......................... S-38
Costs of Compliance with Applicable
Laws and Regulations ....................... S-39
No Reunderwriting of the Mortgage
Loans ...................................... S-40
Litigation and Other Matters Affecting
the Mortgaged Properties or
Borrowers .................................. S-40
Other Financings ............................. S-40
Risks Relating to Borrower Default ........... S-42
Risks Relating to Interest on Advances
and Special Servicing Compensation S-42
Balloon Payments ............................. S-43
Ground Leases and Other Leasehold
Interests .................................. S-43
Risks Associated with One Action
Rules ...................................... S-44
Tax Considerations Relating to
Foreclosure ................................ S-44
Some Mortgaged Properties May Not
Be Readily Convertible to Alternative
Uses ....................................... S-45
Zoning Compliance and Use
Restrictions ............................... S-45
Risks of Inspections Relating to
Properties ................................. S-46
Property Insurance ........................... S-46
Risks Associated with Blanket
Insurance Policies ......................... S-48
Potential Conflicts of Interest .............. S-48
You Will Not Have any Control Over
the Servicing of the Non-Serviced
Loans ...................................... S-49
Conflicts of Interest May Occur as a
Result of the Rights of Third Parties
to Terminate the Special Servicer of
the Non-Serviced Loans ..................... S-49
Special Servicer May Be Directed to
Take Actions ............................... S-49
Your Lack of Control Over Trust Fund
Can Create Risks ........................... S-50
Loan Sellers May Not Be Able to Make
a Required Repurchase or
Substitution of a Defective Mortgage
Loan ....................................... S-50
S-4
PAGE
----
Subordination of Subordinate Offered
Certificates ............................... S-50
Risks of Limited Liquidity and Market
Value ...................................... S-50
Book-Entry Registration ...................... S-51
Other Risks .................................. S-51
DESCRIPTION OF THE MORTGAGE
POOL ............................................ S-52
General ...................................... S-52
Certain Characteristics of the Mortgage
Loans ...................................... S-53
The Non-Serviced Loans ....................... S-57
Representations and Warranties;
Repurchases and Substitutions .............. S-63
Repurchase or Substitution of
Cross-Collateralized Mortgage
Loans ...................................... S-63
The Loan Sellers and Originators ............. S-64
Underwriting Guidelines ...................... S-65
Additional Information ....................... S-66
DESCRIPTION OF THE OFFERED
CERTIFICATES .................................... S-67
General ...................................... S-67
Distributions ................................ S-68
Subordination ................................ S-78
Appraisal Reductions ......................... S-78
Delivery, Form and Denomination .............. S-80
Book-Entry Registration ...................... S-80
Definitive Certificates ...................... S-82
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS .................................. S-83
Yield ........................................ S-83
Weighted Average Life of the Offered
Certificates ............................... S-85
Price/Yield Tables ........................... S-88
THE POOLING AGREEMENT .............................. S-93
General ...................................... S-93
Servicing of the Non-Serviced Loans .......... S-93
Assignment of the Mortgage Loans ............. S-96
Servicing of the Mortgage Loans .............. S-96
Advances ..................................... S-99
Accounts ..................................... S-101
Withdrawals from the Collection
Account .................................... S-102
Enforcement of "Due-on-Sale" and
"Due-on-Encumbrance" Clauses ............... S-103
PAGE
----
Inspections .................................. S-104
Evidence as to Compliance .................... S-104
Certain Matters Regarding the
Depositor, the Master Servicer and
the Special Servicer ....................... S-105
Events of Default ............................ S-106
Rights Upon Event of Default ................. S-107
Amendment .................................... S-108
Realization Upon Mortgage Loans .............. S-110
The Controlling Class Representative ......... S-113
Limitation on Liability of Controlling
Class Representative ....................... S-115
Optional Termination; Optional
Mortgage Loan Purchase ..................... S-115
The Trustee .................................. S-116
The Master Servicer; Master Servicer
Servicing Compensation and
Payment of Expenses ........................ S-117
The Special Servicer; Special Servicer
Servicing Compensation and
Payment of Expenses ........................ S-118
Reports to Certificateholders; Available
Information ................................ S-120
USE OF PROCEEDS .................................... S-122
FEDERAL INCOME TAX
CONSEQUENCES .................................... S-123
STATE TAX CONSIDERATIONS ........................... S-124
ERISA CONSIDERATIONS ............................... S-124
LEGAL INVESTMENT ................................... S-126
PLAN OF DISTRIBUTION ............................... S-126
LEGAL MATTERS ...................................... S-127
RATINGS ............................................ S-128
INDEX OF SIGNIFICANT DEFINITIONS ................... S-129
ANNEX A--MORTGAGE POOL
INFORMATION ..................................... A-1
ANNEX B--SIGNIFICANT LOAN
SUMMARIES ....................................... B-1
ANNEX C--CERTAIN CHARACTERISTICS
OF THE MORTGAGE LOANS ........................... C-1
ANNEX D-- REPRESENTATIONS AND
WARRANTIES ...................................... D-1
ANNEX E--STRUCTURAL AND
COLLATERAL TERM SHEET ........................... E-1
S-5
CERTIFICATE SUMMARY
INITIAL
CERTIFICATE PASS-
RATINGS PRINCIPAL OR APPROXIMATE PASS- THROUGH RATE WEIGHTED
MOODY'S NOTIONAL CREDIT THROUGH RATE AS OF CLOSING AVG. LIFE(3) PRINCIPAL
CLASS /FITCH AMOUNT(1) SUPPORT(2) DESCRIPTION DATE (YRS.) WINDOW(3)
- -------- ------------- --------------------- ----------------- -------------- --------------- -------------- ------------
Offered Certificates
A-1 Aaa/AAA $579,105,000 13.750% Fixed % 4.37 05/04-05/09
A-2 Aaa/AAA $190,472,000 13.750% Fixed % 6.46 05/09-11/10
B Aa2/AA $ 20,076,000 11.500% Fixed % 6.65 11/10-12/10
C Aa3/AA- $ 7,808,000 10.625% Fixed % 6.68 12/10-01/11
D A2/A $ 16,730,000 8.750% Fixed % 6.74 01/11-01/11
E A3/A- $ 12,268,000 7.375% Fixed % 6.74 01/11-01/11
Non-Offered
Certificates
X Aaa/AAA $892,264,316(4) N/A WAC/IO(5) %
F Baa1/BBB+ $ 13,384,000 5.875% Fixed %
G Baa2/BBB $ 7,808,000 5.000% Fixed %
H Baa3/BBB- $ 7,807,000 4.125% Fixed(6) %
J Ba1/BB+ $ 5,577,000 3.500% Fixed %
K Ba2/BB $ 3,346,000 3.125% Fixed %
L Ba3/BB- $ 3,346,000 2.750% Fixed %
M B1/B+ $ 4,461,000 2.250% Fixed %
N B2/B $ 3,346,000 1.875% Fixed %
O B3/B- $ 3,346,000 1.500% Fixed %
P N/A $ 13,384,316 0.000% Fixed %
- ----------
(1) Approximate, subject to a variance of plus or minus 10%.
(2) The credit support percentages set forth for the Class A-1 and the Class
A-2 Certificates are represented in the aggregate.
(3) Assuming no prepayments and according to the modeling assumptions
described under "Yield, Prepayment and Maturity Considerations" in this
prospectus supplement.
(4) The Class X certificates will not have a principal amount and will not be
entitled to receive distributions of principal. Interest will accrue on
the Class X certificates at their pass-through rate based upon their
notional amounts. The notional amount of the Class X certificates will be
initially $892,264,316, which will be equal to the aggregate initial
principal amounts of the Class A-1, Class A-2, Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O and Class P certificates. The Class X certificates may
be issued in one or more classes.
(5) The pass-through rate on the Class X certificates will be equal to the
excess, if any, of (i) the weighted average of the net interest rates on
the mortgage loans (in each case, adjusted if necessary to accrue on the
basis of a 360-day year consisting of twelve 30-day months), over (ii)
the weighted average of the pass-through rates of the certificates (other
than the Class R and Class LR certificates) as described in this
prospectus supplement.
(6) For any distribution date, if the weighted average of the net interest
rates on the mortgage loans (in each case, adjusted if necessary to
accrue on the basis of a 360-day year consisting of twelve 30-day months)
as of their respective due dates in the month preceding the month in
which the related distribution date occurs is less than the rate
specified for the Class H Certificates for that distribution date, then
the pass-through rate for the Class H Certificates on that distribution
date will equal the weighted average of the net interest rates on the
mortgage loans.
S-6
SUMMARY OF PROSPECTUS SUPPLEMENT
The following is only a summary. Detailed information appears elsewhere in
this prospectus supplement and in the accompanying prospectus. That information
includes, among other things, detailed mortgage loan information and
calculations of cash flows on the offered certificates. To understand all of
the terms of the offered certificates, read carefully this entire document and
the accompanying prospectus. See "Index of Significant Definitions" in this
prospectus supplement and "Index of Defined Terms" in the prospectus for
definitions of capitalized terms.
TITLE, REGISTRATION AND DENOMINATION OF CERTIFICATES
The certificates to be issued are known as the GS Mortgage Securities
Corporation II, Commercial Mortgage Pass-Through Certificates, Series 2004-C1.
The offered certificates will be issued in book-entry form through The
Depository Trust Company, or DTC, and its participants. You may hold your
certificates through: (i) DTC in the United States; or (ii) Clearstream
Banking, societe anonyme or Euroclear Bank, as operator of the Euroclear System
in Europe. Transfers within DTC, Clearstream Banking, societe anonyme or
Euroclear Bank, as operator of the Euroclear System will be made in accordance
with the usual rules and operating procedures of those systems. See
"Description of the Offered Certificates--Book-Entry Registration" in this
prospectus supplement and "Description of the Certificates--General" in the
prospectus. We will issue the offered certificates in denominations of $10,000
and integral multiples of $1 above $10,000.
PARTIES AND DATES
Depositor..................... GS Mortgage Securities Corporation II, a
Delaware corporation. The depositor's address
is 85 Broad Street, New York, New York 10004
and its telephone number is (212) 902-1000. See
"The Seller" in the prospectus. All references
to the depositor in this prospectus supplement
are references to the Seller in the prospectus.
Loan Sellers.................. The mortgage loans will be sold to the
depositor by:
o Goldman Sachs Mortgage Company, a New York
limited partnership (78.6%);
o Prudential Mortgage Capital Funding, LLC, a
Delaware limited liability company (13.4%);
o Greenwich Capital Financial Products, Inc., a
Delaware corporation (4.9%); and
o Commerzbank AG, New York Branch (3.1%)
(representing its portion of the mortgage
loan jointly originated with Archon
Financial, L.P. as described under
"--Originators" below and jointly held with
Goldman Sachs Mortgage Company).
Goldman Sachs Mortgage Company is an affiliate
of the depositor and one of the underwriters.
Greenwich Capital Financial Products, Inc. is
an affiliate of one of the underwriters. See
"Description of the Mortgage Pool--The Loan
Sellers and Originators" in this prospectus
supplement.
S-7
Originators................... The mortgage loans were originated by:
o Archon Financial, L.P., a Delaware limited
partnership (73.6%);
o Prudential Mortgage Capital Company, LLC, a
Delaware limited liability company or a
wholly-owned subsidiary of Prudential
Mortgage Capital Company, LLC (13.4%);
o With respect to 1 mortgage loan only, Archon
Financial, L.P. and Commerzbank AG, New York
Branch, on a joint basis (6.3%);
o With respect to 1 mortgage loan only,
Greenwich Capital Financial Products, Inc., a
Delaware corporation (4.9%); and
o With respect to 1 mortgage loan only,
Washington Mutual Bank, FA (1.8%).
Master Servicer............... Wachovia Bank, National Association. Wachovia
Bank, National Association is an affiliate of
one of the underwriters. The master servicer
will initially service all of the mortgage
loans (other than with respect to the
non-serviced mortgage loans) either directly or
through a subservicer. See "The Pooling
Agreement--Servicing of the Mortgage Loans" and
"--The Master Servicer; Master Servicer
Servicing Compensation and Payment of Expenses"
in this prospectus supplement.
Special Servicer.............. Allied Capital Corporation, a Maryland
corporation (other than with respect to the
non-serviced mortgage loans). See "The Pooling
Agreement--The Special Servicer; Special
Servicer Servicing Compensation and Payment of
Expenses" in this prospectus supplement.
Trustee....................... Wells Fargo Bank, N.A., a national banking
association. See "The Pooling Agreement--The
Trustee" in this prospectus supplement.
Cut-Off Date.................. April 1, 2004.
Closing Date.................. On or about April , 2004.
Distribution Date............. The trustee will make distributions on the
certificates, to the extent of available funds,
on the 10th day of each month or, if any such
10th day is not a business day, on the next
business day, beginning in May 2004, to the
holders of record at the end of the previous
month.
Determination Date............ The fourth business day prior to the related
distribution date.
S-8
Collection Period............. For any mortgage loan and any distribution
date, the period commencing on the day
immediately following the due date (without
regard to grace periods) for that mortgage loan
in the month preceding the month in which the
related distribution date occurs and ending on
and including the due date (without regard to
grace periods) for that mortgage loan in the
month in which that distribution date occurs.
THE MORTGAGE LOANS
The Mortgage Pool............. The trust's primary assets will be 67 fixed
rate mortgage loans secured by first liens on
105 commercial and multifamily properties
located in 21 states. See "Risk
Factors--Commercial and Multifamily Lending is
Dependent Upon Net Operating Income" in this
prospectus supplement.
The Water Tower Place loan (identified as Loan
No. 1 on Annex C to this prospectus
supplement), with a principal balance as of
the cut-off date of $56,039,776 and
representing approximately 6.3% of the
aggregate principal balance of the pool of
mortgage loans as of the cut-off date, is
comprised of two of six mortgage loans that
are part of a split loan structure, each of
which is secured by the same mortgage
instrument on the related mortgaged property.
The other four mortgage loans, the Water Tower
Place pari passu companion loans, which are
part of the split loan structure but are not
included in the trust, are pari passu in right
of payment with the Water Tower Place loan and
have an aggregate outstanding principal
balance as of the cut-off date of
$130,428,859.
The DDR Portfolio loan (identified as Loan No.
4 on Annex C to this prospectus supplement),
with a principal balance as of the cut-off
date of $48,915,252 and representing
approximately 5.5% of the aggregate principal
balance of the pool of mortgage loans as of
the cut-off date, is one of three mortgage
loans that are part of a split loan structure,
each of which is secured by the same mortgage
instrument on the related mortgaged property.
The other two mortgage loans, the DDR
Portfolio pari passu companion loans, which
are part of the split loan structure but are
not included in the trust, are pari passu in
right of payment with the DDR Portfolio loan
and have an aggregate outstanding principal
balance as of the cut-off date of $97,830,503.
The 237 Park Avenue loan (identified as Loan
No. 5 on Annex C to this prospectus
supplement), with a principal balance as of
the cut-off date of $44,000,000 and
representing approximately 4.9% of the
aggregate principal balance of the pool of
mortgage loans as of the
S-9
cut-off date, is one of four mortgage loans
that are part of a split loan structure, each
of which is secured by the same mortgage
instrument on the related mortgaged property.
The other three mortgage loans, the 237 Park
Avenue pari passu companion loans, which are
part of the split loan structure but are not
included in the trust, are pari passu in right
of payment with the 237 Park Avenue loan and
have an aggregate outstanding principal
balance as of the cut-off date of
$254,000,000.
Each of the Water Tower Place loan, the DDR
Portfolio loan and the 237 Park Avenue loan,
which are included in the trust and each
referred to in this prospectus supplement as a
non-serviced loan, and its related pari passu
companion loans, which are not included in the
trust, are being serviced in accordance with
pooling and servicing agreements separate from
the pooling and servicing agreement under
which your certificates are issued, by the
master servicer and special servicer that are
parties to the related pooling and servicing
agreement, and according to the servicing
standards provided for in the related separate
pooling and servicing agreement as follows:
o the Water Tower Place loan and the related
pari passu companion loans are serviced under
the pooling and servicing agreement related
to the GMAC Commercial Mortgage Securities
Corp., Commercial Mortgage Pass-Through
Certificates, Series 2003-C3, among GMAC
Commercial Mortgage Securities Corp., as
depositor, GMAC Commercial Mortgage
Corporation, as master servicer, Lennar
Partners, Inc., as special servicer, LaSalle
Bank, National Association, as trustee and
ABN AMRO BANK N.V. as fiscal agent;
o the DDR Portfolio loan and the related pari
passu companion loans are serviced under the
pooling and servicing agreement related to
the GMAC Commercial Mortgage Securities
Corp., Commercial Mortgage Pass-Through
Certificates, Series 2003-C2, among GMAC
Commercial Mortgage Securities Corp., as
depositor, GMAC Commercial Mortgage
Corporation, as master servicer and special
servicer and Wells Fargo Bank, N. A., as
trustee; and
o the 237 Park Avenue loan and the related pari
passu companion loans are serviced under the
pooling and servicing agreement related to
the Greenwich Capital Commercial Funding
Corp., as depositor, Commercial Mortgage
Trust 2003-C2, Commercial Mortgage
Pass-Through Certificates, Series 2003-C2,
among Greenwich Capital Commercial Funding
Corp., as depositor, Wachovia Bank, National
Association, as master servicer, Lennar
Partners, Inc., as special servicer, LaSalle
Bank National Association, as trustee
S-10
and ABN AMRO Bank N.V., as fiscal agent.
For more information regarding the
non-serviced loans, see "Description of the
Mortgage Pool--The Non-Serviced Loans" in this
prospectus supplement.
Monthly payments of principal and/or interest
on each mortgage loan are due on the first day
of each month with no more than 5 days grace
in each case. Some of the mortgage loans
provide for monthly payments of principal
based on an amortization schedule that is
significantly longer than the remaining term
of such mortgage loan. These mortgage loans
will have substantial principal payments due
on their maturity dates, unless prepaid
earlier, subject to the terms and conditions
of the prepayment provisions in each mortgage
loan.
General characteristics of the mortgage loans
as of the cut-off date:
Initial Pool Balance(1) ...................... $892,264,316
Number of Mortgage Loans ..................... 67
Number of Mortgaged Properties ............... 105
Average Mortgage Loan Balance ................ $13,317,378
Weighted Average Mortgage Rate ............... 5.019%
Range of Mortgage Rates ...................... 4.200% -- 6.060%
Weighted Average Loan-to-Value
Ratio(2) ..................................... 67.64%
Weighted Average Remaining Term to
Maturity (months) ............................ 63
Weighted Average DSCR(2) ..................... 2.05x
Balloon Mortgage Loans(3) .................... 30.3%
Interest-Only Mortgage Loans ................. 64.3%
Partial Interest-Only Mortgage Loans ......... 5.3%
----------------
(1) Subject to a permitted variance of plus
or minus 10%.
(2) The loan amount used for purposes of
calculating the loan-to-value ratio and
debt service coverage ratio for each of
the mortgage loans with pari passu
companion notes is the aggregate
principal balance of the mortgage loan
and the related pari passu companion
loans. See "Description of the Mortgage
Pool--Certain Characteristics of the
Mortgage Loans" in this prospectus
supplement for a description of the
calculation of the debt service coverage
ratio and loan-to-value ratio.
(3) Excludes the mortgage loans that pay
interest-only until maturity or for a
partial interest-only period.
Sixty-three (63) mortgage loans, representing
approximately 96.6% of the aggregate principal
balance of the pool of mortgage loans as of
the cut-off date, accrue interest on the basis
of the actual number of days in a month,
assuming a 360-day year. The remaining 4
mortgage loans, representing approximately
3.4% of the aggregate principal balance of the
pool of mortgage loans as of the cut-off date,
accrue interest on the basis of
S-11
twelve 30-day months, assuming a 360-day year.
The terms of each of the mortgage loans
restrict the ability of the borrower to prepay
the mortgage loan. All of the mortgage loans
(except 13 mortgage loans), representing
approximately 82.4% of the aggregate principal
balance of the pool of mortgage loans as of
the cut-off date, permit the related borrower
to substitute U.S. government securities as
collateral and obtain a release of the
mortgaged property instead of prepaying the
mortgage loan. The remaining 13 mortgage
loans, representing 17.6% of the aggregate
principal balance of the pool of mortgage
loans as of the cut-off date, permit
prepayment after a lockout period with the
payment of a yield maintenance charge or a
prepayment premium. See "Description of the
Mortgage Pool--Certain Characteristics of the
Mortgage Loans--Defeasance; Collateral
Substitution" and Annex C in this prospectus
supplement.
Defeasance may not occur prior to the second
anniversary of the date of initial issuance of
the certificates with respect to any Mortgage
Loan, except with respect to three (3)
mortgage loans (identified as Loan Nos. 4, 15
and 23 on Annex C to this prospectus
supplement), representing approximately 9.7%
of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date for
each of which a separate loan REMIC has been
established.
All of the mortgage loans permit voluntary
prepayment without the payment of a yield
maintenance charge within a limited period
prior to their stated maturity date. For 63 of
the mortgage loans, representing approximately
89.6% of the pool of mortgage loans as of the
cut-off date, this period is approximately 3
months or less prior to the stated maturity
date. For 3 of the mortgage loans,
representing approximately 8.6% of the
aggregate principal balance of the pool of
mortgage loans as of the cut-off date, this
period is approximately 6 months prior to the
stated maturity date. For 1 of the mortgage
loans, representing approximately 1.8% of the
aggregate principal balance of the pool of
mortgage loans as of the cut-off date, this
period is approximately 12 months prior to the
stated maturity date.
The descriptions in this prospectus supplement
of the mortgage loans and the mortgaged
properties are based upon the mortgage pool as
it is expected to be constituted as of the
close of business on the closing date,
assuming that (i) all scheduled principal and
interest payments due on or before the cut-off
date will be made and (ii) no defaults,
delinquencies or prepayments on any mortgage
loan on or prior to the cut-off date. The sum
of the numerical data in any column in a table
may not equal the
S-12
indicated total due to rounding. Unless
otherwise indicated, all figures presented in
this "Summary of Prospectus Supplement" are
calculated as described under "Description of
the Mortgage Pool--Additional Information" in
this prospectus supplement and all percentages
represent the indicated percentage of the
aggregate principal balance of the pool of
mortgage loans as of the cut-off date. For
mortgage loans secured by more than one
mortgaged property, the information regarding
the principal balance of those mortgage loans
and the percentages representing the indicated
percentage of the aggregate principal balance
of the pool of mortgage loans as of the
cut-off date, is, when presented on a property
level, based on allocated loan amounts as
stated in Annex A.
All information presented in this prospectus
supplement with respect to a mortgage loan
with a pari passu companion loan is calculated
without regard to the related companion loan,
unless otherwise indicated. The loan amount
used in this prospectus supplement for
purposes of calculating the loan-to-value
ratio and debt service coverage ratio for each
of the Water Tower Place loan, the DDR
Portfolio loan and the 237 Park Avenue loan is
the aggregate principal balance of the
mortgage loan and the related pari passu
companion loans. See "Description of the
Mortgage Pool--The Non-Serviced Loans" in this
prospectus supplement.
THE SECURITIES
The Certificates.............. We are offering the following six classes of
Commercial Mortgage Pass-Through Certificates
from the Series 2004-C1:
o Class A-1
o Class A-2
o Class B
o Class C
o Class D
o Class E
Series 2004-C1 will consist of a total of 19
classes, the following 13 of which are not
being offered through this prospectus
supplement and the prospectus: Class X, Class
F, Class G, Class H, Class J, Class K, Class
L, Class M, Class N, Class O, Class P, Class R
and Class LR. The Class X certificates may be
issued in one or more classes.
Certificate Principal
Amounts....................... Your certificates will have the approximate
aggregate initial
S-13
principal amount set forth below, subject to a
variance of plus or minus 10%:
o Class A-1 ......... $579,105,000
o Class A-2 ......... $190,472,000
o Class B ........... $ 20,076,000
o Class C ........... $ 7,808,000
o Class D ........... $ 16,730,000
o Class E ........... $ 12,268,000
See "Description of the Offered
Certificates--General" in this prospectus
supplement.
PASS-THROUGH RATES
A. Offered Certificates..... Your certificates will accrue interest at an
annual rate called a pass-through rate which is
set forth below for each class.
o Class A-1 ......... %
o Class A-2 ......... %
o Class B ........... %
o Class C ........... %
o Class D ........... %
o Class E ........... %
B. Interest Rate Calculation
Convention............. Interests on your certificates will be
calculated based on a 360-day year consisting
of twelve 30-day months, or a "30/360" basis.
For purposes of calculating the pass-through
rates on the Class X certificates and any class
that has a pass-through rate based upon,
limited by or equal to, the weighted average
net mortgage rate, the mortgage loan interest
rates will not reflect any default interest
rate, any loan term modifications agreed to by
the special servicer or any modifications
resulting from a borrower's bankruptcy or
insolvency.
In addition, if a mortgage loan does not
accrue interest on a 30/360 basis, its
interest rate for any month that is not a
30-day month will be recalculated so that the
amount of interest that would accrue at that
rate in such month, calculated on a 30/360
basis, will equal the amount of interest that
actually accrues on that loan in that month,
adjusted for any withheld amounts as described
under "The Pooling Agreement--Accounts" in
this prospectus supplement.
See "Description of the Offered Certificates--
Distributions--Payment Priorities" in this
prospectus supplement.
S-14
DISTRIBUTIONS
A. Amount and Order of
Distributions.......... On each distribution date, funds available
for distribution from the mortgage loans, net
of specified trust expenses, will be
distributed in the following amounts and order
of priority:
First: Class A and Class X: To interest on
Class A (which includes Class A-1 and Class
A-2) and Class X, pro rata, in accordance with
their interest entitlements.
Second: Class A-1 and Class A-2 certificates:
To the extent of funds allocated to principal,
to principal on Class A-1 and Class A-2
certificates, as described under "Description
of the Offered Certificates--Distributions--
Payment Priorities" in this prospectus
supplement.
Third: Class A-1 and Class A-2 certificates:
To reimburse Class A-1 and Class A-2
certificates, pro rata, for any previously
unreimbursed losses on the mortgage loans
allocable to principal that were previously
borne by those classes, together with
interest.
Fourth: Class B certificates: To Class B
certificates as follows: (a) to interest on
Class B certificates in the amount of its
interest entitlement; (b) to the extent of
funds allocated to principal remaining after
distributions in respect of principal to each
class with a higher priority (in this case,
the Class A-1 and Class A-2 certificates), to
principal on Class B certificates until
reduced to zero; and (c) to reimburse Class B
certificates for any previously unreimbursed
losses on the mortgage loans allocable to
principal that were previously borne by that
class, together with interest.
Fifth: Class C certificates: To the Class C
certificates in a manner analogous to the
Class B certificates allocations of priority
Fourth above.
Sixth: Class D certificates: To the Class D
certificates in a manner analogous to the
Class B certificates allocations of priority
Fourth above.
Seventh: Class E certificates: To the Class E
certificates in a manner analogous to the
Class B certificates allocations of priority
Fourth above.
Eighth: Non-offered certificates (other than
the Class X certificates): In the amounts and
order of priority described in "Description of
the Offered Certificates--Distributions--
Payment Priorities" in this prospectus
supplement.
See "Description of the Offered Certificates--
Distributions--Payment Priorities" in this
prospectus supplement.
S-15
B. Interest and Principal
Entitlements........... A description of each class's interest
entitlement can be found in "Description of the
Offered Certificates--Distributions--Method,
Timing and Amount" and "--Payment Priorities"
in this prospectus supplement. As described in
such section, there are circumstances in which
your interest entitlement for a distribution
date could be less than one full month's
interest at the pass-through rate on your
certificate's principal amount or notional
amount.
A description of the amount of principal
required to be distributed to the classes
entitled to principal on a particular
distribution date also can be found in
"Description of the Offered
Certificates--Distributions--
Method, Timing and Amount" and "--Payment
Priorities" in this prospectus supplement.
C. Prepayment Premiums...... The manner in which any prepayment premiums
and yield maintenance charges received prior to
the related determination date will be
allocated on each distribution date to the
Class X certificates, on the one hand, and
certain of the classes of certificates entitled
to principal, on the other hand, is described
in "Description of the Offered
Certificates--Distributions--Prepayment
Premiums" in this prospectus supplement.
ADVANCES
A. Principal and Interest
Advances............... The master servicer is required to advance
delinquent monthly mortgage loan payments with
respect to each mortgage loan (other than as
described below under "--Advances on the
Non-Serviced Loans" with respect to the
non-serviced loan secured by the 237 Park
Avenue property), if it determines that the
advance will be recoverable. The master
servicer will not be required to advance
balloon payments due at maturity or interest in
excess of a mortgage loan's regular interest
rate (without considering any default rate).
The master servicer also is not required to
advance amounts deemed non-recoverable,
prepayment premiums or yield maintenance
charges. In the event that the master servicer
fails to make any required advance, the trustee
will be required to make such advance. See "The
Pooling Agreement--Advances" in this prospectus
supplement. If an advance is made, the master
servicer will not advance its servicing fee,
but will advance the trustee's fee.
B. Property Protection
Advances............... The master servicer also is required to make
advances to pay delinquent real estate taxes,
assessments and hazard insurance premiums and
similar expenses necessary to protect and
maintain the mortgaged property, to maintain
S-16
the lien on the mortgaged property or enforce
the related mortgage loan documents with
respect to all mortgage loans other than
non-serviced mortgage loans. The master
servicer is not required, but in certain
circumstances is permitted, to advance amounts
deemed non-recoverable. In the event that the
master servicer fails to make a required
advance of this type, the trustee will be
required to make such advance. See "The
Pooling Agreement--Advances" in this
prospectus supplement.
C. Interest on Advances..... The master servicer and the trustee, as
applicable, will be entitled to interest as
described in this prospectus supplement on
these advances. Interest accrued on outstanding
advances may result in reductions in amounts
otherwise payable on the certificates. Neither
the master servicer nor the trustee will be
entitled to interest on advances made with
respect to principal or interest due on a
mortgage loan until any grace period applicable
to the mortgage loan has expired.
See "Description of the Offered Certificates--
Distributions--Realized Losses" and "The
Pooling Agreement--Advances" in this
prospectus supplement.
D. Advances on the Non-
Serviced Loans......... The master servicer under the related pooling
and servicing agreement that controls servicing
for each of the non-serviced loans is required
to make property protection advances with
respect to the mortgaged property related to
the applicable non-serviced loan, unless that
master servicer determines that those advances
would not be recoverable from collections on
the related non-serviced loan. If that master
servicer is required to but fails to make a
required property protection advance, then the
trustee under the related pooling and servicing
agreement that controls servicing for each of
the non-serviced loans will be required to make
that property protection advance. The master
servicer will be required to make P&I advances
with respect to each non-serviced loan, other
than the 237 Park Avenue loan, but not the
related pari passu companion loan(s). With
respect to the 237 Park Avenue loan, the master
servicer under the related pooling and
servicing agreement that controls servicing for
this non-serviced loan is required to make P&I
advances with respect to the 237 Park Avenue
loan and each related companion loan. See "The
Pooling Agreement--Servicing of the
Non-Serviced Loans" in this prospectus
supplement.
Subordination................. The amount available for distribution will be
applied in the order described in
"--Distributions--Amount and Order of
Distributions" above.
S-17
The chart below describes the manner in which
the payment rights of certain classes will be
senior or subordinate, as the case may be, to
the payment rights of other classes. The chart
shows entitlement to receive principal and
interest on any distribution date in
descending order (beginning with the Class A
and Class X certificates). It also shows the
manner in which mortgage loan losses are
allocated in ascending order (beginning with
other Series 2004-C1 certificates that are not
being offered by this prospectus supplement).
(However, no principal payments or loan losses
will be allocated to the Class X certificates,
although loan losses will reduce the notional
amount of the Class X certificates and,
therefore, the amount of interest they
accrue.)
[GRAPHIC OMITTED]
-----------------------------------
Class A-1, Class A-2,
Class X*
-----------------------------------
-----------------------------------
Class B
-----------------------------------
-----------------------------------
Class C
-----------------------------------
-----------------------------------
Class D
-----------------------------------
-----------------------------------
Class E
-----------------------------------
-----------------------------------
Non-Offered
Certificates**
-----------------------------------
----------------
* Interest only.
** Other than the Class X certificates.
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--
Subordination" in this prospectus supplement.
Principal losses on the mortgage loans
allocated to a class of certificates will
reduce the related certificate principal
amount of such class.
In addition to losses caused by mortgage loan
defaults, shortfalls in payments to holders of
certificates may occur as a result of the
master servicer's and trustee's right to
receive payments of interest on unreimbursed
advances (to the extent not covered by default
interest or late charges paid by the related
borrower), the special
S-18
servicer's right to compensation with respect
to mortgage loans which are or have been
serviced by the special servicer, a
modification of a mortgage loan's interest
rate or principal balance or as a result of
other unanticipated trust expenses. These
shortfalls, if they occur, would reduce
distributions to the classes of certificates
with the lowest payment priorities. In
addition, prepayment interest shortfalls that
are not covered by certain compensating
interest payments made by the master servicer
are required to be allocated to the
certificates, on a pro rata basis, to reduce
the amount of interest payment on the
certificates. To the extent funds are
available on a subsequent distribution date
for distribution on your certificates, you
will be reimbursed for any shortfall allocated
to your certificates with interest at the
pass-through rate on your certificates.
Information Available to
Certificateholders........... Please see "The Pooling Agreement--Reports to
Certificateholders; Available Information" in
this prospectus supplement for a description of
the periodic reports that you will receive.
Optional Termination.......... On any distribution date on which the
aggregate unpaid principal balance of the
mortgage loans remaining in the trust is less
than 1% of the aggregate principal balance of
the pool of mortgage loans as of the cut-off
date, certain specified persons will have the
option to purchase all of the remaining
mortgage loans at the price specified in this
prospectus supplement (and all property
acquired through exercise of remedies in
respect of any mortgage loan). Exercise of this
option will terminate the trust and retire the
then-outstanding certificates.
If the aggregate principal balances of the
Class A, Class B, Class C, Class D and Class E
certificates have been reduced to zero, the
trust could also be terminated in connection
with an exchange of all the then outstanding
certificates, including the Class X
certificates, for the mortgage loans remaining
in the trust, but all of the holders of such
classes of outstanding certificates would have
to voluntarily participate in such exchange.
OTHER INVESTMENT CONSIDERATIONS
Federal Income
Tax Consequences.............. Elections will be made to treat parts of the
trust as two separate REMICs (the "Lower-Tier
REMIC" and the "Upper-Tier REMIC"). The offered
certificates will represent ownership of
"regular interests" in the Upper-Tier REMIC. In
addition, a separate REMIC election (the "Loan
REMIC") will be made with respect to each of
three early defeasance mortgage loans. The
principal
S-19
balance of each early defeasance mortgage loan
will represent a "regular interest" in its
related REMIC. Pertinent federal income tax
consequences of an investment in the offered
certificates include:
o Each class of offered certificates will
constitute REMIC "regular interests."
o The regular interests will be treated as
newly originated debt instruments for federal
income tax purposes.
o You will be required to report income on your
certificates in accordance with the accrual
method of accounting.
o It is anticipated that the offered
certificates will be issued at a [premium].
For information regarding the federal income
tax consequences of investing in the offered
certificates, see "Federal Income Tax
Consequences" in this prospectus supplement
and in the prospectus.
Yield Considerations.......... You should carefully consider the matters
described under "Risk Factors-- Special Yield
Considerations" and "--Risks Relating to
Prepayments and Repurchases" in this prospectus
supplement, which may affect significantly the
yields on your investment.
ERISA Considerations.......... Subject to important considerations described
under "ERISA Considerations" in this prospectus
supplement and "ERISA Considerations" in the
prospectus, the offered certificates are
eligible for purchase by persons investing
assets of employee benefit plans or individual
retirement accounts.
Ratings....................... On the closing date, the offered certificates
must have the minimum ratings from Moody's
Investors Service, Inc. and Fitch, Inc. set
forth below:
MOODY'S FITCH
--------- ------
Class A-1 .......... Aaa AAA
Class A-2 .......... Aaa AAA
Class B ............ Aa2 AA
Class C ............ Aa3 AA-
Class D ............ A2 A
Class E ............ A3 A-
A rating agency may downgrade, qualify or
withdraw a rating at any time. A rating agency
not requested to rate the offered certificates
may nonetheless issue a rating and, if one
does, it may be lower than those stated above.
S-20
The security ratings do not address the
frequency of prepayments (whether voluntary or
involuntary) of mortgage loans, or the degree
to which such prepayments might differ from
those originally anticipated, or the
likelihood of collection of default interest,
prepayment premiums or yield maintenance
charges, or the tax treatment of the
certificates.
See "Yield, Prepayment and Maturity
Considerations" in this prospectus supplement,
"Risk Factors" in this prospectus supplement
and in the prospectus, and "Description of the
Certificates" and "Yield Considerations" in
the prospectus.
Legal Investment.............. The offered certificates will not constitute
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984, as amended. If your
investment activities are subject to legal
investment laws and regulations, regulatory
capital requirements, or review by regulatory
authorities, then you may be subject to
restrictions on investment in the offered
certificates. You should consult your own legal
advisors for assistance in determining the
suitability of, and consequences to you of, the
purchase, ownership and sale of the offered
certificates. See "Legal Investment" in this
prospectus supplement.
S-21
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. In particular, distributions on your certificates will
depend on payments received on, and other recoveries with respect to the
mortgage loans. Therefore, you should carefully consider the risk factors
relating to the mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to your certificates. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair your investment.
If any of the following events or circumstances identified as risks
actually occur or materialize, your investment could be materially and
adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
SPECIAL YIELD CONSIDERATIONS
The yield to maturity on each class of the offered certificates will
depend in part on the following:
o the purchase price for the certificates;
o the rate and timing of principal payments on the mortgage loans;
o the receipt and allocation of prepayment premiums and/or yield
maintenance charges;
o the allocation of principal payments to pay down classes of
certificates; and
o interest shortfalls on the mortgage loans, such as interest shortfalls
resulting from prepayments.
In general, if you buy a certificate at a premium, and principal
distributions occur faster than expected, your actual yield to maturity will be
lower than expected. If principal distributions are very high, holders of
certificates purchased at a premium might not fully recover their initial
investment. Conversely, if you buy a certificate at a discount and principal
distributions occur more slowly than expected, your actual yield to maturity
will be lower than expected. See "Yield, Prepayment and Maturity
Considerations" in this prospectus supplement and "Yield Considerations" in the
prospectus.
Any changes in the weighted average lives of your certificates may
adversely affect your yield. Prepayments resulting in a shortening of weighted
average lives of your certificates may be made at a time of low interest rates
when you may be unable to reinvest the resulting payments of principal on your
certificates at a rate comparable to the effective yield anticipated by you in
making your investment in such certificates, while delays and extensions
resulting in a lengthening of such weighted average lives may occur at a time
of high interest rates when you may have been able to reinvest principal
payments that would otherwise have been received by you at higher rates.
In addition, the rate and timing of delinquencies, defaults, losses and
other shortfalls on mortgage loans will affect distributions on the
certificates and their timing. See "--Risks Relating to Borrower Default"
below.
We make no representation as to the anticipated rate of prepayments or
losses on the mortgage loans or as to the anticipated yield to maturity of any
class of certificates. See "Yield, Prepayment and Maturity Considerations" in
this prospectus supplement.
RISKS RELATING TO ENFORCEABILITY OF PREPAYMENT PREMIUMS OR DEFEASANCE PERIODS
Provisions requiring yield maintenance charges, prepayment premiums or
lockout periods may not be enforceable in some states and under federal
bankruptcy law. Provisions requiring prepayment premiums or yield maintenance
charges also may be interpreted as constituting the
S-22
collection of interest for usury purposes. Accordingly, we cannot assure you
that the obligation to pay a yield maintenance charge or prepayment premium
will be enforceable. Also, we cannot assure you that foreclosure proceeds will
be sufficient to pay an enforceable yield maintenance charge or prepayment
premium.
Additionally, although the collateral substitution provisions related to
defeasance do not have the same effect on the certificateholders as prepayment,
we cannot assure you that a court would not interpret those provisions as the
equivalent of a yield maintenance charge or prepayment premium. In certain
jurisdictions those collateral substitution provisions might therefore be
deemed unenforceable or usurious under applicable law or public policy.
COMMERCIAL AND MULTIFAMILY LENDING IS DEPENDENT UPON NET OPERATING INCOME
The mortgage loans are secured by various income-producing commercial and
multifamily properties. Commercial and multifamily lending are generally
thought to expose a lender to greater risk than residential one-to-four family
lending because they typically involve larger loans to a single borrower or
groups of related borrowers.
The repayment of a commercial or multifamily loan is typically dependent
upon the ability of the related mortgaged property to produce cash flow through
the collection of rents. Even the liquidation value of a commercial property is
determined, in substantial part, by the capitalization of the property's cash
flow. However, net operating income can be volatile and may be insufficient to
cover debt service on the loan at any given time.
The net operating incomes and property values of the mortgaged properties
may be adversely affected by a large number of factors. Some of these factors
relate to the properties themselves, such as:
o the age, design and construction quality of the properties;
o perceptions regarding the safety, convenience and attractiveness of the
properties;
o the proximity and attractiveness of competing properties;
o the adequacy of the property's management and maintenance;
o increases in operating expenses;
o an increase in the capital expenditures needed to maintain the
properties or make improvements;
o dependence upon a single tenant, or a concentration of tenants in a
particular business or industry;
o a decline in the financial condition of a major tenant;
o an increase in vacancy rates; and
o a decline in rental rates as leases are renewed or entered into with new
tenants.
Other factors are more general in nature, such as:
o national, regional or local economic conditions, including plant
closings, military base closings, industry slowdowns and unemployment
rates;
o local real estate conditions, such as an oversupply of retail space,
office space, multifamily housing or hotel capacity;
o demographic factors;
o consumer confidence;
o changes or continued weakness in specific industry segments;
o the public perception of safety for customers and clients;
S-23
o consumer tastes and preferences; and
o retroactive changes in building codes.
The volatility of net operating income will be influenced by many of the
foregoing factors, as well as by:
o the length of tenant leases (including that in certain cases, 100% of
the tenant leases may expire during the term of the loan);
o the creditworthiness of tenants;
o in the case of rental properties, the rate at which new rentals occur;
and
o the property's "operating leverage" which is generally the percentage of
total property expenses in relation to revenue, the ratio of fixed
operating expenses to those that vary with revenues, and the level of
capital expenditures required to maintain the property and to retain or
replace tenants.
A decline in the real estate market or in the financial condition of a
major tenant will tend to have a more immediate effect on the net operating
income of properties with short-term revenue sources, such as short-term or
month-to-month leases, and may lead to higher rates of delinquency or defaults.
LIMITATIONS OF APPRAISALS
Appraisals were obtained with respect to each of the mortgaged properties
at or about the time of origination of the applicable mortgage loan, and in
some cases updates were performed in anticipation of this transaction. See
Annex C to this prospectus supplement for dates of the latest appraisals for
the mortgaged properties.
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 that of a different appraiser with respect to
the same 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. The amount could be significantly higher than the amount obtained
from the sale of a mortgaged property in a distress or liquidation sale.
Information regarding the appraised values of the mortgaged properties
(including loan-to-value ratios) presented in this prospectus supplement and,
with respect to the 10 largest mortgage loans, based on their respective
outstanding principal balances as of the cut-off date, in the pool of mortgage
loans, on the attached CD-ROM is not intended to be a representation as to the
past, present or future market values of the mortgaged properties. Historical
operating results of the mortgaged properties used in these appraisals may not
be comparable to future operating results. In addition, other factors may
impair the mortgaged properties' value without affecting their current net
operating income, including:
o changes in governmental regulations, zoning or tax laws;
o potential environmental or other legal liabilities;
o the availability of refinancing; and
o changes in interest rate levels.
TENANT CONCENTRATION ENTAILS RISK
A deterioration in the financial condition of a tenant can be particularly
significant if a mortgaged property is owner-occupied, leased to a single
tenant, or if any tenant makes up a significant portion of the rental income.
In the event of a default by the owner-occupier or the tenant, there would
likely be an interruption of rental payments under the lease and, accordingly,
insufficient funds available to the borrower to pay the debt service on the
loan. Mortgaged properties that are owner-occupied or
S-24
leased to a single tenant, or a tenant that makes up a significant portion of
the rental, also are more susceptible to interruptions of cash flow if the
owner-occupier's business operations are negatively impacted or if such tenant
fails to renew its lease. This is so because:
o the financial effect of the absence of rental income may be severe;
o more time may be required to re-lease the space; and
o substantial capital costs may be incurred to make the space appropriate
for replacement tenants.
Eighteen (18) of the mortgaged properties securing mortgage loans,
representing in the aggregate approximately 4.5% of the aggregate principal
balance of the pool of mortgage loans as of the cut-off date by allocated loan
amount, is secured by a mortgaged property leased to a single tenant. No
mortgaged property leased to a single tenant secures a mortgage loan
representing more than approximately 1.1% of the aggregate principal balance of
the pool of mortgage loans as of the cut-off date by allocated loan amount. If
the current tenant does not renew its lease on comparable economic terms to the
expired lease, or if a suitable replacement tenant does not enter into a new
lease on similar economic terms, there could be a negative impact on the
payments on the related mortgage loans. Additionally, the underwriting of
certain of these mortgage loans leased to single tenants may have taken into
account the creditworthiness of the tenants under the related leases and
consequently may have higher loan-to-value ratios and lower debt service
coverage ratios than other types of mortgage loans.
Concentrations of particular tenants among the mortgaged properties or
within a particular business or industry increase the possibility that
financial problems with such tenants or such business or industry sectors could
affect the mortgage loans. See "--Tenant Bankruptcy Entails Risk" below.
MORTGAGED PROPERTIES LEASED TO MULTIPLE TENANTS ALSO HAVE RISKS
If a mortgaged property has multiple tenants, re-leasing expenditures may
be more frequent than in the case of mortgaged properties with fewer tenants,
thereby reducing the cash flow available for payments on the related mortgage
loan. Multi-tenant mortgaged properties also may experience higher continuing
vacancy rates and greater volatility in rental income and expenses. In certain
cases, the lease of a major or anchor tenant at a multi-tenanted mortgaged
property expires prior to the maturity date of the related mortgage loan.
MORTGAGED PROPERTIES LEASED TO BORROWERS OR BORROWER AFFILIATED ENTITIES ALSO
HAVE RISKS
If a mortgaged property is leased in whole or substantial part to the
borrower under the mortgage loan or to an affiliate of the borrower, a
deterioration in the financial condition of the borrower or its affiliates can
be particularly significant to the borrower's ability to perform under the
mortgage loan as it can directly interrupt the cash flow from the mortgaged
property if the borrower's or its affiliate's financial condition worsens,
which risk may be mitigated when mortgaged properties are leased to unrelated
third parties.
TENANT BANKRUPTCY ENTAILS RISKS
The bankruptcy or insolvency of a major tenant (such as an anchor tenant),
or a number of smaller tenants, may adversely affect the income produced by a
mortgaged property. Under the federal bankruptcy code, a tenant has the option
of assuming or rejecting any unexpired lease. If the tenant rejects the lease,
the landlord's claim for breach of the lease would be a general unsecured claim
against the tenant (absent collateral securing the claim). The claim would be
limited to 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 reserved rent (but not more than three years' rent).
With respect to the mortgage loan identified as Loan No. 10 on Annex C to
this prospectus supplement, representing approximately 2.6% of the aggregate
principal balance of the pool of
S-25
mortgage loans as of the cut-off date, one tenant, Drug Emporium, has filed for
bankruptcy. Drug Emporium has not assumed or rejected the lease, but the space
is currently unoccupied. The related borrower posted a $2,400,000 letter of
credit to be held as additional security for the mortgage loan until such time
as either (i) the lease is reaffirmed and Drug Emporium is in occupancy and
paying rent or (ii) a replacement tenant for the Drug Emporium space is in
occupancy and paying rent pursuant to a fully executed lease having terms
comparable to those of the Drug Emporium lease. Additionally, certain other
tenants at other mortgaged properties are also currently in bankruptcy.
CERTAIN ADDITIONAL RISKS RELATING TO TENANTS
The income from, and market value of, the mortgaged properties leased to
various tenants would be adversely affected if:
o space in the mortgaged properties could not be leased or re-leased;
o tenants were unable to meet their lease obligations;
o a significant tenant were to become a debtor in a bankruptcy case; or
o rental payments could not be collected for any other reason.
Repayment of the mortgage loans secured by retail, office and industrial
properties will be affected by the expiration of leases and the ability of the
respective borrowers to renew the leases or relet the space on comparable
terms. Certain of the mortgaged properties may be leased in whole or in part by
government-sponsored tenants who have the right to cancel their leases at any
time or for lack of appropriations. Additionally, mortgaged properties may have
concentrations of leases expiring at varying rates in varying percentages.
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. Moreover,
if a tenant defaults in its obligations to a borrower, the borrower may incur
substantial costs and experience significant delays associated with enforcing
its rights and protecting its investment, including costs incurred in
renovating and reletting the related mortgaged property.
Additionally, in certain jurisdictions, if tenant leases are subordinated
to the liens created by the mortgage but do not contain attornment provisions
(provisions requiring the tenant to recognize as landlord under the lease a
successor owner following foreclosure), the tenants may terminate their leases
upon the transfer of the property to a foreclosing lender or purchaser at
foreclosure. Not all leases were reviewed to ascertain the existence of
attornment or subordination provisions. Accordingly, if a mortgaged property is
located in such a jurisdiction and is leased to one or more desirable tenants
under leases that are subordinate to the mortgage and do not contain attornment
provisions, such mortgaged property could experience a further decline in value
if such tenants' leases were terminated.
If a lease is not subordinate to a mortgage, the trust will not possess
the right to dispossess the tenant upon foreclosure of the mortgaged property
(unless otherwise agreed to with the tenant). 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 the lender'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.
With respect to the mortgage loan identified as Loan No. 5 on Annex C,
representing approximately 4.9% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date, the largest tenant, J. Walter
Thompson, has asserted a claim against the borrower for using improper
methodology in computing the tenant's share of real estate tax escalations. The
lease does not permit the tenant to offset against rent in connection with a
claim, and the tenant has agreed in writing that it will not offset against
rent in connection with this dispute pending resolution. We cannot assure you,
however, that the tenant will not in the future attempt to offset against rent
in breach of this agreement, which, if done, might have an impact on the cash
flow of the subject property.
S-26
However, in the event the tenant breaches the lease, the related loan documents
provide for an automatic "cash trap" whereby excess cash in the amount of any
tenant offset will be retained by the lender as cash collateral for the
mortgage loan.
TERRORIST ATTACKS AND MILITARY CONFLICTS MAY ADVERSELY AFFECT YOUR INVESTMENT
The terrorist attacks on the World Trade Center and the Pentagon on
September 11, 2001 suggest the possibility that large public areas such as
shopping malls or large office buildings could become the target of terrorist
attacks in the future. The possibility of such attacks could (i) lead to damage
to one or more of the mortgaged properties if any such attacks occur, (ii)
result in higher costs for security and insurance premiums, particularly for
large properties, which could adversely affect the cash flow at such mortgaged
properties, or (iii) impact leasing patterns or shopping patterns which could
adversely impact leasing revenue and mall traffic and percentage rent. As a
result, the ability of the mortgaged properties to generate cash flow may be
adversely affected. See "--Property Insurance" below.
Terrorist attacks in the United States, incidents of terrorism occurring
outside the United States and military conflicts in Iraq and elsewhere may
continue to significantly reduce air travel throughout the United States, and,
therefore, continue to have a negative effect on revenues in areas heavily
dependent on tourism. The decrease in air travel may have a negative effect on
certain of the mortgaged properties, including hotel mortgaged properties and
those mortgaged properties located in tourist areas, which could reduce the
ability of such mortgaged properties to generate cash flow.
It is uncertain what continued effect armed conflict involving the United
States, including the recent war between the United States and Iraq or any
future conflict with any other country, will have on domestic and world
financial markets, economies, real estate markets, insurance costs or business
segments. Foreign or domestic conflicts of any kind could have an adverse
effect on the mortgaged properties.
Accordingly, these disruptions, uncertainties and costs could materially
and adversely affect your investment in the certificates.
RISKS RELATING TO LOAN CONCENTRATIONS
The effect of mortgage pool loan losses will be more severe if the losses
relate to mortgage loans that account for a disproportionately large percentage
of the pool's aggregate principal balance. The table below presents information
regarding mortgage loans and related mortgage loan concentrations:
AGGREGATE % OF INITIAL
CUT-OFF DATE BALANCE POOL BALANCE
---------------------- -------------
Largest Single Mortgage Loan ................................. $ 56,039,776 6.3%
Largest 5 Mortgage Loans ..................................... $253,705,027 28.4%
Largest 10 Mortgage Loans .................................... $400,122,727 44.8%
Largest Group of Cross-Collateralized Mortgage Loans ......... $ 23,300,000 2.6%
Largest Related-Borrower Concentration(1) .................... $ 59,500,000 6.7%
Next Largest Related-Borrower Concentration(1) ............... $ 50,291,029 5.6%
- ----------
(1) Excluding single mortgage loans.
Each of the other mortgage loans represents no more than 2.6% of the
aggregate principal balance of the pool of mortgage loans as of the cut-off
date.
Each of the other groups of crossed-collateralized mortgage loans
represents no more than 2.2% of the aggregate principal balance of the pool of
mortgage loans as of the cut-off date.
Each of the other groups of mortgage loans with related borrowers
represents no more than 4.6% of the aggregate principal balance of the pool of
mortgage loans as of the cut-off date.
S-27
Three (3) groups of mortgage loans, comprised of 3, 2 and 2 mortgage
loans, representing approximately 2.6%, 2.2% and 1.0%, respectively, of the
aggregate principal balance of the pool of mortgage loans as of the cut-off
date, are cross-collateralized and cross-defaulted.
A concentration of mortgage loans with the same borrower or related
borrowers also can pose increased risks. For example, if a borrower that owns
or controls several mortgaged properties (whether or not all of them secure
mortgage loans in the mortgage pool) experiences financial difficulty at one
mortgaged property, it could defer maintenance at another mortgaged property in
order to satisfy current expenses with respect to the first mortgaged property.
The borrower could also attempt to avert foreclosure by filing a bankruptcy
petition that might have the effect of interrupting debt service payments on
the mortgage loans in the mortgage pool (subject to the master servicer's and
the trustee's obligation to make advances for monthly payments) for an
indefinite period. In addition, mortgaged properties owned by the same borrower
or related borrowers are likely to have common management, common general
partners and/or managing members increasing the risk that financial or other
difficulties experienced by such related parties could have a greater impact on
the pool of mortgage loans.
The terms of certain of the mortgage loans require that the borrowers be
single-purpose entities and, in most cases, such borrowers' organizational
documents or the terms of the mortgage loans limit their activities to the
ownership of only the related mortgaged property or properties and limit the
borrowers' ability to incur additional indebtedness. Such provisions are
designed to mitigate the possibility that the borrower's financial condition
would be adversely impacted by factors unrelated to the mortgaged property and
the mortgage loan in the pool. However, we cannot assure you that such
borrowers will comply with such requirements. Furthermore, in many cases such
borrowers are not required to observe all covenants and conditions which
typically are required in order for such borrowers to be viewed under standard
rating agency criteria as "special purpose entities." See "Certain Legal
Aspects of the Mortgage Loans--Anti-Deficiency Legislation; Bankruptcy Laws" in
the prospectus.
A concentration of mortgaged property types can pose increased risks. A
concentration of mortgage loans secured by the same mortgaged property types
can increase the risk that a decline in a particular industry or business would
have a disproportionately large impact on the pool of mortgage loans. In that
regard, the following table lists the property type concentrations in excess of
5% of the aggregate principal balance of the pool of mortgage loans as of the
cut-off date:
PROPERTY TYPE CONCENTRATIONS GREATER THAN 5%
NUMBER OF MORTGAGED AGGREGATE CUT-OFF DATE % OF INITIAL
PROPERTY TYPE PROPERTIES BALANCE POOL BALANCE
- --------------------- --------------------- ------------------------ -------------
Retail .............. 30 $327,213,512 36.7%
Office .............. 13 274,751,241 30.8
Multifamily ......... 23 168,447,660 18.9
Industrial .......... 37 84,932,994 9.5
--- ------------ ----
Total ............... 103 $855,345,407 95.9%
=== ============ ====
RISKS RELATING TO ENFORCEABILITY OF CROSS-COLLATERALIZATION
As described above and on Annex C to this prospectus supplement, 3 groups
comprised of 3, 2 and 2 mortgage loans, representing approximately 2.6%, 2.2%
and 1.0%, respectively, of the aggregate principal balance of the pool of
mortgage loans as of the cut-off date, are cross-collateralized and
cross-defaulted. Cross-collateralization arrangements may be terminated with
respect to some mortgage loan groups in certain circumstances under the terms
of the related mortgage loan documents.
Additionally, certain of the mortgage loans are secured by multiple
properties. Cross-collateralization arrangements involving more than one
borrower could be challenged as
S-28
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 the borrower's representative.
A lien granted by such a borrower entity could be avoided if a court were
to determine that:
(i) such borrower was insolvent when it granted the lien, was rendered
insolvent by the granting of the lien, was left with inadequate
capital when it allowed its mortgaged property or properties to be
encumbered by a lien securing the entire indebtedness or was not able
to pay its debts as they matured after the lien was granted; and
(ii) such borrower did not receive fair consideration or reasonably
equivalent value when it allowed its mortgaged property or properties
to be encumbered by a lien securing the entire indebtedness.
Among other things, a legal challenge to the granting of the liens may
focus on the benefits realized by such borrower from the respective mortgage
loan proceeds, as well as the overall cross-collateralization. If a court were
to conclude that the granting of the liens was an avoidable fraudulent
conveyance, that court could:
(i) subordinate all or part of the pertinent mortgage loan to existing or
future indebtedness of that borrower:
(ii) recover payments made under that mortgage loan; or
(iii) take other actions detrimental to the holders of the certificates,
including, under certain circumstances, invalidating the mortgage
loan or the mortgages securing such cross-collateralization.
THE BORROWER'S FORM OF ENTITY MAY CAUSE SPECIAL RISKS
Mortgage loans made to legal entities may entail risks of loss greater
than those of mortgage loans made to individuals. For example, a legal entity,
as opposed to an individual, may be more inclined to seek legal protection from
its creditors under the bankruptcy laws. Unlike individuals involved in
bankruptcies, most of the entities generally do not have personal assets and
creditworthiness at stake. The terms of the mortgage loans generally require
that the borrowers covenant to be single-purpose entities, although in many
cases the borrowers are not required to observe all covenants and conditions
which typically are required in order for them to be viewed under standard
rating agency criteria as "special purpose entities." In general, borrowers'
organizational documents or the terms of the mortgage loans limit their
activities to the ownership of only the related mortgaged property or
properties and limit the borrowers' ability to incur additional indebtedness.
These provisions are designed to mitigate the possibility that the borrowers'
financial condition would be adversely impacted by factors unrelated to the
mortgaged property and the mortgage loan in the pool. However, we cannot assure
you that the related borrowers will comply with these requirements. The
bankruptcy of a borrower, or a general partner or managing member of a
borrower, may impair the ability of the lender to enforce its rights and
remedies under the related mortgage. Borrowers that are not special purpose
entities structured to limit the possibility of becoming insolvent or bankrupt,
may be more likely to become insolvent or the subject of a voluntary or
involuntary bankruptcy proceeding because such borrowers may be:
o operating entities with business distinct from the operation of the
property with the associated liabilities and risks of operating an
ongoing business; or
o individuals that have personal liabilities unrelated to the property.
However, any borrower, even a special purpose entity structured to be
bankruptcy-remote, as an owner of real estate, will be subject to certain
potential liabilities and risks. We cannot assure you that any borrower will
not file for bankruptcy protection or that creditors of a borrower or a
corporate or individual general partner or managing member of a borrower will
not initiate a bankruptcy or similar proceeding against such borrower or
corporate or individual general partner or managing member.
S-29
Furthermore, with respect to any related borrowers, creditors of a common
parent in bankruptcy may seek to consolidate the assets of such borrowers with
those of the parent. Consolidation of the assets of such borrowers would likely
have an adverse effect on the funds available to make distributions on your
certificates, and may lead to a downgrade, withdrawal or qualification of the
ratings of your certificates. See "Certain Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation; Bankruptcy Laws" in the accompanying
prospectus.
TENANCIES IN COMMON MAY HINDER RECOVERY
Certain mortgage loans have borrowers that own the related mortgaged
properties as tenants in common. In general, with respect to a tenant in common
ownership structure, each tenant in common owns an undivided share in the
property and if such tenant in common desires to sell its interest in the
property (and is unable to find a buyer or otherwise needs to force a
partition) the tenant in common has the ability to request that a court order a
sale of the property and distribute the proceeds to each tenant in common
proportionally. As a result, if a tenant in common exercises its right of
partition, the related mortgage loan may be subject to prepayment. In addition,
the tenant in common structure may cause delays in the enforcement of remedies
because each time a tenant in common borrower files for bankruptcy, the
bankruptcy court stay will be reinstated. Each related tenant in common
borrower waived its right to partition, reducing the risk of partition.
However, there can be no assurance that, if challenged, this waiver would be
enforceable. In addition, in some cases, the related mortgage loan documents
provide for full recourse to the related tenant in common borrower or the
guarantor if a tenant in common files for partition.
CONDOMINIUM OWNERSHIP MAY LIMIT USE AND IMPROVEMENTS.
With respect to certain of the mortgage loans, the related mortgaged
property consists of the borrower's interest in commercial condominium
interests in buildings and/or other improvements, and related interests in the
common areas and the related voting rights in the condominium association. With
respect to 1 mortgage loan identified as Loan No. 5 on Annex C to this
prospectus supplement, representing, approximately 4.9% of the aggregate
principal balance of the pool of mortgage loans as of the cut-off date, the
borrower has the right to convert the borrower's interest in the mortgaged
property to a condominium form of ownership. See "Annex B-Significant Loan
Summaries--237 Park Avenue Loan" in this prospectus supplement. In the case of
condominiums, a board of managers generally has discretion to make decisions
affecting the condominium and there may be no assurance that the related
borrower will have any control over decisions made by the related board of
managers. Decisions made by that board of managers, including regarding
assessments to be paid by the unit owners, insurance to be maintained on the
condominium and many other decisions affecting the maintenance of that
condominium, may have an adverse impact on the mortgage loans that are secured
by condominium interests. We cannot assure you that the related board of
managers will always act in the best interests of the borrower under those
mortgage loans. Further, due to the nature of condominiums, a default on the
part of the borrower will not allow the applicable special servicer the same
flexibility in realizing on the collateral as is generally available with
respect to commercial properties that are not condominiums. The rights of other
unit owners, the documents governing the management of the condominium units
and the state and local laws applicable to condominium units must be
considered. In addition, in the event of a casualty with respect to a mortgaged
property which consists of a condominium interest, due to the possible
existence of multiple loss payees on any insurance policy covering the
mortgaged property, there could be a delay in the allocation of related
insurance proceeds, if any. Consequently, servicing and realizing upon a
condominium property could subject you to a greater delay, expense and risk
than with respect to a mortgage loan secured by a commercial property that is
not a condominium.
RETAIL PROPERTIES HAVE SPECIAL RISKS
Retail properties secure 30 of the mortgage loans representing
approximately 36.7% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date by allocated loan amount.
S-30
The quality and success of a retail property's tenants significantly
affect the property's value and the related borrower's ability to refinance
such property. For example, if the sales revenues of retail tenants were to
decline, rents tied to a percentage of gross sales revenues may decline and
those tenants may be unable to pay their rent or other occupancy costs.
The presence or absence of an "anchor tenant" or a "shadow anchor" in or
near a shopping center also can be important because anchors play a key role in
generating customer traffic and making a center desirable for other tenants. An
"anchor tenant" is located on the related mortgaged property, usually
proportionately larger in size than most other tenants in the mortgaged
property and is vital in attracting customers to a retail property. A "shadow
anchor" is usually proportionally larger in size than most tenants in the
mortgaged property, is important in attracting customers to a retail property
and is located sufficiently close and convenient to the mortgaged property, but
not on the mortgaged property, so as to influence and attract potential
customers. All of the mortgage loans secured by retail properties, representing
approximately 36.7% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date, by allocated loan amount, are considered by the
applicable loan seller to be "anchored."
If anchor stores in a mortgaged property were to close, the related
borrower may be unable to replace those anchors in a timely manner or without
suffering adverse economic consequences. Certain of the tenants or anchor
stores of the retail properties may have co-tenancy clauses and/or operating
covenants in their leases or operating agreements which permit those tenants or
anchor stores to cease operating under certain conditions including without
limitation certain other stores not being open for business at the mortgaged
property or a subject store not meeting the minimum sales requirement under its
lease. In addition, in the event that a "shadow anchor" fails to renew its
lease, terminates its lease or otherwise ceases to conduct business within a
close proximity to the mortgaged property, customer traffic at the mortgaged
property may be substantially reduced. We cannot assure you the tenant will not
terminate its lease or that a replacement tenant will be found. We cannot
assure you that such space will be occupied or that the related mortgaged
property will not suffer adverse economic consequences.
Retail properties also face competition from sources outside a given real
estate market. For example, all of the following compete with more traditional
retail properties for consumer dollars: factory outlet centers; discount
shopping centers and clubs; catalogue retailers; home shopping networks;
internet websites; and telemarketing. Continued growth of these alternative
retail outlets (which often have lower operating costs) could adversely affect
the rents collectible at the retail properties included in the pool of mortgage
loans, as well as the income from, and market value of, the mortgaged
properties and the related borrower's ability to refinance such property.
Moreover, additional competing retail properties may be built in the areas
where the retail properties are located.
Certain tenants at certain of the mortgaged properties are paying rent but
not physically occupying the leased space. For significant "dark" tenants, see
Annex C to this prospectus supplement. Certain of the retail mortgaged
properties, including the mortgage loans identified as Loan Nos. 2 and 10 on
Annex C to this prospectus supplement (representing approximately 6.1% and
2.6%, respectively, of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date), have theaters as part of the mortgaged property.
These properties are exposed to certain unique risks. In recent years, the
theater industry has experienced a high level of construction of new theaters
and an increase in competition among theater operators. This has caused some
operators to experience financial difficulties, resulting in downgrades in
their credit ratings and, in certain cases, bankruptcy filings. See "--Tenant
Bankruptcy Entails Risks" above. In addition, because of unique construction
requirements of theaters, any vacant theater space would not easily be
converted to other uses.
OFFICE PROPERTIES HAVE SPECIAL RISKS
Office properties secure 13 of the mortgage loans representing
approximately 30.8% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date by allocated loan amount.
S-31
A large number of factors may adversely affect the value of office
properties, including:
o the quality of an office building's tenants;
o an economic decline in the business operated by the tenant;
o the physical attributes of the building in relation to competing
buildings (e.g., age, condition, design, appearance, access to
transportation and ability to offer certain amenities, such as
sophisticated building systems and/or business wiring requirements);
o the diversity of an office building's tenants (or reliance on a single
or dominant tenant);
o an adverse change in population, patterns of telecommuting or sharing
of office space, and employment growth (which creates demand for office
space);
o the desirability of the area as a business location; and
o the strength and nature of the local economy, including labor costs and
quality, tax environment and quality of life for employees.
Moreover, the cost of refitting office space for a new tenant is often
higher than the cost of refitting other types of properties for new tenants.
See "--Risks Relating to Loan Concentrations" above.
MULTIFAMILY PROPERTIES HAVE SPECIAL RISKS
Multifamily properties secure 23 of the mortgage loans representing
approximately 18.9% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date by allocated loan amount. A large number of
factors may adversely affect the value and successful operation of a
multifamily property, including:
o the physical attributes of the apartment building such as its age,
condition, design, appearance, access to transportation and
construction quality;
o the location of the property, for example, a change in the neighborhood
over time;
o the ability of management to provide adequate maintenance and
insurance;
o the types of services or amenities that the property provides;
o the property's reputation;
o the level of mortgage interest rates, which may encourage tenants to
purchase rather than lease housing;
o the presence of competing properties;
o the tenant mix, such as the tenant population being predominantly
students or being heavily dependent on workers from a particular
business or personnel from a local military base;
o dependence upon governmental programs that provide rent subsidies to
tenants pursuant to tenant voucher programs, which vouchers may be used
at other properties and influence tenant mobility; and
o adverse local or national economic conditions, which may limit the
amount of rent that may be charged and may result in a reduction of
timely rent payments or a reduction in occupancy levels; and state and
local regulations, which may affect the building owner's ability to
increase rent to market rent for an equivalent apartment.
Certain states regulate the relationship of an owner and its tenants.
Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant
S-32
protection. For example, there are provisions that limit the bases on which a
landlord may terminate a tenancy or increase its rent or prohibit a landlord
from terminating a tenancy solely by reason of the sale of the owner's
building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on apartment
buildings. These ordinances may limit rent increases to fixed percentages, to
percentages of increases in the consumer price index, to increases set or
approved by a governmental agency, or to increases determined through mediation
or binding arbitration. Any limitations on a borrower's ability to raise
property rents may impair such borrower's ability to repay its multifamily loan
from its net operating income or the proceeds of a sale or refinancing of the
related multifamily property.
Certain of the mortgage loans are secured or may be secured in the future
by mortgaged properties that are subject to certain affordable housing
covenants, in respect of various units within the mortgaged properties.
INDUSTRIAL PROPERTIES HAVE SPECIAL RISKS
Industrial properties secure 37 of the mortgage loans representing
approximately 9.5% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date by allocated loan amount. Significant factors
determining the value of industrial properties are:
o the quality of tenants;
o reduced demand for industrial space because of a decline in a
particular industry segment;
o property becoming functionally obsolete;
o unavailability of labor sources;
o changes in access, energy prices, strikers, relocation of highways, the
construction of additional highways or other factors;
o changes in proximity of supply sources;
o the expenses of converting a previously adapted space to general use;
o building design and adaptability; and
o the location of the property.
Concerns about the quality of tenants, particularly major tenants, are
similar in both office properties and industrial properties, although
industrial properties are more frequently dependent on a single or a few
tenants.
Industrial properties may be adversely affected by reduced demand for
industrial space occasioned by a decline in a particular industry segment (for
example, a decline in defense spending), and a particular industrial or
warehouse property that suited the needs of its original tenant may be
difficult to relet to another tenant or may become functionally obsolete
relative to newer properties. In addition, lease terms with respect to
industrial properties are generally for shorter periods of time and may result
in a substantial percentage of leases expiring in the same year at any
particular industrial property. In addition, mortgaged properties used for many
industrial purposes are more prone to environmental concerns than other
properties.
Aspects of building site design and adaptability affect the value of an
industrial property. Site characteristics which are generally desirable to a
warehouse/industrial property include high clear ceiling heights, wide column
spacing, a large number of bays (loading docks) and large bay depths,
divisibility, large minimum truck turning radii and overall functionality and
accessibility.
In addition, because of unique construction requirements of many
industrial properties, any vacant industrial property space may not be easily
converted to other uses. Thus, if the operation of any of the industrial
properties becomes unprofitable due to competition, age of the improvements or
other factors such that the borrower becomes unable to meet its obligations on
the related mortgage
S-33
loan, the liquidation value of that industrial property may be substantially
less, relative to the amount owing on the related mortgage loan, than would be
the case if the industrial property were readily adaptable to other uses.
Location is also important because an industrial property requires the
availability of labor sources, proximity to supply sources and customers and
accessibility to rail lines, major roadways and other distribution channels.
HOTEL PROPERTIES HAVE SPECIAL RISKS
A hotel property secures 1 of the mortgage loans representing
approximately 3.6% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date by allocated loan amount.
Various factors may adversely affect the economic performance of a hotel,
including:
o adverse economic and social conditions, either local, regional or
national (which may limit the amount that can be charged for a room and
reduce occupancy levels);
o the presence or construction of competing hotels or resorts;
o continuing expenditures for modernizing, refurbishing and maintaining
existing facilities prior to the expiration of their anticipated useful
lives;
o a deterioration in the financial strength or managerial capabilities of
the owner or operator of a hotel; and
o changes in travel patterns caused by changes in access, energy prices,
strikes, relocation of highways, the construction of additional
highways, concerns about travel safety and other factors.
Because hotel rooms are generally rented for short periods of time, the
financial performance of hotels tends to be affected by adverse economic
conditions and competition more quickly than other commercial properties.
Additionally, as a result of high operating costs, relatively small decreases
in revenue can cause significant stress on a property's cash flow. Furthermore,
the terrorist attacks in the United States in September 2001 and the potential
for future terrorist attacks may have adversely affected the occupancy rates
and, accordingly, the financial performance of hotel properties. See
"--Terrorist Attacks and Military Conflicts May Adversely Affect Your
Investment" above.
Moreover, the hotel and lodging industry is generally seasonal in nature
and different seasons affect different hotels differently depending on type and
location. This seasonality can be expected to cause periodic fluctuations in a
hotel property's room and restaurant revenues, occupancy levels, room rates and
operating expenses.
The liquor license for the mortgaged property is currently held by Hyatt
Corporation, an unaffiliated manager, and expires on April 30, 2004. However,
an application for renewal and inclusion of Dearborn Tenant Corp., the
operative lessee, and Dearborn Hotel Partners, LP, the borrower, has been
submitted. The laws and regulations relating to liquor licenses generally
prohibit the transfer of such licenses to any person. In the event of a
foreclosure of a hotel property that holds a liquor license, the trustee or a
purchaser in a foreclosure sale would likely have to apply for a new license,
which might not be granted or might be granted only after a significant delay.
There can be no assurance that a new license could be obtained promptly or at
all. The lack of a liquor license in a full-service hotel could have an adverse
impact on the revenue from the related mortgaged property or on the hotel's
occupancy rate.
RISKS RELATING TO AFFILIATION WITH A HOTEL MANAGEMENT COMPANY
The hotel property that secures the mortgage loan identified as Loan No.7
on Annex C to this prospectus supplement (the Hyatt Regency Dearborn loan),
representing approximately 3.6% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date by allocated loan amount, is
affiliated with a hotel management company through a management agreement. The
performance of a hotel property affiliated with a hotel management company
depends in part on:
S-34
o the continued existence and financial strength of the hotel management
company;
o the public perception of the hotel chain service mark; and
o the duration of the management agreement.
Any provision in a management agreement providing for termination because
of a bankruptcy of a franchisor or manager generally will not be enforceable.
LACK OF SKILLFUL PROPERTY MANAGEMENT ENTAILS RISKS
The successful operation of a real estate project depends upon the
property manager's performance and viability. The property manager is
responsible for:
o responding to changes in the local market;
o planning and implementing the rental structure;
o operating the property and providing building services;
o managing operating expenses; and
o assuring that maintenance and capital improvements are carried out in a
timely fashion.
Properties deriving revenues primarily from short-term sources, such as
short-term or month-to-month leases, are generally more management intensive
than properties leased to creditworthy tenants under long-term leases.
We make no representation or warranty as to the skills of any present or
future managers. In many cases, the property manager is an affiliate of the
borrower and may not manage properties for non-affiliates. Additionally, we
cannot assure you that the property managers will be in a financial condition
to fulfill their management responsibilities throughout the terms of their
respective management agreements.
RISKS RELATING TO PREPAYMENTS AND REPURCHASES
The yield to maturity on your certificates will depend, in significant
part, upon the rate and timing of principal payments on the mortgage loans. For
this purpose, principal payments include both voluntary prepayments, if
permitted, and involuntary prepayments, such as prepayments resulting from
casualty or condemnation, defaults and liquidations or repurchases upon
breaches of representations and warranties.
The investment performance of your certificates may vary materially and
adversely from your expectations if the actual rate of prepayment on the
mortgage loans is higher or lower than you anticipate.
Any changes in the weighted average lives of your certificates may
adversely affect your yield. Prepayments resulting in a shortening of weighted
average lives of your certificates may be made at a time of low interest rates
when you may be unable to reinvest the resulting payment of principal on your
certificates at a rate comparable to the effective yield anticipated by you in
making your investment in the certificates, while delays and extensions
resulting in a lengthening of those weighted average lives may occur at a time
of high interest rates when you may have been able to reinvest principal
payments that would otherwise have been received by you at higher rates.
Although all of the mortgage loans have prepayment protection in the form
of defeasance provisions or yield maintenance provisions, we cannot assure you
that the related borrowers will refrain from prepaying their mortgage loans due
to the existence of yield maintenance charges or that involuntary prepayments
will not occur.
Voluntary prepayments, if permitted, generally require the payment of a
yield maintenance charge unless the loan is a specified period (ranging from
approximately 2 to 12 months) from the stated maturity date. See "Description
of the Mortgage Pool" in this prospectus supplement. In
S-35
addition, certain of the mortgage loans may not require the payment of a yield
maintenance premium or prepayment charge in connection with a prepayment as a
result of a casualty or condemnation. In any case, we cannot assure you that
the related borrowers will refrain from prepaying their mortgage loans due to
the existence of yield maintenance charges or that involuntary prepayments will
not occur.
Additionally, certain of the mortgage loans have holdbacks that may, if
the related borrower does not satisfy certain conditions specified in the
related loan documents, be used to prepay the related mortgage loan. For more
detail on these holdbacks, see Annex A to this prospectus supplement.
The rate at which voluntary prepayments occur on the mortgage loans will
be affected by a variety of factors, including:
o the terms of the mortgage loans;
o the length of any prepayment lockout period;
o the level of prevailing interest rates;
o the availability of mortgage credit;
o the applicable yield maintenance charges;
o the master servicer's or special servicer's ability to enforce those
charges or premiums;
o the failure to meet certain requirements for the release of escrows;
o the occurrence of casualties or natural disasters; and
o economic, demographic, tax, legal or other factors.
Generally, no yield maintenance charge will be required 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.
The yield on the offered certificates that bear interest at a rate based
on, or limited by, the weighted average net mortgage rate of the mortgage loans
could also be adversely affected if mortgage loans with higher interest rates
pay faster than the mortgage loans with lower interest rates. The pass-through
rates on those classes of certificates may be limited by the weighted average
of the net mortgage rates on the mortgage loans even if principal prepayments
do not occur.
Certain shortfalls in interest as a result of involuntary prepayments may
reduce the available distribution amount. In addition, if a loan seller
repurchases any mortgage loan from the trust due to breaches of representations
or warranties or document defects, the repurchase price paid will be passed
through to the holders of the certificates with the same effect as if the
mortgage loan had been prepaid in part or in full, and no yield maintenance
charge would be payable. A repurchase or the exercise of a purchase option may
adversely affect the yield to maturity on your certificates. In this respect,
see "Description of the Mortgage Pool--Representations and Warranties;
Repurchases and Substitutions" and "The Pooling Agreement--Realization Upon
Mortgage Loans" in this prospectus supplement.
MORTGAGE LOANS ARE NONRECOURSE AND ARE NOT INSURED OR GUARANTEED
The mortgage loans are not insured or guaranteed by any person or entity,
governmental or otherwise.
Investors should treat each mortgage loan as a nonrecourse loan. If a
default occurs, recourse generally may be had only against the specific
properties and other assets that have been pledged to secure the loan.
Consequently, payment prior to maturity is dependent primarily on the
sufficiency of the net operating income of the mortgaged property. Payment at
maturity is primarily dependent upon the market value of the mortgaged property
or the borrower's ability to refinance the mortgaged property.
RISKS OF DIFFERENT TIMING OF MORTGAGE LOAN AMORTIZATION
As mortgage loans pay down or properties are released, the remaining
mortgage loans may face a higher risk with respect to the diversity of property
types and property characteristics and with
S-36
respect to the number of borrowers. See the tables entitled "Distribution of
Remaining Term to Maturity" in Annex A to this prospectus supplement for a
description of the maturity dates of the mortgage loans. Because principal on
the offered certificates is payable in sequential order, and a class receives
principal only after the preceding class or classes have been paid in full,
classes that have a lower sequential priority are more likely to face the risk
of concentration discussed under "--Risks Relating to Loan Concentrations"
above than classes with a higher sequential priority.
BANKRUPTCY PROCEEDINGS ENTAIL CERTAIN RISKS
Under federal bankruptcy law, the filing of a petition in bankruptcy by or
against a borrower will stay the sale of the mortgaged property owned by that
borrower, as well as the commencement or continuation of a foreclosure action.
In addition, even if a court determines that the value of the mortgaged
property is less than the principal balance of the mortgage loan it secures,
the court may prevent a lender from foreclosing on the mortgaged property
subject to certain protection available to lender. As part of a restructuring
plan, a court may reduce the amount of secured indebtedness to the then-current
value of the mortgaged property, which would make the lender a general
unsecured creditor for the difference between the then-current value and the
amount of its outstanding mortgage indebtedness. A bankruptcy court also may:
(1) grant a debtor a reasonable time to cure a payment default on a mortgage
loan; (2) reduce periodic monthly payments due under a mortgage loan; (3)
change the rate of interest due on a mortgage loan; or (4) otherwise alter the
mortgage loan's repayment schedule.
Moreover, 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 out the junior lien. Certain of the borrowers or their affiliates
have subordinate debt secured by the related mortgaged properties. See "--Other
Financings" below. Additionally, the borrower's trustee or the borrower, as
debtor-in-possession, has certain special powers to avoid, subordinate or
disallow debts. In certain circumstances, the claims of the trustee may be
subordinated to financing obtained by a debtor-in-possession subsequent to its
bankruptcy.
Under federal bankruptcy law, a lender will be stayed from enforcing a
borrower's assignment of rents and leases. Federal bankruptcy law also may
interfere with the master servicer's or special servicer's ability to enforce
lockbox requirements. The legal proceedings necessary to resolve these issues
can be time consuming and costly and may significantly delay or diminish the
receipt of rents. Rents also may escape an assignment to the extent they are
used by the borrower to maintain the mortgaged property or for other court
authorized expenses.
Additionally, pursuant to subordination or intercreditor agreements for
certain of the mortgage loans, the subordinate lenders may have agreed that
they will not take any direct actions with respect to the related subordinated
debt, including any actions relating to the bankruptcy of the borrower, and
that the holder of the mortgage loan will have all rights to direct all such
actions. There can be no assurance that in the event of the borrower's
bankruptcy, a court will enforce such restrictions against a subordinated
lender.
In its decision in In re 203 North LaSalle Street Partnership, 246 B.R.
325 (Bankr. N.D. Ill. March 10, 2000), the United States Bankruptcy Court for
the Northern District of Illinois refused to enforce a provision of a
subordination agreement that allowed a first mortgagee to vote a second
mortgagee's claim with respect to a Chapter 11 reorganization plan on the
grounds that pre-bankruptcy contracts cannot override rights expressly provided
by the Bankruptcy Code. This holding, which one court has already followed,
potentially limits the ability of a senior lender to accept or reject a
reorganization plan or to control the enforcement of remedies against a common
borrower over a subordinated lender's objections.
As a result of the foregoing, the trustee's recovery with respect to
borrowers in bankruptcy proceedings may be significantly delayed, and the
aggregate amount ultimately collected may be substantially less than the amount
owed.
Certain of the mortgage loans may have sponsors that have previously filed
bankruptcy, which in some cases may have involved the same property which
currently secures the mortgage loan. In
S-37
each case, the related entity or person has emerged from bankruptcy. However,
we cannot assure you that such sponsors will not be more likely than other
sponsors to utilize their rights in bankruptcy in the event of any threatened
action by the mortgagee to enforce its rights under the related loan documents.
GEOGRAPHIC CONCENTRATION
This table shows the states with the concentrations of mortgaged
properties of over 5% of the aggregate principal balance of the pool of
mortgage loans as of the cut-off date by allocated loan amount:
AGGREGATE CUT-OFF DATE % OF INITIAL
STATE BALANCE POOL BALANCE
- ------------------------ ------------------------ -------------
Texas .................. $117,955,017 13.2%
New York ............... $100,691,029 11.3%
California ............. $ 91,237,824 10.2%
Arizona ................ $ 78,350,000 8.8%
Illinois ............... $ 67,883,684 7.6%
Florida ................ $ 66,757,712 7.5%
Virginia ............... $ 63,000,000 7.1%
North Carolina ......... $ 57,669,999 6.5%
Ohio ................... $ 46,930,246 5.3%
Concentrations of mortgaged properties in geographic areas may increase
the risk that adverse economic or other developments or natural disasters
affecting a particular region of the country could increase the frequency and
severity of losses on mortgage loans secured by those properties. In recent
periods, several regions of the United States have experienced significant real
estate downturns. The following geographic factors could adversely affect the
income from, and market value of, the mortgaged property and/or impair the
borrowers' ability to repay the mortgage loans:
o economic conditions in regions where the borrowers and the mortgaged
properties are located;
o conditions in the real estate market where the mortgaged properties are
located;
o changes in local governmental rules and fiscal policies; and
o acts of nature (including earthquakes, floods, forest fires or
hurricanes, which may result in uninsured losses).
For example, mortgaged properties located in California, Texas or Florida
may be more susceptible to certain hazards (such as earthquakes) than mortgaged
properties in other states.
ENVIRONMENTAL RISKS
The trust could become liable for a material adverse environmental
condition at an underlying mortgaged property. Any such potential liability
could reduce or delay payments on the offered certificates.
An environmental report was prepared for each mortgaged property securing
a mortgage loan no more than 16 months prior to the cut-off date. The
environmental reports were prepared pursuant to the American Society for
Testing and Materials standard for a Phase I environmental assessment. In
addition to the Phase I standards, many of the environmental reports included
additional research, such as limited sampling for asbestos-containing material,
lead-based paint, and radon, depending upon the property use and/or age.
Additionally, as needed pursuant to American Society for Testing and Materials
standards, supplemental Phase II site investigations were completed for some
mortgaged properties to resolve certain environmental issues. Phase II
investigation consists of sampling and/or testing.
None of the environmental assessments revealed any material adverse
condition or circumstance at any mortgaged property except for those:
S-38
o in which the adverse conditions were remediated or abated before the
closing date;
o in which an operations and maintenance plan or periodic monitoring of
the mortgaged property or nearby properties was in place or
recommended;
o for which an escrow for the remediation was established;
o for which an environmental insurance policy was obtained from a
third-party insurer;
o for which the principal of the borrower or another financially
responsible party has provided an indemnity or is required to take, or
is liable for the failure to take, such actions, if any, with respect
to such matters as have been required by the applicable governmental
authority or recommended by the environmental assessments;
o for which such conditions or circumstances were investigated further
and the environmental consultant recommended no further action or
remediation;
o as to which the borrower or other responsible party obtained a "no
further action" letter or other evidence that governmental authorities
are not requiring further action or remediation;
o that would not require substantial cleanup, remedial action or other
extraordinary response under environmental laws;
o involving radon; or
o in which the related borrower has agreed to seek a "case closed" or
similar status for the issue from the applicable governmental agency.
In certain cases, the identified condition was related to the presence of
asbestos-containing materials, lead-based paint and/or radon. Where these
substances were present, the environmental consultant generally recommended,
and the borrower was generally required to establish an operation and
maintenance plan to address the issue or, in the case of asbestos-containing
materials and lead-based paint, an abatement or removal program. Other
identified conditions could, for example, include leaks from storage tanks and
on-site spills. Corrective action, as required by the regulatory agencies, has
been or is currently being undertaken and, in some cases, the related borrowers
have made deposits into environmental reserve accounts. However, we cannot
assure you that any environmental indemnity, insurance or reserve amounts will
be sufficient to remediate the environmental conditions or that all
environmental conditions have been identified or that operation and maintenance
plans will be put in place and/or followed.
It is possible that the environmental reports and/or Phase II sampling did
not reveal all environmental liabilities, or that there are material
environmental liabilities of which we are not aware. Also, the environmental
condition of the mortgaged properties in the future could be affected by the
activities of tenants and occupants or by third parties unrelated to the
borrowers. For a more detailed description of environmental matters that may
affect the mortgaged properties, see "Risk Factors--Environmental Law
Considerations" and "Certain Legal Aspects of the Mortgage Loans--Environmental
Risks" in the prospectus.
Problems associated with mold may pose risks to the real property and may
also be the basis for personal injury claims against a borrower. Although the
mortgaged properties are required to be inspected periodically, there is no set
of generally accepted standards for the assessment of mold currently in place.
If left unchecked, the growth of mold could result in the interruption of cash
flow, litigation and remediation expenses which could adversely impact
collections from a mortgaged property.
COSTS OF COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS
A borrower may be required to incur costs to comply with various existing
and future federal, state or local laws and regulations applicable to the
related mortgaged property, for example, zoning laws and the Americans with
Disabilities Act of 1990, as amended, which requires all public accommodations
to meet certain federal requirements related to access and use by persons with
S-39
disabilities. See "Certain Legal Aspects of the Mortgage Loans--Americans With
Disabilities Act" in the prospectus. The expenditure of these costs or the
imposition of injunctive relief, penalties or fines in connection with the
borrower's noncompliance could negatively impact the borrower's cash flow and,
consequently, its ability to pay its mortgage loan.
NO REUNDERWRITING OF THE MORTGAGE LOANS
We have not reunderwritten the mortgage loans. Instead, we have relied on
the representations and warranties made by the loan sellers, and the applicable
loan seller's obligation to repurchase, substitute or cure a mortgage loan in
the event that a representation or warranty was not true when made and such
breach materially and adversely affects the value of the mortgage loan or the
interests of the certificateholders. These representations and warranties do
not cover all of the matters that we would review in underwriting a mortgage
loan and you should not view them as a substitute for reunderwriting the
mortgage loans. If we had reunderwritten the mortgage loans, it is possible
that the reunderwriting process may have revealed problems with a mortgage loan
not covered by a representation or warranty. In addition, we can give no
assurance that the applicable loan seller will be able to repurchase a mortgage
loan if a representation or warranty has been breached. See "Description of the
Mortgage Pool--Representations and Warranties; Repurchases and Substitutions"
in this prospectus supplement.
LITIGATION AND OTHER MATTERS AFFECTING THE MORTGAGED PROPERTIES OR BORROWERS
There may be pending or threatened legal proceedings against the borrowers
and the managers of the mortgaged properties and their respective affiliates
arising out of their ordinary business. Any such litigation may materially
impair distributions to certificateholders if borrowers must use property
income to pay judgments or litigation costs. We cannot assure you that any
litigation will not have a material adverse effect on your investment.
With respect to 2 mortgage loans, representing approximately 5.6% of the
aggregate principal balance of the pool of mortgage loans as of the cut-off
date, five members of the Rechler family, who are also indirect equityholders
of the borrowers under these mortgage loans, were on the board of directors of
Reckson Associates Realty Corp. ("RARC") at the time the sale of the properties
that secure these mortgage loans to the respective borrowers was approved by
the board of directors of RARC, following the recommendation of all six
independent directors of RARC. At least nine lawsuits have been filed
purportedly on behalf of RARC in various jurisdictions alleging that the
directors of RARC (including both the Rechler family members and the
independent directors) breached their respective fiduciary duties by approving
the sale. Although neither borrower under these mortgage loans is named a
defendant in these lawsuits, a judgment that adversely affects the indirect
equityholders and that is not covered by directors and officers insurance or
subject to indemnification by RARC could adversely affect their respective
mortgaged properties.
In addition, in the event the owner of a borrower experiences financial
problems, we cannot assure you that such owner would not attempt to take
actions with respect to the mortgaged property that may adversely affect the
borrower's ability to fulfill its obligations under the related mortgage loan.
OTHER FINANCINGS
When a mortgage loan borrower (or its constituent members) also has one or
more other outstanding loans (even if they are subordinated loans), the trust
is subjected to additional risk.
The borrower may have difficulty servicing and repaying multiple loans.
The existence of another loan will generally also make it more difficult for
the borrower to obtain refinancing of the related mortgage loan and may thereby
jeopardize repayment of the mortgage loan. Moreover, the need to service
additional debt may reduce the cash flow available to the borrower to operate
and maintain the mortgaged property.
Additionally, if the borrower (or its constituent members) defaults on its
mortgage loan and/or any other loan, actions taken by other lenders such as a
foreclosure or an involuntary petition for
S-40
bankruptcy against the borrower could impair the security available to the
trust, including the mortgaged property, or stay the trust's ability to
foreclose during the course of the bankruptcy case. The bankruptcy of another
lender also may operate to stay foreclosure by the trust. The trust may also be
subject to the costs and administrative burdens of involvement in foreclosure
or bankruptcy proceedings or related litigation.
In this regard, the mortgage loans generally prohibit borrowers from
incurring any additional debt secured by their mortgaged property without the
consent of the lender. However, the applicable loan sellers have informed us
that they are aware of certain permitted existing secured debt on certain
mortgage loans. In addition, substantially all of the mortgage loans permit the
related borrower to incur limited indebtedness in the ordinary course of
business that is not secured by the related mortgaged property. In addition,
the borrowers under certain of the mortgage loans have incurred and/or may
incur in the future unsecured debt other than in the ordinary course of
business. Moreover, in general, any borrower that does not meet single-purpose
entity criteria may not be restricted from incurring unsecured debt. See
"Description of the Mortgage Pool--General" in this prospectus supplement.
Additionally, the terms of certain mortgage loans permit or require the
borrowers to post letters of credit and/or surety bonds for the benefit of the
related mortgage loan, which may constitute a contingent reimbursement
obligation of the related borrower or an affiliate. The issuing bank or surety
will not typically agree to subordination and standstill protection benefiting
the mortgagee.
The mortgage loans generally place certain restrictions on the transfer
and/or pledging of general partnership and managing member equity interests in
a borrower such as specific percentage or control limitations. The terms of the
mortgages generally permit, subject to certain limitations, the transfer or
pledge of less than a controlling portion of the limited partnership or
non-managing member equity interests in a borrower. Certain of the mortgage
loans do not restrict the pledging of ownership interests in the related
borrower, but do restrict the transfer of ownership interests in the related
borrower by imposing a specific percentage, a control limitation or requiring
the consent of the mortgagee to any such transfer. Moreover, in general,
mortgage loans with borrowers that do not meet single-purpose entity criteria
may not restrict in any way the incurrence by the relevant borrower of
mezzanine debt. As of the cut-off date, the applicable loan sellers have
informed us that they are aware of certain mezzanine indebtedness with respect
to 2 mortgage loans (which represent approximately 11.1% of the aggregate
principal balance of the pool of mortgage loans as of the cut-off date). See
"Description of the Mortgage Pool--General" in this prospectus supplement.
Mezzanine debt is debt that is incurred by the owner of equity in one or
more borrowers and is secured by a pledge of the equity ownership interests in
such borrowers. Because mezzanine debt is secured by the obligor's equity
interest in the related borrowers, such financing effectively reduces the
obligor's economic stake in the related mortgaged property. The existence of
mezzanine debt may reduce cash flow on the borrower's mortgaged property after
the payment of debt service and may increase the likelihood that the owner of a
borrower will permit the value or income producing potential of a mortgaged
property to fall and may create a slightly greater risk that a borrower will
default on the mortgage loan secured by a mortgaged property whose value or
income is relatively weak.
Generally, upon a default under a mezzanine loan, the holder of the
mezzanine loan would be entitled to foreclose upon the equity in the related
borrower, which has been pledged to secure payment of such mezzanine debt.
Although this transfer of equity may not trigger the due on sale clause under
the related mortgage loan, it could cause the obligor under the mezzanine debt
to file for bankruptcy, which could negatively affect the operation of the
related mortgaged property and the related borrower's ability to make payments
on the related mortgage loan in a timely manner. Additionally, certain of the
mezzanine intercreditor agreements provide that upon a default under the
mortgage loan, the mezzanine lender may purchase the defaulted mortgage loan or
cure the default.
S-41
Although the pari passu companion loans related to the non serviced-loans
are not assets of the trust fund, the related borrower is still obligated to
make interest and principal payments on the pari passu companion loans. As a
result, the trust fund is subject to additional risks, including:
o the risk that the necessary maintenance of the related mortgaged
property could be deferred to allow the borrower to pay the required
debt service on these other obligations and that the value of the
mortgaged property may fall as a result; and
o the risk that it may be more difficult for the borrower to refinance
the mortgage loan or to sell the mortgaged property for purposes of
making any balloon payment on the entire balance of the pari passu
companion loan and the non-serviced loan upon the maturity of the
mortgage loan.
See "Description of the Mortgage Pool--General" in this prospectus
supplement.
RISKS RELATING TO BORROWER DEFAULT
The rate and timing of mortgage loan delinquencies and defaults will
affect:
o the aggregate amount of distributions on the offered certificates;
o their yield to maturity;
o their rate of principal payments; and
o their weighted average lives.
If losses on the mortgage loans exceed the aggregate certificate balance
of the classes of certificates subordinated to a particular class, that class
will suffer a loss equal to the full amount of the excess (up to the
outstanding certificate balance of that class).
If you calculate your anticipated yield based on assumed rates of defaults
and losses that are lower than the default rate and losses actually
experienced, and those losses are allocated to your certificates, your actual
yield to maturity will be lower than the assumed yield. Under certain extreme
scenarios, that yield could be negative. In general, the earlier a loss borne
by you on your certificates occurs, the greater the effect on your yield to
maturity.
Even if losses on the mortgage loans are not borne by your certificates,
those losses may affect the weighted average life and yield to maturity of your
certificates. This may be so, because those losses lead to your certificates
having a higher percentage ownership interest in the trust and related
distributions of principal payments on the mortgage loans than would otherwise
have been the case and the related prepayment may affect the pass-through rate
on your certificates. The effect on the weighted average life and yield to
maturity of your certificates will depend upon the characteristics of the
remaining mortgage loans.
Delinquencies and defaults on the mortgage loans may significantly delay
the receipt of distributions by you on your certificates, unless advances are
made to cover delinquent payments or the subordination of another class of
certificates fully offsets the effects of any delinquency or default.
Additionally, the courts of any state 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 action
unconscionable. See "Certain Legal Aspects of the Mortgage Loans--Foreclosure"
in the prospectus.
RISKS RELATING TO INTEREST ON ADVANCES AND SPECIAL SERVICING COMPENSATION
To the extent described in this prospectus supplement, the master
servicer, the special servicer or the trustee, as applicable, will be entitled
to receive interest on unreimbursed advances at the "Prime Rate" as published
in The Wall Street Journal. This interest will generally accrue from the date
on which the related advance is made or the related expense is incurred to the
date of reimbursement. In addition, under certain circumstances, including
delinquencies in the payment of
S-42
principal and/or interest, a mortgage loan will be specially serviced and the
special servicer is entitled to compensation for special servicing activities.
The right to receive interest on advances or special servicing compensation is
senior to the rights of certificateholders to receive distributions on the
offered certificates. The payment of interest on advances and the payment of
compensation to the special servicer may lead to shortfalls in amounts
otherwise distributable on your certificates.
BALLOON PAYMENTS
Mortgage loans with substantial remaining principal balances at their
stated maturity, also known as balloon loans, involve greater risk than fully
amortizing loans. This is because the borrower may be unable to repay the loan
at that time. In addition, fully amortizing mortgage loans which may pay
interest on an "actual/360" basis but have fixed monthly payments may, in
effect, have a small payment due at maturity.
A borrower's ability to repay a mortgage loan on its stated maturity date
typically will depend upon its ability either to refinance the mortgage loan or
to sell the mortgaged property at a price sufficient to permit repayment. A
borrower's ability to achieve either of these goals will be affected by a
number of factors, including:
o the availability of, and competition for, credit for commercial or
multifamily real estate projects, which fluctuate over time;
o the prevailing interest rates;
o the fair market value of the related mortgaged properties;
o the borrower's equity in the related mortgaged properties;
o the borrower's financial condition;
o the operating history and occupancy level of the mortgaged property;
o reductions in government assistance/rent subsidy programs;
o the tax laws; and
o prevailing general and regional economic conditions.
All of the mortgage loans, representing 100% of the aggregate principal
balance of the pool of mortgage loans as of the cut-off date, are expected to
have substantial remaining principal balances as of their respective stated
maturity dates. This includes 2 mortgage loans, representing approximately 4.9%
and 0.4% of the aggregate principal balance of the pool of mortgage loans as of
the cut-off date, which pay interest only for the first 36 or 12 months,
respectively, of their respective terms and 51 mortgage loans, representing
approximately 64.3% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date, which pay interest only for their entire term.
We cannot assure you that each borrower will have the ability to repay the
remaining principal balances on its stated maturity date.
GROUND LEASES AND OTHER LEASEHOLD INTERESTS
A leasehold interest under a ground lease secures 1 of the mortgage loans,
representing approximately 1.1% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date. For purposes of this prospectus
supplement, the encumbered interest will be characterized as a "fee interest"
if (i) the borrower has a fee interest in all or substantially all of the
mortgaged property (provided that if the borrower has a leasehold interest in
any portion of the mortgaged property, such portion is not, individually or in
the aggregate, material to the use or operation of the mortgaged property), or
(ii) the mortgage loan is secured by the borrower's leasehold interest in the
mortgaged property as well as the borrower's (or an affiliate of the
borrower's) overlapping fee interest in the related mortgaged property.
Leasehold mortgage loans are subject to certain risks not associated with
mortgage loans secured by a lien on the fee estate of the borrower. The most
significant of these risks is that if the
S-43
related borrower's leasehold were to be terminated upon a lease default, the
lender would lose its security. Generally, each related ground lease requires
the lessor to give the lender notice of the borrower's defaults under the
ground lease and an opportunity to cure them, permits the leasehold interest to
be assigned to the lender or the purchaser at a foreclosure sale, in some cases
only upon the consent of the lessor, and contains certain other protective
provisions typically included in a "mortgageable" ground lease.
Upon the bankruptcy of a lessor or a lessee under a ground lease, the
debtor has the right to assume or reject the lease. If a debtor lessor rejects
the lease, the lessee has the right to remain in possession of its leased
premises for the rent otherwise payable under the lease for the term of the
ground lease (including renewals). If a debtor lessee/borrower rejects any or
all of the lease, the leasehold lender could succeed to the lessee/borrower's
position under the lease only if the lessor specifically grants the lender such
right. If both the lessor and the lessee/borrowers are involved in bankruptcy
proceedings, the trustee may be unable to enforce the bankrupt
lessee/borrower's right to refuse to treat a ground lease rejected by a
bankrupt lessor as terminated. In such circumstances, a ground lease could be
terminated notwithstanding lender protection provisions contained in the ground
lease or in the mortgage.
Further, in a recent decision by the United States Court of Appeals for
the Seventh Circuit (Precision Indus. v. Qualitech Steel SBQ, LLC, 327 F.3d 537
(7th Cir. 2003)) the court ruled with respect to an unrecorded lease of real
property that where a statutory sale of the fee interest in leased property
occurs under Section 363(f) of the Bankruptcy Code (11 U.S.C. Section 363(f))
upon the bankruptcy of a landlord, such sale terminates a lessee's possessory
interest in the property, and the purchaser assumes title free and clear of any
interest, including any leasehold estates. Pursuant to Section 363(e) of the
Bankruptcy Code (11 U.S.C. Section 363(a)), a lessee may request the bankruptcy
court to prohibit or condition the statutory sale of the property so as to
provide adequate protection of the leasehold interest; however, the court ruled
that this provision does not ensure continued possession of the property, but
rather entitles the lessee to compensation for the value of its leasehold
interest, typically from the sale proceeds. While there are certain
circumstances under which a "free and clear" sale under Section 363(f) of the
Bankruptcy Code would not be authorized (including that the lessee could not be
compelled in a legal or equitable proceeding to accept a monetary satisfaction
of his possessory interest, and that none of the other conditions of Section
363(f)(1)-(4) of the Bankruptcy Code otherwise permits the sale), we cannot
provide assurances that those circumstances would be present in any proposed
sale of a leased premises. As a result, we cannot provide assurances that, in
the event of a statutory sale of leased property pursuant to Section 363(f) of
the Bankruptcy Code, the lessee may be able to maintain possession of the
property under the ground lease. In addition, we cannot provide assurances that
the lessee and/or the lender will be able to recuperate the full value of the
leasehold interest in bankruptcy court.
RISKS ASSOCIATED WITH ONE ACTION RULES
Several states (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 special servicer
is required to obtain advice of counsel prior to enforcing any of the trust
fund's rights under any of the mortgage loans that include mortgaged properties
where a "one action" rule could be applicable. In the case of a multi-property
mortgage loan which is secured by mortgaged properties located in multiple
states, the special servicer may be required to foreclose first on properties
located in states where "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 the Mortgage Loans--Foreclosure" in the prospectus.
TAX CONSIDERATIONS RELATING TO FORECLOSURE
If the trust fund acquires a mortgaged property pursuant to a foreclosure
or deed in lieu of foreclosure, the special servicer must retain an independent
contractor to operate the property. Among other items, the independent
contractor generally will not be able to perform construction
S-44
work other than repair, maintenance or certain types of tenant build-outs,
unless the construction was at least 10% completed when defaulted or the
default of the mortgage loan becomes imminent. Any net income from such
operation (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
non-customary service, will subject the related Loan REMICs or the Lower-Tier
REMIC to federal tax (and possibly state or local tax) on such income at the
highest marginal corporate tax rate (currently 35%). In such event, the net
proceeds available for distribution to certificateholders will be reduced. The
special servicer may permit the related Loan REMICs or 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 holders of certificates is greater
than under another method of operating or leasing the mortgaged property. In
addition, if the trust were to acquire one or more mortgaged properties
pursuant to a foreclosure or deed in lieu of foreclosure, upon acquisition of
those mortgaged properties, the trust fund may in certain jurisdictions,
particularly in New York, be required to pay state or local transfer or excise
taxes upon liquidation of such properties. Such state or local taxes may reduce
net proceeds available for distribution to the certificateholders.
SOME MORTGAGED PROPERTIES MAY NOT BE READILY CONVERTIBLE TO ALTERNATIVE USES
Some of the mortgaged properties securing the mortgage loans included in
the trust fund may not be readily convertible (or convertible at all) to
alternative uses if those properties were to become unprotable for any reason.
For example, a mortgaged property may not be readily convertible due to
restrictive covenants related to such mortgaged property, including in the case
of mortgaged properties that are part of a condominium regime, the use and
other restrictions imposed by the condominium declaration and other related
documents, especially in a situation where a mortgaged property does not
represent the entire condominium regime. Additionally, any vacant theater space
would not easily be converted to other uses due to the unique construction
requirements of theaters. In addition, converting commercial properties to
alternate uses generally requires substantial capital expenditures and could
result in a significant adverse effect on, or interruption of, the revenues
generated by such properties. The liquidation value of any mortgaged property,
subject to limitations of the kind described above or other limitations on
convertibility of use, may be substantially less than would be the case if the
property were readily adaptable to other uses.
Zoning or other restrictions also may prevent alternative uses. See
"--Zoning Compliance and Use Restrictions" below.
ZONING COMPLIANCE AND USE RESTRICTIONS
Certain of the mortgaged properties may not comply with current zoning
laws, including density, use, parking, height and set back requirements, due to
changes in zoning requirements after such mortgaged properties were
constructed. These properties, as well as those for which variances or special
permits were issued, are considered to be a "legal non-conforming use" and/or
the improvements are considered to be "legal non-conforming structures." This
means that the borrower is not required to alter its structure to comply with
the existing or new law; however, the borrower may not be able to rebuild the
premises "as is" in the event of a substantial casualty loss. This may
adversely affect the cash flow of the property following the loss. If a
substantial casualty were to occur, we cannot assure you that insurance
proceeds would be available to pay the mortgage loan in full. In addition, if
the property were repaired or restored in conformity with the current law, the
value of the property or the revenue-producing potential of the property may
not be equal to that before the casualty.
The failure of a mortgaged property to comply with zoning laws or to be a
"legal non-conforming use" or "legal non-conforming structure" may adversely
affect market value of the mortgaged property or the borrower's ability to
continue to use it in the manner it is currently being used.
In addition, certain of the mortgaged properties may be subject to certain
use restrictions imposed pursuant to reciprocal easement agreements or
operating agreements. Such use restrictions could include, for example,
limitations on the character of the improvements or the properties,
S-45
limitations affecting noise and parking requirements, among other things, and
limitations on the borrowers' right to operate certain types of facilities
within a prescribed radius. These limitations could adversely affect the
ability of the related borrower to lease the mortgaged property on favorable
terms, thus adversely affecting the borrower's ability to fulfill its
obligations under the related mortgage loan.
RISKS OF INSPECTIONS RELATING TO PROPERTIES
Licensed engineers or consultants inspected the mortgaged properties at or
about the time of the origination of the mortgage loans to assess items such as
structural integrity of the buildings and other improvements on the mortgaged
property, including exterior walls, roofing, interior construction, mechanical
and electrical systems and general condition of the site, buildings and other
improvements. However, we cannot assure you that all conditions requiring
repair or replacement were identified. No additional property inspections were
conducted in connection with the closing of the offered certificates.
PROPERTY INSURANCE
All of the mortgage loans require the related borrower to maintain, or
cause to be maintained, property insurance. However, the mortgaged properties
may suffer casualty losses due to risks which were not covered by insurance or
for which insurance coverage is inadequate. In addition, approximately 13.2%,
10.2% and 7.5% of the mortgaged properties, by aggregate principal balance of
the pool of mortgage loans as of the cut-off date, are located in Texas,
California and Florida, respectively, states that have historically been at
greater risk regarding acts of nature (such as earthquakes, floods and
hurricanes) than other states. We cannot assure you that borrowers will be able
to maintain adequate insurance. Moreover, if reconstruction or any major
repairs are required, changes in laws may materially affect the borrower's
ability to effect any reconstruction or major repairs or may materially
increase the costs of the reconstruction or repairs.
Certain mortgage loans are secured by improvements for which coverage for
acts of terrorism have been waived or are required only if certain conditions
(such as availability at reasonable rates or maximum cost limits) are
satisfied.
In light of the September 11, 2001 terrorist attacks in New York City and
the Washington, D.C. area, many reinsurance companies (which assume some of the
risk of policies sold by primary insurers) had eliminated coverage for acts of
terrorism from their reinsurance policies. Without that reinsurance coverage,
primary insurance companies would have to assume that risk themselves, which
may cause them to eliminate such coverage in their policies, increase the
amount of the deductible for acts of terrorism or charge higher premiums for
such coverage. In order to offset this risk, Congress passed the Terrorism Risk
Insurance Act of 2002, which established the Terrorism Insurance Program. The
Terrorism Insurance Program is administered by the Secretary of the Treasury
and will provide financial assistance from the United States government to
insurers in the event of another terrorist attack that results in an insurance
claim. The Treasury Department will establish procedures for the Terrorism
Insurance Program under which the federal share of compensation will be equal
to 90% of that portion of insured losses that exceeds an applicable insurer
deductible required to be paid during each program year. The federal share in
the aggregate in any program year may not exceed $100 billion. An insurer that
has paid its deductible is not liable for the payment of any portion of total
annual United States-wide losses that exceed $100 billion, regardless of the
terms of the individual insurance contracts.
The Terrorism Insurance Program requires that each insurer for policies in
place prior to November 26, 2002, provide its insureds with a statement of the
proposed premiums for terrorism coverage, identifying the portion of the risk
that the federal government will cover, within 90 days after November 26, 2002.
Insureds will have 30 days to accept the continued coverage and pay the
premium. If an insured does not pay the premium, insurance for acts of
terrorism may be excluded from the policy. All policies for insurance issued
after November 26, 2002 must make similar disclosure. The Terrorism Risk
Insurance Act of 2002 does not require insureds to purchase the
S-46
coverage nor does it stipulate the pricing of the coverage. In addition, there
can be no assurance that all of the borrowers under the mortgage loans have
accepted the continued coverage or, if any have, that they will continue to
maintain the coverage.
Through December 2004, insurance carriers are required under the program
to provide terrorism coverage in their basic "all-risk" policies. By September
1, 2004, the Secretary of the Treasury must determine whether mandatory
participation should be extended through December 2005. Any commercial property
and casualty terrorism insurance exclusion that was in force on November 26,
2002 is automatically voided to the extent that it excludes losses that would
otherwise be insured losses, subject to the immediately preceding paragraph.
Any state approval of such types of exclusions in force on November 26, 2002 is
also voided.
However, the Terrorism Insurance Program applies to United States risks
only and to acts that are committed by an individual or individuals acting on
behalf of foreign person or foreign interest as an effort to influence or
coerce United States civilians or the United States government. It remains
unclear what acts will fall under the purview of the Terrorism Insurance
Program.
Furthermore, because the Terrorism Insurance Program has only been
recently passed into law, there can be no assurance that it or state
legislation will substantially lower the cost of obtaining terrorism insurance.
Finally, the Terrorism Insurance Program terminates on December 31, 2004
(with a potential to extend to December 31, 2005). There can be no assurance
that such temporary program will create any long-term changes in the
availability and cost of such insurance. Moreover, there can be no assurance
that such program will be renewed or extended, or that subsequent terrorism
insurance legislation will be passed upon its expiration.
The various forms of insurance maintained with respect to any of the
mortgaged properties, including casualty insurance, environmental insurance and
earthquake insurance, may be provided under a blanket insurance policy. That
blanket insurance policy will also cover other real properties, some of which
may not secure mortgage loans in the trust. As a result of total limits under
any of those blanket policies, losses at other properties covered by the
blanket insurance policy may reduce the amount of insurance coverage with
respect to a property securing one of the loans in the trust.
With respect to certain of the mortgage loans, the "all-risk" policy
specifically excludes terrorism insurance from its coverage. In some such
cases, the related borrower obtained supplemental insurance to cover terrorism
risk. In other cases, the lender waived the requirement that such insurance be
maintained.
With respect to certain of the mortgage loans, the related mortgage loan
documents generally provide that the borrowers are required to maintain
comprehensive all-risk casualty insurance but may not specify the nature of the
specific risks required to be covered by such insurance policies.
Even if the mortgage loan documents specify that the related borrower must
maintain all-risk casualty insurance or other insurance that covers acts of
terrorism, the borrower may fail to maintain such insurance and the master
servicer or special servicer may not enforce such default or cause the borrower
to obtain such insurance if the special servicer has determined, in accordance
with the servicing standards, that either (a) such insurance is not available
at any rate or (b) such insurance is not available at commercially reasonable
rates (which determination, with respect to terrorism insurance, will be
subject to the consent of the controlling certificateholder) or that such
hazards are not at the time commonly insured against for properties similar to
the mortgaged property and located in or around the geographic region in which
such mortgaged property is located. Additionally, if the related borrower fails
to maintain such insurance, the master servicer or the special servicer, as
applicable, will not be required to maintain such terrorism insurance coverage
if the special servicer determines, in accordance with the servicing standards,
that such insurance is not available for the reasons set forth in (a) or (b) of
the preceding sentence. Furthermore, at the time existing insurance policies
are subject to renewal, there is no assurance that terrorism insurance coverage
will be available and covered under the new policies or, if covered, whether
such coverage will be adequate. Most insurance policies covering commercial
real properties such as the mortgaged properties are
S-47
subject to renewal on an annual basis. If such coverage is not currently in
effect, is not adequate or is ultimately not continued with respect to some of
the mortgaged properties and one of those properties suffers a casualty loss as
a result of a terrorist act, then the resulting casualty loss could reduce the
amount available to make distributions on your certificate.
We cannot assure you that all of the mortgaged properties will be insured
against the risks of terrorism and similar acts. As a result of any of the
foregoing, the amount available to make distributions on your certificates
could be reduced.
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 (including certain properties in close proximity to the mortgaged
properties). 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.
POTENTIAL CONFLICTS OF INTEREST
The pooling and servicing agreement will provide that the mortgage loans
are required to be administered in accordance with the servicing standards
without regard to ownership of any certificate by a servicer or any of their
affiliates. See "The Pooling Agreement--General" in this prospectus supplement.
In addition, the master servicer, a subservicer, the special servicer or
any of their respective affiliates may have interests when dealing with the
mortgage loans that are in conflict with those of holders of the offered
certificates, especially if the master servicer, a subservicer, the special
servicer or any of their respective affiliates holds Series 2004-C1 non-offered
certificates or companion loans, or has financial interests in or other
financial dealings with a borrower under any of the mortgage loans. For
instance, a special servicer that holds Series 2004-C1 non-offered certificates
could seek to reduce the potential for losses allocable to those certificates
from a troubled mortgage loan by deferring acceleration in hope of maximizing
future proceeds. However, that action could result in less proceeds to the
trust than would be realized if earlier action had been taken. In general, no
servicer is required to act in a manner more favorable to the offered
certificates or any particular class of offered certificates than to Series
2004-C1 non-offered certificates or the related companion loans.
Each servicer services and will, in the future, service existing and new
loans for third parties in the ordinary course of its servicing business,
including portfolios of loans similar to the mortgage loans that will be
included in the trust. The real properties securing these other loans may be in
the same markets as, and compete with, certain of the mortgaged properties
securing the mortgage loans that will be included in the trust. Consequently,
personnel of any of the servicers may perform services, on behalf of the trust,
with respect to the mortgage loans at the same time as they are performing
services, on behalf of other persons, with respect to other mortgage loans
secured by properties that compete with the mortgaged properties securing the
mortgage loans. This may pose inherent conflicts for the master servicer or the
special servicer.
In addition, certain of the mortgage loans included in the trust may have
been refinancings of debt previously held by a loan seller or an affiliate of a
loan seller and the loan sellers or their affiliates may have or have had
equity investments in the borrowers or mortgaged properties under certain of
the mortgage loans included in the trust. Each of the loan sellers and its
affiliates have made and/or may make loans to, or equity investments in,
affiliates of the borrowers under the mortgage loans.
The managers of the mortgaged properties and the borrowers may experience
conflicts of interest in the management and/or ownership of the mortgaged
properties because:
o a substantial number of the mortgaged properties are managed by
property managers affiliated with the respective borrowers;
S-48
o these property managers also may manage and/or franchise additional
properties, including properties that may compete with the mortgaged
properties; and
o affiliates of the managers and/or the borrowers, or the managers and/or
the borrowers themselves, also may own other properties, including
competing properties.
YOU WILL NOT HAVE ANY CONTROL OVER THE SERVICING OF THE NON-SERVICED LOANS
Each of the Water Tower Place loan, the DDR Portfolio loan and the 237
Park Avenue loan are secured by a mortgaged property that also secures one or
more pari passu companion loans that are not assets of the trust and are
serviced under pooling and servicing agreements separate from the pooling and
servicing agreement under which your certificates are issued, by the master
servicer and special servicer that are parties to the related pooling and
servicing agreement, and according to the servicing standards provided for in
the related separate pooling and servicing agreement. As a result, you will
have less control over the servicing of these non-serviced loans than you would
if these non-serviced loans were being serviced by the master servicer and the
special server under the pooling and servicing agreement for your certificates.
See "The Pooling Agreement--Servicing of the Non-Serviced Loans" in this
prospectus supplement.
CONFLICTS OF INTEREST MAY OCCUR AS A RESULT OF THE RIGHTS OF THIRD PARTIES TO
TERMINATE THE SPECIAL SERVICER OF THE NON-SERVICED LOANS
Holders of certain pari passu companion loans and other parties also have
the right under certain circumstances to remove the special servicer under a
pooling and servicing agreement that controls the servicing of the non-serviced
loans and appoint a special servicer for one or more mortgage loans over which
they have appointment power acting alone or jointly with the majority
certificateholder of the controlling class. The parties with this appointment
power may have special relationships or interests that conflict with those of
the holders of one or more classes of certificates. In addition, they do not
have any duties to the holders of any class of certificates, may act solely in
their own interests, and will have no liability to any certificateholders for
having done so. No certificateholder may take any action against the majority
certificateholder of the controlling class, the holders of companion loans or
other parties for having acted solely in their respective interests. See
"Description of the Mortgage Pool--The Non-Serviced Loans" in this prospectus
supplement.
SPECIAL SERVICER MAY BE DIRECTED TO TAKE ACTIONS
In connection with the servicing of the specially serviced mortgage loans,
the special servicer may, at the direction of the controlling class
representative, take actions with respect to the specially serviced mortgage
loans that could adversely affect the holders of some or all of the classes of
offered certificates and the holder of the controlling class will have no duty
or liability to any other certificateholder. See "The Pooling Agreement--The
Controlling Class Representative" in this prospectus supplement. The
controlling class representative will be controlled by the controlling class
certificateholders, which may have interests in conflict with those of the
certificateholders of the classes of offered certificates. As a result, it is
possible that the controlling class representative may direct the special
servicer to take actions which conflict with the interests of certain classes
of the offered certificates. However, the special servicer is not permitted to
take actions which are prohibited by law or violate the servicing standards or
the terms of the mortgage loan documents.
With respect to certain mortgage loans with pari passu companion loans,
similar rights under a pooling and servicing agreement that controls the
servicing of the non-serviced loans may be exercisable by the holders of pari
passu companion loans and the related controlling class of certificateholders
of any trust or operating advisors appointed by them, in certain cases acting
jointly with the controlling class of the offered certificates. The interests
of any of these holders or controlling class of certificateholders or operating
advisors may also conflict with those of the holders of the controlling class
or the interests of the holders of the offered certificates. As a result,
approvals to proposed servicer actions may not be granted in all instances
thereby potentially adversely affecting some or all of the classes of offered
certificates. No certificateholder may take any action
S-49
against any of the parties with these approval or consent rights for having
acted solely in their respective interests. See "Description of the Mortgage
Pool--The Non-Serviced Loans" in this prospectus supplement.
In addition, the special servicer may be removed without cause by the
controlling class representative as described in this prospectus supplement
other than with respect to a non-serviced loan. With respect to the
non-serviced loan known as 237 Park Avenue, the related directing holder may
only terminate the existing special servicer for cause. With respect to each of
the non-serviced loans known as DDR Portfolio and Water Tower Place, the
special servicer may be removed as special servicer for those loans and the
related companion loans at any time, with or without cause, but only with the
consent of the majority holders of the controlling classes of each trust that
holds those non-serviced loans or any related companion loan (or if not
securitized, the holder of the related note) and the controlling class of this
trust. The applicable majority holders of those controlling classes or holders
will jointly appoint a replacement special servicer, subject to rating agency
confirmation that such appointment would not result in the downgrade,
withdrawal or qualification of the then current ratings of the certificates
issued in any securitization that holds the non-serviced loans or any related
companion loans. If the controlling classes or holders are not able to agree on
a successor special servicer, the third party operating advisor shall select
one of the proposed successor special servicers. See "Description of the
Mortgage Pool--The Non-Serviced Loans" in this prospectus supplement.
YOUR LACK OF CONTROL OVER TRUST FUND CAN CREATE RISKS
You and other certificateholders generally do not have a right to vote and
do not have the right to make decisions with respect to the administration of
the trust. See "The Pooling Agreement--General" in this prospectus supplement.
Those decisions are generally made, subject to the express terms of the pooling
and servicing agreement, by the master servicer, the special servicer or the
trustee, as applicable. Any decision made by one of those parties in respect of
the trust, even if that decision is determined to be in your best interests by
that party, may be contrary to the decision that you or other
certificateholders would have made and may negatively affect your interests.
LOAN SELLERS MAY NOT BE ABLE TO MAKE A REQUIRED REPURCHASE OR SUBSTITUTION OF A
DEFECTIVE MORTGAGE LOAN
Each loan seller is the sole warranting party in respect of the mortgage
loans sold by such loan seller to us. Neither we nor any of our affiliates
(except Goldman Sachs Mortgage Company in its capacity as a loan seller) are
obligated to repurchase or substitute any mortgage loan in connection with
either a breach of any loan seller's representations and warranties or any
document defects, if such loan seller defaults on its obligation to do so. We
cannot provide assurances that the loan sellers will have the financial ability
to effect such repurchases or substitutions. Any mortgage loan that is not
repurchased or substituted and that is not a "qualified mortgage" for a REMIC
may cause the trust fund to fail to qualify as one or more REMICs or cause the
trust fund to incur a tax. See "Description of the Mortgage
Pool--Representations and Warranties; Repurchases and Substitutions" in this
prospectus supplement and Annex D to this prospectus supplement for a summary
of certain representations and warranties.
SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
As described in this prospectus supplement, unless your certificates are
Class A-1 or Class A-2 certificates, your rights to receive distributions of
amounts collected or advanced on or in respect of the mortgage loans will be
subordinated to those of the holders of the offered certificates with an
earlier alphabetical designation and to the Class X certificates.
See "Description of the Offered Certificates--Subordination" in this
prospectus supplement.
RISKS OF LIMITED LIQUIDITY AND MARKET VALUE
Your certificates will not be listed on any national securities exchange
or traded on any automated quotation systems of any registered securities
association, and there is currently no
S-50
secondary market for your certificates. While the underwriters currently intend
to make a secondary market in the offered certificates, they are not obligated
to do so. Additionally, one or more purchasers may purchase substantial
portions of one or more classes of offered certificates. Accordingly, you may
not have an active or liquid secondary market for your certificates. Lack of
liquidity could result in a substantial decrease in the market value of your
certificates. The market value of your certificates also may be affected by
many other factors, including the then-prevailing interest rates and market
perceptions of risks associated with commercial mortgage lending.
BOOK-ENTRY REGISTRATION
Your 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 your name. As a result, you will not be recognized as
a certificateholder, or holder of record of your certificates. See "Description
of the Offered Certificates--Book-Entry Registration" in this prospectus
supplement and "Description of the Offered Certificates--General" in the
prospectus for a discussion of important considerations relating to not being a
certificateholder of record.
OTHER RISKS
See "Risk Factors" in the prospectus for a description of certain other
risks and special considerations that may be applicable to your certificates.
S-51
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The assets of the trust created pursuant to the Pooling Agreement (the
"Trust Fund") will consist of a pool of fixed rate mortgage loans (the
"Mortgage Loans" or the "Mortgage Pool") with an aggregate principal balance as
of April 1, 2004 (the "Cut-Off Date"), after deducting payments of principal
due on such date, of approximately $892,264,316 (with respect to each Mortgage
Loan, the "Cut-Off Date Balance" and, in the aggregate, the "Initial Pool
Balance"). Each Mortgage Loan is evidenced by a promissory note (a "Mortgage
Note") and secured by a mortgage, deed of trust or other similar security
instrument (a "Mortgage") creating a first lien on a fee simple or leasehold
interest in a retail, office, multifamily, industrial, hotel or self-storage
property (each, a "Mortgaged Property"). The Mortgage Loans are generally
non-recourse loans. In the event of a borrower default on a non-recourse
mortgage loan, recourse may be had only against the specific mortgaged property
and the other limited assets securing the mortgage loan, and not against the
borrower's other assets.
The descriptions in this prospectus supplement of the Mortgage Loans and
the Mortgaged Properties are based upon the mortgage pool as it is expected to
be constituted as of the close of business on the Closing Date, assuming that
(i) all scheduled principal and interest payments due on or before the Cut-Off
Date will be made and (ii) no defaults, delinquencies or prepayments on any
Mortgage Loan on or prior to the Cut-Off Date. The sum of the numerical data in
any column in a table may not equal the indicated total due to rounding. Unless
otherwise indicated, all figures presented in this prospectus supplement are
calculated as described under "Description of the Mortgage Pool--Additional
Information" in this prospectus supplement and all percentages represent the
indicated percentage of the Initial Pool Balance.
All information presented in this prospectus supplement with respect to a
Mortgage Loan with a Pari Passu Companion Loan is calculated without regard to
the related Pari Passu Companion Loan, unless otherwise indicated. The loan
amount used in this prospectus supplement for purposes of calculating the LTV's
and DSCR's for each of the Non-Serviced Loans is the aggregate principal
balance of the Mortgage Loan and the related Pari Passu Companion Notes.
Of the Mortgage Loans to be included in the Trust Fund:
o Fifty-three (53) Mortgage Loans (the "Archon Loans"), representing
approximately 73.6% of the Initial Pool Balance, were originated by
Archon Financial, L.P. ("Archon");
o Eleven (11) Mortgage Loans (the "Prudential Loans"), representing
approximately 13.4% of the Initial Pool Balance, were originated by
Prudential Mortgage Capital Company, LLC ("PMCC") or a wholly-owned
subsidiary of PMCC; Prudential Mortgage Capital Funding, LLC ("PMCF")
is a wholly-owned subsidiary of PMCC; and
o One (1) Mortgage Loan (the "Water Tower Place Loan"), representing
approximately 6.3% of the Initial Pool Balance, was originated jointly
by Archon and Commerzbank AG, New York Branch ("Commerzbank");
o One (1) Mortgage Loan (the "Greenwich Loan"), representing
approximately 4.9% of the Initial Pool Balance, was originated by
Greenwich Capital Financial Products, Inc. ("GCFP"); and
o One (1) Mortgage Loan (the "WAMU Loan"), representing approximately
1.8% of the Initial Pool Balance, was originated by Washington Mutual
Bank, FA (or its predecessor by merger) ("WAMU").
The originators of the Mortgage Loans are referred to in this prospectus
supplement as the "Originators". The Archon Loans and the WAMU Loan were
originated for sale to Goldman Sachs Mortgage Company ("GSMC"). GSMC acquired
the Archon Loans and the WAMU Loan. GS Mortgage Securities Corporation II (the
"Depositor") will acquire the Mortgage Loans from GSMC, PMCF, GCFP and
Commerzbank (collectively, the "Loan Sellers") on or about April __, 2004 (the
"Closing Date"). The Depositor will cause the Mortgage Loans in the Mortgage
Pool to be assigned to the Trustee pursuant to the Pooling Agreement.
S-52
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
GENERAL MORTGAGE LOAN CHARACTERISTICS
(AS OF THE CUT-OFF DATE, UNLESS OTHERWISE INDICATED)
Initial Cut-Off Date Balance(1) .............................. $892,264,316
Number of Mortgage Loans ..................................... 67
Number of Mortgaged Properties ............................... 105
Average Mortgage Loan Balance ................................ $13,317,378
Weighted Average Mortgage Rate ............................... 5.019%
Range of Mortgage Rates ...................................... 4.200% to 6.060%
Weighted Average Remaining Term to Maturity (months) ......... 63 months
Range of Remaining Terms to Maturity (months) ................ 47 months to
84 months
Weighted Average DSCR(2) ..................................... 2.05x
Range of DSCRs(2) ............................................ 1.38x to 3.44x
Weighted Average LTV(3) ...................................... 67.64%
Range of LTVs(3) ............................................. 46.43% to 82.77%
Weighted Average LTV at Maturity(4) .......................... 65.38%
Balloon Mortgage Loans ....................................... 100.00%
Defeasance Loans ............................................. 82.40%
- ----------
(1) Subject to a permitted variance of plus or minus 10%.
(2) "DSCR" for any Mortgage Loan is equal to the Net Cash Flow from the
related Mortgaged Property divided by the annual debt service for such
Mortgage Loan. The annual debt service used for purposes of calculating
the DSCR for each of the Non-Serviced Loans is the aggregate annual debt
service of the Non-Serviced Loan and the related Pari Passu Companion
Loan with the additional adjustments for cross-collateralized mortgage
loan groups and the Mortgage Loans with earnout provisions described on
Annex A to this prospectus supplement.
(3) "LTV" or "Loan-to-Value Ratio" means, with respect to any Mortgage Loan,
the principal balance of such Mortgage Loan as of the Cut-Off Date
divided by the appraised value of the Mortgaged Property or Properties
securing such Mortgage Loan as of the date of the original appraisal (or,
in certain cases, as updated in contemplation of this transaction). The
principal balance used for purposes of calculating the LTV for each of
the Non-Serviced Loans is the aggregate principal balance of the
Non-Serviced Loan and the related Pari Passu Companion Loan with the
additional adjustments for cross-collateralized mortgage loan groups and
the Mortgage Loans with earnout provisions described on Annex A to this
prospectus supplement.
(4) "LTV at Maturity" for any Mortgage Loan is calculated in the same manner
as LTV as of the Cut-Off Date, except that the Cut-Off Date Balance used
to calculate the LTV as of the Cut-Off Date has been adjusted to give
effect to the amortization of the applicable Mortgage Loan up to its
maturity date. Such calculation thus assumes that the appraised value of
the Mortgaged Property or Properties securing a Mortgage Loan on the
maturity date is the same as the appraised value as of the date of the
original appraisal with the additional adjustments for
cross-collateralized mortgage loan groups and the Mortgage Loans with
earnout provisions described on Annex A to this prospectus supplement.
There can be no assurance that the value of any particular Mortgaged
Property is now, will be at maturity equal to or greater than its
original appraised value.
Where a Mortgage Loan is secured by multiple properties, statistical
information in this prospectus supplement relating to geographical locations
and property types of the Mortgaged Properties is based on the principal
balance allocated to such property (each, an "Allocated Loan Amount"). The
Allocated Loan Amount, where not stated in the Mortgage Loan documents, is
generally based on the relative appraised values of such properties. In
addition, wherever information is presented in this prospectus supplement with
respect to LTVs or DSCRs, the LTV or DSCR of each Mortgaged Property securing a
Mortgage Loan secured by multiple Mortgaged Properties is assumed to be the LTV
or DSCR of such Mortgage Loan in the aggregate.
The terms of certain Mortgage Loans permit the borrowers to post letters
of credit and/or surety bonds for the benefit of the mortgagee under the
Mortgage Loans, which may constitute a contingent reimbursement obligation of
the related borrower or an affiliate. The issuing bank or surety will not
typically agree to subordination and standstill protection benefiting the
mortgagee.
S-53
Substantially all of the Mortgage Loans permit the related borrower to
incur limited indebtedness in the ordinary course of business that is not
secured by the related Mortgaged Property. Moreover, in general, any borrower
that does not meet single-purpose entity criteria may not be restricted from
incurring unsecured debt.
Additionally, although the Mortgage Loans generally place certain
restrictions on incurring mezzanine debt by the pledging of general partnership
and managing member equity interests in a borrower, such as specific percentage
or control limitations, the terms of the mortgages generally permit, subject to
certain limitations, the pledge of less than a controlling portion of the
limited partnership or non-managing membership equity interests in a borrower.
However, certain of the Mortgage Loans do not restrict the pledging of
ownership interests in the borrower, but do restrict the transfer of ownership
interests in a borrower by imposing limitations on transfer of control or a
specific percentage of ownership interests. In addition, in general, Mortgage
Loans with a borrower that does not meet single-purpose entity criteria may not
be restricted in any way from incurring mezzanine debt. As of the Cut-Off Date,
each Loan Seller has informed us that it is aware of the following mezzanine
indebtedness with respect to the Mortgage Loans it is selling to the Depositor:
MEZZANINE DEBT
(AS OF THE CUT-OFF DATE, UNLESS OTHERWISE INDICATED)
AGGREGATE % OF INITIAL PRINCIPAL
CUT-OFF DATE INITIAL POOL AMOUNT OF
LOAN NO. MORTGAGED PROPERTY NAME BALANCE BALANCE MEZZANINE DEBT
- ----------- ------------------------- -------------- -------------- ------------------
2 ......... Foothills Mall $54,750,000 6.1% $ 6,450,000
5 ......... 237 Park Avenue $44,000,000 4.9% $30,000,000
In the case of each of the mortgage loans with mezzanine debt, the holder
of the mezzanine loan has the right to cure certain defaults occurring on the
mortgage loan and the right to purchase the mortgage loan from the trust if
certain defaults on the mortgage loan occur. The purchase price required to be
paid in connection with such a purchase is generally equal to the outstanding
principal balance of the mortgage loan, together with accrued and unpaid
interest on, and all unpaid servicing expenses and advances relating to, the
mortgage loan.
As of the Cut-Off Date, each Loan Seller has informed us that it is aware
of the following subordinate indebtedness and permitted subordinate
indebtedness with respect to its respective Mortgage Loans:
o With respect to 1 Mortgage Loan, identified as Loan No. 28 on Annex C
to this prospectus supplement, representing approximately 1.1% of the
Initial Pool Balance, the borrower may incur mezzanine debt that does
not (1) create a combined LTV of more than 80%, (2) exceed, on a
combined basis, 80% of the purchase price and related costs, or (3)
result in a combined DSCR of less than 1.2x.
Furthermore, the respective Mortgaged Properties that secure the Water
Tower Place Loan, the DDR Portfolio Loan and the 237 Park Avenue Loan,
representing 6.3%, 5.5% and 4.9%, respectively, of the Initial Pool Balance,
also secure the related Pari Passu Companion Loans on a pari passu basis. See
"--The Non-Serviced Loans" below.
Certain risks relating to additional debt are described in "Risk
Factors--Other Financings" in this prospectus supplement.
DUE DATES; MORTGAGE RATES; CALCULATIONS OF INTEREST. All of the Mortgage
Loans have payment dates upon which interest and/or principal payments are due
under the related Mortgage Note (each such date, a "Due Date") that occur on
the first day of each month. No Mortgage Loans have a grace period in excess of
5 days. All of the Mortgage Loans are secured by first liens on fee simple
and/or leasehold interests in the related Mortgaged Properties, subject to the
permitted exceptions reflected in the related title insurance policy. All of
the Mortgage Loans bear fixed interest rates. Sixty-three (63) Mortgage Loans,
representing approximately 96.6% of the Initial Pool Balance, accrue interest
on the basis of the actual number of days in a month, assuming a 360-day year
S-54
("Actual/360 Basis"). The remaining 4 Mortgage Loans, representing
approximately 3.4% of the Initial Pool Balance, accrues interest on the basis
of twelve 30-day months, assuming a 360-day year. Two (2) of the Mortgage
Loans, representing approximately 5.3% of the Initial Pool Balance, provide for
monthly payments of interest only over a fixed period of time after
origination. Fifty-one (51) of the Mortgage Loans, representing approximately
64.3% of the Initial Pool Balance provide for monthly payments of interest only
until their stated maturity dates. Approximately 30.3% of the Mortgage Loans
(by Initial Pool Balance) provide for monthly payments of principal based on
amortization schedules significantly longer than the remaining terms of such
Mortgage Loans (each, a "Balloon Mortgage Loan"). These Mortgage Loans will
have balloon payments due at their stated maturity dates, unless prepaid prior
thereto.
"DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" PROVISIONS. The Mortgage Loans
generally contain "due-on-sale" and "due-on-encumbrance" clauses, which in each
case permit the holder of the Mortgage Loan to accelerate the maturity of the
Mortgage Loan if the borrower sells or otherwise transfers or encumbers
(subject to certain exceptions set forth in the loan documents) the related
Mortgaged Property without the consent of the mortgagee. Certain of the
Mortgage Loans provide that if such consent is required, it may not be
unreasonably withheld so long as:
(i) no event of default has occurred,
(ii) the proposed transferee is creditworthy and has sufficient
experience in the ownership and management of properties similar to the
Mortgaged Property,
(iii) the Rating Agencies have confirmed in writing that such transfer
will not result in a qualification, downgrade or withdrawal of the then
current rating of the Certificates,
(iv) the transferee has executed and delivered an assumption agreement
evidencing its agreement to abide by the terms of the Mortgage Loan
together with legal opinions and title insurance endorsements and
(v) the assumption fee has been received (which assumption fee will be
paid to the Special Servicer, as described in this prospectus supplement
and as provided in the Pooling Agreement, and will not be paid to the
Certificateholders). Certain of the Mortgage Loans allow the borrower to
sell or otherwise transfer the related Mortgaged Property a limited number
of times without paying an assumption fee. Certain of the Mortgage Loans
also permit transfers for estate planning purposes and transfers of
interests in the borrower, so long as no change of control results. The
Special Servicer will determine, in a manner consistent with the Servicing
Standard, whether to exercise any right the mortgagee may have under any
such clause to accelerate payment of the related Mortgage Loan upon, or to
withhold its consent to, any transfer or further encumbrance of the related
Mortgaged Property, subject to the approval of the Controlling Class
Representative. See "Certain Legal Aspects of the Mortgage Loans--
Enforceability of Certain Provisions--Due-on-Sale Provisions" in the
prospectus. The Depositor makes no representation as to the enforceability
of any due-on-sale or due-on-encumbrance provision in any Mortgage Loan.
Additionally, certain of the Mortgage Loans may permit the transfer of
interests subject to a specified percentage limit, generally 50% or less, and
the current direct or indirect owners retaining control. See "Significant Loan
Summaries" on Annex B to this prospectus supplement for more information with
respect to the transfer provisions for certain of the Mortgage Loans.
DEFEASANCE; COLLATERAL SUBSTITUTION. The terms of all but 13 of the
Mortgage Loans (the "Defeasance Loans"), representing approximately 17.6% of
the Initial Pool Balance, permit the applicable borrower at any time (provided
no event of default exists) after a specified period (the "Defeasance Lock-Out
Period") to obtain a release of a Mortgaged Property from the lien of the
related Mortgage (a "Defeasance Option"). Except with respect to three (3)
Mortgage Loans (identified as Loan Nos. 4, 15 and 23 on Annex C to this
prospectus supplement), representing approximately 9.7% of the Initial Pool
Balance, as to which a separate loan REMIC has been established for each of
those Mortgage Loans, the Defeasance Lock-Out Period ends two years after the
Closing Date.
S-55
The Defeasance Option is also generally conditioned on, among other
things, (a) the borrower providing the mortgagee with at least 30 days prior
written notice of the date of such defeasance and (b) the borrower (A) paying
on any Due Date (the "Release Date") (i) all interest accrued and unpaid on the
principal balance of the Mortgage Note to the Release Date, (ii) all other
sums, excluding scheduled interest or principal payments, due under the
Mortgage Loan and all other loan documents executed in connection with the
Defeasance Option, (iii) an amount (the "Defeasance Deposit") that will be
sufficient to (x) purchase non-callable obligations backed by the full faith
and credit of the United States of America or, in certain cases, other U.S.
government obligations providing payments (1) on or prior to, but as close as
possible to, all successive scheduled payment dates from the Release Date to
the related maturity date or the first date on which voluntary prepayments of
the Mortgage Loan is permitted, and (2) in amounts equal to the scheduled
payments due on such dates under the Mortgage Loan or the defeased portion of
the Mortgage Loan in the case of a partial defeasance, and (y) pay any costs
and expenses incurred in connection with the purchase of such U.S. government
obligations and (B) delivering a security agreement granting the Trust Fund a
first priority lien on the Defeasance Deposit and, in certain cases, the U.S.
government obligations purchased with the Defeasance Deposit and an opinion of
counsel to such effect.
Three (3) of the Defeasance Loans, representing approximately 11.1% of the
Initial Pool Balance and identified on Annex C to this prospectus supplement as
Loan Nos. 4, 8 and 9, which are secured by more than one Mortgaged Property,
require that prior to the release of a related Mortgaged Property (i) 125% of
the Allocated Loan Amount for such Mortgaged Property be defeased subject to
the satisfaction of certain debt service coverage ratio tests and loan-to-value
ratio tests. With respect to 1 Mortgage Loan (Loan No. 19) that is part of a
cross collateralized group consisting of the Mortgage Loans identified as Loan
Nos. 19 and 18, on Annex C to this prospectus supplement, which represent
approximately 0.4% and 1.7%, respectively, of the Initial Pool Balance, the
borrower may defease the Mortgaged Property securing the Mortgage Loan upon
payment of the allocated loan amount and the cross collateralization provisions
will be released.
Pursuant to the terms of the Pooling Agreement, the Master Servicer will
be responsible for purchasing the government securities on behalf of the
borrower at the borrower's expense to the extent consistent with the related
loan documents. Pursuant to the terms of the Pooling Agreement, any amount in
excess of the amount necessary to purchase such government securities will be
returned to the borrower. Simultaneously with such actions, the related
Mortgaged Property will be released from the lien of the Mortgage Loan and the
pledged government securities (together with any Mortgaged Property not
released, in the case of a partial defeasance) will be substituted as the
collateral securing the Mortgage Loan.
In general, a successor borrower established or designated by the Master
Servicer will assume all of the defeased obligations of a borrower exercising a
Defeasance Option under a Mortgage Loan and the borrower will be relieved of
all of the defeased obligations thereunder. If a Mortgage Loan is partially
defeased, the related promissory note will be split and only the defeased
portion of the borrower's obligations will be transferred to the successor
borrower.
PARTIAL RELEASES; RELEASE OF CROSS-COLLATERALIZATION. With respect to 1
Mortgage Loan (the "Foothills Mall Loan"), representing approximately 6.1% of
the Initial Pool Balance and identified on Annex C to this prospectus
supplement as Loan No. 2, the borrower may obtain a release of the lien on any
of 3 specified pad sites, and in the case of 2 of these pad sites paying a
release price of $600,000 each, which will be held in escrow as additional
security for the Mortgage Loan subject to the fulfillment of certain conditions
specified in the related Mortgage Loan documents.
In addition, certain Mortgage Loans provide for the release of outparcels
which were given no value in the underwriting process.
With respect to one Mortgage Loan identified as Loan No. 5 on Annex C to
this prospectus supplement (the "237 Park Avenue Mortgage Loan"), representing
approximately 4.9% of the Initial Pool Balance, the borrower may obtain a
release of the air rights above the subject property, along with various
easements for construction, support and access, from the lien of the mortgage
in connection with the future development of a residential tower above the
subject property, subject to
S-56
the satisfaction of certain conditions, including, among other things: (i) no
event of default, (ii) conveyance of the air rights property to a third-party
entity (iii) lender's approval of the plans for the construction, design and
sales of the air rights property, (iv) the creation of a separate legally
subdivided parcel and a separate tax parcel for the air rights property, and
(v) confirmation from the rating agencies that the release will not result in a
downgrade or withdrawal of the ratings for the certificates. See "Annex
B-Significant Loan Summaries-237 Park Avenue" in this prospectus supplement.
See "Risk Factors--Risks Relating to Enforceability of Prepayment Premiums
or Defeasance Periods" in this prospectus supplement.
Additionally, with respect to the Mortgage Loan identified as Loan No. 19
on Annex C to this prospectus supplement, which is crossed collateralized and
cross-defaulted with the Mortgage Loan identified as Loan No. 18 on Annex C to
this prospectus supplement, which in the aggregate represents 2.2% of the
Initial Pool Balance, the cross-collateralization provisions may be released
upon a defeasance, as described above, or if the related Mortgaged Property is
transferred pursuant to a permitted assumption.
ESCROWS. Fifty-one (51) of the Mortgage Loans, representing approximately
74.6% of the Initial Pool Balance, provide for monthly escrows (or the related
borrower has posted a letter of credit) to cover property taxes on the
Mortgaged Properties.
Forty-five (45) of the Mortgage Loans, representing approximately 60.6% of
the Initial Pool Balance, provide for monthly escrows (or the related borrower
has posted a letter of credit) to cover insurance premiums on the Mortgaged
Properties.
Thirty-seven (37) of the Mortgage Loans, representing approximately 47.4%
of the Initial Pool Balance, provide for monthly escrows (or the related
borrower has posted a letter of credit) to cover ongoing replacements and
capital repairs.
Twenty-one (21) of the Mortgage Loans, representing approximately 52.6% of
the Initial Pool Balance, that are secured by office, retail and industrial
properties, provide for up-front or monthly escrows (or the related borrower
has posted a letter of credit) for the full term or a portion of the term of
the related Mortgage Loan to cover anticipated re-leasing costs, including
tenant improvements and leasing commissions. Such escrows are typically
considered for office, retail and industrial properties only.
ADDITIONAL MORTGAGE LOAN INFORMATION. Each of the tables presented in
Annex A sets forth selected characteristics of the pool of Mortgage Loans as of
the Cut-Off Date, if applicable. For a detailed presentation of certain
characteristics of the Mortgage Loans and the Mortgaged Properties on an
individual basis, see Annex C to this prospectus supplement. For a brief
summary of the 10 largest Mortgage Loans or groups of cross-collateralized
Mortgage Loans in the pool of Mortgage Loans, see Annex B to this prospectus
supplement.
THE NON-SERVICED LOANS
GENERAL. Three (3) of the Mortgage Loans (identified as Loan Nos. 1, 4 and
5 on Annex C to this prospectus supplement) (the "Non-Serviced Loans"), with a
principal balance as of the cut-off date of $56,039,776, $48,915,252 and
$44,000,000, respectively, and representing approximately 6.3%, 5.5% and 4.9%,
respectively of the Initial Pool Balance, are each comprised of two or more
mortgage loans that are part of a split loan structure (each, collectively a
"Whole Loan"), each of which is secured by the same mortgage instrument on the
related mortgaged property. The mortgage loans which are part of the split loan
structure but are not included in the trust (each a "Pari Passu Companion
Loan"), are pari passu in right of payment with the related Mortgage Loan. In
each case, the Mortgage Loan and its related Pari Passu Companion Loans have
the same interest rate, maturity date and amortization term.
Each of the Non-Serviced Loans and its related Pari Passu Companion Loans
are being serviced in accordance with pooling and servicing agreements separate
from the pooling and
S-57
servicing agreement under which your certificates are issued as described below
(each a "Pari Passu PSA"), by the master servicer and special servicer that are
parties to the other related pooling and servicing agreement, and according to
the servicing standards provided for in the related separate pooling and
servicing agreement.
THE WATER TOWER PLACE WHOLE LOAN. The Mortgage Loan identified as Loan No.
1 on Annex C to this prospectus supplement (the "Water Tower Place Loan"),
which is comprised of two pari passu loans that have an outstanding principal
balance as of the Cut-Off Date of $56,039,776, representing approximately 6.3%
of the Initial Pool Balance, is secured by the same Mortgaged Property on a
pari passu basis with four Pari Passu Companion Loans (the "Water Tower Place
Pari Passu Companion Loans") that are not included in the trust and that have
an aggregate original principal balance of $131,500,000. Two (2) of the Water
Tower Place Pari Passu Companion Loans are owned by the trust fund (the "GMACCM
C3 Trust") established pursuant to the pooling and servicing agreement (the
"GMACCM C3 PSA") related to the GMAC Commercial Mortgage Securities Corp.,
Commercial Mortgage Pass-Through Certificates, Series 2003-C3, among GMAC
Commercial Mortgage Securities Corp., as depositor, GMAC Commercial Mortgage
Corporation, as master servicer (the "GMACCM C3 Master Servicer"), Lennar
Partners, Inc., as special servicer (the "GMACCM C3 Special Servicer"), and
LaSalle Bank, National Association, as trustee (the "GMACCM C3 Trustee") and
ABN AMRO Bank N.V. as fiscal agent. The Water Tower Place Pari Passu Companion
Loans are not an asset of the trust.
The Water Tower Place Pari Passu Companion Loans and the Water Tower Place
Loan will be serviced pursuant to the GMACCM C3 PSA, and, therefore, the GMACCM
C3 Master Servicer will remit collections on the Water Tower Place Loan to or
on behalf of the Trust Fund and will make Property Advances in respect of the
Mortgaged Property securing the Water Tower Place Whole Loan. The Master
Servicer will be required to make P&I Advances in respect of the Water Tower
Place Loan, unless the Master Servicer determines that such an Advance would
not be recoverable from collections on the Water Tower Place Loan. The Master
Servicer will not be required to make a P&I Advance if the GMACCM C3 Master
Servicer determines that an Advance with respect to any Water Tower Place Pari
Passu Companion Loans would be nonrecoverable.
An intercreditor agreement (the "Water Tower Place Intercreditor
Agreement") governs the respective rights and powers of the noteholders of the
Water Tower Place Whole Loan. The Water Tower Place Intercreditor Agreement
provides, in general, that:
o the Water Tower Place Loan and the Water Tower Place Pari Passu
Companion Loans are of equal priority with each other and no portion of
either of them will have priority or preference over any of the others;
o the GMACCM 2003-C3 PSA will govern the servicing and administration of
the Water Tower Place Loan and the Water Tower Place Pari Passu
Companion Loans.
All decisions, consents, waivers, approvals and other actions on the part
of the holder of the Water Tower Place Loan and the Water Tower Place Pari
Passu Companion Loans will be effected in accordance with the GMACCM C3 PSA.
However, any such decisions to be approved by the majority certificateholders
of the controlling class under the GMACCM C3 PSA must also have the approval of
the Controlling Class Representative and majority holder of the controlling
class of any other trust into which a Water Tower Pari Passu Companion Loan is
deposited (or, if not securitized, the holder of a Water Tower Place Pari Passu
Companion Loan). In the event the controlling classes or holders are unable to
agree, a third party operating advisor will make the final determination with
respect to such actions. Additionally, notwithstanding any consent provisions
in the GMACCM C3 PSA, the controlling classes and holders will have the right
to approve the following:
o any proposed or actual foreclosure upon or comparable conversion (which
may include acquisition of REO property) of the ownership of the
Mortgaged Property securing the Water Tower Place Whole Loan if it
comes into and continues in default;
o any modification, amendment or waiver of a monetary term (including a
change in the timing of payments but excluding the waiver of default
charges) or any material non-monetary term of the Water Tower Place
Whole Loan;
S-58
o any proposed sale of REO property (other than in connection with the
termination of the trust fund) for less than the purchase price
specified in the applicable pooling and servicing agreement;
o any acceptance of a discounted payoff with respect to the Water Tower
Place Whole Loan;
o any determination to bring REO property into compliance with applicable
environmental laws or to otherwise address hazardous materials located
at the REO property;
o any release of real property collateral for the Water Tower Place Whole
Loan (other than any release made in connection with the grant of a
non-material easement or right-of-way);
o any acceptance of substitute or additional collateral for the Water
Tower Place Whole Loan (other than defeasance collateral as required by
the terms of the Water Tower Place Whole Loan);
o any releases of earn-out reserve funds or related letters of credit
with respect to the Mortgaged Property;
o any waiver of a due-on-sale" or due-on-encumbrance" clause in the Water
Tower Place Whole Loan;
o any determination by the Master Servicer or Special Servicer not to
maintain or cause the borrower to maintain for the Mortgaged Property
or REO property all-risk casualty or other insurance that provides
coverage for acts of terrorism, despite the fact that such insurance
may be required under the terms of the Water Tower Place Whole Loan;
and
o any change in the property manager for the Mortgaged Property or REO
property;
provided that, no advice, direction or objection from or by any controlling
class, holder or the operating advisor may require or cause the GMACCM C3
Master Servicer or the GMACCM C3 Special Servicer, as applicable, to violate
the terms of the related loan documents, applicable law or any provision of the
intercreditor agreement or the GMACCM C3 PSA.
All payments, proceeds and other recoveries on or in respect of the Water
Tower Place Loan and/or the Water Tower Place Pari Passu Companion Loans will
be applied to the Water Tower Place Loan and the Water Tower Place Pari Passu
Companion Loans on a pari passu basis according to their respective outstanding
principal balances. The transfer of the ownership of the Water Tower Place Pari
Passu Companion Loans to any person or entity other than institutional lenders,
investment funds exceeding a minimum net worth requirement, their affiliates or
to trusts or other entities established to acquire mortgage loans and issue
securities backed by and payable from the proceeds of such loans is generally
prohibited unless written confirmation is received from each rating agency
rating any certificates issued by any trust holding a portion of the Water
Tower Place Whole Loan that the transfer would not cause the downgrade,
withdrawal or qualification of the then-current ratings of the related classes
of certificates. In addition, under the GMACCM C3 PSA, if the Water Tower Place
Pari Passu Companion Loans deposited into the trust created under the GMACCM
PSA are subject to a fair value purchase option, then the holder of that option
will be entitled to purchase the Water Tower Place Whole Loan and will be
required to purchase (and the trust will be required to sell) the Water Tower
Place Loan from the trust in connection with the exercise of that option. See
also "The Pooling Agreement--Servicing of the Non-Serviced Loans" in this
prospectus supplement.
THE DDR PORTFOLIO WHOLE LOAN. The Mortgage Loan identified as Loan No. 4
on Annex C to this prospectus supplement (the "DDR Portfolio Loan"), which has
an outstanding principal balance as of the Cut-Off Date of $48,915,252,
representing approximately 5.5% of the Initial Pool Balance, is secured by the
same Mortgaged Properties on a pari passu basis with two Pari Passu Companion
Loans (the "DDR Portfolio Pari Passu Companion Loans") that are not included in
the trust and that have an aggregate original principal balance of
$100,000,000. One (1) of the DDR Portfolio Pari Passu Companion Loans is owned
by the trust fund (the "GMACCM C2 Trust") established pursuant to the pooling
and servicing agreement (the "GMACCM C2 PSA") related to the GMAC Commercial
S-59
Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates,
Series 2003-C2, among GMAC Commercial Mortgage Securities Corp., as depositor,
GMAC Commercial Mortgage Corporation, as master servicer (the "GMACCM C2 Master
Servicer") and special servicer (the "GMACCM C2 Special Servicer") and Wells
Fargo Bank, N.A., as trustee (the "GMACCM C2 Trustee"). The DDR Portfolio Pari
Passu Companion Loans are not an asset of the trust.
The DDR Portfolio Pari Passu Companion Loans and the DDR Portfolio Loan
will be serviced pursuant to the GMACCM C2 PSA, and, therefore, the GMACCM C2
Master Servicer will remit collections on the DDR Portfolio Loan to or on
behalf of the Trust Fund and will make Property Advances in respect of the
Mortgaged Property securing the DDR Portfolio Whole Loan. The Master Servicer
will be required to make P&I Advances in respect of the DDR Portfolio Loan,
unless the Master Servicer determines that such an Advance would not be
recoverable from collections on the DDR Portfolio Loan. The Master Servicer
will not be required to make a P&I Advance if the GMACCM C2 Master Servicer
determines that an Advance with respect to any DDR Portfolio Pari Passu
Companion Loans would be nonrecoverable.
An intercreditor agreement (the "DDR Portfolio Intercreditor Agreement")
governs the respective rights and powers of the noteholders of the DDR
Portfolio Whole Loan. The DDR Portfolio Intercreditor Agreement provides, in
general, that:
o the DDR Portfolio Loan and the DDR Portfolio Pari Passu Companion Loans
are of equal priority with each other and no portion of either of them
will have priority or preference over any of the others;
o the GMACCM 2003-C2 PSA will govern the servicing and administration of
the DDR Portfolio Loan and the DDR Portfolio Pari Passu Companion
Loans.
All decisions, consents, waivers, approvals and other actions on the part
of the holder of the DDR Portfolio Loan and the DDR Portfolio Pari Passu
Companion Loans will be effected in accordance with the GMACCM C2 PSA. However,
any such decisions to be approved by the majority certificateholders of the
controlling class under the GMACCM C2 PSA must also have the approval of the
Controlling Class Representative and the majority holder of the controlling
class of any other trust into which a DDR Portfolio Pari Passu Companion Loan
is deposited (or, if not securitized, the holder of a DDR Portfolio Pari Passu
Companion Loan). In the event the controlling classes or holders are unable to
agree, a third party operating advisor will make the final determination with
respect to such actions. Additionally, notwithstanding any consent provisions
in the GMACCM C2 PSA, the controlling classes and holders will have the right
to approve the following:
o any proposed or actual foreclosure upon or comparable conversion (which
may include acquisition of REO property) of the ownership of the
Mortgaged Property securing the DDR Portfolio Whole Loan if it comes
into and continues in default;
o any modification, amendment or waiver of a monetary term (including a
change in the timing of payments but excluding the waiver of default
charges) or any material non-monetary term of the DDR Portfolio Whole
Loan;
o any proposed sale of REO property (other than in connection with the
termination of the trust fund) for less than the purchase price
specified in the applicable pooling and servicing agreement;
o any acceptance of a discounted payoff with respect to the DDR Portfolio
Whole Loan;
o any determination to bring REO property into compliance with applicable
environmental laws or to otherwise address hazardous materials located
at the REO property;
o any release of real property collateral for the DDR Portfolio Whole
Loan (other than any release made in connection with the grant of a
non-material easement or right-of-way);
o any acceptance of substitute or additional collateral for the DDR
Portfolio Whole Loan (other than defeasance collateral as required by
the terms of the DDR Portfolio Whole Loan);
o any releases of earn-out reserve funds or related letters of credit
with respect to the Mortgaged Property;
S-60
o any waiver of a "due-on-sale" or "due-on-encumbrance" clause in the DDR
Portfolio Whole Loan;
o any determination by the Master Servicer or Special Servicer not to
maintain or cause the borrower to maintain for the Mortgaged Property
or REO property all-risk casualty or other insurance that provides
coverage for acts of terrorism, despite the fact that such insurance
may be required under the terms of the DDR Portfolio Whole Loan; and
o any change in the property manager for the Mortgaged Property or REO
property;
provided that, no advice, direction or objection from or by any controlling
class, holder or the operating advisor may require or cause the GMACCM C2
Master Servicer or the GMACCM C2 Special Servicer, as applicable, to violate
the terms of the related loan documents, applicable law or any provision of the
intercreditor agreement or the GMACCM C2 PSA.
All payments, proceeds and other recoveries on or in respect of the DDR
Portfolio Loan and/or the DDR Portfolio Pari Passu Companion Loans will be
applied to the DDR Portfolio Loan and the DDR Portfolio Pari Passu Companion
Loans on a pari passu basis according to their respective outstanding principal
balances. The transfer of the ownership of the DDR Portfolio Pari Passu
Companion Loans to any person or entity other than institutional lenders,
investment funds exceeding a minimum net worth requirement, their affiliates or
to trusts or other entities established to acquire mortgage loans and issue
securities backed by and payable from the proceeds of such loans is generally
prohibited unless written confirmation is received from each rating agency
rating any certificates issued by any trust holding a portion of the DDR
Portfolio Whole Loan that the transfer would not cause the downgrade,
withdrawal or qualification of the then-current ratings of the related classes
of certificates. In addition, under the GMACCM C2 PSA, if the DDR Portfolio
Pari Passu Companion Loans deposited into the trust created under the GMACCM
PSA are subject to a fair value purchase option, then the holder of that option
will be entitled to purchase the DDR Portfolio Whole Loan and will be required
to purchase (and the trust will be required to sell) the DDR Portfolio Loan
from the trust in connection with the exercise of that option. See also "The
Pooling Agreement--Servicing of the Non-Serviced Loans" in this prospectus
supplement.
THE 237 PARK AVENUE WHOLE LOAN. The Mortgage Loan identified as Loan No. 5
on Annex C to this prospectus supplement (the "237 Park Avenue Loan"), which
has an outstanding principal balance as of the Cut-Off Date of $44,000,000,
representing approximately 4.9% of the Initial Pool Balance, is secured by the
same Mortgaged Property on a pari passu basis with three Pari Passu Companion
Loans (the "237 Park Avenue Pari Passu Companion Loans") that are not included
in the trust and that have an aggregate original principal balance of
$254,000,000. One (1) of the 237 Park Avenue Pari Passu Companion Loans is
owned by the trust fund (the "GCCFC C2 Trust") established pursuant to the
pooling and servicing agreement (the "GCCFC C2 PSA") related to the Greenwich
Capital Commercial Funding Corp., Commercial Mortgage Pass-Through
Certificates, Series 2003-C2, among Greenwich Capital Commercial Funding Corp.,
as depositor, Wachovia Bank, National Association, as master servicer (the
"GCCFC C2 Master Servicer"), Lennar Partners, Inc., as special servicer (the
"GCCFC C2 Special Servicer"), LaSalle Bank National Association, as trustee
(the "GCCFC C2 Trustee") and ABN AMRO Bank N.V., as fiscal agent. The 237 Park
Avenue Pari Passu Companion Loans are not an asset of the trust.
The 237 Park Avenue Pari Passu Companion Loans and the 237 Park Avenue
Loan will be serviced pursuant to the GCCFC C2 PSA, and, therefore, the GCCFC
C2 Master Servicer will remit collections on the 237 Park Avenue Loan to or on
behalf of the Trust Fund and will make Property Advances in respect of the
Mortgaged Property securing the 237 Park Avenue Whole Loan. The GCCFC C2 Master
Servicer will be required to make P&I Advances in respect of the 237 Park
Avenue Loan, unless the Master Servicer determines that such an Advance would
not be recoverable from collections on the 237 Park Avenue Loan.
A co-lender agreement (the "237 Park Avenue Co-Lender Agreement") governs
the respective rights and powers of the noteholders of the 237 Park Avenue
Whole Loan. The 237 Park Avenue Co-Lender Agreement provides, in general, that:
S-61
o the 237 Park Avenue Loan and the 237 Park Avenue Pari Passu Companion
Loans are of equal priority with each other and no portion of either of
them will have priority or preference over any of the others;
o the GCCFC 2003 C2 PSA will govern the servicing and administration of
the 237 Park Avenue Loan and the 237 Park Avenue Pari Passu Companion
Loans.
All decisions, consents, waivers, approvals and other actions on the part
of the holder of the 237 Park Avenue Loan and the 237 Park Avenue Pari Passu
Companion Loans will be effected in accordance with the GCCFC C2 PSA. However,
certain decisions are to be approved by the holder or holders of a majority
interest in the 237 Park Avenue Whole Loan (which may consist of two or more
holders acting together as a majority). The holder of the majority interest in
the 237 Park Avenue Whole Loan is, with respect to the 237 Park Avenue Loan,
the majority Certificateholder of the Controlling Class, with respect to the
237 Park Avenue Pari Passu Companion Loan which is included in the GCCFC C2
Trust, the holder of certificates representing a majority interest in the
controlling class of certificates issued pursuant to the GCCFC C2 PSA and, with
respect to the 237 Park Avenue Pari Passu Companion Loans that are not included
in a securitization, the holder of that companion loan or if the companion loan
becomes an asset in a securitization, the controlling class of certificates
issues pursuant to the securitization. Additionally, notwithstanding any
consent provisions in the GCCFC C2 PSA, the majority interest in the 237 Park
Avenue Whole Loan will have the right to approve the following:
o any foreclosure upon or comparable conversion (which may include
acquisition of REO property) of the ownership of the Mortgaged Property
securing the 237 Park Avenue Whole Loan if it comes into and continues
in default;
o any modification, amendment or waiver of a monetary term (including a
change in the timing of payments) or any material non-monetary term of
the 237 Park Avenue Whole Loan;
o any proposed sale of REO property (other than in connection with the
termination of the trust fund) for less than the purchase price
specified in the applicable pooling and servicing agreement;
o any acceptance of a discounted payoff with respect to the 237 Park
Avenue Whole Loan;
o any determination to bring REO property into compliance with applicable
environmental laws or to otherwise address hazardous materials located
at the REO property;
o any release of real property collateral for the 237 Park Avenue Whole
Loan (other than in accordance with the terms of, or upon satisfaction
of, the 237 Park Avenue Loan);
o any acceptance of substitute or additional collateral for the 237 Park
Avenue Whole Loan (other than in accordance with the terms of the 237
Park Avenue Whole Loan);
o any waiver of a due-on-sale" or due-on-encumbrance" clause in the 237
Park Avenue Whole Loan; and
o any acceptance of an assumption agreement releasing a borrower or
guarantor from liability under the 237 Park Avenue Whole Loan;
provided that, no advice, direction or objection from or by the holder of a
majority interest in the 237 Park Avenue Whole Loan may require or cause the
GCCFC C2 Master Servicer or the GCCFC C2 Special Servicer, as applicable, to
violate the terms of the related loan documents, applicable law or any
provision of the intercreditor agreement or the GCCFC C2 PSA.
All payments, proceeds and other recoveries on or in respect of the 237
Park Avenue Loan and/or the 237 Park Avenue Pari Passu Companion Loans will be
applied to the 237 Park Avenue Loan and the 237 Park Avenue Pari Passu
Companion Loans on a pari passu basis according to their respective outstanding
principal balances. The transfer of the ownership of the 237 Park Avenue Pari
Passu Companion Loans to any person or entity other than institutional lenders,
investment funds exceeding a minimum net worth requirement, their affiliates or
to trusts or other entities
S-62
established to acquire mortgage loans and issue securities backed by and
payable from the proceeds of such loans is generally prohibited. See also "The
Pooling Agreement--Servicing of the Non-Serviced Loans" in this prospectus
supplement.
REPRESENTATIONS AND WARRANTIES; REPURCHASES AND SUBSTITUTIONS
Pursuant to the related Mortgage Loan purchase agreement, each Loan Seller
will make certain representations and warranties concerning the Mortgage Loans
(or portion of the Mortgage Loans) it sells to the Depositor. If there is a
breach of any representation or warranty or a document defect that materially
and adversely affects the value of the related Mortgage Loan, the related
Mortgaged Property or the interests of the trust in the related Mortgaged
Property or of any Certificateholder, the applicable Loan Seller will be
required, not later than ninety (90) days from receipt of notice of the breach
or document defect to (i) cure the defect, (ii) repurchase the affected
Mortgage Loan or (iii) during the first two years after the Closing Date,
substitute a replacement Mortgage Loan for such affected Mortgage Loan and pay
any substitution shortfall amount. Any breach of a representation or warranty
with respect to a Mortgage Loan that is cross-collateralized with other
Mortgage Loans may require the repurchase of or substitution for such other
Mortgage Loans to the extent described under "--Repurchase or Substitution of
Cross-Collateralized Mortgage Loans" below. If the breach or defect relates to
the Water Tower Place Loan, GSMC and Commerzbank will be obligated to take
these remedial actions only with respect to the portion of the Water Tower
Place Loan sold by them (50% in the case of GSMC and 50% in the case of
Commerzbank). Therefore, it is possible that under certain circumstances only
one of the two Loan Sellers will repurchase or otherwise comply with the
foregoing obligations. If any such breach or defect is capable of being cured,
but not within such ninety (90) day period, and such defect does not relate to
treatment of the Mortgage Loan as a "qualified mortgage" within the meaning of
the REMIC provisions, then the applicable Loan Seller will have an additional
period, as set forth in the Pooling Agreement, to cure such breach or defect.
The sole remedy available to the Trustee or the Certificateholders is the
obligation of the applicable Loan Seller to cure, substitute or repurchase any
Mortgage Loan in the event of such a breach. Each Loan Seller will make certain
representations and warranties with respect to the Mortgage Loans it sells to
the Depositor, including but not limited to the representations and warranties
set forth in Annex D to this prospectus supplement subject to certain
exceptions specified in the related Mortgage Loan purchase agreement.
Instead of repurchasing a Mortgage Loan, a Loan Seller is permitted,
subject to approval by the Controlling Class Representative, for two years
following the Closing Date, to substitute a new replacement Mortgage Loan for
the affected Mortgage Loan. To qualify as a replacement Mortgage Loan, the
replacement Mortgage Loan must have financial terms substantially similar to
the deleted Mortgage Loan and meet a number of specific requirements.
A replacement mortgage loan must:
o have a stated principal balance of not more than the stated principal
balance of the deleted Mortgage Loan;
o accrue interest at a rate of interest at least equal to that of the
deleted mortgage loan;
o be a fixed-rate mortgage loan;
o have a remaining term to stated maturity of not greater than, and not
more than two years less than, the deleted mortgage loan; and
o be a "qualified replacement mortgage" within the meaning of 860G(a)(4)
of the Code.
In addition, the Loan Seller must deposit in the distribution account a
substitution shortfall amount, equal to any excess of the purchase price of the
deleted mortgage loan over the initial stated principal balance of the
replacement mortgage loan.
REPURCHASE OR SUBSTITUTION OF CROSS-COLLATERALIZED MORTGAGE LOANS
To the extent that the Mortgage Loan Seller repurchases or substitutes for
an affected Mortgage Loan as provided above with respect to a document defect
or a breach of a representation or
S-63
warranty and such Mortgage Loan is cross-collateralized and cross-defaulted
with one or more other Mortgage Loans (each, a "Crossed Loan"), such document
defect or breach of a representation or warranty will be deemed to affect all
such Crossed Loans. In such event, the applicable Loan Seller will be required
to (1) repurchase or substitute for all related Crossed Loans which are, or are
deemed to be, materially and adversely affected by such document defect or
breach of a representation or warranty or (2) if the Crossed Loans meet the
criteria listed below, repurchase only the affected Mortgage Loan in the manner
described above in "--Representations and Warranties; Repurchases and
Substitutions". The Loan Seller may (in its discretion) repurchase or
substitute for only the affected Mortgage Loan if (i) the debt service coverage
ratio for all the remaining Crossed Loans for the four most recent reported
calendar quarters preceding the repurchase or substitution is not less than the
greater of (x) the debt service coverage ratio for all such related Crossed
Loans, including the affected Crossed Loan for the four most recent reported
calendar quarters preceding the repurchase or substitution and (y) 1.25x, (ii)
the loan-to-value ratio for all of the remaining Crossed Loans, excluding the
affected Crossed Loan, based upon the appraised values of the related Mortgaged
Properties at the time of repurchase or substitution, is not greater than the
lesser of (x) the loan-to-value ratio for all such related Crossed Loans,
including the affected Crossed Loan at the time of repurchase or substitution
and (y) 75% and (iii) the related Loan Seller causes the related Mortgage Loans
to become not cross-collateralized and cross-defaulted with each other prior to
such repurchase and provides the trustee with certain REMIC opinions.
THE LOAN SELLERS AND ORIGINATORS
The Loan Sellers are Goldman Sachs Mortgage Company, Prudential Mortgage
Capital Funding, LLC, Greenwich Capital Financial Products, Inc. and
Commerzbank AG, New York Branch. Goldman Sachs Mortgage Company is an affiliate
of the Depositor and one of the Underwriters. Greenwich Capital Financial
Products, Inc. is an affiliate of one of the Underwriters.
The information set forth in this prospectus supplement concerning the
Loan Sellers and their underwriting standards has been provided by the Loan
Sellers, and neither the Depositor nor the Underwriters make any representation
or warranty as to the accuracy or completeness of that information.
GOLDMAN SACHS MORTGAGE COMPANY. Goldman Sachs Mortgage Company, a New York
limited partnership, is an affiliate of Goldman, Sachs & Co., one of the
underwriters. GSMC engages primarily in the business of acquiring and
depositing mortgage assets in trusts in exchange for certificates evidencing
interests in such trusts and selling or otherwise distributing such
certificates. All of the mortgage loans (except for the WAMU Loan) sold by GSMC
to the depositor were originated by Archon Financial, L.P., an affiliate of
GSMC. The principal offices of GSMC are located at 85 Broad Street, New York,
New York 10004. Its telephone number is (212) 902-1000.
ARCHON FINANCIAL, L.P. Archon Financial, L.P., a Delaware limited
partnership, is an affiliate of GSMC, one of the loan sellers, and Goldman,
Sachs & Co., one of the underwriters. The Water Tower Place Whole Loan was
jointly originated by Archon and Commerzbank AG, and Archon sold its portion to
GSMC. One Mortgage Loan was originated by Washington Mutual Bank, FA. The
mortgage loans originated by Archon and Washington Mutual Bank, FA were sold to
GSMC. The principal offices of Archon are located at 600 East Las Colinas
Boulevard, Suite 450, Irving, Texas 75039. Its telephone number is (972)
501-3900.
PRUDENTIAL MORTGAGE CAPITAL FUNDING, LLC/PRUDENTIAL MORTGAGE CAPITAL
COMPANY, LLC. PMCF is a limited liability company organized under the laws of
the State of Delaware. PMCF is a wholly owned, limited purpose, subsidiary of
PMCC, which is a real estate financial services company which originates
commercial and multifamily real estate loans throughout the United States. PMCF
was organized for the purpose of acquiring loans originated by PMCC and holding
them pending securitization or other disposition. PMCC has primary offices in
Atlanta, Chicago, San Francisco and Newark, New Jersey. The principal offices
of PMCC are located at 4 Gateway Center, 8th Floor, 100 Mulberry Street,
Newark, New Jersey 07102. The mortgage loans for which PMCF is the applicable
loan seller were originated by PMCC (or a wholly-owned subsidiary of PMCC).
S-64
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. Greenwich Capital Financial
Products, Inc., a Delaware corporation, is an affiliate of Greenwich Capital
Markets, Inc., one of the underwriters. Greenwich Capital Financial Products,
Inc. engages in the business of originating, financing and acquiring commercial
and residential mortgage loans and other receivables. The principal offices of
Greenwich Capital Financial Products, Inc. are located at 600 Steamboat Road,
Greenwich, Connecticut 06830. Its telephone number is (203) 625-2700.
COMMERZBANK AG, NEW YORK BRANCH. Commerzbank AG is the New York branch of
Commerzbank Aktiengesellschaft ("Commerzbank AG"). Commerzbank AG is a German
private-sector bank which conducts extensive banking business in the United
States, concentrating primarily in corporate lending, real estate finance,
letter of credit and banker's acceptance facilities, syndicated loan
transactions and treasury operations including foreign exchange transactions.
The Water Tower Place Whole Loan was jointly originated by Commerzbank AG and
Archon. The principal offices of Commerzbank AG are located at 2 World
Financial Center, 34th Floor, New York, New York 10281. Its telephone number is
(212) 266-7200.
UNDERWRITING GUIDELINES
GENERAL. Each Originator has established guidelines outlining certain
procedures with respect to underwriting mortgage loans originated by or on
behalf of the Loan Sellers, as described more fully below. The Mortgage Loans
were generally originated in accordance with such guidelines, however, in many
instances, one or more provisions of the guidelines were waived or modified.
PROPERTY ANALYSIS. Prior to origination of a loan, each Originator
typically performs, or causes to be performed, site inspections at each
property. Depending on the property type, such inspections generally include an
evaluation of one or more of the following: functionality, design,
attractiveness, visibility and accessibility of the property as well as
proximity to major thoroughfares, transportation centers, employment sources,
retail areas, educational facilities and recreational areas. Such inspections
generally assess the submarket in which the property is located, which may
include evaluating competitive or comparable properties.
CASH FLOW ANALYSIS. Each Originator typically reviews operating statements
provided by the borrower and make adjustments in order to determine the debt
service coverage ratio. See "--Certain Characteristics of the Mortgage Loans"
above.
APPRAISAL AND LOAN-TO-VALUE RATIO. Each Originator typically obtains an
appraisal that complies, or the appraiser certifies that it complies, with the
real estate appraisal regulations issued jointly by the federal bank regulatory
agencies under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989, as amended. The loan-to-value ratio of the mortgage loan is generally
based on the value set forth in the appraisal. In certain cases, an updated
appraisal is obtained.
EVALUATION OF BORROWER. Prior to loan origination, each Originator
typically considers, with respect to the borrower and certain other individuals
and/or entities as determined by the related Originator, if any, their credit
history and prior experience as an owner and operator of commercial real estate
properties. The evaluation generally includes obtaining and reviewing a credit
report or other indication of the borrower's financial capacity; obtaining and
verifying credit references and/or business and trade references; and obtaining
and reviewing certifications provided by the borrower as to prior real estate
experience and current contingent liabilities.
ENVIRONMENTAL REPORT. Each Originator generally obtains a Phase I site
assessment or an update of a previously obtained site assessment for each
mortgaged property prepared by an environmental firm approved by the applicable
Originator. Each Originator or their designated agents typically review the
Phase I site assessment to verify the presence or absence of reported
violations of applicable laws and regulations relating to environmental
protection and hazardous waste. In cases in which the Phase I site assessment
identifies material violations and no third party is identified as responsible
for such violations, each Originator generally requires the borrower to conduct
remediation activities, or to establish an operations and maintenance plan or
to place funds in escrow to be used to address any required remediation.
S-65
PHYSICAL CONDITION REPORT. Each Originator generally obtains a current
physical condition report ("PCR") for each mortgaged property prepared by a
structural engineering firm approved by the Originators. Each Originator, or an
agent, typically reviews the PCR to determine the physical condition of the
property, and to determine the anticipated costs of necessary repair,
replacement and major maintenance or capital expenditure over the term of the
mortgage loan. In cases in which the PCR identifies an immediate need for
material repairs or replacements with an anticipated cost that is over a
certain minimum threshold or percentage of loan balance, each Originator often
requires that funds be put in escrow at the time of origination of the mortgage
loan to complete such repairs or replacements or obtains a guarantee from a
sponsor of the borrower in lieu of reserves.
TITLE INSURANCE POLICY. The borrower is required to provide, and each
Originator or its counsel typically will review, a title insurance policy for
each property. The title insurance policies provided typically must meet the
following requirements: (a) written by a title insurer licensed to do business
in the jurisdiction where the mortgaged property is located, (b) in an amount
at least equal to the original principal balance of the mortgage loan, (c)
protection and benefits run to the mortgagee and its successors and assigns,
(d) written on an American Land Title Association ("ALTA") form or equivalent
policy promulgated in the jurisdiction where the mortgaged property is located
and (e) if a survey was prepared, the legal description of the mortgaged
property in the title policy conforms to that shown on the survey.
PROPERTY INSURANCE. Each Originator typically require the borrower to
provide one or more of the following insurance policies: (1) commercial general
liability insurance for bodily injury or death and property damage; (2) an "All
Risk of Physical Loss" policy; (3) if applicable, boiler and machinery
coverage; and (4) if the mortgaged property is located in a special flood
hazard area where mandatory flood insurance purchase requirements apply, flood
insurance.
ESCROW REQUIREMENTS. In connection with the origination of a mortgage
loan, each Originator may require the borrowers to fund one or more of the
following escrows: taxes and insurance, and replacement reserves; although in
many circumstances the collection of such reserves may be conditioned upon the
occurrence of an event such as an event of default under the mortgage loan or
the failure to meet a cash flow or debt service coverage ratio test.
UNDERWRITING OF THE MORTGAGE LOANS. In underwriting a mortgage loan, in
connection with the origination or acquisition of such loan, each Originator
generally reviews income information provided by the borrower and typically
consider operating history of the property, industry data regarding the local
real estate market and the appraiser's analysis. In some cases, net operating
income with respect to the related property (generally provided by the
borrower) may be adjusted by, among other things, adjustments in the
calculation of the components of net cash flow. In certain cases, the
applicable Originator or the borrower may have engaged independent accountants
to review or perform certain procedures to verify such information, however,
neither the Loan Sellers nor the Depositor makes any representation as to the
accuracy of such information.
ADDITIONAL INFORMATION
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the offered Certificates and will be filed, together with the
Pooling Agreement, with the Securities and Exchange Commission within fifteen
days after the initial issuance of the Offered Certificates.
S-66
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling Agreement and will
consist of 19 classes (each, a "Class"), to be designated as the Class A-1
Certificates and the Class A-2 Certificates (collectively, the "Class A
Certificates"), the Class X 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 J
Certificates, the Class K Certificates, the Class L Certificates, the Class M
Certificates, the Class N Certificates, the Class O Certificates, the Class P
Certificates, the Class R Certificates and the Class LR Certificates
(collectively, the "Certificates"). Only the Class A-1, Class A-2, Class B,
Class C, Class D and Class E Certificates (collectively, the "Offered
Certificates") are offered hereby. The Class X, Class F, Class G, Class H,
Class J, Class K, Class L, Class M, Class N, Class O, Class P, Class R and
Class LR Certificates (together with the Class R Certificates, the "Residual
Certificates") are not offered hereby.
The Certificates represent in the aggregate the entire beneficial
ownership interest in the 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, each, an "REO
Property") or a beneficial interest in a Mortgaged Property acquired upon a
foreclosure of a Non-Serviced Mortgage Loan under a Pari Passu PSA; (iii) all
of the Trustee's rights in any reserve account or lock-box account and 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 Gain-on-Sale Reserve Account, and any account
established in connection with REO Properties (an "REO Account"); (iv) any
assignment of leases, rents and profits and any security agreement, indemnity
or guarantee given as additional security for the Mortgage Loans; (v) the
rights of the mortgagee under all insurance policies with respect to the
Mortgage Loans; and (vi) the rights under any environmental indemnity
agreements relating to the Mortgaged Properties. The Certificates do not
represent an interest in or obligation of the Depositor, the Loan Sellers, the
Originators, the Master Servicer, the Trustee, the Underwriters, the borrowers,
the property managers or any of their respective affiliates.
Upon initial issuance, the Class A-1, Class A-2, Class B, Class C, Class
D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O and Class P Certificates (collectively, the "Sequential Pay
Certificates") will have the following Certificate Principal Amounts and the
Class X Certificates will have the Notional Amount shown below (in each case,
subject to a variance of plus or minus 10%):
INITIAL CERTIFICATE PRINCIPAL
CLASS AMOUNT OR NOTIONAL AMOUNT
- --------------------------- ------------------------------
Class A-1 ............... $579,105,000
Class A-2 ............... $190,472,000
Class X ................. $892,264,316
Class B ................. $ 20,076,000
Class C ................. $ 7,808,000
Class D ................. $ 16,730,000
Class E ................. $ 12,268,000
Class F ................. $ 13,384,000
Class G ................. $ 7,808,000
Class H ................. $ 7,807,000
Class J ................. $ 5,577,000
Class K ................. $ 3,346,000
Class L ................. $ 3,346,000
Class M ................. $ 4,461,000
Class N ................. $ 3,346,000
Class O ................. $ 3,346,000
Class P ................. $ 13,384,316
S-67
The "Certificate Principal Amount" of any Class of Sequential Pay
Certificates outstanding at any time represents the maximum amount to which its
holders 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, all
as described in this prospectus supplement. 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 below under "--Distributions--Payment Priorities" in this prospectus
supplement. The Certificate Principal Amount of each Class of Certificates
entitled to distributions of principal will in each case be reduced by amounts
actually distributed to that Class that are allocable to principal and by any
Realized Losses allocated to that Class.
The Class X Certificates will not have a Certificate Principal Amount.
Class X will represent the right to receive distributions of interest accrued
as described in this prospectus supplement on a notional principal amount (a
"Notional Amount"). 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 Sequential Pay 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 Sequential Pay Certificates as of the first day of the related Interest
Accrual Period.
DISTRIBUTIONS
METHOD, TIMING AND AMOUNT. Distributions on the Certificates are required
to be made on the 10th day of each month, or if such day is not a 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 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, on the next
succeeding business day, commencing in May 2004 (each, a "Distribution Date").
All distributions (other than the final distribution on any Certificate) are
required to 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 date, the "Record Date"). Distributions are required to 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 for such payment, if the 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 the Certificateholder. The final
distribution on any Offered Certificates is required to be made in like manner,
but only upon presentment or surrender of the Certificate at the location
specified in the notice to the Certificateholder 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 its initial
denomination 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, in general, equal the sum of the following amounts
(without duplication):
(x) the total amount of all cash received on the mortgage loans and any
REO Properties that are on deposit in the Collection Account, the Lower-Tier
Distribution Account and the REO Account, as of the business day preceding the
related Master Servicer Remittance Date (or, with respect to each Pari Passu
Loan, as of the related Master Servicer Remittance Date to the extent received
by the Master Servicer or the Trustee pursuant to the applicable Pari Passu PSA
and/or Intercreditor Agreement), exclusive of (without duplication):
S-68
(1) all scheduled Monthly Payments and balloon payments collected but
due on a Due Date (without regard to grace periods) that occurs after the
related Collection Period (without regard to grace periods);
(2) all unscheduled payments of principal (including prepayments),
unscheduled interest, net liquidation proceeds, net insurance and
condemnation proceeds and other unscheduled recoveries received after the
related Determination Date;
(3) all amounts in the Collection Account that are due or reimbursable
to any person other than the Certificateholders;
(4) with respect to each Withheld Loan and any Distribution Date
occurring in each February and in any January occurring in a year that is
not a leap year, the related Withheld Amount to the extent those funds are
on deposit in the Collection Account;
(5) all yield maintenance charges and prepayment premiums;
(6) all amounts deposited in the Collection Account in error; and
(7) any default interest received on any Mortgage Loan in excess of
interest calculated at the Mortgage Rate for the Mortgage Loan;
(y) all Compensating Interest Payments made by the Master Servicer with
respect to such Distribution Date and all P&I Advances made by the Master
Servicer or the Trustee, as applicable, with respect to the Distribution Date
(net of certain amounts that are due or reimbursable to persons other than the
Certificateholders); and
(z) for the Distribution Date occurring in each March, the related
Withheld Amounts required to be deposited in the Lower-Tier Distribution
Account pursuant to 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. The Monthly Payment with respect to any
Distribution Date and (i) an REO Mortgage Loan, or (ii) any Mortgage Loan which
is delinquent at its maturity date and with respect to which the Special
Servicer has not entered into an extension, is the monthly payment that would
otherwise have been payable on the related Due Date had the related Mortgage
Note not been discharged or the related maturity date had not been reached, as
the case may be, determined as set forth in the Pooling Agreement.
"Collection Period" with respect to a Distribution Date and each Mortgage
Loan is the period beginning on the day after the Due Date (without regard to
grace periods) in the month preceding the month in which such Distribution Date
occurs (or, in the case of the Distribution Date occurring in May 2004,
beginning on the day after the Cut-Off Date) and ending on the Due Date
(without regard to grace periods) in the month in which such Distribution Date
occurs.
"Repurchase Price" with respect to a Mortgage Loan shall be equal to the
sum of (i) the outstanding principal balance of the Mortgage Loan (or relevant
portion of the Mortgage Loan) as of the date of purchase, (ii) all accrued and
unpaid interest on the Mortgage Loan (or relevant portion of the Mortgage Loan)
at the related Mortgage Rate, in effect from time to time, to but not including
the Due Date in the Collection Period during which the repurchase occurs, (iii)
all related Property Advances (to the extent not reimbursed by or on behalf of
the related borrower) plus accrued and unpaid interest on related Advances at
the Advance Rate, and unpaid Special Servicing Fees allocable to the Mortgage
Loan (or relevant portion of the 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. If the applicable Loan Seller
repurchases a Mortgage Loan after more than 180 days following its receipt of
notice of a breach giving rise to the repurchase obligation, the applicable
Loan Seller will be required to pay a 1% liquidation fee.
"Determination Date" with respect to any Distribution Date is the fourth
business day prior to the related Distribution Date.
S-69
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 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 or Notional Amount, as applicable, immediately prior to that
Distribution Date. 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 Accrual Period" with respect to any Distribution Date 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.
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.
An "Interest Shortfall" with respect to any Distribution Date for any
Class of Regular Certificates is the sum of (a) the portion of the Interest
Distribution Amount for such Class remaining unpaid as of the close of business
on the 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 that amount remaining unpaid 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 that
amount remaining unpaid 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 is a per annum rate
equal to %.
The Pass-Through Rate on the Class A-2 Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class B Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class C Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class D Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class E Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class F Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class G Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class H Certificates is a per annum rate
equal to %, subject to a cap equal to the WAC Rate.
The Pass-Through Rate on the Class J Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class K Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class L Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class M Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class N Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class O Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class P Certificates is a per annum rate
equal to %.
The Pass-Through Rate on the Class X Certificates is a per annum rate
equal to the excess of (i) the WAC Rate over (ii) the weighted average of the
Pass-Through Rates on the Sequential Pay Certificates, weighted on the basis of
their respective Certificate Principal Amounts.
S-70
The "WAC Rate" with respect to any Distribution Date is a per annum rate
equal to the product of the weighted average of the Net Mortgage Rates in
effect for the Mortgage Loans as of their respective Due Dates in the month
preceding the month in which such Distribution Date occurs weighted on the
basis of the respective Stated Principal Balances of the Mortgage Loans on such
Due Dates.
The "Regular Certificates" are the Class A-1, Class A-2, Class B, Class C,
Class D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class
M, Class N, Class O, Class P 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
related Administrative Fee Rate. However, for purposes of calculating
Pass-Through Rates, the Net Mortgage Rate of such Mortgage Loan will 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.
"Administrative Fee Rate" as of any date of determination will be equal to
the sum of the Servicing Fee Rate and the Trustee Fee Rate.
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
Mortgage Note in each case without giving effect to the Excess Rate or 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. However, with respect to all Withheld Loans, (i) the Mortgage
Rate for the one month period preceding the Due Dates in January and February
in any year which is not a leap year or in February in any year which is a leap
year will be determined net of the Withheld Amount, and (ii) the Mortgage Rate
for the one-month period preceding the Due Date in March will be determined
taking into account the addition of any such Withheld Amounts.
The "Stated Principal Balance" of each Mortgage Loan will initially equal
its Cut-Off Date Balance and, on each Distribution Date, will be reduced by the
portion of the Unadjusted Principal Distribution Amount for that date that is
attributable to that Mortgage Loan. The Stated Principal Balance of a Mortgage
Loan may also be reduced in connection with any forced reduction of its actual
unpaid principal balance imposed by a court presiding over a bankruptcy
proceeding in which the related borrower is the debtor. See "Certain Legal
Aspects of Mortgage Loans--Anti-Deficiency Legislation; Bankruptcy Laws" in the
prospectus. If any Mortgage Loan is paid in full or the Mortgage Loan (or any
Mortgaged Property acquired in respect of the Mortgage Loan) is otherwise
liquidated, then, as of the first Distribution Date that follows the end of the
Collection Period in which that payment in full or liquidation occurred and
notwithstanding that a loss may have occurred in connection with any
liquidation, the Stated Principal Balance of the Mortgage Loan will be zero.
The "Unadjusted 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 due on
the Due Date immediately preceding such Distribution Date (if received, or
advanced by the Master Servicer or Trustee, in respect of such Distribution
Date):
(ii) the principal component of any payment on any Mortgage Loan
received or applied on or after the date on which such payment was due
which is on deposit in the Collection Account as of the related
Determination Date, net of the principal portion of any unreimbursed P&I
Advances related to such Mortgage Loan:
S-71
(iii) the portion of Unscheduled Payments allocable to principal of any
Mortgage Loan on deposit in the Collection Account as of the related
Determination Date, net of the principal portion of any unreimbursed P&I
Advances related to such Mortgage Loan; and
(iv) the Principal Shortfall, if any, for such Distribution Date.
The "Principal Distribution Amount" for any Distribution Date will be
equal to:
(a) the Unadjusted Principal Distribution Amount, less
(b) the sum, without duplication, of the amount of any reimbursements
of:
(i) Non-Recoverable Advances, with interest on such
Non-Recoverable Advances, that are paid or reimbursed from
principal collected or advanced on the Mortgage Loans in a
period during which such principal collections would have
otherwise been included in the Principal Distribution Amount
for such Distribution Date; and
(ii) Workout-Delayed Reimbursement Amounts that are paid or
reimbursed from principal collected or advanced on the
Mortgage Loans in a period during which such principal
collections would have otherwise been included in the
Principal Distribution Amount for such Distribution Date;
provided, that, if any of the amounts that were previously allocated as a
Realized Loss to reduce the Certificate Principal Amount of any Class of
Certificates on any Distribution Date are subsequently recovered, such recovery
will be added to the Principal Distribution Amount for the Distribution Date
related to the period in which such recovery occurs.
The "Principal Shortfall" for any Distribution Date means the amount, if
any, by which (i) the Principal Distribution Amount for the preceding
Distribution Date exceeds (ii) the aggregate amount actually distributed on
such preceding Distribution Date in respect of such Principal Distribution
Amount.
The "Unscheduled Payments" for any Distribution Date will equal the
aggregate of: (a) all prepayments of principal received on the mortgage loans
on or prior to the related Determination Date; and (b) any other collections
(exclusive of payments by borrowers) received on the Mortgage Loans and any REO
Properties on or prior to the related Determination Date, whether in the form
of liquidation proceeds, insurance and condemnation proceeds, net income,
rents, and profits from REO Property or otherwise, that were identified and
applied by the Master Servicer as recoveries of previously unadvanced principal
of the related mortgage loan, and, in the case of liquidation proceeds and
insurance and condemnation proceeds, net of any Special Servicing Fees,
Liquidation Fees, accrued interest on Advances and other additional Trust Fund
expenses incurred in connection with the related Mortgage Loan.
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property or a beneficial interest in a
Mortgaged Property acquired upon a foreclosure of a Non-Serviced Mortgage Loan
under a Pari Passu PSA.
On each Distribution Date, the Available Funds are required to 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 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: first, to the Class A-1 Certificates and
second, to the Class A-2 Certificates, in each case up to an amount equal
to the lesser of (i) the Certificate Principal Amount of such Certificates
and (ii) the Principal Distribution Amount for such Distribution Date
(less, in the case of the Class A-2 Certificates, the portion of such
Principal Distribution Amount distributed on the Class A-1 Certificates);
Third, to the Class A-1 and Class A-2 Certificates, pro rata based upon
the aggregate unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount
S-72
at the Pass-Through Rate for such Class compounded monthly from the date
the related Realized Loss was allocated to such Class;
Fourth, to the Class B Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount of such Class;
Fifth, to the Class B Certificates, in reduction of their Certificate
Principal Amount, up to an amount equal to the Principal Distribution
Amount for such Distribution Date, less the portion of such Principal
Distribution Amount distributed pursuant to all prior clauses, until their
Certificate Principal Amount is reduced to zero;
Sixth, to the Class B Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus
interest on that amount at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Seventh, to the Class C Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount of such Class;
Eighth, to the Class C Certificates, in reduction of their Certificate
Principal Amount, up to an amount equal to the Principal Distribution
Amount for such Distribution Date, less the portion of such Principal
Distribution Amount distributed pursuant to all prior clauses, until their
Certificate Principal Amount is reduced to zero;
Ninth, to the Class C Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus
interest on that amount at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Tenth, to the Class D Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount of such Class;
Eleventh, to the Class D Certificates, in reduction of their Certificate
Principal Amount, up to an amount equal to the Principal Distribution
Amount for such Distribution Date, less the portion of such Principal
Distribution Amount distributed pursuant to all prior clauses, until their
Certificate Principal Amount is reduced to zero;
Twelfth, to the Class D Certificates, an amount equal to the aggregate
of unreimbursed Realized Losses previously allocated to such Class, plus
interest on that amount at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Thirteenth, to the Class E Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount of such Class;
Fourteenth, to the Class E Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Fifteenth, to the Class E Certificates, an amount equal to the aggregate
of unreimbursed Realized Losses previously allocated to such Class, plus
interest on that amount at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Sixteenth, to the Class F Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount of such Class;
Seventeenth, to the Class F Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
S-73
Eighteenth, to the Class F Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class;
Nineteenth, to the Class G Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount of such Class;
Twentieth, to the Class G Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Twenty-first, to the Class G Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class;
Twenty-second, to the Class H Certificates, in respect of interest, up
to an amount equal to the Interest Distribution Amount of such Class;
Twenty-third, to the Class H Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Twenty-fourth, to the Class H Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class;
Twenty-fifth, to the Class J Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount of such Class;
Twenty-sixth, to the Class J Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Twenty-seventh, to the Class J Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class;
Twenty-eighth, to the Class K Certificates, in respect of interest, up
to an amount equal to the Interest Distribution Amount of such Class;
Twenty-ninth, to the Class K Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Thirtieth, to the Class K Certificates, an amount equal to the aggregate
of unreimbursed Realized Losses previously allocated to such Class, plus
interest on that amount at the Pass-Through Rate for such Class compounded
monthly from the date the related Realized Loss was allocated to such
Class;
Thirty-first, to the Class L Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount of such Class;
Thirty-second, to the Class L Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the
S-74
portion of such Principal Distribution Amount distributed pursuant to all
prior clauses, until their Certificate Principal Amount is reduced to zero;
Thirty-third, to the Class L Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class;
Thirty-fourth, to the Class M Certificates, in respect of interest, up
to an amount equal to the Interest Distribution Amount of such Class;
Thirty-fifth, to the Class M Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Thirty-sixth, to the Class M Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class;
Thirty-seventh, to the Class N Certificates, in respect of interest, up
to an amount equal to the Interest Distribution Amount of such Class;
Thirty-eighth, to the Class N Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Thirty-ninth, to the Class N Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class;
Fortieth, to the Class O Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount of such Class;
Forty-first, to the Class O Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Forty-second, to the Class O Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class;
Forty-third, to the Class P Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount of such Class;
Forty-fourth, to the Class P Certificates, in reduction of their
Certificate Principal Amount, up to an amount equal to the Principal
Distribution Amount for such Distribution Date, less the portion of such
Principal Distribution Amount distributed pursuant to all prior clauses,
until their Certificate Principal Amount is reduced to zero;
Forty-fifth, to the Class P Certificates, an amount equal to the
aggregate of unreimbursed Realized Losses previously allocated to such
Class, plus interest on that amount at the Pass-Through Rate for such Class
compounded monthly from the date the related Realized Loss was allocated to
such Class; and
Forty-sixth, 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.
S-75
On each Distribution Date occurring on and after the date the Certificate
Principal Amount of all Sequential Pay Certificates (other than the Class A-1
and Class A-2 Certificates) is reduced to zero, regardless of the allocation of
principal payments described in priority Second above, the Principal
Distribution Amount for such Distribution Date is required to be distributed,
pro rata (based on their respective Certificate Principal Amounts), among the
Classes of the Class A-1 and Class A-2 Certificates without regard to the
priorities set forth above.
All references to "pro rata" in the preceding clauses, unless otherwise
specified, mean pro rata based upon the amounts distributable pursuant to such
clause.
PREPAYMENT PREMIUMS. On any Distribution Date, prepayment premiums and
yield maintenance charges collected prior to the related Determination Date are
required to be distributed to the holders of the Classes of Certificates as
described below.
On each Distribution Date, yield maintenance charges collected on the
Mortgage Loans and on deposit in the Collection Account as of the related
Determination Date are required to be distributed to the following Classes of
Certificates: to the Class A-1, Class A-2, Class B, Class C, Class D, Class E,
Class F, Class G and Class H Certificates, in an amount equal to the product of
(a) a fraction whose numerator is the amount distributed as principal to such
Class on such Distribution Date, and whose denominator is the total amount
distributed as principal to the Class A-1, Class A-2, Class B, Class C, Class
D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O and Class P Certificates on such Distribution Date, (b) the
Base Interest Fraction for the related principal prepayment and such Class of
Certificates, and (c) the aggregate amount of such yield maintenance charges.
Any remaining yield maintenance charges with respect to such Distribution Date
will be distributed to the holders of the Class X Certificates.
The "Base Interest Fraction" with respect to any principal prepayment on
any Mortgage Loan and with respect to any Class of Offered Certificates is a
fraction (a) whose numerator is the amount, if any, by which (i) the
Pass-Through Rate on such Class of Certificates exceeds (ii) the discount rate
used in accordance with the related Mortgage Loan documents in calculating the
yield maintenance charge with respect to such principal prepayment and (b)
whose denominator is the amount, if any, by which the (i) Mortgage Rate on such
Mortgage Loan exceeds (ii) the discount rate used in accordance with the
related Mortgage Loan documents in calculating the yield maintenance charge
with respect to such principal prepayment; provided, however, that under no
circumstances shall the Base Interest Fraction be greater than one. If such
discount rate is greater than or equal to the lesser of (x) the Mortgage Rate
on such Mortgage Loan and (y) the Pass-Through Rate described in the preceding
sentence, then the Base Interest Fraction shall equal zero.
If a prepayment premium is imposed in connection with a prepayment rather
than a yield maintenance charge, then the prepayment premium so collected will
be allocated as described above. For this purpose, the discount rate used to
calculate the Base Interest Fraction will be the discount rate used to
determine the yield maintenance charge for Mortgage Loans that require payment
at the greater of a yield maintenance charge or a minimum amount equal to a
fixed percentage of the principal balance of the Mortgage Loan and the latter
is the greater amount, or, for Mortgage Loans that only have a prepayment
premium based on a fixed percentage of the principal balance of the Mortgage
Loan, such other discount rate as may be specified in the related Mortgage Loan
documents.
No prepayment premiums or yield maintenance charges will be distributed to
holders of the Class J, Class K, Class L, Class M, Class N, Class O, Class P or
Residual Certificates. Instead, after the Certificate Principal Amount of the
Class A-1, Class A-2, Class B, Class C, Class D, Class E, Class F, Class G and
Class H Certificates have been reduced to zero, all prepayment premiums and
yield maintenance charges with respect to Mortgage Loans will be distributed to
holders of the Class X Certificates. For a description of prepayment premiums
and yield maintenance charges, see Annex C to this prospectus supplement. See
also "Certain Legal Aspects of the Mortgage Loans--Enforceability of Certain
Provisions--Prepayment Provisions" in the prospectus.
S-76
Prepayment premiums and yield maintenance charges will be distributed on
any Distribution Date only to the extent they are received in respect of the
Mortgage Loans as of the related Determination Date.
DISTRIBUTIONS OF EXCESS LIQUIDATION PROCEEDS. Except to the extent
Realized Losses have been allocated to Classes of Certificates that include the
Offered Certificates, excess liquidation proceeds will not be available for
distribution to the holders of the Offered Certificates. "Excess Liquidation
Proceeds" are the excess of:
o proceeds from the sale or liquidation of a Mortgage Loan or REO
Property, net of expenses and related Advances and interest on
Advances, over
o the amount that would have been received if a principal payment in full
had been made on the Due Date immediately following the date upon which
the proceeds were received.
REALIZED LOSSES. The Certificate Principal Amount of each Class of
Sequential Pay Certificates 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. A "Realized Loss" with respect to any
Distribution Date is 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 P Certificates; second, to the Class O
Certificates; third, to the Class N Certificates; fourth, to the Class M
Certificates; fifth, to the Class L Certificates; sixth, to the Class K
Certificates; seventh, to the Class J Certificates; eighth, to the Class H
Certificates; ninth, to the Class G Certificates; tenth, to the Class F
Certificates; eleventh, to the Class E Certificates; twelfth, to the Class D
Certificates; thirteenth, to the Class C Certificates; fourteenth, to the Class
B Certificates and, finally, pro rata, to the Class A-1 and Class A-2
Certificates, based on their respective Certificate Principal Amounts. The
Notional Amount of the Class X Certificates will be reduced to reflect
reductions in the Certificate Principal Amounts of the Sequential Pay
Certificates resulting from allocations of Realized Losses. Any amounts
recovered in respect of any amounts previously written off as Realized Losses
will increase the Principal Distribution Amount for the Distribution Date
related to the period in which such recovery occurs.
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 or late payment charges, 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 (not
constituting Realized Losses) will reduce the amounts distributable on the
Classes of Regular Certificates in the same order as Realized Losses are
applied to reduce the Certificate Principal Amounts of such Classes.
PREPAYMENT INTEREST SHORTFALLS. If a borrower prepays a Mortgage Loan, in
whole or in part, after the Due Date but on or before the Determination Date in
any calendar month, the amount of interest (net of related Servicing Fees)
accrued on such prepayment from such Due Date to, but not including, the date
of prepayment (or any later date through which interest accrues) will, to the
extent actually collected, constitute a "Prepayment Interest Excess."
Conversely, if a borrower prepays a Mortgage Loan, in whole or in part, after
the Determination Date in any calendar month and does not pay interest on such
prepayment through the day prior to the next Due Date, then the shortfall in a
full month's interest (net of related Servicing Fees) on such prepayment will
constitute a "Prepayment Interest Shortfall." Prepayment Interest Excesses (to
the extent not offset by Prepayment Interest Shortfalls) collected on the
Mortgage Loans will be retained by the Master Servicer as additional servicing
compensation, as determined on a pool-wide aggregate basis. The aggregate of
any Prepayment Interest Shortfalls resulting from any principal prepayments
made on the mortgage loans during the related Collection Period that are not
covered by the Master Servicer's Compensating Interest Payment for the related
Distribution Date (the aggregate of the Prepayment Interest Shortfalls that are
not so covered, as to the related Distribution Date, the "Excess Prepayment
S-77
Interest Shortfall") will be allocated pro rata on that Distribution Date among
each Class of Certificates (other than the Class R and Class LR Certificates),
in accordance with their respective Interest Accrual Amounts for that
Distribution Date.
The Master Servicer will be required to deliver to the Trustee for deposit
in the Lower-Tier Distribution Account on each Master Servicer Remittance Date,
without any right of reimbursement thereafter, a cash payment (a "Compensating
Interest Payment") in an amount equal to the lesser of (1) the aggregate amount
of Prepayment Interest Shortfalls incurred in connection with principal
prepayments received in respect of the Mortgage Loans (other than a Specially
Serviced Mortgage Loan) for the related Distribution Date, and (2) the
aggregate of (a) its Servicing Fee up to a maximum of 0.01% per annum for the
related Distribution Date with respect to each and every Mortgage Loan and REO
Mortgage Loan for which such Servicing Fees are being paid in such Collection
Period and (b) all Prepayment Interest Excesses and net investment earnings on
the Prepayment Interest Excesses.
SUBORDINATION
As a means of providing a certain amount of protection to the holders of
the Class A-1, Class A-2 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, Class H, Class J, Class
K, Class L, Class M, Class N, Class O and Class P Certificates to receive
distributions of interest and principal, as applicable, will be subordinated to
such rights of the holders of the Class A-1, Class A-2 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, Class H,
Class J, Class K, Class L, Class M, Class N, Class O and Class P Certificates.
The Class C Certificates will likewise be protected by the subordination of the
Class D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class
M, Class N, Class O and Class P Certificates. The Class D Certificates will
likewise be protected by the subordination of the Class E, Class F, Class G,
Class H, Class J, Class K, Class L, Class M, Class N, Class O and Class P
Certificates. The Class E Certificates will likewise be protected by the
subordination of Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O and Class P 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 on their Certificates
prior to any distribution being made on such Distribution Date in respect of
any Classes of Certificates subordinate to that other Class and (ii) by the
allocation of Realized Losses: first, to the Class P Certificates; second, to
the Class O Certificates; third, to the Class N Certificates; fourth, to the
Class M Certificates; fifth, to the Class L Certificates; sixth, to the Class K
Certificates; seventh, to the Class J Certificates; eighth, to the Class H
Certificates; ninth, to the Class G Certificates; tenth, to the Class F
Certificates; eleventh, to the Class E Certificates; twelfth, to the Class D
Certificates; thirteenth, to the Class C Certificates; fourteenth, to the Class
B Certificates and, finally, to the Class A-1 and Class A-2 Certificates, pro
rata, based on their respective Certificate Principal Amounts. No other form of
credit enhancement will be available with respect to any Class of Offered
Certificates.
APPRAISAL REDUCTIONS
After an Appraisal Reduction Event has occurred, an Appraisal Reduction is
required to be calculated. An "Appraisal Reduction Event" will occur on the
earliest of:
o 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 (other than an extension of its maturity), becomes
effective as a result of a modification of the related Mortgage Loan by
the Special Servicer,
S-78
o the 90th day following the occurrence of any uncured delinquency in
monthly payments or the balloon payment on the Mortgage Loan (or 150
days following a default on a balloon payment, if the borrower has
produced a written refinancing commitment that is reasonably acceptable
to the Special Servicer and the Controlling Class Representative);
provided that the borrower continues to make a Monthly Payment,
o the date on which a receiver is appointed and continues in that
capacity for a Mortgaged Property securing the Mortgage Loan,
o the 60th day following the bankruptcy or similar proceeding of the
borrower, and
o the date on which a Mortgaged Property securing the Mortgage Loan
becomes an REO Property.
No Appraisal Reduction Event may occur at any time when the aggregate
Certificate Principal Amount of all classes of Certificates (other than the
Class A Certificates) has been reduced to zero.
Within 30 days of an Appraisal Reduction Event with respect to a Mortgage
Loan, or longer period if the Special Servicer is diligently and in good faith
proceeding to obtain the appraisal, the Special Servicer is required to obtain
an appraisal of the related Mortgaged Property from an independent
MAI-designated appraiser, provided that if the Mortgage Loan has a principal
balance of less than $2,000,000 at that time, a desktop estimation of value may
be substituted for the required appraisal. No appraisal will be required if an
appraisal was obtained within the prior twelve months unless the Special
Servicer determines that such appraisal is materially inaccurate. The cost of
the appraisal will be advanced by the Master Servicer and will be reimbursed to
the Master Servicer as a Property Advance.
On the first Determination Date occurring on or after the delivery of the
appraisal or the completion of the desktop estimation, the Special Servicer
will be required to calculate the Appraisal Reduction, if any, taking into
account the results of such appraisal or valuation. In the event that the
Special Servicer has not received any required appraisal within 120 days after
the event described in the definition of Appraisal Reduction Event (without
regard to the time period set forth in the definition), the amount of the
Appraisal Reduction will be deemed to be an amount, calculated as of the
Determination Date immediately succeeding the date on which the appraisal is
obtained, to be an amount equal to 25% of the current Stated Principal Balance
of the related Mortgage Loan until the appraisal is received.
The "Appraisal Reduction" for any Distribution Date and for any Mortgage
Loan as to which any Appraisal Reduction Event has occurred and the Appraisal
Reduction is required to be calculated will be equal to the excess of (a) the
Stated Principal Balance of that Mortgage Loan over (b) the excess of (1) the
sum of (i) 90% of the appraised value of the related Mortgaged Property as
determined by the appraisal or desktop estimation, minus such downward
adjustments as the Special Servicer may make (without implying any obligation
to do so) based upon the Special Servicer's review of the appraisal and such
other information as the Special Servicer may deem appropriate and (ii) all
escrows, letters of credit and reserves in respect of such Mortgage Loan as of
the date of calculation over (2) the sum as of the Due Date occurring in the
month of the date of determination of (A) to the extent not previously advanced
by the Master Servicer or the Trustee, all unpaid interest on that Mortgage
Loan at a per annum rate equal to the Mortgage Rate, (B) all unreimbursed
Advances and interest on those Advances at the Advance Rate in respect of that
Mortgage Loan and (C) all currently due and unpaid real estate taxes and
assessments, insurance premiums and ground rents, unpaid Special Servicing Fees
and all other amounts due and unpaid under the Mortgage Loan (which tax,
premiums, ground rents and other amounts have not been the subject of an
Advance by the Master Servicer or Trustee, as applicable).
As a result of calculating one or more Appraisal Reductions, the amount of
any required P&I Advance will be reduced, which will have the effect of
reducing the amount of interest available to the most subordinate Class of
Certificates then outstanding (i.e., first to the Class P Certificates, then to
the Class O Certificates, then to the Class N Certificates, then to the Class M
Certificates, then to the Class L Certificates, then to the Class K
Certificates, then to the Class J Certificates, then to the
S-79
Class H Certificates, then to the Class G Certificates, then to the Class F
Certificates, then to the Class E Certificates, then to the Class D
Certificates, then to the Class C Certificates and then to the Class B
Certificates. See "The Pooling Agreement--Advances" in this prospectus
supplement.
With respect to each Mortgage Loan as to which an Appraisal Reduction has
occurred (unless the Mortgage Loan has remained current for three consecutive
Monthly Payments, and no other Appraisal Reduction Event has occurred with
respect to the Mortgage Loan during the preceding three months), the Special
Servicer is required, within 30 days of each annual anniversary of the related
Appraisal Reduction Event to order an appraisal (which may be an update of a
prior appraisal), the cost of which will be a Property Advance, or to conduct a
desktop estimation, as applicable. Based upon the appraisal or desktop
estimation, the Special Servicer is required to redetermine the recalculation
amount of the Appraisal Reduction with respect to the Mortgage Loan.
Any Mortgage Loan previously subject to an Appraisal Reduction which
becomes current and remains current for three consecutive Monthly Payments, and
with respect to which no other Appraisal Reduction Event has occurred and is
continuing, will no longer be subject to an Appraisal Reduction.
DELIVERY, FORM AND DENOMINATION
The Offered 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 of $10,000.
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 The Depository Trust Company ("DTC"). The Depositor has been informed by DTC
that DTC's nominee will be Cede & Co. No holder of an Offered Certificate (a
"Certificateholder") 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 Clearstream Banking, societe anonyme ("Clearstream") and
Euroclear Bank, as operator of the Euroclear System ("Euroclear") participating
organizations, the "Participants"), and all references in this prospectus
supplement 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.
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.
BOOK-ENTRY REGISTRATION
Holders of Offered Certificates may hold their Certificates through DTC
(in the United States) or Clearstream or Euroclear (in Europe) if they are
Participants of such system, or indirectly through organizations that are
participants in such systems. Clearstream and Euroclear will hold omnibus
positions on behalf of the Clearstream Participants and the Euroclear
Participants, respectively, through customers' securities accounts in
Clearstream'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"
S-80
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 is also 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 Clearstream 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 Clearstream 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
Clearstream, 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, it is possible that credits of
securities in Clearstream 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 Clearstream Participant or Euroclear
Participant on such business day. Cash received in Clearstream or Euroclear as
a result of sales of securities by or through a Clearstream Participant or a
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but, due to time zone differences may be available in the
relevant Clearstream or Euroclear cash account only as of the business day
following settlement in DTC.
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 ("Certificate Owners"). Except as
otherwise provided under "The Pooling Agreement--Reports to Certificateholders;
Available Information" in this prospectus supplement, Certificate Owners will
not be recognized by the Trustee, the Special Servicer or the Master Servicer
as holders of record of Certificates and Certificate Owners will be permitted
to receive information furnished to Certificateholders and to exercise the
rights of Certificateholders only indirectly through DTC and its Participants
and Indirect Participants.
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 Certificate Owners 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
Certificate Owners. Accordingly, although the Certificate Owners will not
possess the Offered Certificates, the Rules provide a mechanism by which
Certificate Owners 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
S-81
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.
Although DTC, Euroclear and Clearstream have implemented the foregoing
procedures in order to facilitate transfers of interests in book-entry
certificates among Participants of DTC, Euroclear and Clearstream, 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 Underwriters will
have any responsibility for the performance by DTC, Euroclear or Clearstream or
their respective direct or Indirect Participants of their respective
obligations under the rules and procedures governing their operations. The
information in this prospectus supplement concerning DTC, Clearstream 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 of this information.
DEFINITIVE CERTIFICATES
Definitive Certificates will be delivered to Certificate Owners or their
nominees, respectively, 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 notifies DTC of its intent to terminate the book-entry system
through DTC and, upon receipt of notice of such intent from DTC, the DTC
Participants holding beneficial interests in the Certificates agree to initiate
such termination, 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 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 these events, 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.
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 prospectus and the Pooling
Agreement.
S-82
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 of the related Classes of
Certificates, the extent to which prepayment premiums and yield maintenance
charges allocated to a Class of Certificates are collected, 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 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
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 and the severity of losses occurring upon a
default. While voluntary prepayments of Mortgage Loans are generally prohibited
during applicable prepayment lockout periods, effective prepayments may occur
if a sufficiently significant portion of the Mortgaged Property is lost due to
casualty or condemnation. In addition, such distributions in reduction of
Certificate Principal Amount may result from repurchases of Mortgage Loans made
by the Loan Sellers due to missing or defective documentation or breaches of
representations and warranties with respect to the Mortgage Loans as described
in this prospectus supplement under "Description of the Mortgage
Pool--Representations and Warranties; Repurchases and Substitutions" or
purchases of the Mortgage Loans in the manner described under "The Pooling
Agreement--Optional Termination; Optional Mortgage Loan Purchase" in this
prospectus supplement. To the extent a Mortgage Loan requires payment of a
prepayment premium or yield maintenance charge in connection with a voluntary
prepayment, any such prepayment premium or yield maintenance charge generally
is not due in connection with a prepayment due to casualty or condemnation, is
not included in the purchase price of a Mortgage Loan purchased or repurchased
due to a breach of a representation or warranty, and may not be enforceable or
collectible upon a default.
The Certificate Principal Amount of any Class of Offered Certificates may
be reduced without distributions of principal 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, a reduction in the principal balance of a Mortgage Loan by a
bankruptcy court or a recovery by the Master Servicer or Trustee of a
Non-Recoverable Advance or a Workout Delayed Reimbursement Amount on a
Distribution Date. Realized Losses will be allocated to the Certificates (other
than the Class X, Class R and Class LR Certificates) in reverse alphabetical
order.
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 due 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 lock-out period, the
extent to which prepayment premiums or yield maintenance charges are due with
respect to any principal prepayments, the right of the mortgagee to apply
condemnation and casualty proceeds to prepay the
S-83
Mortgage Loan, the availability of certain rights to defease all or a portion
of the 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 Annex C hereto for a description of prepayment lock-out
periods, prepayment premiums and yield maintenance charges.
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. 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.
In general, with respect to any Class of Offered Certificates that is
purchased at a premium, if principal distributions occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if a Class
of Offered Certificates is purchased at a discount and principal distributions
occur at a rate slower than that assumed at the time of purchase, the
investor's actual yield to maturity will be lower than that assumed at the time
of purchase.
An investor should consider the risk that rapid rates of prepayments on
the Mortgage Loans, and therefore of amounts distributable in reduction of the
Certificate Principal Amount 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.
The "Rated Final Distribution Date" for each Class of Offered Certificates
will be October 10, 2028, the first Distribution Date after the 210th month
following the latest stated maturity date of any Mortgage Loan.
S-84
WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security will
be repaid to the investor. The weighted average life of the Offered
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments and payments made pursuant
to any applicable policies of insurance) on the Mortgage Loans are made.
Principal payments on the Mortgage Loans may be in the form of scheduled
amortization or prepayments (for this purpose, the term prepayment includes
prepayments, partial prepayments and liquidations due to a default or other
dispositions of the Mortgage Loans).
Calculations reflected in the following tables assume that the Mortgage
Loans have the characteristics shown on Annex C to this prospectus supplement,
and are based on the following additional assumptions ("Modeling Assumptions"):
(i) each Mortgage Loan is assumed to prepay at the indicated level of constant
prepayment rate ("CPR"), in accordance with a prepayment scenario in which
prepayments occur after expiration of any applicable lock-out period,
defeasance and yield maintenance options, (ii) there are no delinquencies,
(iii) scheduled interest and principal payments, including balloon payments, on
the Mortgage Loans are timely received on their respective Due Dates (assumed
in all cases to be the first day of each month) at the indicated levels of CPR
in accordance with the prepayment scenario set forth in the tables, (iv) no
prepayment premiums or yield maintenance charges are collected, (v) no party
exercises its right of optional termination of the Trust Fund described in this
prospectus supplement, (vi) no Mortgage Loan is required to be purchased from
the Trust Fund, (vii) the Administrative Fee Rate for each Mortgage Loan is the
rate set forth on Annex C with respect to each Mortgage Loan, (viii) there are
no Excess Prepayment Interest Shortfalls, other shortfalls unrelated to
defaults or Appraisal Reduction allocated to any class of Offered Certificates,
(ix) distributions on the Certificates are made on the 10th day (each assumed
to be a business day) of each month, commencing in May 2004, (x) the
Certificates will be issued on April 15, 2004, (xi) partial payments on the
Mortgage Loans are permitted, but are assumed not to affect the amortization
term and (xii) the Pass-Through Rate with respect to each Class of Certificates
is as described on page S-6 in this prospectus supplement (including any
applicable footnotes).
The weighted average life of any Class A-1, Class A-2, Class B, Class C,
Class D or Class E Certificate refers to the average amount of time that will
elapse from the date of its issuance until each dollar allocable to principal of
such Certificates is distributed to the investor. The weighted average life of
any such Offered Certificate will be influenced by, among other things, the rate
at which principal on the Mortgage Loans is paid or otherwise collected or
advanced and applied to pay principal of such Offered Certificate. The Principal
Distribution Amount for each Distribution Date will be distributable as
described in "Description of the Offered Certificates--Distributions-- Payment
Priorities" in this prospectus supplement.
The following tables indicate the percentage of the initial Certificate
Principal Amount of each Class of Offered Certificates that would be
outstanding after each of the dates shown under each of the indicated
prepayment assumptions and the corresponding weighted average life of each such
Class of Offered Certificates. The tables have been prepared on the basis of,
among others, the Modeling Assumptions. To the extent that the Mortgage Loans
or the Certificates have characteristics that differ from those assumed in
preparing the tables, the Class A-1, Class A-2, Class B, Class C, Class D
and/or Class E Certificates may mature earlier or later than indicated by the
tables. Accordingly, the Mortgage Loans will not prepay at any constant rate,
and it is highly unlikely that the Mortgage Loans will prepay in a manner
consistent with the assumptions described in this prospectus supplement. In
addition, variations in the actual prepayment experience and the balance of the
Mortgage Loans that prepay may increase or decrease the percentages of initial
Certificate Principal Amount (and shorten or extend the weighted average lives)
shown in the following tables. Investors are urged to conduct their own
analyses of the rates at which the Mortgage Loans may be expected to prepay.
S-85
PERCENTAGES OF THE INITIAL CERTIFICATE PRINCIPAL AMOUNT OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE --
OTHERWISE AT INDICATED CPR
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------------------
DISTRIBUTION DATE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- --------------------------------- ---------- ---------- ---------- ---------- ---------
Initial ......................... 100% 100% 100% 100% 100%
April 10, 2005 .................. 99% 99% 99% 99% 99%
April 10, 2006 .................. 98% 98% 98% 98% 98%
April 10, 2007 .................. 98% 98% 97% 97% 95%
April 10, 2008 .................. 77% 76% 75% 74% 57%
April 10, 2009 .................. * * * * *
April 10, 2010 and thereafter ... 0% 0% 0% 0% 0%
Weighted Average Life (in years) 4.37 4.35 4.33 4.30 4.10
First Principal Payment Date .... May 2004 May 2004 May 2004 May 2004 May 2004
Last Principal Payment Date ..... May 2009 May 2009 May 2009 May 2009 May 2009
- ----------
* Greater than 0% but less than 0.5% of the Initial Certificate Principal
Amount
PERCENTAGES OF THE INITIAL CERTIFICATE PRINCIPAL AMOUNT OF
THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE --
OTHERWISE AT INDICATED CPR
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------------------
DISTRIBUTION DATE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- --------------------------------- ---------- ---------- ---------- ---------- ---------
Initial ......................... 100% 100% 100% 100% 100%
April 10, 2005 .................. 100% 100% 100% 100% 100%
April 10, 2006 .................. 100% 100% 100% 100% 100%
April 10, 2007 .................. 100% 100% 100% 100% 100%
April 10, 2008 .................. 100% 100% 100% 100% 100%
April 10, 2009 .................. 100% 100% 100% 100% 100%
April 10, 2010 .................. 98% 98% 98% 98% 97%
April 10, 2011 and thereafter ... 0% 0% 0% 0% 0%
Weighted Average Life (in years) 6.46 6.44 6.41 6.38 6.15
First Principal Payment Date .... May 2009 May 2009 May 2009 May 2009 May 2009
Last Principal Payment Date ..... Nov 2010 Nov 2010 Nov 2010 Nov 2010 Aug 2010
S-86
PERCENTAGES OF THE INITIAL CERTIFICATE PRINCIPAL AMOUNT OF
THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE --
OTHERWISE AT INDICATED CPR
PREPAYMENT ASSUMPTION (CPR)
-------------------------------------------------------------
DISTRIBUTION DATE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------
Initial .................................. 100% 100% 100% 100% 100%
April 10, 2005 ........................... 100% 100% 100% 100% 100%
April 10, 2006 ........................... 100% 100% 100% 100% 100%
April 10, 2007 ........................... 100% 100% 100% 100% 100%
April 10, 2008 ........................... 100% 100% 100% 100% 100%
April 10, 2009 ........................... 100% 100% 100% 100% 100%
April 10, 2010 ........................... 100% 100% 100% 100% 100%
April 10, 2011 and thereafter ............ 0% 0% 0% 0% 0%
Weighted Average Life (in years) ......... 6.65 6.63 6.60 6.57 6.40
First Principal Payment Date ............. Nov 2010 Nov 2010 Nov 2010 Nov 2010 Aug 2010
Last Principal Payment Date .............. Dec 2010 Dec 2010 Dec 2010 Nov 2010 Sep 2010
PERCENTAGES OF THE INITIAL CERTIFICATE PRINCIPAL AMOUNT OF
THE CLASS C CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE --
OTHERWISE AT INDICATED CPR
PREPAYMENT ASSUMPTION (CPR)
-------------------------------------------------------------
DISTRIBUTION DATE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------
Initial .................................. 100% 100% 100% 100% 100%
April 10, 2005 ........................... 100% 100% 100% 100% 100%
April 10, 2006 ........................... 100% 100% 100% 100% 100%
April 10, 2007 ........................... 100% 100% 100% 100% 100%
April 10, 2008 ........................... 100% 100% 100% 100% 100%
April 10, 2009 ........................... 100% 100% 100% 100% 100%
April 10, 2010 ........................... 100% 100% 100% 100% 100%
April 10, 2011 and thereafter ............ 0% 0% 0% 0% 0%
Weighted Average Life (in years) ......... 6.68 6.65 6.65 6.62 6.44
First Principal Payment Date ............. Dec 2010 Dec 2010 Dec 2010 Nov 2010 Sep 2010
Last Principal Payment Date .............. Jan 2011 Dec 2010 Dec 2010 Dec 2010 Oct 2010
S-87
PERCENTAGES OF THE INITIAL CERTIFICATE PRINCIPAL AMOUNT OF
THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE --
OTHERWISE AT INDICATED CPR
PREPAYMENT ASSUMPTION (CPR)
-------------------------------------------------------------
DISTRIBUTION DATE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------
Initial .................................. 100% 100% 100% 100% 100%
April 10, 2005 ........................... 100% 100% 100% 100% 100%
April 10, 2006 ........................... 100% 100% 100% 100% 100%
April 10, 2007 ........................... 100% 100% 100% 100% 100%
April 10, 2008 ........................... 100% 100% 100% 100% 100%
April 10, 2009 ........................... 100% 100% 100% 100% 100%
April 10, 2010 ........................... 100% 100% 100% 100% 100%
April 10, 2011 and thereafter ............ 0% 0% 0% 0% 0%
Weighted Average Life (in years) ......... 6.74 6.72 6.69 6.65 6.49
First Principal Payment Date ............. Jan 2011 Dec 2010 Dec 2010 Dec 2010 Oct 2010
Last Principal Payment Date .............. Jan 2011 Jan 2011 Jan 2011 Dec 2010 Oct 2010
PERCENTAGES OF THE INITIAL CERTIFICATE PRINCIPAL AMOUNT OF
THE CLASS E CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE --
OTHERWISE AT INDICATED CPR
PREPAYMENT ASSUMPTION (CPR)
-------------------------------------------------------------
DISTRIBUTION DATE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------
Initial .................................. 100% 100% 100% 100% 100%
April 10, 2005 ........................... 100% 100% 100% 100% 100%
April 10, 2006 ........................... 100% 100% 100% 100% 100%
April 10, 2007 ........................... 100% 100% 100% 100% 100%
April 10, 2008 ........................... 100% 100% 100% 100% 100%
April 10, 2009 ........................... 100% 100% 100% 100% 100%
April 10, 2010 ........................... 100% 100% 100% 100% 100%
April 10, 2011 and thereafter ............ 0% 0% 0% 0% 0%
Weighted Average Life (in years) ......... 6.74 6.74 6.74 6.72 6.49
First Principal Payment Date ............. Jan 2011 Jan 2011 Jan 2011 Dec 2010 Oct 2010
Last Principal Payment Date .............. Jan 2011 Jan 2011 Jan 2011 Jan 2011 Oct 2010
PRICE/YIELD TABLES
The tables set forth below show the corporate bond equivalent ("CBE")
yield, weighted average life (as described above under "--Weighted Average Life
of the Offered Certificates" in this prospectus supplement) and the period
during which principal payments would be received with respect to each Class of
Offered Certificates under the Modeling Assumptions. Purchase prices set forth
below for each such Class of Offered Certificates are expressed as a percentage
of the initial Certificate Principal Amount of such Class of Certificates,
before adding accrued interest.
The yields set forth in the following tables were calculated by
determining the monthly discount rates which, when applied to the assumed
stream of cash flows to be paid on each Class of Offered Certificates, would
cause the discounted present value of such assumed stream of cash flows as of
the Closing Date to equal the assumed purchase prices, plus accrued interest at
the applicable Pass-Through Rate as described in the Modeling Assumptions, from
and including April 1, 2004 to but excluding the Closing Date, and converting
such monthly rates to semi-annual corporate bond equivalent rates. Such
calculation does not take into account variations that may occur in the
interest
S-88
rates at which investors may be able to reinvest funds received by them as
reductions of the Certificate Principal Amounts of such Classes of Offered
Certificates and consequently does not purport to reflect the return on any
investment in such Classes of Offered Certificates when such reinvestment rates
are considered.
PRE-TAX YIELD TO MATURITY (CBE), WEIGHTED AVERAGE LIFE, FIRST PRINCIPAL PAYMENT DATE,
LAST PRINCIPAL PAYMENT DATE FOR THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE
--OTHERWISE AT INDICATED CPR
--------------------------------------------------------
ASSUMED PRICE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- -------------------------------------- -------- --------- --------- --------- ---------
Weighted Average Life (yrs.) .........
First Principal Payment Date .........
Last Principal Payment Date ..........
PRE-TAX YIELD TO MATURITY (CBE), WEIGHTED AVERAGE LIFE, FIRST PRINCIPAL PAYMENT DATE,
LAST PRINCIPAL PAYMENT DATE FOR THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE
--OTHERWISE AT INDICATED CPR
--------------------------------------------------------
ASSUMED PRICE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- -------------------------------------- -------- --------- --------- --------- ---------
Weighted Average Life (yrs.) .........
First Principal Payment Date .........
Last Principal Payment Date ..........
S-89
PRE-TAX YIELD TO MATURITY (CBE), WEIGHTED AVERAGE LIFE, FIRST PRINCIPAL PAYMENT DATE,
LAST PRINCIPAL PAYMENT DATE FOR THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE
--OTHERWISE AT INDICATED CPR
--------------------------------------------------------
ASSUMED PRICE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- -------------------------------------- -------- --------- --------- --------- ---------
Weighted Average Life (yrs.) .........
First Principal Payment Date .........
Last Principal Payment Date ..........
PRE-TAX YIELD TO MATURITY (CBE), WEIGHTED AVERAGE LIFE, FIRST PRINCIPAL PAYMENT DATE,
LAST PRINCIPAL PAYMENT DATE FOR THE CLASS C CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE
--OTHERWISE AT INDICATED CPR
--------------------------------------------------------
ASSUMED PRICE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- -------------------------------------- -------- --------- --------- --------- ---------
Weighted Average Life (yrs.) .........
First Principal Payment Date .........
Last Principal Payment Date ..........
S-90
PRE-TAX YIELD TO MATURITY (CBE), WEIGHTED AVERAGE LIFE, FIRST PRINCIPAL PAYMENT DATE,
LAST PRINCIPAL PAYMENT DATE FOR THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE
--OTHERWISE AT INDICATED CPR
--------------------------------------------------------
ASSUMED PRICE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- -------------------------------------- -------- --------- --------- --------- ---------
Weighted Average Life (yrs.) .........
First Principal Payment Date .........
Last Principal Payment Date ..........
PRE-TAX YIELD TO MATURITY (CBE), WEIGHTED AVERAGE LIFE, FIRST PRINCIPAL PAYMENT DATE,
LAST PRINCIPAL PAYMENT DATE FOR THE CLASS E CERTIFICATES AT THE SPECIFIED CPRS
0% CPR DURING LOCKOUT, DEFEASANCE, YIELD MAINTENANCE
--OTHERWISE AT INDICATED CPR
--------------------------------------------------------
ASSUMED PRICE 0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
- -------------------------------------- -------- --------- --------- --------- ---------
Weighted Average Life (yrs.) .........
First Principal Payment Date .........
Last Principal Payment Date ..........
S-91
Notwithstanding the assumed prepayment rates reflected in the preceding
tables in this "Yield, Prepayment and Maturity Considerations" section, it is
highly unlikely that the Mortgage Loans will be prepaid according to one
particular pattern. For this reason and because the timing of principal
payments is critical to determining weighted average lives, the weighted
average lives of the Offered Certificates are likely to differ from those shown
in the tables, even if all of the Mortgage Loans prepay at the indicated
percentages of CPR or prepayment scenario over any given time period or over
the entire life of the Offered Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate. Moreover, the various remaining terms to maturity of the
Mortgage Loans could produce slower or faster principal distributions than
indicated in the preceding tables at the various percentages of CPR specified,
even if the weighted average remaining term to maturity of the Mortgage Loans
is as assumed. Investors are urged to make their investment decisions based on
their determinations as to anticipated rates of prepayment under a variety of
scenarios.
For additional considerations relating to the yield on the Certificates,
see "Yield Considerations" in the prospectus.
S-92
THE POOLING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of April 1, 2004 (the "Pooling Agreement"), by and
among the Depositor, the Master Servicer, the Special Servicer and the Trustee.
The servicing of the Mortgage Loans (other than any Non-Serviced Loan) and
any REO Properties will be governed by the Pooling Agreement. The following
summaries describe certain provisions of the Pooling Agreement relating to the
servicing and administration of the Mortgage Loans (other than any Non-Serviced
Loan) and any REO Properties. The summaries do not purport to be complete and
are subject, and qualified in their entirety by reference, to the provisions of
the Pooling Agreement. Reference is made to the prospectus for additional
information regarding the terms of the Pooling Agreement relating to the
servicing and administration of the Mortgage Loans (other than any Non-Serviced
Loan) and any REO Properties, provided that the information in this prospectus
supplement supersedes any contrary information set forth in the prospectus.
SERVICING OF THE NON-SERVICED LOANS
THE WATER TOWER PLACE LOAN. The Water Tower Place Whole Loan and any
related REO Property are being serviced under the GMACCM C3 PSA and therefore
the GMACCM C3 Master Servicer will make recoverable servicing advances (and if
it fails to make such advances, the GMACCM C3 Trustee will be required to make
such recoverable servicing advances) and remit collections on the Water Tower
Place Loan to or on behalf of the trust, but will not make P&I Advances. The
Master Servicer will be required to make P&I Advances on the Water Tower Place
Loan, unless it has determined that such advances would not be recoverable from
collections on the Water Tower Place Loan. If the Master Servicer is an S&P
approved servicer and a Moody's approved Master Servicer, the GMACCM C3 Master
Servicer may also rely on a determination by the Master Servicer that a P&I
Advance with respect to the Water Tower Place Loan is nonrecoverable. Any
determination made by the GMACCM C3 Master Servicer or GMACCM C3 Special
Servicer, as applicable, that an advance on the Water Tower Place Whole Loan is
nonrecoverable shall be conclusive and binding on the Master Servicer and the
Trustee. The GMACCM C3 PSA provides for servicing in a manner acceptable for
rated transactions similar in nature to this securitization. The servicing
arrangements under the GMACCM C3 PSA are generally similar but not identical to
the servicing arrangements under the Pooling Agreement. In that regard:
o The GMACCM C3 Master Servicer and GMACCM C3 Special Servicer will be the
master servicer and the special servicer, respectively, with respect to
the servicing of the Water Tower Place Whole Loan.
o The GMACCM C3 Trustee will be the mortgagee of record for the Water
Tower Place Whole Loan.
o The Master Servicer, the Special Servicer or the Trustee under the
Pooling Agreement will have no obligation or authority to supervise the
GMACCM C3 Master Servicer, the GMACCM C3 Special Servicer or the GMACCM
C3 Trustee or to make servicing advances with respect to the Water Tower
Place Loan. The obligation of the Master Servicer and the Special
Servicer to provide information to the Trustee and the Certificateholders
with respect to the Water Tower Place Loan is dependent on their receipt
of the corresponding information from the GMACCM C3 Master Servicer or
the GMACCM C3 Special Servicer, as applicable.
o The obligation of the Master Servicer to remit collections (but not P&I
Advances) to the Trustee with respect to the Water Tower Place Loan is
dependent on its receipt of the corresponding amounts from the applicable
party under the GMACCM C3 PSA.
S-93
o The controlling classes of the certificates issued by the GMACCM C3
Trust, the controlling class of any trust holding the other Pari Passu
Companion Loans (or if not securitized, the holder of the related note)
and the Controlling Class Representative will be able to withhold their
approval to proposed actions to be taken by the GMACCM C3 Master Servicer
or the GMACCM C3 Special Servicer with respect to the Water Tower Place
Loan and the related companion loan. If there is a disagreement among the
controlling classes of these trusts, a third party operating advisor will
be entitled to choose the course of action from those presented by those
controlling classes or holders.
o The GMACCM C3 Special Servicer may be removed as special servicer for
the Water Tower Place Loan and the related companion loans at any time,
with or without cause, but only with the consent of the majority holder
of the controlling class of the GMACCM C3 Trust, the controlling class of
any trust holding any other Water Tower Place Pari Passu Companion Loan
(or if not securitized, the holder of the related note) and the
Controlling Class Representative who will jointly appoint a replacement
special servicer, subject to rating agency confirmation that such
appointment would not result in the downgrade, withdrawal or
qualification of the then current ratings of the certificates issued in
either securitization. If the controlling classes or holders are not able
to agree on a successor special servicer, the third party operating
advisor shall select one of the proposed successor special servicers.
THE DDR PORTFOLIO LOAN. The DDR Portfolio Whole Loan and any related REO
Property are being serviced under the GMACCM C2 PSA and therefore the GMACCM C2
Master Servicer will make recoverable servicing advances (and if it fails to
make such advances, the GMACCM C2 Trustee will be required to make such
recoverable servicing advances) and remit collections on the DDR Portfolio Loan
to or on behalf of the trust, but will not make P&I Advances. The Master
Servicer will be required to make P&I Advances on the DDR Portfolio Loan,
unless it has determined that such advances would not be recoverable from
collections on the DDR Portfolio Loan. If the Master Servicer is an S&P
approved servicer and a Moody's approved Master Servicer, the GMACCM C2 Master
Servicer may also rely on a determination by the Master Servicer that a P&I
Advance with respect to the DDR Portfolio Loan is nonrecoverable. Any
determination made by the GMACCM C2 Master Servicer or GMACCM C2 Special
Servicer, as applicable, that an advance on the DDR Portfolio Whole Loan is
nonrecoverable shall be conclusive and binding on the Master Servicer and the
Trustee. The GMACCM C2 PSA provides for servicing in a manner acceptable for
rated transactions similar in nature to this securitization. The servicing
arrangements under the GMACCM C2 PSA are generally similar but not identical to
the servicing arrangements under the Pooling Agreement. In that regard:
o The GMACCM C2 Master Servicer and GMACCM C2 Special Servicer, will be
the master servicer and the special servicer, respectively, with respect
to the servicing of the DDR Portfolio Whole Loan.
o The GMACCM C2 Trustee will be the mortgagee of record for the DDR
Portfolio Whole Loan.
o The Master Servicer, the Special Servicer or the Trustee under the
Pooling Agreement will have no obligation or authority to supervise the
GMACCM C2 Master Servicer, the GMACCM C2 Special Servicer or the GMACCM
C2 Trustee or to make servicing advances with respect to the DDR
Portfolio Loan. The obligation of the Master Servicer and the Special
Servicer to provide information to the Trustee and the Certificateholders
with respect to the DDR Portfolio Loan is dependent on their receipt of
the corresponding information from the GMACCM C2 Master Servicer or the
GMACCM C2 Special Servicer, as applicable.
o The obligation of the Master Servicer to remit collections (but not P&I
Advances) to the Trustee with respect to the DDR Portfolio Loan is
dependent on its receipt of the corresponding amounts from the applicable
party under the GMACCM C2 PSA.
o The controlling classes of the certificates issued by the GMACCM C2
Trust, the controlling class of any trust holding the other Pari Passu
Companion Loans (or if not securitized, the holder of the related note)
and the Controlling Class Representative will be able to withhold
S-94
their approval to proposed actions to be taken by the GMACCM C2 Master
Servicer or the GMACCM C2 Special Servicer with respect to the DDR
Portfolio Loan and the related companion loan. If there is a disagreement
among the controlling classes of these trusts, a third party operating
advisor will be entitled to choose the course of action from those
presented by those controlling classes or holders.
o The GMACCM C2 Special Servicer may be removed as special servicer for
the DDR Portfolio Loan and the related companion loans at any time, with
or without cause, but only with the consent of each of the majority
holder of the controlling class of the GMACCM C2 Trust, the controlling
class of any trust holding any other DDR Portfolio Pari Passu Companion
Loans (or if not securitized, the holder of the related note) and the
Controlling Class Representative who will jointly appoint a replacement
special servicer, subject to rating agency confirmation that such
appointment would not result in the downgrade, withdrawal or
qualification of the then current ratings of the certificates issued in
either securitization. If the controlling classes or holders are not able
to agree on a successor special servicer, the third party operating
advisor shall select one of the proposed successor special servicers.
THE 237 PARK AVENUE LOAN. The 237 Park Avenue Whole Loan and any related
REO Property are being serviced under the GCCFC C2 PSA and therefore the GCCFC
C2 Master Servicer will make recoverable servicing advances (and if it fails to
make such advances, the GCCFC C2 Trustee will be required to make such
recoverable servicing advances) and remit collections on the 237 Park Avenue
Loan to or on behalf of the trust. The GCCFC C2 Master Servicer will be
required to make P&I Advances on the 237 Park Avenue Loan, unless it has
determined that such advances would not be recoverable from collections on the
237 Park Avenue Loan. The GCCFC C2 PSA provides for servicing in a manner
acceptable for rated transactions similar in nature to this securitization. The
servicing arrangements under the GCCFC C2 PSA are generally similar but not
identical to the servicing arrangements under the Pooling Agreement. In that
regard:
o The GCCFC C2 Master Servicer and GCCFC C2 Special Servicer, will be the
master servicer and the special servicer, respectively, with respect to
the servicing of the 237 Park Avenue Whole Loan.
o The GCCFC C2 Trustee will be the mortgagee of record for the 237 Park
Avenue Whole Loan.
o The Master Servicer, the Special Servicer or the Trustee under the
Pooling Agreement will have no obligation or authority to supervise the
GCCFC C2 Master Servicer, the GCCFC C2 Special Servicer or the GCCFC C2
Trustee or to make servicing advances with respect to the 237 Park Avenue
Loan. The obligation of the Master Servicer and the Special Servicer to
provide information to the Trustee and the Certificateholders with
respect to the 237 Park Avenue Loan is dependent on their receipt of the
corresponding information from the GCCFC C2 Master Servicer or the GCCFC
C2 Special Servicer, as applicable.
o The obligation of the Master Servicer to remit collections and P&I
Advances made by the GCCFC C2 Master Servicer to the Trustee with respect
to the 237 Park Avenue Loan is dependent on its receipt of the
corresponding amounts from the applicable party under the GCCFC C2 PSA.
o The holder of a majority interest in the 237 Park Avenue Whole Loan or
if no one holder holds a majority, two or more holders acting together as
a majority will be able to withhold their approval to proposed actions to
be taken by the GCCFC C2 Master Servicer or the GCCFC C2 Special Servicer
with respect to the 237 Park Avenue Loan and the related companion loans.
For the purposes of this paragraph, with respect to the 237 Park Avenue
Pari Passu Companion Loan which is included in the GCCFC C2 Trust, the
holder is the holder of certificates representing a majority interest in
the controlling class of the certificates issued pursuant to the GCCFC C2
PSA and, with respect to the other 237 Park Avenue Pari Passu Companion
Loans that are not included in a securitization, the holder is the holder
of such mortgage loan or, if such mortgage loan becomes an asset in a
securitization, the controlling class of such certificates issued
pursuant to that securitization.
S-95
The GCCFC C2 Special Servicer may only be removed as special servicer for
the 237 Park Avenue Whole Loan for cause.
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. See "The
Mortgage Pools--Assignment of Mortgage Loans" in the prospectus.
SERVICING OF THE MORTGAGE LOANS
Each of the Master Servicer (directly or through one or more
sub-servicers) and the Special Servicer will be required to service and
administer the Mortgage Loans (other than any Non-Serviced Loan) for which it
is responsible. The Master Servicer may delegate and/or assign some or all of
its servicing obligations and duties with respect to some or all of the
Mortgage Loans to one or more third-party subservicers. The Master Servicer
will be responsible for paying the servicing fees of any subservicer out of the
Servicing Fee for each subserviced mortgage loan. Except in certain limited
circumstances set forth in the Pooling Agreement, the Special Servicer will not
be permitted to appoint sub-servicers with respect to any of its servicing
obligations and duties. Notwithstanding any subservicing agreement, the Master
Servicer will 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.
With respect to each Non-Serviced Loan, the Non-Serviced Loan and the
related Pari Passu Companion Loans are being serviced and administered in
accordance with the related Pari Passu PSA (and all decisions, consents,
waivers, approvals and other actions on the part of the holders of the
Non-serviced Loan and the related Pari Passu Companion Loans will be effected
in accordance with the related Pari Passu PSA and intercreditor agreements).
Consequently, the servicing provisions set forth herein and the administration
of accounts will not be applicable to any Non-Serviced Loan, but instead such
servicing and administration of the Non-Serviced Loan will be governed by the
related Pari Passu PSA.
The Master Servicer will be required to service and administer the
Mortgage Loans (other than any Non-Serviced Loan) for which it is responsible
in accordance with applicable law, the terms of the Pooling Agreement and the
terms of the respective Mortgage Loans and, if applicable, the related
intercreditor agreements and, to the extent consistent with the foregoing, in
accordance with the higher of the following standards of care: (1) the same
manner in which, and with the same care, skill, prudence and diligence with
which the Master Servicer services and administers similar mortgage loans for
other third-party portfolios giving due consideration to customary and usual
standards of practice of prudent institutional commercial and multifamily
mortgage lenders servicing their own loans, and (2) the same care, skill,
prudence and diligence with which the Master Servicer services and administers
similar commercial and multifamily mortgage loans owned by the Master Servicer,
but without regard to:
o any relationship that the Master Servicer, or any of its affiliates may
have with the related borrower or any affiliate of the borrower, any
Mortgage Loan Seller or any other party to the Pooling Agreement;
o the ownership of any Certificate or mezzanine loan by the Master
Servicer or any of its affiliates;
o the Master Servicer's right to receive compensation for its services
under the Pooling Agreement or with respect to any particular transaction
o the ownership, servicing or management for others of any other mortgage
loans or mortgaged properties by the Master Servicer; and
o any debt that the Master Servicer or any of its affiliates has extended
to any borrower or any of its affiliates (the foregoing, collectively
referred to as the "Master Servicer Servicing Standards").
S-96
The Special Servicer will be required to service and administer the
Mortgage Loans (other than any Non-Serviced Loan) for which it is responsible
in accordance with applicable law, the terms of the Pooling Agreement and the
Mortgage Loan documents and, if applicable, the related intercreditor
agreements and, to the extent consistent with the foregoing, in accordance with
the higher of the following standards of care: (1) the same manner in which,
and with the same care, skill, prudence and diligence with which the Special
Servicer services and administers similar mortgage loans for other third-party
portfolios, and (2) the same care, skill, prudence and diligence with which the
Special Servicer services and administers similar commercial and multifamily
mortgage loans owned by the Special Servicer, in either case, giving due
consideration to customary and usual standards of practice of prudent
institutional commercial and multifamily mortgage lenders, loan servicers and
asset managers, but without regard to:
(A) any relationship that the Special Servicer, or any of its affiliates
may have with the related borrower or any of its affiliates, any Loan
Seller or any other party to the Pooling Agreement;
(B) the ownership of any Certificate or mezzanine loan by the Special
Servicer or any of its affiliates;
(C) the Special Servicer's right to receive compensation for its
services under the Pooling Agreement or with respect to any particular
transaction;
(D) the ownership, servicing or management for others of any other
mortgage loans or mortgaged properties by the Special Servicer; and
(E) any debt that the Special Servicer or any of its affiliates has
extended to any borrower or any of its affiliates (the foregoing,
collectively referred to as "Special Servicer Servicing Standards".
"Servicing Standards" means (i) with respect to the Master Servicer, the
Master Servicer Servicing Standards and (ii) with respect to the Special
Servicer, the Special Servicer Servicing Standards.
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 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.
The Master Servicer will be required to transfer its servicing
responsibilities to the Special Servicer with respect to any Mortgage Loan
(other than a Non-Serviced Loan) (each, a "Specially Serviced Mortgage Loan")
for which:
(1) any balloon payment has not been made, and the Post Default Balloon
Period has expired;
(2) any Monthly Payment or other payment required under the mortgage note
or the mortgage(s),other than a balloon payment, is more than 60 days
late;
(3) the Master Servicer (or the Special Servicer with the consent of the
Controlling Class Representative) has determined in its good faith and
reasonable judgment that a default in the making of a Monthly Payment
or balloon payment or any other material payment required under the
related Mortgage Loan is likely to occur within 30 days and is likely
to remain unremedied for at least 60 days, or, in the case of a
balloon payment, for at least 30 days;
S-97
(4) a default under the Mortgage Loan, other than as described in clause
(1) or (2) above, that materially impairs the value of the Mortgaged
Property as security for the Mortgage Loan or otherwise materially and
adversely affects the interests of Certificateholders, exists for the
applicable grace period under the terms of the Mortgage Loan or, if no
grace period is specified, 60 days, in each case as determined by the
Master Servicer or, with the consent of the Controlling Class
Representative, the Special Servicer;
(5) a decree or order of a court or agency or supervisory authority in an
involuntary case under any federal or state bankruptcy, insolvency or
similar law or the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding-up
or liquidation of its affairs, has been entered against the borrower
and the decree or order has remained in force undischarged or unstayed
for 60 days;
(6) the borrower has consented to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or
relating to the borrower or of or relating to all or substantially all
of its property;
(7) the borrower has admitted in writing its inability to pay its debts
generally as they become due, filed a petition to take advantage of
any applicable insolvency or reorganization statute, made an
assignment for the benefit of its creditors or voluntarily suspended
payment of its obligations; or
(8) the Master Servicer has received notice of the commencement of
foreclosure or similar proceedings for the related Mortgaged Property
or Properties.
"Post Default Balloon Period" means with respect to any Mortgage Loan
which requires a balloon payment, the period 30 days after the default in the
balloon payment (a "Balloon Default") if the Controlling Class Representative
consents to such 30 day period, provided that the Post Default Balloon Period
may be extended up to an additional 60 days (up to a total of 90 days after the
Balloon Default) with the consent of the Controlling Class Representative if
(a) the borrower continues to make its Monthly Payment and within the initial
30 days after the Balloon Default delivers a statement that it is diligently
pursuing refinancing, (b) no other servicing transfer event has occurred with
respect to the Mortgage Loan and (c) within 90 days after the Balloon Default
the borrower delivers a binding financing commitment reasonably acceptable to
the Special Servicer and the Controlling Class Representative and provided
further, with the consent of the Controlling Class Representative once an
acceptable binding financing commitment has been received within such 90 day
period, the Post Default Balloon Period may be extended for a period not to
exceed 120 days after the Balloon Default.
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 make remittances and prepare certain reports to the
Certificateholders with respect to such Mortgage Loan.
A Specially Serviced Mortgage Loan will become a "Corrected Mortgage Loan"
if each special servicing event that applies to that Mortgage Loan is remedied
as follows:
o for the circumstances described in clauses (1) and (2) of the preceding
paragraph, the related borrower has made the applicable balloon payment
or three consecutive full and timely Monthly Payments under the terms of
the Mortgage Loan, as the terms may be changed or modified in a
bankruptcy or similar proceeding involving the related borrower or by
reason of a modification, waiver or amendment granted or agreed to by the
Special Servicer;
o for the circumstances described in clauses (3), (5), (6) and (7) of the
preceding paragraph, the circumstances cease to exist in the good faith
and reasonable judgment of the Special Servicer;
S-98
o for the circumstances described in clause (4) of the preceding
paragraph, the default is cured; and
o for the circumstances described in clause (8) of the preceding
paragraph, the proceedings are terminated.
The Special Servicer will be obligated to, among other things, oversee the
resolution of non-performing Mortgage Loans and act as disposition manager of
REO Properties. The Special Servicer will be required to prepare a report (an
"Asset Status Report") for each Mortgage Loan that becomes a Specially Serviced
Mortgage Loan not later than 45 days after the servicing of such Mortgage Loan
is transferred to the Special Servicer. Each Asset Status Report will be
required to be delivered to the Controlling Class Representative, the Master
Servicer, the Loan Sellers, the Trustee and the Rating Agencies. If the
Controlling Class Representative does not disapprove an Asset Status Report
within ten business days, the Special Servicer will be required to implement
the recommended action as outlined in the Asset Status Report. The Controlling
Class Representative may object to any Asset Status Report within ten business
days of receipt. However, the Special Servicer will be required to implement
the recommended action as outlined in the Asset Status Report if it makes a
determination in accordance with the Servicing Standards that the objection is
not in the best interest of all the Certificateholders. If the Controlling
Class Representative disapproves the Asset Status Report and the Special
Servicer has not made the affirmative determination described above, the
Special Servicer will be required to revise the Asset Status Report as soon as
practicable thereafter, but in no event later than 30 days after the
disapproval. The Special Servicer will be required to revise the Asset Status
Report until the Controlling Class Representative fails to disapprove the
revised Asset Status Report as described above or until the Special Servicer
makes a determination that the objection is not in the best interests of the
Certificateholders. In the event that the Controlling Class Representative and
the Special Servicer have not agreed upon an Asset Status Report with respect
to a Specially Serviced Mortgage Loan within 90 days of the Controlling Class
Representative's receipt of the initial Asset Status Report with respect to
such Specially Serviced Mortgage Loan, the Special Servicer will implement the
actions described in the most recent Asset Status Report submitted to the
Controlling Class Representative by the Special Servicer.
Each Pari Passu PSA provides for servicing transfer events that are
similar but not identical to those set forth above. Upon the occurrence of a
servicing transfer event under the related Pari Passu PSA, servicing of the
both the related Non-Serviced Loan and its Pari Passu Companion Loan will be
transferred to the related special servicer.
ADVANCES
The Master Servicer will be obligated (subject to the limitations
described below) 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 (including the Non-Serviced Loans, other than the 237
Park Avenue Loan) that was delinquent as of the close of business on the
immediately preceding Due Date (without regard to any grace period) (and which
delinquent payment has not been cured as of the business day immediately
preceding the Master Servicer Remittance Date). In the event the Monthly
Payment has been reduced pursuant to any modification, waiver or amendment of
the terms of the Mortgage Loan, whether agreed to by the Special Servicer or
resulting from bankruptcy, insolvency or any similar proceeding involving the
related borrower, the amount required to be advanced will be so reduced. The
Master Servicer will not be required or permitted to make an advance for
balloon payments, default interest or prepayment premiums or yield maintenance
charges. The amount required to be advanced by the Master Servicer with respect
to any Distribution Date in respect of 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 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
S-99
Reduction, and (y) a fraction, the numerator of which is the Appraisal
Reduction with respect to such Mortgage Loan and the denominator of which is
the Stated Principal Balance of such Mortgage Loan as of the last day of the
related Collection Period.
The Master Servicer will also be obligated (subject to the limitations
described below) with respect to each Mortgage Loan other than a Non-Serviced
Loan, 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.
To the extent the Master Servicer fails to make an Advance it is required
to make under the Pooling Agreement, the Trustee, subject to a determination of
recoverability described below, will be required to make such required Advance
pursuant to the terms of the Pooling Agreement. The Trustee will be entitled to
rely conclusively on any non-recoverability determination of the Master
Servicer. See "--The Trustee" below.
The Master Servicer or the Trustee will each be entitled to receive
interest on Advances at the Prime Rate (the "Advance Rate"), compounded
annually, as of each Master Servicer Remittance Date. If the interest on such
Advance is not recovered from default interest or late payments 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.
The obligation of the Master Servicer or the Trustee, 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 the 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 or the Trustee will be required to make any
Advance that it or the Special Servicer determines in its good faith business
judgment will not be ultimately recoverable (including interest accrued on the
Advance) by the Master Servicer or the Trustee, as applicable, out of related
late payments, net insurance proceeds, net condemnation proceeds, net
liquidation proceeds or other collections with respect to the Mortgage Loan as
to which such Advances were made. In addition, if the Master Servicer, the
Special Servicer or the Trustee, as applicable, determines in its good faith
business judgment that any Advance (together with accrued interest on the
Advance) previously made will not be ultimately recoverable from the foregoing
sources (any such Advance, a "Non-Recoverable Advance"), then the Master
Servicer or the Trustee, as applicable, will be entitled to be reimbursed for
such Advance, plus interest on the Advance at the Advance Rate, out of amounts
payable on or in respect of all of the Mortgage Loans prior to distributions on
the Certificates, which will be deemed to have been reimbursed first out of
amounts collected or advanced in respect of principal and then out of all other
amounts collected on the Mortgage Loans. 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,
the Depositor) setting forth such judgment or determination of
nonrecoverability and the procedures and considerations of the Master Servicer,
the Special Servicer or the Trustee, as applicable, forming the basis of such
determination. Notwithstanding anything in this prospectus supplement to the
contrary, the Master Servicer may in its good faith judgment elect (but is not
required) to make a payment from amounts on deposit in the Collection Account
that would otherwise be a Property Advance with respect to a Mortgage Loan
notwithstanding that the Master Servicer has determined that such a Property
Advance would be nonrecoverable if making the payment would prevent (i) the
related Mortgaged Property from being uninsured or being sold at a tax sale or
(ii) any event that would cause a loss of the priority of the lien of the
related Mortgage, or the loss of any security for the related Mortgage Loan,
if, in each instance, the Special Servicer determines in accordance with the
Servicing Standards that making the payment is in the best interest of the
Certificateholders.
The Master Servicer or the Trustee, as applicable, will be entitled to
reimbursement for any Advance made by it equal to the amount of such Advance
and interest accrued on the Advance at
S-100
the Advance Rate from (i) late payments on the Mortgage Loan by the borrower
and any other collections on the Mortgage Loan, (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 with interest is not recoverable from amounts
described in clauses (i) and (ii), from any other amounts from time to time on
deposit in the Collection Account.
Notwithstanding the foregoing, if the funds in the Collection Account
allocable to principal and available for distribution on the next Distribution
Date are insufficient to fully reimburse the Master Servicer or the Trustee, as
applicable, for a Non-Recoverable Advance, then such party may elect, on a
monthly basis, in its sole discretion, to defer reimbursement of some or all of
the portion that exceeds such amount allocable to principal (in which case
interest will continue to accrue on the unreimbursed portion of the Advance)
for up to 12 months. In addition, the Master Servicer or the Trustee, as
applicable, will be entitled to recover any Advance that is outstanding at the
time that a mortgage loan is modified but is not repaid in full by the borrower
in connection with such modification but becomes an obligation of the borrower
to pay such amounts in the future (such Advance, a "Workout-Delayed
Reimbursement Amount"); first, only out of principal collections in the
Collection Account and second, only upon a determination by the Master
Servicer, the Special Servicer or the Trustee, as applicable, (a) that such
amounts, along with any other Workout-Delayed Reimbursement Amount and any
Non-Recoverable Advance, will not ultimately be recoverable from late
collections of principal or any other recovery on or in respect of the pool of
Mortgage Loans and REO Properties allocable to principal, or (b) that such
amount would not ultimately be recoverable from collections on the related
Mortgage Loan, from general collections in the Collection Account, taking into
account factors such as all other outstanding Advances in making this
determination. Any requirement of the Master Servicer or Trustee to make an
Advance in the Pooling and Servicing Agreement is intended solely to provide
liquidity for the benefit of the Certificateholders and not as credit support
or otherwise to impose on any such person the risk of loss with respect to one
or more Mortgage Loans.
Any election described above by any party to refrain from reimbursing
itself for any Non-Recoverable Advance (together with interest for that
Non-Recoverable Advance) or portion thereof in any Collection Period will not
be construed to impose on any party any obligation to make the above described
election (or any entitlement in favor of any Certificateholder or any other
person to an election) with respect to any subsequent Collection Period) or to
constitute a waiver or limitation on the right of the person making the
election to otherwise be reimbursed for a Non-Recoverable Advance (together
with interest on that Non-Recoverable Advance). An election by the Master
Servicer or the Trustee will not be construed to impose any duty on the other
party to make an election (or any entitlement in favor of any Certificateholder
or any other person to such an election). None of the Master Servicer or the
Trustee or the other parties to this Agreement will have any liability to one
another or to any of the Certificateholders for any such election that such
party makes to refrain or not to refrain from reimbursing itself as
contemplated by this paragraph or for any losses, damages or other adverse
economic or other effects that may arise from such an election nor will such
election constitute a violation of the Servicing Standards or any duty under
the Pooling Agreement.
ACCOUNTS
The Master Servicer will be required to deposit amounts collected in
respect of the Mortgage Loans into a segregated account (the "Collection
Account") established pursuant to the Pooling Agreement.
The Trustee will be required to establish and maintain two accounts, one
of which may be a sub-account of the other (the "Lower-Tier Distribution
Account" and the "Upper-Tier Distribution Account" and, collectively, the
"Distribution Account"). With respect to each Distribution Date, the Master
Servicer will be required to disburse from the Collection Account and remit to
the Trustee for deposit into the Lower-Tier Distribution Account, to the extent
of funds on deposit in the Collection Account, on the Master Servicer
Remittance Date the sum of (i) the Available Funds and any
S-101
prepayment premiums or yield maintenance charges, and (ii) the Trustee Fee. In
addition, the Master Servicer will be required to 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 will
deposit all P&I Advances into the Lower-Tier Distribution Account as described
in this prospectus supplement. On each Distribution Date, the Trustee (i) will
be required to 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" in this prospectus supplement.
The Trustee will also be required to establish and maintain an account
(the "Interest Reserve Account"), which may be a sub-account of the
Distribution Account. On each Master Servicer Remittance Date occurring in
February and on any Master Servicer Remittance Date occurring in any January
which occurs in a year that is not a leap year, the Master Servicer will be
required to remit to the Trustee for deposit, in respect of each Mortgage Loan
which accrues interest on the basis of a 360-day year and the actual number of
days in the related month (a "Withheld Loan"), an amount equal to one day's
interest at the related Net Mortgage Rate on the respective Stated Principal
Balance, as of the Due Date in the month preceding the month in which such
Master Servicer Remittance Date occurs, to the extent the applicable Monthly
Payment or a P&I Advance is made in respect of the Monthly Payment (all amounts
so deposited in any consecutive January (if applicable) and February, "Withheld
Amounts"). On each Master Servicer Remittance Date occurring in March, the
Trustee will be required to withdraw from the Interest Reserve Account an
amount equal to the Withheld Amounts, if any, from the preceding January (if
applicable) and February, and deposit such amount into the Lower-Tier
Distribution Account.
The Trustee will also be required to establish and maintain an account
(the "Gain-On-Sale Reserve Account") which may be a sub-account of the
Distribution Account. To the extent that gains realized on sales of Mortgaged
Properties, if any, are not used to offset realized losses previously allocated
to the Certificates, such gains will be held and applied to offset future
realized losses, if any.
Other accounts to be established pursuant to the Pooling Agreement are one
or more REO Accounts for collections from REO Properties.
The Collection Account, the Lower-Tier Distribution Account, the
Upper-Tier Distribution Account, the Interest Reserve Account and the
Gain-On-Sale Reserve 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. Each of the Collection Account, any REO Account, the Lower-Tier
Distribution Account, the Upper-Tier Distribution Account, the Interest Reserve
Account, any escrow account and the Gain-On-Sale Reserve Account will be held
at a depository institution or trust company satisfactory to the Rating
Agencies.
Amounts on deposit in the Collection Account, the Lower-Tier Distribution
Account, the Upper-Tier Distribution Account, the Gain-On-Sale Reserve Account,
the Interest Reserve Account and any REO Account may be invested in certain
United States government securities and other high-quality investments
satisfactory to the Rating Agencies. Interest or other income earned on funds
in the Collection Account will be paid to the Master Servicer as additional
servicing compensation and interest or other income earned on funds in any REO
Account will be payable to the Special Servicer. Interest or other income
earned on funds in the Lower-Tier Distribution Account, the Upper-Tier
Distribution Account, the Gain-On-Sale Reserve Account and the Interest Reserve
Account will be payable to the Trustee.
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 Trustee for deposit into the Lower-Tier Distribution
Account an amount equal to the sum of (I) Available Funds and any prepayment
S-102
premiums or yield maintenance charges and (II) the Trustee Fee for the related
Distribution Date, (B) to the Trustee for deposit into the Gain-On-Sale Reserve
Account an amount equal to the Excess Liquidation Proceeds received in the
related Collection Period, if any, and (C) to the Trustee for deposit into the
Interest Reserve Account an amount required to be withheld as described above
under "--Accounts"; (ii) to pay or reimburse the Master Servicer and the
Trustee, 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 or
the Trustee'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 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 on the Mortgage Loan or REO Property 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 and/or the Depositor for unpaid
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 any Loan REMICs, 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 in the Collection Account; and (viii) to clear and
terminate the Collection Account pursuant to a plan for termination and
liquidation of the Trust Fund. The Master Servicer will also be entitled to
make withdrawals from the Collection Account of amounts necessary for the
payments or reimbursements required to be paid to the parties to the applicable
Pari Passu PSA pursuant to the related Intercreditor Agreement.
ENFORCEMENT OF "DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" CLAUSES
Subject to certain exceptions contained in the related loan documents, the
Mortgage Loans generally 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 Special Servicer will not
be required to enforce such due-on-sale clauses and will not be required to (i)
accelerate payments on the related Mortgage Loans 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 Special Servicer 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 Net Mortgage Rate) or would otherwise be in the best interests of
Certificateholders, than would enforcement of such clause. If the Special
Servicer determines that granting such consent would be likely to result in a
greater recovery, or would otherwise be in the best interests of
Certificateholders, the Special Servicer is authorized to take or enter into an
assumption agreement from or with the proposed transferee, provided that (a)
the proposed transfer is in compliance with the terms of the related Mortgage
and (b) with respect to any Mortgage Loan or group of cross-collateralized
Mortgage Loans which (1) has an outstanding principal balance which is equal to
or more than 2% of the aggregate Stated Principal Balance of the Mortgage Loans
or (2) is one of the ten largest mortgage loans (by outstanding principal
balance), the Special Servicer 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 contained in the related loan documents, the
Mortgage Loans contain provisions in the nature of "due-on-encumbrance"
clauses, which by their terms (a) provide
S-103
that the Mortgage Loans will, 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
Special Servicer will not be required to enforce such due-on-encumbrance
clauses and will not be required to (i) accelerate payments on the related
Mortgage Loans or (ii) withhold its consent to such lien or encumbrance if (x)
the Special Servicer determines, in accordance with the Servicing Standard,
that such enforcement would not be in the best interests of the Trust Fund and
(y) for any Mortgage Loan which (1) has an outstanding principal balance which
is equal to or more than 2% of the aggregate Stated Principal Balance of the
Mortgage Loans, (2) is one of the ten largest mortgage loans (by outstanding
principal balance), or (3) an LTV greater than 85% or a DSCR less than 1.20x
(determined based upon the aggregate of the Stated Principal Balance of the
Mortgage Loan and the principal amount of the proposed additional loan), the
Special Servicer 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--Enforceability of
Certain Provisions" in the prospectus.
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 (other than a Mortgaged Property securing a
Non-Serviced Loan) at such times and in such manner as are consistent with the
Servicing Standards, but in any event at least once every 12 months with
respect to Mortgage Loans with an outstanding principal balance (or allocated
loan amount) of $2,000,000 or more and at least once every 24 months with
respect to Mortgage Loans with an outstanding principal balance (or allocated
loan amount) of less than $2,000,000 at least once every 24 months, in each
case commencing in 2005 with respect to Mortgaged Properties; provided that the
Master Servicer is not required to inspect any Mortgaged Property that has been
inspected by the Special Servicer during the preceding 12 months. The Special
Servicer is required to inspect each Mortgage Loan that becomes a Specially
Serviced Mortgage Loan as soon as practicable after it becomes a Specially
Serviced Mortgage Loan 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 will require 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 March 15th of each year, beginning March 15, 2005,
a report which expresses an opinion to the effect that the assertion of
management of the Master Servicer or the Special Servicer that the Master
Servicer has complied with certain minimum mortgage loan servicing standards
(to the extent applicable to commercial and multifamily mortgage loans),
identified in the Uniform Single Attestation Program for Mortgage Bankers
established by the Mortgage Bankers Association of America, with respect to the
servicing of commercial and multifamily mortgage loans during the most recently
completed calendar year, is fairly stated, based on an examination, conducted
in compliance with the Uniform Single Attestation Program for Mortgage Bankers,
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 March 15th of each
year, beginning March 15, 2005, 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, the Special Servicer or any
subservicer, as the
S-104
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 the nature
and status of the default, that it has maintained an effective internal control
system over the servicing of mortgage loans including the Mortgage Loans and
the Master Servicer or the Special Servicer, as the case may be, has received
no notice regarding qualification, or challenging the status, of any of the
Loan REMICs, the Upper-Tier or Lower-Tier REMIC as a REMIC from the Internal
Revenue Service or any other governmental agency or body or, if it has received
any such notice, specifying the relevant details.
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 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, 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 after the date of assumption of such
obligations. 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 the 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. However, none of 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 in the Pooling Agreement, or
(ii) any willful misconduct, bad faith, fraud or negligence in the performance
of their duties under the Pooling Agreement or by reason of reckless disregard
of obligations or duties under the Pooling Agreement. 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 under the Pooling Agreement or
by reason of reckless disregard of obligations and duties under the Pooling
Agreement, in each case by the person being indemnified or (ii) 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 to the Pooling Agreement and the
interests of the holders of Certificates under the Pooling Agreement. In such
event, the legal expenses and costs of such action and any liability resulting
from such action will be
S-105
expenses, costs and liabilities of the Trust Fund, and the Depositor, the
Master Servicer and the Special Servicer will be entitled to be reimbursed for
those amounts 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 in the paragraph above. Any such action by the Depositor will not
relieve the Master Servicer or the Special Servicer of its obligations under
the Pooling Agreement.
The Pooling Agreement will provide that each master servicer, special
servicer, depositor and trustee under any Pari Passu PSA, and any of their
respective directors, officers, employees or agents (each, a "Pari Passu
Indemnified Party"), shall be indemnified by the Trust Fund and held harmless
against the Trust Fund's pro rata share (subject to the related Intercreditor
Agreement) of any and all claims, losses, damages, penalties, fines,
forfeitures, reasonable legal fees and related costs, judgments, and any other
costs, liabilities, fees and expenses incurred in connection with any legal
action relating to the related Whole Loan under the applicable Pari Passu PSA
or the Pooling Agreement (but excluding any such losses allocable to the
related Pari Passu Companion Loans), reasonably requiring the use of counsel or
the incurring of expenses other than any losses incurred by reason of any Pari
Passu Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of duties or by reason of negligent disregard of obligations and
duties under the related Pari Passu PSA.
EVENTS OF DEFAULT
"Events of Default" under the Pooling Agreement with respect to the Master
Servicer or the Special Servicer, as the case may be, will include, without
limitation:
(a) (i) any failure by the Master Servicer to make a required deposit to
the Collection Account on the day such deposit was first required to be
made, which failure is not remedied within one business day, or (ii) any
failure by the Master Servicer to deposit into, or remit to the Trustee
for deposit into, the Distribution Account any amount required to be so
deposited or remitted, which failure is not remedied by 11:00 a.m. New
York City time on the relevant Distribution Date;
(b) any failure by the Special Servicer to deposit into any REO Account
within one business day after the day such deposit is required to be made,
or to remit to the Master Servicer for deposit in the Collection Account
any such remittance required to be made by the Special Servicer on the day
such remittance is required to be made under the Pooling Agreement;
(c) any failure by the Master Servicer or the Special Servicer duly to
observe or perform in any material respect any of its other covenants or
obligations under the Pooling Agreement, which failure continues
unremedied for thirty days (ten days in the case of the Master Servicer's
failure to make a Property Advance or fifteen days in the case of a
failure to pay the premium for any insurance policy required to be
maintained under the Pooling Agreement) after written notice of the
failure has been given to the Master Servicer or the Special Servicer, as
the case may be, by any other party to the Pooling Agreement, or to the
Master Servicer or the Special Servicer, as the case may be, with a copy
to each other party to the related Pooling Agreement, by
Certificateholders of any Class, evidencing, as to that Class, Percentage
Interests aggregating not less than 25%; provided, however, if that
failure is capable of being cured and the Master Servicer or Special
Servicer, as applicable, is diligently pursuing that cure, that 30-day
period will be extended an additional 30 days;
(d) any breach on the part of the Master Servicer or the Special
Servicer of any representation or warranty in the Pooling Agreement which
materially and adversely affects the
S-106
interests of any Class of Certificateholders and which continues unremedied
for a period of 30 days after the date on which notice of that breach,
requiring the same to be remedied, has been given to the Master Servicer or
the Special Servicer, as the case may be, by the Depositor or the Trustee,
or to the Master Servicer, the Special Servicer, the Depositor and the
Trustee by the holders of Certificates of any Class evidencing, as to that
Class, Percentage Interests aggregating not less than 25%; provided,
however, if that breach is capable of being cured and the Master Servicer or
Special Servicer, as applicable, is diligently pursuing that cure, that
30-day period will be extended an additional 30 days;
(e) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings in respect of or relating to
the Master Servicer or the Special Servicer, and certain actions by or on
behalf of the Master Servicer or the Special Servicer indicating its
insolvency or inability to pay its obligations;
(f) a servicing officer of the Master Servicer or the Special Servicer,
as applicable, obtains actual knowledge that Moody's has (i) qualified,
downgraded or withdrawn its rating or ratings of one or more Classes of
Certificates, or (ii) has placed one or more Classes of Certificates on
"watch status" in contemplation of a ratings downgrade or withdrawal (and
such "watch status" placement shall not have been withdrawn within 60 days
of the date such servicing officer obtained such actual knowledge) and, in
the case of either of clause (i) or (ii), cited servicing concerns with
the Master Servicer or Special Servicer, as applicable, as the sole or
material factor in such rating action; and
(g) the Trustee has received written notice from Fitch that the
continuation of the Master Servicer or the Special Servicer in such
capacity would result in the downgrade, qualification or withdrawal of any
ratings then assigned by Fitch to any Class of Certificates and the notice
is not withdrawn, terminated or rescinded within 60 days following the
Trustee's receipt of the notice.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Master Servicer occurs, then
the Trustee may and, at the direction of the holders of Certificates evidencing
at least 51% of the aggregate Voting Rights of all Certificateholders, will be
required to 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.
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. 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, will be
required to terminate the Special Servicer, and the Trustee will succeed to all
the power and authority of the Special Servicer under the Pooling Agreement.
On and after the date of termination following an Event of Default by the
Master Servicer or the Special 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) or the Special Servicer, as the
case may be, under the Pooling Agreement and will be entitled to the
compensation arrangements to which the Master Servicer or the Special Servicer,
as the case may be, 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
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,
S-107
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, as applicable, 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 or the Special Servicer, as the
case may be, was entitled, the additional servicing compensation will be
allocated to the Certificates in the same manner as Realized Losses.
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 of the default, 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 in
connection with such proceeding, 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.
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 under the Pooling Agreement or in relation to it 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 in
connection with such action.
AMENDMENT
The Pooling Agreement may be amended without the consent of any of the
holders of Certificates:
(a) to cure any ambiguity to the extent that it does not adversely
affect any holders of Certificates;
(b) to correct or supplement any of its provisions which may be
inconsistent with any other provisions of the Pooling Agreement or to
correct any error;
(c) to change the timing and/or nature of deposits in the Collection
Account, the Lower-Tier Distribution Account, the Upper-Tier Distribution
Account or any REO Account, provided that (A) the Master Servicer
Remittance Date shall in no event be later than the business day prior to
the related Distribution Date, (B) the change would not adversely affect
in any material respect the interests of any Certificateholder, as
evidenced by an opinion of counsel (at the expense of the party requesting
the amendment) and (C) the change would not result in the downgrading,
qualification or withdrawal of the ratings assigned to any Class of
Certificates by either Rating Agency, as evidenced by a letter from each
Rating Agency;
(d) to modify, eliminate or add to any of its provisions (i) to the
extent as will be necessary to maintain the qualification of any of the
Loan REMICs, the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC, to
maintain the grantor trust portion of the Trust Fund as a grantor trust or
to avoid or minimize the risk of imposition of any tax on the Trust Fund,
provided that the Trustee has received an opinion of counsel (at the
expense of the party requesting the amendment) to the effect that (1) the
action is necessary or desirable to maintain such qualification or to
avoid or minimize such risk and (2) the action will not adversely affect
in any material respect the interests of any holder of the Certificates or
(ii) to restrict (or to remove any existing restrictions with respect to)
the transfer of the Residual Certificates, provided that the Depositor has
determined that the amendment will not give rise to any tax with respect
to the transfer of the Residual Certificates to a non-permitted transferee
(see "Federal Income Tax Consequences for REMIC Certificates--Taxation of
Residual Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates" in the prospectus);
S-108
(e) to make any other provisions with respect to matters or questions
arising under the Pooling Agreement or any other change, provided that the
amendment will not adversely affect in any material respect the interests
of any Certificateholder, as evidenced by an opinion of counsel and
written confirmation that the change would not result in the downgrading,
qualification or withdrawal of the ratings assigned to any Class of
Certificates by either Rating Agency; and
(f) to amend or supplement any provision of the Pooling Agreement to the
extent necessary to maintain the ratings assigned to each Class of
Certificates by each Rating Agency, as evidenced by written confirmation
that the change would not result in the downgrading, qualification or
withdrawal of the ratings assigned to any Class of Certificates by either
Rating Agency; provided, that no amendment may be made that changes in any
manner the obligations of any Loan Seller under a mortgage loan purchase
agreement without the consent of the applicable Loan Seller.
In addition, in the event that one but not both of the two promissory
notes evidencing the Water Tower Place Loan are repurchased by a Loan Seller,
the Pooling Agreement may be amended, without consent of any Certificateholder,
to add or modify provisions relating to Pari Passu Companion Loans for purposes
of the servicing and administration of the repurchased promissory note,
provided that the amendment will not adversely affect in any material respect
the interests of any Certificateholder, as evidenced by written confirmation
that the change would not result in the downgrading, qualification or
withdrawal of the ratings assigned to any Class of Certificates by either
Rating Agency.
The Pooling Agreement may also be amended with the consent of the holders
of Certificates of each Class affected by the amendment evidencing, in each
case, not less than 662/3% of the aggregate Percentage Interests constituting
the Class for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Pooling Agreement or of modifying
in any manner the rights of the holders of the Certificates, except that the
amendment may not (1) 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 a Certificate of any Class without the consent of the holder of
that Certificate, (2) reduce the percentage of Certificates of any Class the
holders of which are required to consent to the amendment without the consent
of the holders of all Certificates of that Class then outstanding, (3)
adversely affect the Voting Rights of any Class of Certificates, (4) change in
any manner the obligations of any Loan Seller under a Mortgage Loan sale
agreement without the consent of the applicable Loan Seller, or (5) without the
consent of 100% of the holders of Certificates or written confirmation that
such amendment would not result in the downgrading, qualification or withdrawal
of the ratings assigned to any Class of Certificates by either Rating Agency,
amend the Servicing Standard.
Notwithstanding the foregoing, no party to the Pooling Agreement will be
required to consent to any amendment to the Pooling Agreement without having
first received an opinion of counsel (at the expense of the person requesting
the amendment) to the effect that the amendment will not result in the
imposition of a tax on any portion of the Trust Fund or cause any of the Loan
REMICs, the Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify as a REMIC
or cause the grantor trust portion of the Trust Fund to fail to qualify as a
grantor trust.
The "Voting Rights" assigned to each Class shall be (a) 0% in the case of
the Class R and Class LR Certificates; (b) 1% in the case of the Class X
Certificates, provided that the Voting Rights of the Class X Certificates will
be reduced to zero upon reduction of the Notional Amount of that Class to zero
and (c) in the case of the Class A-1, Class A-2, Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M, Class
N, Class O and Class P Certificates, a percentage equal to the product of (i)
99% multiplied by (ii) a fraction, the numerator of which is equal to the
aggregate outstanding Certificate Principal Amount of any such Class and the
denominator of which is equal to the aggregate outstanding Certificate
Principal Amounts of all Classes of Certificates. For purposes of determining
Voting Rights, the Certificate Principal Amount of each Class will not be
reduced by the amount allocated to that Class of any Appraisal Reductions. 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.
S-109
REALIZATION UPON MORTGAGE LOANS
SPECIALLY SERVICED MORTGAGE LOANS; APPRAISALS. Within 30 days following
the occurrence of an Appraisal Reduction Event, the Special Servicer will be
required (i) with respect to any Mortgage Loan with an outstanding principal
balance equal to or in excess of $2,000,000, 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"), or (ii)
with respect to any Mortgage Loan with an outstanding principal balance less
than $2,000,000, to perform an internal valuation of the Mortgaged Property.
However, the Special Servicer will not be required to obtain an Updated
Appraisal or perform an internal valuation of any Mortgaged Property with
respect to which there exists an appraisal or internal valuation, as
applicable, 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.
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
will be paid by the Master 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 borrower, 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 accordance
with the Servicing Standard, 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 in this prospectus supplement 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
foreclosure or by deed 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 the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 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 with applicable environmental laws
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 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. If appropriate, the
Special Servicer may establish a single member limited liability company with
the Trust Fund as the sole owner to hold title to REO 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
is required to 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 title to any Mortgaged Property is acquired by the Trust Fund (directly
or through a single member limited liability company established for that
purpose), the Special Servicer will be required to sell the Mortgaged Property
prior to the close of the third calendar year beginning after the year of
S-110
acquisition, unless (1) the Internal Revenue Service (the "IRS") grants an
extension of time to sell the property or (2) the Trustee receives an opinion
of independent counsel to the effect that the holding of the property by the
Trust Fund longer than the above-referenced three year period will not result
in the imposition of a tax on any of the Loan REMICs, the Upper-Tier REMIC or
the Lower-Tier REMIC or cause the Trust Fund (or any of the Loan REMICs, the
Upper-Tier REMIC or the Lower-Tier REMIC) to fail to qualify as a REMIC under
the Code at any time that any Certificate is outstanding. Subject to the
foregoing and any other tax-related limitations, pursuant to the Pooling
Agreement, the Special Servicer will generally be required to attempt to sell
any Mortgaged Property so acquired on the same terms and conditions it would if
it were the owner. The Special Servicer will also be required to ensure that
any Mortgaged Property acquired by the Trust Fund is administered so that it
constitutes "foreclosure property" within the meaning of Code Section
860G(a)(8) at all times, that the sale of the property does not result in the
receipt by the Trust Fund of any income from nonpermitted assets as described
in Code Section 860F(a)(2)(B). If the Trust Fund acquires title to any
Mortgaged Property, the Special Servicer, on behalf of the Trust Fund, will
retain, at the expense of the Trust Fund, an independent contractor to manage
and operate the property. The independent contractor generally will be
permitted to perform construction (including renovation) on a foreclosed
property only if the construction was at least 10% completed at the time
default on the related Mortgage Loan became imminent. The retention of an
independent contractor, however, will not relieve the Special Servicer of its
obligation to manage the Mortgaged Property as required under the Pooling
Agreement.
Generally, none of the Loan REMICs, the Upper-Tier REMIC nor the
Lower-Tier REMIC will be taxable on income received with respect to a Mortgaged
Property acquired by the Trust Fund to the extent that it constitutes "rents
from real property," within the meaning of Code Section 856(c)(3)(A) and
Treasury regulations under the Code. Rents from real property include fixed
rents and rents based on the gross receipts or sales of a tenant but do not
include the portion of any rental based on the net income or profit 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 Trust Fund would not
constitute rents from real property, or that none of such income would qualify
if a separate charge is not stated for such non-customary services or they are
not performed by an independent contractor. Rents from real property also do
not include income from the operation of a trade or business on the Mortgaged
Property, such as a hotel. Any of the foregoing types of income may instead
constitute "net income from foreclosure property," which would be taxable to
the related Loan REMIC or the Lower-Tier REMIC, as applicable, at the highest
marginal federal corporate rate (currently 35%) and may also be subject to
state or local taxes. The Pooling Agreement provides that the Special Servicer
will be permitted to cause any Loan REMIC or the Lower-Tier REMIC, as
applicable, 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.
Because these sources of income, if they exist, are already in place with
respect to the Mortgaged Properties, it is generally viewed as beneficial to
Certificateholders to permit the Trust Fund to continue to earn them if it
acquires a Mortgaged Property, even at the cost of this tax. These taxes would
be chargeable against the related income for purposes of determining the
proceeds available for distribution to holders of Certificates. See "Federal
Income Tax Consequences for REMIC Certificates--Taxes That May Be Imposed on
the REMIC Pool--Prohibited Transactions" in the prospectus.
Following a default in the payment of principal or interest on a Mortgage
Loan, the Special Servicer may elect not to foreclose or institute similar
proceedings or modify such Mortgage Loan (as
S-111
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, and with respect to clause (b) below, 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) the Master Servicer determines that such P&I Advances will not be
nonrecoverable. With respect to such conclusions, the Master Servicer may (but
is not required to) conclusively rely (absent manifest error) on the Special
Servicer's computations and analysis. Notwithstanding the foregoing, a
determination by the Master Servicer or the Special Servicer that a P&I Advance
is nonrecoverable will be binding on the other servicer.
To the extent that liquidation proceeds collected with respect to any
Mortgage Loan are less than the sum of: (1) the outstanding principal balance
of the Mortgage Loan, (2) interest accrued on the Mortgage Loan and (3) the
aggregate amount of outstanding reimbursable expenses (including any (i) unpaid
servicing compensation, (ii) unreimbursed Property Advances, (iii) accrued and
unpaid interest on all Advances and (iv) additional Trust Fund expenses)
incurred with respect to the Mortgage Loan, the Trust Fund will realize a loss
in the amount of the shortfall. The Trustee, the Master Servicer and/or the
Special Servicer will be entitled to reimbursement out of the liquidation
proceeds recovered on any Mortgage Loan, prior to the distribution of those
liquidation proceeds to Certificateholders, of any and all amounts that
represent unpaid servicing compensation in respect of the related Mortgage
Loan, certain unreimbursed expenses incurred with respect to the Mortgage Loan
and any unreimbursed Advances (including interest on Advances) made with
respect to the Mortgage Loan. In addition, amounts otherwise distributable on
the Certificates will be further reduced by interest payable to the Master
Servicer or Trustee on these Advances.
SALE OF DEFAULTED MORTGAGE LOANS. The Pooling Agreement grants to the
majority Certificateholder of the Controlling Class an option to purchase from
the Trust Fund any defaulted Mortgage Loan (other than the Water Tower Place
Loan and the DDR Portfolio Loan) that is at least 60 days delinquent as to any
Monthly Payment (or is delinquent as to its balloon payments).
The option purchase price for a defaulted Mortgage Loan will equal the
fair value of such Mortgage Loan, as determined by the Special Servicer. The
Special Servicer is required to recalculate the fair value of such defaulted
Mortgage Loan if there has been a material change in circumstances or the
Special Servicer has received new information that has a material effect on
value (or otherwise if the time since the last valuation exceeds 60 days). In
making such verification, the Trustee, in accordance with the Pooling
Agreement, will be entitled to rely on an appraisal of the Mortgaged Property.
Subject to certain conditions specified in the Pooling Agreement, the option is
assignable to a third party by its holder, and upon such assignment, the third
party assignee will have all the rights granted to the original holder of the
option. The option will automatically terminate, and will no longer be
exercisable, if the Mortgage Loan to which it relates is no longer delinquent,
because the defaulted Mortgage Loan has (i) become a rehabilitated Mortgage
Loan, (ii) been subject to a work-out arrangement, (iii) been foreclosed upon
or otherwise resolved (including by a full or discounted pay-off), (iv) has
been purchased by the holder of the related mezzanine loan.
Subject to the rights of a mezzanine lender under a mezzanine
intercreditor agreement, unless and until the above-described purchase option
with respect to a Mortgage Loan in default is exercised, the Special Servicer
will be required to pursue such other resolution strategies available under the
Pooling Agreement, including workout and foreclosure, consistent with the
Servicing Standard, but the Special Servicer will not be permitted to sell the
Mortgage Loan in default other than pursuant to the exercise of the purchase
option.
The Pari Passu PSA under which each Non-Serviced Loan is serviced has
substantially similar provisions in respect of a purchase option after a
monetary default. Other than with respect to the 237 Park Avenue Pari Passu
Companion Loans, under the related Pari Passu PSA if the holder of this type of
purchase option chooses to exercise the option with respect to a Pari Passu
Companion Loan, it must purchase all related Pari Passu Companion Loans and the
Non-Serviced Loan. With respect to the 237 Park Avenue Pari Passu Companion
Loans, under the GCCFC C2 PSA, if the holder of this type of purchase option
chooses to exercise its option, such holder may only purchase the 237 Park
Avenue Pari Passu Companion Loan that is included in the GCCFC C2 Trust.
S-112
MODIFICATIONS, WAIVERS AND AMENDMENTS. The Pooling Agreement will permit
the Special Servicer to modify, waive or amend any term of any Mortgage Loan
(other than a Non-Serviced Loan) if (a) it determines, in accordance with the
Servicing Standards, that it is appropriate to do so and (b) except as
described in the following paragraph, such modification, waiver or amendment
will not (i) affect the amount or timing of any scheduled payments of
principal, interest or other amount (including prepayment premiums and yield
maintenance charges) payable under the Mortgage Loan, (ii) affect the
obligation of the related borrower to pay a prepayment premium or yield
maintenance charge or permit a principal prepayment during the applicable
prepayment lock-out period, (iii) except as expressly provided by the related
Mortgage or in connection with a material adverse environmental condition at
the related Mortgaged Property, result in a release of the lien of the related
Mortgage on any material portion of such Mortgaged Property without a
corresponding principal prepayment or (iv) in the judgment of the Special
Servicer, materially impair the security for the Mortgage Loan or reduce the
likelihood of timely payment of amounts due on the Mortgage Loan.
Notwithstanding clause (b) of the preceding paragraph, the Special
Servicer may (i) reduce the amounts owing under any Specially Serviced Mortgage
Loan by forgiving principal, accrued interest and/or any prepayment premium or
yield maintenance charge, (ii) reduce the amount of the Monthly Payment on any
Specially Serviced Mortgage Loan, including by way of a reduction in the
related Mortgage Rate, (iii) forbear in the enforcement of any right granted
under any Mortgage Note or Mortgage relating to a Specially Serviced Mortgage
Loan, (iv) extend the maturity date of any Specially Serviced Mortgage Loan;
provided that the Master Servicer may extend the maturity date of any Mortgage
Loan for 2 successive one year periods with the consent of the Controlling
Class Representative, (v) permit the substitution of collateral for any
Specially Serviced Mortgage Loan, and/or (vi) accept a principal prepayment
during any lockout period; provided that (x) the related borrower is in default
with respect to the Specially Serviced Mortgage Loan or, in the judgment of the
Special Servicer, such default is reasonably foreseeable and (y) in the sole,
good faith judgment of the Special Servicer, such modification, waiver or
amendment would increase the recovery to Certificateholders on a net present
value basis. In no event, however, will the Special Servicer be permitted to
(i) extend the maturity date of a Mortgage Loan beyond a date that is two years
prior to the Rated Final Distribution Date, or (ii) if the Mortgage Loan is
secured by a ground lease, extend the maturity date of such Mortgage Loan
beyond a date which is 20 years prior to the expiration of the term of such
ground lease (or 10 years with the consent of the Controlling Class
Representative if the Special Servicer gives due consideration to the remaining
term of the ground lease). Under certain circumstances, the Master Servicer
will be permitted, with the consent of the Controlling Class Representative, to
extend the maturity date of Mortgage Loans.
Each of the Master Servicer and the Special Servicer will be required to
notify the Trustee, the Rating Agencies and the other servicer of any
modification, waiver or amendment of any term of any Mortgage Loan, and to
deliver to the Trustee or the related custodian, for deposit in the related
mortgage file, an original counterpart of the agreement related to such
modification, waiver or amendment, promptly (and in any event within 10
business days) following the execution of the agreement. Copies of such
modification, waiver or amendment agreement are required to be available for
review during normal business hours at the offices of the Trustee.
In addition to the other provisions described in this prospectus
supplement, the Special Servicer will be permitted to modify, waive or amend
any term of a Mortgage Loan (other than a Non-Serviced 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 Treasury Regulations Section 1.860G-2(b), which, in the
judgment of the Special Servicer, may be evidenced by an opinion of counsel and
(b) would be in accordance with the Servicing Standard. The Master Servicer or
the Special Servicer, as applicable, is required to provide copies of any
modifications, waiver or amendment to each Rating Agency.
THE CONTROLLING CLASS REPRESENTATIVE
The Controlling Class Representative will be entitled to advise the
Special Servicer with respect to the following actions and others more
particularly described in the Pooling Agreement and, except
S-113
as otherwise described below, the Special Servicer will not be permitted to
take any of the following actions as to which the Controlling Class
Representative has objected in writing within ten business days of having been
notified of the proposed action (provided that if such written objection has
not been delivered to the Special Servicer within the ten business day period,
the Controlling Class Representative will be deemed to have approved such
action):
o any proposed or actual foreclosure upon or comparable conversion (which
may include acquisitions of an REO Property) of the ownership of
properties securing such of the Specially Serviced Mortgage Loans as come
into and continue in default;
o any modification or waiver of any term of the related loan documents of
a Mortgage Loan that relates to the maturity date, Mortgage Rate,
principal balance, amortization term, payment frequency or any provision
requiring the payment of a prepayment premium or yield maintenance charge
(other than a modification consisting of the extension of the maturity
date of a Mortgage Loan for one year or less);
o any proposed or actual sale of an REO Property (other than in connection
with the termination of the Trust Fund as described above under
"--Optional Termination; Optional Mortgage Loan Purchase" or pursuant to
a purchase option as described above under "--Realization Upon Mortgage
Loans--Sale of Defaulted Mortgage Loans");
o any determination to bring an REO Property into compliance with
applicable environmental laws or to otherwise address hazardous materials
located at an REO Property;
o any acceptance of substitute or additional collateral for a Mortgage
Loan unless required by the underlying loan documents;
o any waiver of a "due-on-sale" or "due-on-encumbrance" clause;
o any release of any performance or "earn-out" reserves, escrows or
letters of credit;
o any management company changes with respect to a mortgage loan for which
the Special Servicer is required to consent or approve; and
o any acceptance of an assumption agreement releasing a borrower from
liability under a Mortgage Loan.
These consent rights are subject, to the extent applicable, to the
procedures relating to Asset Status Reports described above under "--Servicing
of the Mortgage Loans." In addition, in the event that the Special Servicer
determines that immediate action is necessary to protect the interests of the
Certificateholders (as a collective whole), the Special Servicer may take any
such action without waiting for the Controlling Class Representative's
response.
The Controlling Class Representative may also direct the Special Servicer
to take, or to refrain from taking, other actions with respect to a Mortgage
Loan, as the Controlling Class Representative may reasonably deem advisable;
provided that the Special Servicer will not take or refrain from taking any
action pursuant to instructions from the Controlling Class Representative that
would cause it to violate applicable law, the Pooling Agreement, including the
Servicing Standards, or the REMIC Provisions.
The Controlling Class Representative has the right to remove and replace
the Special Servicer with another Special Servicer acceptable to the Rating
Agencies.
The "Controlling Class Representative" will be the Controlling Class
Certificateholder selected by more than 50% of the Controlling Class
Certificateholders, by Certificate Principal Amount, as certified by the
Certificate Registrar from time to time; provided, however, that (1) absent
that selection, or (2) until a Controlling Class Representative is so selected
or (3) upon receipt of a notice from a majority of the Controlling Class
Certificateholders, by Certificate Principal Amount, that a Controlling Class
Representative is no longer designated, the Controlling Class Certificateholder
that owns the largest aggregate Certificate Principal Amount of the Controlling
Class will be the Controlling Class Representative.
S-114
A "Controlling Class Certificateholder" is each holder (or Certificate
Owner, if applicable) of a Certificate of the Controlling Class as certified to
the Certificate Registrar from time to time by the holder (or Certificate
Owner).
The "Controlling Class" will be as of any time of determination the most
subordinate Class of Certificates then outstanding that has a Certificate
Principal Amount at least equal to 25% of the initial Certificate Principal
Amount of that Class. For purposes of determining identity of the Controlling
Class, the Certificate Principal Amount of each Class will not be reduced by
the amount allocated to that Class of any Appraisal Reductions. The Controlling
Class as of the Closing Date will be the Class P Certificates.
With respect to each Non-Serviced Loan, any consent or approvals on
actions to be taken by the special servicer or master servicer under the
related Pari Passu PSA are governed by the terms of that Pari Passu PSA and the
related Intercreditor Agreement. See "Description of the Mortgage Pool-The Non
Serviced Loans" and "The Pooling Agreement--Servicing of the Non-Serviced
Loans" in this prospectus supplement.
LIMITATION ON LIABILITY OF CONTROLLING CLASS REPRESENTATIVE
The Controlling Class Representative will not be liable to the Trust Fund
or the Certificateholders for any action taken, or for refraining from the
taking of any action pursuant to the Pooling Agreement, or for errors in
judgment. However, the Controlling Class Representative will not be protected
against any liability to any Controlling Class Certificateholder which would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
or duties.
Each Certificateholder acknowledges and agrees, by its acceptance of its
Certificates, that the Controlling Class Representative:
o may have special relationships and interests that conflict with those of
holders of one or more classes of certificates,
o may act solely in the interests of the holders of the Controlling Class,
o does not have any duties to the holders of any Class of certificates
other than the Controlling Class,
o may take actions that favor the interests of the holders of the
Controlling Class over the interests of the holders of one or more other
classes of certificates, and
o will have no liability whatsoever for having so acted and that no
Certificateholder may take any action whatsoever against the Controlling
Class Representative or any director, officer, employee, agent or
principal of the Controlling Class Representative for having so acted.
OPTIONAL TERMINATION; OPTIONAL MORTGAGE LOAN PURCHASE
The holders of the Controlling Class representing greater than a 50%
Percentage Interest of the Controlling Class, and if the Controlling Class does
not exercise its option, the Special Servicer and, if the Special Servicer does
not exercise its option, the Master Servicer and, if none of the Controlling
Class, the Special Servicer or 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
S-115
fair market value 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 the outstanding 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)
to the last day of the Interest Accrual Period preceding such Distribution
Date, and (D) Property Advances (to the extent not previously reimbursed by or
on behalf of the related borrower), 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 on the outstanding
principal balance of each such Mortgage Loan, and as to any REO Property, of
each related REO loan 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.
The Trust Fund may also be terminated upon the exchange of all then
outstanding Certificates, including the Class X Certificates, for the Mortgage
Loans remaining in the Trust Fund at any time the aggregate Certificate
Principal Amounts of the Class A, Class B, Class C, Class D and Class E
Certificates have been reduced to zero, but all the holders of such classes of
outstanding Certificates would have to voluntarily participate in such
exchange.
THE TRUSTEE
Wells Fargo Bank, N.A. ("Wells Fargo" or the "Trustee") is acting as
Trustee pursuant to the Pooling Agreement. Wells Fargo, a direct, wholly owned
subsidiary of Wells Fargo & Company, is a national banking association engaged
in a wide range of activities typical of a national bank. Wells Fargo maintains
an office located at Wells Fargo Center, Sixth and Marquette, Minneapolis,
Minnesota 55479. Certificate transfer services are conducted at Wells Fargo's
offices in Minneapolis. Wells Fargo otherwise also conducts its trustee and
securities administration services at its office in Columbia, Maryland. Its
address there is 9062 Old Annapolis Road, Columbia, Maryland 21045-1951.
Certificateholders and other interested parties should direct their inquiries
to the Wells Fargo CMBS Customer Service help desk. The telephone number is
(301) 815-6600.
The Trustee may resign at any time by giving written notice to the
Depositor, the Master Servicer and the Rating Agencies. However, 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 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 more than 50% of
all Certificateholders may remove the Trustee upon written notice to the
Depositor, the Master Servicer and the Trustee. Any resignation or removal of
the Trustee and appointment of a successor trustee and, if such trustee is not
rated at least "AA--" by each Rating Agency (or such other rating as the Rating
Agencies confirm will not result in the downgrade, qualification or withdrawal
of the then-current ratings assigned to the Certificates), 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 under the Pooling Agreement, the Trustee will
continue to be entitled to receive all accrued and unpaid compensation through
the date of termination plus reimbursement for all
S-116
Advances made by them and interest on those Advances as provided in the Pooling
Agreement. Any successor trustee must have a combined capital and surplus of at
least $50,000,000 and a short term rating of "F-1" from Fitch and such
appointment must not result in the downgrade, qualification or withdrawal of
the then-current ratings assigned to the Certificates. Evidence of this ratings
condition as to Fitch must be in writing.
As compensation for the performance of its routine duties, the Trustee
will be paid a fee (the "Trustee Fee"). The Trustee Fee will be payable monthly
from amounts received in respect of the Mortgage Loans and will accrue at a per
annum rate (the "Trustee Fee Rate") which, together with the Servicing Fee
Rate, is equal to the per annum rate set forth on Annex C to this prospectus
supplement as the "Administrative Fee Rate", with respect to each Mortgage Loan
and the Stated Principal Balance of the Mortgage Loans and will be calculated
in the same manner as interest is calculated on the related Mortgage Loan. The
Trustee also is authorized but not required to invest or direct the investment
of funds held in the Lower-Tier Distribution Account, the Upper-Tier
Distribution Account, the Gain-On-Sale Reserve Account and the Interest Reserve
Account in investments permitted under the Pooling Agreement, and the Trustee
will be entitled to retain any interest or other income earned on those funds
and will bear any losses resulting from the investment of these funds, except
as set forth in the Pooling Agreement.
The Trust Fund will indemnify the Trustee 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. The Trustee will not 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 opinion, the repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
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.
The Trustee (except for the information under the first paragraph of
"--The Trustee" above) 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.
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.
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 be obligated to 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 MASTER SERVICER; MASTER SERVICER SERVICING COMPENSATION AND PAYMENT OF
EXPENSES
Wachovia Bank, National Association will initially act as the master
servicer (in such capacity, the "Master Servicer"). Wachovia Bank, National
Association is a wholly owned subsidiary of Wachovia
S-117
Corporation and is an affiliate of one of the Underwriters. Wachovia Bank,
National Association's principal servicing offices are located at NC 1075, 8739
Research Drive URP4, Charlotte, North Carolina 28262. As of December 31, 2003,
Wachovia Bank, National Association and its affiliates were responsible for
master or primary servicing approximately 10,015 commercial and multifamily
loans, totaling approximately $88.6 billion in aggregate outstanding principal
amounts, including loans securitized in mortgage backed securitization
transactions.
The information set forth in this prospectus supplement concerning
Wachovia Bank, National Association has been provided by Wachovia Bank,
National Association. None of the Depositor, the Trustee, the Underwriters, or
any of their respective affiliates takes any responsibility for that
information or makes any representation or warranty as to the accuracy or
completeness of the information. Wachovia Bank, National Association (except
for the information in the preceding paragraph under this heading) will make no
representations as to the validity or sufficiency of the Pooling and Servicing
Agreement, the Certificates, the Mortgage Loans, this prospectus supplement or
related documents.
The fee of the Master Servicer (the "Servicing Fee") will be payable
monthly from amounts received in respect of the Mortgage Loans, and will accrue
at a rate (the "Servicing Fee Rate"), which together with the Trustee Fee Rate,
is equal to the per annum rate set forth on Annex C to this prospectus
supplement as the Administrative Fee Rate with respect to each Mortgage Loan.
With respect to any Distribution Date, the Master Servicer will be entitled to
retain any Prepayment Interest Excesses to the extent not need to make
Compensating Interest Payments. In addition to the Servicing Fee, the Master
Servicer will be entitled to retain, as additional servicing compensation, (1)
100% of application fees and defeasance fees, (2) 100% of certain non-material
modification, waiver, consent fees, provided the consent of the Special
Servicer is not required for such matters, (3) 50% of all assumption,
extension, modification, waiver, consent and earnout fees, in each case with
respect to all Mortgage Loans which are not Specially Serviced Mortgage Loans
and for which the Special Servicer's consent or approval is required, and (4)
late payment charges and default interest paid by the borrowers (other than on
Specially Serviced Mortgage Loans), but only to the extent such late payment
charges and default interest are not needed to pay interest on Advances or
certain additional Trust Fund expenses incurred at any time with respect to the
related Mortgage Loan. The Master Servicer also is authorized but not required
to invest or direct the investment of funds held in the Collection Account in
Permitted Investments, and the Master Servicer will be entitled to retain any
interest or other income earned on those funds and will bear any losses
resulting from the investment of these funds, except as set forth in the
Pooling Agreement. The Master Servicer also is entitled to retain any interest
earned on any servicing escrow account to the extent the interest is not
required to be paid to the related borrowers.
The Servicing Fee is calculated on the Stated Principal Balance of the
Mortgage Loans and in the same manner as interest is calculated on the Mortgage
Loans. Any Servicing Fee Rate calculated on an Actual/360 Basis will be
recomputed on a 30/360 basis for purposes of calculating the Net Mortgage Rate.
Although the Master Servicer is each required to service and administer
the pool of Mortgage Loans in accordance with the Servicing Standards above
and, accordingly, without regard to their rights to receive compensation under
the Pooling Agreement, additional servicing compensation in the nature of
assumption and modification fees may under certain circumstances provide the
Master Servicer with an economic disincentive to comply with this standard.
The Master Servicer will be required to pay all expenses incurred in
connection with its responsibilities under the Pooling Agreement (subject to
reimbursement as described in this prospectus supplement), including all fees
of any subservicers retained by it.
THE SPECIAL SERVICER; SPECIAL SERVICER SERVICING COMPENSATION AND PAYMENT OF
EXPENSES
Allied Capital Corporation, a Maryland corporation ("Allied Capital") will
initially be appointed as special servicer of the Mortgage Loans, (in such
capacity, the "Special Servicer"). The Special Servicer will, among other
things, oversee the resolution of non-performing Mortgage Loans and act
S-118
as disposition manager of REO Properties. The following information has been
provided by the Special Servicer. None of the Depositor, the Trustee, the
Underwriters, or any of their respective affiliates takes any responsibility
for that information or makes any representation or warranty as to the accuracy
or completeness of the information.
The principal executive offices of Allied Capital are located at 1919
Pennsylvania Avenue N.W., Washington, D.C. 20006 and its telephone number is
(202) 331-1112. Allied Capital and certain of its subsidiaries are involved in
the real estate investment, finance and management business. As of December 31,
2003, Allied Capital's CMBS portfolio included an original count of 5,944
assets as underlying collateral in most states across the country with an
original face value of $38.6 billion, all of which are secured by commercial
real estate assets. Included in this managed portfolio are approximately $5.29
billion of commercial real estate assets representing 822 loans within 6
securitization transactions, for which Allied Capital acts as special servicer.
Allied Capital and its subsidiaries own and are in the business of
acquiring assets similar in type to the assets of the trust. Accordingly, the
assets of the special servicer may, depending upon the particular
circumstances, including the nature and location of such assets, compete with
the mortgaged properties for tenants, purchasers, financing and so forth.
The Pooling Agreement provides that the Controlling Class Representative
may remove and replace the Special Servicer with another Special Servicer
acceptable to the Rating Agencies.
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee, the
Workout Fee and the Liquidation Fee.
The "Special Servicing Fee" will accrue with respect to each Specially
Serviced Mortgage Loan at a rate equal to 0.25% per annum (the "Special
Servicing Fee Rate") calculated on the basis of the Stated Principal Balance of
the related Specially Serviced Mortgage Loans and in the same manner as
interest is calculated on the Specially Serviced Mortgage Loans, and will be
payable monthly, first from liquidation proceeds and insurance and condemnation
proceeds and then from general collections on all the Mortgage Loans and any
REO Properties in the Trust Fund.
The "Workout Fee" will generally be payable with respect to each Corrected
Mortgage Loan and will be calculated by application of a "Workout Fee Rate" of
1% to each collection of interest and principal (including scheduled payments,
prepayments, balloon payments, and payments at maturity) received on the
respective Mortgage Loan for so long as it remains a Corrected Mortgage Loan.
The Workout Fee with respect to any Corrected Mortgage Loan will cease to be
payable if the Corrected Mortgage Loan again becomes a Specially Serviced
Mortgage Loan but will become payable again if and when the Mortgage Loan again
becomes a Corrected Mortgage Loan.
The successor Special Servicer will not be entitled to any portion of
those Workout Fees. If the Special Servicer resigns or is terminated other than
for cause, it will receive any Workout Fees payable on Specially Serviced
Mortgage Loans for which the resigning or terminated Special Servicer had cured
the event of default through a modification, restructuring or workout
negotiated by the Special Servicer and evidenced by a signed writing, but which
had not as of the time the Special Servicer resigned or was terminated become a
Corrected Mortgage Loan solely because the borrower had not made three
consecutive full and timely Monthly Payments and which subsequently becomes a
Corrected Mortgage Loan as a result of the borrower making such three
consecutive timely Monthly Payments but such fee will cease to be payable if
the Corrected Mortgage Loan again becomes a Specially Serviced Mortgage Loan.
A "Liquidation Fee" will be payable with respect to each Specially
Serviced Mortgage Loan as to which the Special Servicer obtains a full or
discounted payoff (or unscheduled partial payment to the extent such prepayment
is required by the Special Servicer as a condition to a workout) from the
related borrower and, except as otherwise described below, with respect to any
Specially Serviced Mortgage Loan or REO Property as to which the Special
Servicer receives any liquidation proceeds, insurance proceeds or condemnation
proceeds. The Liquidation Fee for each Specially Serviced Mortgage Loan will be
payable from, and will be calculated by application of a "Liquidation Fee Rate"
of 1% to the related payment or proceeds. Notwithstanding anything to the
contrary described above,
S-119
no Liquidation Fee will be payable based upon, or out of, insurance proceeds,
condemnation proceeds or liquidation proceeds received in connection with (i)
the repurchase of any Mortgage Loan by the applicable Loan Seller for a breach
of representation or warranty or for defective or deficient Mortgage Loan
documentation within the time period provided for such repurchases or, if such
repurchase occurs after such time period, the Loan Seller was acting in good
faith to resolve such breach or defect, (ii) the purchase of any Specially
Serviced Mortgage Loan by the majority holder of the Controlling Class, a
mezzanine loan holder or (iii) the purchase of all of the Mortgage Loans and
REO Properties in connection with an optional termination of the Trust Fund.
The Special Servicer may not receive a Workout Fee and a Liquidation Fee with
respect to the same proceeds collected on a Mortgage Loan.
The Special Servicer will also be entitled to additional servicing
compensation in the form of all fees with respect to assumptions, extensions
and modifications, in each case, received with respect to the Specially
Serviced Mortgage Loans, and 50% of all assumption, extension, modification,
waiver, consent and earnout fees received with respect to all Mortgage Loans
which are not Specially Serviced Mortgage Loans and for which the Special
Servicer's consent or approval is required. The Special Servicer will also be
entitled to late payment charges and default interest paid by the borrowers on
Specially Serviced Mortgage Loans, but only to the extent such late payment
charges and default interest are not needed to pay interest on Advances or
certain additional Trust Fund expenses incurred at any time with respect to the
related Mortgage Loan.
Although the Special Servicer is each required to service and administer
the pool of Mortgage Loans in accordance with the Servicing Standards above
and, accordingly, without regard to their rights to receive compensation under
the Pooling Agreement, additional servicing compensation in the nature of
assumption and modification fees may under certain circumstances provide the
Special Servicer with an economic disincentive to comply with this standard.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports. On each Distribution Date, the Trustee will be required
to provide or make available to each Certificateholder of record a Distribution
Date statement providing information relating to distributions made on that
date for the relevant class and the recent status of the Mortgage Loans.
In addition, the Trustee will provide or make available, to the extent
received from the Master Servicer on each Distribution Date to each
Certificateholder, the following reports prepared by the Master Servicer or the
Special Servicer, as applicable, substantially in the forms provided in the
Pooling Agreement (which forms are subject to change) and including
substantially the following information:
(1) a report as of the close of business on the immediately preceding
Determination Date, containing some categories of information
regarding the Mortgage Loans provided in Annex A to this prospectus
supplement in the tables under the caption "Mortgage Pool
Information," calculated, where applicable, on the basis of the most
recent relevant information provided by the borrowers to the Master
Servicer and by the Master Servicer to the Trustee, and presented in a
loan-by-loan and tabular format substantially similar to the formats
utilized in Annex A to this prospectus supplement;
(2) a Commercial Mortgage Securities Association ("CMSA") delinquent loan
status report;
(3) a CMSA historical loan modification and corrected mortgage loan
report;
(4) a CMSA historical liquidation report;
(5) a CMSA REO status report;
(6) a CMSA servicer watch list; and
(7) a CMSA loan level reserve and LOC report.
The Master Servicer or the Special Servicer, as applicable, may omit any
information from these reports that the Master Servicer or the Special Servicer
regards as confidential. None of the Master
S-120
Servicer, the Special Servicer or the Trustee will be responsible for the
accuracy or completeness of any information supplied to it by a borrower, the
Depositor, any Loan Seller or other third party that is included in any
reports, statements, materials or information prepared or provided by the
Master Servicer, the Special Servicer or the Trustee, as applicable. Some
information will be made available to Certificateholders by electronic
transmission as may be agreed upon between the Depositor and the Trustee.
Before each Distribution Date, the Master Servicer will deliver to the
Trustee by electronic means:
o a CMSA comparative financial status report; and
o a CMSA loan periodic update file.
In addition, the Master Servicer or Special Servicer, as applicable, is
also required to perform the following for each Mortgaged Property and REO
Property:
o Within 30 days after receipt of a quarterly operating statement, if any,
beginning with the calendar quarter ended June 30, 2004, a CMSA operating
statement analysis report but only to the extent the related borrower is
required by the Mortgage Loan documents to deliver and does deliver, or
otherwise agrees to provide and does provide, that information, for the
Mortgaged Property or REO Property as of the end of that calendar
quarter. The Master Servicer or Special Servicer, as applicable, will
deliver to the Trustee by electronic means the operating statement
analysis upon request.
o Within 30 days after receipt by the Special Servicer or the Master
Servicer of an annual operating statement, a CMSA NOI adjustment
worksheet, but only to the extent the related borrower is required by the
mortgage to deliver and does deliver, or otherwise agrees to provide and
does provide, that information, presenting the computation made in
accordance with the methodology described in the Pooling Agreement to
"normalize" the full year net operating income and debt service coverage
numbers used by the servicer to satisfy its reporting obligation
described in clause (1) above. The Special Servicer or the Master
Servicer will deliver to the Trustee by electronic means the CMSA NOI
adjustment worksheet upon request.
Certificate Owners who have certified to the Trustee their beneficial
ownership of any Offered Certificate may also obtain access to any of the
Trustee reports upon request. Otherwise, until the time Definitive Certificates
are issued to evidence the Offered Certificates, the information described
above will be available to the related Certificate Owners only if DTC and its
participants provide the information to Certificate Owners. See "Risk
Factors--Book Entry Registration" in this prospectus supplement.
Information Available Electronically. The Trustee will make available each
month, to any interested party, the Distribution Date statement, the CMSA bond
level file and the CMSA collateral summary file via the Trustee's internet
website. The Trustee's internet website will initially be located at
"www.ctslink.com/cmbs". In addition, the Trustee will also make Mortgage Loan
information, as presented in the CMSA loan setup file and CMSA loan periodic
update file format, available each month to any interested party via the
Trustee's internet website. The Trustee will also make available, as a
convenience for interested parties (and not in furtherance of the distribution
of the prospectus or the prospectus supplement under the securities laws), the
Pooling Agreement, the prospectus and the prospectus supplement via the
Trustee's internet website. The Trustee will make no representations or
warranties as to the accuracy or completeness of such documents and will assume
no responsibility for them. In addition, the Trustee may disclaim
responsibility for any information distributed by the Trustee for which it is
not the original source.
The Trustee will make available each month, on a restricted basis, the
CMSA delinquent loan status report, the CMSA historical loan modification
report, the CMSA historical liquidation report, the CMSA REO status report, the
CMSA servicer watch list, the CMSA NOI adjustment worksheet, the CMSA
comparative financial status report and the CMSA operating statement analysis
report, in each
S-121
case to the extent received from the Master Servicer, to any holder or
Certificate Owner of an Offered Certificate or any person identified to the
Trustee by a holder or Certificate Owner as a prospective transferee of an
Offered Certificate or any interest in an Offered Certificate, the Rating
Agencies, designees of the Depositor and to any of the parties to the Pooling
Agreement via the Trustee's internet website. Access will be provided by the
Trustee to that person upon receipt by the Trustee from such person of a
certification in the form attached to the Pooling Agreement. The Rating
Agencies and the parties to the Pooling Agreement will not be required to
provide that certification.
In connection with providing access to the Trustee's internet website, the
Trustee may require registration and the acceptance of a disclaimer. The
Trustee will not be liable for the dissemination of information in accordance
with the terms of the Pooling Agreement.
Other Information. The Trustee will make available at its offices, during
normal business hours, for review by any holder, Certificate Owner or
prospective purchase of an Offered Certificate, originals or copies of the
following items to the extent they are held by the Trustee.
o the Pooling Agreement and any amendments;
o all Trustee reports made available to holders of each relevant class of
Offered Certificates since the Closing Date;
o all officers' certificates and accountants' reports delivered to the
Trustee since the Closing Date;
o the most recent property inspection report prepared by or on behalf of
the Master Servicer or the Special Servicer, as applicable, and delivered
to the Trustee for each Mortgaged Property;
o the most recent operating statements, if any, collected by or on behalf
of the Master Servicer or the Special Servicer, as applicable, and
delivered to the Trustee for each Mortgaged Property; and
o the mortgage note, mortgage or other legal documents relating to each
Mortgage Loan, including any and all modifications, waivers, and
amendments of the terms of a mortgage loan entered into by the Master
Servicer or Special Servicer, as applicable, and delivered to the
Trustee.
The Trustee will provide copies of the items described above upon
reasonable written request. The Trustee may require payment for the reasonable
costs and expenses of providing the copies and may also require a confirmation
executed by the requesting person or entity, in a form reasonably acceptable to
the Trustee, to the effect that the person or entity making the request is a
beneficial owner or prospective purchaser of Offered Certificates, is
requesting the information solely for use in evaluating its investment in the
Certificates and will otherwise keep the information confidential.
Certificateholders, by the acceptance of their Certificates, will be deemed to
have agreed to keep this information confidential. The Master Servicer may, but
is not required to, make information available over the internet.
Pursuant to the Pooling Agreement, the Master Servicer and Special
Servicer, as the case may be, may make available from time to time, at their
sole option, either by telephone, electronically or otherwise, an employee to
answer questions from Certificate Owners regarding the performance and
servicing of the mortgage loans and/or REO Properties for which the Master
Servicer or Special Servicer, as the case may be, is responsible. The Master
Servicer and the Special Servicer each may condition such disclosure upon such
Certificate Owner entering into a confidentiality agreement regarding such
disclosure to it. Neither the Master Servicer nor the Special Servicer will
provide any information or disclosures in violation of any applicable law, rule
or regulation.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
S-122
FEDERAL INCOME TAX CONSEQUENCES
Elections will be made to treat designated portions of the Trust Fund as
two separate real estate mortgage investment conduits (the "Upper-Tier REMIC"
and the "Lower-Tier REMIC", respectively, and each, a "REMIC" within the
meaning of Sections 860A through 860G of the Code (the "REMIC Provisions"). In
addition, each of 3 Mortgage Loans, proceeds of those Mortgage Loans and any
related property (including a beneficial interest in real property in the case
of the DDR Portfolio Mortgage Loan) that secured the related Mortgage Loans
that was acquired by foreclosure or deed in lieu of foreclosure will constitute
the assets of a separate REMIC (each, a "Loan REMIC"). Each Loan REMIC has
issued a class of "regular interests" (the "Loan REMIC Regular Interest") and a
class of "residual interests" (the "Loan REMIC Residual Interest"). The
Lower-Tier REMIC will hold the Mortgage Loans (exclusive of each Mortgage Loan
held in a Loan REMIC) and the related Loan REMIC Regular Interests, proceeds of
those Mortgage Loans, and any property (including a beneficial interest in real
property in the case of the Water Tower Place Loan and the 237 Park Avenue
Loan) that secured a mortgage loan that was acquired by foreclosure or deed in
lieu of foreclosure, and will issue several uncertificated classes of regular
interests (the "Lower-Tier Regular Interests") to the Upper-Tier REMIC and the
Class LR Certificates, which will represent the sole class of residual
interests in the Lower-Tier REMIC and each Loan REMIC. The Upper-Tier REMIC
will hold the Lower-Tier Regular Interests, and will issue the Class A-1, Class
A-2, Class X, Class B, Class C, Class D, Class E, Class F, Class G, Class H,
Class J, Class K, Class L, Class M, Class N, Class O and Class P Certificates
(the "Regular Certificates") as classes of regular interests and the Class R
Certificates as the sole class of residual interests in the Upper-Tier REMIC.
On the Closing Date, Cadwalader, Wickersham & Taft LLP, special counsel to
the Depositor, will deliver its opinion that, assuming (1) the making of
appropriate elections, (2) compliance with the provisions of the Pooling
Agreement and each Pari Passu PSA and (3) compliance with applicable changes in
the Internal Revenue Code of 1986, as amended (the "Code"), including the REMIC
Provisions, for federal income tax purposes the Lower-Tier REMIC, the
Upper-Tier REMIC and each Loan REMIC will each qualify as a REMIC and (1) the
Regular Certificates will evidence the "regular interests" in the Upper-Tier
REMIC, (2) the Class R Certificates will represent the sole classes of
"residual interests" in the Upper-Tier REMIC within the meaning of the REMIC
Provisions and (3) the Class LR Certificates will represent the sole classes of
"residual interests" in each of the Lower-Tier REMIC and each Loan REMIC. In
addition, in the opinion of Cadwalader, Wickersham & Taft LLP, the portion of
the Trust Fund consisting of each Loan REMIC Residual Interest will be treated
as a grantor trust for federal income tax purposes under subpart E, Part I of
subchapter J of the Code.
Because they represent regular interests, each Class of Offered
Certificates generally will be treated as newly originated debt instruments for
federal income tax purposes. Holders of the classes of Offered Certificates
will be required to include in income all interest on the regular interests
represented by their Certificates in accordance with the accrual method of
accounting, regardless of a Certificateholder's usual method of accounting. It
is anticipated that no Class of Offered Certificates will be issued with
original issue discount ("OID") for federal income tax purposes, but rather
that the Offered Certificates will be issued at a [premium] for federal income
tax purposes. The prepayment assumption that will be used in determining the
rate of accrual of OID and market discount or whether any such discount is de
minimis, and that may be used to amortize premium, if any, for federal income
tax purposes will be based on the assumption that subsequent to the date of any
determination the mortgage loans will prepay at a rate equal to a CPR of 0%
(the "Prepayment Assumption"). No representation is made that the mortgage
loans will prepay at that rate or at any other rate.
Prepayment premiums or yield maintenance charges actually collected will
be distributed among the holders of the respective classes of Certificates as
described under "Description of the Offered
Certificates--Distributions--Prepayment Premiums" in this prospectus
supplement. It is not entirely clear under the Code when the amount of
prepayment premiums or yield maintenance charges so allocated should be taxed
to the holder of an Offered Certificate, but it is not expected, for federal
income tax reporting purposes, that prepayment premiums and yield maintenance
charges will be treated as giving rise to any income to the holder of an
Offered Certificate prior to the Master
S-123
Servicer's actual receipt of a prepayment premium or yield maintenance charge.
Prepayment premiums and yield maintenance charges, if any, may be treated as
ordinary income, although authority exists for treating such amounts as capital
gain if they are treated as paid upon the retirement or partial retirement of a
Certificate. Certificateholders should consult their own tax advisers
concerning the treatment of prepayment premiums and yield maintenance charges.
Except as provided below, the Offered Certificates will be treated as
"real estate assets" within the meaning of Section 856(c)(5)(B) of the Code,
and interest (including OID, if any) on the Offered Certificates will be
interest described in Section 856(c)(3)(B) of the Code, and the Offered
Certificates will be treated as "loans . . . secured by an interest in real
property which is . . . residential real property" under Section
7701(a)(19)(C)(v) of the Code to the extent the loans are secured by
multifamily properties. Mortgage loans that have been defeased with U.S.
Treasury obligations will not qualify for the foregoing treatments. Moreover,
the Offered Certificates will be "qualified mortgages" for another REMIC within
the meaning of Section 860G(a)(3) of the Code and "permitted assets" for a
"financial asset securitization investment trust" within the meaning of Section
860L(c) of the Code. See "Federal Income Tax Consequences for REMIC
Certificates" in the prospectus.
See "Federal Income Tax Consequences for REMIC Certificates--Taxation of
Regular Certificates" in the prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences" in this prospectus supplement, 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 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
A fiduciary of any retirement plan or other employee benefit plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which those
plans, annuities, accounts or arrangements are invested, including insurance
company general accounts, that is subject to the fiduciary responsibility rules
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Code (an "ERISA Plan") or which is a governmental plan,
as defined in Section 3(32) of ERISA, or a church plan, as defined in Section
3(33) of ERISA and for which no election has been made under Section 410(d) of
the Code, 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
(collectively, with an ERISA Plan, a "Plan") should 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 permitted under
ERISA, the Code or Similar Law or whether there exists any statutory,
regulatory or administrative exemption applicable thereto. Moreover, each Plan
fiduciary should determine whether an investment in the Offered Certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
The U.S. Department of Labor issued an individual exemption to Goldman,
Sachs & Co., Prohibited Transaction Exemption 89-88 (October 17, 1989), as
amended (the "Exemption"). The Exemption generally exempts from the application
of the prohibited transaction provisions of Sections 406 and 407 of ERISA, and
the excise taxes imposed on the prohibited transactions pursuant to Sections
4975(a) and (b) of the Code, certain transactions, among others, relating to
the servicing and operation of pools of mortgage loans, such as the pool of
mortgage loans, and the purchase, sale and holding of mortgage pass-through
certificates, such as the Offered Certificates, underwritten by Goldman, Sachs
& Co., provided that certain conditions set forth in the Exemption are
satisfied.
S-124
The Exemption sets forth five general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Offered
Certificates to be eligible for exemptive relief. First, the acquisition of the
Offered Certificates by a Plan must be on terms that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an unrelated
party. Second, the Offered Certificates at the time of acquisition by the Plan
must be rated in one of the four highest generic rating categories by Moody's,
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
Inc. ("S&P") or Fitch, Inc. Third, the Trustee cannot be an affiliate of any
other member of the Restricted Group other than an Underwriter. The "Restricted
Group" consists of any Underwriter, the Depositor, the Trustee, the Master
Servicer, the Special Servicer, any sub-servicer, any entity that provides
insurance or other credit support to the Trust Fund and any borrower with
respect to mortgage loans constituting more than 5% of the aggregate
unamortized principal balance of the mortgage loans as of the date of initial
issuance of the Offered Certificates, and any affiliate of any of the foregoing
entities. Fourth, the sum of all payments made to and retained by the
Underwriters must represent 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 must represent not more than the fair market value of the
mortgage loans and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer and any sub-servicer must represent not more
than reasonable compensation for that person's services under the Pooling
Agreement and reimbursement of the person's reasonable expenses in connection
with those services. Fifth, the investing Plan must be 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.
It is a condition of the issuance of the Offered Certificates that they
have the ratings specified on the cover page. As of the Closing Date, the third
general condition set forth above will be satisfied with respect to the Offered
Certificates. A fiduciary of a Plan contemplating purchasing an Offered
Certificate in the secondary market must make its own determination that, at
the time of purchase, the Offered Certificates continue to satisfy the second
and third general conditions set forth above. A fiduciary of a Plan
contemplating purchasing an Offered Certificate, whether in the initial
issuance of the related Certificates or in the secondary market, must make its
own determination that the first, fourth and fifth general conditions set forth
above will be satisfied with respect to the related Offered Certificate.
The Exemption also requires that the Trust Fund meet the following
requirements: (1) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (2) certificates in those other
investment pools must have been rated in one of the four highest categories of
S&P, Moody's or Fitch for at least one year prior to the Plan's acquisition of
Offered Certificates; and (3) certificates in those other investment pools must
have been purchased by investors other than Plans for at least one year prior
to any Plan's acquisition of Offered Certificates.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in
connection with (1) the direct or indirect sale, exchange or transfer of
Offered Certificates in the initial issuance of Certificates between the
Depositor or the Underwriters and a Plan when the Depositor, any of the
Underwriters, the Trustee, the Master Servicer, the Special Servicer, a
sub-servicer or a borrower is a party in interest with respect to the investing
Plan, (2) the direct or indirect acquisition or disposition in the secondary
market of the Offered Certificates by a Plan and (3) the holding of Offered
Certificates by a Plan. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of an Offered Certificate on behalf of an Excluded Plan by any person
who has discretionary authority or renders investment advice with respect to
the assets of the Excluded Plan. For purposes of this prospectus supplement, an
"Excluded Plan" is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes
S-125
imposed by Section 4975(c)(1)(E) of the Code in connection with (1) the direct
or indirect sale, exchange or transfer of Offered Certificates in the initial
issuance of Certificates between the Depositor or the Underwriters and a Plan
when the person who has discretionary authority or renders investment advice
with respect to the investment of Plan assets in those Certificates is (a) a
borrower with respect to 5% or less of the fair market value of the mortgage
loans or (b) an affiliate of that person, (2) the direct or indirect
acquisition or disposition in the secondary market of Offered Certificates by a
Plan and (3) the holding of Offered Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by
Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c) of the Code for
transactions in connection with the servicing, management and operation of the
pool of mortgage loans.
Before purchasing an Offered Certificate, a fiduciary of a Plan should
itself confirm that (1) the Offered Certificates constitute "securities" for
purposes of the Exemption and (2) the specific and general conditions and the
other requirements set forth in the Exemption would be satisfied. In addition
to making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions, including with respect to
governmental plans, any exemptive relief afforded under Similar Law. See "ERISA
Considerations" in the prospectus. A purchaser of an Offered Certificate should
be aware, however, that even if the conditions specified in one or more
exemptions are satisfied, the scope of relief provided by an exemption may not
cover all acts which might be construed as prohibited transactions.
THE SALE OF OFFERED CERTIFICATES TO A PLAN IS IN NO RESPECT A
REPRESENTATION BY THE DEPOSITOR OR ANY OF THE UNDERWRITERS 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 Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"). The appropriate characterization of the Offered Certificates
under various legal investment restrictions, and thus the ability of investors
subject to those restrictions to purchase certificates, is subject to
significant interpretive uncertainties. No representations are made as to the
proper characterization of the Offered Certificates for legal investment
purposes, financial institution regulatory purposes, or other purposes, or as
to the ability of particular investors to purchase the Offered Certificates
under applicable legal investment restrictions. These uncertainties (and any
unfavorable future determination concerning the legal investment or financial
institutional regulatory characteristics of the Offered Certificates) 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 a legal investment or
are subject to investment, capital or other restrictions. See "Legal
Investment" in the accompanying prospectus.
PLAN OF DISTRIBUTION
The Depositor, Goldman, Sachs & Co., Greenwich Capital Markets, Inc.
("GCMI"), Banc of America Securities LLC ("BOA"), Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPFSI") and Wachovia Capital Markets, LLC ("WCM" and,
collectively with Goldman, Sachs & Co., GCMI, BOA and MLPFSI, the
"Underwriters") have entered into an underwriting agreement with respect to the
Offered Certificates pursuant to which, the Depositor has agreed to sell to the
Underwriters, and the Underwriters have severally but not jointly agreed to
purchase from the Depositor, the respective
S-126
Certificate Principal Amounts of each class of Offered Certificates set forth
below subject in each case to a variance of 10%.
GREENWICH MERRILL LYNCH, WACHOVIA
GOLDMAN, CAPITAL PIERCE, FENNER & CAPITAL
SACHS MARKETS, BANC OF AMERICA SMITH MARKETS,
CLASS & CO. INC. SECURITIES LLC INCORPORATED LLC
- ------------------- --------------- --------------- ----------------- ------------------ ---------------
Class A-1 ......... $ $ $ $ $
Class A-2 ......... $ $ $ $ $
Class B ........... $ $ $ $ $
Class C ........... $ $ $ $ $
Class D ........... $ $ $ $ $
Class E ........... $ $ $ $ $
The Depositor estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $ .
The Depositor has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
The Offered Certificates are a new issue of securities with no established
trading market. The Depositor has been advised by the Underwriters that they
intend to make a market in the Offered Certificates but is not obligated to do
so and may discontinue market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for the Offered
Certificates.
The Underwriters also may impose a penalty bid. This occurs when a
particular broker-dealer repays to an Underwriter a portion of the underwriting
discount received by it because the representatives have repurchased
Certificates sold by or for the account of such Underwriter in stabilizing or
short covering transactions.
These activities by either Underwriter may stabilize, maintain or
otherwise affect the market price of the Certificates. As a result, the price
of the Certificates may be higher than the price that otherwise might exist in
the open market. If these activities are commenced, they may be discontinued by
the Underwriters at any time. These transactions may be effected in the
over-the-counter market or otherwise.
Goldman, Sachs & Co. is an affiliate of the Depositor and GSMC, a Loan
Seller. GCMI is an affiliate of Greenwich Capital Financial Products, Inc., a
Loan Seller.
LEGAL MATTERS
The validity of the Offered Certificates and certain federal income tax
matters will be passed upon for the Depositor and the Underwriters by
Cadwalader, Wickersham & Taft LLP, New York, New York.
S-127
RATINGS
It is a condition to the issuance of each Class of Offered Certificates
that they be rated as follows by Moody's Investors Service, Inc. ("Moody's")
and Fitch, Inc. ("Fitch" and, together with Moody's, the "Rating Agencies"),
respectively:
RATINGS
CLASS MOODY'S/FITCH
- ---------------------------- --------------
Class A-1 ................ Aaa/AAA
Class A-2 ................ Aaa/AAA
Class B .................. Aa2/AA
Class C .................. Aa3/AA-
Class D .................. A2/A
Class E .................. A3/A-
A securities rating on mortgage pass-through certificates addresses the
likelihood of the timely receipt by their holders of interest and the ultimate
repayment of principal to which they are entitled by the Rated Final
Distribution Date. The rating takes into consideration the credit quality of
the pool of mortgage loans, structural and legal aspects associated with the
certificates, and the extent to which the payment stream from the pool of
mortgage loans is adequate to make payments required under the certificates.
The ratings on the Offered Certificates do not, however, constitute a statement
regarding the likelihood, timing or frequency of prepayments (whether voluntary
or involuntary) on the mortgage loans or the degree to which the payments might
differ from those originally contemplated. In addition, a rating does not
address the likelihood or frequency of voluntary or mandatory prepayments of
mortgage loans, the allocation of Prepayment Interest Shortfalls, yield
maintenance charges or net default interest. See "Risk Factors" in this
prospectus supplement.
We cannot assure you as to whether any rating agency not requested to rate
the Offered Certificates will nonetheless issue a rating to any class of
Offered Certificates and, if so, what the rating would be. A rating assigned to
any class of Offered Certificates by a rating agency that has not been
requested by the Depositor to do so may be lower than the rating assigned
thereto by Moody's or Fitch.
The ratings on 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-128
INDEX OF SIGNIFICANT DEFINITIONS
PAGE
------
237 Park Avenue Co-Lender
Agreement ............................... S-61
237 Park Avenue Loan .................... S-61
237 Park Avenue Mortgage Loan ........... S-56
237 Park Avenue Pari Passu
Companion Loans ......................... S-61
Actual/360 Basis ........................ S-55
Administrative Fee Rate ................. S-71
Advance Rate ............................ S-100
Advances ................................ S-100
Allied Capital .......................... S-118
Allocated Loan Amount ................... S-53
ALTA .................................... S-66
Appraisal Reduction ..................... S-79
Appraisal Reduction Event ............... S-78
Archon .................................. S-52
Archon Loans ............................ S-52
Asset Status Report ..................... S-99
Available Funds ......................... S-68
Balloon Default ......................... S-98
Balloon Mortgage Loan ................... S-55
Base Interest Fraction .................. S-76
BOA ..................................... S-126
CBE ..................................... S-88
Certificate Owners ...................... S-81
Certificate Principal Amount ............ S-68
Certificate Registrar ................... S-80
Certificateholder ....................... S-80
Certificates ............................ S-67
Class ................................... S-67
Class A Certificates .................... S-67
Clearstream ............................. S-80
Closing Date ............................ S-52
CMSA .................................... S-120
Code .................................... S-123
Collection Account ...................... S-101
Collection Period ....................... S-69
Commerzbank ............................. S-52
Commerzbank AG .......................... S-65
Commission .............................. S-117
Compensating Interest Payment ........... S-78
Controlling Class ....................... S-115
Controlling Class Certificateholder ..... S-115
Controlling Class Representative ........ S-114
Corrected Mortgage Loan ................. S-98
CPR ..................................... S-85
Crossed Loan ............................ S-64
Cut-Off Date ............................ S-52
Cut-Off Date Balance .................... S-52
PAGE
------
DDR Portfolio Intercreditor
Agreement ............................... S-60
DDR Portfolio Loan ...................... S-59
DDR Portfolio Pari Passu Companion
Loans ................................... S-59
Defeasance Deposit ...................... S-56
Defeasance Loans ........................ S-55
Defeasance Lock-Out Period .............. S-55
Defeasance Option ....................... S-55
Definitive Certificate .................. S-80
Depositor ............................... S-52
Depositories ............................ S-80
Determination Date ...................... S-69
Distribution Account .................... S-101
Distribution Date ....................... S-68
DSCR .................................... S-53
DTC ..................................... S-80
Due Date ................................ S-54
ERISA ................................... S-124
ERISA Plan .............................. S-124
Euroclear ............................... S-80
Events of Default ....................... S-106
Excess Liquidation Proceeds ............. S-77
Excess Prepayment Interest Shortfall..... S-77
Excluded Plan ........................... S-125
Exemption ............................... S-124
Fitch ................................... S-128
Form 8-K ................................ S-66
Gain-On-Sale Reserve Account ............ S-102
GCCFC C2 Master Servicer ................ S-61
GCCFC C2 PSA ............................ S-61
GCCFC C2 Special Servicer ............... S-61
GCCFC C2 Trust .......................... S-61
GCCFC C2 Trustee ........................ S-61
GCFP .................................... S-52
GCMI .................................... S-126
GMACCM C2 Master Servicer ............... S-60
GMACCM C2 PSA ........................... S-59
GMACCM C2 Special Servicer .............. S-60
GMACCM C2 Trust ......................... S-59
GMACCM C2 Trustee ....................... S-60
GMACCM C3 Master Servicer ............... S-58
GMACCM C3 PSA ........................... S-58
GMACCM C3 Special Servicer .............. S-58
GMACCM C3 Trust ......................... S-58
GMACCM C3 Trustee ....................... S-58
Greenwich Loan .......................... S-52
GSMC .................................... S-52
Indirect Participants ................... S-81
S-129
PAGE
------
Initial Pool Balance .................... S-52
Interest Accrual Amount ................. S-70
Interest Accrual Period ................. S-70
Interest Distribution Amount ............ S-70
Interest Reserve Account ................ S-102
Interest Shortfall ...................... S-70
IRS ..................................... S-111
Liquidation Fee ......................... S-119
Liquidation Fee Rate .................... S-119
S-19,
Loan REMIC .............................. S-123
Loan REMIC Regular Interest ............. S-123
Loan REMIC Residual Interest ............ S-123
Loan Sellers ............................ S-52
Loan-to-Value Ratio ..................... S-53
Lower-Tier Distribution Account ......... S-101
Lower-Tier Regular Interests ............ S-123
S-19,
Lower-Tier REMIC ........................ S-123
LTV ..................................... S-53
LTV at Maturity ......................... S-53
Master Servicer ......................... S-117
Master Servicer Remittance Date ......... S-99
Master Servicer Servicing Standards...... S-96
MLPFSI .................................. S-126
Modeling Assumptions .................... S-85
Monthly Payment ......................... S-69
Moody's ................................. S-128
Mortgage ................................ S-52
Mortgage Loans .......................... S-52
Mortgage Note ........................... S-52
Mortgage Pool ........................... S-52
Mortgage Rate ........................... S-71
Mortgaged Property ...................... S-52
Net Mortgage Rate ....................... S-71
Non-Recoverable Advance ................. S-100
Non-Serviced Loans ...................... S-57
Notional Amount ......................... S-68
Offered Certificates .................... S-67
OID ..................................... S-123
Originators ............................. S-52
Pari Passu Companion Loan ............... S-57
Pari Passu Indemnified Party ............ S-106
Pari Passu PSA .......................... S-58
Participants ............................ S-80
Pass-Through Rate ....................... S-70
PCR ..................................... S-66
Percentage Interest ..................... S-68
P&I Advance ............................. S-99
Plan .................................... S-124
PMCC .................................... S-52
PAGE
------
PMCF .................................... S-52
Pooling Agreement ....................... S-93
Post Default Balloon Period ............. S-98
Prepayment Assumption ................... S-123
Prepayment Interest Excess. ............. S-77
Prepayment Interest Shortfall. .......... S-77
Prime Rate .............................. S-100
Principal Distribution Amount ........... S-72
Principal Shortfall ..................... S-72
Property Advances ....................... S-100
Prudential Loans ........................ S-52
RARC .................................... S-40
Rated Final Distribution Date ........... S-84
Rating Agencies ......................... S-128
Realized Loss ........................... S-77
Record Date ............................. S-68
S-71,
Regular Certificates .................... S-123
Release Date ............................ S-56
REMIC ................................... S-123
REMIC Provisions ........................ S-123
REO Account ............................. S-67
REO Mortgage Loan ....................... S-72
REO Property ............................ S-67
Repurchase Price ........................ S-69
Residual Certificates ................... S-67
Restricted Group ........................ S-125
Rules ................................... S-81
Sequential Pay Certificates ............. S-67
Servicing Fee ........................... S-118
Servicing Fee Rate ...................... S-118
Servicing Standards ..................... S-97
Similar Law ............................. S-124
SMMEA ................................... S-126
S&P ..................................... S-125
Special Servicer ........................ S-118
Special Servicer Servicing Standards..... S-97
Special Servicing Fee ................... S-119
Special Servicing Fee Rate .............. S-119
Specially Serviced Mortgage Loan ........ S-97
Stated Principal Balance ................ S-71
Trust Fund .............................. S-52
Trustee ................................. S-116
Trustee Fee ............................. S-117
Trustee Fee Rate ........................ S-117
Unadjusted Principal Distribution
Amount .................................. S-71
Underwriters ............................ S-126
Unscheduled Payments .................... S-72
Updated Appraisal ....................... S-110
Upper-Tier Distribution Account ......... S-101
S-130
PAGE
-----------
S-19,
Upper-Tier REMIC ............... S-123
Voting Rights .................. S-109
WAC Rate ....................... S-71
WAMU ........................... S-52
WAMU Loan ...................... S-52
Water Tower Place Intercreditor
Agreement ...................... S-58
Water Tower Place Loan ......... S-52, S-58
Water Tower Place Pari Passu
Companion Loans ................ S-58
PAGE
-----------
WCM ............................ S-126
Wells Fargo .................... S-116
Whole Loan ..................... S-57
Withheld Amounts ............... S-102
Withheld Loan .................. S-102
Workout Fee .................... S-119
Workout Fee Rate ............... S-119
Workout-Delayed Reimbursement
Amount ......................... S-101
S-131
[THIS PAGE INTENTIONALLY LEFT BLANK.]
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Annex A, Annex B and Annex C set forth certain information with respect to
the Mortgage Loans and the Mortgaged Properties. The sum in any column of the
tables presented in this Annex A may not equal the indicated total due to
rounding. The information in Annex A, Annex B and Annex C with respect to the
Mortgage Loans and the Mortgaged Properties is based upon the Mortgage Pool as
it is expected to be constituted as of the close of business on the Closing
Date, assuming that (i) all scheduled principal and interest payments due on or
before the Cut-Off Date will be made, and (ii) there will be no principal
prepayments on or before the Closing Date. Where a Mortgage Loan is secured by
multiple properties, statistical information in this Annex A, Annex B and Annex
C relating to geographical locations and property types of the mortgaged
properties is based on the loan amount allocated to such property. Such
allocation, where not stated in the Mortgage Loan documents, is generally based
on the relative appraised values of such properties. In addition, wherever
information is presented in this Annex A, Annex B and Annex C with respect to
LTVs or DSCRs, the LTV or DSCR of each Mortgaged Property securing a Mortgage
Loan secured by multiple Mortgaged Properties is assumed to be the LTV or DSCR
of such Mortgage Loan in the aggregate. The loan amount used for purposes of
calculating the loan-to-value ratio and debt service coverage ratio for each of
the mortgage loans with pari passu companion notes is the aggregate principal
balance of the mortgage loan and the related pari passu companion notes. The
statistics in Annex A, Annex B and Annex C were primarily derived from
information provided to the Depositor by each Loan Seller, which information
may have been obtained from the borrowers without independent verification
except as noted.
(1) "Most Recent NOI" and "Trailing 12 NOI" (which is for the period
ending as of the date specified in Annex C) is the net operating income for a
Mortgaged Property as established by information provided by the borrowers,
except that in certain cases such net operating income has been adjusted by
removing certain non-recurring expenses and revenue or by certain other
normalizations. Most Recent NOI and Trailing 12 NOI do not necessarily reflect
accrual of certain costs such as taxes and capital expenditures and do not
reflect non-cash items such a depreciation or amortization. In some cases,
capital expenditures may have been treated by a borrower as an expense or
expenses treated as capital expenditures. The Depositor has not made any
attempt to verify the accuracy of any information provided by each borrower or
to reflect changes in net operating income that may have occurred since the
date of the information provided by each borrower for the related Mortgaged
Property. Most Recent NOI and Trailing 12 NOI were not necessarily determined
in accordance with generally accepted accounting principles. Moreover, Most
Recent NOI and Trailing 12 NOI are not a substitute for net income determined
in accordance with generally accepted accounting principles as a measure of the
results of a property's operations or a substitute for cash flows from
operating activities determined in accordance with generally accepted
accounting principles as a measure of liquidity and in certain cases may
reflect partial-year annualizations.
(2) "Annual Debt Service" means for any Mortgage Loan the current annual
debt service payable during the twelve month period commencing on May 1, 2004
on the related Mortgage Loan.
(3) "Cut-Off Date LTV Ratio" means, with respect to any Mortgage Loan, the
principal balance of such Mortgage Loan as of the Cut-Off Date divided by the
Appraised Value of the Mortgaged Properties securing such Mortgage Loan. In the
case of the earnout loans identified in this "Annex C" by control numbers 2,
35, and 45, the cut-off date LTV ratio is calculated net of the earnout. In the
case of the cross-collateralized mortgage loans identified in this "Annex C" by
control numbers 11, 12, 13, 18, 19, 31 and 32, the cut-off date LTV ratio is
shown on an aggregate basis for each crossed group of mortgage loans. With
respect to the Water Tower Place Loan, the cut-off date LTV ratio reflects
aggregate indebtedness evidenced by the Water Tower Place Whole Loan. With
respect to the DDR Portfolio Loan, the cut-off date LTV ratio reflects
aggregate indebtedness evidenced by the DDR Portfolio Whole Loan. With respect
to the 237 Park Avenue Loan, the cut-off date LTV ratio reflects aggregate
indebtedness evidenced by the 237 Park Avenue Whole Loan.
A-1
(4) "Cut-Off Date Principal Balance/Unit" means the principal balance per
unit of measure as of the Cut-Off Date.
(5) "DSCR," "Debt Service Coverage Ratio" or "Underwritten DSCR" means,
for any Mortgage Loan, the ratio of Underwritten Net Cash Flow produced by the
related Mortgaged Property or Mortgaged Properties to the aggregate amount of
the Annual Debt Service. In the case of the earnout loans identified in this
"Annex C" by control numbers 2, 35, and 45, the underwritten DSCR is calculated
net of the earnout. In the case of the cross-collateralized mortgage loans
identified in this "Annex C" by control numbers 11, 12, 13, 18, 19, 31 and 32,
the underwritten DSCR is shown on an aggregate basis for each crossed group of
mortgage loans. With respect to the Water Tower Place Loan, the underwritten
DSCR reflects aggregate indebtedness evidenced by the Water Tower Place Whole
Loan. With respect to the DDR Portfolio Loan, the underwritten DSCR reflects
aggregate indebtedness evidenced by the DDR Portfolio Whole Loan. With respect
to the 237 Park Avenue Loan, the underwritten DSCR reflects aggregate
indebtedness evidenced by the 237 Park Avenue Whole Loan.
(6) "Largest Tenant" means, with respect to any Mortgaged Property, the
tenant occupying the largest amount of net rentable square feet.
(7) "Largest Tenant Lease Expiration Date" means the date at which the
applicable Largest Tenant's lease is scheduled to expire.
(8) "Largest Tenant % of Total Net Square Feet" means the net rentable
square feet leased to the Largest Tenant as a percentage of the total square
feet of the Mortgaged Property.
(9) "LTV at Maturity," "Maturity Date LTV" or "ARDLTV" for any Mortgage
Loan is calculated in the same manner as the Cut-Off Date LTV Ratio, except
that the Mortgage Loan Cut-Off Date Principal Balance used to calculate the
Cut-Off Date LTV Ratio has been adjusted to give effect to the amortization of
the applicable Mortgage Loan as of its maturity date. Such calculation thus
assumes that the appraised value of the Mortgaged Property or Properties
securing a Mortgage Loan on the maturity date is the same as the Appraised
Value. There can be no assurance that the value of any particular Mortgaged
Property will not have declined from the Appraised Value. In the case of the
earnout loans identified in this "Annex C" by control numbers 2, 35, and 45,
the maturity date LTV is calculated net of the earnout. In the case of the
cross-collateralized mortgage loans identified in this "Annex C" by control
numbers 11, 12, 13, 18, 19, 31 and 32, the maturity date LTV is shown on an
aggregate basis for each crossed group of mortgage loans. With respect to the
Water Tower Place Loan, the LTV at maturity reflects aggregate indebtedness
evidenced by the Water Tower Place Whole Loan. With respect to the DDR
Portfolio Loan, the LTV at maturity reflects aggregate indebtedness evidenced
by the DDR Portfolio Whole Loan. With respect to the 237 Park Avenue Loan, the
LTV at maturity reflects aggregate indebtedness evidenced by the 237 Park
Avenue Whole Loan.
(10) "Net Cash Flow," "U/W NCF" or "Underwritten Net Cash Flow" with
respect to a given Mortgage Loan or Mortgaged Property means cash flow
available for debt service, as determined by the related Loan Seller based upon
borrower supplied information for a recent period which is generally the twelve
months prior to the origination of such Mortgage Loan, adjusted for
stabilization and, in the case of certain Mortgage Loans, may have been updated
to reflect a more recent operating period. Net Cash Flow does not reflect debt
service, non-cash items such as depreciation or amortization, and does not
reflect actual capital expenditures and may have been adjusted for other items
and assumptions determined by the Loan Seller.
(11) "Occupancy" means the percentage of net rentable square feet, rooms,
units, beds or sites of the Mortgaged Property that are leased (included spaces
that are leased to tenants that are not yet in occupancy). Occupancy rates are
calculated within a recent period and in certain cases reflect the average
occupancy rate over a period of time.
(12) "Original Balance" means the principal balance of the Mortgage Loan
as of the date of origination.
(13) "Underwritten NOI" or "U/W NOI" means Net Cash Flow before deducting
for replacement reserves and capital expenditures, tenant improvements and
leasing commissions.
A-2
(14) "Appraised Value" means for each of the Mortgaged Properties, the
appraised value of such property as determined by an appraisal of the Mortgaged
Property and in accordance with MAI standards made not more than 13 months
prior to the origination date (or purchase date, as applicable) of the related
Mortgage Loan, as described under "Appraised Date."
(15) "Weighted Average Mortgage Rate" means the weighted average of the
Mortgage Rates as of the Cut-Off Date.
(16) "Related Group" identifies Mortgage Loans in the Mortgage Pool with
sponsors affiliated with other sponsors in the Mortgage Pool. Each Related
Group is identified by a separate letter.
(17) "Prepayment Penalty Description" means the number of payments from
the first payment date through and including the maturity date for which a
Mortgage Loan is locked out from prepayment, charges a prepayment premium or
yield maintenance charges, permits defeasance, or allows a prepayment without a
prepayment premium or yield maintenance charge.
(18) "Actual/360" means the related Mortgage Loan accrues interest on the
basis of a 360-day year and the actual number of days in the related month.
(19) "In-Place, Hard (A/B)." Revenue from the related mortgaged property
is generally paid directly by the tenants and other payors to an account
controlled by the applicable master servicer on behalf of the trust fund. Until
the occurrence of certain specified "trigger" events, including a default under
the related mortgage loan documents, such revenue is forwarded to an account
controlled by the related borrower or is otherwise made available to the
related borrower, and the related borrower remains obligated to pay all debt
service, reserves and other payments required under the related mortgage loan.
Upon the occurrence of a trigger event, the revenue from the related mortgaged
property is no longer forwarded to the borrower-controlled account or made
available to the borrower, but instead is applied by the applicable master
servicer on behalf of the trust fund to sums payable under the related mortgage
loan and, in certain transactions, to pay expenses at the related mortgaged
property.
A-3
CERTAIN OTHER LOAN CHARACTERISTICS
DISTRIBUTION BY LOAN TYPE
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
LOAN TYPE LOANS BALANCE BALANCE BALANCE
- -------------------------------- ----------- -------------- --------------- --------------
Interest Only 51 $574,127,000 64.3% $11,257,392
Amortizing 14 270,637,316 30.3 $19,331,237
Interest Only, Then Amortizing 2 47,500,000 5.3 $23,750,000
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
COVERAGE AVERAGE TERM TO CUT-OFF DATE
LOAN TYPE RATIO MORTGAGE RATE MATURITY (MOS) LTV
- -------------------------------- -------------- --------------- ---------------- -------------
Interest Only 2.19x 4.856% 59.6 71.27%
Amortizing 1.82x 5.242% 67.3 60.35%
Interest Only, Then Amortizing 1.54x 5.724% 78.7 65.22%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
A-4
DISTRIBUTION OF CUT-OFF DATE PRINCIPAL BALANCES
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
RANGE OF CUT-OFF DATE PRINCIPAL MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
BALANCES ($) LOANS BALANCE BALANCE BALANCE
- --------------------------------- ----------- -------------- --------------- --------------
1,200,000 -- 2,999,999 6 $ 14,937,625 1.7% $ 2,489,604
3,000,000 -- 4,999,999 9 35,870,908 4.0 $ 3,985,656
5,000,000 -- 6,999,999 12 72,944,356 8.2 $ 6,078,696
7,000,000 -- 9,999,999 16 133,908,316 15.0 $ 8,369,270
10,000,000 -- 14,999,999 5 68,955,383 7.7 $13,791,077
15,000,000 -- 17,999,999 5 78,325,000 8.8 $15,665,000
18,000,000 -- 29,999,999 7 161,117,700 18.1 $23,016,814
30,000,000 -- 56,039,776 7 326,205,027 36.6 $46,600,718
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
RANGE OF CUT-OFF DATE PRINCIPAL COVERAGE AVERAGE TERM TO CUT-OFF DATE
BALANCES ($) RATIO MORTGAGE RATE MATURITY (MOS) LTV
- --------------------------------- -------------- --------------- ---------------- -------------
1,200,000 -- 2,999,999 1.78x 5.271% 59.8 66.86%
3,000,000 -- 4,999,999 2.10x 5.063% 70.3 67.30%
5,000,000 -- 6,999,999 2.18x 4.872% 62.8 70.55%
7,000,000 -- 9,999,999 2.03x 4.993% 61.8 71.81%
10,000,000 -- 14,999,999 2.27x 4.708% 62.4 68.66%
15,000,000 -- 17,999,999 2.12x 4.832% 57.5 71.63%
18,000,000 -- 29,999,999 1.94x 5.163% 62.2 68.26%
30,000,000 -- 56,039,776 2.01x 5.087% 64.5 63.86%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
Min: $1,200,000
Max: $56,039,776
Average: $13,317,378
DISTRIBUTION OF DEBT SERVICE COVERAGE RATIOS
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
RANGE OF DEBT SERVICE COVERAGE MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
RATIOS (X) LOANS BALANCE BALANCE BALANCE
- -------------------------------- ----------- -------------- --------------- --------------
1.38 -- 1.59 9 $101,638,731 11.4% $11,293,192
1.60 -- 1.69 4 72,772,529 8.2 $18,193,132
1.70 -- 1.79 6 90,643,085 10.2 $15,107,181
1.80 -- 1.99 16 206,024,720 23.1 $12,876,545
2.00 -- 2.19 15 173,925,000 19.5 $11,595,000
2.20 -- 2.49 7 132,040,252 14.8 $18,862,893
2.50 -- 2.99 6 84,495,000 9.5 $14,082,500
3.00 -- 3.39 1 7,425,000 0.8 $ 7,425,000
3.40 -- 3.44 3 23,300,000 2.6 $ 7,766,667
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
RANGE OF DEBT SERVICE COVERAGE COVERAGE AVERAGE TERM TO CUT-OFF DATE
RATIOS (X) RATIO MORTGAGE RATE MATURITY (MOS) LTV
- -------------------------------- -------------- --------------- ---------------- -------------
1.38 -- 1.59 1.51x 5.662% 73.0 68.70%
1.60 -- 1.69 1.64x 5.569% 68.6 58.85%
1.70 -- 1.79 1.75x 5.229% 63.6 72.83%
1.80 -- 1.99 1.93x 5.029% 64.3 68.21%
2.00 -- 2.19 2.10x 4.875% 61.2 72.52%
2.20 -- 2.49 2.26x 4.648% 49.4 66.72%
2.50 -- 2.99 2.71x 4.640% 61.1 64.21%
3.00 -- 3.39 3.01x 4.880% 81.0 55.00%
3.40 -- 3.44 3.44x 4.200% 76.0 50.41%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
Min: 1.38x
Max: 3.44x
Weighted Average: 2.05x
A-5
DISTRIBUTION OF MORTGAGE INTEREST RATES
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
RANGE OF MORTGAGE INTEREST RATES (%) LOANS BALANCE BALANCE BALANCE
- -------------------------------------- ----------- -------------- --------------- --------------
4.200 -- 4.500 13 $176,840,252 19.8% $13,603,096
4.501 -- 5.000 25 282,721,776 31.7 $11,308,871
5.001 -- 5.500 18 259,610,402 29.1 $14,422,800
5.501 -- 6.060 11 173,091,887 19.4 $15,735,626
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
COVERAGE AVERAGE TERM TO CUT-OFF DATE
RANGE OF MORTGAGE INTEREST RATES (%) RATIO MORTGAGE RATE MATURITY (MOS) LTV
- -------------------------------------- -------------- --------------- ---------------- -------------
4.200 -- 4.500 2.46x 4.359% 54.7 65.90%
4.501 -- 5.000 2.16x 4.828% 62.7 68.00%
5.001 -- 5.500 1.92x 5.221% 60.1 72.63%
5.501 -- 6.060 1.61x 5.704% 75.9 61.32%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
Min: 4.200%
Max: 6.060%
Weighted Average: 5.019%
DISTRIBUTION OF CUT-OFF DATE LOAN TO VALUE RATIO
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
RANGE OF CUT-OFF MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT--OFF DATE
DATE LOAN--TO--VALUE RATIOS (%) LOANS BALANCE BALANCE BALANCE
- --------------------------------- ----------- -------------- --------------- ---------------
46.43 -- 54.99 9 $ 86,985,660 9.7% $ 9,665,073
55.00 -- 59.99 5 133,580,027 15.0 $26,716,005
60.00 -- 64.99 4 96,791,029 10.8 $24,197,757
65.00 -- 69.99 7 128,238,785 14.4 $18,319,826
70.00 -- 74.99 19 189,693,083 21.3 $ 9,983,846
75.00 -- 79.99 21 240,875,732 27.0 $11,470,273
80.00 -- 82.77 2 16,100,000 1.8 $ 8,050,000
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
RANGE OF CUT-OFF COVERAGE AVERAGE TERM TO CUT-OFF DATE
DATE LOAN--TO--VALUE RATIOS (%) RATIO MORTGAGE RATE MATURITY (MOS) LTV
- --------------------------------- -------------- --------------- ---------------- -------------
46.43 -- 54.99 2.48x 5.053% 71.0 49.76%
55.00 -- 59.99 2.22x 4.708% 63.2 57.20%
60.00 -- 64.99 1.69x 5.606% 73.0 63.17%
65.00 -- 69.99 1.92x 5.457% 74.0 66.87%
70.00 -- 74.99 2.19x 4.795% 56.6 73.06%
75.00 -- 79.99 1.91x 4.900% 55.2 76.90%
80.00 -- 82.77 1.80x 4.840% 56.9 81.34%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
Min: 46.43%
Max: 82.77%
Weighted Average: 67.64%
A-6
DISTRIBUTION OF REMAINING TERM TO MATURITY
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
RANGE OF REMAINING TERMS TO MATURITY LOANS BALANCE BALANCE BALANCE
- -------------------------------------- ----------- -------------- --------------- --------------
47 -- 55 24 $345,322,252 38.7% $14,388,427
56 -- 60 21 221,081,062 24.8 $10,527,670
70 -- 80 11 223,247,628 25.0 $20,295,239
81 -- 84 11 102,613,375 11.5 $ 9,328,489
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
COVERAGE AVERAGE TERM TO CUT-OFF DATE
RANGE OF REMAINING TERMS TO MATURITY RATIO MORTGAGE RATE MATURITY (MOS) LTV
- -------------------------------------- -------------- --------------- ---------------- -------------
47 -- 55 2.18x 4.736% 50.6 71.56%
56 -- 60 1.83x 5.069% 58.0 69.84%
70 -- 80 2.04x 5.292% 78.2 61.33%
81 -- 84 2.08x 5.273% 81.6 63.43%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
Min: 47 months
Max: 84 months
Weighted Average: 63 months
DISTRIBUTION OF REMAINING AMORTIZATION TERM
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
RANGE OF REMAINING AMORTIZATION MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
TERMS LOANS BALANCE BALANCE BALANCE
- ---------------------------------- ----------- -------------- --------------- --------------
Interest Only 51 $574,127,000 64.3% $11,257,392
288 -- 300 4 88,426,125 9.9 $22,106,531
325 -- 359 10 182,211,191 20.4 $18,221,119
360 -- 360 2 47,500,000 5.3 $23,750,000
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
RANGE OF REMAINING AMORTIZATION COVERAGE AVERAGE TERM TO CUT-OFF DATE
TERMS RATIO MORTGAGE RATE MATURITY (MOS) LTV
- ---------------------------------- -------------- --------------- ---------------- -------------
Interest Only 2.19x 4.856% 59.6 71.27%
288 -- 300 1.93x 4.959% 54.4 54.98%
325 -- 359 1.76x 5.379% 73.5 62.96%
360 -- 360 1.54x 5.724% 78.7 65.22%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
Min: 288 months(1)
Max: 360 months(1)
Weighted Average: 338 months(1)
- -------
(1) Excludes Full Term Interest Only Loans
A-7
DISTRIBUTION OF ORIGINAL TERM TO MATURITY
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
RANGE OF ORIGINAL TERMS TO MATURITY LOANS BALANCE BALANCE BALANCE
- ------------------------------------- ----------- -------------- --------------- --------------
56 -- 59 1 $ 48,915,252 5.5% $48,915,252
60 -- 60 44 517,488,062 58.0 $11,761,092
84 -- 85 22 325,861,002 36.5 $14,811,864
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
COVERAGE AVERAGE TERM TO CUT-OFF DATE
RANGE OF ORIGINAL TERMS TO MATURITY RATIO MORTGAGE RATE MATURITY (MOS) LTV
- ------------------------------------- -------------- --------------- ---------------- -------------
56 -- 59 2.20x 4.410% 47.0 58.98%
60 -- 60 2.03x 4.909% 54.1 72.01%
84 -- 85 2.05x 5.286% 79.3 61.99%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
Min: 59 months
Max: 85 months
Weighted Average: 69 months
DISTRIBUTION OF PREPAYMENT PROVISIONS
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
PREPAYMENT TYPE LOANS BALANCE BALANCE BALANCE
- -------------------------------------- ----------- -------------- --------------- --------------
Defeasance 54 $735,100,408 82.4% $13,612,971
Greater of Yield Maintenance or 1% of
UPB 12 107,163,908 12.0 $ 8,930,326
Yield Maintenance 1 50,000,000 5.6 $50,000,000
-- ------------ --------
Total/Wtd. Avg. 67 $892,264,316 100.0% $13,317,378
== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
COVERAGE AVERAGE TERM TO CUT-OFF DATE
PREPAYMENT TYPE RATIO MORTGAGE RATE MATURITY (MOS) LTV
- -------------------------------------- -------------- --------------- ---------------- -------------
Defeasance 1.99x 4.997% 60.9 69.53%
Greater of Yield Maintenance or 1% of
UPB 2.42x 4.996% 69.3 54.71%
Yield Maintenance 2.12x 5.395% 79.0 67.57%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
DISTRIBUTION OF PROPERTY TYPES
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
PROPERTY TYPES PROPERTIES BALANCE BALANCE BALANCE
- ----------------- ------------ -------------- --------------- --------------
Anchored Retail 30 $327,213,512 36.7% $10,907,117
Office 13 274,751,241 30.8 $21,134,711
Multifamily 23 168,447,660 18.9 $ 7,323,811
Industrial 37 84,932,994 9.5 $ 2,295,486
Hotel 1 32,500,000 3.6 $32,500,000
Self--Storage 1 4,418,908 0.5 $ 4,418,908
-- ------------ --------
Total/Wtd. Avg. 105 $892,264,316 100.0% $ 8,497,755
=== ============ ========
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
COVERAGE AVERAGE TERM TO CUT-OFF DATE
PROPERTY TYPES RATIO MORTGAGE RATE MATURITY (MOS) LTV
- ----------------- -------------- --------------- ---------------- -------------
Anchored Retail 2.18x 4.922% 64.7 64.38%
Office 2.11x 5.086% 62.7 69.27%
Multifamily 1.87x 4.826% 55.6 76.43%
Industrial 1.85x 5.290% 71.4 65.64%
Hotel 1.64x 5.600% 60.0 46.43%
Self--Storage 1.45x 5.970% 79.0 65.95%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
A-8
GEOGRAPHIC DISTRIBUTION
PERCENTAGE OF
NUMBER OF AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE CUT-OFF DATE
PROPERTY STATE PROPERTIES BALANCE BALANCE BALANCE
- ----------------- ------------ -------------- --------------- --------------
Texas 12 $117,955,017 13.2% $ 9,829,585
New York 31 100,691,029 11.3 $ 3,248,098
California 9 91,237,824 10.2 $10,137,536
Arizona 4 78,350,000 8.8 $19,587,500
Illinois 3 67,883,684 7.6 $22,627,895
Florida 6 66,757,712 7.5 $11,126,285
Virginia 3 63,000,000 7.1 $21,000,000
North Carolina 7 57,669,999 6.5 $ 8,238,571
Ohio 4 46,930,247 5.3 $11,732,562
Minnesota 7 42,545,000 4.8 $ 6,077,857
Michigan 3 38,076,339 4.3 $12,692,113
Colorado 2 28,000,000 3.1 $14,000,000
Nevada 3 21,030,383 2.4 $ 7,010,128
Wisconsin 4 20,312,000 2.3 $ 5,078,000
Maryland 1 16,000,000 1.8 $16,000,000
Alabama 1 9,359,118 1.0 $ 9,359,118
Idaho 1 8,641,695 1.0 $ 8,641,695
Georgia 1 5,600,000 0.6 $ 5,600,000
Pennsylvania 1 4,300,000 0.5 $ 4,300,000
Mississippi 1 3,978,441 0.4 $ 3,978,441
South Carolina 1 3,945,830 0.4 $ 3,945,830
-- ------------ -------
Total/Wtd. Avg. 105 $892,264,316 100.0% $ 8,497,755
=== ============ =======
WEIGHTED WEIGHTED
AVERAGE DEBT AVERAGE WEIGHTED
SERVICE WEIGHTED REMAINING AVERAGE
COVERAGE AVERAGE TERM TO CUT-OFF DATE
PROPERTY STATE RATIO MORTGAGE RATE MATURITY (MOS) LTV
- ----------------- -------------- --------------- ---------------- -------------
Texas 1.95x 5.059% 67.5 72.70%
New York 1.69x 5.595% 72.5 63.70%
California 2.17x 4.927% 55.1 69.22%
Arizona 1.99x 5.026% 53.4 75.04%
Illinois 2.07x 5.025% 77.6 56.26%
Florida 2.00x 4.975% 58.1 73.12%
Virginia 2.50x 4.556% 52.0 73.73%
North Carolina 2.34x 4.473% 57.7 67.85%
Ohio 1.66x 5.367% 67.9 69.16%
Minnesota 2.45x 4.857% 82.4 61.28%
Michigan 1.72x 5.426% 58.1 48.27%
Colorado 2.06x 4.821% 56.5 73.39%
Nevada 1.64x 5.591% 74.1 65.53%
Wisconsin 1.85x 4.889% 55.5 77.54%
Maryland 2.13x 5.250% 48.0 73.73%
Alabama 2.20x 4.410% 47.0 58.98%
Idaho 2.20x 4.410% 47.0 58.98%
Georgia 3.44x 4.200% 76.0 50.41%
Pennsylvania 3.44x 4.200% 76.0 50.41%
Mississippi 2.20x 4.410% 47.0 58.98%
South Carolina 2.20x 4.410% 47.0 58.98%
Total/Wtd. Avg. 2.05x 5.019% 62.9 67.64%
A-9
PARTIAL TERM INTEREST ONLY LOANS
Control Number 5. The mortgage loan requires monthly payments of interest only
in the amount of $215,100 from December 1, 2003 through November 1, 2006.
Commencing on December 1, 2006 and continuing through maturity, monthly
payments of principal and interest in the amount of $257,779 are required.
Control Number 61. The mortgage loan requires monthly payments of interest only
in the amount of $14,638 from July 1, 2003 through June 1, 2004. Commencing on
July 1, 2004 and continuing through maturity, monthly payments of principal and
interest in the amount of $18,682 are required.
EARNOUT LOANS
"Earnout Loans" are Mortgage Loans that require the related borrower to
deposit a portion of the original loan amount in a reserve fund pending
satisfaction of certain conditions, including without limitation achievement of
certain DSCRs, LTVs or satisfaction of certain occupancy or other tests. All of
the earnout loans provide that in the event the conditions are not met by a
certain date, the Master Servicer may apply amounts held in the reserves to
prepay the related Mortgage Loan. The Foothills Mall Loan does not permit
prepayment with the earnout amount. See "Significant Mortgage Loans--The
Foothills Mall Loan--Earnout" on Annex B. For each of the Earnout Loans listed
below, the earliest date, if any, on which any amounts may be so applied is set
forth beneath the caption "Earliest Prepay Date." For all of the Earnout Loans,
the underwritten NCF DSCRs and LTVs shown in this prospectus supplement and on
the foldout pages in Annex C are calculated based on the principal balance of
those Mortgage Loans net of the related earnout amount or a portion thereof
which may be applied to prepay the Mortgage Loans. Those underwritten DSCRs and
LTVs are also shown beneath the caption "Net of Earnout NCF DSCR" and "Net of
Earnout LTV" in the table below. The amounts beneath the captions "Full Loan
Amount LTV" and "Full Loan Amount DSCR" are calculated based on a principal
balance of those Mortgage Loans that includes the related earnout amount. The
following table sets forth certain information regarding the Earnout Loans:
FULL
LOAN
LOAN EARNOUT EARNOUT CURRENT AMOUNT
NUMBER RESERVE AMOUNT BALANCE LTV
- ------------ ------------- ------------- -------------- -----------
09-0001834 $3,500,000 $3,500,000 $54,750,000 80.51%
09-0001840 $ 440,000 $ 400,000 $ 8,550,000 80.66%
09-0001848 $ 600,000 $ 525,000 $ 6,850,000 81.55%
FULL
LOAN NET OF EARLIEST IF PREPAY,
NET OF AMOUNT EARNOUT DEFEASANCE YIELD
LOAN EARNOUT NCF NCF OR PREPAY DEFEASE/ MAINT.
NUMBER LTV DSCR DSCR DATE PREPAY APPLICABLE
- ------------ ----------- ---------- --------- ------------ ---------- -----------
09-0001834 75.37% 1.78x 1.90x 11/1/2005 No NAP
09-0001840 76.89% 1.69x 1.77x 6/1/2005 Prepay Yes
09-0001848 75.30% 2.01x 2.18x 7/31/2005 Prepay Yes
A-10
ANNEX B
WATER TOWER PLACE LOAN
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE: $56,500,000(1) $56,039,776
SHADOW RATING:(2) A-/A3 (Fitch/Moody's)
% OF POOL BY UPB: 6.3%
ORIGINATION DATE: August 21, 2003
CO-ORIGINATORS: Archon Financial, L.P. (50%) Commerzbank
AG, New York Branch (50%)
COUPON: 4.970%
INTEREST ACCRUAL: Actual/360
ORIGINAL TERM: 84 months
AMORTIZATION: 360 months
OWNERSHIP INTEREST: Fee Simple
PAYMENT DATE: 1st of the month
MATURITY DATE: September 1, 2010
SPONSOR: The Rouse Company
BORROWER: Water Tower LLC
CALL PROTECTION/LOCKOUT: Lockout/Defeasance only until 3 months
prior to maturity.
CUT-OFF DATE LOAN PSF(1): $227
UP-FRONT RESERVES: NAP
ONGOING/SPRINGING RESERVES(3): Springing Reserves for Taxes, Insurance,
Capital Expenditures and TI/LC
CASH MANAGEMENT: Hard Lockbox(4)
ADDITIONAL SECURED/ None permitted
MEZZANINE DEBT:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Anchored Retail
PROPERTY LOCATION: Chicago, Illinois
OCCUPANCY: 96.0% (Retail)/97.0% (Office)
OCCUPANCY AS OF DATE: January 31, 2004
YEAR BUILT: 1975
YEAR RENOVATED: 2003
COLLATERAL: The collateral consists of a 727,883 SF vertical
shopping mall, a 697-space parking facility and
93,841 SF of office space within a 9-floor and
74-floor development located in Chicago,
Illinois.
PROPERTY MANAGEMENT: Rouse Property Management, Inc.
APPRAISED VALUE: $335,000,000
APPRAISAL VALUE DATE: August 1, 2003
CUT-OFF DATE LTV(1): 55.66%
BALLOON LTV(1): 49.65%
U/W NOI: $25,026,209
U/W NCF: $24,040,260
CURRENT ANNUAL DEBT $12,069,366
SERVICE(1):
U/W NOI DSCR(1): 2.07x
U/W NCF DSCR(1): 1.99x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) The $56,500,000 mortgage loan represents 2 pari passu notes in an
$188,000,000 first mortgage loan in split loan structure comprised of 6
pari passu notes. Four (4) of such notes (2 with an original loan amount of
$37,500,000 and 2 with an original loan amount of $28,250,000) are not
included in the trust. All aggregate LTV, DSCR, debt service and loan PSF
figures in this table are based on the total $188,000,000 financing.
(2) As indicated by the rating agencies based on their respective methodologies
which may take into account the benefit of pooling.
(3) See "Reserves" below.
(4) See "Lockbox; Sweep of Excess Cash Flow" below.
B-1
The Loan. The largest loan (the "Water Tower Place Loan"), representing
approximately 6.3% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date, with principal balance as of the cut-off date of
$56,039,776, is a 7-year balloon loan that has a maturity date of September 1,
2010, and provides for monthly payments of principal and interest based on a
30-year amortization schedule. The Water Tower Place Loan was jointly originated
50% by Archon Financial, L.P. and 50% by Commerzbank AG, New York Branch
("Commerzbank"), and the loan sellers on the Water Tower Place Loan are Goldman
Sachs Mortgage Company and Commerzbank. The Water Tower Place Loan is secured
by, among other things, a mortgage, assignment of rents and leases, security
agreement and fixture filing encumbering the borrower's fee ownership interest
in the Water Tower Place Property.
The Water Tower Place Loan consists of 2 of 6 pari passu mortgage notes
totaling $188,000,000. The other mortgage notes secured by the Water Tower Place
Property are each pari passu in right of payment to the Water Tower Place Loan
(such other notes are collectively referred to as the "Water Tower Place
Companion Loans", and together with the Water Tower Place Loan, the "Water Tower
Place Whole Loan"). Two (2) of the Water Tower Place Companion Loans each have
an original principal balance of $37,500,000 and two of the Water Tower Place
Companion Loans each have an original principal balance of $28,250,000 and each
Water Tower Place Companion Loan has the same interest rate, maturity date and
amortization term as the Water Tower Place Loan. Only the Water Tower Place Loan
is included in the trust. The A-1 Note and A-2 Note were contributed to GMACCM
2003-C3 and the A-5 Note and A-6 Note are currently held by the originators but
are expected to be included in a future securitization. The Water Tower Place
Loan and the Water Tower Place Pari Passu Companion Loans (together, the "Water
Tower Place Whole Loan") are governed by a intercreditor agreement and will be
serviced pursuant to the terms of the GMACCM 2003-C3 pooling and servicing
agreement, as described in the prospectus supplement under "Description of the
Mortgage Pool--The Non-Serviced Loans" and "The Pooling Agreement - Servicing of
the Non-Serviced Loans."
The Borrower. The borrower under the Water Tower Place Loan, Water Tower
LLC, is a Delaware limited liability company that is a special purpose entity
sponsored by The Rouse Company (rated "Baa3/BBB" by Moody's and S&P,
respectively) which is a partner in the joint venture that owns the borrower
along with RREEF, which is the fund manager for 45% of the joint venture.
The Property. The property securing the Water Tower Place Loan (the "Water
Tower Place Property") consists of the retail, office and parking portions of an
approximately 3.1 million square foot, 74-story and 9-story mixed-use complex
known as Water Tower Place located on the North Michigan Avenue in Chicago,
Illinois. The collateral consists of (i) an approximately 727,883 square foot
vertical shopping mall anchored by Marshall Field's and Lord & Taylor and
located on levels 1 through 8 of the structures, (ii) a 697-space parking
facility on four sub-grade levels, and (iii) approximately 93,841 NRSF of office
space located on the ninth level. The 74-story tower also includes a 22-story
Ritz-Carlton Hotel with 435 rooms and a 40-story residential condominium tower,
neither of which are part of the collateral.
B-2
Major Tenant Summary. The following table shows certain information
regarding the ten largest retail tenants of the Water Tower Place Property:
TEN LARGEST RETAIL TENANTS BASED ON ANNUALIZED UNDERWRITTEN BASE RENT(1)
% OF TOTAL
CREDIT RATING ANNUALIZED ANNUALIZED
(FITCH/MOODY'S/ % OF ANNUALIZED U/W U/W BASE U/W BASE LEASE
TENANT S&P)(2) TENANT NRSF TOTAL NRSF BASE RENT RENT(3) RENT (PSF)(4) EXPIRATION
- ------------------------- ---------------- ----------- ---------- --------------- ------------ -------------- ---------------------
Marshall Field's A/A2/A+ 288,802 39.7% $ 2,901,241 15.2% $10.05 1/31/2011
Lord & Taylor BBB+/Baa1/BBB+ 138,241 19.0 1,091,884 5.7 7.90 12/31/2010
The Gap BB-/Ba3/BB+ 15,947 2.2 995,961 5.2 62.45 6/30/2005, 4/30/2006
Abercrombie & Fitch NR/NR/NR 16,507 2.3 756,095 4.0 45.80 12/31/2008, 6/30/2010
The Limited NR/Baa1/BBB+ 16,041 2.2 701,805 3.7 43.75 1/31/2005, 1/31/2006
Express NR/Baa1/BBB+ 10,909 1.5 604,217 3.2 55.39 1/31/2006, 1/31/2013
Banana Republic BB-/Ba3/BB+ 7,393 1.0 586,251 3.1 79.30 2/28/2005
Foodlife NR/NR/NR 24,278 3.3 583,110 3.1 24.02 4/30/2008, 2/29/2004
Victoria's Secret NR/Baa1/BBB+ 10,661 1.5 534,840 2.8 50.17 1/31/2007, 1/31/2011
Structure (Express Men) NR/Baa1/BBB+ 10,661 1.5 396,056 2.1 37.15 1/31/2006
TOTAL/AVERAGE: 539,440 74.1% $ 9,151,460 47.9% $16.96
------- ----- ----------- ----- ------
Remaining Tenants 159,008 21.8 9,943,588 52.1 62.54
======= ===== =========== ===== ======
Vacant 29,435 4.0 0 0.0 0.00
------- ----- ----------- ----- ------
TOTAL/AVERAGE ALL TENANTS 727,883 100.0% $19,095,048 100.0% $26.23
======= ===== =========== ===== ======
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
(2) Certain ratings are those of the parent company whether or not the parent
guarantees the lease.
(3) Percentages based on total retail space Annualized U/W Base Rent.
(4) For those tenants with multiple leases, the Annual U/W Base Rent PSF is a
weighted average calculation under the leases.
The largest office tenant by annualized underwritten base rent is WT
Surgicenter, occupying approximately 18,675 SF, with rent of $767,340,
representing approximately 3.4% of the total annualized underwritten base rent.
WT Surgicenter is an Illinois state licensed facility specializing in outpatient
surgery. No other office tenant accounts for more than 0.9% of the annualized
underwritten base rent.
Lease Expiration. The following table shows the lease expiration schedule
for the mall shop space at the Water Tower Place Property:
LEASE EXPIRATION SCHEDULE(1)
APPROXIMATE % OF
YEAR ENDING CUMULATIVE % OF ANNUALIZED U/W TOTAL U/W BASE ANNUALIZED U/W
DECEMBER 31, EXPIRING (NRSF) % OF TOTAL NRSF TOTAL NRSF BASE RENT RENT BASE RENT PSF
- ---------------- --------------- --------------- --------------- -------------- ---------------- ----------------
2004 12,967 1.8% 1.8% $1,096,809 5.7% $84.58
2005 29,512 4.1 5.8% 1,728,858 9.1 $58.58
2006 34,927 4.8 10.6% 1,807,210 9.5 $51.74
2007 25,403 3.5 14.1% 1,368,375 7.2 $53.87
2008 45,787 6.3 20.4% 1,442,351 7.6 $31.50
2009 12,462 1.7 22.1% 794,660 4.2 $63.77
2010 174,697 24.0 46.1% 3,327,199 17.4 $19.05
2011 306,714 42.1 88.3% 4,124,397 21.6 $13.45
2012 19,557 2.7 91.0% 1,420,455 7.4 $72.63
2013 13,847 1.9 92.9% 870,815 4.6 $62.89
2014 12,181 1.7 94.5% 750,129 3.9 $61.58
2015 & Thereafter 10,394 1.4 96.0% 363,790 1.9 $35.00
Vacant 29,435 4.0 100.0% 0 0.0 $0.00
------- ----- ----------- -----
TOTAL/AVERAGE: 727,883 100.0% $19,095,048 100.0% $26.23
======= ===== =========== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
Reserves. Springing reserves for taxes, insurance, capital expenditures and
tenant improvements and leasing commissions are required monthly during at any
time the net operating income debt-service coverage ratio for the prior 12-month
period, measured as of the last day of each fiscal quarter, is less than 1.50x
until the net operating income debt-service coverage ratio for the prior
12-month period, measured as of the last day of each fiscal quarter, is at least
equal to 1.50x for two consecutive 12-month periods (a "Water Tower Place Cash
Trap Period").
B-3
Upon the occurrence of a Water Tower Place Cash Trap Period, the borrower is
required to deposit monthly (1) an amount equal to 1/12 of upcoming annual real
estate taxes and annual insurance premiums into a tax and insurance escrow
account, (2) an amount of $25,000 into a tenant improvement and leasing
commission reserve account and (3) an amount of $14,000 in the capital
expenditures reserve account.
With respect to the lease with Drury Lane Productions, Inc., the borrower
will be the beneficiary of a letter of credit in the amount of $1,750,000
delivered by the tenant to secure unfunded tenant improvement obligations. Under
the terms of the loan agreement, the borrower is required to pledge such letter
of credit as additional collateral for the Water Tower Place Whole Loan prior to
making any payment to the tenant in respect of tenant improvements. The borrower
is required to deposit all proceeds of the letter of credit into the tenant
improvement and leasing commission reserve unless the DCSR at such time is
greater than 2.00x. At least $1,000,000 of such letter of credit proceeds are
required to be used in connection with the retenanting of the space currently
leased by Drury Lane Productions, Inc.
Guaranty. In connection with the origination of the Water Tower Place
Loan, The Rouse Company delivered a guarantee in favor of the lender with
respect to the borrower's obligations to (1) complete certain repairs and tenant
improvements with an estimated cost of $7,795,000, including an estimated
$4,300,000 for remediation of bowed marble panels at the Water Tower Place
Property and an estimated $1,750,000 for tenant improvements at the Drury Lane
Theaters and (2) indemnification and reimbursement for any violation of a
reciprocal easement agreement. The sellers have been informed by the borrower
that the borrower may be in violation of the reciprocal easement agreement as a
result of the closure of the automobile access to the hotel after September 11,
2001 through and under the Water Tower Place Property in light of security
concerns, however, the sellers have no knowledge that the hotel has taken any
legal actions to enforce its rights.
Insurance Requirements. The borrower is required to maintain comprehensive
all risk insurance and insurance coverage for terrorism and acts of terrorism.
The terrorism coverage is required in an amount equal to the greater of (x) the
original principal amount of the Water Tower Place Loan and (y) the maximum
amount of terrorism coverage available for a premium of $300,000 (subject to an
increase of 5% per year), provided that (a) the borrower is not required to
maintain terrorism coverage in an amount greater than the insurable value of the
Water Tower Place Property plus related business interruption coverage and (b)
if the premium for the required terrorism coverage would exceed 150% of the
premium limit described in clause (y) above, the borrower is only required to
purchase the greatest amount of terrorism coverage that may be obtained for 150%
of such premium.
Lockbox; Sweep of Excess Cash Flow. At origination, the borrower was
required to establish a sweep account controlled by the lender and to direct all
tenants to make payments directly to such sweep account. Funds in the sweep
account are transferred to a lender controlled cash management account on each
business day. So long as no Water Tower Place Cash Trap Period exists, funds are
swept daily from a cash management account to the borrower. After the occurrence
and during the continuation of a Water Tower Place Cash Trap Period, provided no
event of default exists under the loan documents, all funds in excess of certain
required reserve amounts and the monthly debt service payment will be released
daily to the borrower.
Mezzanine Loan: None permitted.
Additional Debt: None permitted except trade payables in an amount less
than 3% of the loan amount for the Water Tower Place Whole Loan and ordinary
course contractual indemnity obligations.
Permitted Transfers. Transfers of 50% or more of the borrower's equity
interests are permitted so long as such transfer is to (a) its sponsor, (b) a
bank, savings and loan association, investment bank, insurance company, trust
company, commercial credit corporation, pension fund or pension advisory, mutual
fund, government entity or plan, real estate company, investment fund or an
institution substantially similar to any of the foregoing, provided in each case
such entity meets certain minimum net worth requirements and is regularly
engaged in the business of owning interests (either directly or through funds
under management) in regional malls, or (c) any other entity with respect to
which a rating confirmation is received. In addition, under certain
circumstances specified in the loan documents, up to 53% of the equity interest
in the borrower may be held by an entity other than the sponsor without
constituting a prohibited change of control.
B-4
FOOTHILLS MALL LOAN
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE: (1) $54,750,000 $54,750,000
% OF POOL BY UPB: 6.1%
ORIGINATION DATE: October 30, 2003
ORIGINATOR: Archon Financial, L.P.
COUPON: 5.09%
INTEREST ACCRUAL: Actual / 360
ORIGINAL TERM: 60 months
AMORTIZATION: Interest-only
OWNERSHIP INTEREST: Fee simple
PAYMENT DATE: 1st of the month
MATURITY DATE: November 1, 2008
SPONSOR: Larry Feldman
BORROWER: Foothills Mall LLC
CALL PROTECTION/LOCKOUT: Lockout/Defeasance only until 3 months
prior to maturity.
CUT-OFF DATE LOAN PSF: $109(2)
UP-FRONT RESERVES: Tax: $107,529; Insurance: $101,211;
Deferred Maintenance: $87,450;
Replacement Reserve: $10,476;
TI/LC: $37,779; Leasing Escrow:
$3,907,142(3)
ONGOING / SPRINGING Ongoing Tax, Insurance, Replacement
RESERVES: Reserves, TI/LC(3)
CASH MANAGEMENT: None required
ADDITIONAL SECURED / $6,450,000 original mezzanine loan(4)
MEZZANINE DEBT:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Anchored Retail
PROPERTY LOCATION: Tucson, Arizona
OCCUPANCY: 92.3%
OCCUPANCY AS OF DATE: December 31, 2003
YEAR BUILT: 1982
YEAR RENOVATED: 1997, 2000
COLLATERAL: The collateral consists of a
newly-redeveloped shopping mall
containing 484,009 sf with 16,300 SF
of additional space currently under
construction. The subject is anchored
by Loews/Cineplex Odeon-15, Linens `N
Things, and Barnes & Noble Booksellers.
PROPERTY MANAGEMENT: Feldman Equities Management LLC
APPRAISED VALUE(5): $68,000,000
APPRAISAL VALUE DATE: October 24, 2003
CUT-OFF DATE LTV: (1) 75.37%
BALLOON LTV: (6) 69.30%
U/W NOI: $5,550,654
U/W NCF: $5,036,066
CURRENT ANNUAL DEBT $2,644,856
SERVICE: (1)
U/W NOI DSCR: (1) 2.10x
U/W NCF DSCR: (1) 1.90x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) The principal balance includes a $3,500,000 earnout as described under
"Earnout" below. The Cut-off Date LTV, DSCR, debt service and loan PSF
figures in this table are net of the earnout. If calculated including the
earnout amount, the U/W NOI DSCR is 1.96x, the U/W NCF DSCR is 1.78x and
the Cut-off Date LTV is 80.51%.
(2) Based on the "As Stabilized" square foot amount of 500,309.
(3) See "Reserves" below.
(4) See "Mezzanine Loan" below.
(5) Represents the "As Is" appraised value; the "Stabilized" appraised value
is $79,000,000 assuming completion of additional construction.
(6) Based on the "Stabilized" appraised value.
B-5
The Loan. The second largest loan (the "Foothills Mall Loan"),
representing approximately 6.1% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date, with a principal balance as of the
cut-off date of $54,750,000, is a 5-year interest-only loan that has a maturity
date of November 1, 2008 and provides for monthly interest payments. The
Foothills Mall Loan is secured by, among other things, a deed of trust,
assignment of rents, security agreement and fixture filing encumbering the
borrower's fee ownership interest in the Foothills Mall Property.
The Borrower. The borrower under the Foothills Mall Property, Foothills
Mall LLC, is a Delaware limited liability company that is a special purpose
entity sponsored by Larry Feldman.
The Property. The Foothills Mall property (the "Foothills Mall Property"),
located in Tucson, Arizona, is a 484,009 sq. ft. retail center with 16,300 sq.
ft. of additional space currently under construction. There is approximately
476,967 sq. ft. of retail space and 23,342 sq. ft. of office space. The property
is anchored by Loews/Cineplex Odeon-15, Linens `N Things, and Barnes & Noble
Booksellers. Other national tenants in occupancy include Dress Barn Outlet,
Famous Footwear Outlet, Nike Factory Store, Ross Dress for Less, Saks Off Fifth
Avenue Outlet, and Toni & Guy.
Major Tenant Summary. The following table shows certain information
regarding the top ten largest retail tenants of the Foothills Malls Property :
TEN LARGEST RETAIL TENANTS BASED ON ANNUALIZED UNDERWRITTEN BASE RENT(1)
% OF TOTAL
CREDIT RATING ANNUALIZED ANNUALIZED
(FITCH/MOODY'S TENANT % OF TOTAL ANNUALIZED U/W U/W BASE U/W BASE LEASE
TENANT /S&P)(2) NRSF NRSF(3) BASE RENT(4) RENT(3) RENT (PSF) EXPIRATION
- --------------------------------- -------------- ---------- ---------- -------------- ----------- ----------- -----------
Loews / Cineplex Odeon - 15 NR/NR/NR 77,284 15.4% $1,172,398 18.3% $15.17 11/1/2017
Linens `N Things NR/NR/NR 41,480 8.3 414,800 6.5 $10.00 2/1/2013
South Dakota Assoc. of the Deaf NR/NR/NR 20,357 4.1 407,140 6.3 $20.00 12/1/2008
Barnes & Noble Booksellers NR/Ba2/BB 40,472 8.1 353,486 5.5 $8.73 2/1/2012
Ross Dress For Less NR/NR/BBB 30,056 6.0 330,616 5.2 $11.00 2/1/2008
Saks Off 5th Avenue Outlet BB-/Ba3/BB 28,000 5.6 252,000 3.9 $9.00 11/1/2011
Famous Footwear Outlet NR/NR/NR 10,000 2.0 175,000 2.7 $17.50 12/1/2013
Nike Factory Store NR/A2/A 16,300 3.3 171,150 2.7 $10.50 12/1/2007
Keatons & Co. (Old Pueblo Grill
Norte Restaurant) NR/NR/NR 7,765 1.6 155,300 2.4 $20.00 11/1/2013
Dress Barn Outlet NR/NR/NR 9,397 1.9 150,352 2.3 $16.00 7/1/2007
------- --------- ----------- --------
TOTAL/AVERAGE: 281,111 56.2% $3,582,243 55.9% $12.74
======= ========= =========== ========
Remaining Tenants 174,995 35.0% 2,830,597 44.1 $16.18
Vacant 44,203 8.8% 0 0.0 $0.00
------- --------- ----------- --------
TOTAL/AVERAGE ALL TENANTS 500,309 100.0% $6,412,840 100.0% $12.82
======= ========= =========== ========
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
(2) Certain ratings are those of the parent company whether or not the parent
guarantees the lease.
(3) Based on the "stabilized" total of 500,309 SF, which includes 16,300 SF
currently under construction.
(4) Includes U/W Base Rent of $246,725 from leased space currently under
construction.
B-6
Lease Expiration. The following table shows the lease expiration schedule
for the Foothills Mall property:
LEASE EXPIRATION SCHEDULE(1)
APPROXIMATE % OF ANNUALIZED
YEAR ENDING EXPIRING CUMULATIVE % OF ANNUALIZED U/W TOTAL U/W BASE U/W BASE RENT
DECEMBER 31, (SF)(2)(3)(4) % OF TOTAL NRSF TOTAL NRSF BASE RENT(5) RENT PSF
- ------------------------- ------------- --------------- --------------- -------------- ---------------- --------------
2004 46,275 9.2% 9.2% $455,107 7.1% $9.83
2005 13,854 2.8 12.0% 285,697 4.5 $20.62
2006 14,136 2.8 14.8% 248,077 3.9 $17.55
2007 48,928 9.8 24.6% 766,721 12.0 $15.67
2008 71,081 14.2 38.8% 1,013,227 15.8 $14.25
2009 17,857 3.6 42.4% 303,350 4.7 $16.99
2010 0 0.0 42.4% 0 0.0 $0.00
2011 40,993 8.2 50.6% 531,598 8.3 $12.97
2012 43,565 8.7 59.3% 437,212 6.8 $10.04
2013 64,908 13.0 72.3% 869,236 13.6 $13.39
2014 4,675 0.9 73.2% 121,375 1.9 $25.96
2015 & Thereafter 89,834 18.0 91.2% 1,381,240 21.5 $15.38
Vacant 44,203 8.8 100.0% 0 0.0 $0.00
------- ----- ---------- -----
TOTAL/AVERAGE: 500,309 100.0% $6,412,840 100.0% $12.82
======= ===== ========== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space and tenants paying rent on a
percentage basis.
(2) Total Expiring SF is based on the "Stabilized" 500,309 SF.
(3) For year ending December 31, 2004, expiring SF includes 11 tenants (32,624
SF and $214,783 Annualized U/W Base Rent) that are leased on a month to
month basis.
(4) Vacancy includes 6,755 SF of the 16,300 SF now under construction.
(5) Includes U/W Base Rent of $246,725 from leased space currently under
construction.
Reserves. At origination $3,907,142 was funded to a leasing escrow as
follows: (1) $3,700,000 to secure the renovation of the Loews Theatre suite as
provided in the Loews lease amendment, (2) $113,825 for 3 months rent abatement
and $75,000 in tenant improvements for Old Pueblo Grill Norte Restaurant, (3)
$93,317 for 6 months rent abatement and $50,000 in tenant improvements for
Melting Pot Restaurant. These amounts will be released to the borrower upon
compliance with the leases and/or the tenant certifies it is in occupancy of all
space under the lease. Additionally, the borrower is required to deposit monthly
(1) an amount equal to 1/12 of upcoming annual real estate taxes and annual
insurance premiums into a tax and insurance escrow account, (2) in the first
loan year, an amount of 1/12 of $125,712 into a replacement reserve account,
increasing annually to 1/12 of 102.5% of the previous required annual amount and
(3) an initial amount of 1/12 of $453,353 into a rollover reserve account
replacement reserve account, increasing annually to 1/12 of 102.5% of the
previous required annual amount.
The Earnout. The Foothills Mall Loan includes a funded earnout amount of
$3,500,000. The Cut-off Date LTV, the U/W NOI DSCR and the U/W NCF DSCR in the
"Property Information" table above are calculated assuming the earnout amount is
applied to prepay the outstanding principal balance of the loan and the
borrower's monthly debt service is reduced accordingly. All of the earnout may
be released within 24 months of the origination date if the loan-to value ratio
of the Foothills Mall Loan is less than 80% (based upon a new appraisal), the
actual debt service coverage ratio is at least equal to 1.25x and the stressed
debt service coverage ratio is at least equal to 1.05x. For purposes of
determining the stressed debt service coverage ratio, the calculated net cash
flow is divided by an assumed loan payment utilizing a stressed rate constant of
10.01% multiplied by the outstanding loan balance. If the borrower does not
achieve these targets, a hypothetical loan amount that would be supported by the
actual net cash flow at the appropriate ratios will be determined. The borrower
will receive the difference between the funded loan amount and the calculated
hypothetical loan amount. The remainder of the earnout amount will be deposited
into a replacement escrow reserve and/or a rollover reserve and will not be
applied to prepay the Foothills Mall Loan.
Insurance Requirements. The borrower is required to maintain comprehensive
all risk insurance with coverage for terrorism and acts of terrorism.
B-7
Lockbox; Sweep of Excess Cash Flow. None required.
Mezzanine Loan. The ownership interests in the borrower have been pledged
to secure a mezzanine loan with an original outstanding principal balance
$6,450,000 from Massachusetts Mutual Life Insurance Company. The mezzanine loan
was originated on November 12, 2003 and is a fully-amortizing 5-year loan. The
mezzanine lender has entered into an intercreditor agreement with the mortgagee
that provides that the mezzanine loan is subordinated to the Foothills Mall Loan
and gives the mezzanine lender certain cure rights and the right to purchase the
Foothills Mall Loan after default.
Additional Debt. None permitted except trade payables in an amount less
than 5% of the loan amount for the Foothills Mall Loan and financing leases and
purchase money debt.
Permitted Transfers. Transfers of the direct or indirect ownership
interests in the borrower are permitted without the consent of the lender if
there is no change of control of the borrower or its sole member and (1) no
single transfer results in the proposed transferor or its affiliates or family
members owning, directly or indirectly, more than 49% of the borrower and (2) no
more than 49% of the ownership interests of the borrower are transferred in the
aggregate; provided that transfers among the direct or indirect owners of the
borrower as of the origination date of the Foothills Mall Loan are permitted.
Additionally, certain transfers are permitted for estate planning purposes.
B-8
ONE BRIARLAKE PLAZA LOAN
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE: $50,000,000 $50,000,000
% OF POOL BY UPB: 5.6%
ORIGINATION DATE: October 8, 2003
ORIGINATOR: Archon Financial, L.P.
COUPON: 5.395%
INTEREST ACCRUAL: Actual / 360
ORIGINAL TERM: 84 months
AMORTIZATION: Interest-only
OWNERSHIP INTEREST: Fee simple
PAYMENT DATE: 1st of the month
MATURITY DATE: November 1, 2010
SPONSOR: Crescent Real Estate Equities, Ltd. and
JPMorgan Investment Management
BORROWER: Crescent One Briarlake Plaza, L.P
CALL PROTECTION/LOCKOUT: Prepayable at the first payment date following
the second anniversary of the securitization
closing date with payment of yield maintenance.
Freely prepayable 6 months prior to maturity.
CUT-OFF DATE LOAN PSF: $100
UP-FRONT RESERVES: Tax: $1,533,751; TI/LC: $1,071,710
ONGOING/SPRINGING RESERVES: Ongoing Taxes; Springing reserves for
Insurance, Replacements and TI/LC(1)
CASH MANAGEMENT: Hard Lockbox(2)
ADDITIONAL SECURED / None permitted
MEZZANINE DEBT:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Office
PROPERTY LOCATION: Houston, Texas
OCCUPANCY: 92.4%
CCUPANCY AS OF DATE: December 31, 2003
YEAR BUILT: 2000
YEAR RENOVATED: NAP
COLLATERAL: The collateral consists of a 502,410 square feet
of net rentable area of a 20-story Class A
office building and a 7-level attached parking
garage on a 9.3-acre parcel of land located in
Houston, Texas.
PROPERTY MANAGEMENT: Crescent
APPRAISED VALUE: $74,000,000
APPRAISAL VALUE DATE: September 22, 2003
CUT-OFF DATE LTV: 67.57%
BALLOON LTV: 67.57%
U/W NOI: $6,228,856
U/W NCF: $5,804,767
CURRENT ANNUAL DEBT SERVICE: $2,734,965
U/W NOI DSCR: 2.28x
U/W NCF DSCR: 2.12x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) See "Reserves" below.
(2) See "Lockbox; Sweep of Excess Cash Flow" below.
B-9
The Loan. The third largest loan (the "One Briarlake Plaza Loan"),
representing approximately 5.6% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date, with a principal balance as of the
cut-off date of $50,000,000, is a 7-year interest-only loan that has a maturity
date of November 1, 2010, and provides for monthly payments of interest. The One
Briarlake Plaza Loan is secured by, among other things, a deed of trust,
assignment of rents and leases, security agreement and fixture filing
encumbering the borrower's fee ownership interest in the One Briarlake Plaza
Property.
The Borrower. The borrower under the Briarlake Plaza Loan, Crescent One
Briarlake Plaza, L.P., is a Delaware limited partnership that is a special
purpose entity sponsored by JP Morgan Investment Management (70% owner) and
Crescent Real Estate Equities, Ltd. (30% owner).
The Property. The One Briarlake Plaza property (the "One Briarlake Plaza
Property") is a 502,410 sq. ft. Class A office property located in Houston,
Texas. One Briarlake Plaza consists of a 20-story multi-tenant Class A office
building containing 502,410 square feet of net rentable area and a 7-level
attached parking garage on a 9.3-acre parcel of land. The building is located in
the Westchase area, approximately 12 miles west of Houston's CBD.
Major Tenant Summary. The following table shows certain information
regarding the top ten largest office tenants of the One Briarlake Plaza
Property:
TEN LARGEST OFFICE TENANTS BASED ON ANNUALIZED UNDERWRITTEN BASE RENT(1)
CREDIT RATING % OF % OF TOTAL ANNUALIZED U/W
(FITCH/MOODY'S/ TENANT TOTAL ANNUALIZED U/W ANNUALIZED U/W BASE RENT
TENANT S&P)(2) NRSF NRSF BASE RENT BASE RENT(3) (PSF)(4) LEASE EXPIRATION
- ----------------------- ---------------- -------- ------ --------------- --------------- -------------- ----------------
EOTT NR/NR/NR 50,208 10.0% $1,230,096 11.3% $24.50 12/1/2006
Gallagher Healthcare NR/NR/NR 51,730 10.3 1,054,104 9.7 $20.38 10/1/2012
Halliburton / Magic NR/Baa2/BBB 32,163 6.4 835,413 7.7 $25.97 7/1/2007
Zurich Amer. Invest NR/NR/A+ 34,406 6.8 739,729 6.8 $21.50 8/1/2012
Microsoft NR/Aa2/AA 32,072 6.4 673,512 6.2 $21.00 6/1/2009
Structure Consulting NR/NR/NR 25,865 5.1 653,820 6.0 $25.28 8/1/2008
Haynes Whaley NR/NR/NR 25,865 5.1 594,895 5.5 $23.00 9/1/2011
Datavox NR/NR/NR 26,080 5.2 562,845 5.2 $21.58 8/1/2012, 9/1/2012
Unumprovident Corp BBB-/Baa3/BBB- 17,342 3.5 499,450 4.6 $28.80 8/1/2008
R&B Falcon BBB+/Baa2/A- 24,904 5.0 498,080 4.6 $20.00 7/1/2013
------- ----- ----------- ----- ------
TOTAL/AVERAGE: 320,635 63.8% $7,341,944 67.7% $22.90
======= ===== =========== ===== ======
Remaining Tenants 143,595 28.6 3,499,820 32.3 $24.37
Vacant 38,180 7.6 0 0.0 $0.00
------- ----- ----------- ----- ------
TOTAL/AVERAGE ALL TENANTS 502,410 100.0% $10,841,764 100.0% $21.58
======= ===== =========== ===== ======
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
(2) Certain ratings are those of the parent company whether or not the parent
guarantees the lease.
(3) Percentages based on annualized underwritten rent for all tenants.
(4) For those tenants with multiple leases the Annual U/W Base Rent PSF is a
weighted average calculation under the leases.
B-10
Lease Expiration. The following table shows the lease expiration schedule
for the One Briarlake Plaza property:
LEASE EXPIRATION SCHEDULE(1)
APPROXIMATE % OF
YEAR ENDING CUMULATIVE % OF ANNUALIZED U/W TOTAL U/W BASE ANNUALIZED U/W
DECEMBER 31, EXPIRING (NRSF) % OF TOTAL NRSF TOTAL NRSF BASE RENT RENT BASE RENT PSF
- ------------------ --------------- --------------- --------------- -------------- ----------------- --------------
2004 4,172 0.8% 0.8% $100,128 0.9% $24.00
2005 38,959 7.8 8.6% 1,009,864 9.3 $25.92
2006 55,264 11.0 19.6% 1,369,784 12.6 $24.79
2007 48,469 9.6 29.2% 1,222,945 11.3 $25.23
2008 94,000 18.7 47.9% 2,350,733 21.7 $25.01
2009 42,533 8.5 56.4% 893,193 8.2 $21.00
2010 0 0.0 56.4% 0 0.0 $0.00
2011 43,713 8.7 65.1% 1,040,359 9.6 $23.80
2012 112,216 22.3 87.4% 2,356,678 21.7 $21.00
2013 24,904 5.0 92.4% 498,080 4.6 $20.00
2014 0 0.0 92.4% 0 0.0 $0.00
2015 & Thereafter 0 0.0 92.4% 0 0.0 $0.00
Vacant 38,180 7.6 100.0% 0 0.0 $0.00
------- ----- ----------- -----
TOTAL/AVERAGE: 502,410 100.0% $10,841,764 100.0% $21.58
======= ===== =========== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
Reserves. Springing reserves for replacements, tenant improvements and
leasing commissions are required monthly at any time the net operating income is
less than 75% of $6,084,049 for 2 consecutive quarters, measured as of the last
day of each fiscal quarter for the prior 12-month period until net operating
income is at least 80% of $6,084,049 for 3 consecutive quarters, measured as of
the last day of each fiscal quarter for the prior 12-month period (a "One
Briarlake Plaza Cash Trap Period"). Upon the occurrence of a Briarlake Cash Trap
Period, the borrower is required to deposit monthly (1) an amount equal to 1/12
of upcoming annual insurance premiums into an insurance escrow account, (2) an
amount of $158,333 into a tenant improvement and leasing commission reserve
account, (3) an amount equal to 1/12 of the product of (a) $0.20 and (b) the
aggregate number of rentable square feet of the One Briarlake Plaza Property
into a replacement reserve account and (4) an amount equal to the amount
required such that the amount on deposit in the replacement reserve account is
equal to the amount of budgeted capital expenditures for that month.
Additionally, the borrower is required to deposit monthly an amount equal to
1/12 of upcoming annual real estate taxes into a tax escrow account.
Insurance Requirements. The borrower is required to maintain comprehensive
all risk insurance and coverage for terrorism and acts of terrorism in an amount
not less than $50,000,000; provided that the borrower is only required to
maintain terrorism insurance if such coverage (A) is then being obtained by
prudent owners of similar real estate, or (B) is otherwise available for an
annual premium that is less or equal to $900,000.
Lockbox; Sweep of Excess Cash Flow. At origination, the borrower was
required to establish a sweep account controlled by the lender and to direct all
tenants to make payments directly to such sweep account. Funds in the sweep
account are transferred to a lender controlled cash management account on each
business day. So long as no One Briarlake Plaza Cash Trap Period exists and
sufficient money is on deposit in the cash management account to pay the monthly
debt service payment and the required deposit to the tax reserve account, funds
are swept daily from a cash management account to the borrower. After the
occurrence and during the continuation of a One Briarlake Plaza Cash Trap
Period, all amounts in the cash management account after payment of the monthly
debt service payment and all required reserves will be deposited in a cash trap
reserve and held as additional collateral for the One Briarlake Plaza Loan until
no One Briarlake Plaza Cash Trap Period exists.
Mezzanine Loan. None permitted.
Additional Debt. None permitted except trade payables in an amount less
than 3% of the loan amount for the One Briarlake Plaza Loan and financing leases
and purchase money debt.
B-11
Permitted Transfers. The borrower is permitted to transfer 50% or more of
its equity interests so long as such transfer is to (a) its sponsor, (b) any
pension fund or investment fund managed or advised by J.P. Morgan Investment
Management Inc. and/or another subsidiary of J.P. Morgan Chase & Co. (c) a bank,
savings and loan association, investment bank, insurance company, trust company,
commercial credit corporation, pension fund or pension advisory, mutual fund,
government entity or plan, real estate company, investment fund or an
institution substantially similar to any of the foregoing, provided in each case
such entity meets certain minimum net worth requirements and is regularly
engaged in the business of owning office properties in major metropolitan area,
or (c) any other entity with respect to which a rating confirmation is received.
B-12
DDR PORTFOLIO LOAN
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE: $50,000,000(1) $48,915,252
SHADOW RATING:(2) AA/A3 (Fitch/Moody's)
% OF POOL BY UPB: 5.5%
ORIGINATION DATE: March 25, 2003
ORIGINATOR: Archon Financial, L.P.
COUPON: 4.410%
INTEREST ACCRUAL: Actual/360
ORIGINAL TERM: 59 months
AMORTIZATION: 300 months
OWNERSHIP INTEREST: Fee Simple
PAYMENT DATE: 1st of the month
MATURITY DATE: March 1, 2008
SPONSOR: Developers Diversified Realty
Corporation ("DDR")
BORROWERS: Ten individual Delaware limited liability
companies.
CALL PROTECTION/LOCKOUT: Lockout/Defeasance only until 90 days
prior to maturity.
CUT-OFF DATE LOAN PSF(1): $50
UP-FRONT RESERVES: None
ONGOING/SPRINGING RESERVES: Springing reserves for Taxes, Insurance,
TI/LC, and Replacement Reserves(3)
CASH MANAGEMENT: Hard Lockbox(4)
ADDITIONAL SECURED/ MEZZANINE None permitted
DEBT:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Portfolio
PROPERTY TYPE: Anchored Retail
PROPERTY LOCATION: Various
OCCUPANCY: 92.9%
OCCUPANCY AS OF DATE: January 21, 2004
YEARS BUILT: 1988-2000
YEAR RENOVATED: 1995-2003
COLLATERAL: The DDR portfolio consists of 10
anchored retail centers located in eight
states. Comprised in the aggregate of
2,907,608 square feet, 1,097,738 is
anchor space and 1,809,870 is in-line
space. The portfolio's tenant mix
includes anchor tenants such as
Wal-Mart, Sam's Wholesale, Bed Bath &
Beyond, Old Navy, and Winn Dixie Stores.
PROPERTY MANAGEMENT: Developers Diversified Realty
Corporation, an affiliate of the
borrowers
APPRAISED VALUE: $248,800,000
APPRAISAL VALUE DATES: January 22, 2003 - November 1, 2003
CUT-OFF DATE LTV(1) 58.98%
BALLOON LTV(1) 53.23%
U/W NOI: $23,268,583
U/W NCF: $21,777,363
CURRENT ANNUAL DEBT SERVICE: $9,913,256
U/W NOI DSCR(1) 2.35x
U/W NCF DSCR(1) 2.20x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) The $50,000,000 mortgage loan represents 1 pari passu note in a
$150,000,000 first mortgage loan split loan structure comprised of 3 pari
passu notes. Two (2) of such notes (each with an original amount of
$50,000,000) are not included in the trust. All aggregate LTV, DSCR, debt
service and loan PSF figures in this table are based on the total
$150,000,000 financing.
(2) As indicated by the rating agencies based on their respective methodologies
which may take into account the benefit of pooling.
(3) See "Reserves" below.
(4) See "Lockbox; Sweep of Excess Cash Flow" below.
B-13
The Loan. The fourth largest loan (the "DDR Portfolio Loan"), representing
approximately 5.5% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date, with a principal balance as of the cut-off date of
$48,915,252 is an approximately 5-year balloon loan that has a maturity date of
March 1, 2008, and provides for monthly payments of principal and interest based
on a 25-year amortization schedule. The DDR Portfolio Loan is secured by a
mortgage, assignment of rents and leases, security agreement and fixture filings
encumbering the borrowers' fee ownership interest in 10 shopping centers.
The DDR Portfolio Loan consists of 1 of 3 pari passu mortgage notes
totaling $150,000,000. The other mortgage notes secured by the DDR Portfolio
Property are each pari passu in right of payment to the DDR Portfolio Loan (such
other notes are collectively referred to as the "DDR Portfolio Companion Loans",
and together with the DDR Portfolio Loan, the "DDR Portfolio Whole Loan"). Each
of the DDR Portfolio Companion Loans has an original principal balance of
$50,000,000 and each DDR Portfolio Companion Loan has the same interest rate,
maturity date and amortization term as the DDR Portfolio Loan. Only the DDR
Portfolio Loan is included in the trust. The A-1 Note was contributed to GMACCM
2003-C2 and the A-3 Note is currently held by the originator but is expected to
be included in a future securitization. The DDR Portfolio Loan and the DDR
Portfolio Pari Passu Companion Loans (together, the "DDR Portfolio Whole Loan")
are governed by a intercreditor agreement and will be serviced pursuant to the
terms of the GMACCM 2003-C2 pooling and servicing agreement, as described in the
prospectus supplement under "Description of the Mortgage Pool--The Non-Serviced
Loans" and "The Pooling Agreement - Servicing of the Non-Serviced Loans."
The Borrowers. The borrowers under the DDR Portfolio Loan, GS II Brook
Highland LLC, GS II Jacksonville Regional LLC, GS II Green Ridge LLC, GS II
Indian Hills LLC, GS II Big Oaks LLC, GS II Oxford Commons LLC, GS II University
Centre LLC, GS II Uptown Solon LLC, GS II North Pointe LLC and GS II Meridian
Crossroads, are each a Delaware limited liability company that is a special
purpose entity sponsored by Developers Diversified Realty Corporation, an Ohio
corporation.
The Properties. The 10 properties securing the DDR Portfolio Loan (the
"DDR Properties") are detailed as follows:
WHOLE LOAN
ALLOCATED LOAN OCCUPANCY
PROPERTY NAME LOCATION AMOUNT (ORIGINAL) SQUARE FEET (1/21/2004) MAJOR TENANTS
- ----------------------------- ---------------------- ----------------- ----------- ----------- -------------------------------------
Brook Highland Plaza Shopping Birmingham, Alabama Lowe's (ground lease), Winn-Dixie
Center 28,700,000 423,393 93% Stores, Rhodes
Meridian Crossroads Shopping Meridian, Idaho Shopko, Sportsman's Warehouse, Bed
Center $26,500,000 431,220 99% Bath & Beyond
University Centre Wilmington, Lowe's, Bed Bath & Beyond, Ross Dress
North Carolina 22,000,000 410,491 84% for Less
Uptown Solon Solon, Ohio Bed Bath & Beyond, Mustard Seed
Shopping Center 16,900,000 183,288 91% Market, Border Books
Big Oaks Crossing Tupelo, Mississippi 12,200,000 348,236 100% Wal-Mart, Sam's Club, Goody's
North Pointe Plaza North Charleston,
South Carolina 12,100,000 294,471 100% Wal-Mart, Office Max
Green Ridge Square Walker, Michigan 8,900,000 133,877 96% TJ Maxx, Office Depot
Indian Hills Plaza Mt. Pleasant, Michigan 8,200,000 248,963 81% Wal-Mart, Kroger
Oxford Commons Durham, Burlington Coat Factory, Food Lion
North Carolina 7,500,000 213,934 90%
Jacksonville Regional Jacksonville, Florida JC Penney, Winn-Dixie Stores,
7,000,000 219,735 92% Walgreen's
------------ --------- ------
PORTFOLIO TOTALS $150,000,000 2,907,608 93%
============ ========= ======
Major Tenant Summary. The following table shows pertinent information
regarding the portfolio's ten largest tenants, based on annualized underwritten
base rent, of the DDR Portfolio Loan:
B-14
TEN LARGEST RETAIL TENANTS BASED ON ANNUALIZED UNDERWRITTEN BASE RENT(1)
APPROXIMATE
% OF ANNUALIZED
ANNUALIZED ANNUALIZED U/W BASE
CREDIT RATING TENANT % OF U/W BASE U/W BASE RENT LEASE
TENANT (FITCH/MOODY'S/S&P)(2) NRSF NRSF RENT RENT(1) (PSF) EXPIRATION
------ ---------------------- -------- ------- ----------- ----------- ---------- ----------
WAL-MART AA/Aa2/AA
North Pointe Plaza 222,904 7.7% $1,324,694 5.4% $5.94 8/25/2009
Big Oaks 173,020 6.0 863,364 3.5 4.99 8/18/2012
Indian Hills 140,043 4.8 756,309 3.1 5.40 12/29/2009
--------- ----- ----------- ----- -----
TOTAL 535,967 18.4% $2,944,367 12.0% $5.49
========= ===== =========== ===== =====
LOWE'S HOME CENTER A/A2/A
University Center 125,357 4.3% $752,142 3.1% $6.00 10/31/2014
Brook Highland(3) NAP NA 725,000 2.9 5.71 2/25/2023
--------- ----- ----------- ----- -----
TOTAL 125,357 4.3% $1,477,142 6.0% $5.86
========= ===== =========== ===== =====
BED BATH & BEYOND NR/NR/BBB
Uptown Solon 40,000 1.4% $520,000 2.1% $13.00 1/31/2009
University Center 30,405 1.0 364,860 1.5 12.00 1/31/2012
Meridian Commons 34,690 1.2 346,245 1.5 10.50 1/31/2011
--------- ----- ----------- ----- -----
TOTAL 105,095 3.6% $1,249,105 5.1% $11.89
========= ===== =========== ===== =====
ROSS DRESS FOR LESS NR/NR/BBB
University Center 30,187 1.0% $332,057 1.3% $11.00 1/31/2012
Brook Highland 30,187 1.0 316,964 1.3 10.50 1/31/2014
Meridian Commons 30,187 1.0 297,342 1.2 9.85 1/31/2012
--------- ----- ----------- ----- -----
TOTAL 90,561 3.1% $946,363 3.8% $10.45
========= ===== =========== ===== =====
SHOPKO STORES, INC. BB-/B2/BB-
Meridian Commons 109,783 3.8% $876,068 3.6% $7.98 2/28/2020
OLD NAVY BB-/Ba3/BB+
Meridian Commons 25,000 0.9% $250,000 1.0% 10.00 9/30/2005
University Center 20,015 0.7 240,180 1.0 12.00 10/31/2006
Uptown Solon 17,000 0.6 238,000 1.0 14.00 7/31/2009
--------- ----- ----------- ----- -----
TOTAL 62,015 2.1% $728,180 3.0% $11.74
========= ===== =========== ===== =====
GOODY'S NR/NR/NR
University Center 30,470 1.0% $219,689 0.9% 7.21 11/30/2005
Brook Highland 30,000 1.0 208,500 0.8 6.95 11/30/2004
Big Oaks 27,000 0.9 175,500 0.7 6.50 12/31/2007
--------- ----- ----------- ----- -----
TOTAL 87,470 3.0% $603,689 2.5% $6.90
========= ===== =========== ===== =====
WINN DIXIE STORES NR/B1/B
Brook Highland 44,000 1.5% $308,000 1.3% $7.00 11/20/2014
Jacksonville Regional 47,084 1.6 249,132 1.0 5.29 3/1/2009
--------- ----- ----------- ----- -----
TOTAL 91,084 3.1% $557,132 2.3% $6.12
========= ===== =========== ===== =====
MUSTARD SEED MARKET NR/NR/NR
Uptown Solon 37,048 1.3% $550,163 2.2% $14.85 12/31/2019
SPORTSMAN'S WAREHOUSE NR/NR/NR
Meridian Commons 45,866 1.6% $486,180 2.0% $10.60 6/30/2015
--------- ----- ----------- ----- -----
TOTAL LARGEST TENANTS 1,290,246 44.4% $10,418,389 42.3 $8.07
========= ===== =========== ===== =====
REMAINING TENANTS(4) 1,617,362 55.6 14,186,804 57.7 8.77
--------- ----- ----------- ----- -----
TOTAL ALL TENANTS 2,907,608 100.0% $24,605,193 100.0% $8.46
========= ===== =========== ===== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
(2) Certain ratings are those of the parent company whether or not the parent
guarantees the lease.
(3) Lowe's Home Center located at Brook Highland Shopping Center (126,917 SF) is
on a ground lease and is not included tenant NSRF, but is included in
Annualized Base Rent.
(4) Includes the non-owned AC Moore at North Pointe Plaza U/W Base Rent
(consists of a sublease, paying $216,996 per year, expiring in 2011) and the
non-owned Room Store at North Pointe Plaza U/W Base Rent (paying $4,920 per
year, expiring in 2022).
B-15
Lease Expiration. The following table shows the lease expiration schedule
for the DDR portfolio:
LEASE EXPIRATION SCHEDULE(1)(2)
CUMULATIVE ANNUALIZED APPROXIMATE % OF ANNUALIZED
YEAR ENDING % OF TOTAL % OF TOTAL U/W BASE TOTAL ANNUALIZED U/W BASE
DECEMBER 31, EXPIRING (NRSF) NRSF NRSF RENT U/W BASE RENT RENT PSF
------------ --------------- ---- ---- ---- ------------- --------
2004(3) 181,013 6.2% 6.2% $2,052,883 8.7% $11.34
2005 299,553 10.3 16.5% 3,141,675 13.3 $10.49
2006 133,656 4.6 21.1% 1,709,080 7.2 $12.79
2007 323,319 11.1 32.2% 2,280,345 9.6 $7.05
2008 38,957 1.3 33.6% 562,044 2.4 $14.43
2009 520,158 17.9 51.5% 3,799,815 16.1 $7.31
2010 71,492 2.5 53.9% 587,952 2.5 $8.22
2011 162,580 5.6 59.5% 1,409,804 6.0 $8.67
2012 436,955 15.0 74.6% 3,035,492 12.8 $6.95
2013 8,990 0.3 74.9% 127,600 0.5 $14.19
2014 255,210 8.8 83.6% 2,035,242 8.6 $7.97
2015 & Thereafter 270,542 9.3 92.9% 2,916,345 12.3 $10.78
Vacant 205,183 7.1 100.0% 0 0.0 $0.00
--------- ----- ----------- -----
TOTAL/AVERAGE 2,907,608 100.0% $23,658,277 100.0% $8.14
========= ===== =========== =====
- ---------------------------------
(1) Lease expiration schedule does not include the non-owned Lowe's at Brook
Highland Plaza U/W Base Rent (Ground Lease of 126,917 NRSF, paying $725,000
per year, expiring in 2023, the non-owned AC Moore, at North Pointe Plaza
U/W Base Rent (consists of a sublease - 26,050 NRSF, paying $216,996 per
year, expiring in 2011) or the non-owned Room Store at North Pointe Plaza
(paying $4,920 per year, expiring in 2022).
(2) Annualized U/W Base Rent excludes vacant space.
(3) Includes 14 tenants, 37,343 square feet, and $488,863 Annualized U/W Base
Rent that are leased on a month-to-month basis.
Reserves. Springing reserves for taxes, insurance, tenant improvements and
leasing commissions and replacements reserves are required monthly (a) upon the
occurrence of an event of default under the DDR Portfolio Loan, (b) if the
long-term senior unsecured credit rating of DDR (or any other entity which
controls a borrower) falls below BBB- (as rated by Standard & Poor's) or Baa3
(as rated by Moody's), or (c) if the debt service at the end of the last two
consecutive fiscal quarters for the preceding 12 month period is less than or
equal to 1.20x (collectively a "DDR Reserve Event"). Upon the occurrence of a
DDR Reserve Event, the borrower is required to deposit monthly (1) an amount
equal to 1/12 of upcoming annual real estate taxes and annual insurance premiums
into a tax and insurance escrow account, (2) an amount of $102,963 and, in each
of the 6 months prior to the expiration of certain specified leases, an
additional amount as to cover additional tenant improvement and leasing
commission costs of those leases have no been extended or replaced until a date
after March 31, 2012 into a tenant improvement and leasing commission reserve
account and (3) an amount of $41,185 into a replacement reserve account.
Insurance Requirements. Each borrower is required to maintain
comprehensive all risk insurance equal to 100% of the full replacement cost of
the properties, including, but not limited to, coverage for terrorism and acts
of terrorism.
Lockbox; Sweep of Excess Cash Flow. At origination the borrowers were
required to establish a lockbox account into which the borrowers are required to
deposit, or cause to be deposited, all rents and other revenue from the DDR
Properties. Funds on deposit in the lockbox account in excess of required
monthly debt service (or, after a DDR Reserve Event, the required monthly debt
service and all required reserve amounts) will be distributed daily to the
borrowers, provided, however, that (1) upon the occurrence and during the
continuation of an event of default under the DDR Portfolio Loan or (2) the debt
service coverage ratio for the preceding 12-month period is less than 1.10x
until the debt service coverage ratio at the end of the last two consecutive
fiscal quarters for the preceding 12-month period is at least 1.15x (a "DDR Cash
Trap Period"), all remaining amounts on deposit in the lockbox account after
payment of budgeted capital expenditures will be deposited into a low DSCR
reserve until the end of the DDR Cash Trap Period.
Mezzanine Loan. None permitted.
Additional Debt. None permitted, except for unsecured trade payables in
amounts not exceeding 2% of the aggregate outstanding principal balance of the
DDR Portfolio Loan and each DDR Portfolio Companion Loan and financing leases
and purchase money debt.
B-16
Defeasance. At any time that the borrower may fully defease the DDR
Portfolio Loan, the borrower may also obtain a release of one or more of the
properties securing the DDR Portfolio Loan and the DDR Portfolio Companion Loans
in connection with a partial defeasance of the DDR Portfolio Loan and the DDR
Portfolio Companion Loans equal to the sum of 125% of the allocated loan amount
for such property. The borrower must satisfy various other conditions in
connection with the partial defeasance, including delivery of legal opinions,
delivery of written confirmation from the rating agencies that such defeasance
will not result in the downgrade, withdrawal or qualification of the then
current ratings of any class of Certificates and that the debt service coverage
ratio of the remaining properties is equal to no less than the greater of the
actual debt service coverage ratio for the preceding 12-month period and 1.62x,
the debt service coverage ratio as of the origination date.
Permitted Transfers. The borrower is permitted to transfer 50% or more of
its equity interests so long as such transfer is to (a) its sponsor, (b) the
Prudential Insurance Company of America or any wholly owned subsidiary, (c) a
bank, savings and loan association, investment bank, insurance company, trust
company, commercial credit corporation, pension plan, pension fund or pension
advisory, mutual fund, government entity or plan, publicly traded real estate
company, investment fund or an institution substantially similar to any of the
foregoing, provided in each case such entity meets certain minimum net worth
requirements and is regularly engaged in the business of owning similar
properties in major metropolitan area, or (c) any other entity with respect to
which a rating confirmation is received.
B-17
237 PARK AVENUE LOAN
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE: $44,000,000(1) $44,000,000
% OF POOL BY UPB: 4.9%
ORIGINATION DATE: October 10, 2003
ORIGINATOR: Greenwich Capital Financial Products, Inc.
COUPON: 5.786%
INTEREST ACCRUAL: Actual / 360
ORIGINAL TERM: 84 months
AMORTIZATION: Interest-only for 36 months, then monthly
amortization based on a 30-year
amortization schedule
OWNERSHIP INTEREST: Fee Simple
PAYMENT DATE: 1st of the month
MATURITY DATE: November 1, 2010
SPONSOR: See "The Borrower" below
BORROWER: 237 Max Park Avenue, L.P.
CALL PROTECTION/ LOCKOUT: Lockout/Defeasance only until 4 months
prior to maturity.
CUTOFF DATE LOAN/SF: $259 (4)
UP-FRONT RESERVES: Taxes: $4,500,000
Insurance: $212,012
TI/LC: $16,441,190 (2)
Replacement Reserve: $2,914,533 (2)
Deferred Main: $26,250
ONGOING / SPRINGING Ongoing Reserves for Taxes and Insurance;
RESERVES: Springing Reserves for Replacement
Reserves and TI/LCs (2)
Rollover Reserve Account (2)
CASH MANAGEMENT: Hard Lockbox
ADDITIONAL SECURED/ Teachers Insurance and Annuity
MEZZANINE DEBT: Association of America holds a
$30,000,000 mezzanine loan(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Office
PROPERTY LOCATION: New York, New York
OCCUPANCY: 99.9%
OCCUPANCY AS OF DATE: March 1, 2004
YEAR BUILT: 1935
YEAR RENOVATED: 1981
COLLATERAL: The collateral consists of a 21-story,
multi-tenant, Class A commercial office building
located between Park and Lexington Avenues
between 45th and 46th Streets in Midtown
Manhattan
PROPERTY MANAGEMENT: Max 237 Management LLC
APPRAISED VALUE: $460,000,000
APPRAISAL VALUE DATE: September 10, 2003
CUT-OFF DATE LTV: 64.78%(4)
BALLOON LTV: 61.40%(4)
U/W NOI: $32,057,181
U/W NCF: $31,867,494
CURRENT ANNUAL DEBT SERVICE: $20,950,418.28 (4)
U/W NOI DSCR: 1.53x (4)
U/W NCF DSCR: 1.52x (4)
- --------------------------------------------------------------------------------
- ---------------------------------
(1) The $44,000,000 mortgage loan represents the "A-4 Note" portion of a
$298,000,000 whole loan. The A-4 Note is pari passu with (i) an A-1 Note
with an original principal balance of $119,333,334, (ii) and A-2 Note with
an original principal balance of $67,333,333 and (iii) an A-3 Note with an
original principal balance of $67,333,333. The A-1 Note is an asset in
another securitization. The A-2 Note and the A-3 Note are each currently
held by the Originator.
(2) See "Reserves" below.
(3) See "Mezzanine Loan" below.
(4) Calculated based on the aggregate principal balance of the pari passu notes.
B-18
The Loan. The fifth largest mortgage loan (the "237 Park Avenue Loan"),
representing approximately 4.9% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date, is evidenced by an A-4 Note with a
Cut-Off Date principal balance of $44,000,000. The 237 Park Avenue Loan is a
7-year balloon loan that has maturity date of November 1, 2010 and provides for
payments of interest-only for the first 36 months followed by monthly payments
of principal and interest based on a 30-year amortization schedule. The 237 Park
Avenue Loan is secured by, among other things, a mortgage and security agreement
encumbering the borrower's fee interest in the rents and leases associated with
the property (the "237 Park Avenue Property"), as well as an assignment of the
borrower's interest in the rents and leases associated with the 237 Park Avenue
Property.
The 237 Park Avenue Loan is one of four pari passu notes comprising of a
whole mortgage loan with an original principal balance of $298,000,000. The
companion loans to the 237 Park Avenue Loan are evidenced by three separate pari
passu notes (the "A-1 Note," "A-2 Note" and the "A-3 Note," collectively, the
"237 Park Avenue Pari Passu Companion Loans"), with principal balances as of the
cut-off date of $119,333,334, $67,333,333 and $67,333,333 respectively and each
with an interest rate of 5.786%. The 237 Park Avenue Pari Passu Companion Loans
will not be assets of the trust. The A-1 Note was contributed to GCCFC 2003-C2
and the A-2 Note and A-3 Note are currently held by the originator but are
expected to be included in future securitizations. The 237 Park Avenue Loan and
the 237 Park Avenue Pari Passu Companion Loans (together, the "237 Park Avenue
Whole Loan") are governed by a co-lender agreement and will be serviced pursuant
to the terms of the GCCFC 2003-C2 pooling and servicing agreement, as described
in the prospectus supplement under "Description of the Mortgage Pool--The
Non-Serviced Loans" and "The Pooling Agreement - Servicing of the Non-Serviced
Loans." The DSCR and LTV on the 237 Park Avenue Loan are 1.52x and 64.78 %
respectively.
The subject financing facilitated the acquisition of the property by the
sponsor for a purchase price of $455,000,000. Including escrows, reserves and
costs of approximately $40,000,000, the borrower invested approximately
$167,000,000 of new cash in the project at origination. Reserves included
$16,500,000 for future tenant improvement, leasing commission, and capital
costs, as further described below.
The Borrower. The borrower under the 237 Park Avenue Loan is 237 Max Park
Avenue, L.P., a single-asset, special-purpose, Delaware limited partnership. The
borrower is directly and indirectly owned by (i) Max 237 JV Partners LLC, which
is under common control with Max Capital Management Corporation ("Max Capital"),
(ii) Five Mounts Properties Ltd. ("Five Mounts Properties"), and (iii) a joint
venture between Citigroup, WGZ-Bank, and DZ Bank AG (the "Equity Syndicate").
Max Capital is owned and controlled by Adam Hochfelder and Anthony Westreich.
Max Capital, an institutionally sponsored real estate owner/operator based in
New York, manages over $2.7 billion of real estate assets. Five Mounts
Properties is owned and controlled by Beny Steinmetz, a wealthy international
investor based in Amsterdam. Five Mounts Properties has or has had investments
in Chelsfield (a London-based public property group), Canary Wharf in London,
France-GA (a large portfolio of office buildings located in France), and other
real estate investments in the United States, France, Italy, the Czech Republic,
and Hungary.
The Property. The 237 Park Avenue Property is a 21-story, 1,149,789 sf
Class-A office building, located in the Park/Lexington submarket of midtown
Manhattan in New York, NY. The property was built in 1935 and was redeveloped
and expanded in 1981 by Olympia & York. There is a total of 1,103,497 sf of
office space, 43,830 sf of retail space and 2,462 sf of storage space at the 237
Park Avenue Property. Floor sizes range between 55,000 and 62,000 sf, except for
the top floor, which contains 25,000 sf. The building does not have actual
frontage on Park Avenue, but has entrances on 45th Street, 46th Street and
Lexington Avenue. As of March 1, 2004, the property was 99.9% leased to 27
tenants. The five largest leases in the building represent 94% of the space.
B-19
Major Tenant Summary. The following table presents certain information
relating to the major tenants at the 237 Park Avenue Property:
TEN LARGEST TENANTS BASED ON ANNUALIZED UNDERWRITTEN BASE RENT(1)
% OF TOTAL
ANNUALIZED ANNUALIZED ANNUALIZED
CREDIT RATING(2) % OF U/W BASE U/W BASE U/W BASE LEASE
TENANT (FITCH/MOODY'S/S&P) NRSF NRSF RENT RENT RENT (PSF) EXPIRATION
------ ------------------- ---- ---- ---- ---- ---------- ----------
Credit Suisse Asset Mgmt AA-/Aa3/A 343,715 29.9% $17,372,031 39.2% $50.54 10/31/2014
J Walter Thompson Company BBB/Baa2/BBB+ 456,132 39.7 10,898,362 24.6 $23.89 8/31/2006
EM Warburg Pincus & Co., Inc. NR/NR/NR 111,545 9.7 4,767,780 10.8 $42.74 10/31/2009
International Paper Company BBB/Baa2/BBB 110,800 9.6 4,698,433 10.6 $42.40 9/30/2011
Jennison Assoc Capital Corp A/A3/A- 56,040 4.9 2,353,680 5.3 $42.00 11/30/2011
Revlon Consumer Products NR/NR/NR 25,265 2.2 1,212,720 2.7 $48.00 10/31/2014
Kelly Services, Inc. NR/NR/NR 9,821 0.9 432,124 1.0 $44.00 7/31/2011
1/14/2014,
Lex Bakery Corp. NR/NR/NR 3,709 0.3 406,830 0.9 $109.69 7/15/2015
Caliber Learning Network, Inc. NR/NR/NR 9,527 0.8 371,553 0.8 $39.00 9/30/2008
JAI International, Inc. NR/NR/NR 3,552 0.3 357,248 0.8 $100.58 3/31/2010
--------- ----- ----------- -----
TOTAL/AVERAGE LARGEST TENANTS 1,130,106 98.3% $42,870,761 96.9% $37.94
========= ===== =========== =====
Remaining Tenants 18,108 1.6 1,393,148 3.1 $76.94
Vacant Space 1,575 0.1 0 0.0 $0.00
--------- ----- ----------- -----
TOTAL/AVERAGE ALL 1,149,789 100.0% $44,263,909 100.0% 38.50
========= ===== =========== ===== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
(2) Certain ratings are those of the parent company whether or not the parent
guarantees the lease to conform.
Lease Expiration. The following table shows the lease expiration schedule
for the 237 Park Avenue Property:
LEASE EXPIRATION SCHEDULE
APPROXIMATE %
OF TOTAL
YEAR ENDING % OF TOTAL CUMULATIVE OF ANNUALIZED U/W ANNUALIZED U/W ANNUALIZED U/W
DECEMBER 31, EXPIRING NRSF NRSF TOTAL NRSF BASE RENT BASE RENT BASE RENT (PSF)
------------ ------------- ---- ---------- --------- --------- ---------------
2004 1,694 0.1% 0.1% $124,930 0.3% $73.75
2005 0 0.0 0.1% 0 0.0 $0.00
2006 456,132 39.7 39.8% 10,898,362 24.6 $23.89
2007 1 0.0 39.8% 0 0.0 $0.00
2008 11,577 1.0 40.8% 649,553 1.5 $56.11
2009 111,545 9.7 50.5% 4,767,780 10.8 $42.74
2010 5,382 0.5 51.0% 357,368 0.8 $66.40
2011 177,311 15.4 66.4% 7,514,237 17.0 $42.38
2012 4,037 0.4 66.8% 378,400 0.9 $93.73
2013 914 0.1 66.8% 47,300 0.1 $51.75
2014 370,768 32.2 99.1% 18,682,891 42.2 $50.39
2015 & Thereafter 8,853 0.8 99.9% 843,088 1.9 $95.23
Vacant 1,575 0.1 100.0% 0 0.0 $0.00
--------- ----- ----------- ----- ------
TOTAL/ AVERAGE 1,149,789 100.0% $44,263,909 100.0% $38.50
========= ===== =========== ===== ======
Reserves. The loan documents provide for escrows for real estate taxes,
insurance, approved operating expenses and replacement reserves. In addition, at
closing, the borrower deposited $9,750,000 into a rollover reserve account
related to anticipated re-leasing or renewal costs associated with the lease to
J Walter Thompson Company (the "JWT Lease"), expiring August 31, 2006. Prior to
February 28, 2004, the renewal notification date under the JWT Lease, the tenant
notified the borrower of their intention to renew the lease and the parties are
currently negotiating a renewal. If J Walter Thompson does not enter into a
renewal or extension of the JWT Lease by January 1, 2005, or approved leases
have not been executed with replacement tenants by such date, the borrower is
required to deposit up to $550,000 (out of available excess cash flow after
payment of debt service, required reserves, operating expenses and required
payments under the mezzanine loan) per month for 20 months
B-20
(up to a total of $11,000,000) to be used for tenant improvement and leasing
commissions in connection with the re-leasing of the space occupied by J Walter
Thompson.
At closing, the borrower deposited $5,000,000 into a general rollover
reserve, to pay for anticipated re-leasing or renewal costs associated with the
lease to EM Warburg Pincus & Co., Inc. (which expires 10/31/09) and other
approved leasing expenses at the 237 Park Avenue Property (other than approved
leasing expenses in connection with the lease to JWT Lease). If there is less
than $5,000,000 on deposit in the general rollover reserve 12 months prior to
the expiration of the lease to EM Warburg, the borrower is required to make
additional deposits (out of available excess cash flow after payment of debt
service, required reserves, operating expenses and required payments under the
mezzanine loan) and replenish the general rollover reserve such that there will
be at least $5,000,000 on deposit at the expiration of the lease to EM Warburg.
Additionally, at closing, the borrower deposited (i) $1,190,783 to pay for
certain budgeted discretionary and required capital expenditures at the 237 Park
Avenue Property, (ii) $1,750,000 to pay for future capital expenditures at the
237 Park Avenue Property, and (iii) $1,691,191 to pay for approved leasing
expenses incurred in connection with the leases to Revlon Consumer Products,
Washington Mutual Bank, Hale & Hearty Soups and Katz Jewelers.
Insurance Requirements. The loan documents require the borrower to
maintain comprehensive all risk insurance and terrorism insurance. The 237 Park
Avenue Property is insured for terrorism damage up to $700,000,000 (inclusive of
business interruption and rent loss coverage for an 18-month indemnity period).
On future annual renewals, terrorism insurance is required to be maintained
subject to premium limits equal to 125% of the aggregate property insurance
premiums for the prior year. Pursuant to the loan documents, the borrower is
permitted to maintain certain insurance described above under a blanket policy.
A major casualty impacting the 237 Park Avenue Property could also impact
certain other properties covered by the blanket policy, and as a result, the
amount recovered under such blanket policy could be insufficient to permit the
borrower either to rebuild the 237 Park Avenue Property or to repay all amounts
owing to the trust fund. See "Risk Factors--Property Insurance" and " - Risks
Associated with Blanket Insurance Policies" in the prospectus supplement.
Lockbox; Sweep of Excess Cash Flow. The loan requires a hard lock box,
which is already in place. On each regularly scheduled payment date, any amounts
in the lender-controlled account, after payment of debt service, required
reserves and approved operating expenses, are swept into a lockbox account
established under the mezzanine loan described below, unless a "237 Park Cash
Trap Period" (defined below) is continuing. During a 237 Park Cash Trap Period,
all remaining cash (after payment of debt service, reserves, approved operating
expenses and the debt service payment due under the mezzanine loan described
below) is required to be deposited into a lender controlled cash collateral
account (which amounts are to be held as additional collateral for the 237 Park
Avenue Loan). Notwithstanding the foregoing, during a JWT Cash Trap Period
(defined below), only a portion of the remaining cash in an amount equal to the
JWT Offset Amount (defined below) is deposited into the cash collateral account.
A "237 Park Cash Trap Period" will exist if (i) an event of default under the
237 Park Avenue Whole Loan has occurred (and will continue until the event of
default has been cured), (ii) as of the last day of any calendar quarter, the
DSCR is less than 1.00 (and will continue until the DSCR has been restored to
1.00), or (iii) J Walter Thompson withholds base rent (such withheld base rent
is the "JWT Offset Amount") in connection with the dispute regarding real estate
tax escalation payments described in "--The Property" above (such period, the
"JWT Cash Trap Period"). The JWT Cash Trap Period will continue until such time
that J Walter Thompson ceases to offset rent.
Mezzanine Loan. Concurrent with the origination of the 237 Park Avenue
Loan, the Originator originated a $30,000,000 mezzanine loan to 237 Park Mezz,
L.P., the 99.5% limited partner of the borrower and the 100% owner of the
borrower's general partner (the "Senior Borrower GP") secured by a pledge of the
equity in the borrower and the Senior Borrower GP. The mezzanine loan has an
interest rate of 5.786% and is coterminous with the 237 Park Avenue Loan. As of
the cutoff date, the principal balance on the mezzanine loan is $30,000,000. The
mezzanine loan is interest-only for 36 months and then amortizes based on a
30-year schedule. The mezzanine loan is subject to cash management controls as
set forth in the loan agreement for such mezzanine loan. The mezzanine loan was
assigned to Teacher's Insurance and Annuity Association, which entity executed
an intercreditor agreement between it and the senior lender. The mezzanine
lender has entered into an intercreditor agreement with the mortgagor that
provides, among other things, the mezzanine lender with the right to cure a
default under the senior loan documents and the right to purchase the senior
loan after default.
Additional Debt. None.
B-21
Permitted Transfers. The 237 Park Avenue Loan permits the release of the
air rights above the 237 Park Avenue Property, along with various easements for
construction, support and access from the lien of the mortgage in connection
with the future development of a residential tower above the 237 Park Avenue
Property, subject to the satisfaction of certain conditions, including, among
other things: (i) no event of default, (ii) conveyance of the new development to
a third-party entity which may be affiliated with the sponsor of the borrower,
but in which neither the borrower nor the borrower's general partner own any
beneficial interest, (iii) lender's approval of the plans for the construction,
design and sales of the new development, (iv) the creation of a separate legally
subdivided parcel and a separate tax parcel for the new development and (v)
confirmation from the rating agencies that the release will not result in a
downgrade or withdrawal of the ratings for the certificates. In connection with
the release of the air rights, the borrower may elect to convert the 237 Park
Avenue Property to a condominium form of ownership with the 237 Park Avenue
Property comprising one condominium unit and the new development comprising one
or more condominium units.
Certain transfers of direct or indirect interests in the borrower are
permitted, provided, in most cases, that such transfers do not result in a
change in control (in some cases requiring a change of control from certain "Key
Principals" identified in the loan agreement) or a change in the day to day
management and operation of the 237 Park Avenue Property. In connection with the
borrower's transfer to and assumption by a transferee borrower, the loan
documents require, among other things, that the borrower deliver a letter from
each of the Rating Agencies confirming that such action will not, in and of
itself, result in a downgrade or withdrawal of the ratings on the certificates.
In connection with the transfer of a direct or indirect interest in the
borrower, subject to certain exceptions specified in the related loan agreement,
in the event such transfer (i) causes a change in control in the borrower or
certain related parties from the "Key Principals" identified in the loan
agreement or (ii) results in a control party acquiring a 49% or more direct or
indirect interest in the borrower, the loan documents require, among other
things, that the borrower deliver a non-consolidation opinion and a letter from
each of the Rating Agencies confirming that such action will not, in and of
itself, result in a downgrade or withdrawal of the ratings on the certificates.
B-22
WILLOW WOOD III & IV LOAN
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE: $40,000,000 $40,000,000
% OF POOL BY UPB: 4.5%
ORIGINATION DATE: June 13, 2003
ORIGINATOR: Archon Financial, L.P.
COUPON: 4.50%
INTEREST ACCRUAL: Actual / 360
ORIGINAL TERM: 60 months
AMORTIZATION: Interest-only
OWNERSHIP INTEREST: Fee simple
PAYMENT DATE: 1st of the month
MATURITY DATE: July 1, 2008
SPONSOR: Richard Kramer
BORROWER: RKB Willowwood LLC
CALL PROTECTION/LOCKOUT: Lockout/Defeasance only until 3 months
prior to maturity.
CUT-OFF DATE LOAN PSF: $143
UP-FRONT RESERVES: Taxes: $137,473; Insurance: $32,593;
Replacement Reserves: $6,980; Deferred
Maintenance: $81,500; Initial Debt
Service: $155,000
ONGOING/SPRINGING RESERVES: Ongoing Taxes, Insurance, Replacement
Reserves; Springing Carfax reserve(1)
CASH MANAGEMENT: None required
ADDITIONAL SECURED/ MEZZANINE None permitted
DEBT:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Office
PROPERTY LOCATION: Fairfax City, Virginia
OCCUPANCY: 97.3%
OCCUPANCY AS OF DATE: February 1, 2004
YEAR BUILT: 1999
YEAR RENOVATED: NAP
COLLATERAL: The collateral consists of a 279,165
square foot, five-story, two-building
office complex located in Fairfax,
Virginia. Willow Wood III has 134,530
square feet, and Willow Wood IV has
144,635 square feet, both situated on
a single 13.4-acre tract of land.
PROPERTY MANAGEMENT: Republic Properties Corporation
APPRAISED VALUE: $54,000,000
APPRAISAL VALUE DATES: April 18, 2003
CUT-OFF DATE LTV: 74.07%
BALLOON LTV: 74.07%
U/W NOI: $5,075,450
U/W NCF: $4,867,720
CURRENT ANNUAL DEBT SERVICE: $1,825,000
U/W NOI DSCR: 2.78x
U/W NCF DSCR: 2.67x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) See "Reserves" below.
B-23
The Loan. The sixth largest loan (the "Willow Wood III & IV Loan"),
representing approximately 4.5% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date, with a principal balance as of the
cut-off date of $40,000,000, is a 5-year interest-only loan that has a maturity
date of July 1, 2008, and provides for monthly payments of interest. The Willow
Wood III & IV Loan is secured by, among other things, a deed of trust,
assignment of rents, security agreement and fixture filing encumbering the
borrower's fee ownership interest in the Willow Wood III & IV property.
The Borrower. The borrower under the Willow Wood III & IV Loan, RKB
Willowwood,LLC, is a Delaware limited liability company that is a special
purpose entity sponsored by Richard Kramer.
The Property. The Willow Wood III & IV property (the "Willow Wood III & IV
Property") is a 279,165 sq. ft. Class A office property located in Fairfax City,
Virginia. Willow Wood III & IV is comprised of a 279,165 square foot,
five-story, two-building office complex. Willow Wood III has 134,530 square
feet, and Willow Wood IV has 144,635 square feet, both situated on a single
13.4-acre tract of land. The property is currently 97% leased to 11 tenants.
Major Tenant Summary. The following table shows certain information
regarding the top ten largest office tenants of the Willow Wood III & IV
Property :
TEN LARGEST OFFICE TENANTS BASED ON ANNUALIZED UNDERWRITTEN BASE RENT(1)
% OF TOTAL ANNUALIZED
CREDIT RATING % OF ANNUALIZED ANNUALIZED U/W BASE
(FITCH/MOODY'S/ TENANT TOTAL U/W BASE U/W BASE RENT LEASE
TENANT S&P)(2) NRSF NRSF RENT RENT(3) (PSF)(4) EXPIRATION
------ ------- ---- ---- ---- ------- -------- ----------
GSA AAA/Aaa/AAA 92,992 33.3% $2,331,792 34.3% $25.08 5/1/2009
Zeta Associates NR/NR/NR 84,813 30.4 2,075,121 30.5 $24.47 8/15/2009
Carfax NR/NR/NR 37,038 13.3 962,988 14.2 $26.00 11/1/2006
ASI Business Solutions A-/Baa2/A- 11,501 4.1 299,026 4.4 $26.00 6/1/2009
HSBC Mortgage Corp. AA-/Aa3/AA- 10,235 3.7 266,110 3.9 $26.00 12/31/2004
12/31/2012,
CALEA NR/NR/NR 10,690 3.8 247,222 3.6 $23.13 2/28/2013
American Public Communications NR/NR/NR 6,105 2.2 155,045 2.3 $25.40 7/20/2009
VGS (SAIC) NR/A3/A- 5,534 2.0 143,884 2.1 $26.00 6/30/2004
Pulte Homes Corp. BBB+/Baa3/BBB- 4,786 1.7 120,368 1.8 $25.15 10/10/2004
Architecture & Design NR/NR/NR 4,226 1.5 106,622 1.6 $25.23 9/30/2004
------- ----- ---------- -----
TOTAL/AVERAGE: 267,920 96.0% $6,708,178 98.6% $25.04
======= ===== ========== =====
Remaining Tenants 3,837 1.4 93,968 1.4 $24.49
Vacant 7,408 2.7 0 0.0 $0.00
------- ----- ---------- -----
TOTAL/AVERAGE ALL TENANTS 279,165 100.0% $6,802,146 100.0% $24.37
======= ===== ========== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
(2) Certain ratings are those of the parent company whether or not the parent
guarantees the lease.
(3) Percentages based on total Annualized U/W Base Rent for all tenants.
(4) For those tenants with multiple leases, the Annual U/W Base Rent PSF is a
weighted average calculation of the leases.
B-24
Lease Expiration. The following table shows the lease expiration schedule
for the Willow Wood III & IV Property:
LEASE EXPIRATION SCHEDULE(1)
CUMULATIVE ANNUALIZED APPROXIMATE % OF ANNUALIZED
YEAR ENDING % OF TOTAL % OF TOTAL U/W BASE TOTAL ANNUALIZED U/W BASE
DECEMBER 31, EXPIRING (NRSF) NRSF NRSF RENT U/W BASE RENT RENT PSF
------------ --------------- ---- ---- ---- ------------- --------
2004 24,781 8.9% 8.9% $636,984 9.4% $25.70
2005 0 0.0 8.9% 0 0.0 $0.00
2006 37,038 13.3 22.1% 962,988 14.2 $26.00
2007 0 0.0 22.1% 0 0.0 $0.00
2008 0 0.0 22.1% 0 0.0 $0.00
2009 199,248 71.4 93.5% 4,954,952 72.8 $24.87
2010 0 0.0 93.5% 0 0.0 $0.00
2011 0 0.0 93.5% 0 0.0 $0.00
2012 667 0.2 93.8% 6,670 0.1 $10.00
2013 10,023 3.6 97.3% 240,552 3.5 $24.00
2014 0 0.0 97.3% 0 0.0 $0.00
2015 & Thereafter 0 0.0 97.3% 0 0.0 $0.00
Vacant 7,408 2.7 100.0% 0 0.0 $0.00
------- ----- ---------- -----
TOTAL/AVERAGE: 279,165 100.0% $6,802,146 100.0% $24.37
======= ===== ========== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
Reserves. The borrower is required to deposit monthly (1) an amount equal
to 1/12 of upcoming annual real estate taxes and 1/12 of annual insurance
premiums into a tax and insurance escrow account, (2) an initial amount of
$3,490 into a replacement reserve account, increasing annually to 1/12 of 102.5%
of the previous required annual amount and (3) if Carfax fails to exercise its
option to renew its lease through November 2011 prior to April 2006, then, on
and after May 1, 2006 through and including October 1, 2006, an amount equal to
$125,000 for deposit into a tenant improvement and leasing commission reserve
account.
Insurance Requirements. The borrower is required to maintain comprehensive
all risk insurance with coverage for terrorism.
Lockbox; Sweep of Excess Cash Flow. None required.
Mezzanine Loan. None permitted.
Additional Debt. None permitted except trade payables in an amount less
than 4% of the loan amount for the Willow Wood III & IV Loan and financing
leases and purchase money debt.
Permitted Transfers. Transfers of the direct or indirect ownership
interests in the borrower are permitted without the consent of the lender if
there is no change in controlling ownership interest of the managing member of
the borrower or the guarantor under the Willow Wood III & IV Loan. Additionally,
certain transfers are permitted for estate planning purposes.
B-25
HYATT REGENCY DEARBORN
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE: $32,500,000 $32,500,000
% OF POOL BY UPB: 3.6%
ORIGINATION DATE: March [ ], 2004
ORIGINATOR: PMCC, LLC
COUPON: 5.6%
INTEREST ACCRUAL: Actual / 360
ORIGINAL TERM: 60 months
AMORTIZATION: 300 months
OWNERSHIP INTEREST: Fee Simple
PAYMENT DATE: 1st of the month
MATURITY DATE: April 1, 2009
SPONSOR: CNL Hospitality Properties, Inc.
BORROWER: Dearborn Hotel Partners, LP
CALL PROTECTION/LOCKOUT: Prepayment with Yield Maintenance permitted 2
years from the first payment. Freely prepayable
beginning February 1, 2009.
CUT-OFF DATE LOAN/ROOM 42,098
UP-FRONT RESERVES: Tax Reserve: 654,301 (1)
ONGOING/SPRINGING RESERVES: Ongoing Tax; springing reserves for
Insurance and Replacement Reserves(1)
CASH MANAGEMENT: Hard (A/B) Lockbox(2)
ADDITIONAL SECURED/ MEZZANINE None permitted
DEBT:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Hotel
PROPERTY LOCATION: Dearborn, MI
OCCUPANCY: 54.7%(3)
OCCUPANCY AS OF DATE: January 31, 2004
YEAR BUILT: 1976
YEAR RENOVATED: 2000
COLLATERAL: The collateral consists of a 16 floor,
772-room full service hotel with
approximately 51,400 s.f. of meeting
space.
PROPERTY MANAGEMENT: Hyatt Corporation
APPRAISED VALUE: $70,000,000
APPRAISAL VALUE DATE: July 21, 2003
CUT-OFF DATE LTV: 46.43%
BALLOON LTV: 41.72%
U/W NOI: $5,013,439
U/W NCF: $3,970,418
CURRENT ANNUAL DEBT SERVICE: 2,418,288
U/W NOI DSCR: 2.07x
U/W NCF DSCR: 1.64x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) See "Reserves" below.
(2) See "Lockbox; Sweep of Excess Cash Flow" below.
(3) Occupancy is an average of the trailing 12 months ending January 31, 2004.
B-26
The Loan. The seventh largest loan (the "Hyatt Regency Dearborn Loan"),
representing approximately 3.6% the aggregate principal balance of the pool of
mortgage loans as of the cut-off date, has a principal balance as of the cut-off
date of $32,500,000. The Hyatt Regency Dearborn Loan is a 60-month balloon loan
having a maturity date of April 1, 2009, and provides for monthly payments of
principal and interest based on a 25-year amortization schedule. The Hyatt
Regency Dearborn Loan is secured by, among other things, a mortgage encumbering
the borrower's fee ownership interest in the Hyatt Regency Dearborn Property
(the "Hyatt Regency Dearborn Property").
The Borrower. The borrower under the Hyatt Regency Dearborn Loan is
Dearborn Hotel Partners, LP a Delaware limited partnership. The borrower is
owned by CNL Hospitality Partners, LP (84.9%), Ford Land Partnership, LP
(15.0%), and Dearborn Hotel GP, LLC (0.1%).
The Property. The Hyatt Regency Dearborn Loan is secured by the property
known as The Hyatt Regency Dearborn, which is a 16 story full-service hotel with
772 guest rooms, 5 restaurants/lounges, and approximately 51,400 square feet of
meeting space. The Hyatt Regency Dearborn Property is located in Dearborn,
approximately 12 miles from Detroit. It is situated within Fairlane, a
2,630-acre mixed-use master planned development constructed by Ford Motor Land
Company, which surrounds the Ford Motor Company's World Headquarters Complex.
Reserves. At origination, $654,301 was funded into a tax reserve, with
1/12 of estimated annual taxes due monthly on an ongoing basis. A springing
reserve for insurance is required if the borrower does not maintain insurance as
prescribed by the loan documents. In addition, for so long as the hotel manager
is directly funding the FFE Fund in accordance with the hotel management
agreement, monthly deposits to a replacement reserve will not be required.
Otherwise, the borrower will commence making deposits into a replacement reserve
for FF&E in an amount per month equal to 1/12 of the amount equal to the greater
of (i) the amount required under the hotel management agreement or (ii) 3% of
the gross revenue from the Hyatt Regency Dearborn Property for the prior
calendar year.
Insurance Requirements. The borrower and/or Hyatt Corporation, as property
manager, is required to maintain insurance on the property including, but not
limited to, comprehensive all risk and commercial general liability coverage.
Lockbox; Sweep of Excess Cash Flow. The Hyatt Regency Dearborn Loan is
subject to a cash management agreement, which requires that all rents and
profits which would be distributed to the borrower or its affiliate shall be
remitted to a lockbox ("A Account") in the name of the borrower (or its
affiliate) and controlled by lender. Proceeds will then be forwarded directly to
a separate account ("B Account") under the name and control of the borrower (or
its affiliate) until the earlier to occur of (i) and event of default, or (ii)
the Hyatt Regency Dearborn Property's failure to maintain a 1.30x DSCR based on
the trailing 12-month period, each of the aforementioned (a "Sweep Event"). Upon
the occurrence of a Sweep Event, all funds will be transferred from the A
Account into an account controlled by the lender, and disbursed as set forth in
the cash management agreement and the note. In certain cases, a Sweep Event may
be cured as more particularly described in the cash management agreement.
Mezzanine Loan. None permitted.
Additional Debt. None permitted.
Permitted Transfers. Transfers of the direct or indirect ownership
interests in the borrower are permitted without the consent of lender so long as
following such transfer, the persons responsible for the management and/or
control of the Hyatt Regency Dearborn Property and/or borrower remain in legal,
beneficial and actual control and management of the Hyatt Regency Dearborn
Property. Unless approved by lender, and subject to confirmation that there will
be no adverse rating impact, there shall not be permitted any (A) transfer in
one or more related transactions of a 49% or greater direct or indirect interest
in the borrower or any successive partner, member or limited liability company
manager thereof or (B) any direct or indirect change in the management or
control of the borrower or any shareholder, general partner, managing member or
limited liability company manager; provided that transfers to certain parties
specified in the loan documents are permitted without regard to these
restrictions, including certain transfers for estate planning purposes.
B-27
RECHLER INDUSTRIAL PORTFOLIO II
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE(1) $26,700,000 $26,593,085
% OF POOL BY UPB: 3.0%
ORIGINATION DATE: November 10, 2003
ORIGINATOR: Archon Financial, L.P.
COUPON: 5.610%
INTEREST ACCRUAL: Actual / 360
ORIGINAL TERM: 84 months
AMORTIZATION: 360 months
OWNERSHIP INTEREST: Fee Simple
PAYMENT DATE: 1st of the month.
MATURITY DATE: December 1, 2010
SPONSOR: Rechler Equity I LLC
BORROWER: REP A7 LLC
CALL PROTECTION/LOCKOUT: Lockout/Defeasance only until 3 months
prior to maturity.(1)
CUT-OFF DATE LOAN PSF: $40
UP-FRONT: RESERVES Deferred Maintenance: $141,250
ONGOING/SPRINGING RESERVES: Ongoing Tax and Insurance escrow;
Springing TI/LC and Replacement Reserve
escrows(2)
CASH MANAGEMENT: Hard Lockbox(3)
ADDITIONAL SECURED/ MEZZANINE
DEBT: None Permitted
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Portfolio
PROPERTIES TYPE: Industrial buildings
PROPERTIES LOCATION: Various
OCCUPANCY: 89.6%
OCCUPANCY AS OF DATE: January 29, 2004
YEARS BUILT: 1961-1998
YEAR RENOVATED Various
COLLATERAL: The collateral consists of 14 industrial
buildings
PROPERTIES MANAGEMENT: Rechler Equity Management
AGGREGATE APPRAISED VALUE: $43,160,000
APPRAISAL VALUE DATE: November 1, 2003
CUT-OFF DATE LTV: 61.62%
BALLOON LTV: 55.48%
U/W NOI: $3,689,589
U/W NCF: $3,219,166
CURRENT ANNUAL DEBT SERVICE: $1,841,370
U/W NOI DSCR: 2.00x
U/W NCF DSCR: 1.75x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) Defeasance is permitted in whole or in part. See "Defeasance" below.
(2) See "Reserves" below.
(3) See "Lockbox; Sweep of Excess Cash Flow" below.
B-28
The Loan. The eighth largest loan (the "Rechler Industrial II Loan"),
representing approximately 3.0% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date, has a principal balance as of the
cut-off date of $26,593,085. The Rechler Industrial II Loan is a 7-year balloon
loan that has a maturity date of December 1, 2010 and provides for monthly
payments of principal and interest based on a 30-year amortization schedule. The
Rechler Industrial II Loan is secured by, among other things, mortgages and
security agreements encumbering the borrower's fee ownership interest in the
Rechler Industrial II Properties as well as assignments of the borrower's
interests in the rents and leases associated with the Rechler Industrial II
Properties.
The Borrower. The borrower under the Rechler Industrial II Loan, REP A7
LLC, is a Delaware limited liability company that is a special purpose entity
sponsored by REP II LLC, an affiliate of Rechler Equity LLC, which is majority
owned and controlled by members of the Rechler family.
The Properties. The property securing the Rechler Industrial II Loan (the
"Rechler Industrial II Properties") consists of the 14 industrial properties
located New York. The borrower has a fee interest in all of the Rechler
Industrial II Properties.
Major Tenant Summary. The following table shows certain information
regarding the ten largest tenants of the Rechler Industrial II Properties:
TEN LARGEST TENANTS BASED ON ANNUALIZED UNDERWRITTEN BASE RENT(1)
% OF TOTAL ANNUALIZED
CREDIT RATING % OF ANNUALIZED ANNUALIZED U/W BASE
(FITCH/MOODY'S TENANT TOTAL U/W BASE U/W BASE RENT LEASE
TENANT /S&P) (2) NRSF NRSF RENT RENT(3) (PSF)(4) EXPIRATION
------ --------- ---- ---- ---- ------- -------- ----------
Atkins Nutritional Inc. NR/NR/NR 106,515 15.9% $703,000 14.3% $6.60 1/31/2005
Symbol Technologies, Inc. NR/NR/NR 94,119 14.0 596,126 12.2 $6.33 8/31/2009
Wellchoice Inc. NR/NR/NR 33,655 5.0 533,892 10.9 $15.86 6/30/2004
Nortel Networks NR/B3/NR 53,335 7.9 516,277 10.5 $9.68 6/30/2006
County of Suffolk NR/NR/NR 49,500 7.4 474,705 9.7 $9.59 10/31/2007
Deutsch Relays, Inc. NR/NR/NR 36,000 5.4 383,547 7.8 $10.65 11/30/2007
Industrial Fasteners LLC NR/NR/NR 30,124 4.5 271,083 5.5 $9.00 9/30/2008
Olmstead Savannah Inc. NR/NR/NR 41,315 6.1 244,585 5.0 $5.92 11/30/2006
PCI Group Inc. NR/NR/NR 30,000 4.5 228,171 4.7 $7.61 3/31/2009
Janco Distributors Inc. NR/NR/NR 23,034 3.4 155,461 3.2 $6.75 2/28/2005
------- ----- ---------- -----
TOTAL/AVERAGE: 497,597 74.1% $4,106,847 83.7% $8.25
======= ===== ========== =====
Remaining Tenants 104,565 15.6 798,370 16.3 $7.64
Vacant 69,654 10.4 0 0.0 $0.00
------- ----- ---------- -----
TOTAL/AVERAGE ALL TENANTS 671,816 100.0% $4,905,217 100.0% $7.30
======= ===== ========== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
(2) Certain ratings are those of the parent company whether or not the parent
guarantees the lease.
(3) Percentages based on total Annualized U/W Base Rent for all tenants.
(4) For those tenants with multiple leases, the Annual U/W Base Rent PSF is a
weighted average calculation of the leases.
B-29
Lease Expiration. The following table shows the lease expiration schedule
for the industrial space at the Rechler Industrial II Properties:
LEASE EXPIRATION SCHEDULE(1)
APPROXIMATE
% OF TOTAL ANNUALIZED
YEAR ENDING EXPIRING % OF TOTAL CUMULATIVE % ANNUALIZED U/W BASE U/W BASE
DECEMBER 31, (NRSF) NRSF OF TOTAL SF U/W BASE RENT RENT RENT PSF
------------ ------ ---- ----------- ------------- ---- --------
2004 33,655 5.0% 5.0% $533,892 10.9% $15.86
2005 172,299 25.6 30.7% 1,133,070 23.1 $6.58
2006 126,825 18.9 49.5% 1,057,407 21.6 $8.34
2007 85,500 12.7 62.3% 858,252 17.5 $10.04
2008 50,164 7.5 69.7% 416,699 8.5 $8.31
2009 133,719 19.9 89.6% 905,897 18.5 $6.77
2010 0 0.0 89.6% 0 0.0 $0.00
2011 0 0.0 89.6% 0 0.0 $0.00
2012 0 0.0 89.6% 0 0.0 $0.00
2013 0 0.0 89.6% 0 0.0 $0.00
2014 0 0.0 89.6% 0 0.0 $0.00
2015 & Thereafter 0 0.0 89.6% 0 0.0 $0.00
Vacant 69,654 10.4 100.0% 0 0.0 $0.00
------- ----- ---------- -----
TOTAL/AVERAGE: 671,816 100.0% $4,905,217 100.0% $7.30
======= ===== ========== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
Reserves. The borrower is required to deposit monthly (1) an amount equal
to 1/12 of upcoming annual real estate taxes and 1/12 of annual insurance
premiums into a tax and insurance escrow account, (2) if debt service coverage
ratio for the 12-month period ending on the last day of the most recent fiscal
quarter falls below 1.10x until the debt service coverage ratio for the 12-month
period ending on the last day of the 2 most recent fiscal quarters (a "Rechler
II Low DSCR Period") is at least 1.10x, an amount equal to 1/12 of the product
of (a) $0.50 and (b) the aggregate number of rentable square feet of the Rechler
Industrial II Properties into a tenant improvement and leasing commissions
reserve account and (3) during a Rechler II Low DSCR Period, an amount equal to
1/12 of the product of (a) $0.20 and (z) the aggregate number of rentable square
feet of the Rechler Industrial II Properties into a replacement reserve account.
Insurance Requirements. The borrower is required to maintain comprehensive
all risk insurance and terrorism insurance in a per-occurrence amount that is no
less than the Rechler Industrial II Terrorism Coverage Amount, if and to the
extent terrorism such coverage is (i) currently being obtained by prudent owners
of real estate in the United States of a similar type and quality and a similar
location to the Rechler Industrial II Properties, or (ii) is otherwise available
for an annual premium not in excess of, (x) if the borrower's terrorism
insurance is provided under an insurance policy that also covers properties that
are not Rechler Industrial II Properties, $112,500, and (y) if borrower's
terrorism insurance is provided under a policy that covers only the Rechler
Industrial II Properties, the product of (A) $112,500 times (B) a fraction, the
numerator of which is the aggregate rentable square footage of the Rechler
Industrial II Properties then remaining as collateral and the denominator of
which is $5,399,558.
The "Rechler Industrial II Terrorism Coverage Amount" means: (i) if the
borrower's terrorism insurance is provided under an insurance policy that also
covers properties that are not Rechler Industrial II Properties, $126,970,000,
and (ii) if the borrower's terrorism insurance is provided under a policy that
covers only the Rechler Industrial II Properties, the product of (x)
$126,970,000 times (y) a fraction, the numerator of which is the aggregate
rentable square footage of the Rechler Industrial II Properties then remaining
as collateral and the denominator of which is 5,399,558.
Lockbox; Sweep of Excess Cash Flow. At origination, the borrower was
required to establish a lockbox account controlled by the lender and to direct
all tenants to make payments directly to the lockbox account. Funds in excess of
the monthly debt service payment and any reserves required as described in
"Reserves" above are swept daily from the lockbox account to the borrower.
Mezzanine Loan. None permitted.
B-30
Additional Debt. None permitted except trade payables in an amount less
than 3% of the loan amount for the Rechler Industrial II Loan. Furthermore, the
total amount of trade payables, financing leases and purchase money debt may not
exceed 5% of the original principal amount of the Rechler Industrial II Loan at
any one time.
Permitted Transfers. The borrower is permitted to transfer 50% or more of
its equity interests so long as such transfer is to (a) certain specified
individuals, (b) any entity that is rated at least "BBB-" or "Baa3" by Fitch and
Moody's, respectively, meets certain minimum net worth requirements and is
regularly engaged in the business (or has a manager or advisor that is) of
owning or managing interests in commercial properties which contain at least
5,000,000 square feet of space, or (c) any other entity with respect to which a
rating confirmation is received.
Notwithstanding the foregoing, subject to certain conditions including
that the borrower retains in substance all economic benefits of and practical
control over the property, the borrower is permitted to convey its present fee
interest (but not any reversionary interest) in any Rechler Industrial II
Property to the Industrial Development Agency of New York (or a similar
governmental authority) and enter into a lease of the property for the purpose
of facilitating the granting of economic benefit to the borrower or tenant at
that property.
Alterations. Under the Rechler Industrial II Loan agreement, the borrower
is permitted to perform any alterations (other than tenant improvements required
under the leases) at any Rechler Industrial II Properties subject to certain
conditions and the consent of the mortgagee. If no event of default under the
Rechler Industrial II Loan is continuing, the mortgagee may not unreasonably
withhold its consent to any proposed alteration.
Defeasance. On any date after the earlier of the first payment date
following (a) the third anniversary of the loan closing date or (b) the second
anniversary of the date on which the Rechler Industrial II Loan is securitized,
the borrower is permitted to defease the Rechler Industrial II Loan in whole or
in part with U.S. Treasuries or other REMIC-eligible securities. Any partial
defeasance will be for a portion of the outstanding principal balance of the
Rechler Industrial II Loan at least equal to 125% of the allocated loan amount
for the Rechler Industrial II Property being released and after the defeasance,
the remaining Rechler Industrial II Properties must have a debt service coverage
ratio no less than the greater of the debt service coverage ratio at origination
or as of the date immediately prior to the release; provided that the debt
service coverage ratio may be further reduced by up to 0.05 below the debt
service coverage ratio so long as such ratio is greater than the debt service
coverage ratio at origination plus 0.15 and in any event, may be further reduced
so long as the debt service coverage ratio is equal to or greater than 1.75x.
B-31
RECHLER INDUSTRIAL PORTFOLIO I
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE:(1) $23,800,000 $23,697,944
% OF POOL BY UPB: 2.7%
ORIGINATION DATE: November 10, 2003
ORIGINATOR: Archon Financial, L.P.
COUPON: 5.290%
INTEREST ACCRUAL: Actual / 360
ORIGINAL TERM: 60 months
AMORTIZATION: 360 months
OWNERSHIP INTEREST: Fee Simple
PAYMENT DATE: 1st of the month.
MATURITY DATE: December 1, 2008
SPONSOR: Rechler Equity I LLC
BORROWER: REP A5 LLC
CALL PROTECTION/LOCKOUT: Lockout/Defeasance only until 3 months
prior to maturity.(1)
CUT-OFF DATE LOAN PSF: $42
UP-FRONT: RESERVES Deferred Maintenance $170,825;
Unfunded Obligation $781,235
ONGOING/SPRINGING RESERVES: Ongoing Tax and Insurance escrow;
Springing TI/LC and Replacement Reserve
escrows(2)
CASH MANAGEMENT: Hard Lockbox(3)
ADDITIONAL SECURED/ MEZZANINE
DEBT: None permitted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Portfolio
PROPERTIES TYPE: Industrial buildings
PROPERTIES LOCATION: Various
OCCUPANCY: 98.6%
OCCUPANCY AS OF DATE: January 29, 2004
YEARS BUILT: 1963-2002
YEARS RENOVATED: NAP
COLLATERAL: The collateral consists of 15 industrial
buildings
PROPERTIES MANAGEMENT: Rechler Equity Management
AGGREGATE APPRAISED VALUE: $38,210,000
APPRAISAL VALUE DATE: November 1, 2003
CUT-OFF DATE LTV: 62.02%
BALLOON LTV: 57.70%
U/W NOI: $3,379,341
U/W NCF: $2,980,427
CURRENT ANNUAL DEBT SERVICE: $1,584,177
U/W NOI DSCR: 2.13x
U/W NCF DSCR: 1.88x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) Defeasance is permitted in whole or in part. See "Defeasance" below.
(2) See "Reserves" below.
(3) See "Lockbox; Sweep of Excess Cash Flow" below.
B-32
The Loan. The ninth largest loan (the "Rechler Industrial I Loan"),
representing approximately 2.7% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date, has a principal balance as of the
cut-off date of $23,697,944. The Rechler Industrial I Loan is a 5-year balloon
loan that has a maturity date of December 1, 2008 and provides for monthly
payments of principal and interest based on a 30-year amortization schedule. The
Rechler Industrial I Loan is secured by, among other things, mortgages and
security agreements encumbering the borrower's fee ownership interest in the
Rechler Industrial I Properties as well as assignments of the borrower's
interests in the rents and leases associated with the Rechler Industrial I
Properties.
The Borrower. The borrower under the Rechler Industrial I Loan, REP A5
LLC, a Delaware limited liability company that is a special purpose entity
sponsored by REP I LLC, an affiliate of Rechler Equity LLC, which is majority
owned and controlled by members of the Rechler family.
The Properties. The property securing the Rechler Industrial I Loan (the
"Rechler Industrial I Properties") consists of the 15 industrial properties
located in New York. The borrower has a fee interest in all of the Rechler
Industrial I Properties.
Major Tenant Summary. The following table shows certain information
regarding the ten largest tenants of the Rechler Industrial I Properties:
TEN LARGEST TENANTS BASED ON ANNUALIZED UNDERWRITTEN BASE RENT(1)
% OF TOTAL ANNUALIZED
CREDIT RATING % OF ANNUALIZED ANNUALIZED U/W BASE
(FITCH/MOODY'S TENANT TOTAL U/W BASE U/W BASE RENT LEASE
TENANT /S&P)(2) NRSF NRSF RENT RENT(3) (PSF)(4) EXPIRATION
------ -------- ---- ---- ---- ------- -------- ----------
Wenner Bread Product NR/NR/NR 72,000 12.6% $717,869 15.7% $9.97 12/31/2013
Fonar Corporation NR/NR/NR 78,240 13.7 571,146 12.5 $7.30 1/31/2009
United Biomedical, Inc. NR/NR/NR 40,000 7.0 360,706 7.9 $9.02 12/31/2005
Datamedic Corp. NR/NR/NR 35,000 6.1 343,218 7.5 $9.81 12/31/2004
Genco Auto Electric Inc. NR/NR/NR 65,000 11.4 292,500 6.4 $4.50 5/31/2014
State Farm Insurance Company AA+/Aa1/AA 20,000 3.5 280,000 6.1 $14.00 1/31/2006
IDR Corp AKA Reuters America Inc. NR/NR/NR 27,600 4.8 242,101 5.3 $8.77 6/30/2005
Schoolwide, Inc. NR/NR/NR 21,600 3.8 168,480 3.7 $7.80 3/31/2006
B.I.T. Realty Inc. NR/NR/NR 9,200 1.6 159,980 3.5 $17.39 4/30/2013
Summit Laser Products, Inc. NR/NR/NR 25,300 4.4 142,295 3.1 $5.62 2/28/2011
------- ----- ---------- -----
TOTAL/AVERAGE: 393,940 69.1% $3,278,295 71.6% $8.32
======= ===== ========== =====
Remaining Tenants 160,425 28.2 1,299,766 28.4 $8.10
Vacant 15,478 2.7 0 0.0 $0.00
------- ----- ---------- -----
TOTAL/AVERAGE ALL TENANTS 569,843 100.0% $4,578,061 100.0% $8.03
======= ===== ========== =====
- ---------------------------------
(1) Annualized U/W Base Rent excludes vacant space.
(2) Certain ratings are those of the parent company whether or not the parent
guarantees the lease.
(3) Percentages based on total Annualized U/W Base Rent for all tenants.
(4) For those tenants with multiple leases, the Annual U/W Base Rent PSF is a
weighted average calculation of the leases.
B-33
Lease Expiration. The following table shows the lease expiration schedule
for the industrial space at the Rechler Industrial I Properties:
LEASE EXPIRATION SCHEDULE(1)
APPROXIMATE
% OF TOTAL ANNUALIZED
YEAR ENDING EXPIRING % OF TOTAL CUMULATIVE % ANNUALIZED U/W BASE U/W BASE
DECEMBER 31, (NRSF) NRSF OF TOTAL NRSF U/W BASE RENT RENT RENT PSF
------------ ------ ---- ------------- ------------- ---- --------
2004 52,905 9.3% 9.3% $489,622 10.7% $9.25
2005 85,501 15.0 24.3% 726,660 15.9 $8.50
2006 70,503 12.4 36.7% 688,553 15.0 $9.77
2007 29,419 5.2 41.8% 203,900 4.5 $6.93
2008 32,336 5.7 47.5% 228,471 5.0 $7.07
2009 78,240 13.7 61.2% 571,146 12.5 $7.30
2010 14,000 2.5 63.7% 109,200 2.4 $7.80
2011 25,300 4.4 68.1% 142,295 3.1 $5.62
2012 9,960 1.7 69.9% 135,080 3.0 $13.56
2013 91,201 16.0 85.9% 990,634 21.6 $10.86
2014 65,000 11.4 97.3% 292,500 6.4 $4.50
2015 & Thereafter 0 0.0 97.3% 0 0.0 $0.00
Vacant 15,478 2.7 100.0% 0 0.0 $0.00
------- ----- ---------- -----
TOTAL/AVERAGE: 569,843 100.0% $4,578,061 100.0% $8.03
======= ===== ========== =====
- ---------------------------------
(1) Annualized Underwritten Base Rent excludes vacant space.
Reserves. The borrower is required to deposit monthly (1) an amount equal
to 1/12 of upcoming annual real estate taxes and 1/12 of annual insurance
premiums into a tax and insurance escrow account, (2) if debt service coverage
ratio for the 12-month period ending on the last day of the most recent fiscal
quarter falls below 1.14x until the debt service coverage ratio for the 12-month
period ending on the last day of the 2 most recent fiscal quarters is at least
1.14x (a "Rechler I Low DSCR Period"), an amount equal to 1/12 of the product of
(a) $0.50 and (b) the aggregate number of rentable square feet of the Rechler
Industrial I Properties into a tenant improvement and leasing commissions
reserve account and (3) during a Rechler I Low DSCR Period, an amount equal to
1/12 of the product of (a) $0.20 and (z) the aggregate number of rentable square
feet of the Rechler Industrial I Properties into a replacement reserve account.
Insurance Requirements. The borrower is required to maintain comprehensive
all risk insurance and terrorism insurance in a per-occurrence amount that is no
less than the Rechler Industrial I Terrorism Coverage Amount, if and to the
extent terrorism such coverage is (i) currently being obtained by prudent owners
of real estate in the United States of a similar type and quality and a similar
location to the Rechler Industrial I Properties, or (ii) is otherwise available
for an annual premium not in excess of, (x) if the borrower's terrorism
insurance is provided under an insurance policy that also covers properties that
are not Rechler Industrial I Properties, $112,500, and (y) if borrower's
terrorism insurance is provided under a policy that covers only the Rechler
Industrial I Properties, the product of (A) $112,500 times (B) a fraction, the
numerator of which is the aggregate rentable square footage of the Rechler
Industrial I Properties then remaining as collateral and the denominator of
which is $5,399,558.
The "Rechler Industrial I Terrorism Coverage Amount" means: (i) if the
borrower's terrorism insurance is provided under an insurance policy that also
covers properties that are not Rechler Industrial I Properties, $126,970,000,
and (ii) if the borrower's terrorism insurance is provided under a policy that
covers only the Rechler Industrial I Properties, the product of (x) $126,970,000
times (y) a fraction, the numerator of which is the aggregate rentable square
footage of the Rechler Industrial I Properties then remaining as collateral and
the denominator of which is 5,399,558.
Lockbox; Sweep of Excess Cash Flow. At origination, the borrower was
required to establish a lockbox account controlled by the lender and to direct
all tenants to make payments directly to the lockbox account. Funds in excess of
the monthly debt service payment and any reserves required as described in
"Reserves" above are swept daily from the lockbox account to the borrower.
Mezzanine Loan. None permitted.
B-34
Additional Debt. None permitted except trade payables in an amount less
than 3% of the loan amount for the Rechler Industrial I Loan. Furthermore, the
total amount of trade payables, financing leases and purchase money debt may not
exceed 5% of the original principal amount of the Rechler Industrial I Loan at
any one time.
Permitted Transfers. The borrower is permitted to transfer 50% or more of
its equity interests so long as such transfer is to (a) certain specified
individuals, (b) any entity that is rated at least "BBB-" or "Baa3" by Fitch and
Moody's, respectively, meets certain minimum net worth requirements and is
regularly engaged in the business (or has a manager or advisor that is) of
owning or managing interests in commercial properties which contain at least
5,000,000 square feet of space, or (c) any other entity with respect to which a
rating confirmation is received.
Notwithstanding the foregoing, subject to certain conditions including
that the borrower retains in substance all economic benefits of and practical
control over the property, the borrower is permitted to convey its present fee
interest (but not any reversionary interest) in any Rechler Industrial I
Property to the Industrial Development Agency (or a similar governmental
authority) of New York and enter into a lease of the property for the purpose of
facilitating the granting of economic benefit to the borrower or tenant at that
property.
Alterations. Under the Rechler Industrial I Loan agreement, the borrower
is permitted to perform any alterations (other than tenant improvements required
under the leases) at any Rechler Industrial I Properties subject to certain
conditions and the consent of the mortgagee. If no event of default under the
Rechler Industrial I Loan is continuing, the mortgagee may not unreasonably
withhold its consent to any proposed alteration.
Defeasance. On any date after the earlier of the first payment date
following (a) the third anniversary of the loan closing date or (b) the second
anniversary of the date on which the Rechler Industrial I Loan is securitized,
the borrower is permitted to defease the Rechler Industrial I Loan in whole or
in part with U.S. Treasuries or other REMIC-eligible securities. Any partial
defeasance will be for a portion of the outstanding principal balance of the
Rechler Industrial I Loan at least equal to a 125% of the allocated loan amount
for the Rechler Industrial I Property being released and after the defeasance,
the remaining Rechler Industrial I Properties must have a debt service coverage
ratio no less than the greater of the debt service coverage ratio at origination
or as of the date immediately prior to the release; provided that the debt
service coverage ratio may be further reduced by up to 0.05 below the debt
service coverage ratio so long as such ratio is greater than the debt service
coverage ratio at origination plus 0.15 and in any event, may be further reduced
so long as the debt service coverage ratio is equal to or greater than 1.75x.
B-35
STONERIDGE PLAZA
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL CUT-OFF DATE
-------- ------------
BALANCE: $23,700,000 $23,626,670
% OF POOL BY UPB: 2.6%
ORIGINATION DATE: December 31, 2003
ORIGINATOR: PMCC, LLC
COUPON: 5.58%
INTEREST ACCRUAL: Actual / 360
ORIGINAL TERM: 84 months
AMORTIZATION: 360 months
OWNERSHIP INTEREST: Fee Simple
PAYMENT DATE: 1st of the month
MATURITY DATE: January 1, 2011
SPONSOR: Columbus Realty Investments, Ltd.
BORROWER: Morse & Hamilton Limited Partnership
CALL PROTECTION/LOCKOUT: Lockout/Defeasance only until 3 months
prior to maturity.
CUT-OFF DATE LOAN PSF: $109
UP-FRONT RESERVES: Taxes: $50,243; Drug Emporium:
$2,400,000 LOC(1)
ONGOING/SPRINGING RESERVES: Ongoing Tax; Springing reserves for
Insurance and Replacement Reserves(1)
CASH MANAGEMENT: None required
ADDITIONAL SECURED/ MEZZANINE None permitted
DEBT:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
SINGLE ASSET/PORTFOLIO: Single Asset
PROPERTY TYPE: Anchored Retail
PROPERTY LOCATION: Gahanna, Ohio
OCCUPANCY: 82.4%(2)
OCCUPANCY AS OF DATE: December 24, 2003
YEAR BUILT: 1995-1997
YEAR RENOVATED: NAP
COLLATERAL: The collateral consists of an anchored
shopping center containing approximately
216,856 square feet of retail space.
The center contains approximately
106,819 additional square feet of
anchor/outparcel space that is subject
to ground leases, which additional
improvements are not collateral for the
loan. The subject is anchored by a
Kroger supermarket and Cinemark Theatre.
PROPERTY MANAGEMENT: R.J. Solove and Associates Management,
Inc.
APPRAISED VALUE: $35,700,000
APPRAISAL VALUE DATE: November 6, 2003
CUT-OFF DATE LTV: 66.18%
BALLOON LTV: 59.49%
U/W NOI: $2,909,371
U/W NCF: $2,688,089
CURRENT ANNUAL DEBT SERVICE: $1,629,096
U/W NOI DSCR: 1.79x
U/W NCF DSCR: 1.65x
- --------------------------------------------------------------------------------
- ---------------------------------
(1) See "Reserves" below.
(2) The center contains approximately 106,819 additional square feet of
anchor/outparcel space that is subject to ground leases, which additional
improvements are not collateral for the loan. If this square footage were
factored into the occupancy calculation, the resulting occupancy for the
total center would be approximately 88.2%.
B-36
The Loan. The tenth largest loan (the "StoneRidge Plaza Loan"),
representing approximately 2.6% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date, with a principal balance as of the
cut-off date of $23,626,670, is a 7-year balloon loan that has a maturity date
of January 1, 2011 and provides for monthly payments of principal and interest
based on a 30-year amortization schedule. The StoneRidge Plaza Loan is secured
by, among other things, an open-end mortgage and security instrument encumbering
the borrower's fee ownership interest in the StoneRidge Plaza Property.
The Borrower. The borrower under the StoneRidge Plaza Loan, Morse &
Hamilton Limited Partnership, is an Ohio limited partnership that is a special
purpose entity. A principal of the borrower, Casto Ventures, Ltd., is also the
principal of two other borrowers under mortgage loans, collectively representing
4.64% of the aggregate principal balance of the pool of mortgage loans as of the
cut-off date, that are included in the trust. The mortgaged properties securing
these mortgage loans are also anchored by Kroger.
The Property. The StoneRidge Plaza property (the "StoneRidge Plaza
Property") is an approximately 216,856 square foot anchored shopping center. The
center contains approximately 106,819 additional square feet of anchor/outparcel
space that is subject to ground leases, which additional improvements are not
collateral for the loan. The subject is anchored by a Kroger supermarket which
pays ground rent to the borrower, and Cinemark Theatre. Other national tenants
in occupancy include Blockbuster Video, H&R Block, Radio Shack, Countrywide
Loans, and General Nutrition Center.
Major Tenant Summary. The following table shows certain information
regarding the 11 largest tenants of the StoneRidge Plaza Property based on
Annualized Base Rent:
ELEVEN LARGEST TENANTS BASED ON ANNUALIZED BASE RENT (1)(2)
CREDIT RATING(3) % OF TOTAL ANNUALIZED
(FITCH/MOODY'S/ ANNUALIZED ANNUALIZED BASE RENT LEASE
TENANT S&P) NRSF % OF NRSF BASE RENT BASE RENT(4) (PSF) EXPIRATION
------ ---- ---- --------- --------- ------------ ----- ----------
Cinemark 200 NR 49,786 23.0% $ 584,986 19.5% $11.75 11/30/2015
Kroger BBB/Baa3/BBB 0 0.0 256,516 8.6 3.25(5) 1/31/2022
Blockbuster Video NR 6,750 3.1 89,235 3.0 13.22 11/30/2005
Cap City Diner NR 6,000 2.8 84,000 2.8 14.00 11/30/2007
Irwin's Hallmark NR 6,000 2.8 84,000 2.8 14.00 3/31/2006
International Diamond NR 4,092 1.9 74,260 2.5 18.15 4/30/2007
Gentle Wind II NR 4,800 2.2 73,968 2.5 15.41 3/31/2006
H & R Block NR/NR/BBB+ 4,500 2.1 65,250 2.2 14.50 4/30/2007
Pet People NR 4,200 1.9 60,375 2.0 14.38 3/31/2007
American Red Cross NR 4,800 2.2 60,000 2.0 12.50 12/31/2008
Cici's Pizza NR 4,800 2.2 60,000 2.0 12.50 6/30/2013
------- ----- ---------- ----- ------
TOTAL/ AVERAGE 95,728 44.1% $1,492,590 49.8% $15.59(6)
======= ===== ========== ===== ======
Total Remaining Tenants 82,914 38.2 $1,506,062 50.2 $18.16(7)
Total Vacant Space 38,214 17.6 0 0.0 0.00
------- ----- ---------- ----- ------
TOTAL/ AVERAGE ALL TENANTS 216,856 100.0% $2,998,652 100.0% $13.83
======= ===== ========== ===== ======
- --------------------------------
(1) All calculations and averages (unless otherwise indicated) are based on a
NRSF of approximately 216,856, which excludes the SF attributable to the
subject's ground lease tenants (approximately 106,819 SF). The table is
based on a rent roll dated 12/24/2003, which rent roll was provided by
borrower.
(2) Annualized Base Rent excludes vacant space.
(3) Certain ratings are those of parent companies whether or not such companies
guarantee the lease.
(4) Percentage based on total Annualized Base Rent for all tenants.
(5) Calculated based on Kroger's SF of approximately 78,847.
(6) Calculated based on 95,728 SF, which assumes 0 SF for the Kroger space.
(7) Calculated based on 82,914 SF, which excludes the SF attributable to ground
lease tenants.
B-37
Lease Expiration. The following table shows the lease expiration schedule
for the StoneRidge Plaza Property:
LEASE EXPIRATION SCHEDULE(1)(2)
APPROXIMATE ANNUALIZED
YEAR ENDING EXPIRING % OF TOTAL CUMULATIVE % ANNUALIZED % OF TOTAL BASE RENT
DECEMBER 31, (NRSF) NRSF OF TOTAL NRSF BASE RENT BASE RENT PSF
------------ ------ ---- ------------- --------- --------- ---
2004 5,563 2.6% 2.6% 83,289 2.8% $14.73
2005 37,211 17.2 19.8% 500,284 16.7 $13.44
2006(3) 23,925 11.0 30.8% 382,327 12.7 $15.98
2007 29,592 13.6 44.4% 449,565 15.0 $15.19
2008 17,700 8.2 52.6% 256,335 8.5 $14.48
2009 0 0.0 52.6% 0 0.0 $0.00
2010(4) 0 0.0 52.6% 50,000 1.7 $NAP
2011 7,000 3.2 55.8% 93,500 3.1 $13.36
2012(5) 2,975 1.4 57.2% 93,350 3.1 $31.38
2013 4,800 2.2 59.4% 60,000 2.0 $12.50
2014 0 0.0 59.4% 0 0.0 $0.00
2015 & Thereafter(6) 49,786 23.0 82.4% 1,030,002 34.3 $20.69
Vacant(7) 38,214 17.6 100.0% 0 0.0 $0.00
------- ----- ---------- -----
TOTAL/AVERAGE: 216,856 100.0% $2,998,652 100.0% $13.83
======= ===== ========== =====
- ---------------------------------
(1) All calculations and weighted averages are based on a NRSF of approximately
216,856, which excludes the SF attributable to the subject's ground lease
tenants (approximately 106,819 SF). The table is based on a rent roll dated
12/24/2003, which rent roll was provided by borrower.
(2) Annualized Base Rent excludes vacant space.
(3) Base rent calculations include base rent attributable to the Skyline Chili
ground lease tenant ($35,000). A square footage of zero was assigned to this
tenant, as the improvements are not part of the subject collateral.
(4) The sole tenant expiring in 2010 is the Wendy's ground lease tenant
($50,000). A square footage of zero was assigned to this tenant, as the
improvements are not part of the subject collateral.
(5) Base rent calculations include KFC Corp ground lease tenant ($51,700). A
square footage of zero was assigned to this tenant, as the improvements are
not part of the subject collateral.
(6) Base rent calculations include Max & Erma's, Huntington National Bank,
Arby's, Taco Bell and Kroger ground lease tenants ($445,016). A square
footage of zero was assigned to these tenants, as the improvements are not
part of the subject collateral.
(7) Vacant space includes 27,000 square feet at the StoneRidge Plaza Property
that is leased to Drug Emporium. This tenant is currently in bankruptcy and
the related premises are currently dark.
Reserves. At origination $50,243 was funded into a tax reserve, with 1/12
of estimated annual taxes due monthly on an ongoing basis. Additionally, the
borrower posted a $2,400,000 Letter of Credit to be held as additional security
for the debt until such time as either (i) Drug Emporium, which has previously
filed for bankruptcy, reaffirms its existing lease and is in occupancy and
paying rent, or (ii) a replacement tenant for the Drug Emporium space is in
occupancy and paying rent pursuant to a fully executed lease having terms
comparable to those of the Drug Emporium lease (including a term of at least
three years and an annual base rent of at least $222,750) and, among other
things, lender has received an acceptable estoppel from such tenant. A springing
reserve for collection of insurance premiums is required if the borrower does
not maintain insurance as prescribed by the loan documents. Springing
replacement reserves are required upon the occurrence of (i) an event of
default; (ii) lender's determination, based on annual inspections, that the
StoneRidge Plaza Property is in need of repairs or is otherwise not well
maintained; or (iii) a sale of the StoneRidge Plaza Property.
Insurance Requirements. The borrower is required to maintain insurance on
the property including, but not limited to, comprehensive all risk and
commercial general liability coverage. The Mortgaged Property as of the date
hereof has terrorism coverage.
Lockbox; Sweep of Excess Cash Flow. None required.
Mezzanine Loan. None permitted.
Additional Debt. None permitted except for advances or trade payables or
accrued expenses incurred in the ordinary course of business of operating the
StoneRidge Plaza Property not outstanding for more than 60 days from the date
incurred in an amount not to exceed 2% of the outstanding principal balance of
the Note in the aggregate.
B-38
Permitted Transfers. Transfers of the direct or indirect ownership
interests in the borrower are permitted without the consent of the lender so
long as following such transfer, the persons responsible for the management
and/or control of the StoneRidge Plaza Property and/or borrower remain in legal,
beneficial and actual control and management of the StoneRidge Plaza Property.
Unless approved by lender, and subject to confirmation that there will be no
adverse rating impact, there shall not be permitted any (A) transfer in one or
more related transactions of a 49% or greater direct or indirect interest in the
borrower or any successive partner, member or limited liability company manager
thereof or (B) any direct or indirect change in the management or control of the
borrower or any shareholder, general partner, managing member or limited
liability company manager; provided that transfers to certain parties specified
in the loan documents are permitted without regard to these restrictions,
including certain transfers for estate planning purposes.
B-39
[THIS PAGE INTENTIONALLY LEFT BLANK.]
ANNEX C
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
CONTROL
NUMBER LOAN ORIGINATOR LOAN NUMBER PROPERTY NAME
- ------------------------------------------------------------------------------------------------------------------------------------
1 Archon Financial/Commerzbank 09-1001099 Water Tower Place
2 Archon Financial 09-0001834 Foothills Mall
3 Archon Financial 09-0001828 One Briarlake Plaza
4 Archon Financial 09-1001093 DDR Portfolio
4a Archon Financial 09-1001093-A Brook Highland Plaza Shopping Center
4b Archon Financial 09-1001093-B Meridian Crossroads Shopping Center
4c Archon Financial 09-1001093-C University Center
4d Archon Financial 09-1001093-D Uptown Solon Shopping Center
4e Archon Financial 09-1001093-E Big Oaks Crossing
4f Archon Financial 09-1001093-F North Pointe Shopping Center
4g Archon Financial 09-1001093-G Green Ridge Square
4h Archon Financial 09-1001093-H Indian Hills Plaza
4i Archon Financial 09-1001093-I Oxford Commons Center
4j Archon Financial 09-1001093-J Jacksonville Regional Shopping Center
5 GCFP 03-0535 237 Park Avenue
- ------------------------------------------------------------------------------------------------------------------------------------
6 Archon Financial 09-0001760 Willow Wood Plaza III & IV
7 Prudential Mortgage Capital NAV Hyatt Regency Dearborn
8 Archon Financial 09-1001104 Rechler Industrial Portfolio II (7-year)
8a Archon Financial 09-1001104-A 25 Orville Drive
8b Archon Financial 09-1001104-B 160 Wilbur Place
8c Archon Financial 09-1001104-C 1101 Lakeland Avenue
8d Archon Financial 09-1001104-D 2004 Orville Drive North
8e Archon Financial 09-1001104-E 4040 Veterans Memorial Highway
8f Archon Financial 09-1001104-F 135 Fell Court
8g Archon Financial 09-1001104-G 55 Engineers Road
8h Archon Financial 09-1001104-H 73 Oser Avenue
8i Archon Financial 09-1001104-I 90 Plant Avenue
8j Archon Financial 09-1001104-J 185 Oser Avenue
8k Archon Financial 09-1001104-K 395 Oser Avenue
8l Archon Financial 09-1001104-L 410 Vanderbilt Motor Parkway
8m Archon Financial 09-1001104-M 600 Old Willets Path
8n Archon Financial 09-1001104-N 85 South Service Road
- ------------------------------------------------------------------------------------------------------------------------------------
9 Archon Financial 09-1001103 Rechler Industrial Portfolio I (5-year)
9a Archon Financial 09-1001103-A 50 Orville Drive
9b Archon Financial 09-1001103-B 65 Orville Drive
9c Archon Financial 09-1001103-C 95 Orville Drive
9d Archon Financial 09-1001103-D 125 Wilbur Place
9e Archon Financial 09-1001103-E 180 Orville Place
9f Archon Financial 09-1001103-F 42 Windsor Place
9g Archon Financial 09-1001103-G 20 Oser Avenue
9h Archon Financial 09-1001103-H 25 Davids Drive
9i Archon Financial 09-1001103-I 85 Adams Avenue
9j Archon Financial 09-1001103-J 104 Parkway Drive South
9k Archon Financial 09-1001103-K 225 Oser Avenue
9l Archon Financial 09-1001103-L 611 Old Willets Path
9m Archon Financial 09-1001103-M 110 Marcus Drive
9n Archon Financial 09-1001103-N 505 Walt Whitman
9o Archon Financial 09-1001103-O 2001 Orville Drive
10 Prudential Mortgage Capital 6105238 StoneRidge Plaza
- ------------------------------------------------------------------------------------------------------------------------------------
11 Archon Financial 09-0001768 Meadowmont Village Shopping Center
12 Archon Financial 09-0001767 Springfield Park Shopping Center
13 Archon Financial 09-0001766 Camp Hill Shopping Center
14 Archon Financial 09-0001867 Arden Villas Apartments
15 Archon Financial 09-0001717 Plaza Del Mar III
- ------------------------------------------------------------------------------------------------------------------------------------
16 Archon Financial 09-0001869 Towne Center at Brookhill
17 Archon Financial 09-0001741 Lakeside I & II
18 Archon Financial 09-0001874 Welsh Capital Portfolio
18a Archon Financial 09-0001874-A Twin Lakes Corporate Center I
18b Archon Financial 09-0001874-B Armstrong Business Center I
18c Archon Financial 09-0001874-C Armstrong Business Center II
19 Archon Financial 09-0001875 Welsh Capital - Freeway
20 Archon Financial 09-0001746 Constellation Center One
- ------------------------------------------------------------------------------------------------------------------------------------
21 Archon Financial 09-0001842 Courtney Springs Apartments
22 Archon Financial 09-0001754 Pacific Financial Center
23 Archon Financial 09-0001725 Hudson Pointe Apartments
24 Prudential Mortgage Capital 6105233 Westbay Office Park
25 Archon Financial 09-0001774 Capital Center Office Building
- ------------------------------------------------------------------------------------------------------------------------------------
26 Archon Financial 09-0001775 Sutter I Medical Office Building
27 Archon Financial 09-0001750 Ridgeview Plaza
28 Prudential Mortgage Capital 6105179 Hartford Building
29 Prudential Mortgage Capital 6105234 Westerville Plaza
30 Archon Financial 09-0001824 Hidden Oak Estates- Phase II
- ------------------------------------------------------------------------------------------------------------------------------------
31 Archon Financial 09-0001886 Rose Garden Apartments
32 Archon Financial 09-0001889 Rosewood Place Apartments
33 Archon Financial 09-0001839 Mankato Heights Plaza
34 Archon Financial 09-0001764 Amesbury Plaza and Townhomes
35 Archon Financial 09-0001840 Diamond Ridge Apartments
- ------------------------------------------------------------------------------------------------------------------------------------
36 Archon Financial 09-0001726 One Harbor Center
37 Archon Financial 09-0001838 Village Ten Center
38 Prudential Mortgage Capital 6105235 Southwest Square
39 Archon Financial 09-0001804 Saddlewood Apartments
40 Archon Financial 09-0001885 Tradewinds Apartments
- ------------------------------------------------------------------------------------------------------------------------------------
41 Archon Financial 09-0001887 Wilshire Park Apartments
42 Archon Financial 09-0001721 Cortaro Plaza Shopping Center
43 Archon Financial 09-0001836 Caton Crossing Town Square
44 Archon Financial 09-0001854 South Point Apartments
45 Archon Financial 09-0001848 Tower Shopping Center
- ------------------------------------------------------------------------------------------------------------------------------------
46 Archon Financial 09-0001860 Sunrise Creek Apartments
47 Archon Financial 09-0001757 Riverwoods Apartments
48 Archon Financial 09-0001829 Coles Center Shopping Center
49 Archon Financial 09-0001858 Elmsford Executive Park
50 Archon Financial 09-0001748 Copper Chase Apartments
- ------------------------------------------------------------------------------------------------------------------------------------
51 Archon Financial 09-0001758 Fairfield Corporate Plaza
52 Archon Financial 09-0001837 Rochester Marketplace
53 Archon Financial 09-0001872 The Depot Specialty Center
54 Prudential Mortgage Capital 6105026 Heathbrook Commons Shopping Center
55 Archon Financial 09-0001794 Ashwaubenon Estates Apartments
- ------------------------------------------------------------------------------------------------------------------------------------
56 Prudential Mortgage Capital 6105195 West Creek Commons Shopping Center
57 Prudential Mortgage Capital 6105098 U-Stor-It Self Storage
58 Archon Financial 09-0001888 Braeshill Apartments
59 Archon Financial 09-0001830 Berkshire Square
60 Archon Financial 09-0001879 Palm Hills Apartments
- ------------------------------------------------------------------------------------------------------------------------------------
61 Archon Financial 09-0001738 Interport Business Center Building C
62 Archon Financial 09-0001793 The Howard Apartments
63 Prudential Mortgage Capital 6104991 Parkway Apartments
64 Archon Financial 09-0001784 The Hardy Center
65 Archon Financial 09-0001792 Village Park Apartments
- ------------------------------------------------------------------------------------------------------------------------------------
66 Prudential Mortgage Capital 6105309 Normandie Avenue Industrial
67 Archon Financial 09-0001803 Carmel Cove Apartments
(1) The open period is inclusive of the maturity date.
(2) Based on the "Stabilized" Appraised Value of $79,000,000.
(3) CVS is a dark tenant and is scheduled to pay rent through 11/30/13.
C-1
CONTROL
NUMBER PROPERTY TYPE ADDRESS CITY
- ------------------------------------------------------------------------------------------------------------------------------------
1 Anchored Retail 845 North Michigan Avenue Chicago
2 Anchored Retail 7401 North La Cholla Boulevard Tucson
3 Office 2000 West Sam Houston Parkway South Houston
4 Anchored Retail Various Various
4a Anchored Retail 5291 Highway 280 South Birmingham
4b Anchored Retail SEC Fairview Avenue and Eagle Road Meridian
4c Anchored Retail 326 - 412 S. College Street Wilmington
4d Anchored Retail 6025 Kruse Drive Solon
4e Anchored Retail 3929 N. Gloster Street Tupelo
4f Anchored Retail 7400 Rivers Avenue North Charleston
4g Anchored Retail 3410 Alpine Avenue Walker
4h Anchored Retail 4208 E. Blue Grass Road Mt. Pleasant
4i Anchored Retail 3500 Roxboro Road Durham
4j Anchored Retail 3000 Dunn Avenue Jacksonville
5 Office 237 Park Avenue New York
- ------------------------------------------------------------------------------------------------------------------------------------
6 Office 10302-10304 Eaton Place Fairfax City
7 Hotel 600 Town Center Drive Dearborn
8 Industrial Various Various
8a Industrial 25 Orville Drive Bohemia
8b Industrial 160 Wilbur Place Bohemia
8c Industrial 1101 Lakeland Avenue Bohemia
8d Industrial 2004 Orville Drive North Bohemia
8e Industrial 4040 Veterans Memorial Highway Bohemia
8f Industrial 135 Fell Court Hauppauge
8g Industrial 55 Engineers Road Hauppauge
8h Industrial 73 Oser Avenue Hauppauge
8i Industrial 90 Plant Avenue Hauppauge
8j Industrial 185 Oser Avenue Hauppauge
8k Industrial 395 Oser Avenue Hauppauge
8l Industrial 410 Vanderbilt Motor Parkway Hauppauge
8m Industrial 600 Old Willets Path Hauppauge
8n Industrial 85 South Service Road Plainview
- ------------------------------------------------------------------------------------------------------------------------------------
9 Industrial Various Various
9a Industrial 50 Orville Drive Bohemia
9b Industrial 65 Orville Drive Bohemia
9c Industrial 95 Orville Drive Bohemia
9d Industrial 125 Wilbur Place Bohemia
9e Industrial 180 Orville Place Bohemia
9f Industrial 42 Windsor Place Central Islip
9g Industrial 20 Oser Avenue Hauppauge
9h Industrial 25 Davids Drive Hauppauge
9i Industrial 85 Adams Avenue Hauppauge
9j Industrial 104 Parkway Drive South Hauppauge
9k Industrial 225 Oser Avenue Hauppauge
9l Industrial 611 Old Willets Path Hauppauge
9m Industrial 110 Marcus Drive Melville
9n Industrial 505 Walt Whitman Melville
9o Industrial 2001 Orville Drive North Bohemia
10 Anchored Retail SWC of Morse and Hamilton Roads Gahanna
- ------------------------------------------------------------------------------------------------------------------------------------
11 Anchored Retail 406 Meadowmont Lane Chapel Hill
12 Anchored Retail 665 Duluth Highway Lawrenceville
13 Anchored Retail 3415 Simpson Ferry Road Camp Hill
14 Multifamily 3303 Arden Villas Boulevard Orlando
15 Office 12544 High Bluff Drive San Diego
- ------------------------------------------------------------------------------------------------------------------------------------
16 Anchored Retail 6805-7475 West 88th Avenue Westminster
17 Office 14100-14120 Newbrook Drive Chantilly
18 Industrial Various Various
18a Industrial 1900 West County Road C West Roseville
18b Industrial 990 Long Oak Road Eagan
18c Industrial 980 Lone Oak Road Eagan
19 Industrial 2700 Freeway Boulevard Brooklyn Center
20 Office 6009 and 6011 Oxon Hill Road Oxon Hill
- ------------------------------------------------------------------------------------------------------------------------------------
21 Multifamily 440 Courtney Springs Circle Winter Springs
22 Office 800 West 6th Street Los Angeles
23 Multifamily 11901 4th Street North St. Petersburg
24 Office 3008 West Charleston Boulevard Las Vegas
25 Office 5511 Capital Center Drive Raleigh
- ------------------------------------------------------------------------------------------------------------------------------------
26 Office 2801 K Street Sacramento
27 Anchored Retail 2824-2930 North Power Road, 6740-6744 E. McDowell Road Mesa
28 Office 101 Civic Center Drive Santee
29 Anchored Retail 55 West Schrock Road Westerville
30 Multifamily 8331 82nd Street Pleasant Prairie
- ------------------------------------------------------------------------------------------------------------------------------------
31 Multifamily 11700 Bissonnet Road Houston
32 Multifamily 5505 Pine Street Houston
33 Anchored Retail 1901 Madison Avenue Mankato
34 Multifamily 5020 & 5025 Amesbury Drive Dallas
35 Multifamily 6525 Glenview Drive North Richland Hills
- ------------------------------------------------------------------------------------------------------------------------------------
36 Office 300 Main Street Suisun City
37 Anchored Retail 2100 Northdale Boulevard Coon Rapids
38 Anchored Retail 2065-2167 Eakin Road Columbus
39 Multifamily 2554 Northeast Loop 410 San Antonio
40 Multifamily 11303 South Wilcrest Drive Houston
- ------------------------------------------------------------------------------------------------------------------------------------
41 Multifamily 2686 Murworth Drive Houston
42 Anchored Retail 8310 North Thornydale Road Tucson
43 Anchored Retail SEC of Route 59 & Caton Farm Road Joliet
44 Multifamily 3201 Myra Street Durham
45 Anchored Retail 3615 New Bern Avenue Raleigh
- ------------------------------------------------------------------------------------------------------------------------------------
46 Multifamily 8315-8317 Sunrise Boulevard Citrus Heights
47 Multifamily 7816 Six Forks Road Raleigh
48 Anchored Retail 12312-12320 Barker Cypress Road Houston
49 Industrial 2269 Saw Mill River Road Elmsford
50 Multifamily 2041 Southgate Road Colorado Springs
- ------------------------------------------------------------------------------------------------------------------------------------
51 Office 1261 Travis Boulevard Fairfield
52 Anchored Retail Highway 52 at 41st Street NW Rochester
53 Anchored Retail 1057 North Willow Avenue Clovis
54 Anchored Retail 5400 SW College Road Ocala
55 Multifamily 2981-2995 Holmgren Way Ashwaubenon
- ------------------------------------------------------------------------------------------------------------------------------------
56 Anchored Retail 4760 West Hillsboro Boulevard Coconut Creek
57 Self-Storage 1000 East 95th Street Chicago
58 Multifamily 5900 North Braeswood Houston
59 Multifamily 7950 Cliffbrook Drive Dallas
60 Multifamily 4770 East Owens Avenue Las Vegas
- ------------------------------------------------------------------------------------------------------------------------------------
61 Industrial 5300-5390 Laburnum Avenue Richmond
62 Multifamily 1701 Velp Avenue Howard
63 Multifamily 1600 Southwest Parkway College Station
64 Industrial 2720-2750 South Hardy Drive Tempe
65 Multifamily 926-936 Pilgrim Way Ashwaubenon
- ------------------------------------------------------------------------------------------------------------------------------------
66 Industrial 22624-22638 Normandie Avenue Los Angeles
67 Multifamily 6500 West Lake Mead Boulevard Las Vegas
CONTROL CROSS COLLATERALIZED ORIGINAL
NUMBER STATE ZIP CODE GROUPS RELATED GROUPS BALANCE ($)
- --------------------------------------------------------------------------------------------------------------------------------
1 Illinois 60601 56,500,000
2 Arizona 85741 54,750,000
3 Texas 77042 50,000,000
4 Various Various 50,000,000
4a Alabama 35242
4b Idaho 83642
4c North Carolina 28403
4d Ohio 44139
4e Mississippi 38804
4f South Carolina 29406
4g Michigan 49544
4h Michigan 48858
4i North Carolina 27704
4j Florida 32218
5 New York 10017 44,000,000
- --------------------------------------------------------------------------------------------------------------------------------
6 Virginia 22030 Group A 40,000,000
7 Michigan 48126 32,500,000
8 New York Various Group B 26,700,000
8a New York 11716
8b New York 11716
8c New York 11716
8d New York 11716
8e New York 11716
8f New York 11788
8g New York 11788
8h New York 11788
8i New York 11788
8j New York 11788
8k New York 11788
8l New York 11788
8m New York 11788
8n New York 11803
- --------------------------------------------------------------------------------------------------------------------------------
9 New York Various Group B 23,800,000
9a New York 11716
9b New York 11716
9c New York 11716
9d New York 11716
9e New York 11716
9f New York 11722
9g New York 11788
9h New York 11788
9i New York 11788
9j New York 11788
9k New York 11788
9l New York 11788
9m New York 11747
9n New York 11747
9o New York 11716
10 Ohio 43230 Group C 23,700,000
- --------------------------------------------------------------------------------------------------------------------------------
11 North Carolina 27514 Group 1 Group D 13,400,000
12 Georgia 30045 Group 1 Group D 5,600,000
13 Pennsylvania 17011 Group 1 Group D 4,300,000
14 Florida 32817 23,000,000
15 California 92130 22,700,000
- --------------------------------------------------------------------------------------------------------------------------------
16 Colorado 80021 22,000,000
17 Virginia 20151 Group A 19,500,000
18 Minnesota Various Group 2 Group E 15,450,000
18a Minnesota 55113
18b Minnesota 55121
18c Minnesota 55121
19 Minnesota 55430 Group 2 Group E 3,800,000
20 Maryland 20745 16,000,000
- --------------------------------------------------------------------------------------------------------------------------------
21 Florida 32708 16,000,000
22 California 90017 15,750,000
23 Florida 33716 15,125,000
24 Nevada 89107 15,000,000
25 North Carolina 27606 Group F 14,000,000
- --------------------------------------------------------------------------------------------------------------------------------
26 California 95816 13,400,000
27 Arizona 85215 13,200,000
28 California 92071 10,000,000
29 Ohio 43081 Group C 9,500,000
30 Wisconsin 53158 9,400,000
- --------------------------------------------------------------------------------------------------------------------------------
31 Texas 77099 Group 3 Group G 7,985,000
32 Texas 77081 Group 3 Group G 1,200,000
33 Minnesota 56001 Group H 8,910,000
34 Texas 75206 8,600,000
35 Texas 76180 Group I 8,550,000
- --------------------------------------------------------------------------------------------------------------------------------
36 California 94585 Group J 8,500,000
37 Minnesota 55433 Group H 8,500,000
38 Ohio 43223 Group C 8,350,000
39 Texas 78217 Group I 8,320,000
40 Texas 77099 Group G 7,780,000
- --------------------------------------------------------------------------------------------------------------------------------
41 Texas 77054 Group G 7,600,000
42 Arizona 85709 7,500,000
43 Illinois 60544 Group H 7,425,000
44 North Carolina 27707 Group F 7,100,000
45 North Carolina 27610 6,850,000
- --------------------------------------------------------------------------------------------------------------------------------
46 California 95610 6,750,000
47 North Carolina 27615 Group F 6,700,000
48 Texas 77429 6,590,000
49 New York 10523 6,400,000
50 Colorado 80906 6,000,000
- --------------------------------------------------------------------------------------------------------------------------------
51 California 94533 Group J 6,000,000
52 Minnesota 55901 Group H 5,885,000
53 California 93611 5,600,000
54 Florida 34474 Group K 5,450,000
55 Wisconsin 54304 Group L 5,140,000
- --------------------------------------------------------------------------------------------------------------------------------
56 Florida 33073 Group K 4,900,000
57 Illinois 60619 4,450,000
58 Texas 77074 Group G 4,310,000
59 Texas 75254 4,050,000
60 Nevada 89110 3,575,000
- --------------------------------------------------------------------------------------------------------------------------------
61 Virginia 23231 3,500,000
62 Wisconsin 54303 Group L 3,017,000
63 Texas 77840 3,000,000
64 Arizona 85282 2,900,000
65 Wisconsin 54304 Group L 2,755,000
- --------------------------------------------------------------------------------------------------------------------------------
66 California 90502 2,600,000
67 Nevada 89108 2,500,000
% OF CUMULATIVE
AGGREGATE % OF MORTGAGE INTEREST
CONTROL CUT-OFF DATE INITIAL POOL INITIAL POOL RATE ADMINISTRATIVE ACCRUAL
NUMBER BALANCE ($) BALANCE BALANCE (%) FEE RATE (%) METHOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 56,039,776 6.32 6.32 4.97000 0.0227 Actual/360
2 54,750,000 6.12 12.44 5.09000 0.0327 Actual/360
3 50,000,000 5.59 18.03 5.39500 0.0327 Actual/360
4 48,915,252 5.59 23.62 4.41000 0.0427 Actual/360
4a
4b
4c
4d
4e
4f
4g
4h
4i
4j
5 44,000,000 4.92 28.54 5.78600 0.0227 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
6 40,000,000 4.47 33.01 4.50000 0.0327 Actual/360
7 32,500,000 3.63 36.65 5.60000 0.0427 Actual/360
8 26,593,085 2.99 39.63 5.61000 0.0327 Actual/360
8a
8b
8c
8d
8e
8f
8g
8h
8i
8j
8k
8l
8m
8n
- ------------------------------------------------------------------------------------------------------------------------------------
9 23,697,944 2.66 42.29 5.29000 0.0327 Actual/360
9a
9b
9c
9d
9e
9f
9g
9h
9i
9j
9k
9l
9m
9n
9o
10 23,626,670 2.65 44.94 5.58000 0.0927 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
11 13,400,000 1.50 46.44 4.20000 0.0427 Actual/360
12 5,600,000 0.63 47.07 4.20000 0.0427 Actual/360
13 4,300,000 0.48 47.55 4.20000 0.0427 Actual/360
14 23,000,000 2.57 50.12 5.05000 0.0827 Actual/360
15 22,700,000 2.54 52.66 4.88000 0.0327 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
16 22,000,000 2.46 55.12 4.95000 0.0827 Actual/360
17 19,500,000 2.18 57.30 4.60000 0.0327 Actual/360
18 15,450,000 1.73 59.03 4.83000 0.0827 Actual/360
18a
18b
18c
19 3,800,000 0.42 59.45 4.83000 0.0827 Actual/360
20 16,000,000 1.79 61.24 5.25000 0.0627 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
21 16,000,000 1.79 63.03 5.01000 0.1027 Actual/360
22 15,750,000 1.76 64.79 4.50000 0.0727 Actual/360
23 15,125,000 1.69 66.48 4.55000 0.0327 Actual/360
24 14,955,383 1.68 68.16 5.77000 0.0927 Actual/360
25 14,000,000 1.57 69.73 4.20000 0.0827 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
26 13,400,000 1.50 71.22 4.60000 0.0327 Actual/360
27 13,200,000 1.48 72.70 4.67000 0.0927 Actual/360
28 9,945,858 1.12 73.82 6.06000 0.0927 Actual/360
29 9,469,375 1.06 74.88 5.38000 0.0927 Actual/360
30 9,400,000 1.05 75.93 4.90000 0.0327 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
31 7,985,000 0.89 76.83 4.21000 0.0327 Actual/360
32 1,200,000 0.13 76.96 4.21000 0.0327 Actual/360
33 8,910,000 1.00 77.96 4.88000 0.0427 30/360
34 8,600,000 0.96 78.92 4.65000 0.1027 Actual/360
35 8,550,000 0.96 79.87 5.38000 0.0327 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
36 8,500,000 0.95 80.82 4.90000 0.0327 Actual/360
37 8,500,000 0.95 81.77 4.88000 0.0427 30/360
38 8,323,083 0.93 82.71 5.38000 0.0927 Actual/360
39 8,320,000 0.93 83.64 5.43000 0.0827 Actual/360
40 7,780,000 0.87 84.51 4.21000 0.0327 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
41 7,600,000 0.85 85.36 4.21000 0.0327 Actual/360
42 7,500,000 0.84 86.20 5.03000 0.0327 Actual/360
43 7,425,000 0.83 87.03 4.88000 0.0427 30/360
44 7,100,000 0.79 87.82 5.13000 0.0827 Actual/360
45 6,850,000 0.77 88.59 4.80000 0.0327 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
46 6,750,000 0.75 89.34 4.85000 0.0327 Actual/360
47 6,700,000 0.75 90.09 4.65000 0.0827 Actual/360
48 6,569,356 0.74 90.83 5.52000 0.0627 Actual/360
49 6,400,000 0.72 91.54 5.35000 0.0827 Actual/360
50 6,000,000 0.67 92.21 4.35000 0.1027 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
51 6,000,000 0.67 92.88 4.85000 0.0327 Actual/360
52 5,885,000 0.66 93.54 4.88000 0.0427 30/360
53 5,600,000 0.63 94.17 5.01000 0.0327 Actual/360
54 5,450,000 0.61 94.78 5.05000 0.0427 Actual/360
55 5,140,000 0.57 95.35 4.88000 0.0327 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
56 4,900,000 0.55 95.90 6.00000 0.0427 Actual/360
57 4,418,908 0.50 96.40 5.97000 0.0927 Actual/360
58 4,310,000 0.48 96.88 4.21000 0.0327 Actual/360
59 4,050,000 0.45 97.33 5.28000 0.0327 Actual/360
60 3,575,000 0.40 97.73 4.99000 0.0327 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
61 3,500,000 0.39 98.12 4.95000 0.0327 Actual/360
62 3,017,000 0.34 98.46 4.88000 0.0327 Actual/360
63 2,990,660 0.34 98.80 5.55000 0.0427 Actual/360
64 2,900,000 0.32 99.12 5.43000 0.0327 Actual/360
65 2,755,000 0.31 99.43 4.88000 0.0327 Actual/360
- ------------------------------------------------------------------------------------------------------------------------------------
66 2,591,965 0.29 99.72 5.57000 0.0927 Actual/360
67 2,500,000 0.28 100.00 5.38000 0.0327 Actual/360
ORIGINAL ORIGINAL
INTEREST REMAINING TERM TO REMAINING
CONTROL ONLY PERIOD INTEREST ONLY MATURITY TERM TO
NUMBER AMORTIZATION TYPE (MOS.) PERIOD (MOS.) (MOS.) MATURITY (MOS.)
- ------------------------------------------------------------------------------------------------------------------------------------
1 Amortizing 84 77
2 Interest Only 60 55 60 55
3 Interest Only 84 79 84 79
4 Amortizing 59 47
4a
4b
4c
4d
4e
4f
4g
4h
4i
4j
5 Interest Only, Then Amortizing 36 31 84 79
- ------------------------------------------------------------------------------------------------------------------------------------
6 Interest Only 60 51 60 51
7 Amortizing 60 60
8 Amortizing 84 80
8a
8b
8c
8d
8e
8f
8g
8h
8i
8j
8k
8l
8m
8n
- ------------------------------------------------------------------------------------------------------------------------------------
9 Amortizing 60 56
9a
9b
9c
9d
9e
9f
9g
9h
9i
9j
9k
9l
9m
9n
9o
10 Amortizing 0 0 84 81
- ------------------------------------------------------------------------------------------------------------------------------------
11 Interest Only 84 76 84 76
12 Interest Only 84 76 84 76
13 Interest Only 84 76 84 76
14 Interest Only 60 58 60 58
15 Interest Only 60 47 60 47
- ------------------------------------------------------------------------------------------------------------------------------------
16 Interest Only 60 58 60 58
17 Interest Only 60 50 60 50
18 Interest Only 84 84 84 84
18a
18b
18c
19 Interest Only 84 84 84 84
20 Interest Only 60 48 60 48
- ------------------------------------------------------------------------------------------------------------------------------------
21 Interest Only 60 56 60 56
22 Interest Only 60 52 60 52
23 Interest Only 60 48 60 48
24 Amortizing 0 0 84 81
25 Interest Only 60 51 60 51
- ------------------------------------------------------------------------------------------------------------------------------------
26 Interest Only 60 52 60 52
27 Interest Only 60 50 60 50
28 Amortizing 0 0 84 79
29 Amortizing 0 0 60 57
30 Interest Only 60 56 60 56
- ------------------------------------------------------------------------------------------------------------------------------------
31 Interest Only 60 60 60 60
32 Interest Only 60 60 60 60
33 Interest Only 84 81 84 81
34 Interest Only 60 50 60 50
35 Interest Only 60 56 60 56
- ------------------------------------------------------------------------------------------------------------------------------------
36 Interest Only 60 48 60 48
37 Interest Only 84 81 84 81
38 Amortizing 0 0 60 57
39 Interest Only 60 54 60 54
40 Interest Only 60 60 60 60
- ------------------------------------------------------------------------------------------------------------------------------------
41 Interest Only 60 60 60 60
42 Interest Only 60 48 60 48
43 Interest Only 84 81 84 81
44 Interest Only 60 57 60 57
45 Interest Only 60 58 60 58
- ------------------------------------------------------------------------------------------------------------------------------------
46 Interest Only 60 60 60 60
47 Interest Only 60 51 60 51
48 Amortizing 84 81
49 Interest Only 60 57 60 57
50 Interest Only 60 51 60 51
- ------------------------------------------------------------------------------------------------------------------------------------
51 Interest Only 60 51 60 51
52 Interest Only 84 81 84 81
53 Interest Only 60 59 60 59
54 Interest Only 84 76 84 76
55 Interest Only 60 55 60 55
- ------------------------------------------------------------------------------------------------------------------------------------
56 Interest Only 84 82 84 82
57 Amortizing 0 0 84 79
58 Interest Only 60 60 60 60
59 Interest Only 60 55 60 55
60 Interest Only 60 60 60 60
- ------------------------------------------------------------------------------------------------------------------------------------
61 Interest Only, Then Amortizing 12 2 85 75
62 Interest Only 60 55 60 55
63 Amortizing 0 0 60 57
64 Interest Only 60 53 60 53
65 Interest Only 60 55 60 55
- ------------------------------------------------------------------------------------------------------------------------------------
66 Amortizing 0 0 84 82
67 Interest Only 60 53 60 53
ORIGINAL REMAINING
CONTROL AMORTIZATION TERM AMORTIZATION TERM MATURITY DATE
NUMBER (MOS.) (MOS.) ORIGINATION DATE FIRST PAYMENT DATE OR ARD
- ------------------------------------------------------------------------------------------------------------------------------------
1 360 353 8/21/2003 10/1/2003 9/1/2010
2 10/30/2003 12/1/2003 11/1/2008
3 10/8/2003 12/1/2003 11/1/2010
4 300 288 3/25/2003 5/1/2003 3/1/2008
4a
4b
4c
4d
4e
4f
4g
4h
4i
4j
5 360 360 10/10/2003 12/1/2003 11/1/2010
- ------------------------------------------------------------------------------------------------------------------------------------
6 6/13/2003 8/1/2003 7/1/2008
7 300 300 3/19/2004 5/1/2004 4/1/2009
8 360 356 11/10/2003 12/31/2003 12/1/2010
8a
8b
8c
8d
8e
8f
8g
8h
8i
8j
8k
8l
8m
8n
- ------------------------------------------------------------------------------------------------------------------------------------
9 360 356 11/10/2003 12/31/2003 12/1/2008
9a
9b
9c
9d
9e
9f
9g
9h
9i
9j
9k
9l
9m
9n
9o
10 360 357 12/31/2003 2/1/2004 1/1/2011
- ------------------------------------------------------------------------------------------------------------------------------------
11 7/24/2003 9/1/2003 8/1/2010
12 7/24/2003 9/1/2003 8/1/2010
13 7/24/2003 9/1/2003 8/1/2010
14 1/30/2004 3/1/2004 2/1/2009
15 2/5/2003 4/1/2003 3/1/2008
- ------------------------------------------------------------------------------------------------------------------------------------
16 1/30/2004 3/1/2004 2/1/2009
17 5/13/2003 7/1/2003 6/1/2008
18 3/12/2004 5/1/2004 4/1/2011
18a
18b
18c
19 3/12/2004 5/1/2004 4/1/2011
20 3/31/2003 5/1/2003 4/1/2008
- ------------------------------------------------------------------------------------------------------------------------------------
21 11/19/2003 1/1/2004 12/1/2008
22 7/14/2003 9/1/2003 8/1/2008
23 3/24/2003 5/1/2003 4/1/2008
24 360 357 12/15/2003 2/1/2004 1/1/2011
25 6/27/2003 8/1/2003 7/1/2008
- ------------------------------------------------------------------------------------------------------------------------------------
26 7/1/2003 9/1/2003 8/1/2008
27 5/9/2003 7/1/2003 6/1/2008
28 336 331 10/21/2003 12/1/2003 11/1/2010
29 360 357 12/31/2003 2/1/2004 1/1/2009
30 11/19/2003 1/1/2004 12/1/2008
- ------------------------------------------------------------------------------------------------------------------------------------
31 3/19/2004 5/1/2004 4/1/2009
32 3/19/2004 5/1/2004 4/1/2009
33 12/31/2003 2/1/2004 1/1/2011
34 5/29/2003 7/1/2003 6/1/2008
35 11/12/2003 1/1/2004 12/1/2008
- ------------------------------------------------------------------------------------------------------------------------------------
36 3/17/2003 5/1/2003 4/1/2008
37 12/31/2003 2/1/2004 1/1/2011
38 360 357 12/31/2003 2/1/2004 1/1/2009
39 9/18/2003 11/1/2003 10/1/2008
40 3/19/2004 5/1/2004 4/1/2009
- ------------------------------------------------------------------------------------------------------------------------------------
41 3/19/2004 5/1/2004 4/1/2009
42 3/26/2003 5/1/2003 4/1/2008
43 12/31/2003 2/1/2004 1/1/2011
44 12/30/2003 2/1/2004 1/1/2009
45 1/16/2004 3/1/2004 2/1/2009
- ------------------------------------------------------------------------------------------------------------------------------------
46 3/18/2004 5/1/2004 4/1/2009
47 6/5/2003 8/1/2003 7/1/2008
48 360 357 12/8/2003 2/1/2004 1/1/2011
49 12/30/2003 2/1/2004 1/1/2009
50 6/18/2003 8/1/2003 7/1/2008
- ------------------------------------------------------------------------------------------------------------------------------------
51 6/11/2003 8/1/2003 7/1/2008
52 12/31/2003 2/1/2004 1/1/2011
53 2/12/2004 4/1/2004 3/1/2009
54 7/14/2003 9/1/2003 8/1/2010
55 10/9/2003 12/1/2003 11/1/2008
- ------------------------------------------------------------------------------------------------------------------------------------
56 1/8/2004 3/1/2004 2/1/2011
57 300 295 10/27/2003 12/1/2003 11/1/2010
58 3/19/2004 5/1/2004 4/1/2009
59 10/24/2003 12/1/2003 11/1/2008
60 3/5/2004 5/1/2004 4/1/2009
- ------------------------------------------------------------------------------------------------------------------------------------
61 360 360 5/28/2003 7/1/2003 7/1/2010
62 10/9/2003 12/1/2003 11/1/2008
63 360 357 12/11/2003 2/1/2004 1/1/2009
64 8/15/2003 10/1/2003 9/1/2008
65 10/9/2003 12/1/2003 11/1/2008
- ------------------------------------------------------------------------------------------------------------------------------------
66 300 298 1/26/2004 3/1/2004 2/1/2011
67 8/27/2003 10/1/2003 9/1/2008
ANNUAL
CONTROL BALLOON DEBT MOST RECENT
NUMBER BALANCE ($) PREPAYMENT PROVISION (1) SERVICE ($) NOI
- ---------------------------------------------------------------------------------------------------------------------
1 49,984,914 Lockout/31_Defeasance/49_0%/4 3,627,230 24,902,764
2 54,750,000 Lockout/29_Defeasance/27_0%/4 2,825,480 6,107,544
3 50,000,000 Lockout/29_YM/48_0%/7 2,734,965 6,281,734
4 44,145,372 Lockout/35_Defeasance/20_0%/4 3,304,419 22,846,133
4a 4,079,228
4b 4,510,013
4c 3,152,494
4d 2,471,339
4e 1,819,998
4f 1,841,304
4g 1,560,321
4h 1,272,600
4i 1,086,246
4j 1,052,590
5 41,704,123 Lockout/29_Defeasance/51_0%/4 3,093,350 33,783,821
- ---------------------------------------------------------------------------------------------------------------------
6 40,000,000 Lockout/33_Defeasance/23_0%/4 1,825,000 5,062,963
7 29,201,804 Lockout/25_ >YM or 1%/32_0%/3 2,418,288 6,124,338
8 23,943,400 Lockout/28_Defeasance/52_0%/4 1,841,370 3,688,149
8a 383,539
8b 389,458
8c 390,715
8d 244,203
8e 76,099
8f 236,790
8g 350,917
8h 103,932
8i 260,688
8j 196,832
8k 380,480
8l 205,527
8m 390,204
8n 78,765
- ---------------------------------------------------------------------------------------------------------------------
9 22,047,745 Lockout/28_Defeasance/28_0%/4 1,584,177 2,856,915
9a 138,755
9b 164,692
9c 117,407
9d 226,616
9e 122,785
9f 118,957
9g 307,586
9h 292,909
9i 184,927
9j 184,556
9k 100,196
9l 105,096
9m 510,773
9n 116,007
9o 165,653
10 21,238,927 Lockout/28_Defeasance/52_0%/4 1,629,096 2,861,316
- ---------------------------------------------------------------------------------------------------------------------
11 13,400,000 Lockout/32_>YM or 1%/48_0%/4 570,617 1,811,657
12 5,600,000 Lockout/32_>YM or 1%/48_0%/4 238,467 1,040,837
13 4,300,000 Lockout/32_>YM or 1%/48_0%/4 183,108 587,696
14 23,000,000 Lockout/26_Defeasance/30_0%/4 1,177,632 2,123,428
15 22,700,000 Lockout/35_Defeasance/21_0%/4 1,123,146 3,122,713
- ---------------------------------------------------------------------------------------------------------------------
16 22,000,000 Lockout/26_Defeasance/27_0%/7 1,104,125 2,197,147
17 19,500,000 Lockout/34_Defeasance/22_0%/4 909,458 2,903,554
18 15,450,000 Lockout/24_Defeasance/56_0%/4 756,599 1,805,460
18a 241,680
18b 779,275
18c 784,505
19 3,800,000 Lockout/24_Defeasance/56_0%/4 186,089 394,213
20 16,000,000 Lockout/36_Defeasance/11_0%/13 851,667 2,017,151
- ---------------------------------------------------------------------------------------------------------------------
21 16,000,000 Lockout/28_Defeasance/28_0%/4 812,733 1,363,869
22 15,750,000 Lockout/32_Defeasance/24_0%/4 718,594 2,484,141
23 15,125,000 Lockout/35_Defeasance/21_0%/4 697,746 1,585,878
24 13,493,992 Lockout/28_Defeasance/52_0%/4 1,052,719 1,671,652
25 14,000,000 Lockout/33_Defeasance/23_0%/4 596,167 1,877,864
- ---------------------------------------------------------------------------------------------------------------------
26 13,400,000 Lockout/32_Defeasance/24_0%/4 624,961 1,701,095
27 13,200,000 Lockout/34_Defeasance/22_0%/4 625,002 1,152,394
28 8,885,229 Lockout/30_Defeasance/50_0%/4 742,696 N/A
29 8,811,792 Lockout/28_Defeasance/28_0%/4 638,723 972,803
30 9,400,000 Lockout/28_Defeasance/28_0%/4 466,997 819,706
- ---------------------------------------------------------------------------------------------------------------------
31 7,985,000 Lockout/24_Defeasance/32_0%/4 340,838 707,869
32 1,200,000 Lockout/24_Defeasance/32_0%/4 51,222 120,877
33 8,910,000 Lockout/27_>YM or 1%/53_0%/4 434,808 N/A
34 8,600,000 Lockout/34_>YM or 1%/22_0%/4 405,454 630,532
35 8,550,000 Lockout/28_Defeasance/28_0%/4 466,379 814,316
- ---------------------------------------------------------------------------------------------------------------------
36 8,500,000 Lockout/36_Defeasance/20_0%/4 422,285 841,189
37 8,500,000 Lockout/27_>YM or 1%/53_0%/4 414,800 N/A
38 7,745,102 Lockout/28_Defeasance/28_0%/4 561,404 1,076,150
39 8,320,000 Lockout/30_Defeasance/26_0%/4 458,051 904,418
40 7,780,000 Lockout/24_Defeasance/32_0%/4 332,087 739,166
- ---------------------------------------------------------------------------------------------------------------------
41 7,600,000 Lockout/24_Defeasance/32_0%/4 324,404 660,256
42 7,500,000 Lockout/36_Defeasance/20_0%/4 382,490 816,894
43 7,425,000 Lockout/27_>YM or 1%/53_0%/4 362,340 N/A
44 7,100,000 Lockout/27_Defeasance/29_0%/4 369,289 679,131
45 6,850,000 Lockout/26_Defeasance/30_0%/4 333,367 827,078
- ---------------------------------------------------------------------------------------------------------------------
46 6,750,000 Lockout/24_Defeasance/32_0%/4 331,922 593,050
47 6,700,000 Lockout/33_Defeasance/23_0%/4 315,877 459,771
48 5,898,426 Lockout/27_Defeasance/53_0%/4 450,000 621,215
49 6,400,000 Lockout/27_Defeasance/29_0%/4 347,156 1,153,374
50 6,000,000 Lockout/33_Defeasance/23_0%/4 264,625 571,144
- ---------------------------------------------------------------------------------------------------------------------
51 6,000,000 Lockout/33_Defeasance/23_0%/4 295,042 686,686
52 5,885,000 Lockout/27_>YM or 1%/53_0%/4 287,188 N/A
53 5,600,000 Lockout/25_Defeasance/31_0%/4 284,457 N/A
54 5,450,000 Lockout/32_Defeasance/48_0%/4 279,048 N/A
55 5,140,000 Lockout/29_Defeasance/27_0%/4 254,316 585,039
- -----------------------------------------------------------------------------------------------------
56 4,900,000 Lockout/26_Defeasance/54_0%/4 298,083 N/A
57 3,810,947 Lockout/49_ >YM or 1%/28_0%/7 343,078 547,409
58 4,310,000 Lockout/24_Defeasance/32_0%/4 183,971 421,728
59 4,050,000 Lockout/29_>YM or 1%/27_0%/4 216,810 362,977
60 3,575,000 Lockout/24_>YM or 1%/32_0%/4 180,870 340,331
- ---------------------------------------------------------------------------------------------------------------------
61 3,155,996 Lockout/34_Defeasance/47_0%/4 224,183 446,835
62 3,017,000 Lockout/29_Defeasance/27_0%/4 149,274 312,842
63 2,789,442 Lockout/28_Defeasance/28_0%/4 205,535 534,773
64 2,900,000 Lockout/31_Defeasance/25_0%/4 159,657 300,527
65 2,755,000 Lockout/29_Defeasance/27_0%/4 136,311 291,066
- ---------------------------------------------------------------------------------------------------------------------
66 2,206,263 Lockout/27_Defeasance/53_0%/4 192,902 285,007
67 2,500,000 Lockout/31_Defeasance/25_0%/4 136,368 311,812
CONTROL DATE OF MOST UNDERWRITTEN NET UNDERWRITTEN NET UNDERWRITTEN NCF ORIGINAL
NUMBER RECENT NOI OPERATING INCOME ($) CASH FLOW ($) DSCR (X) APPRAISAL VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
1 12/31/2003 25,026,209 24,040,260 1.99 335,000,000
2 12/1/2003 5,550,653 5,036,065 1.90 68,000,000
3 8/31/2003 6,228,856 5,804,767 2.12 74,000,000
4 12/31/2003 23,268,583 21,777,366 2.20 248,800,000
4a 12/31/2003 4,389,970 4,040,155 45,500,000
4b 12/31/2003 4,595,682 4,371,653 47,700,000
4c 12/31/2003 3,192,656 2,983,222 35,000,000
4d 12/31/2003 2,577,356 2,450,801 28,500,000
4e 12/31/2003 1,784,993 1,688,889 19,700,000
4f 12/31/2003 1,888,961 1,790,269 20,100,000
4g 12/31/2003 1,443,499 1,319,246 14,200,000
4h 12/31/2003 1,132,742 1,077,433 13,500,000
4i 12/31/2003 1,103,661 979,369 12,800,000
4j 12/31/2003 1,159,063 1,076,329 11,800,000
5 12/31/2003 32,057,181 31,867,494 1.52 460,000,000
- -------------------------------------------------------------------------------------------------------------------------------
6 11/30/2003 5,075,450 4,867,720 2.67 54,000,000
7 1/31/2004 5,013,439 3,970,418 1.64 70,000,000
8 5/31/2003 3,689,589 3,219,166 1.75 43,160,000
8a 5/31/2003 421,367 378,727 3,300,000
8b 5/31/2003 407,430 349,410 4,200,000
8c 5/31/2003 424,038 368,769 4,500,000
8d 5/31/2003 516,027 447,333 5,200,000
8e 5/31/2003 76,858 72,200 770,000
8f 5/31/2003 258,223 236,760 2,600,000
8g 5/31/2003 362,445 318,722 3,700,000
8h 5/31/2003 115,260 100,525 1,110,000
8i 5/31/2003 331,178 288,731 3,300,000
8j 5/31/2003 207,684 181,843 2,080,000
8k 5/31/2003 396,454 353,781 4,700,000
8l 5/31/2003 222,500 198,253 2,300,000
8m 5/31/2003 -137,558 -151,489 4,400,000
8n 5/31/2003 87,683 75,601 1,000,000
- -------------------------------------------------------------------------------------------------------------------------------
9 5/31/2003 3,379,341 2,980,427 1.88 38,210,000
9a 5/31/2003 91,225 69,270 2,600,000
9b 5/31/2003 170,710 148,900 1,800,000
9c 5/31/2003 118,452 104,005 1,300,000
9d 5/31/2003 214,563 173,836 2,600,000
9e 5/31/2003 160,518 139,149 2,000,000
9f 5/31/2003 128,172 99,312 1,300,000
9g 5/31/2003 307,560 264,247 3,150,000
9h 5/31/2003 295,354 265,650 3,330,000
9i 5/31/2003 185,987 164,001 2,010,000
9j 5/31/2003 209,433 190,871 2,080,000
9k 5/31/2003 103,109 93,049 1,100,000
9l 5/31/2003 109,222 93,795 1,300,000
9m 5/31/2003 509,559 455,159 5,600,000
9n 5/31/2003 121,451 111,397 1,140,000
9o 5/31/2003 654,026 607,786 6,900,000
10 10/31/2003 2,909,371 2,688,089 1.65 35,700,000
- -------------------------------------------------------------------------------------------------------------------------------
11 11/1/2003 2,114,024 1,960,257 3.44 27,300,000
12 11/1/2003 977,680 885,239 3.44 11,000,000
13 11/1/2003 609,338 570,700 3.44 7,925,000
14 12/31/2003 2,137,386 2,086,986 1.77 29,950,000
15 9/30/2003 2,821,580 2,602,589 2.32 34,100,000
- -------------------------------------------------------------------------------------------------------------------------------
16 12/31/2003 2,587,829 2,272,436 2.06 30,000,000
17 3/31/2003 2,385,878 2,064,432 2.27 26,500,000
18 11/30/2003 1,656,128 1,477,827 1.97 22,200,000
18a 11/30/2003 221,691 197,823 3,700,000
18b 11/30/2003 714,820 637,862 9,200,000
18c 11/30/2003 719,617 642,142 9,300,000
19 11/30/2003 431,270 382,451 1.97 4,800,000
20 12/31/2003 2,097,680 1,817,179 2.13 21,700,000
- -------------------------------------------------------------------------------------------------------------------------------
21 9/30/2003 1,436,913 1,386,513 1.71 20,400,000
22 12/31/2003 2,216,829 1,844,254 2.57 27,000,000
23 12/31/2003 1,638,763 1,568,563 2.25 19,800,000
24 8/31/2003 1,734,024 1,563,433 1.49 23,000,000
25 6/1/2003 1,452,777 1,249,644 2.10 18,500,000
- -------------------------------------------------------------------------------------------------------------------------------
26 12/31/2003 1,598,380 1,420,951 2.27 17,500,000
27 6/30/2003 1,419,240 1,331,318 2.13 17,400,000
28 N/A 1,273,930 1,195,839 1.61 14,500,000
29 10/31/2003 1,071,782 964,324 1.51 12,140,000
30 8/31/2003 836,469 814,869 1.74 12,300,000
- -------------------------------------------------------------------------------------------------------------------------------
31 12/31/2003 770,052 681,392 2.00 11,450,000
32 12/31/2003 118,853 103,829 2.00 1,400,000
33 N/A 1,308,967 1,214,658 2.79 16,750,000
34 12/31/2003 824,777 774,152 1.91 11,000,000
35 9/30/2003 851,102 787,102 1.77 10,600,000
- -------------------------------------------------------------------------------------------------------------------------------
36 12/31/2003 976,732 903,094 2.14 11,600,000
37 N/A 1,281,782 1,210,775 2.92 16,200,000
38 10/31/2003 966,852 854,500 1.52 11,200,000
39 7/31/2003 782,718 719,268 1.57 10,400,000
40 12/31/2003 745,911 677,535 2.04 9,400,000
- -------------------------------------------------------------------------------------------------------------------------------
41 12/31/2003 709,665 661,457 2.04 9,700,000
42 11/30/2003 976,984 932,156 2.44 10,500,000
43 N/A 1,117,323 1,091,939 3.01 13,500,000
44 11/1/2003 684,636 648,996 1.76 8,900,000
45 12/31/2003 765,778 669,581 2.18 8,400,000
- -------------------------------------------------------------------------------------------------------------------------------
46 12/31/2003 666,024 639,024 1.93 9,050,000
47 11/30/2003 558,808 523,138 1.66 8,500,000
48 8/31/2003 706,755 667,313 1.48 8,300,000
49 9/30/2003 771,934 677,401 1.95 9,000,000
50 11/30/2003 580,210 546,460 2.07 8,150,000
- -------------------------------------------------------------------------------------------------------------------------------
51 11/30/2003 717,249 643,087 2.18 8,300,000
52 N/A 882,606 834,612 2.91 11,000,000
53 N/A 576,798 557,432 1.96 7,100,000
54 N/A 794,845 765,572 2.74 9,610,000
55 7/1/2003 525,854 493,982 1.94 6,600,000
- -------------------------------------------------------------------------------------------------------------------------------
56 N/A 711,255 695,808 2.33 9,200,000
57 7/31/2003 508,987 498,140 1.45 6,700,000
58 12/31/2003 413,856 373,086 2.03 5,900,000
59 9/30/2003 418,524 390,624 1.80 5,100,000
60 10/31/2003 390,928 359,568 1.99 5,100,000
- -------------------------------------------------------------------------------------------------------------------------------
61 12/31/2003 437,222 404,397 1.80 4,950,000
62 7/1/2003 308,348 290,276 1.94 3,800,000
63 9/30/2003 350,788 296,838 1.44 5,980,000
64 9/1/2003 345,224 314,732 1.97 3,900,000
65 7/1/2003 282,277 265,005 1.94 3,500,000
- -------------------------------------------------------------------------------------------------------------------------------
66 10/31/2003 297,293 265,617 1.38 3,820,000
67 12/31/2003 296,842 282,262 2.07 4,030,000
SCHEDULED
CONTROL ORIGINAL CUT-OFF DATE MATURITY
NUMBER APPRAISAL DATE LTV (%) DATE LTV (%) YEAR BUILT YEAR RENOVATED
- ----------------------------------------------------------------------------------------------------------------------------------
1 8/1/2003 55.66 49.65 1975 2003
2 10/24/2003 75.37 69.3 (2) 1982 1997, 2000
3 9/22/2003 67.57 67.57 2000 NAP
4 58.98 53.23 Various Various
4a 4/1/2003 1994 2003
4b 11/1/2003 2000 2003
4c 2/4/2003 1989 NAP
4d 1/27/2003 1999 NAP
4e 1/30/2003 1992 NAP
4f 1/22/2003 1989 1995, 2002
4g 2/1/2003 1989 NAP
4h 2/1/2003 1990 NAP
4i 1/22/2003 1989 NAP
4j 1/23/2003 1988 NAP
5 9/10/2003 64.78 61.40 1935 1981
- ----------------------------------------------------------------------------------------------------------------------------------
6 4/18/2003 74.07 74.07 1999 NAP
7 7/21/2003 46.43 41.72 1976 2000
8 61.62 55.48 Various Various
8a 11/1/2003 1970 NAP
8b 11/1/2003 1978 NAP
8c 11/1/2003 1983 NAP
8d 11/1/2003 1998 NAP
8e 11/1/2003 1972 NAP
8f 11/1/2003 1965 NAP
8g 11/1/2003 1968 1978
8h 11/1/2003 1974 NAP
8i 11/1/2003 1972 NAP
8j 11/1/2003 1974 NAP
8k 11/1/2003 1980 NAP
8l 11/1/2003 1965 NAP
8m 11/1/2003 1965 NAP
8n 11/1/2003 1961 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
9 62.02 57.70 Various NAP
9a 11/1/2003 1976 NAP
9b 11/1/2003 1971 NAP
9c 11/1/2003 1974 NAP
9d 11/1/2003 1977 NAP
9e 11/1/2003 1982 NAP
9f 11/1/2003 1972 NAP
9g 11/1/2003 1979 NAP
9h 11/1/2003 1975 NAP
9i 11/1/2003 1980 NAP
9j 11/1/2003 1985 NAP
9k 11/1/2003 1977 NAP
9l 11/1/2003 1963 NAP
9m 11/1/2003 1980 NAP
9n 11/1/2003 1974 NAP
9o 11/1/2003 2002 NAP
10 11/6/2003 66.18 59.49 1995, 1997 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
11 12/26/2002 50.41 50.41 2001 NAP
12 12/15/2002 50.41 50.41 1988 2000
13 11/12/2002 50.41 50.41 1978 2002
14 10/15/2003 76.79 76.79 1999 NAP
15 1/13/2002 66.57 66.57 2001 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
16 11/22/2003 73.33 73.33 1986 2002
17 4/15/2003 73.58 73.58 1988, 1999 NAP
18 71.30 71.30 Various NAP
18a 12/1/2003 1993 NAP
18b 12/1/2003 1989 NAP
18c 12/1/2003 1992 NAP
19 12/1/2003 71.30 71.30 1982 NAP
20 2/3/2003 73.73 73.73 1988 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
21 10/20/2003 78.43 78.43 2000 NAP
22 4/11/2003 58.33 58.33 1973 NAP
23 2/18/2003 76.39 76.39 1988 NAP
24 10/23/2003 65.02 58.67 1996 NAP
25 6/4/2003 75.68 75.68 1985 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
26 5/14/2003 76.57 76.57 1985 NAP
27 4/7/2003 75.86 75.86 1998-2002 NAP
28 9/9/2003 68.59 61.28 2003 NAP
29 11/5/2003 78.00 72.58 1977 1984, 2003
30 10/1/2003 76.42 76.42 2000 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
31 10/16/2003 71.48 71.48 1982 NAP
32 10/16/2003 71.48 71.48 1965 NAP
33 12/11/2003 53.19 53.19 2001 NAP
34 4/30/2003 78.18 78.18 1970, 1978 NAP
35 7/10/2003 76.89 80.66 1985 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
36 7/1/2003 73.28 73.28 2001 NAP
37 1/1/2004 52.47 52.47 1965 2002
38 11/4/2003 74.31 69.15 1987 NAP
39 7/7/2003 80.00 80.00 1975 NAP
40 10/16/2003 82.77 82.77 1976 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
41 10/16/2003 78.35 78.35 1982 NAP
42 2/14/2003 71.43 71.43 1997 NAP
43 12/11/2003 55.00 55.00 1998 NAP
44 12/8/2003 79.78 79.78 1982 NAP
45 12/1/2003 75.30 81.55 1976 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
46 1/7/2004 74.59 74.59 1990 NAP
47 4/12/2003 78.82 78.82 1986 NAP
48 10/7/2003 79.15 71.07 2001-2002 NAP
49 11/3/2003 71.11 71.11 1925-1971 1986
50 4/9/2003 73.62 73.62 1969 2000
- ----------------------------------------------------------------------------------------------------------------------------------
51 4/10/2003 72.29 72.29 1989 NAP
52 12/1/2003 53.50 53.50 2001 NAP
53 12/15/2003 78.87 78.87 2003 NAP
54 5/25/2003 56.71 56.71 2002, 2003 NAP
55 8/28/2003 77.88 77.88 1990-1993 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
56 9/19/2003 53.26 53.26 2003 NAP
57 7/2/2003 65.95 56.88 2001, 2002 NAP
58 10/16/2003 73.05 73.05 1969-1970 NAP
59 9/30/2003 79.41 79.41 1969 NAP
60 12/8/2003 70.10 70.10 1988 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
61 4/17/2003 70.71 63.76 2000 NAP
62 8/28/2003 79.39 79.39 1993 NAP
63 11/19/2003 50.01 46.65 1972 2002
64 6/24/2003 74.36 74.36 1981 NAP
65 8/28/2003 78.71 78.71 1989 NAP
- ----------------------------------------------------------------------------------------------------------------------------------
66 12/5/2003 67.85 57.76 1968, 1975 NAP
67 7/8/2003 62.03 62.03 1992 NAP
CUT-OFF DATE
BALANCE PER
CONTROL UNITS, BEDS UNIT SQ. FT., UNIT, BED,
NUMBER ROOMS, SQFT DESCRIPTION PAD OR ROOM ($) OCCUPANCY (%) OCCUPANCY DATE
- ------------------------------------------------------------------------------------------------------------------------------------
1 821,724 Sq Ft 227 96 1/31/2004
2 484,009 Sq Ft 113 92 12/31/2003
3 502,410 Sq Ft 100 92 12/31/2003
4 2,907,608 Sq Ft 50 93 1/21/2004
4a 423,393 Sq Ft 93 1/21/2004
4b 431,220 Sq Ft 99 1/21/2004
4c 410,491 Sq Ft 84 1/21/2004
4d 183,288 Sq Ft 91 1/21/2004
4e 348,236 Sq Ft 100 1/21/2004
4f 294,471 Sq Ft 100 1/21/2004
4g 133,877 Sq Ft 96 1/21/2004
4h 248,963 Sq Ft 81 1/21/2004
4i 213,934 Sq Ft 90 1/21/2004
4j 219,735 Sq Ft 92 1/21/2004
5 1,149,789 Sq Ft 259 100 3/1/2004
- ------------------------------------------------------------------------------------------------------------------------------------
6 279,165 Sq Ft 143 97 2/1/2004
7 772 Rooms 42,098 55 1/31/2004
8 671,816 Sq Ft 40 90 1/29/2004
8a 33,655 Sq Ft 100 1/29/2004
8b 62,710 Sq Ft 100 1/29/2004
8c 94,159 Sq Ft 100 1/29/2004
8d 106,515 Sq Ft 100 1/29/2004
8e 2,800 Sq Ft 100 1/29/2004
8f 30,124 Sq Ft 100 1/29/2004
8g 36,000 Sq Ft 100 1/29/2004
8h 20,000 Sq Ft 100 1/29/2004
8i 74,915 Sq Ft 100 1/29/2004
8j 30,000 Sq Ft 100 1/29/2004
8k 49,500 Sq Ft 100 1/29/2004
8l 41,784 Sq Ft 100 1/29/2004
8m 69,654 Sq Ft 0 1/29/2004
8n 20,000 Sq Ft 100 1/29/2004
- ------------------------------------------------------------------------------------------------------------------------------------
9 569,843 Sq Ft 42 99 1/29/2004
9a 27,943 Sq Ft 100 1/29/2004
9b 32,000 Sq Ft 100 1/29/2004
9c 25,300 Sq Ft 100 1/29/2004
9d 62,637 Sq Ft 87 1/29/2004
9e 37,962 Sq Ft 100 1/29/2004
9f 65,000 Sq Ft 100 1/29/2004
9g 42,000 Sq Ft 100 1/29/2004
9h 40,000 Sq Ft 100 1/29/2004
9i 20,000 Sq Ft 100 1/29/2004
9j 27,600 Sq Ft 100 1/29/2004
9k 9,960 Sq Ft 100 1/29/2004
9l 20,001 Sq Ft 100 1/29/2004
9m 78,240 Sq Ft 100 1/29/2004
9n 9,200 Sq Ft 100 1/29/2004
9o 72,000 Sq Ft 100 1/29/2004
10 216,856 Sq Ft 109 82 12/24/2003
- ------------------------------------------------------------------------------------------------------------------------------------
11 132,856 Sq Ft 101 100 1/31/2004
12 105,321 Sq Ft 53 99 1/31/2004
13 62,888 Sq Ft 68 100 12/11/2003
14 336 Units 68,452 95 1/20/2004
15 114,166 Sq Ft 199 100 12/31/2003
16 305,624 Sq Ft 72 85 1/7/2004
17 173,755 Sq Ft 112 97 12/31/2003
18 356,602 Sq Ft 43 87 2/15/2004
18a 47,735 Sq Ft 92 2/15/2004
18b 153,917 Sq Ft 87 2/15/2004
18c 154,950 Sq Ft 84 2/15/2004
19 78,740 Sq Ft 48 93 2/15/2004
20 181,768 Sq Ft 88 100 2/4/2004
- ------------------------------------------------------------------------------------------------------------------------------------
21 252 Units 63,492 90 10/1/2003
22 212,140 Sq Ft 74 88 12/11/2003
23 312 Units 48,478 92 12/31/2003
24 107,650 Sq Ft 139 90 12/10/2003
25 155,404 Sq Ft 90 73 12/31/2003
- ------------------------------------------------------------------------------------------------------------------------------------
26 78,162 Sq Ft 171 100 12/31/2003
27 129,690 Sq Ft 102 97 1/29/2004
28 76,977 Sq Ft 129 100 9/15/2003
29 130,485 Sq Ft 73 93 12/24/2003
30 144 Units 65,278 88 10/27/2003
- ------------------------------------------------------------------------------------------------------------------------------------
31 310 Units 25,758 88 2/22/2004
32 48 Units 25,000 94 2/22/2004
33 129,162 Sq Ft 69 99 2/16/2004
34 225 Units 38,222 97 12/27/2003
35 256 Units 33,398 89 2/13/2004
- ------------------------------------------------------------------------------------------------------------------------------------
36 50,165 Sq Ft 169 100 2/12/2004
37 208,233 Sq Ft 41 100 2/16/2004
38 149,393 Sq Ft 56 96 12/24/2003
39 282 Units 29,504 86 2/2/2004
40 222 Units 35,045 97 2/22/2004
- ------------------------------------------------------------------------------------------------------------------------------------
41 184 Units 41,304 96 2/22/2004
42 102,740 Sq Ft 73 95 2/4/2004
43 83,792 Sq Ft 89 98 2/16/2004
44 180 Units 39,444 91 12/16/2003
45 152,274 Sq Ft 45 89 1/31/2004
- ------------------------------------------------------------------------------------------------------------------------------------
46 108 Units 62,500 95 1/31/2004
47 174 Units 38,506 93 12/21/2003
48 42,063 Sq Ft 156 96 11/25/2003
49 105,966 Sq Ft 60 78 11/1/2003
50 150 Units 40,000 84 12/25/2003
- ------------------------------------------------------------------------------------------------------------------------------------
51 40,088 Sq Ft 150 100 11/30/2003
52 69,934 Sq Ft 84 95 2/16/2004
53 32,277 Sq Ft 174 100 12/31/2003
54 79,590 Sq Ft 68 90 2/27/2004
55 128 Units 40,156 99 9/11/2003
- ------------------------------------------------------------------------------------------------------------------------------------
56 58,537 Sq Ft 84 100 11/25/2003
57 682 Units 6,479 84 10/21/2003
58 151 Units 28,543 91 2/22/2004
59 124 Units 32,661 97 9/2/2003
60 112 Units 31,920 91 2/10/2004
- ------------------------------------------------------------------------------------------------------------------------------------
61 54,739 Sq Ft 64 100 12/31/2003
62 72 Units 41,903 92 9/11/2003
63 166 Units 18,016 85 11/30/2003
64 49,180 Sq Ft 59 95 12/31/2003
65 68 Units 40,515 96 9/11/2003
- ------------------------------------------------------------------------------------------------------------------------------------
66 43,032 Sq Ft 60 100 2/1/2004
67 60 Units 41,667 95 12/22/2003
ANNUAL
CONTROL REPLACEMENT ANNUAL
NUMBER OWNERSHIP INTEREST LOCKBOX RESERVES ($) REQUIRED TI/LC ($)
- -------------------------------------------------------------------------------------------------------------------------------
1 Fee Simple Hard, In Place - -
2 Fee Simple 125,712 453,353
3 Fee Simple Hard, In Place - -
4 Fee Simple Hard, In Place - -
4a Fee Simple
4b Fee Simple
4c Fee Simple
4d Fee Simple
4e Fee Simple
4f Fee Simple
4g Fee Simple
4h Fee Simple
4i Fee Simple
4j Fee Simple
5 Fee Simple Hard, In Place - -
- -------------------------------------------------------------------------------------------------------------------------------
6 Fee Simple 41,880 -
7 Fee Simple Hard (A/B), In Place - -
8 Fee Simple Hard, In Place - -
8a Fee Simple
8b Fee Simple
8c Fee Simple
8d Fee Simple
8e Fee Simple
8f Fee Simple
8g Fee Simple
8h Fee Simple
8i Fee Simple
8j Fee Simple
8k Fee Simple
8l Fee Simple
8m Fee Simple
8n Fee Simple
- -------------------------------------------------------------------------------------------------------------------------------
9 Fee Simple Hard, In Place - -
9a Fee Simple
9b Fee Simple
9c Fee Simple
9d Fee Simple
9e Fee Simple
9f Fee Simple
9g Fee Simple
9h Fee Simple
9i Fee Simple
9j Fee Simple
9k Fee Simple
9l Fee Simple
9m Fee Simple
9n Fee Simple
9o Fee Simple
10 Fee Simple - -
- -------------------------------------------------------------------------------------------------------------------------------
11 Fee Simple - -
12 Fee Simple - -
13 Fee Simple - -
14 Fee Simple 100,800 -
15 Fee Simple - -
- -------------------------------------------------------------------------------------------------------------------------------
16 Fee Simple 30,526 168,000
17 Fee Simple 41,700 183,996
18 Fee Simple - -
18a Fee Simple
18b Fee Simple
18c Fee Simple
19 Fee Simple - -
20 Fee Simple 180,000 306,000
- -------------------------------------------------------------------------------------------------------------------------------
21 Fee Simple 50,400 -
22 Fee Simple 93,342 160,008
23 Fee Simple 70,200 -
24 Fee Simple Hard (A/B), In Place 26,913 -
25 Fee Simple 26,352 200,000
- -------------------------------------------------------------------------------------------------------------------------------
26 Fee Simple 50,024 126,000
27 Fee Simple 13,071 -
28 Leasehold Hard (A/B), In Place - -
29 Fee Simple Hard (A/B), Springing - 91,200
30 Fee Simple - -
- -------------------------------------------------------------------------------------------------------------------------------
31 Fee Simple 77,500 -
32 Fee Simple 12,672 -
33 Fee Simple - -
34 Fee Simple 50,625 -
35 Fee Simple 64,000 -
- -------------------------------------------------------------------------------------------------------------------------------
36 Fee Simple 5,016 60,000
37 Fee Simple - -
38 Fee Simple Hard (A/B), Springing - 95,400
39 Fee Simple 63,456 -
40 Fee Simple 60,828 -
- -------------------------------------------------------------------------------------------------------------------------------
41 Fee Simple 46,000 -
42 Fee Simple 15,411 -
43 Fee Simple - -
44 Fee Simple 36,000 -
45 Fee Simple 31,977 65,000
- -------------------------------------------------------------------------------------------------------------------------------
46 Fee Simple 27,000 -
47 Fee Simple 35,670 -
48 Fee Simple 4,206 25,200
49 Fee Simple 15,900 20,000
50 Fee Simple 33,750 -
- -------------------------------------------------------------------------------------------------------------------------------
51 Fee Simple 8,418 -
52 Fee Simple - -
53 Fee Simple 3,228 -
54 Fee Simple Hard, In Place - -
55 Fee Simple - -
- -------------------------------------------------------------------------------------------------------------------------------
56 Fee Simple Hard, In Place - -
57 Fee Simple 6,360 -
58 Fee Simple 37,750 -
59 Fee Simple 27,900 -
60 Fee Simple - -
- -------------------------------------------------------------------------------------------------------------------------------
61 Fee Simple - -
62 Fee Simple - -
63 Fee Simple 44,820 -
64 Fee Simple 4,918 -
65 Fee Simple - -
- -------------------------------------------------------------------------------------------------------------------------------
66 Fee Simple 10,758 24,000
67 Fee Simple - -
CONTROL LARGEST TENANT LARGEST TENANT
NUMBER LARGEST TENANT SQ FT LEASE EXPIRATION
- ------------------------------------------------------------------------------------------------------------------------
1 Marshall Field's 288,802 1/31/2011
2 Lowes/Cineplex Odeon - 15 77,284 11/1/2017
3 Gallagher Healthcare 51,730 10/1/2012
4 NAP
4a Winn Dixie Stores 44,000 11/20/2014
4b Shopko Stores, Inc. 109,783 2/28/2020
4c Lowes' Home Center 125,357 10/31/2014
4d Bed, Bath & Beyond 40,000 1/31/2009
4e Wal-Mart Stores 173,020 8/18/2012
4f Wal-Mart 222,904 8/25/2009
4g TJ Maxx 28,730 10/31/2005
4h Wal-Mart 140,043 12/29/2009
4i Burlington Coat Factory 79,454 8/31/2007
4j J.C.Penney 78,823 3/31/2007
5 J Walter Thompson Company 456,132 8/31/2006
- ------------------------------------------------------------------------------------------------------------------------
6 GSA 92,992 5/1/2009
7 NAP
8 NAP
8a Wellchoice Inc. 33,655 6/30/2004
8b Nortel Networks-Attn: Rent 53,335 6/30/2006
8c Symbol Technologies Inc. 94,119 8/31/2009
8d Atkins Nutritional Inc. 106,515 1/31/2005
8e HSBC Bank USA 2,800 10/31/2006
8f Industrial Fasteners LLC 30,124 9/30/2008
8g Deutsch Relays Inc. 36,000 11/30/2007
8h All Island Courier Inc. 20,000 5/31/2006
8i Olmstead Savannah Inc. 41,315 11/30/2006
8j PCI Group Inc. 30,000 3/31/2009
8k County Of Suffolk 49,500 10/31/2007
8l Janco Distributors Inc. 23,034 2/28/2005
8m NAP
8n A to Z Tool and Party Rentals 10,000 3/31/2008
- ------------------------------------------------------------------------------------------------------------------------
9 NAP
9a Eele Laboratories, Inc. 14,000 6/30/2010
9b Schoolwide Inc. 21,600 3/31/2006
9c Summit Laser Products Inc. 25,300 2/28/2011
9d RF Power Components Inc. 15,703 5/31/2006
9e RHM Industries LTD. 15,000 12/31/2007
9f Genco Auto Electric Inc. 65,000 5/31/2014
9g Datamedic Corp. C/O Vital Wo 35,000 12/31/2004
9h United Biomedical Inc. 40,000 12/31/2005
9i State Farm Mutual Auto Ins. C 20,000 1/31/2006
9j IDR Corp Aka Reuters America Inc. 27,600 6/30/2005
9k Trane Company, The 9,960 3/31/2012
9l Body In Balance Phys. Therapi 10,001 4/30/2013
9m Fonar Corporation 78,240 1/31/2009
9n B.I.T. REALTY INC. 9,200 4/30/2013
9o Wenner Bread Product 72,000 12/31/2013
10 Cinemark 200 49,786 11/30/2015
- ------------------------------------------------------------------------------------------------------------------------
11 Harris Teeter 44,926 5/1/2022
12 Hobby Lobby 50,519 11/1/2011
13 Linens 'N Things 34,180 1/31/2013
14 NAP
15 Watson & Wyatt 30,080 5/1/2011
- ------------------------------------------------------------------------------------------------------------------------
16 Burlington Coat Factory 79,750 2/1/2007
17 Datatrac Information 47,670 1/1/2007
18 NAP
18a Health Span 11,638 6/1/2005
18b Forward Air 33,426 3/31/2007
18c Expeditors Int'l 26,501 3/31/2005
19 L.H. Kellogg Chemical 30,774 12/31/2004
20 GSA IRS 117,256 3/1/2007
- ------------------------------------------------------------------------------------------------------------------------
21 NAP
22 Cathay Bank 41,775 2/1/2009
23 NAP
24 Las Vegas Metropolitan Police Department 24,553 12/31/2006
25 FBI 14,731 4/1/2008
- ------------------------------------------------------------------------------------------------------------------------
26 Radiological Associates 10,678 4/1/2012
27 Bashas Supermarket 51,500 7/1/2023
28 Hartford Fire Insurance Company 76,977 10/31/2010
29 Kroger Savon N-920 56,160 8/31/2007
30 NAP
- ------------------------------------------------------------------------------------------------------------------------
31 NAP
32 NAP
33 TJ Maxx 28,000 5/1/2012
34 NAP
35 NAP
- ------------------------------------------------------------------------------------------------------------------------
36 Suisun City 10,516 11/1/2006
37 Lifetime Fitness 107,928 12/1/2026
38 Kroger Savon N-990 58,890 6/30/2007
39 NAP
40 NAP
- ------------------------------------------------------------------------------------------------------------------------
41 NAP
42 Basha's 51,500 9/1/2022
43 Supervalu (Cub Foods) 56,192 8/1/2020
44 NAP
45 Food Lion 33,000 2/28/2014
- ------------------------------------------------------------------------------------------------------------------------
46 NAP
47 NAP
48 Capulcos Mexican Cafe 6,500 10/1/2007
49 Mental Health Assoc. of Westchester County 19,426 2/28/2007
50 NAP
- ------------------------------------------------------------------------------------------------------------------------
51 North American Title Company 9,715 5/1/2005
52 Staples 23,942 6/1/2016
53 Trader Joe's 11,250 2/1/2014
54 Publix 54,340 11/30/2022
55 NAP
- ------------------------------------------------------------------------------------------------------------------------
56 Publix 44,271 6/6/2023
57 NAP
58 NAP
59 NAP
60 NAP
- ------------------------------------------------------------------------------------------------------------------------
61 Ferguson Enterprises 11,317 1/31/2010
62 NAP
63 NAP
64 ADT Security 14,545 2/1/2007
65 NAP
- ------------------------------------------------------------------------------------------------------------------------
66 Hot Rods & Hobbies 7,726 5/14/2007
67 NAP
SECOND SECOND
CONTROL SECOND LARGEST TENANT LARGEST TENANT
NUMBER LARGEST TENANT SQ FT LEASE EXPIRATION
- ----------------------------------------------------------------------------------------------------------------------------
1 Lord & Taylor 138,241 12/31/2010
2 Linens 'N Things 41,480 2/1/2013
3 EOTT 50,208 12/1/2006
4 NAP
4a Rhodes #3029/Mark 40,000 12/31/2004
4b Sportsman's Warehouse 45,866 6/30/2015
4c Goody's 30,470 11/30/2005
4d Mustard Seed Market 37,048 12/31/2019
4e Sam's Wholesale 110,858 8/16/2012
4f Office Max 28,610 1/31/2007
4g Office Depot 25,200 1/31/2005
4h Kroger 41,320 7/31/2011
4i Food Lion 30,690 10/31/2010
4j Winn Dixie Stores 47,084 3/1/2009
5 Credit Suisse Asset Mgmt 343,715 10/31/2014
- ----------------------------------------------------------------------------------------------------------------------------
6 Zeta Associates 84,813 8/15/2009
7 NAP
8 NAP
8a NAP
8b Pinnacle Industries Inc. 9,375 3/31/2006
8c Cablevision Lightpath-NY Inc. 40 2/29/2008
8d NAP
8e NAP
8f NAP
8g NAP
8h NAP
8i Amsco Valley Forge 24,000 11/30/2005
8j NAP
8k NAP
8l Breig Rentals Inc. 14,750 4/30/2005
8m NAP
8n Northern Warehouse I 10,000 4/30/2008
- ----------------------------------------------------------------------------------------------------------------------------
9 NAP
9a C & M Circuits Inc. 7,377 10/31/2009
9b True Mechanical Corp. 10,400 5/31/2005
9c NAP
9d Milton A. Bleier Corp. 12,245 3/31/2008
9e New York Tent Company 11,600 12/31/2008
9f NAP
9g Allstar Electronics Inc. 7,000 6/30/2006
9h NAP
9i NAP
9j NAP
9k NAP
9l United Panel Technology 10,000 9/30/2007
9m NAP
9n NAP
9o NAP
10 Blockbuster Video 6,750 11/30/2005
- ----------------------------------------------------------------------------------------------------------------------------
11 Yankelovich 13,794 7/1/2012
12 L.A. Fitness 13,090 1/1/2007
13 Michael's 28,708 3/31/2013
14 NAP
15 Prudential CA 27,642 6/1/2011
- ----------------------------------------------------------------------------------------------------------------------------
16 Bed Bath & Beyond 51,584 1/1/2013
17 Datatrac Information 40,600 5/30/2008
18 NAP
18a Midwest Urologic 8,620 2/1/2006
18b General Pump 23,511 5/1/2007
18c Remington Boots (subleasing 9,000 sf to Juliana) 25,069 4/30/2005
19 Medafor 18,468 11/30/2008
20 NRL Fed Credit Union 21,052 1/1/2011
- ----------------------------------------------------------------------------------------------------------------------------
21 NAP
22 Charles Dunn Company 25,420 12/1/2008
23 NAP
24 US Home Corporation 13,208 3/31/2009
25 Signalscape 11,009 9/1/2004
- ----------------------------------------------------------------------------------------------------------------------------
26 Fort Sutter Surgery Center 10,592 9/1/2006
27 Ace Hardware 16,480 2/1/2014
28 NAP
29 Micro Electronics, Inc. 13,020 5/20/2005
30 NAP
- ----------------------------------------------------------------------------------------------------------------------------
31 NAP
32 NAP
33 Michael's 20,400 2/1/2012
34 NAP
35 NAP
- ----------------------------------------------------------------------------------------------------------------------------
36 Loan Cemter of California 8,033 4/1/2008
37 Cub Foods 68,141 12/1/2022
38 CVS Revco #6198 (3) 25,726 11/30/2013
39 NAP
40 NAP
- ----------------------------------------------------------------------------------------------------------------------------
41 NAP
42 Family Dollar 8,800 7/1/2011
43 Rand's Hallmark 5,000 4/1/2006
44 NAP
45 Big Lots 26,691 1/31/2006
- ----------------------------------------------------------------------------------------------------------------------------
46 NAP
47 NAP
48 Hallmark 4,050 2/1/2008
49 Buying Power 13,701 3/31/2013
50 NAP
- ----------------------------------------------------------------------------------------------------------------------------
51 Gaw Van Male, Smith, et al. (attorneys) 8,621 1/1/2013
52 Ultimate Electronics 23,812 3/1/2018
53 Blockbuster Video 4,050 9/1/2013
54 Sam's St. Johns Seafood 3,500 2/28/2009
55 NAP
- ----------------------------------------------------------------------------------------------------------------------------
56 Exit Realty Specialists 4,886 9/30/2008
57 NAP
58 NAP
59 NAP
60 NAP
- ----------------------------------------------------------------------------------------------------------------------------
61 Sears Home Improvement Products 10,282 2/14/2008
62 NAP
63 NAP
64 Provider Services Inc. 5,276 11/1/2005
65 NAP
- ----------------------------------------------------------------------------------------------------------------------------
66 Simpson Race Products 4,860 12/31/2005
67 NAP
THIRD THIRD
CONTROL THIRD LARGEST TENANT LARGEST TENANT
NUMBER LARGEST TENANT SQ FT LEASE EXPIRATION
- ------------------------------------------------------------------------------------------------------------------------------------
1 Foodlife/Mighty Nice Grill 23,237 4/30/2008
2 Barnes & Noble Booksellers 40,472 2/1/2012
3 Zurich Amer. Invest 34,406 8/1/2012
4 NAP
4a Stein Mart 36,000 11/30/2011
4b Bed Bath & Beyond 34,690 1/31/2011
4c Bed Bath & Beyond 30,405 1/31/2012
4d Borders 25,000 11/30/2018
4e Goody's 27,000 12/31/2007
4f Hancock Fabrics 13,000 2/28/2010
4g Fashion Bug 9,350 1/31/2005
4h Pearle Vision 3,000 1/31/2006
4i Fashion Avenue 20,000 6/30/2005
4j Walgreens 11,165 3/31/2029
5 EM Warburg Pincus & Co., Inc. 111,545 10/31/2009
- ------------------------------------------------------------------------------------------------------------------------------------
6 Carfax 37,038 11/1/2006
7 NAP
8 NAP
8a NAP
8b NAP
8c NAP
8d NAP
8e NAP
8f NAP
8g NAP
8h NAP
8i Applied Technologies 9,600 1/31/2009
8j NAP
8k NAP
8l Lisa's Tuxedos Inc. 4,000 4/30/2005
8m NAP
8n NAP
- ------------------------------------------------------------------------------------------------------------------------------------
9 NAP
9a Sieman's Building Technologies 6,566 9/30/2008
9b NAP
9c NAP
9d Copy World of Long Island Inc. 6,543 8/31/2004
9e Symbol Technologies Inc. 11,362 8/31/2004
9f NAP
9g NAP
9h NAP
9i NAP
9j NAP
9k NAP
9l NAP
9m NAP
9n NAP
9o NAP
10 Irwin's Hallmark 6,000 3/31/2006
- ------------------------------------------------------------------------------------------------------------------------------------
11 York Simpson Underwood 4,326 4/1/2010
12 Hancock Fabrics 9,000 8/1/2007
13 NAP
14 NAP
15 SMR&H 20,965 8/1/2007
- ------------------------------------------------------------------------------------------------------------------------------------
16 Ross Stores 30,187 1/1/2014
17 Ford Motor Company 40,594 5/30/2005
18 NAP
18a Mobility Group 8,352 3/1/2006
18b Allstate Air Cargo (Sub-lease to GP Companies for remainder of term) 18,921 6/30/2006
18c Hanson Building Products 23,247 3/1/2009
19 US Bancorp-Piper Jaffray, Inc. 14,247 7/31/2005
20 Weaver Associates 7,792 9/30/2011
- ------------------------------------------------------------------------------------------------------------------------------------
21 NAP
22 Gerald J. Sullivan 17,796 11/1/2007
23 NAP
24 Ophthalmic Associates, LLP 12,248 6/30/2012
25 Ciber 9,913 6/1/2009
- ------------------------------------------------------------------------------------------------------------------------------------
26 Sutter Health 9,736 7/1/2006
27 Big 5 Sports 10,026 2/1/2016
28 NAP
29 Tuesday Morning Gifts 153 8,797 1/15/2006
30 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
31 NAP
32 NAP
33 Old Navy 19,975 4/1/2007
34 NAP
35 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
36 Balfour Beatty Construction 4,816 12/1/2007
37 Dollar Tree 13,039 10/1/2008
38 Family Dollar Stores #3890 10,577 12/31/2007
39 NAP
40 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
41 NAP
42 Texas T-Bone Restaurant 8,023 5/1/2014
43 Tanning Salon 3,000 2/1/2006
44 NAP
45 Kimbrells 24,928 7/31/2008
- ------------------------------------------------------------------------------------------------------------------------------------
46 NAP
47 NAP
48 E.J.'s Neighborhood Pizzeria 3,000 11/1/2012
49 Retrieval Masters Creditors Bureau 13,000 7/31/2005
50 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
51 GSA- Social Security Administration 4,945 1/1/2008
52 Famous Footwear 10,000 11/1/2011
53 Taco Bell (ground lease) 3,200 10/1/2023
54 Pronto Pizza 2,100 4/30/2009
55 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
56 DHM Dental Health Group 2,229 12/31/2008
57 NAP
58 NAP
59 NAP
60 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
61 G.E.Richards Graphic Supply of VA 10,000 2/28/2006
62 NAP
63 NAP
64 Auralog 4,800 11/1/2005
65 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
66 Scott Baldwin 3,240 12/3/2006
67 NAP
CERTAIN CHARACTERISTICS OF THE MULTIFAMILY LOANS
CONTROL LOAN
NUMBER NUMBER PROPERTY NAME STREET ADDRESS CITY
- ------------------------------------------------------------------------------------------------------------------------------------
14 09-0001867 Arden Villas Apartments 3303 Arden Villas Boulevard Orlando
21 09-0001842 Courtney Springs Apartments 440 Courtney Springs Circle Winter Springs
23 09-0001725 Hudson Pointe Apartments 11901 4th Street North St. Petersburg
30 09-0001824 Hidden Oak Estates- Phase II 8331 82nd Street Pleasant Prairie
31 09-0001886 Rose Garden Apartments 11700 Bissonnet Road Houston
- ------------------------------------------------------------------------------------------------------------------------------------
32 09-0001889 Rosewood Place Apartments 5505 Pine Street Houston
34 09-0001764 Amesbury Plaza and Townhomes 5020 & 5025 Amesbury Drive Dallas
35 09-0001840 Diamond Ridge Apartments 6525 Glenview Drive North Richland Hills
39 09-0001804 The Sunflower Apartments 2554 Northeast Loop 410 San Antonio
40 09-0001885 Tradewinds Apartments 11303 South Wilcrest Drive Houston
- ------------------------------------------------------------------------------------------------------------------------------------
41 09-0001887 Wilshire Park Apartments 2686 Murworth Drive Houston
44 09-0001854 South Point Apartments 3201 Myra Street Durham
46 09-0001860 Sunrise Creek Apartments 8315-8317 Sunrise Boulevard Citrus Heights
47 09-0001757 Riverwoods Apartments 7816 Six Forks Road Raleigh
50 09-0001748 Copper Chase Apartments 2041 Southgate Road Colorado Springs
- ------------------------------------------------------------------------------------------------------------------------------------
55 09-0001794 Ashwaubenon Estates Apartments 2981-2995 Holmgren Way Ashwaubenon
58 09-0001888 Braeshill Apartments 5900 North Braeswood Houston
59 09-0001830 Berkshire Square 7950 Cliffbrook Drive Dallas
60 09-0001879 Palm Hills Apartments 4770 East Owens Avenue Las Vegas
62 09-0001793 The Howard Apartments 1701 Velp Avenue Howard
- ------------------------------------------------------------------------------------------------------------------------------------
63 6104991 Parkway Apartments 1600 Southwest Parkway College Station
65 09-0001792 Village Park Apartments 926-936 Pilgrim Way Ashwaubenon
67 09-0001803 Carmel Cove Apartments 6500 West Lake Mead Boulevard Las Vegas
INITIAL
CONTROL INITIAL POOL POOL BALANCE
NUMBER COUNTY STATE ZIP CODE PROPERTY TYPE BALANCE ($) PER UNIT OR PAD ($)
- ------------------------------------------------------------------------------------------------------------------------------------
14 Orange Florida 32817 Multifamily 23,000,000 68,452
21 Seminole Florida 32708 Multifamily 16,000,000 63,492
23 Pinellas Florida 33716 Multifamily 15,125,000 48,478
30 Kenosha Wisconsin 53158 Multifamily 9,400,000 65,278
31 Harris Texas 77099 Multifamily 7,985,000 25,758
- ------------------------------------------------------------------------------------------------------------------------------------
32 Harris Texas 77081 Multifamily 1,200,000 25,000
34 Dallas Texas 75206 Multifamily 8,600,000 38,222
35 Tarrant Texas 76180 Multifamily 8,550,000 33,398
39 Bexar Texas 78217 Multifamily 8,320,000 29,504
40 Harris Texas 77099 Multifamily 7,780,000 35,045
- ------------------------------------------------------------------------------------------------------------------------------------
41 Harris Texas 77054 Multifamily 7,600,000 41,304
44 Durham North Carolina 27707 Multifamily 7,100,000 39,444
46 Sacramento California 95610 Multifamily 6,750,000 62,500
47 Wake North Carolina 27615 Multifamily 6,700,000 38,506
50 El Paso Colorado 80906 Multifamily 6,000,000 40,000
- ------------------------------------------------------------------------------------------------------------------------------------
55 Brown Wisconsin 54304 Multifamily 5,140,000 40,156
58 Harris Texas 77074 Multifamily 4,310,000 28,543
59 Dallas Texas 75254 Multifamily 4,050,000 32,661
60 Clark Nevada 89110 Multifamily 3,575,000 31,920
62 Brown Wisconsin 54303 Multifamily 3,017,000 41,903
- ------------------------------------------------------------------------------------------------------------------------------------
63 Brazos County Texas 77840 Multifamily 2,990,660 18,016
65 Brown Wisconsin 54304 Multifamily 2,755,000 40,515
67 Clark Nevada 89108 Multifamily 2,500,000 41,667
STUDIOS 1 BEDROOM 2 BEDROOM
CONTROL AVG RENT AVG RENT AVG RENT
NUMBER UTILITIES PAID BY TENANT # UNITS PER MO. ($) # UNITS PER MO. ($) # UNITS PER MO. ($)
- ------------------------------------------------------------------------------------------------------------------------------------
14 Electricity/Water/Sewer 48 567 60 759 168 930
21 Electricity/Gas/Water/Sewer 0 0 80 813 132 940
23 Electricity/Gas/Water/Sewer 48 610 144 700 120 950
30 Electricity/Gas 0 0 24 805 48 905
31 Electricity/Gas/Water/Sewer 64 425 134 515 112 640
- ------------------------------------------------------------------------------------------------------------------------------------
32 Electricity/Gas/Water/Sewer 0 0 32 445 16 575
34 Electricity/Gas/Water/Sewer 0 0 38 659 184 777
35 Electricity/Water/Sewer 0 0 128 601 128 753
39 Electricity/Water/Sewer 2 523 120 599 112 708
40 Electricity/Gas/Water/Sewer 0 0 72 475 86 632
- ------------------------------------------------------------------------------------------------------------------------------------
41 Electricity/Gas/Water/Sewer 0 0 128 610 56 805
44 Electricity 0 0 60 540 100 631
46 Electricity/Gas 0 0 44 750 64 978
47 Electricity 0 0 94 665 80 795
50 Electricity/Gas/Water/Sewer 0 0 24 570 46 630
- ------------------------------------------------------------------------------------------------------------------------------------
55 Electricity 0 0 64 505 64 598
58 Electricity/Gas/Water/Sewer 0 0 87 475 64 613
59 Electricity/Water/Sewer 0 0 60 595 30 721
60 Electricity 0 0 32 502 72 579
62 Electricity 0 0 36 495 36 579
- ------------------------------------------------------------------------------------------------------------------------------------
63 Electricity/Gas/Water/Sewer 0 0 42 486 78 664
65 Electricity 0 0 32 515 36 590
67 Electricity/Gas 0 0 0 0 28 814
3 BEDROOM 4 BEDROOM 5 BEDROOM NUMBER
CONTROL AVG RENT AVG RENT AVG RENT OF
NUMBER # UNITS PER MO. ($) # UNITS PER MO. ($) #UNITS PER MO. ($) ELEVATORS
- ------------------------------------------------------------------------------------------------------------------------------------
14 60 1,227 0 0 0 0 1
21 40 1,104 0 0 0 0 0
23 0 0 0 0 0 0 0
30 72 1,067 0 0 0 0 4
31 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
32 0 0 0 0 0 0 0
34 3 1,052 0 0 0 0 0
35 0 0 0 0 0 0 0
39 48 864 0 0 0 0 0
40 64 741 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
41 0 0 0 0 0 0 0
44 20 819 0 0 0 0 0
46 0 0 0 0 0 0 0
47 0 0 0 0 0 0 0
50 80 745 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
55 0 0 0 0 0 0 0
58 0 0 0 0 0 0 0
59 34 844 0 0 0 0 0
60 8 762 0 0 0 0 0
62 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
63 46 874 0 0 0 0 0
65 0 0 0 0 0 0 0
67 32 921 0 0 0 0 0
ANNEX D
REPRESENTATIONS AND WARRANTIES
Each Loan Seller will generally represent and warrant, among other things,
with respect to each Mortgage Loan it sells to the Depositor, as of the date
specified below or, if no such date is specified, as of the Closing Date,
subject to the exceptions specified in the related Mortgage Loan sale
agreement, that:
(1) Mortgage Loan Schedule. The information pertaining to each
Mortgage Loan set forth in the schedule of information with
respect to the Mortgage Loans to the Pooling Agreement was true
and accurate in all material respects as of the Cut-Off Date and
contains all of the information set forth in the definition of
"Mortgage Loan Schedule" in the Pooling Agreement.
(2) Ownership of Mortgage Loans. Immediately prior to the transfer of
the Mortgage Loans to the Depositor, the Loan Seller had good
title to, and was the sole owner of, each Mortgage Loan.
(3) Payment Record. Such Mortgage Loan was not as of the Cut-Off Date
for such Mortgage Loan, and has not been during the twelve-month
period prior thereto, 30 days or more delinquent in respect of any
debt service payment required thereunder, without giving effect to
any applicable grace period.
(4) Lien; Valid Assignment. The mortgage related to and delivered in
connection with each Mortgage Loan constitutes an enforceable,
valid and, subject to certain permitted encumbrances, first
priority lien on the related mortgaged property. The related
assignment of the mortgage for each Mortgage Loan (other than a
Non-Serviced Mortgage Loan which has been assigned to the Other
Trustee), executed and delivered in favor of the Trustee, validly
and effectively convey the assignor's interest in the Mortgage
Loan and constitutes a legal, valid, binding and, subject to the
exceptions set forth in Paragraph 11 below, enforceable assignment
of such mortgage from the relevant assignor to the Trustee.
(5) Mortgage Status; Waivers and Modifications. The terms of the
Mortgage Loan have not been waived, modified, altered, satisfied,
impaired, canceled, subordinated or rescinded in any material
respect except as set forth in related file of mortgage loan
documents required to be delivered under the Pooling Agreement.
(6) Condition of Property; Condemnation. To the Loan Seller's actual
knowledge, (i) in reliance on engineering assessments, the related
Mortgaged Property is in good repair or escrow has been
established and (ii) no condemnation proceeding is pending.
(7) Title Insurance. The lien of each mortgage securing a Mortgage
Loan is insured by a lender's title insurance policy insuring that
the related mortgage is a valid first priority lien on such
Mortgaged Property, subject only to certain permitted
encumbrances.
(8) No Holdback. The proceeds of each Mortgage Loan have been fully
disbursed (except in those cases where the full amount of the
Mortgage Loan has been disbursed but a portion of the proceeds are
being held in escrow or reserve accounts pending the satisfaction
of certain conditions relating to leasing, repairs or other
matters with respect to the related Mortgaged Property), and there
is no obligation for future advances with respect thereto.
(9) Mortgage Provisions. The promissory note, mortgage (along with any
security agreement and UCC financing statement) and assignment of
leases for each Mortgage Loan, together with applicable state law,
contain customary and, subject to the exceptions set forth in
Paragraph 11 below, enforceable provisions for commercial Mortgage
Loans.
D-1
(10) Trustee under Deed of Trust. If the mortgage for any Mortgage Loan
is a deed of trust, then (a) a trustee, duly qualified under
applicable law to serve as such, has either (i) been properly
designated, has accepted such designation and currently so serves
or (ii) may be substituted in accordance with the mortgage and
applicable law, and (b) no fees or expenses are payable to such
trustee by the Loan Seller, the Depositor or any transferee of the
Mortgage Loan except in connection with a trustee's sale after
default by the related borrower or in connection with any full or
partial release of the related Mortgaged Property or related
security for such Mortgage Loan.
(11) Loan Document Status. Each mortgage note, mortgage, and other
agreement executed by or on behalf of the related borrower, or any
guarantor of non-recourse exceptions and environmental liability,
with respect to each Mortgage Loan is the legal, valid and binding
obligation of the maker of the Mortgage Loan (subject to any
non-recourse provisions contained in any of the foregoing
agreements and any applicable state anti-deficiency or market
value limit deficiency legislation), enforceable in accordance
with its terms, except as such enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, fraudulent transfer and
conveyance or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity
(regardless of whether such enforcement is considered in a
proceeding in equity or at law), and except that certain
provisions in such loan documents may be further limited or
rendered unenforceable by applicable law. There is no right of
rescission, valid defense or counterclaim available to the related
borrower with respect to such mortgage note, mortgage or other
agreements that would deny the mortgagee the principal benefits
intended to be provided thereby.
(12) Insurance. Each Mortgaged Property is covered by insurance
policies providing coverage against certain damages or losses.
(13) Borrower Bankruptcy. To the Loan Seller's knowledge, no borrower
under a Mortgage Loan is a debtor in, any state or federal
bankruptcy, insolvency or similar proceeding.
(14) Local Law Compliance. To the Loan Seller's knowledge, based upon
due diligence considered reasonable by prudent commercial mortgage
lenders, the related Mortgaged Property is in material compliance
with applicable local law.
(15) Qualified Mortgage. Such Mortgage Loan is a "qualified mortgage"
within the meaning of Section 860G(a)(3) of the Code and Treasury
Regulations Section 1.860G-2(a), but without regard to the rule in
Treasury Regulations Sections 1.860G(f)(2), and the related
Mortgaged Property, if acquired in connection with the default or
imminent default of such Mortgage Loan, would constitute
"foreclosure property" within the meaning of Section 860G(a)(8) of
the Code (without regard to Section 856(e)(4) of the Code).
(16) Legal Proceedings. To the Loan Seller's knowledge, as of
origination of the Mortgage Loan, there were no pending actions,
suits, litigation or other proceedings by or before any court or
governmental authority against or affecting the borrower (or any
guarantor to the extent a reasonably prudent commercial or
multifamily, as applicable, mortgage lender would consider such
guarantor material to the underwriting of such Mortgage Loan)
under any Mortgage Loan or the related Mortgaged Property that, if
determined adversely to such borrower or Mortgaged Property, would
materially and adversely affect the value of the Mortgaged
Property as security for such Mortgage Loan, the borrower's
ability to pay principal, interest or any other amounts due under
such Mortgage Loan or the ability of any such guarantor to meet
its obligations under the applicable guaranty.
(17) Compliance with Usury Laws. Each Mortgage Loan complied with, or
was exempt from, all applicable usury laws in effect at its date
of origination.
D-2
(18) Inspection. The Loan Seller, an affiliate of the Loan Seller, or a
correspondent in the conduit funding program of the Loan Seller,
inspected, or caused the inspection of, each Mortgaged Property
within twelve (12) months of the Closing Date.
(19) No Material Default. Other than payments due but not yet 30 days
or more past due, to the Loan Seller's knowledge there exists no
material default, breach, violation or event of acceleration under
the Mortgage Note or Mortgage for any Mortgage Loan; provided,
however, that this representation and warranty does not cover any
default, breach, violation or event of acceleration that
specifically pertains to or arises out of the subject matter
otherwise covered by any other representation and warranty made by
the Loan Seller in the mortgage loan sale agreement.
(20) Due-on-Sale. The mortgage for each Mortgage Loan contains a
"due-on-sale" clause, which provides for the acceleration of the
payment of the unpaid principal balance of such Mortgage Loan if,
without the prior written consent of the holder of such mortgage,
either the related Mortgaged Property, or any direct controlling
equity interest in the related borrower, is transferred or sold,
subject to certain exceptions.
(21) Single Purpose Entity. The borrower of a Mortgage Loan with an
original principal balance over $10,000,000 was, as of the
origination of the Mortgage Loan, a single-purpose entity.
(22) Whole Loan. Each Mortgage Loan is a whole loan and not a
participation interest in a mortgage loan.
(23) Servicing. The servicing and collection practices used with
respect to the Mortgage Loan have complied with applicable law and
the servicing standard set forth in the Pooling Agreement.
(24) Appraisal. In connection with its origination or acquisition of
each Mortgage Loan, the Loan Seller obtained an appraisal of the
related Mortgaged Property.
D-3
[THIS PAGE INTENTIONALLY LEFT BLANK.]
EXHIBIT E
ALL INFORMATION IN THIS TERM SHEET, WHETHER REGARDING THE ASSETS BACKING ANY
SECURITIES DISCUSSED HEREIN OR OTHERWISE, WILL BE SUPERSEDED BY THE INFORMATION
CONTAINED IN ANY FINAL PROSPECTUS FOR ANY SECURITIES ACTUALLY SOLD TO YOU.
STRUCTURAL AND COLLATERAL TERM SHEET
$826,459,000 (APPROXIMATE BALANCE) MARCH 26, 2004
GS MORTGAGE SECURITIES CORPORATION II
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 2004-C1
APPROXIMATE SECURITIES STRUCTURE:
APPROXIMATE EXPECTED EXPECTED EXPECTED
EXPECTED RATING FACE/NOTIONAL CREDIT WEIGHTED PAYMENT
CLASS FITCH / MOODY'S AMOUNT (MM) SUPPORT AVERAGE LIFE WINDOW (A)
(% OF UPB) (YEARS) (A)
- --------------------------------------------------------------------------------
PUBLICLY OFFERED CLASSES
- --------------------------------------------------------------------------------
A-1 AAA/Aaa $579.1 13.750% 4.37 05/04 - 05/09
A-2 AAA/Aaa 190.4 13.750% 6.46 05/09 - 11/10
B AA/Aa2 20.0 11.500% 6.65 11/10 - 12/10
C AA-/Aa3 7.8 10.625% 6.68 12/10 - 01/11
D A/A2 16.7 8.750% 6.74 01/11 - 01/11
E A-/A3 12.2 7.375% 6.74 01/11 - 01/11
- --------------------------------------------------------------------------------
PRIVATELY OFFERED CLASSES (B)
- --------------------------------------------------------------------------------
F BBB+/Baa1 13.3 5.875%
G BBB/Baa2 7.8 5.000%
H BBB-/Baa3 7.8 4.125%
J BB+/Ba1 5.5 3.500%
K BB/Ba2 3.3 3.125%
L BB-/Ba3 3.3 2.750%
M B+/B1 4.4 2.250%
N B/B2 3.3 1.875%
O B-/B3 3.3 1.500%
P NR 13.3 0.000%
X-1 (c) AAA/Aaa 892.2 NA
X-2 (c) AAA/Aaa 846.9 NA
TOTAL $892.2
SECURITIES:
- --------------------------------------------------------------------------------
(a) Calculated at 0% CPR.
(b) Not offered hereby.
(c) Notional amount of interest-only class.
KEY FEATURES:
Lead Manager: Goldman, Sachs & Co.
Co-Managers: Banc of America Securities LLC
Merrill Lynch & Co.
Greenwich Capital Markets, Inc.
Wachovia Securities
Sellers/Originators: Goldman Sachs Mortgage Company / Archon (76.8%)
Prudential Mortgage Capital Funding, LLC /
Prudential Mortgage Capital Company, LLC (or a
wholly owned subsidiary) (13.4%)
Greenwich Capital Financial Products, Inc. (4.9%)
Commerzbank AG, New York Branch (3.1%)
Washington Mutual Bank, FA (1.8%)
Collateral: 67 Mortgage Loans ($892,264,316)
Master Servicer: Wachovia Bank, National Association
Special Servicer: Allied Capital Corporation
Trustee: Wells Fargo Bank, NA
Pricing: April 2004
Closing: April 2004
Cut-Off Date: April 1st 2004
Distribution Date: 10th of each month, or following business day
(commencing May 10, 2004)
Payment Delay: 9 days
ERISA Eligible: Classes A-1, A-2, B, C, D, and E are
expected to be ERISA eligible subject to certain
conditions for eligibility.
Structure: Sequential pay
Day Count: 30/360
Tax Treatment: REMIC
Rated Final Distribution October 2028
Date:
Clean up Call: 1.0%
Minimum Denominations: Publicly Offered Classes: $10,000 & $1
Delivery: DTC for publicly offered classes
- --------------------------------------------------------------------------------
COLLATERAL FACTS (A):
Cut-Off Date Loan Principal Balance: $892,264,316
Number of Mortgage Loans / Properties: 67 / 105
Average Mortgage Loan Cut-Off Date Balance: $13,317,378
Weighted Average Current Mortgage Rate: 5.019%
Weighted Average Loan U/W DSCR (b): 2.05x
Weighted Average Loan Cut-Off Date LTV Ratio (b): 67.64%
Weighted Average Remaining Term to Maturity date (months): 63
Weighted Average Remaining Amortization Term (months) (c): 338
Prepayment Lockout / Defeasance as % of Total: 82.4%
Balloon Loans as % of Total: 100.0%
Single Largest Asset as % of Total: 6.3%
Five Largest Assets as % of Total: 28.4%
Ten Largest Assets as % of Total: 44.8%
(a) Three (3) mortgage loans representing approximately 16.7% of the total pool
are structured as pari passu companion loans. All LTV and DSCR numbers are
based on the combined pari passu notes, unless otherwise noted.
(b) All DSCR and LTV information presented herein is generally calculated as
though any related earnout had been applied to reduce or defease the
principal balance of the mortgage loan.
(c) Excludes all full-term interest-only loans.
TEN LARGEST LOANS:
CUT-OFF DATE % BY LOAN UW
LOAN BALANCE POOL UPB LTV DSCR PROPERTY TYPE
- --------------------------------------------------------------------------------------------------------
Water Tower Place (a) $56,039,776 6.3% 55.66% 1.99x Anchored Retail
Foothills Mall 54,750,000 6.1 75.37 1.90 Anchored Retail
One Briarlake Plaza 50,000,000 5.6 67.57 2.12 Office
DDR Portfolio (a) 48,915,252 5.5 58.98 2.20 Anchored Retail
237 Park Avenue 44,000,000 4.9 64.78 1.52 Office
Willow Wood III & IV 40,000,000 4.5 74.07 2.67 Office
Hyatt Regency Dearborn 32,500,000 3.6 46.43 1.64 Hotel
Rechler Industrial Portfolio II (7-year) 26,593,085 3.0 61.62 1.75 Industrial
Rechler Industrial Portfolio I (5-year) 23,697,944 2.7 62.02 1.88 Industrial
StoneRidge Plaza 23,626,670 2.6 66.18 1.65 Anchored Retail
------------ ---- ----- ----
TOTAL/WTD. AVG. $400,122,727 44.8% 63.74% 1.96x
- --------------------------------------------------------------------------------------------------------
(a) These loans are shadow rated investment grade by Fitch and Moody's.
SELECTED LOAN DATA:
NUMBER OF LOAN POOL CUT-OFF DATE BALANCE
MORTGAGED ----------------------------------------
GEOGRAPHIC DISTRIBUTION PROPERTIES (MM) % BY UPB WTD. AVG. UWDSCR
- --------------------------------------------------------------------------------
Texas 12 $118.0 13.2% 1.95x
New York 31 100.7 11.3 1.69
California (a) 9 91.2 10.2 2.17
Arizona 4 78.4 8.8 1.99
Illinois 3 67.9 7.6 2.07
Florida 6 66.8 7.5 2.00
Virginia 3 63.0 7.1 2.50
North Carolina 7 57.7 6.5 2.34
Ohio 4 46.9 5.3 1.66
Minnesota 7 42.5 4.8 2.45
Other (b) 19 159.2 17.8 2.01
--- ------ ----- ----
TOTAL / WTD. AVG 105 $892.3 100.0% 2.05x
- --------------------------------------------------------------------------------
(a) Five (5) properties for a total of $40.3 million (4.5% UPB) are located in
northern California and four (4) properties for a total of $51.0 million (5.7%
UPB) are located in southern California. (b) Includes 11 states.
NUMBER OF LOAN POOL CUT-OFF DATE BALANCE
MORTGAGED ----------------------------------------
PROPERTY TYPE PROPERTIES (MM) % BY UPB WTD. AVG. UWDSCR
- --------------------------------------------------------------------------------
Anchored Retail 30 $327.2 36.7% 2.18x
Office 13 274.8 30.8 2.11
Multifamily 23 168.4 18.9 1.87
Industrial 37 84.9 9.5 1.85
Hotel 1 32.5 3.6 1.64
Self-Storage 1 4.4 0.5 1.45
--- ------ ----- ----
TOTAL / WTD. AVG 105 $892.3 100.0% 2.05x
- --------------------------------------------------------------------------------
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting this
material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange Commission
(the "SEC") and incorporated by reference into an effective registration
statement previously filed with the SEC under Rule 415 of the Securities Act of
1933, including in cases where the material does not pertain to securities that
are ultimately offered for sale pursuant to such registration statement.
Information contained in this material is current as of the date appearing on
this material only. Information in this material regarding any assets backing
any securities discussed herein supersedes all prior information regarding such
assets. All information in this Term Sheet, whether regarding the assets backing
any securities discussed herein or otherwise, will be superseded by the
information contained in any final prospectus for any securities actually sold
to you. The Lead Manager and Co-Managers do not provide accounting, tax or legal
advice. In addition, we mutually agree that, subject to applicable law, you may
disclose any and all aspects of any potential transaction or structure described
herein that are necessary to support any U.S. federal income tax benefits,
without the Lead Manager or Co-Managers imposing any limitation of any kind.
This material is furnished to you by the Lead Manager and Co-Managers and not by
the issuer of the securities. Goldman, Sachs & Co. is acting as the lead manager
and Greenwich Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Wachovia Securities and Banc of America Securities LLC are acting
as co-managers. None of these parties are acting as agent for the issuer or its
affiliates in connection with the proposed transaction. Neither the issuer nor
any of its affiliates has prepared or taken part in the preparation of these
materials and neither makes any representation as to the accuracy of these
materials.
E-1
ALL INFORMATION IN THIS TERM SHEET, WHETHER REGARDING THE ASSETS BACKING ANY
SECURITIES DISCUSSED HEREIN OR OTHERWISE, WILL BE SUPERSEDED BY THE INFORMATION
CONTAINED IN ANY FINAL PROSPECTUS FOR ANY SECURITIES ACTUALLY SOLD TO YOU.
STRUCTURAL AND COLLATERAL TERM SHEET
- --------------------------------------------------------------------------------
STRUCTURAL OVERVIEW
- --------------------------------------------------------------------------------
o For purposes of calculating principal distributions of the certificates:
-- Available principal will be allocated sequentially to the Class A-1,
A-2, B, C, D, E, F, G, H, J, K, L, M, N, O, and P certificates.
-- In case the principal balances of the Class P, O, N, M, L, K, J, H, G,
F, E, D, C, and B certificates, in that order, have been reduced to zero
due to the allocation of principal losses, then Class A-1 and A-2 will
be allocated principal pro-rata.
o Class X-1 and Class X-2 will be entitled to receive payments of interest
only and will not receive any payments of principal. Classes X-1 and X-2
will be entitled to payments of interest pro-rata (based on interest
entitlements) with the Class A-1 and A-2 certificates each month.
o Each other class will be subordinate to the Class A-1, A-2, X-1 and X-2
certificates and to each principal balance class with an earlier
alphabetical designation than such class. Each of the Class A-1, A-2, X-1
and X-2 certificates will be of equal priority.
o All classes will pay interest on a 30/360 basis.
o Principal losses will be allocated in reverse alphabetical order to the
Class P, O, N, M, L, K, J, H, G, F, E, D, C, and B certificates, and then
pro-rata to the Class A-1 and A-2 certificates.
o The Master Servicer will cover prepayment interest shortfalls on the loans
(other than specially serviced loans) up to a specified portion of the
master servicing fee. Net prepayment interest shortfalls (after application
of prepayment interest excesses on the mortgage loans and other
compensating interest payments from the master servicing fee) will be
allocated pro-rata (based on interest entitlements) to all regular
certificates.
o Shortfalls resulting from Master Servicer and Special Servicer
modifications, Special Servicer compensation or other extraordinary trust
fund expenses will be allocated in reverse alphabetical order to Classes of
outstanding principal balance certificates. Any such reduction will also
have the effect of reducing the aggregate notional amount of the Class X-1
and, in certain circumstances, X-2 certificates.
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting this
material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange Commission
(the "SEC") and incorporated by reference into an effective registration
statement previously filed with the SEC under Rule 415 of the Securities Act of
1933, including in cases where the material does not pertain to securities that
are ultimately offered for sale pursuant to such registration statement.
Information contained in this material is current as of the date appearing on
this material only. Information in this material regarding any assets backing
any securities discussed herein supersedes all prior information regarding such
assets. All information in this Term Sheet, whether regarding the assets backing
any securities discussed herein or otherwise, will be superseded by the
information contained in any final prospectus for any securities actually sold
to you. The Lead Manager and Co-Managers do not provide accounting, tax or legal
advice. In addition, we mutually agree that, subject to applicable law, you may
disclose any and all aspects of any potential transaction or structure described
herein that are necessary to support any U.S. federal income tax benefits,
without the Lead Manager or Co-Managers imposing any limitation of any kind.
This material is furnished to you by the Lead Manager and Co-Managers and not by
the issuer of the securities. Goldman, Sachs & Co. is acting as the lead manager
and Greenwich Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Wachovia Securities and Banc of America Securities LLC are acting
as co-managers. None of these parties are acting as agent for the issuer or its
affiliates in connection with the proposed transaction. Neither the issuer nor
any of its affiliates has prepared or taken part in the preparation of these
materials and neither makes any representation as to the accuracy of these
materials.
E-2
ALL INFORMATION IN THIS TERM SHEET, WHETHER REGARDING THE ASSETS BACKING ANY
SECURITIES DISCUSSED HEREIN OR OTHERWISE, WILL BE SUPERSEDED BY THE INFORMATION
CONTAINED IN ANY FINAL PROSPECTUS FOR ANY SECURITIES ACTUALLY SOLD TO YOU.
STRUCTURAL AND COLLATERAL TERM SHEET
- --------------------------------------------------------------------------------
ALLOCATION OF PREPAYMENT PREMIUMS (A)
- --------------------------------------------------------------------------------
ALLOCATION OF PREPAYMENT PREMIUMS:
Prepayment premiums and yield maintenance amounts with respect to all loans will
be allocated between the related certificate then entitled to principal
distributions and the Class X-1 certificate as follows:
o A percentage of all prepayment premiums and yield maintenance amounts
with respect to all loans will be allocated to each class of the
certificates then entitled to principal distributions, which percentage
will be equal to the product of (a) the percentage of the total
principal distribution that such class receives, and (b) a percentage
(which can be no greater than 100%), the numerator of which is the
excess, if any, of the Pass-Through Rate of the class of certificates
currently receiving principal over the relevant discount rate, and the
denominator of which is the excess, if any, of the mortgage rate of the
related mortgage loan over the discount rate.
----------------------------------------------------------------
Prepayment (Pass-Through Rate - Discount Rate)
Premium Allocation = -----------------------------------
Percentage (Mortgage Rate - Discount Rate)
-----------------------------------------------------------------
o The remaining percentage of such prepayment premiums and yield
maintenance amounts will be allocated to the Class X-1 certificate.
o In general, this formula provides for an increase in the allocation of
prepayment premiums and yield maintenance premiums to the certificate
then entitled to principal distributions relative to the class X-1
certificate as discount rates decrease and a decrease in the allocation
to such classes as discount rates rise.
Allocation of Prepayment Premiums Example
Discount Rate Fraction Methodology:
Mortgage Rate = 6%
Pass-Through Rate = 5%
Treasury Rate (or Applicable Discount Rate) = 4%
% of Principal Distributed to Class = 100%
BOND CLASS ALLOCATION CLASS X-1 ALLOCATION
--------------------------------------------------------------------------
5% - 4% x 100% = 50% Receives excess premiums = 50% thereof
-------
6% - 4%
(a) For further information regarding the allocation of prepayment premiums,
refer to the prospectus supplement.
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting this
material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange Commission
(the "SEC") and incorporated by reference into an effective registration
statement previously filed with the SEC under Rule 415 of the Securities Act of
1933, including in cases where the material does not pertain to securities that
are ultimately offered for sale pursuant to such registration statement.
Information contained in this material is current as of the date appearing on
this material only. Information in this material regarding any assets backing
any securities discussed herein supersedes all prior information regarding such
assets. All information in this Term Sheet, whether regarding the assets backing
any securities discussed herein or otherwise, will be superseded by the
information contained in any final prospectus for any securities actually sold
to you. The Lead Manager and Co-Managers do not provide accounting, tax or legal
advice. In addition, we mutually agree that, subject to applicable law, you may
disclose any and all aspects of any potential transaction or structure described
herein that are necessary to support any U.S. federal income tax benefits,
without the Lead Manager or Co-Managers imposing any limitation of any kind.
This material is furnished to you by the Lead Manager and Co-Managers and not by
the issuer of the securities. Goldman, Sachs & Co. is acting as the lead manager
and Greenwich Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Wachovia Securities and Banc of America Securities LLC are acting
as co-managers. None of these parties are acting as agent for the issuer or its
affiliates in connection with the proposed transaction. Neither the issuer nor
any of its affiliates has prepared or taken part in the preparation of these
materials and neither makes any representation as to the accuracy of these
materials.
E-3
ALL INFORMATION IN THIS TERM SHEET, WHETHER REGARDING THE ASSETS BACKING ANY
SECURITIES DISCUSSED HEREIN OR OTHERWISE, WILL BE SUPERSEDED BY THE INFORMATION
CONTAINED IN ANY FINAL PROSPECTUS FOR ANY SECURITIES ACTUALLY SOLD TO YOU.
STRUCTURAL AND COLLATERAL TERM SHEET
- --------------------------------------------------------------------------------
PREPAYMENT PROFILE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREPAYMENT RESTRICTION ASSUMING NO PREPAYMENT OF PRINCIPAL (A) (B)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PREPAYMENT MAY MAY MAY MAY MAY MAY MAY MAY
RESTRICTIONS 2004 2005 2006 2007 2008 2009 2010 2011
- ------------------------------------------------------------------------------------------------------------------------------------
Locked out / Defeasance 100.00% 100.00% 86.39% 81.00% 61.94% 65.51% 62.40% 0.00%
> of YM or 1% 0.00% 0.00% 13.61% 17.18% 19.20% 34.49% 9.91% 0.00%
Open 0.00% 0.00% 0.00% 1.82% 18.87% 0.00% 27.69% 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00%
Balance of Mortgage Loans ($mm) 892.26 887.91 883.32 878.26 758.80 313.18 309.90 0.00
% OF CUT-OFF BALANCE 100.00% 99.51% 99.00% 98.43% 85.04% 35.10% 34.73% 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------
(a) Table calculated using modeling assumptions as described in the prospectus
supplement.
(b) Differences in totals may exist due to rounding.
- --------------------------------------------------------------------------------
AVERAGE LIFE TABLE (IN YEARS)
(PREPAYMENTS LOCKED OUT THROUGH LOCK OUT PERIOD,
DEFEASANCE PERIOD AND YIELD MAINTENANCE PERIOD THEN RUN AT THE INDICATED CPRS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREPAYMENT ASSUMPTIONS (CPR)
0% CPR 25% CPR 50% CPR 75% CPR 100% CPR
-------------------------------------------------------------------------------
A-1 4.37 4.35 4.33 4.30 4.10
A-2 6.46 6.44 6.41 6.38 6.15
B 6.65 6.63 6.60 6.57 6.40
C 6.68 6.65 6.65 6.62 6.44
D 6.74 6.72 6.69 6.65 6.49
E 6.74 6.74 6.74 6.72 6.49
- --------------------------------------------------------------------------------
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting this
material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange Commission
(the "SEC") and incorporated by reference into an effective registration
statement previously filed with the SEC under Rule 415 of the Securities Act of
1933, including in cases where the material does not pertain to securities that
are ultimately offered for sale pursuant to such registration statement.
Information contained in this material is current as of the date appearing on
this material only. Information in this material regarding any assets backing
any securities discussed herein supersedes all prior information regarding such
assets. All information in this Term Sheet, whether regarding the assets backing
any securities discussed herein or otherwise, will be superseded by the
information contained in any final prospectus for any securities actually sold
to you. The Lead Manager and Co-Managers do not provide accounting, tax or legal
advice. In addition, we mutually agree that, subject to applicable law, you may
disclose any and all aspects of any potential transaction or structure described
herein that are necessary to support any U.S. federal income tax benefits,
without the Lead Manager or Co-Managers imposing any limitation of any kind.
This material is furnished to you by the Lead Manager and Co-Managers and not by
the issuer of the securities. Goldman, Sachs & Co. is acting as the lead manager
and Greenwich Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Wachovia Securities and Banc of America Securities LLC are acting
as co-managers. None of these parties are acting as agent for the issuer or its
affiliates in connection with the proposed transaction. Neither the issuer nor
any of its affiliates has prepared or taken part in the preparation of these
materials and neither makes any representation as to the accuracy of these
materials.
E-4
ALL INFORMATION IN THIS TERM SHEET, WHETHER REGARDING THE ASSETS BACKING ANY
SECURITIES DISCUSSED HEREIN OR OTHERWISE, WILL BE SUPERSEDED BY THE INFORMATION
CONTAINED IN ANY FINAL PROSPECTUS FOR ANY SECURITIES ACTUALLY SOLD TO YOU.
STRUCTURAL AND COLLATERAL TERM SHEET
[MAP OF THE UNITED STATES OMITTED]
AL 1.0%
AZ 8.8%
CA(a) 10.2%
CO 3.1%
GA 0.6%
FL 7.5%
IL 7.6%
MI 4.3%
MN 4.8%
MS 0.4%
MD 1.8%
NC 6.5%
NY 11.3%
NV 2.4%
OH 5.3%
PA 0.5%
SC 0.4%
TX 13.2%
VA 7.1%
WI 2.3%
ID 1.0%
[PIE CHART OMITTED]
ANCHORED RETAIL 36.7%
OFFICE 30.8%
MULTIFAMILY 18.9%
INDUSTRIAL 9.5%
HOTEL 3.6%
SELF-STORAGE 0.5%
(a) Includes 5 properties located in northern California (4.5% of the total
pool) and 4 properties located in southern California (5.7% of the total pool).
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting this
material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange Commission
(the "SEC") and incorporated by reference into an effective registration
statement previously filed with the SEC under Rule 415 of the Securities Act of
1933, including in cases where the material does not pertain to securities that
are ultimately offered for sale pursuant to such registration statement.
Information contained in this material is current as of the date appearing on
this material only. Information in this material regarding any assets backing
any securities discussed herein supersedes all prior information regarding such
assets. All information in this Term Sheet, whether regarding the assets backing
any securities discussed herein or otherwise, will be superseded by the
information contained in any final prospectus for any securities actually sold
to you. The Lead Manager and Co-Managers do not provide accounting, tax or legal
advice. In addition, we mutually agree that, subject to applicable law, you may
disclose any and all aspects of any potential transaction or structure described
herein that are necessary to support any U.S. federal income tax benefits,
without the Lead Manager or Co-Managers imposing any limitation of any kind.
This material is furnished to you by the Lead Manager and Co-Managers and not by
the issuer of the securities. Goldman, Sachs & Co. is acting as the lead manager
and Greenwich Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Wachovia Securities and Banc of America Securities LLC are acting
as co-managers. None of these parties are acting as agent for the issuer or its
affiliates in connection with the proposed transaction. Neither the issuer nor
any of its affiliates has prepared or taken part in the preparation of these
materials and neither makes any representation as to the accuracy of these
materials.
E-5
ALL INFORMATION IN THIS TERM SHEET, WHETHER REGARDING THE ASSETS BACKING ANY
SECURITIES DISCUSSED HEREIN OR OTHERWISE, WILL BE SUPERSEDED BY THE INFORMATION
CONTAINED IN ANY FINAL PROSPECTUS FOR ANY SECURITIES ACTUALLY SOLD TO YOU.
STRUCTURAL AND COLLATERAL TERM SHEET
- --------------------------------------------------------------------------------
COLLATERAL DATA
- --------------------------------------------------------------------------------
DISTRIBUTION OF DSCR
- --------------------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF
RANGE OF DSCR (X) MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
1.38 - 1.59 9 101,638,731 11.4%
1.60 - 1.69 4 72,772,529 8.2
1.70 - 1.79 6 90,643,085 10.2
1.80 - 1.99 16 206,024,720 23.1
2.00 - 2.19 15 173,925,000 19.5
2.20 - 2.49 7 132,040,252 14.8
2.50 - 2.99 6 84,495,000 9.5
3.00 - 3.39 1 7,425,000 0.8
3.40 - 3.44 3 23,300,000 2.6
-- ------------ -----
Total 67 $892,264,316 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION OF CUT-OFF DATE RINCIPAL BALANCE
- --------------------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE
CUT-OFF DATE PRINCIPAL NUMBER OF CUT-OFF DATE CUT-OFF
BALANCE ($) MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
1,200,000 - 2,999,999 6 $14,937,625 1.7%
3,000,000 - 4,999,999 9 35,870,908 4.0
5,000,000 - 6,999,999 12 72,944,356 8.2
7,000,000 - 9,999,999 16 133,908,316 15.0
10,000,000 - 14,999,999 5 68,955,383 7.7
15,000,000 - 17,999,999 5 78,325,000 8.8
18,000,000 - 29,999,999 7 161,117,700 18.1
30,000,000 - 56,039,776 7 326,205,027 36.6
-- ------------ -----
TOTAL 67 $892,264,316 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION OF
AMORTIZATION TYPE
- --------------------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF
AMORTIZATION TYPE MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
Interest Only 51 $574,127,000 64.3%
Amortizing 14 270,637,316 30.3
Interest Only,
Then Amortizing 2 47,500,000 5.3
-- ------------ -----
TOTAL 67 $892,264,316 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION OF
MORTGAGED
PROPERTIES BY STATE
- --------------------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF
LOCATION MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
Texas 12 $117,955,017 13.2%
New York 31 100,691,029 11.3
California (a) 9 91,237,824 10.2
Arizona 4 78,350,000 8.8
Illinois 3 67,883,684 7.6
Florida 6 66,757,712 7.5
Virginia 3 63,000,000 7.1
North Carolina 7 57,669,999 6.5
Ohio 4 46,930,247 5.3
Minnesota 7 42,545,000 4.8
Michigan 3 38,076,339 4.3
Colorado 2 28,000,000 3.1
Nevada 3 21,030,383 2.4
Wisconsin 4 20,312,000 2.3
Maryland 1 16,000,000 1.8
Alabama 1 9,359,118 1.0
Idaho 1 8,641,695 1.0
Georgia 1 5,600,000 0.6
Pennsylvania 1 4,300,000 0.5
Mississippi 1 3,978,441 0.4
South Carolina 1 3,945,830 0.4
--- ------------ -----
TOTAL 105 $892,264,316 100.0%
- --------------------------------------------------------------------------------
(a) Includes 5 properties located in northern California (4.5% of the total
pool) and 4 properties located in southern California (5.7% of the total pool).
DISTRIBUTION OF LTV
RATIOS AT CUT-OFF DATE
- --------------------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF
RANGE OF LTV (%) MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
46.43 - 54.99 9 $86,985,660 9.7%
55.00 - 59.99 5 133,580,027 15.0
60.00 - 64.99 4 96,791,029 10.8
65.00 - 69.99 7 128,238,785 14.4
70.00 - 74.99 19 189,693,083 21.3
75.00 - 79.99 21 240,875,732 27.0
80.00 - 82.77 2 16,100,000 1.8
-- ------------ -----
TOTAL 67 $892,264,316 100.0%
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION OF MORTGAGE
INTEREST RATE (%)
- --------------------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE
RANGE OF NUMBER OF CUT-OFF DATE CUT-OFF
MORTGAGE RATES (%) MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
4.200% - 4.500% 13 $176,840,252 19.8%
4.501% - 5.000% 25 282,721,776 31.7
5.001% - 5.500% 18 259,610,402 29.1
5.501% - 6.060% 11 173,091,887 19.4
-- ------------ ----
TOTAL 67 $892,264,316 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION OF
REMAINING
AMORTIZATION TERMS
- --------------------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE
RANGE OF REMAINING NUMBER OF CUT-OFF DATE CUT-OFF
AMORTIZATION TERMS (MOS) MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
Interest Only 51 $574,127,000 64.3%
288 - 300 4 88,426,125 9.9
325 - 359 10 182,211,191 20.4
360 - 360 2 47,500,000 5.3
-- ------------ -----
TOTAL 67 $892,264,316 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION OF ORIGINAL TERMS TO MATURITY
- --------------------------------------------------------------------------------
PERCENTAGE OF
RANGE OF AGGREGATE
ORIGINAL TERMS TO NUMBER OF CUT-OFF DATE CUT-OFF
MATURITY (MOS) MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
56 - 59 1 $48,915,252 5.5%
60 - 60 44 517,488,062 58.0
84 - 85 22 325,861,002 36.5
-- ------------ ----
TOTAL 67 $892,264,316 100.0%
- ------------------------------- ------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION OF
REMAINING TERMS TO
MATURITY
- --------------------------------------------------------------------------------
PERCENTAGE OF
RANGE OF REMAINING AGGREGATE
TERMS TO NUMBER OF CUT-OFF DATE CUT-OFF
MATURITY (MOS) MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
47 - 55 24 $345,322,252 38.7%
56 - 60 21 221,081,062 24.8
70 - 80 11 223,247,628 25.0
81 - 84 11 102,613,375 11.5
-- ------------ ----
TOTAL 67 $892,264,316 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION OF PREPAYMENT PROVISIONS
- --------------------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE
NUMBER OF CUT-OFF DATE CUT-OFF
PREPAYMENT PROVISIONS MORTGAGE LOANS BALANCE DATE BALANCE
- --------------------------------------------------------------------------------
Defeasance 54 $735,100,408 82.4%
Greater of YM or
1% of UPB 12 107,163,908 12.0
Yield Maintenance 1 50,000,000 5.6
-- ------------ -----
TOTAL 67 $892,264,316 100.0%
- --------------------------------------------------------------------------------
(a) Includes 5 properties located in northern California (4.5% of the total
pool) and 4 properties located in southern California (5.9% of the total pool).
This material is for your private information and we are not soliciting any
action based upon it. This material is not to be construed as an offer to sell
or the solicitation of any offer to buy any security in any jurisdiction where
such an offer or solicitation would be illegal. This material is based on
information that we consider reliable, but we do not represent that it is
accurate or complete and it should not be relied upon as such. By accepting this
material the recipient agrees that it will not distribute or provide the
material to any other person. The information contained in this material may be
based on assumptions regarding market conditions and other matters as reflected
therein. We make no representations regarding the reasonableness of such
assumptions or the likelihood that any of such assumptions will coincide with
actual market conditions or events, and this material should not be relied upon
for such purposes. We and our affiliates, officers, directors, partners and
employees, including persons involved in the preparation or issuance of this
material may, from time to time, have long or short positions in, and buy and
sell, the securities mentioned therein or derivatives thereof (including
options). This material may be filed with the Securities and Exchange Commission
(the "SEC") and incorporated by reference into an effective registration
statement previously filed with the SEC under Rule 415 of the Securities Act of
1933, including in cases where the material does not pertain to securities that
are ultimately offered for sale pursuant to such registration statement.
Information contained in this material is current as of the date appearing on
this material only. Information in this material regarding any assets backing
any securities discussed herein supersedes all prior information regarding such
assets. All information in this Term Sheet, whether regarding the assets backing
any securities discussed herein or otherwise, will be superseded by the
information contained in any final prospectus for any securities actually sold
to you. The Lead Manager and Co-Managers do not provide accounting, tax or legal
advice. In addition, we mutually agree that, subject to applicable law, you may
disclose any and all aspects of any potential transaction or structure described
herein that are necessary to support any U.S. federal income tax benefits,
without the Lead Manager or Co-Managers imposing any limitation of any kind.
This material is furnished to you by the Lead Manager and Co-Managers and not by
the issuer of the securities. Goldman, Sachs & Co. is acting as the lead manager
and Greenwich Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Wachovia Securities and Banc of America Securities LLC are acting
as co-managers. None of these parties are acting as agent for the issuer or its
affiliates in connection with the proposed transaction. Neither the issuer nor
any of its affiliates has prepared or taken part in the preparation of these
materials and neither makes any representation as to the accuracy of these
materials.
E-6
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
GS MORTGAGE SECURITIES CORPORATION II
SELLER
COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES (ISSUABLE IN SERIES)
GS Mortgage Securities Corporation II from time to time will offer Commercial
Mortgage Pass-Through Certificates in separate series. We will offer the
certificates through this prospectus and a separate prospectus supplement for
each series. If specified in the related prospectus supplement, we may not
offer all of the classes of certificates in a particular series. For each
series, we will establish a trust fund consisting primarily of (i) mortgage
loans secured by first, second or third liens on commercial real estate,
multifamily and/or mixed residential/commercial properties or (ii) certain
financial leases and similar arrangements equivalent to such mortgage loans and
other assets as described in this prospectus and to be specified in the related
prospectus supplement. The certificates of a series will evidence beneficial
ownership interests in the trust fund. The certificates of a series may be
divided into two or more classes which may have different interest rates and
which may receive principal payments in differing proportions and at different
times. In addition, the rights of certain holders of classes may be subordinate
to the rights of holders of other classes to receive principal and interest.
The certificates of any series are not obligations of GS Mortgage Securities
Corporation II or any of its affiliates, and neither the certificates nor the
underlying mortgage loans are insured or guaranteed by any governmental agency.
-----------------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of the offered certificates or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------------
No secondary market will exist for a series of certificates prior to its
offering. We cannot assure you that a secondary market will develop for the
certificates of any series or, if it does develop, that it will continue.
-----------------
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 3 OF THIS PROSPECTUS. FOR EACH SERIES, SEE "RISK FACTORS" IN
THE RELATED PROSPECTUS SUPPLEMENT.
-----------------
The certificates may be offered through one or more different methods,
including offerings through underwriters, as more fully described under "PLAN
OF DISTRIBUTION" on page 77 of this prospectus and in the related prospectus
supplement. Our affiliates may from time to time act as agents or underwriters
in connection with the sale of the offered certificates. Offerings of certain
classes of the certificates, as specified in the related prospectus supplement,
may be made in one or more transactions exempt from the registration
requirements of the Securities Act of 1933, as amended. Such offerings are not
being made pursuant to this prospectus or the related registration statement.
-----------------
This prospectus may not be used to consummate sales of the offered certificates
unless accompanied by a prospectus supplement.
-----------------
March 26, 2004
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to the offered
certificates; and (b) the accompanying prospectus supplement for each series,
which describes the specific terms of the offered certificates. IF THE TERMS OF
THE OFFERED CERTIFICATES VARY BETWEEN THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN THE PROSPECTUS
SUPPLEMENT.
You should rely only on the information contained in this prospectus and
the accompanying prospectus supplement. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus and the prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
Certain capitalized terms are defined and used in this prospectus to
assist you in understanding the terms of the offered certificates and this
offering. The capitalized terms used in this prospectus are defined on the
pages indicated under the caption "INDEX OF DEFINED TERMS" beginning on page 81
in this prospectus.
In this prospectus, the terms "Seller," "we," "us" and "our" refer to GS
Mortgage Securities Corporation II.
-----------------
If you require additional information, the mailing address of our
principal executive offices is GS Mortgage Securities Corporation II, 85 Broad
Street, New York, NY 10004 and the telephone number is (212) 902-1000. For
other means of acquiring additional information about us or a series of
certificates, see "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" beginning
on page 79 of this prospectus.
-----------------
TABLE OF CONTENTS
Risk Factors................................................................3
The Prospectus Supplement...................................................5
The Seller..................................................................7
Use of Proceeds.............................................................7
Description of the Certificates.............................................8
The Mortgage Pools.........................................................15
Servicing of the Mortgage Loans............................................19
Credit Enhancement.........................................................25
Swap Agreement.............................................................28
Yield Considerations.......................................................28
Certain Legal Aspects of the Mortgage Loans................................30
Federal Income Tax Consequences............................................46
Federal Income Tax Consequences for REMIC Certificates.....................47
State Tax Considerations...................................................73
Erisa Considerations.......................................................73
Legal Investment...........................................................75
Plan of Distribution.......................................................77
Incorporation of Certain Information By Reference..........................79
Legal Matters..............................................................80
Index of Defined Terms.....................................................81
2
RISK FACTORS
You should carefully consider the following risks and the risks described
under "RISK FACTORS" in the prospectus supplement for the applicable series of
certificates before making an investment decision. In particular, distribution
on your certificates will depend on payments received on and other recoveries
with respect to the mortgage loans. Therefore, you should carefully consider
the risk factors relating to the mortgage loans and the mortgaged properties.
Your investment could be materially and adversely affected if any of the
following risks are realized.
RISKS OF COMMERCIAL AND MULTIFAMILY LENDING GENERALLY.
Commercial and multifamily lending generally exposes the lender to a
greater risk of loss than one-to four-family residential lending. Commercial
and multifamily lending typically involves larger loans to single borrowers or
groups of related borrowers than residential one-to four-family mortgage loans.
Further, the repayment of loans secured by income producing properties is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed), the borrower's ability to repay the loan may be
impaired. Commercial and multifamily real estate can be affected significantly
by the supply and demand in the market for the type of property securing the
loan and, therefore, may be subject to adverse economic conditions. Market
values may vary as a result of economic events or governmental regulations
outside the control of the borrower or lender that impact the cash flow of the
property. For example, some laws may require modifications to properties such
as the Americans with Disabilities Act, and rent control laws may limit rent
collections in the case of multifamily properties. See "CERTAIN LEGAL ASPECTS
OF THE MORTGAGE LOANS" "-- Certain Laws and Regulations," "-- Type of Mortgaged
Property" and "-- Americans With Disabilities Act" in this prospectus.
It is unlikely that we will obtain new appraisals of the mortgaged
properties or assign new valuations to the mortgage loans in connection with
the offering of the offered certificates. The market values of the underlying
mortgaged properties could have declined since the origination of the related
mortgage loans.
YOUR CERTIFICATES ARE NOT OBLIGATIONS OF ANY OTHER PERSON OR ENTITY.
Your certificates will represent beneficial ownership interests solely in
the assets of the related trust fund and will not represent an interest in or
obligation of us, the originator, the trustee, the master servicer, the special
servicer or any other person. We or another entity may have a limited
obligation to repurchase or substitute certain mortgage loans under certain
circumstances as described in the agreement relating to a particular series.
Distributions on any class of certificates will depend solely on the amount and
timing of payments and other collections in respect of the related mortgage
loans. We cannot assure you that these amounts, together with other payments
and collections in respect of the related mortgage loans, will be sufficient to
make full and timely distributions on any offered certificates. The offered
certificates and the mortgage loans will be insured or guaranteed, in whole or
in part, by the United States or any governmental entity or by any private
mortgage or other insurer only to the extent the prospectus supplement so
provides.
LIMITED LIQUIDITY.
There will have been no secondary market for any series of your
certificates prior to the related offering. We cannot assure you that such a
secondary market will develop or, if it does develop, that it will provide you
with liquidity of investment or continue for the life of your certificates.
VARIABILITY IN AVERAGE LIFE OF OFFERED CERTIFICATES.
The payment experience on the related mortgage loans will affect the
actual payment experience on and the weighted average lives of the offered
certificates and, accordingly, may affect the yield on the offered
certificates. Prepayments on the mortgage loans will be influenced by:
3
o the prepayment provisions of the related mortgage notes;
o a variety of economic, geographic and other factors, including
prevailing mortgage rates and the cost and availability of refinancing
for commercial mortgage loans.
o In general, if prevailing interest rates fall significantly below the
interest rates on the mortgage loans, you should expect the rate of
prepayment on the mortgage loans to increase. Conversely, if prevailing
interest rates rise significantly above the interest rates on the
mortgage loans, you should expect the rate of prepayment to decrease.
Certain of the mortgage loans may provide for a prepayment premium if
prepaid during a specified period, and certain of the mortgage loans may
prohibit prepayments of principal in whole or in part during a specified
period. See "DESCRIPTION OF THE MORTGAGE POOL" in the related prospectus
supplement for a description of the prepayment premiums and lockout periods, if
any, for the mortgage loans underlying a series of certificates. Such
prepayment premiums and lockout periods can, but do not necessarily, reduce the
likelihood of prepayments. However, in certain jurisdictions, the
enforceability of provisions in mortgage loans prohibiting or limiting
prepayment or requiring prepayment premiums in connection with prepayments may
be subject to limitations as described under "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS -- Enforceability of Certain Provisions -- Prepayment
Provisions." We cannot assure you as to the effect of such prepayment premiums
or lockout periods on the rate of mortgage loan prepayment.
The extent to which the master servicer or special servicer, if any,
forecloses upon, takes title to and disposes of any mortgaged property related
to a mortgage loan will affect the weighted average lives of your certificates.
If the master servicer or special servicer, if any, forecloses upon a
significant number of the related mortgage loans, and depending upon the amount
and timing of recoveries from the related mortgaged properties, your
certificates may have a shorter weighted average life.
Delays in liquidations of defaulted mortgage loans and modifications
extending the maturity of mortgage loans will tend to delay the payment of
principal on the mortgage loans. The ability of the related borrower to make
any required balloon payment typically will depend upon its ability either to
refinance the mortgage loan or to sell the related mortgaged property. If a
significant number of the mortgage loans underlying a particular series require
balloon payments at maturity, there is a risk that a number of such mortgage
loans may default at maturity, or that the master servicer or special servicer,
if any, may extend the maturity of a number of such mortgage loans in
connection with workouts. We cannot assure you as to the borrowers' abilities
to make mortgage loan payments on a full and timely basis, including any
balloon payments at maturity. Bankruptcy of the borrower or adverse conditions
in the market where the mortgaged property is located may, among other things,
delay the recovery of proceeds in the case of defaults. Losses on the mortgage
loans due to uninsured risks or insufficient hazard insurance proceeds may
create shortfalls in distributions to certificateholders. Any required
indemnification of the master servicer or special servicer in connection with
legal actions relating to the trust, the related agreements or the certificates
may also result in such shortfalls.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS.
The laws of the jurisdictions in which the mortgaged properties are
located (which laws may vary substantially) govern many of the legal aspects of
the mortgage loans. These laws may affect the ability to foreclose on, and, in
turn the ability to realize value from, the mortgaged properties securing the
mortgage loans. For example, state law determines:
o what proceedings are required for foreclosure;
o whether the borrower and any foreclosed junior lienors may redeem the
property and the conditions under which these rights of redemption may be
exercised;
o whether and to what extent recourse to the borrower is permitted; and
o what rights junior mortgagees have and whether the amount of fees and
interest that lenders may charge is limited.
In addition, the laws of some jurisdictions may render certain provisions
of the mortgage loans unenforceable or subject to limitations which may affect
lender's rights under the mortgage loans.
4
Installment contracts and financial leases also may be subject to similar legal
requirements. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS" in this
prospectus. Delays in liquidations of defaulted mortgage loans and shortfalls
in amounts realized upon liquidation as a result of the application of such
laws may create delays and shortfalls in payments to certificateholders.
ENVIRONMENTAL LAW CONSIDERATIONS.
Before the trustee, special servicer or the master servicer, as
applicable, acquires title to a property on behalf of the trust or assumes
operation of the property, it will be required to obtain an environmental site
assessment of the mortgaged property pursuant to the American Society for
Testing and Materials (ASTM) guidelines, specifically E 1527-00. This
requirement will decrease the likelihood that the trust will become liable
under any environmental law. However, this requirement may effectively preclude
foreclosure until a satisfactory environmental site assessment is obtained (or
until any required remedial action is taken). Moreover, this requirement may
not necessarily insulate the trust from potential liability under environmental
laws.
Under the laws of certain states, failure to remediate environmental
conditions as required by the state may give rise to a lien on a mortgaged
property or a restriction on the right of the owner to transfer the mortgaged
property to ensure the reimbursement of remediation expenses incurred by the
state. Although the costs of remedial action could be substantial, it is
unclear as to whether and under what circumstances such costs or the
requirement to remediate would be imposed on a secured lender such as the trust
fund. However, under the laws of some states and under applicable federal law,
a lender may be liable for such costs in certain circumstances as the "owner"
or "operator" of the Mortgaged Property. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS -- Environmental Risks."
RISK OF EARLY TERMINATION.
The trust for a series of certificates may be subject to optional
termination under certain circumstances by certain persons named in the
prospectus supplement for your certificates. In the event of such termination,
you might receive some principal payments earlier than otherwise expected,
which could adversely affect your anticipated yield to maturity.
THE PROSPECTUS SUPPLEMENT
The prospectus supplement for each series of offered certificates will,
among other things, describe to the extent applicable:
o any structural features, such as multiple levels of trusts or the use of
special finance vehicles to hold the mortgage pool, used in structuring
the transaction;
o whether the trust will be treated for federal income tax purposes as one
or more grantor trusts, FASITs or REMICs;
o the identity of each class within such series;
o the initial aggregate principal amount, the interest rate (or the method
for determining such rate) and the authorized denominations of each class
of offered certificates;
o certain information concerning the mortgage loans relating to such
series, including the principal amount, type and characteristics of such
mortgage loans on the cut-off date, and, if applicable, the amount of any
reserve fund;
o the identity of the master servicer;
o the identity of the special servicer, if any, and the characteristics of
any specially serviced mortgage loans;
o the method of selection and powers of any representative of a class of
certificates permitted to direct or approve actions of the special
servicer;
o the circumstances, if any, under which the offered certificates are
subject to redemption prior to maturity;
5
o the final scheduled distribution date of each class of offered
certificates;
o the method used to calculate the aggregate amount of principal available
and required to be applied to the offered certificates on each
distribution date;
o the order of the application of principal and interest payments to each
class of offered certificates and the allocation of principal to be so
applied;
o the extent of subordination of any subordinate certificates;
o for each class of offered certificates, the principal amount that would
be outstanding on specified distribution dates if the mortgage loans
relating to such series were prepaid at various assumed rates;
o the distribution dates for each class of offered certificates;
o the representations and warranties to be made by us or another entity
relating to the mortgage loans;
o information with respect to the terms of the subordinate certificates or
residual certificates, if any;
o additional information with respect to any credit enhancement or cash
flow agreement and, if the certificateholders will be materially dependent
upon any provider of credit enhancement or cash flow agreement
counterparty for timely payment of interest and/or principal, information
(including financial statements) regarding such provider or counterparty;
o additional information with respect to the plan of distribution;
o whether the offered certificates will be available in definitive form or
through the book-entry facilities of The Depository Trust Company (the
"Depository") or another depository;
o if a trust fund contains a concentration of mortgage loans having a
single borrower or that are cross-collateralized and/or cross-defaulted
with each other, or mortgage loans secured by mortgaged properties leased
to a single lessee, including affiliates, representing 20% or more of the
aggregate principal balance of the mortgage loans in such trust fund,
financial statements for such mortgaged properties as well as specific
information with respect to such mortgage loans, mortgaged properties and,
to the extent material, leases and additional information concerning any
common ownership, common management or common control of, or
cross-default, cross-collateralization or similar provisions relating to,
such mortgaged properties and the concentration of credit risk thereon;
o if a trust fund contains a concentration of mortgage loans having a
single borrower or that are cross-collateralized and/or cross-defaulted
with each other, or mortgage loans secured by mortgaged properties leased
to a single lessee, including its affiliates, representing 10% or more,
but less than 20%, of the aggregate principal balance of the mortgage
loans in such trust fund, selected financial information with respect to
such mortgaged properties as well as, to the extent material, specific
information with respect to any common ownership, common management or
common control of, or cross-default, cross-collateralization or similar
provisions relating to, such mortgaged properties and the concentration of
credit risk thereon;
o if applicable, additional information concerning any known concerns
regarding unique economic or other factors where there is a material
concentration of any of the mortgage loans in a specific geographic
region;
o if applicable, additional financial and other information concerning
individual mortgaged properties when there is a substantial concentration
of one or a few mortgage loans in a jurisdiction or region experiencing
economic difficulties which may have a material effect on such mortgaged
properties;
o if a trust fund contains a substantial concentration of one or a few
mortgage loans in a single jurisdiction, a description of material
differences, if any, between the legal aspects of mortgage loans in such
jurisdiction and the summary of general legal aspects of mortgage loans
set forth under "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS" in this
prospectus;
6
o the rating assigned to each class of offered certificates by the
applicable nationally recognized statistical rating organization or
organizations; and
o whether any class of offered certificates qualifies as "mortgage related
securities" under the Secondary Mortgage Market Enhancement Act of 1984,
as amended, as described under "LEGAL INVESTMENT" in this prospectus.
THE SELLER
GS Mortgage Securities Corporation II (the "Seller") was incorporated in
the State of Delaware on November 16, 1995, for the purpose of engaging in the
business, among other things, of acquiring and depositing mortgage assets in
trusts in exchange for certificates evidencing interests in such trusts and
selling or otherwise distributing such certificates. The principal executive
offices of the Seller are located at 85 Broad Street, New York, New York 10004.
Its telephone number is (212) 902-1000. The Seller will not have any material
assets other than the trust funds.
Neither the Seller, nor any of its affiliates will insure or guarantee
distributions on the certificates of any series offered by means of this
prospectus and any related prospectus supplement. The Agreement (as defined
below) for each series will provide that the Holders of the certificates for
such series will have no rights or remedies against the Seller or any of its
affiliates for any losses or other claims in connection with the certificates
or the mortgage loans other than the repurchase or substitution of the mortgage
loans by the Seller, if specifically set forth in such Agreement.
The Certificate of Incorporation, as amended, of the Seller provides that
a director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that such exemption from liability or limitation of
liability is not permitted under the Delaware General Corporation Law as
currently in effect or as may be amended. In addition, the Bylaws of the Seller
provide that the Seller shall indemnify to the full extent permitted by law any
person made or threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person or such person's testator or intestate is or was a director,
officer or employee of the Seller or serves or served, at the request of the
Seller, any other enterprise as a director, officer or employee. Insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act"), may be permitted to directors, officers and
controlling persons of the Seller pursuant to the foregoing provisions, or
otherwise, the Seller has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
USE OF PROCEEDS
The Seller intends to apply all or substantially all of the net proceeds
from the sale of each series offered hereby and by the related prospectus
supplement to acquire the mortgage loans relating to such series, to establish
any reserve funds, for the series, to obtain other credit enhancement, if any,
for the series, to pay costs incurred in connection with structuring and
issuing the certificates and for general corporate purposes. Certificates may
be exchanged by the Seller for mortgage loans.
7
DESCRIPTION OF THE CERTIFICATES*
The certificates of each series will be issued pursuant to a separate
Pooling and Servicing Agreement (the "Agreement")** to be entered into among
the Seller, the Master Servicer, the Special Servicer, if any, and the Trustee
for that series and any other parties described in the related prospectus
supplement, substantially in the form filed as an exhibit to the Registration
Statement of which this prospectus is a part or in such other form as may be
described in the related prospectus supplement. The following summaries
describe certain provisions expected to be common to each series and the
Agreement with respect to the underlying Trust Fund. However, the prospectus
supplement for each series will describe more fully additional characteristics
of the certificates offered thereby and any additional provisions of the
related Agreement.
At the time of issuance, it is anticipated that the offered certificates
of each series will be rated "investment grade," typically one of the four
highest generic rating categories, by at least one nationally recognized
statistical rating organization at the request of the Seller. Each of such
rating organizations specified in the related prospectus supplement as rating
the offered certificates of the related series at the request of the Seller
will be referred to as a "Rating Agency." 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. 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 Seller to do so may be lower than the rating assigned
by a rating agency pursuant to the Seller's request.
GENERAL
The certificates of each series will be issued in registered or book-entry
form and will represent beneficial ownership interests in a trust created
pursuant to the Agreement for such series. The assets in the trust
(collectively, the "Trust Fund") for each series will consist of the following,
to the extent provided in the Agreement:
(i) the pool of mortgage loans conveyed to the Trustee pursuant to
the Agreement;
(ii) all payments on or collections in respect of the mortgage loans
due on or after the date specified in the related prospectus
supplement;
(iii) all property acquired by foreclosure or deed in lieu of
foreclosure with respect to the mortgage loans; and
(iv) such other assets or rights, such as a Funding Note, as are
described in the related prospectus supplement.
In addition, the Trust Fund for a series may include various forms of
credit enhancement, such as, but not limited to, insurance policies on the
mortgage loans, letters of credit, certificate guarantee insurance policies,
the right to make draws upon one or more reserve funds or other arrangements
acceptable to each Rating Agency rating the offered certificates. See "CREDIT
ENHANCEMENT" in this prospectus. Such other assets, if any, will be described
more fully in the related prospectus supplement.
- ----------
* Whenever in this Prospectus the term "certificates," "trust fund" and
"mortgage pool" are used, such terms will be deemed to apply, unless the
context indicates otherwise, to a specific series of certificates, the
trust fund underlying the related series and the related mortgage pool.
** In the case of a Funding Note (as described below), some or all of the
provisions described herein as being part of the Agreement may be found
in other contractual documents connected with such Funding Note, such as
a collateral indenture or a separate servicing agreement, and the term
"Agreement" as used in this Prospectus will include such other
contractual documents. The Prospectus Supplement for a series in which a
Funding Note is used will describe such other contractual documents and
will indicate in which documents various provisions mentioned in this
Prospectus are to be found and any modifications to such provisions.
8
The prospectus supplement for any series will describe any specific
features of the transaction established in connection with the holding of the
underlying mortgage pool. For example, if so indicated in the prospectus
supplement, at the time the mortgage loans are to be acquired from a third
party and conveyed to the Trust Fund, the third party may establish a
bankruptcy-remote special-purpose entity or a trust, to which the mortgage
loans will be conveyed and which in turn will issue to the Trustee a debt
instrument collateralized by, having recourse only to, and paying through
payments (which may be net of servicing fees and any retained yield) from, the
mortgage pool (a "Funding Note"), and such debt instrument may be conveyed to
the Trust Fund as the medium for holding the mortgage pool.
If specified in the related prospectus supplement, certificates of a given
series may be issued in a single class or two or more classes which may pay
interest at different rates, may represent different allocations of the right
to receive principal and interest payments, and certain of which may be
subordinated to other classes in the event of shortfalls in available cash flow
from the underlying mortgage loans or realized losses on the underlying
mortgage loans. Alternatively, or in addition, if so specified in the related
prospectus supplement, classes may be structured to receive principal payments
in sequence. The related prospectus supplement may provide that each class in a
group of classes structured to receive sequential payments of principal will be
entitled to be paid in full before the next class in the group is entitled to
receive any principal payments, or may provide for partially concurrent
principal payments among one or more of such classes. If so specified in the
related prospectus supplement, a class of offered certificates may also provide
for payments of principal only or interest only or for disproportionate
payments of principal and interest. Subordinate Certificates of a given series
of offered certificates may be offered in the same prospectus supplement as the
Senior Certificates of such series or may be offered in a separate prospectus
supplement or may be offered in one or more transactions exempt from the
registration requirements of the Securities Act. Each class of offered
certificates of a series will be issued in the minimum denominations specified
in the related prospectus supplement.
The prospectus supplement for any series including types of classes
similar to any of those described above will contain a description of their
characteristics and risk factors, including, as applicable:
(i) mortgage principal prepayment effects on the weighted average
lives of such classes;
(ii) the risk that interest only, or disproportionately interest
weighted, classes purchased at a premium may not return their
purchase prices under rapid prepayment scenarios; and
(iii) the degree to which an investor's yield is sensitive to
principal prepayments.
The offered certificates of each series will be freely transferable and
exchangeable at the office specified in the related Agreement and prospectus
supplement; provided, however, that certain classes of offered certificates may
be subject to transfer restrictions described in the related prospectus
supplement.
If specified in the related prospectus supplement, the offered
certificates may be transferable only in book-entry form through the facilities
of the Depository or another depository identified in such prospectus
supplement.
If the certificates of a class are transferable only on the books of the
Depository, no person acquiring such a certificate that is in book-entry form
(each, a "beneficial owner") will be entitled to receive a physical certificate
representing such certificate except in the limited circumstances described in
the related prospectus supplement. Instead, such certificates will be
registered in the name of a nominee of the Depository, and beneficial interests
in the certificates will be held by investors through the book-entry facilities
of the Depository, as described in this prospectus. The Seller has been
informed by the Depository that its nominee will be Cede & Co. Accordingly,
Cede & Co. is expected to be the holder of record of any such certificates that
are in book-entry form.
If the certificates of a class are transferable only on the books of the
Depository, each beneficial owner's ownership of such a certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial
9
owner's account for such purpose. In turn, the Financial Intermediary's
ownership of such certificate will be recorded on the records of the Depository
(or of a participating firm that acts as agent for the Financial Intermediary,
whose interest will in turn be recorded on the records of the Depository, if
the beneficial owner's Financial Intermediary is not a Depository participant).
Beneficial ownership of a book-entry certificate may only be transferred in
compliance with the procedures of such Financial Intermediaries and Depository
participants. Because the Depository can act only on behalf of participants,
who in turn act on behalf of indirect participants and certain banks, the
ability of a beneficial owner to pledge book-entry certificates to persons or
entities that do not participate in the Depository system, or to otherwise act
with respect to such book-entry certificates, may be limited due to the lack of
a physical certificate for such book-entry certificates.
The Depository, which is a New York-chartered limited purpose trust
company, performs services for its participants, some of whom (and/or their
representatives) own the Depository. In accordance with its normal procedure,
the Depository is expected to record the positions held by each Depository
participant in the book-entry certificates, whether held for its own account or
as a nominee for another person. In general, beneficial ownership of
certificates will be subject to the rules, regulations and procedures governing
the Depository and Depository participants as are in effect from time to time.
If the offered certificates are transferable on the books of the
Depository, the Depository, or its nominee as record holder of the offered
certificates, will be recognized by the Seller and the Trustee as the owner of
such certificates for all purposes, including notices and consents. In the
event of any solicitation of consents from or voting by Certificateholders
pursuant to the Agreement, the Trustee may establish a reasonable record date
and give notice of such record date to the Depository. In turn, the Depository
will solicit votes from the beneficial owners in accordance with its normal
procedures, and the beneficial owners will be required to comply with such
procedures in order to exercise their voting rights through the Depository.
Distributions of principal of and interest on the book-entry certificates
will be made on each Distribution Date to the Depository or its nominee. The
Depository will be responsible for crediting the amount of such payments to the
accounts of the applicable Depository participants in accordance with the
Depository's normal procedures. Each Depository participant will be responsible
for disbursing such payments to the beneficial owners for which it is holding
book-entry certificates and to each Financial Intermediary for which it acts as
agent. Each such Financial Intermediary will be responsible for disbursing
funds to the beneficial owners of the book-entry certificates that it
represents.
The information in this prospectus concerning the Depository and its
book-entry system has been obtained from sources believed to be reliable, but
the Seller takes no responsibility for the accuracy or completeness of the
information.
In the event a depository other than the Depository is identified in a
prospectus supplement, information similar to that set forth above will be
provided with respect to such depository and its book-entry facilities in such
prospectus supplement.
DISTRIBUTIONS ON CERTIFICATES
Distributions of principal and interest on the certificates of each series
will be made to the registered holders of these certificates
("Certificateholders" or "Holders") by the Trustee (or such other paying agent
as may be identified in the related prospectus supplement) on the day (the
"Distribution Date") specified in the related prospectus supplement, beginning
in the period specified in the related prospectus supplement following the
establishment of the related Trust Fund. Distributions for each series will be
made by check mailed to the address of the person entitled thereto as it
appears on the certificate register for such series maintained by the Trustee,
by wire transfer or by such other method as is specified in the related
prospectus supplement. The final distribution in retirement of the certificates
of each series will be made upon presentation and surrender of the certificates
at the office or agency specified in the notice to the Certificateholders of
such final distribution, or in such other manner specified in the related
prospectus supplement. In addition, the prospectus supplement relating to each
series will set forth the applicable due period, prepayment period, record
date, Cut-Off Date and determination date in respect of each series of
certificates.
10
With respect to each series of certificates on each Distribution Date, the
Trustee (or such other paying agent as may be identified in the related
prospectus supplement) will distribute to the Certificateholders the amounts of
principal and/or interest, calculated as described in the related prospectus
supplement, that are due to be paid on such Distribution Date. In general, such
amounts will include previously undistributed payments of principal (including
principal prepayments, if any) and interest on the mortgage loans (or amounts
in respect of the mortgage loans) received by the Trustee after a date
specified in the related prospectus supplement (the "Cut-Off Date") and prior
to the day preceding each Distribution Date specified in the related prospectus
supplement.
The related prospectus supplement for any series of certificates will
specify, for any Distribution Date on which the principal balance of the
mortgage loans is reduced due to losses, the priority and manner in which such
losses will be allocated. As more fully described in the related prospectus
supplement, losses on mortgage loans generally will be allocated after all
proceeds of defaulted mortgage loans have been received by reducing the
outstanding principal amount of the most subordinate outstanding class of
certificates. If specified in the related prospectus supplement, losses may be
estimated on the basis of a qualified appraisal of the Mortgaged Property and
allocated prior to the final liquidation of the Mortgaged Property. The related
prospectus supplement for any series of certificates also will specify the
manner in which principal prepayments, negative amortization and interest
shortfalls will be allocated among the classes of certificates.
ACCOUNTS
It is expected that the Agreement for each series of certificates will
provide that the Trustee establish an account (the "Distribution Account") into
which the Master Servicer will deposit amounts held in the Collection Account
and from which account distributions will be made with respect to a given
Distribution Date. On each Distribution Date, the Trustee will apply amounts on
deposit in the Distribution Account generally to make distributions of interest
and principal to the Certificateholders in the manner described in the related
prospectus supplement.
It is also expected that the Agreement for each series of certificates
will provide that the Master Servicer establish and maintain a special trust
account (the "Collection Account") in the name of the Trustee for the benefit
of Certificateholders. As more fully described in the related prospectus
supplement, the Master Servicer will deposit into the Collection Account (other
than in respect of principal of, or interest on, the mortgage loans due on or
before the Cut-Off Date):
(1) all payments on account of principal, including principal
prepayments, on the mortgage loans;
(2) all payments on account of interest on the mortgage loans and all
Prepayment Premiums;
(3) all proceeds from any insurance policy relating to a mortgage loan
("Insurance Proceeds") other than proceeds applied to restoration of
the related Mortgaged Property or otherwise applied in accordance with
the terms of the related mortgage loans;
(4) all proceeds from the liquidation of a mortgage loan ("Liquidation
Proceeds"), including the sale of any Mortgaged Property acquired on
behalf of the Trust Fund through foreclosure or deed in lieu of
foreclosure ("REO Property");
(5) all proceeds received in connection with the taking of a Mortgaged
Property by eminent domain;
(6) any amounts required to be deposited in connection with the
application of co-insurance clauses, flood damage to REO Properties
and blanket policy deductibles;
(7) any amounts required to be deposited from income with respect to any
REO Property and deposited in the REO Account (to the extent the funds
in the REO Account exceed the expenses of operating and maintaining
REO Properties and reserves established for those expenses); and
(8) any amounts received from borrowers which represent recoveries of
Property Protection Expenses to the extent not retained by the Master
Servicer to reimburse it for such expenses.
11
The Special Servicer, if any, will be required to remit immediately to the
Master Servicer or the Trustee any amounts of the types described above that it
receives in respect of the Specially Serviced Mortgage Loans. "Prepayment
Premium" means any premium or yield maintenance charge paid or payable by the
related borrower in connection with any principal prepayment on any mortgage
loan. "Property Protection Expenses" comprise certain costs and expenses
incurred in connection with defaulted mortgage loans, acquiring title or
management of REO Property or the sale of defaulted mortgage loans or REO
Properties, as more fully described in the related Agreement.
As set forth in the Agreement for each series, the Master Servicer will be
entitled to make from time to time certain withdrawals from the Collection
Account to, among other things:
(i) remit certain amounts for the related Distribution Date into the
Distribution Account;
(ii) to the extent specified in the related prospectus supplement,
reimburse Property Protection Expenses and pay taxes, assessments
and insurance premiums and certain third-party expenses in
accordance with the Agreement;
(iii) pay accrued and unpaid servicing fees to the Master Servicer out
of all mortgage loan collections; and
(iv) reimburse the Master Servicer, the Special Servicer, if any, the
Trustee and the Seller for certain expenses and provide
indemnification to the Seller, the Master Servicer, the Trustee
and, if applicable, the Special Servicer, as described in the
Agreement.
The amounts at any time credited to the Collection Account may be invested
in Permitted Investments that are payable on demand or in general mature or are
subject to withdrawal or redemption on or before the business day preceding the
next succeeding Master Servicer Remittance Date. The Master Servicer will be
required to remit amounts required for distribution to Certificateholders to
the Distribution Account on the business day preceding the related Distribution
Date that is specified in the related prospectus supplement (the "Master
Servicer Remittance Date"). The income from the investment of funds in the
Collection Account in Permitted Investments either will constitute additional
servicing compensation for the Master Servicer, and the risk of loss of funds
in the Collection Account resulting from such investments will be borne by the
Master Servicer, or will be remitted to the Certificateholders or other persons
specified in the related prospectus supplement. The amount of any such loss
will be required to be deposited by the Master Servicer in the Collection
Account immediately as realized.
It is expected that the Agreement for each series of certificates will
provide that a special trust account (the "REO Account") will be established
and maintained in order to be used in connection with each REO Property and, if
specified in the related prospectus supplement, certain other Mortgaged
Properties. To the extent set forth in the Agreement, certain withdrawals from
the REO Account will be made to, among other things:
(i) make remittances to the Collection Account as required by the
Agreement;
(ii) pay taxes, assessments, insurance premiums, other amounts
necessary for the proper operation, management and maintenance of
the REO Properties and such other Mortgaged Properties and
certain third-party expenses in accordance with the Agreement
(including expenses relating to any appraisal, property
inspection and environmental assessment reports required by the
Agreement); and
(iii) provide for the reimbursement of certain expenses in respect of
the REO Properties and such Mortgaged Properties.
The amount at any time credited to each REO Account will be fully insured
to the maximum coverage possible or will be invested in Permitted Investments
that mature, or are subject to withdrawal or redemption, on or before the
business day on which such amounts are required to be remitted to the Master
Servicer for deposit in the Collection Account. The income from the investment
of funds in the REO Account in Permitted Investments shall be deposited in the
REO Account for remittance to the Collection Account, and the risk of loss of
funds in the REO Account resulting from such investments will be borne by the
Trust Fund or by the person described in the prospectus supplement.
12
"Permitted Investments" will consist of certain high quality debt
obligations consistent with the ratings criteria of, or otherwise satisfactory
to, the Rating Agencies.
As described in the related prospectus supplement for a series of
certificates where the underlying mortgage loans are held through a Funding
Note, some of the accounts described above may be held by the issuer or
collateral trustee of such Funding Note.
AMENDMENT
The Agreement for each series will provide that it may be amended by the
parties thereto without the consent of any of the Certificateholders:
(i) to cure any ambiguity;
(ii) to correct or supplement any provision in the Agreement that
may be inconsistent with any other provision in the Agreement;
(iii) to make other provisions with respect to matters or questions
arising under the Agreement which are not materially
inconsistent with the provisions of the Agreement; or
(iv) for such other reasons specified in the related prospectus
supplement.
To the extent specified in the Agreement, each Agreement also will provide
that it may be amended by the parties thereto with the consent of the Holders
of certificates representing an aggregate outstanding principal amount of not
less than 66 2/3% (or such other percentage as may be specified in the related
prospectus supplement) of each class of certificates affected by the proposed
amendment for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Agreement or modifying in any
manner the rights of Certificateholders; provided, however, that no such
amendment may, among other things:
(b) reduce in any manner the amount of, or delay the timing of,
payments received on mortgage loans which are required to be
distributed on any certificate without the consent of each
affected Certificateholder;
(c) reduce the aforesaid percentage of certificates the Holders of
which are required to consent to any such amendment, without the
consent of the Holders of all certificates then outstanding;
(d) alter the servicing standard set forth in the related Agreement.
Further, the Agreement for each series may provide that the parties
thereto, at any time and from time to time, without the consent of the
Certificateholders, may amend the Agreement to modify, eliminate or add to any
of its provisions to such extent as shall be necessary to maintain the
qualification of the Trust Fund as a "real estate mortgage investment conduit"
(a "REMIC"), a "financial asset securitization investment trust" (a "FASIT") or
grantor trust, as the case may be, or to prevent the imposition of any
additional state or local taxes, at all times that any of the certificates are
outstanding; provided, however, that such action, as evidenced by an opinion of
counsel acceptable to the Trustee, is necessary or helpful to maintain such
qualification or to prevent the imposition of any such taxes, and would not
adversely affect in any material respect the interest of any Certificateholder.
The Agreement relating to each series may provide that no amendment to
such Agreement will be made unless there has been delivered in accordance with
such Agreement an opinion of counsel to the effect that such amendment will not
cause such series to fail to qualify as a REMIC, FASIT or grantor trust at any
time that any of the certificates are outstanding or cause a tax to be imposed
on the Trust Fund under the provisions of the Code.
The prospectus supplement for a series may describe other or different
provisions concerning the amendment of the related Agreement.
TERMINATION
As may be more fully described in the related prospectus supplement, the
obligations of the parties to the Agreement for each series will terminate
upon:
13
(i) the purchase of all of the assets of the related Trust Fund, as
described in the related prospectus supplement;
(ii) the later of (a) the distribution to Certificateholders of that
series of final payment with respect to the last outstanding
mortgage loan or (b) the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure with respect to
the last outstanding mortgage loan and the remittance to the
Certificateholders of all funds due under the Agreement;
(iii) the sale of the assets of the related Trust Fund after the
principal amounts of all certificates have been reduced to zero
under certain circumstances set forth in the Agreement; or
(iv) mutual consent of the parties and all Certificateholders.
With respect to each series, the Trustee will give or cause to be given
written notice of termination of the Agreement in the manner described in the
related Agreement to each Certificateholder and the final distribution will be
made only upon surrender and cancellation of the related certificates in the
manner described in the Agreement.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution for each series, the Trustee (or such
other paying agent as may be identified in the related prospectus supplement)
will make available to each Certificateholder several monthly reports setting
forth such information as is specified in the Agreement and described in the
related prospectus supplement, which may include the following information, if
applicable:
(i) information as to principal and interest distributions,
principal amounts, Advances and scheduled principal balances of
the mortgage loans;
(ii) updated information regarding the mortgage loans and a
loan-by-loan listing showing certain information which may
include loan name, property type, location, unpaid principal
balance, interest rate, paid through date and maturity date,
which loan-by-loan listing may be made available
electronically;
(iii) financial information relating to the underlying Mortgaged
Properties;
(iv) information with respect to delinquent mortgage loans;
(v) information on mortgage loans which have been modified; and
(vi) information with respect to REO Properties.
The 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, such
reports may be sent on behalf of the related Trust Fund to Cede & Co., as
nominee of the Depository and other registered Holders of the offered
certificates, pursuant to the applicable Agreement. If so specified in the
related prospectus supplement, such reports may be sent to beneficial owners
identified to the Master Servicer or the Trustee. Such reports may also be
available to holders of interests in the certificates upon request to their
respective Depository participants. See "DESCRIPTION OF THE CERTIFICATES --
Reports to Certificateholders" in this prospectus. We will file or cause to be
filed with the Securities and Exchange Commission (the "Commission") such
periodic reports with respect to each Trust Fund as are required under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder. Reports that we have filed
with the Commission pursuant to the Exchange Act will be filed by means of the
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system and,
therefore, should be available at the Commission's site on the World Wide Web.
THE TRUSTEE
The Seller will select a bank or trust company to act as trustee (the
"Trustee") under the Agreement for each series and the Trustee will be
identified in the related prospectus supplement. The commercial bank or trust
company serving as Trustee may have normal banking relationships with the
Seller, the Master Servicer, the Special Servicer, if any, and their respective
affiliates.
14
THE MORTGAGE POOLS
GENERAL
Each mortgage pool will consist of one or more mortgage loans secured by
first, second or more junior mortgages, deeds of trust or similar security
instruments ("Mortgages") on, or installment contracts ("Installment
Contracts") for the sale of or financial leases and other similar arrangements
equivalent to such mortgage loans on, fee simple or leasehold interests in
commercial real property, multifamily residential property, mixed
residential/commercial property, and related property and interests (each such
interest or property, as the case may be, a "Mortgaged Property"). Each such
mortgage loan, lease or Installment Contract is referred to as a mortgage loan
in this prospectus.
Mortgage loans will be of one or more of the following types:
1. mortgage loans with fixed interest rates;
2. mortgage loans with adjustable interest rates;
3. mortgage loans with principal balances that fully amortize over their
remaining terms to maturity;
4. mortgage loans whose principal balances do not fully amortize but
instead provide for a substantial principal payment at the stated
maturity of the loan;
5. mortgage loans that provide for recourse against only the Mortgaged
Properties;
6. mortgage loans that provide for recourse against the other assets of
the related borrowers; and
7. any other types of mortgage loans described in the related prospectus
supplement.
Certain mortgage loans ("Simple Interest Loans") may provide that
scheduled interest and principal payments on those mortgage loans are applied
first to interest accrued from the last date to which interest has been paid to
the date such payment is received and the remaining balance is applied to
principal, and other mortgage loans may provide for payment of interest in
advance rather than in arrears.
Mortgage loans may also be secured by one or more assignments of leases
and rents, management agreements, security agreements, or rents, fixtures and
personalty or operating agreements relating to the Mortgaged Property and in
some cases by certain letters of credit, personal guarantees or both. Pursuant
to an assignment of leases and rents, the obligor on the related promissory
note assigns its right, title and interest as landlord under each lease and the
income derived therefrom to the related lender, while retaining a right, or in
some cases a license, to collect the rents for so long as there is no default.
If the borrower defaults, the license terminates and the related lender is
entitled to collect the rents from tenants to be applied to the monetary
obligations of the borrower. State law may limit or restrict the enforcement of
the assignment of leases and rents by a lender until the lender takes
possession of the related Mortgaged Property and a receiver is appointed. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS -- Leases and Rents" in this
prospectus.
Certain mortgage loans may provide for "equity participations" which, as
specified in the related prospectus supplement, may or may not be assigned to
the Trust Fund. If so specified in the related prospectus supplement, the
mortgage loans may provide for holdbacks of certain of the proceeds of such
loans. In such event, the amount of such holdback may be deposited by the
Seller into an escrow account held by the Trustee as provided in the related
prospectus supplement.
The mortgage loans generally will not be insured or guaranteed by the
United States, any governmental agency or any private mortgage insurer. Any
such insurance or guarantee, if any, will be specifically described in the
related prospectus supplement.
15
The prospectus supplement relating to each series will generally provide
specific information regarding the characteristics of the mortgage loans, as of
the Cut-Off Date, including, among other things:
(i) the aggregate principal balance of the mortgage loans and the
largest, smallest and average principal balance of the mortgage loans;
(ii) the types of properties securing the mortgage loans and the
aggregate principal balance of the mortgage loans secured by each type
of property;
(iii) the interest rate or range of interest rates of the mortgage loans
and the weighted average Mortgage Interest Rate of the mortgage loans;
(iv) the original and remaining terms to stated maturity of the mortgage
loans and the seasoning of the mortgage loans;
(v) the earliest and latest origination date and maturity date and the
weighted average original and remaining terms to stated maturity of the
mortgage loans;
(vi) the loan-to-valuation ratios at origination and current loan
balance-to-original valuation ratios of the mortgage loans;
(vii) the geographic distribution of the Mortgaged Properties underlying
the mortgage loans;
(viii) the minimum interest rates, margins, adjustment caps, adjustment
frequencies, indices and other similar information applicable to
adjustable rate mortgage loans;
(ix) the debt service coverage ratios relating to the mortgage loans;
(x) information with respect to the prepayment provisions, if any, of
the mortgage loans;
(xi) information as to the payment characteristics of the mortgage
loans, including, without limitation, balloon payment and other
amortization provisions; and
(xii) payment delinquencies, if any, relating to the mortgage loans. If
specified in the related prospectus supplement, the Seller may segregate
the mortgage loans in a mortgage pool into separate mortgage loan groups
(as described in the related prospectus supplement) as part of the
structure of the payments of principal and interest on the certificates
of a series. In such case, the Seller may disclose the above-specified
information by mortgage loan group.
In the event that the mortgage loans consist of financial leases or
Installment Contracts, the related prospectus supplement will provide
appropriate specific information analogous to that described above.
In the event detailed information regarding the mortgage loans is not
provided in the prospectus supplement or the composition of the mortgage loans
changes in any material respect from that described in the related prospectus
supplement, the Seller will file a current report on Form 8-K (the "Form 8-K")
with the Securities and Exchange Commission within 15 days after the initial
issuance of each series of certificates (each, a "Closing Date"), as specified
in the related prospectus supplement, which will set forth information with
respect to the mortgage loans included in the Trust Fund for a series as of the
related Closing Date. The Form 8-K will be available to the Certificateholders
of the related series promptly after its filing.
UNDERWRITING AND INTERIM SERVICING STANDARDS APPLICABLE TO THE MORTGAGE LOANS
The mortgage loans underlying the certificates of a series will be
newly-originated or seasoned mortgage loans and will be purchased or otherwise
acquired from third parties, which third parties may or may not be originators
of such mortgage loans and may or may not be affiliates of the Seller. The
origination standards and procedures applicable to such mortgage loans may
differ from series to series or among the mortgage loans in a given mortgage
pool, depending on the identity of the originator or originators. In the case
of seasoned mortgage loans, the procedures by which such mortgage loans have
been serviced from their origination to the time of their inclusion in the
related mortgage pool may also differ from series to series or among the
mortgage loans in a given mortgage pool.
16
The related prospectus supplement for each series will provide information
as to the origination standards and procedures applicable to the mortgage loans
in the related mortgage pool and, to the extent applicable and material, will
provide information as to the servicing of such mortgage loans prior to their
inclusion in the mortgage pool.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the certificates of each series, the Seller
will cause the mortgage loans (or, in the case of a structure using a Funding
Note, the Funding Note) to be assigned to the Trustee, together with, as more
fully specified in the related prospectus supplement, all payments due on or
with respect to such mortgage loans (or Funding Note), other than principal and
interest due on or before the Cut-Off Date and principal prepayments received
on or before the Cut-Off Date. The Trustee, concurrently with such assignment,
will execute and deliver certificates evidencing the beneficial ownership
interests in the related Trust Fund to the Seller in exchange for the mortgage
loans. Each mortgage loan will be identified in a schedule appearing as an
exhibit to the Agreement for the related series (the "Mortgage Loan Schedule").
The Mortgage Loan Schedule will include, among other things, as to each
mortgage loan, information as to its outstanding principal balance as of the
close of business on the Cut-Off Date, as well as information respecting the
interest rate, the scheduled monthly (or other periodic) payment of principal
and interest as of the Cut-Off Date and the maturity date of each mortgage
loan.
In addition, the Seller will, as to each mortgage loan, deliver to the
Trustee, to the extent required by the Agreement:
(i) the mortgage note, endorsed to the order of the Trustee without
recourse;
(ii) the Mortgage and an executed assignment of the Mortgage in favor
of the Trustee or otherwise as required by the Agreement;
(iii) any assumption, modification or substitution agreements relating
to the mortgage loan;
(iv) a lender's title insurance policy (or owner's policy in the case of
a financial lease or an Installment Contract), together with its
endorsements, or, in the case of mortgage loans that are not covered by
title insurance, an attorney's opinion of title issued as of the date of
origination of the mortgage loan;
(v) if the assignment of leases, rents and profits is separate from the
Mortgage, an executed re-assignment of assignment of leases, rents and
profits to the Trustee;
(vi) a copy of any recorded UCC-1 financing statements and related
continuation statements, together with (in the case of such UCC-1
financing statements which are in effect as of the Closing Date) an
original executed UCC-2 or UCC-3 statement, in a form suitable for
filing, disclosing the assignment to the Trustee of a security interest
in any personal property constituting security for the repayment of the
Mortgage; and
(vii) such other documents as may be described in the Agreement (such
documents, collectively, the "Mortgage Loan File").
Unless otherwise expressly permitted by the Agreement, all documents
included in the Mortgage Loan File are to be original executed documents;
provided, however, that in instances where the original recorded mortgage,
mortgage assignment or any document necessary to assign the Seller's interest
in financial leases or Installment Contracts to the Trustee, as described in
the Agreement, has been retained by the applicable jurisdiction or has not yet
been returned from recordation, the Seller may deliver a photocopy certified to
be the true and complete copy of the original submitted for recording, and the
Master Servicer will cause the original of each such document which is
unavailable because it is being or has been submitted for recordation and has
not yet been returned, to be delivered to the Trustee as soon as available.
The Trustee will hold the Mortgage Loan File for each mortgage loan in
trust for the benefit of all Certificateholders. Pursuant to the Agreement, the
Trustee is obligated to review the Mortgage Loan File
17
for each mortgage loan within a specified number of days after the execution
and delivery of the Agreement. If any document in the Mortgage Loan File is
found to be defective in any material respect, the Trustee will promptly notify
the Seller, the originator of the related mortgage loan or such other party as
is designated in the related Agreement (the "Responsible Party") and the Master
Servicer. To the extent described in the related prospectus supplement, if the
Responsible Party cannot cure such defect within the time period specified in
the related prospectus supplement, the Responsible Party will be obligated to
either substitute the affected mortgage loan with a Substitute Mortgage Loan or
Loans, or to repurchase the related mortgage loan from the Trustee within the
time period specified in such prospectus supplement at a price specified in the
prospectus supplement, expected to be generally equal to the principal balance
of the mortgage loan as of the date of purchase or, in the case of a series as
to which an election has been made to treat the related Trust Fund as a REMIC,
at such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each case together
with accrued interest at the applicable Mortgage Interest Rate to the first day
of the month following such repurchase, plus the amount of any unreimbursed
advances made by the Master Servicer (or such other party as specified in the
related Agreement) in respect of such mortgage loan (the "Repurchase Price").
This substitution or purchase obligation will constitute the sole remedy
available to the Holders of certificates or the Trustee for a material defect
in a constituent document.
The related prospectus supplement will describe procedures for the review
and holding of mortgage loans in the case of a structure using a Funding Note.
REPRESENTATIONS AND WARRANTIES
To the extent specified in the related prospectus supplement, the
Responsible Party with respect to each mortgage loan will have made certain
representations and warranties in respect of such mortgage loan and such
representations and warranties will have been assigned to the Trustee and/or
the Seller will have made certain representations and warranties in respect of
the mortgage loans directly to the Trustee. Such representations and warranties
will be set forth in an annex to the related prospectus supplement. Upon the
discovery of the breach of any such representation or warranty in respect of a
mortgage loan that materially and adversely affects the interests of the
Certificateholders of the related series, the Responsible Party or the Seller,
as the case may be, will be obligated either to cure such breach in all
material respects within the time period specified in such prospectus
supplement, to replace the affected mortgage loan with a Substitute Mortgage
Loan or Loans or to repurchase such mortgage loan at a price specified in the
prospectus supplement, expected to be generally equal to the Repurchase Price.
The Master Servicer, the Special Servicer or the Trustee will be required to
enforce such obligation of the Responsible Party or the Seller for the benefit
of the Trustee and the Certificateholders, following the practices it would
employ in its good faith business judgment were it the owner of such mortgage
loan. Subject to the ability of the Responsible Party or the Seller to cure
such breach in all material respects or deliver Substitute Mortgage Loans for
certain mortgage loans as described below, such repurchase or substitution
obligation will constitute the sole remedy available to the Certificateholders
of such series for a breach of a representation or warranty by the Responsible
Party or the Seller.
The proceeds of any repurchase of a mortgage loan will be deposited,
subject to certain limitations set forth in the related Agreement, into the
Collection Account.
If permitted by the related Agreement for a series, within the period of
time specified in the related prospectus supplement, following the date of
issuance of a series of certificates, the Responsible Party or the Seller, as
the case may be, may deliver to the Trustee mortgage loans ("Substitute
Mortgage Loans") in substitution for any one or more of the mortgage loans
("Defective Mortgage Loans") initially included in the Trust Fund (or in the
mortgage pool underlying a Funding Note) but which do not conform in one or
more respects to the description of the mortgage loans contained in the related
prospectus supplement, as to which a breach of a representation or warranty is
discovered, which breach materially and adversely affects the interests of the
Certificateholders, or as to which a document in the related Mortgage Loan File
is defective in any material respect. The required characteristics of any
Substitute Mortgage Loan will generally include, among other things, that such
Substitute Mortgage Loan on the date of substitution, will:
18
(i) have an outstanding principal balance, after deduction of all
scheduled payments due in the month of substitution, not in excess of
the outstanding principal balance of the Defective Mortgage Loan (the
amount of any shortfall to be distributed to Certificateholders in the
month of substitution);
(ii) have a Mortgage Interest Rate not less than (and not more than 1%
greater than) the Mortgage Interest Rate of the Defective Mortgage Loan;
(iii) have a remaining term to maturity not greater than (and not more
than one year less than) that of the Defective Mortgage Loan; and
(iv) comply with all of the representations and warranties set forth in
the Agreement as of the date of substitution.
If so specified in the related prospectus supplement, other entities may
also make representations and warranties with respect to the mortgage loans
included in a mortgage pool. Such other entity will generally have the same
obligations with respect to such representations and warranties as the
Responsible Party or the Seller as more fully described in the prospectus
supplement.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The prospectus supplement related to a series will identify the master
servicer (the "Master Servicer") to service and administer the mortgage loans
as described below, and will set forth certain information concerning the
Master Servicer. The Master Servicer will be responsible for servicing the
mortgage loans pursuant to the Agreement for the related series. The Master
Servicer may have other business relationships with the Seller and its
affiliates.
If so specified in the related prospectus supplement, the servicing of
certain mortgage loans that are in default or otherwise require special
servicing (the "Specially Serviced Mortgage Loans") will be performed by a
special servicer (the "Special Servicer"). Certain information concerning the
Special Servicer and the standards for determining which mortgage loans will
become Specially Serviced Mortgage Loans will be set forth in such prospectus
supplement. Subject to the terms of the related Agreement, the Special Servicer
(and not the Master Servicer) will then be responsible for:
negotiating modifications, waivers, amendments and other forbearance
arrangements with the borrower of any Specially Serviced Mortgage Loan,
subject to the limitations described under "-- Modifications, Waivers and
Amendments" below;
foreclosing on such Specially Serviced Mortgage Loan if no suitable
arrangements can be made to cure the default in the manner specified in the
related prospectus supplement; and
supervising the management and operation of the related Mortgaged
Property if acquired through foreclosure or a deed in lieu of foreclosure.
The Special Servicer may have other business relationships with the Seller
and its affiliates.
If specified in the prospectus supplement for a series of certificates,
certain of the duties specified in the prospectus supplement as Master Servicer
duties may be performed by the Special Servicer.
The Master Servicer and the Special Servicer, if any, may subcontract the
servicing of all or a portion of the mortgage loans to one or more
sub-servicers, in accordance with the terms of the related Agreement. Such
sub-servicers may have other business relationships with the Seller and its
affiliates.
SERVICING STANDARDS
The Master Servicer and, except when acting at the direction of any
Operating Advisor, the Special Servicer, if any, will be required to service
and administer the mortgage loans in accordance with the servicing standards
described in the related Agreement. The servicing standards are generally
expected to provide that the mortgage loans are serviced and administered
solely in the best interests of and for
19
the benefit of the Certificateholders (as determined by the Master Servicer or
the Special Servicer, if any, as the case may be, in its reasonable judgment
without taking into account differing payment priorities among the classes of
the related series of certificates and any conflicts of interest involving it),
in accordance with the terms of the Agreement and the mortgage loans and, to
the extent consistent with such terms, in the same manner in which, and with
the same care, skill, prudence and diligence with which, it services and
administers similar mortgage loans in other portfolios, giving due
consideration to the customary and usual standards of practice of prudent
institutional commercial mortgage lenders and loan servicers. If so specified
in the related prospectus supplement, the Master Servicer and Special Servicer,
if any, may also be required to service and administer the mortgage loans in
the best interest of an insurer or guarantor or in accordance with the
provisions of a related Funding Note.
OPERATING ADVISOR
If so specified in the related prospectus supplement, an advisor (the
"Operating Advisor") may be selected to advise, direct and approve
recommendations of the Special Servicer with respect to certain decisions
relating to the servicing of the Specially Serviced Mortgage Loans. The related
prospectus supplement will provide specific information with respect to the
following matters: (i) the duration of the term of the Operating Advisor; (ii)
the method of selection of the Operating Advisor; (iii) certain decisions as to
which the Operating Advisor will have the power to direct and approve actions
of the Special Servicer (for example, foreclosure of a Mortgaged Property
securing a Specially Serviced Mortgage Loan, modification of a Specially
Serviced Mortgage Loan, extension of the maturity of a Specially Serviced
Mortgage Loan beyond a specified term and methods of compliance with
environmental laws) and (iv) the information, recommendations and reports to be
provided to the Operating Advisor by the Special Servicer.
COLLECTIONS AND OTHER SERVICING PROCEDURES
The Master Servicer and, with respect to any Specially Serviced Mortgage
Loans, the Special Servicer, if any, will make efforts to collect all payments
called for under the mortgage loans and will, consistent with the related
Agreement, follow such collection procedures as it deems necessary or
desirable. Consistent with the above, the Master Servicer or Special Servicer,
if any, may have the discretion under the Agreement for the related series to
waive any late payment or assumption charge or penalty interest in connection
with any late payment or assumption of a mortgage loan and to extend the due
dates for payments due on a mortgage note.
It is expected that the Agreement for each series will provide that the
Master Servicer establish and maintain an escrow account in which the Master
Servicer will be required to deposit amounts received from each borrower, if
required by the terms of the mortgage loan, for the payment of taxes,
assessments, certain mortgage and hazard insurance premiums and other
comparable items. The Special Servicer, if any, will be required to remit
amounts received for such purposes on mortgage loans serviced by it for deposit
in the escrow account and will be entitled to direct the Master Servicer to
make withdrawals from the escrow account as may be required for the servicing
of such mortgage loans. Withdrawals from the escrow account may be made to
effect timely payment of taxes, assessments, mortgage and hazard insurance
premiums and comparable items, to refund to borrowers amounts determined to be
overages, to remove amounts deposited in the escrow account in error, to pay
interest to borrowers on balances in the escrow account, if required, to repair
or otherwise protect the Mortgaged Properties and to clear and terminate such
account. The Master Servicer, or such other person as may be specified in the
related prospectus supplement, will be entitled to all income on the funds in
the escrow account invested in Permitted Investments not required to be paid to
borrowers under applicable law. The Master Servicer will be responsible for the
administration of the escrow account. If amounts on deposit in the escrow
account are insufficient to pay any tax, insurance premium or other similar
item when due, such item will be payable from amounts on deposit in the
Collection Account or otherwise in the manner set forth in the prospectus
supplement and the Agreement for the related series.
INSURANCE
The Agreement for each series will require that the Master Servicer
maintain or require each borrower to maintain insurance in accordance with the
related Mortgage, which generally will include a
20
standard fire and hazard insurance policy with extended coverage. To the extent
required by the related Mortgage, the coverage of each such standard hazard
insurance policy will be in an amount that is not less than the lesser of 90%
of the replacement cost of the improvements securing such mortgage loan or the
outstanding principal balance owing on such mortgage loan. The related
Agreement may require that if a Mortgaged Property is located in a federally
designated special flood hazard area, the Master Servicer must maintain or
require the related borrower to maintain, in accordance with the related
Mortgage, flood insurance in an amount equal to the lesser of the unpaid
principal balance of the related mortgage loan and the maximum amount
obtainable with respect to the Mortgaged Property. To the extent set forth in
the related prospectus supplement, the cost of any such insurance maintained by
the Master Servicer will be an expense of the Trust Fund payable out of the
Collection Account.
The Master Servicer or, if so specified in the related prospectus
supplement, the Special Servicer, if any, will cause to be maintained fire and
hazard insurance with extended coverage on each REO Property in an amount
expected to generally be equal to the greater of (i) an amount necessary to
avoid the application of any coinsurance clause contained in the related
insurance policy and (ii) 90% of the replacement cost of the improvements which
are a part of such property. The cost of any such insurance with respect to an
REO Property will be an expense of the Trust Fund payable out of amounts on
deposit in the related REO Account or, if such amounts are insufficient, from
the Collection Account. The related Agreement may also require the Master
Servicer or, if so specified in the related prospectus supplement, the Special
Servicer, if any, to maintain flood insurance providing substantially the same
coverage as described above on any REO Property which is located in a federally
designated special flood hazard area.
The related Agreement may provide that the Master Servicer or the Special
Servicer, if any, as the case may be, may satisfy its obligation to cause
hazard policies to be maintained by maintaining a master, or single interest,
insurance policy insuring against losses on the mortgage loans or REO
Properties, as the case may be. The incremental cost of such insurance
allocable to any particular mortgage loan, if not borne by the related
borrower, may be an expense of the Trust Fund. Alternatively, if permitted in
the related Agreement, the Master Servicer may satisfy its obligation by
maintaining, at its expense, a blanket policy (i.e., not a single interest or
master policy) insuring against losses on the mortgage loans or REO Properties,
as the case may be. If such a blanket policy contains a deductible clause, the
Master Servicer or the Special Servicer, if any, as the case may be, will be
obligated to deposit in the Collection Account all sums which would have been
deposited in the Collection Account but for such clause.
In general, the standard form of fire and hazard extended coverage policy
will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Since the standard hazard insurance
policies relating to the mortgage loans generally will be underwritten by
different insurers and will cover Mortgaged Properties located in various
jurisdictions, such policies will not contain identical terms and conditions.
The most significant terms in the policies, however, generally will be
determined by state law and conditions. Most such policies typically will not
cover any physical damage resulting from war, revolution, governmental actions,
floods and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), nuclear reaction, wet or dry rot, vermin, rodents,
insects or domestic animals, theft and, in certain cases, vandalism. The
foregoing list is merely indicative of certain kinds of uninsured risks and is
not intended to be all-inclusive. Any losses incurred with respect to mortgage
loans due to uninsured risks (including earthquakes, mudflows and floods) or
insufficient hazard insurance proceeds could affect distributions to the
Certificateholders.
The standard hazard insurance policies typically will contain a
"coinsurance" clause which, in effect, will require the insured at all times to
carry insurance of a specified percentage (generally 80% to 90%) of the full
replacement value of the dwellings, structures and other improvements on the
Mortgaged Property in order to recover the full amount of any partial loss. If
the insured's coverage falls below this specified percentage, such clause will
typically provide that the insurer's liability in the event of partial loss
will not exceed the greater of (i) the actual cash value (the replacement cost
less physical depreciation) of the structures and other improvements damaged or
destroyed and (ii) such proportion
21
of the loss, without deduction for depreciation, as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
dwellings, structures and other improvements.
In addition, to the extent required by the related Mortgage, the Master
Servicer or Special Servicer, if any, may require the borrower 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
or Special Servicer, if any, to maintain public liability insurance with
respect to any REO Properties. Any cost incurred by the Master Servicer or
Special Servicer, if any, 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
and the Special Servicer, if any, from the Collection Account, with interest
thereon, as provided by the Agreement.
Other forms of insurance, such as a pool insurance policy, special hazard
insurance policy, bankruptcy bond, repurchase bond or guarantee insurance, may
be maintained with respect to the mortgage loans to the extent provided in the
related prospectus supplement.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
The Agreement for each series may require that the Master Servicer and the
Special Servicer, if any, obtain and maintain in effect a fidelity bond or
similar form of insurance coverage (which may provide blanket coverage) or a
combination of fidelity bond and insurance coverage 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 the
case may be. The related Agreement may allow the Master Servicer and the
Special Servicer, if any, to self-insure against loss occasioned by the errors
and omissions of the officers, employees and agents of the Master Servicer or
Special Servicer, as the case may be, so long as certain criteria set forth in
the Agreement are met.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under the
Agreement for each series will come from the payment to it or retention by it,
with respect to each payment of interest on a mortgage loan, of a "Servicing
Fee" (as defined in the related prospectus supplement). The exact amount or
method of calculating such Servicing Fee will be established in the prospectus
supplement and Agreement for the related series. Since the aggregate unpaid
principal balance of the mortgage loans will generally decline over time, the
Master Servicer's servicing compensation will ordinarily decrease as the
mortgage loans amortize.
In addition, the Agreement for a series may provide that the Master
Servicer will be entitled to receive, as additional compensation, certain other
fees and amounts, including but not limited to (i) late fees and certain other
fees collected from borrowers and (ii) any interest or other income earned on
funds deposited in the Collection Account (as described under "DESCRIPTION OF
THE CERTIFICATES -- Accounts" in this prospectus) and, except to the extent
such income is required to be paid to the related borrowers, the escrow
account.
If specified in the related prospectus supplement, the Master Servicer may
be obligated to pay the fees and expenses of the Trustee.
The exact amount or method of calculating the servicing fee of the Special
Servicer, if any, and the source from which such fee will be paid will be
described in the prospectus supplement for the related series.
In addition to the compensation described above, the Master Servicer and
the Special Servicer, if any (or any other party specified in the related
prospectus supplement), may retain, or be entitled to the reimbursement of,
such other amounts and expenses as are described in the related prospectus
supplement.
ADVANCES
The related prospectus supplement will set forth the obligations, if any,
of the Master Servicer to make any advances ("Advances") with respect to
delinquent payments on mortgage loans, payments of
22
taxes, insurance and property protection expenses or otherwise. Any such
Advances will be made in the form and manner described in the prospectus
supplement and Agreement for the related series. The Master Servicer will be
obligated to make such an Advance only to the extent that the Master Servicer
has determined that such Advance will be recoverable. Any funds thus advanced,
including Advances previously made, that the Master Servicer determines are not
ultimately recoverable, will be reimbursable to the Master Servicer, with
interest, from amounts in the Collection Account to the extent and in the
manner described in the related prospectus supplement.
If a borrower makes a principal payment between scheduled payment dates,
the borrower may be required to pay interest on the prepayment amount only to
the date of prepayment. If and to the extent described in the related
prospectus supplement, the Master Servicer's Servicing Fee may be reduced or
the Master Servicer may be otherwise obligated to advance funds to the extent
necessary to remit interest on any full or partial prepayment received from the
date of receipt to the next succeeding scheduled payment date.
MODIFICATIONS, WAIVERS AND AMENDMENTS
If so specified in the related prospectus supplement, the Agreement for
each series will provide that the Master Servicer may have the discretion,
subject to certain conditions set forth in the prospectus supplement, to
modify, waive or amend certain of the terms of any mortgage loan without the
consent of the Trustee or any Certificateholder. The extent to which the Master
Servicer may modify, waive or amend any terms of the mortgage loans without
such consent will be specified in the related prospectus supplement.
Subject to the terms and conditions set forth in the Agreement, the
Special Servicer, if any, may modify, waive or amend the terms of any Specially
Serviced Mortgage Loan if the Special Servicer determines that a material
default has occurred or a payment default has occurred or is reasonably
foreseeable. The Special Servicer, if any, may extend the maturity date of such
mortgage loan to a date not later than the date described in the related
prospectus supplement. The ability of the Special Servicer to modify, waive or
amend the terms of any mortgage loan may be subject to such additional
limitations, including approval requirements, as are set forth in the related
prospectus supplement.
Subject to the terms and conditions set forth in the Agreement, the
Special Servicer, if any, will not agree to any modification, waiver or
amendment of the payment terms of a mortgage loan unless the Special Servicer
has determined that such modification, waiver or amendment is reasonably likely
to produce a greater recovery on a present value basis than liquidation of the
mortgage loan or has made such other determination described in the related
prospectus supplement. Prior to agreeing to any modification, waiver or
amendment of the payment terms of a mortgage loan, the Special Servicer, if
any, will give notice of its agreement to a modification, waiver or amendment
in the manner set forth in the prospectus supplement and Agreement for the
related series.
The prospectus supplement for a series may describe other or different
provisions concerning the modification, waiver or amendment of the terms of the
related mortgage loans, including, without limitation, requirements for the
approval of an Operating Advisor.
EVIDENCE OF COMPLIANCE
The Agreement for each series will provide that the Master Servicer and
the Special Servicer, if any, at their own expense, each will cause a firm of
independent public accountants to furnish to the Trustee, annually on or before
a date specified in the Agreement, a statement as to compliance with the
Agreement by the Master Servicer or Special Servicer, as the case may be.
In addition, the Agreement will provide that the Master Servicer and the
Special Servicer, if any, each will deliver to the Trustee, annually on or
before a date specified in the Agreement, a statement signed by an officer to
the effect that, based on a review of its activities during the preceding
calendar year, to the best of such officer's knowledge, the Master Servicer or
Special Servicer, as the case may be, has fulfilled its obligations under the
Agreement throughout such year or, if there has been a default in the
fulfillment of any such obligation, specifying each such default and the nature
and status of the default,
23
and, in the case of a series of certificates as to which a REMIC or FASIT
election has been made, whether the Master Servicer or the Special Servicer, as
the case may be, has received a challenge from the Internal Revenue Service as
to the status of the Trust Fund as a REMIC or FASIT.
CERTAIN MATTERS WITH RESPECT TO THE MASTER SERVICER, THE SPECIAL SERVICER AND
THE TRUSTEE
The Agreement for each series will provide that neither the Master
Servicer nor the Special Servicer, if any, nor any of their directors,
officers, employees or agents will be under any liability to the Trust Fund or
the Certificateholders for any action taken, or for refraining from the taking
of any action, in good faith pursuant to the Agreement, or for errors in
judgment; provided, however, that neither the Master Servicer nor the Special
Servicer, if any, nor any such person will be protected against any breach of
representations or warranties made by the Master Servicer or the Special
Servicer, as the case may be, in the Agreement, against any specific liability
imposed on the Master Servicer or the Special Servicer, as the case may be,
pursuant to the Agreement, or any liability that would otherwise be imposed by
reason of willful misfeasance, bad faith, or negligence in the performance of
its duties or by reason of reckless disregard of its obligations and duties
thereunder. The Agreement will further provide that the Master Servicer, the
Special Servicer, if any, and any of their directors, officers, employees or
agents will be entitled to indemnification by the 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, other than any
loss, liability or expense incurred (i) by reason of willful misfeasance, bad
faith or negligence in the performance of their duties or by reason of reckless
disregard of their obligations and duties thereunder or (ii) in certain other
circumstances specified in the Agreement. Any loss resulting from such
indemnification will reduce amounts distributable to Certificateholders and
will be borne by Certificateholders in the manner described in the related
prospectus supplement.
Neither the Master Servicer nor the Special Servicer, if any, may resign
from its obligations and duties under the Agreement except upon a determination
that its performance of its duties thereunder is no longer permissible under
applicable law or for other reasons described in the prospectus supplement. No
such resignation of the Master Servicer will become effective until the Trustee
or a successor Master Servicer has assumed the Master Servicer's obligations
and duties under the Agreement. No such resignation of a Special Servicer will
become effective until the Trustee, the Master Servicer or a successor Special
Servicer has assumed the Special Servicer's obligations and duties under the
Agreement.
The Trustee may resign from its obligations under the Agreement pursuant
to the terms of the Agreement at any time, in which event a successor Trustee
will be appointed. In addition, the Seller may remove the Trustee if the
Trustee ceases to be eligible to act as Trustee under the Agreement or if the
Trustee becomes insolvent, at which time the Seller will become obligated to
appoint a successor Trustee. The Trustee also may be removed at any time by the
Holders of certificates evidencing the Voting Rights specified in the related
prospectus supplement. Any resignation and removal of the Trustee, and the
appointment of a successor Trustee, will not become effective until acceptance
of such appointment by the successor Trustee.
EVENTS OF DEFAULT
Events of default (each, an "Event of Default") with respect to the Master
Servicer and the Special Servicer, if any, under the Agreement for each series
may include, among other things:
(i) with respect to the Master Servicer, any failure by the Master
Servicer to deposit in the Collection Account or remit to the Trustee
for deposit in the Distribution Account for distribution to
Certificateholders any payment required to be made by the Master
Servicer under the terms of the Agreement on the day required pursuant
to the terms of the Agreement;
(ii) with respect to the Special Servicer, if any, any failure by the
Special Servicer to remit to the Master Servicer for deposit in the
Collection Account on the day required any amounts received by it in
respect of a Specially Serviced Mortgage Loan and required to be so
remitted;
(iii) with respect to the Master Servicer and the Special Servicer, if
any, any failure on the part of the Master Servicer or the Special
Servicer, as the case may be, duly to observe or perform
24
in any material respect any other of the covenants or agreements on the
part of the Master Servicer or the Special Servicer, as the case may be,
which failure continues unremedied for a period of days specified in the
related Agreement after written notice of such failure has been given to
the applicable party;
(iv) with respect to the Master Servicer or the Special Servicer, if
any, the entering against the Master Servicer or the Special Servicer,
as the case may be, of a decree or order of a court, agency or
supervisory authority for the appointment of a conservator or receiver
or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, provided that any such decree or order shall
have remained in force undischarged or unstayed for a period of 60 days;
(v) with respect to the Master Servicer or the Special Servicer, if any,
the consent by the Master Servicer or the Special Servicer, as the case
may be, to the appointment of a conservator or receiver or liquidator or
liquidating committee in any insolvency, readjustment of debt,
marshaling of assets and liabilities, voluntary liquidation or similar
proceedings of or relating to it or of or relating to all or
substantially all of its property; and
(vi) with respect to the Master Servicer or the Special Servicer, if
any, the admission by the Master Servicer or Special Servicer, as the
case may be, in writing of its inability to pay its debts generally as
they become due, the filing by the Master Servicer or the Special
Servicer, as the case may be, of a petition to take advantage of any
applicable insolvency or reorganization statute or the making of an
assignment for the benefit of its creditors or the voluntary suspension
of the payment of its obligations.
As long as an Event of Default remains unremedied, the Trustee may, and as
long as an Event of Default remains unremedied or under certain other
circumstances, if any, described in the related prospectus supplement at the
written direction of the Holders of certificates holding at least the
percentage specified in the prospectus supplement of all of the Voting Rights
of the class or classes specified in the prospectus supplement shall, by
written notice to the Master Servicer or Special Servicer, as the case may be,
terminate all of the rights and obligations of the Master Servicer or the
Special Servicer, as the case may be, whereupon the Trustee or another
successor Master Servicer or Special Servicer appointed by the Trustee will
succeed to all authority and power of the Master Servicer or Special Servicer
under the Agreement and will be entitled to similar compensation arrangements.
"Voting Rights" means the portion of the voting rights of all certificates that
is allocated to any certificate in accordance with the terms of the Agreement.
CREDIT ENHANCEMENT
GENERAL
If specified in the related prospectus supplement for any series, credit
enhancement may be provided with respect to one or more classes of the series
or the related mortgage loans. Credit enhancement may be in the form of the
subordination of one or more classes of the certificates of such series, the
establishment of one or more reserve funds, overcollateralization, a letter of
credit, certificate guarantee insurance policies, the use of cross-support
features or another method of credit enhancement described in the related
prospectus supplement, or any combination of the foregoing.
Any credit enhancement will provide protection against risks of loss and
will guarantee repayment of the principal balance of the certificates and
interest thereon only to the extent described in the related prospectus
supplement. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement,
Certificateholders will bear their allocable share of deficiencies.
If credit enhancement is provided with respect to a series, or the related
mortgage loans, the related prospectus supplement will include a description of
(a) the amount payable under such credit enhancement, (b) any conditions to
payment thereunder not otherwise described in this prospectus, (c) the
conditions (if any) under which the amount payable under such credit
enhancement may be
25
reduced and under which such credit enhancement may be terminated or replaced
and (d) the material provisions of any agreement relating to such credit
enhancement. Additionally, the related prospectus supplement will set forth
certain information with respect to the issuer of any third-party credit
enhancement, 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 which 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 such prospectus supplement. In addition, if the Certificateholders
of such series will be materially dependent upon any provider of credit
enhancement for timely payment of interest and/or principal on their
certificates, the related prospectus supplement will include audited financial
statements on a comparative basis for at least the prior two years and any
other appropriate financial information regarding such provider.
SUBORDINATE CERTIFICATES
If so specified in the related prospectus supplement, one or more classes
of a series may be subordinate certificates. If so specified in the related
prospectus supplement, the rights of the Holders of subordinate certificates
(the "Subordinate Certificates") to receive distributions of principal and
interest on any Distribution Date will be subordinated to such rights of the
Holders of senior certificates (the "Senior Certificates") to the extent
specified in the related prospectus supplement. The Agreement may require a
trustee that is not the Trustee to be appointed to act on behalf of Holders of
Subordinate Certificates.
A series may include one or more classes of Senior Certificates entitled
to receive cash flows remaining after distributions are made to all other
Senior Certificates of such series. Such right to receive payments will
effectively be subordinate to the rights of other Holders of Senior
Certificates. A series also may include one or more classes of Subordinate
Certificates entitled to receive cash flows remaining after distributions are
made to other Subordinate Certificates of such series. If so specified 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 not covered by
insurance policies or other credit support, such as losses arising from damage
to property securing a mortgage loan not covered by standard hazard insurance
policies.
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,
the manner, if any, in which the amount of subordination will decrease over
time, the manner of funding any related reserve fund and the conditions under
which amounts in any applicable reserve fund will be used to make distributions
to Holders of Senior Certificates and/or to Holders of Subordinate Certificates
or be released from the applicable Trust Fund.
CROSS-SUPPORT FEATURES
If the mortgage loans for a series are divided into separate mortgage loan
groups, each backing a separate class or classes of a series, credit support
may be provided by a cross-support feature which requires that distributions be
made on Senior Certificates backed by one mortgage loan group prior to
distributions on Subordinate Certificates backed by another mortgage loan group
within the Trust Fund. The related prospectus supplement for a series which
includes a cross-support feature will describe the manner and conditions for
applying such cross-support feature.
LETTER OF CREDIT
If specified in the related prospectus supplement, a letter of credit with
respect to a series of certificates will be issued by the bank or financial
institution specified in such prospectus supplement (the "Letter of Credit
Bank"). Under the letter of credit, the Letter of Credit Bank will be obligated
to honor drawings thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, equal to the percentage specified in the
related prospectus supplement of the aggregate principal balance of the
mortgage loans on the applicable Cut-Off Date or of one or more classes of
certificates
26
(the "Letter of Credit Percentage"). If so specified in the related prospectus
supplement, the letter of credit may permit drawings in the event of losses not
covered by insurance policies or other credit support, such as losses arising
from damage not covered by standard hazard insurance policies. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations of the Letter
of Credit Bank under the letter of credit for any 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 the letter of credit
for a series, if any, 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 applicable series.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related prospectus supplement, certificate
guarantee insurance, if any, with respect to a series of certificates will be
provided by one or more insurance companies. Such certificate guarantee
insurance will guarantee, with respect to one or more classes of certificates
of the applicable series, timely distributions of interest and principal to the
extent set forth in or determined in the manner specified in the related
prospectus supplement. If so specified in the related prospectus supplement,
the certificate guarantee insurance will also guarantee against any payment
made to a Certificateholder which is subsequently covered as a "voidable
preference" payment under the Bankruptcy Code. A copy of the certificate
guarantee insurance policy for a series, if any, 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 applicable
series.
RESERVE FUNDS
If specified in the related prospectus supplement, one or more reserve
funds may be established with respect to a series, in which cash, a letter of
credit, Permitted Investments or a combination of cash, a letter of credit
and/or Permitted Investments, in the amounts, if any, specified in the related
prospectus supplement will be deposited. The reserve funds for a series may
also be funded over time by depositing in that reserve a specified amount of
the distributions received on the applicable mortgage loans if specified in the
related prospectus supplement. The Seller may pledge the reserve funds to a
separate collateral agent 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 by the Trustee 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
payments of principal of, and interest on, the certificates, if required as a
condition to the rating of such series by each Rating Agency. If so specified
in the related prospectus supplement, reserve funds may be established to
provide limited protection, in an amount satisfactory to each Rating Agency,
against certain types of losses not covered by insurance policies or other
credit support, such as losses arising from damage not covered by standard
hazard insurance policies. Reserve funds also may be established for other
purposes and in such amounts as will be specified in the related prospectus
supplement. Following each Distribution Date amounts in any reserve fund in
excess of any amount required to be maintained in that reserve fund 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 by the Trustee.
Moneys deposited in any reserve fund will be invested in Permitted
Investments at the direction of the Seller or such other person 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 in accordance with the terms of the related Agreement. If specified in the
related prospectus supplement, such income or other gain may be payable to the
Master Servicer as additional servicing compensation, and any loss resulting
from such investment will be borne by the Master Servicer. The right of the
Trustee to make draws on the reserve fund, if any, will be an asset of the
Trust Fund, but the reserve fund itself will only be a part of the Trust Fund
if so provided in the related prospectus supplement.
27
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 purpose 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.
SWAP AGREEMENT
If so specified in the prospectus supplement relating to a series of
certificates, the Trust Fund will enter into or obtain an assignment of a swap
agreement pursuant to which the Trust Fund will have the right to receive, and
may have the obligation to make, certain payments of interest (or other
payments) as set forth or determined as described in that swap agreement. The
prospectus supplement relating to a series of certificates having the benefit
of an interest rate swap agreement will describe the material terms of such
agreement and the particular risks associated with the interest rate swap
feature, including market and credit risk, the effect of counterparty defaults
and other risks, if any. The prospectus supplement relating to such series of
certificates also will set forth certain information relating to the corporate
status, ownership and credit quality of the counterparty or counterparties to
such swap agreement. In addition, if the Certificateholders of such series will
be materially dependent upon any counterparty for timely payment of interest
and/or principal on their certificates, the related prospectus supplement will
include audited financial statements on a comparative basis for at least the
prior two years and any other appropriate financial information regarding such
counterparty. A swap agreement may include one or more of the following types
of arrangements, or another arrangement described in the related prospectus
supplement.
Interest Rate Swap. In an interest rate swap, the Trust Fund will exchange
the stream of interest payments on the mortgage loans for another stream of
interest payments based on a notional amount, which may be equal to the
principal amount of the mortgage loans as it declines over time.
Interest Rate Caps. In an interest rate cap, the Trust Fund or the swap
counterparty, in exchange for a fee, will agree to compensate the other if a
particular interest rate index rises above a rate specified in the swap
agreement. The fee for the cap may be a single up-front payment to or from the
Trust Fund, or a series of payments over time.
Interest Rate Floors. In an interest rate floor, the Trust Fund or the
swap counterparty, in exchange for a fee, will agree to compensate the other if
a particular interest rate index falls below a rate or level specified in the
swap agreement. As with interest rate caps, the fee may be a single up-front
payment or it may be paid periodically.
Interest Rate Collars. An interest rate collar is a combination of an
interest rate cap and an interest rate floor. One party agrees to compensate
the other if a particular interest rate index rises above the cap and, in
exchange, will be compensated if the interest rate index falls below the floor.
YIELD CONSIDERATIONS
GENERAL
The yield to maturity on any class of offered certificates will depend
upon, among other things, the price at which such certificates are purchased,
the amount and timing of any delinquencies and losses incurred by such class,
the rate and timing of payments of principal on the mortgage loans, and the
amount and timing of recoveries and Insurance Proceeds from REO mortgage loans
and related REO Properties, which, in turn, will be affected by the
amortization schedules of the mortgage loans, the timing of principal payments
(particularly Balloon Payments) on the related mortgage loans (including delay
in such payments resulting from modifications and extensions), the rate of
principal prepayments, including prepayments by borrowers and prepayments
resulting from defaults, repurchases arising in connection with certain
breaches of the representations and warranties made in the Agreement and the
exercise of the right of optional termination of the Trust Fund. Generally,
prepayments on the mortgage loans will tend to shorten the weighted average
lives of each class of certificates, whereas delays in liquidations
28
of defaulted mortgage loans and modifications extending the maturity of
mortgage loans will tend to lengthen the weighted average lives of each class
of certificates. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS --
Enforceability of Certain Provisions" in this prospectus for a description of
certain provisions of each Agreement and statutory, regulatory and judicial
developments that may affect the prepayment experience and maturity assumptions
on the mortgage loans.
PREPAYMENT AND MATURITY ASSUMPTIONS
The related prospectus supplement may indicate that the related mortgage
loans may be prepaid in full or in part at any time, generally without
prepayment premium. Alternatively, a Trust Fund may include mortgage loans that
have significant restrictions on the ability of a borrower to prepay without
incurring a prepayment premium or to prepay at all. As described above, the
prepayment experience of the mortgage loans will affect the weighted average
life of the offered certificates. A number of factors may influence prepayments
on multifamily and commercial loans, including enforceability of due-on-sale
clauses, prevailing mortgage market interest rates and the availability of
mortgage funds, changes in tax laws (including depreciation benefits for
income-producing properties), changes in borrowers' net equity in the Mortgaged
Properties, servicing decisions, prevailing general economic conditions and the
relative economic vitality of the areas in which the Mortgaged Properties are
located, the terms of the mortgage loans (for example, the existence of
due-on-sale clauses), the quality of management of any income-producing
Mortgaged Properties and, in the case of Mortgaged Properties held for
investment, the availability of other opportunities for investment. A number of
factors may discourage prepayments on multifamily loans and commercial loans,
including the existence of any lockout or prepayment premium provisions in the
underlying mortgage note. A lockout provision prevents prepayment within a
certain time period after origination. A prepayment premium imposes an
additional charge on a borrower who wishes to prepay. Some of the mortgage
loans may have substantial principal balances due at their stated maturities
("Balloon Payments"). Balloon Payments involve a greater degree of risk than
fully amortizing loans because the ability of the borrower to make a Balloon
Payment typically will depend upon its ability either to refinance the loan or
to sell the related Mortgaged Property. The ability of a borrower to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage rates at the time of the attempted sale or
refinancing, the borrower's equity in the related Mortgaged Property, the
financial condition of the borrower and operating history of the related
Mortgaged Property, tax laws, prevailing economic conditions and the
availability of credit for commercial real estate projects generally. See
"CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS -- Enforceability of Certain
Provisions" in this prospectus.
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 mortgage loans,
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 mortgage loans,
the actual yield to maturity will be lower than that so calculated. In either
case, the effect of voluntary and involuntary prepayments of the mortgage loans
on the yield on one or more classes of the certificates of such series in the
related Trust Fund may be mitigated or exacerbated by any provisions for
sequential or selective distribution of principal to such classes.
The timing of changes in the rate of principal payments on the mortgage
loans 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 loans and distributed on a certificate, the greater the effect on such
investor's yield to maturity. The effect of 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.
The weighted average life of a certificate refers to the average amount of
time that will elapse from the date of issuance of the certificate until each
dollar of principal is repaid to the Certificateholders. The weighted average
life of the offered certificates will be influenced by the rate at which
principal on the mortgage loans is paid, which may be in the form of scheduled
amortization or prepayments.
29
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. As more fully described in the related prospectus
supplement, the model generally represents an assumed constant rate of
prepayment each month relative to the then outstanding principal balance of a
pool of new mortgage loans.
There can be no assurance that the mortgage loans will prepay at any rate
mentioned in any prospectus supplement. In general, if prevailing interest
rates fall below the Mortgage Interest Rates on the mortgage loans, the rate of
prepayment can be expected to increase.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because many of the legal aspects
of mortgage loans are governed by the laws of the jurisdictions where the
related mortgaged properties are located (which laws may vary substantially),
the following summaries do not purport to be complete, to reflect the laws of
any particular jurisdiction, to reflect all the laws applicable to any
particular mortgage loan or to encompass the laws of all jurisdictions in which
the properties securing the mortgage loans are situated. In the event that the
Trust Fund for a given series includes mortgage loans having material
characteristics other than as described below, the related prospectus
supplement will set forth additional legal aspects relating thereto.
MORTGAGES AND DEEDS OF TRUST GENERALLY
The mortgage loans (other than financial leases and Installment Contracts)
for a series will consist of loans secured by either mortgages or deeds of
trust or other similar security instruments. There are two parties to a
mortgage, the mortgagor, who is the borrower or obligor and owner of the
mortgaged property, and the mortgagee, who is the lender. In a mortgage
transaction, the mortgagor delivers to the mortgagee a note, bond or other
written evidence of indebtedness and a mortgage. A mortgage creates a lien upon
the real property encumbered by the mortgage as security for the obligation
evidenced by the note, bond or other evidence of indebtedness. Although a deed
of trust is similar to a mortgage, a deed of trust has three parties, the
borrower-property owner called the trustor (similar to a mortgagor), a lender
called the beneficiary (similar to a mortgagee), and a third-party grantee
called the trustee. Under a deed of trust, the borrower irrevocably grants the
property to the trustee, until the debt is paid, in trust for the benefit of
the beneficiary to secure payment of the obligation generally with a power of
sale. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by applicable law, the express
provisions of the deed of trust or mortgage, as applicable, and, in some cases,
in deed of trust transactions, the directions of the beneficiary.
The real property covered by a mortgage is most often the fee estate in
land and improvements. However, a mortgage 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. A mortgage covering an
interest in real property other than the fee estate requires special provisions
in the instrument creating such interest or in the mortgage to protect the
mortgagee against termination of such interest before the mortgage is paid.
Certain representations and warranties in the related Agreement will be made
with respect to the mortgage loans which are secured by an interest in a
leasehold estate.
Priority of the lien on mortgaged property created by mortgages and deeds
of trust depends on their terms and, generally, on the order of filing with a
state, county or municipal office, although such priority may in some states be
altered by the existence of leases in place with respect to the mortgaged
property and by the mortgagee's or beneficiary's knowledge of unrecorded liens
or encumbrances against the mortgaged property. However, filing or recording
may not establish priority over certain mechanic's liens or governmental claims
for real estate taxes and assessments or, in some states, for reimbursement of
investigation, delineation and/or remediation costs of certain environmental
conditions. See "-- Environmental Risks" below. In addition, the Code provides
priority to certain tax liens over the lien of the mortgage.
INSTALLMENT CONTRACTS
The mortgage loans for a series may also consist of Installment Contracts.
Under an Installment Contract the seller (referred to in this Section as the
"lender") retains legal title to the property and enters
30
into an agreement with the purchaser (referred to in this Section as the
"borrower") for the payment of the purchase price, plus interest, over the term
of such contract. Only after full performance by the borrower of the contract
is the lender obligated to convey title to the real estate to the purchaser. As
with mortgage or deed of trust financing, during the effective period of the
Installment Contract, the borrower generally is responsible for maintaining the
property in good condition and for paying real estate taxes, assessments and
hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the borrower
may be granted some grace period during which the contract may be reinstated
upon full payment of the default amount and the borrower may have a
post-foreclosure statutory redemption right. In other states, courts in equity
may permit a borrower with significant investment in the property under an
Installment Contract for the sale of real estate to share in the proceeds of
sale of the property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause. Nevertheless, generally speaking, the
lender's procedures for obtaining possession and clear title under an
Installment Contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
FINANCIAL LEASES
The mortgage loans for a series also may consist of financial leases.
Under a financial lease on real property, the lessor retains legal title to the
leased property and enters into an agreement with the lessee (referred to in
this Section as the "lessee") under which the lessee makes lease payments
approximately equal to the principal and interest payments that would be
required on a mortgage note for a loan covering the same property. Title to the
real estate typically is conveyed to the lessee at the end of the lease term
for a price approximately equal to the remaining unfinanced equity, determined
by reference to the unpaid principal amount, market value, or another method
specified in the related Agreement. As with Installment Contracts, the lessee
generally is responsible for maintaining the property in good condition and for
paying real estate taxes, assessments and hazard insurance premiums associated
with the property during the lease term. The related prospectus supplement will
describe the specific legal incidents of any financial leases that are included
in the mortgage loan pool for a series.
RIGHTS OF MORTGAGEES OR BENEFICIARIES
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 a hazard insurance policy
and any award of damages in connection with the condemnation and absent the
express obligation to make the proceeds available for restoration of the
property 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
31
applied to the indebtedness of a junior mortgage or trust deed, if any. 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 the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate 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 related 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 are or which may
become prior to the lien of 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 of the property, 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 for any sums
expended by the mortgagee or beneficiary on behalf of the 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,
unless the mortgage loan provides otherwise, 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 a lease or
to refuse to grant to a tenant a non-disturbance agreement. If, as a result,
the lease is not executed, the value of the mortgaged property may be
diminished.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action
initiated by the service of legal pleadings upon all necessary parties having
an interest in the real property. Delays in completion of foreclosure may
occasionally result from difficulties in locating such necessary parties. When
the
32
mortgagee's right to foreclose is contested, the legal proceedings necessary to
resolve the issue can be time consuming. A judicial foreclosure may be subject
to delays and expenses similarly encountered in other civil litigation, and may
take several years to complete. At the completion of the judicial foreclosure
proceedings, if the mortgagee prevails, the court ordinarily issues a judgment
of foreclosure and appoints a referee or other designated official to conduct
the sale of the property. Such sales are made in accordance with procedures
which vary from state to state. The purchaser at such sale acquires the estate
or interest in real property covered by the mortgage. If the mortgage covered
the tenant's interest in a lease and leasehold estate, the purchaser will
acquire such tenant's interest subject to the tenant's obligations under the
lease to pay rent and perform other covenants contained in the lease.
Foreclosure of a deed of trust is commonly accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust and/or
applicable statutory requirements which authorizes the trustee, generally
following a request from the beneficiary/lender, to sell the property at public
sale upon any default by the borrower under the terms of the note or deed of
trust. A number of states may also require that a lender provide notice of
acceleration of a note to the borrower. Notice requirements under a trustee's
sale vary from state to state. In some states, prior to the trustee's sale the
trustee must record a notice of default and send a copy to the
borrower-trustor, to any person who has recorded a request for a copy of a
notice of default and notice of sale and to any successor in interest to the
trustor. In addition, the trustee must provide notice in some states to any
other person having an interest in the real property, including any junior
lienholders, and to certain other persons connected with the deed of trust. In
some states, the borrower, or any other person having a junior encumbrance on
the real estate, may, during a reinstatement period, cure the default by paying
the entire amount in arrears plus the costs and expenses (in some states,
limited to reasonable costs and expenses) incurred in enforcing the obligation.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorneys' fees, which may be recovered by a lender. If the deed of
trust is not reinstated, a notice of sale must be posted in a public place and,
in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in
the real property.
In case of foreclosure under either a mortgage or a deed of trust, 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 (see "--Rights of Redemption" below), 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 ability to sell the property or the
sale price of the property. Potential buyers may further question the prudence
of purchasing property at a foreclosure sale as a result of the 1980 decision
of the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company and other decisions that have followed
the reasoning of Durrett with respect to fraudulent conveyances under
applicable bankruptcy law. In Durrett and its progeny, the Fifth Circuit and
other courts held that the transfer of real property pursuant to a
non-collusive, regularly conducted foreclosure sale was subject to the
fraudulent transfer provisions of the applicable bankruptcy laws, including the
requirement that the price paid for the property constitute "fair
consideration." The reasoning and result of Durrett and its progeny in respect
of the federal bankruptcy code, as amended from time to time (11 U.S.C.) (the
"Bankruptcy Code") was rejected, however, by the United States Supreme Court in
May 1994. The case could nonetheless be persuasive to a court applying a state
fraudulent conveyance law which has provisions similar to those construed in
Durrett.
For these and other reasons, it is common for the lender to purchase the
property from the trustee, referee or other designated official for an amount
equal to the lesser of the fair market value of such property and the
outstanding principal amount of the indebtedness secured by the mortgage or
deed of trust, together with accrued and unpaid interest and the expenses of
foreclosure, in which event, if the amount bid by the lender equals the full
amount of such debt, interest and expenses, the mortgagee's
33
debt will be extinguished. Thereafter, subject to the mortgagor's right in some
states to remain in possession during a redemption period, if applicable, the
lender will assume the burdens of ownership, including paying operating
expenses and real estate taxes and making repairs until it can arrange a sale
of the property to a third party. Frequently, the lender employs a third party
management company to manage and operate the property. The costs of operating
and maintaining commercial 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 or nursing or convalescent
homes or hospitals may be particularly significant because of the expertise,
knowledge and, especially 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 franchisor's) 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 amount due to the lender in connection with
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, an increasing number of states
require that any adverse environmental conditions be eliminated before a
property may be resold. In addition, a lender may be responsible under federal
or state law for the cost of remediating a mortgaged property that is
environmentally contaminated. See "-- Environmental Risks" below. As a result,
a lender could realize an overall loss on a mortgage loan even if the related
mortgaged property is sold at foreclosure or resold after it is acquired
through foreclosure for an amount equal to the full outstanding principal
amount of the mortgage loan, plus accrued interest.
In foreclosure proceedings, some courts have applied general equitable
principles. These equitable principles are generally designed to relieve the
borrower from the legal effect of the borrower's defaults under the loan
documents. Examples of equitable remedies that have been fashioned include
judicial requirements that the lender undertake affirmative and expensive
actions to determine the causes of the borrower's default and the likelihood
that the borrower will be able to reinstate the loan. In some cases, courts
have substituted their judgment for the lender's judgment and have required
that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of the lender to foreclose if the
default under the mortgage instrument is not monetary, such as the borrower's
failing to maintain adequately the property or the borrower's executing a
second mortgage or deed of trust affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under deeds of trust or mortgages receive notices in
addition to the statutorily-prescribed minimum notice. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust, or under a mortgage having a power
of sale, does not involve sufficient state action to afford constitutional
protections to the borrower. There may, however, be state transfer taxes due
and payable upon obtaining such properties at foreclosure. Such taxes could be
substantial.
Under the REMIC provisions of the Code (if applicable) and the related
Agreement, the Master Servicer or Special Servicer, if any, may be required to
hire an independent contractor to operate any REO Property. The costs of such
operation may be significantly greater than the costs of direct operation by
the Master Servicer or Special Servicer, if any. Under Section 856(e)(3) of the
Code, property acquired by foreclosure generally must not be held beyond the
close of the third taxable year after the taxable year in which the acquisition
occurs. With respect to a series of certificates for which an election is made
to qualify the Trust Fund or a part of the Trust Fund as a REMIC, the Agreement
will permit foreclosed property to be held for more than the time period
permitted by Section 856(e)(3) of the Code if the Trustee receives (i) an
extension from the Internal Revenue Service or (ii) an opinion of counsel to
the effect that holding such property for such period is permissible under the
applicable REMIC provisions.
34
STATE LAW LIMITATIONS ON LENDERS
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In some states,
redemption may be authorized even if the former borrower pays only a portion of
the sums due. The effect of these types of statutory rights of redemption is to
diminish the ability of the lender to sell the foreclosed property. Such rights
of redemption would defeat the title of any purchaser from the lender
subsequent to foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to retain the
property and pay the expenses of ownership until the redemption period has run.
See "-- Rights of Redemption" below.
Certain states have imposed statutory prohibitions against or limitations
on recourse to the borrower. For example, some state statutes limit the right
of the beneficiary or mortgagee to obtain a deficiency judgment against the
borrower following foreclosure or sale under a deed of trust. A deficiency
judgment is a personal judgment against the former borrower equal in most cases
to the difference between the net amount realized upon the public sale of the
real property and the amount due to the lender. Other statutes require the
beneficiary or mortgagee to exhaust the security afforded under a deed of trust
or mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower on the debt without first
exhausting such security. In some states, the lender, if it first pursues
judgment through a personal action against the borrower on the debt, may be
deemed to have elected a remedy and may thereafter be precluded from exercising
remedies with respect to the security. Consequently, the practical effect of
the election requirement, when applicable, is that lenders will usually proceed
first against the property encumbered by the mortgage or deed of trust rather
than bringing personal action against the borrower. Other statutory provisions
limit any deficiency judgment against the former borrower 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 beneficiary or a mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low bids or the
absence of bids at the judicial sale. See "-- Anti-Deficiency Legislation;
Bankruptcy Laws" below.
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to potential
environmental risks. Of particular concern may be those mortgaged properties
which are, or have been, the site of manufacturing, industrial or disposal
activity. Such environmental risks may give rise to a diminution in value of
property securing any mortgage loan or, in certain circumstances as more fully
described below, liability for cleanup costs or other remedial actions, which
liability could exceed the value of such property or the principal balance of
the related mortgage loan. In certain circumstances, a lender may choose not to
foreclose on contaminated property rather than risk incurring liability for
remedial actions.
Under the laws of certain states, failure to perform any investigative
and/or remedial action required or demanded by the state of any condition or
circumstance that (i) may pose an imminent or substantial endangerment to the
public health or welfare or the environment, (ii) may result in a release or
threatened release of any hazardous material or hazardous substance, or (iii)
may give rise to any environmental claim or demand (each such condition or
circumstance, an "Environmental Condition") may, in certain circumstances, give
rise to a lien on the property to ensure the reimbursement of investigative
and/or remedial costs incurred by the state. In several states, such lien has
priority over the lien of an existing mortgage against such property. In any
case, the value of a Mortgaged Property as collateral for a mortgage loan could
be adversely affected by the existence of an Environmental Condition.
It is unclear as to whether and under what circumstances cleanup costs, or
the obligation to take remedial actions, can be imposed on a secured lender
such as the Trust Fund with respect to each series. Under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), a lender may be
liable as an "owner
35
or operator" for costs of addressing releases or threatened releases of
hazardous substances on a mortgaged property if such lender or its agents or
employees have participated in the management of the operations of the
borrower, even though the environmental damage or threat was caused by a prior
owner or other third party. Excluded from CERCLA's definition of "owner or
operator," however, is a person "who without participating in the management of
a ... facility, holds indicia of ownership primarily to protect his security
interest" (the "secured creditor exemption").
Notwithstanding the secured creditor exemption, a lender may be held
liable under CERCLA as an owner or operator, if such lender or its employees or
agents participate in management of the property. The Asset Conservation,
Lender Liability, and Deposit Insurance Protection Act of 1996 (the "Lender
Liability Act") defines the term "participating in management" to impose
liability on a secured lender who exercises actual control over operational
aspects of the facility; however, the terms and conditions of the Lender
Liability Act have not been fully clarified by the courts. A number of
environmentally related activities before the loan is made and during its
pendency, as well as "workout" steps to protect a security interest, are
identified as permissible to protect a security interest without triggering
liability. The Lender Liability Act also identifies the circumstances in which
foreclosure and post-foreclosure activities will not trigger CERCLA liability.
The Lender Liability Act also amends the federal Solid Waste Disposal Act
to limit the liability of lenders holding a security interest for costs of
cleaning up contamination for underground storage tanks. However, the Lender
Liability Act has no effect on other federal or state environmental laws
similar to CERCLA that may impose liability on lenders and other persons, and
not all of those laws provide for a secured creditor exemption. Liability under
many of these laws may exist even if the lender did not cause or contribute to
the contamination and regardless of whether the lender has actually taken
possession of the property through foreclosure, deed in lieu of foreclosure, or
otherwise. Moreover, such liability is not limited to the original or
unamortized principal balance of a loan or to the value of a property securing
a loan.
At the time the mortgage loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Properties was conducted.
The related Agreement will provide that the Master Servicer or the Special
Servicer, if any, acting on behalf of the Trust Fund, may not acquire title to,
or possession of, a Mortgaged Property underlying a mortgage loan, take over
its operation or take any other action that might subject a given Trust Fund to
liability under CERCLA or comparable laws unless the Master Servicer or Special
Servicer, if any, has previously determined, based upon a Phase I environmental
site assessment (as described below) or other specified environmental
assessment prepared by a person who regularly conducts such environmental
assessments, that the Mortgaged Property is in compliance with applicable
environmental laws and that there are no circumstances relating to use,
management or disposal of any hazardous materials for which investigation,
monitoring, containment, clean-up or remediation could be required under
applicable environmental laws, or that it would be in the best economic
interest of a given Trust Fund to take such actions as are necessary to bring
the Mortgaged Property into compliance therewith or as may be required under
such laws. A Phase I environmental site assessment generally involves
identification of recognized environmental conditions (as defined in Guideline
E1527-00 of the American Society for Testing and Materials Guidelines) and/or
historic recognized environmental conditions (as defined in Guideline E1527-00
of the American Society for Testing and Materials Guidelines) based on records
review, site reconnaissance and interviews, but does not involve a more
intrusive investigation such as sampling or testing of materials. This
requirement effectively precludes enforcement of the security for the related
mortgage loan until a satisfactory environmental assessment is obtained or any
required remedial action is taken, reducing the likelihood that a given Trust
Fund will become liable for any Environmental 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 will detect all possible
Environmental Conditions or that the other requirements of the Agreement, even
if fully observed by the Master Servicer and the Special Servicer, if any, will
in fact insulate a given Trust Fund from liability for Environmental
Conditions.
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 certain
36
other parties who may have contributed to or exacerbated the environmental
hazard, but such persons or entities may be bankrupt or otherwise judgment
proof. Furthermore, such action against the borrower may be adversely affected
by the limitations on recourse in the loan documents. Similarly, in some states
anti-deficiency legislation and other statutes requiring the lender to exhaust
its security before bringing a personal action against the borrower-trustor
(see "-- Anti-Deficiency Legislation; Bankruptcy Laws" below) 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. Shortfalls
occurring as the result of imposition of any clean-up costs will be addressed
in the prospectus supplement and Agreement for the related series.
RIGHTS OF REDEMPTION
In some states, after foreclosure sale pursuant to a deed of trust or a
mortgage, the borrower and certain foreclosed junior lienors are given a
specified period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a right of redemption is to diminish the ability
of the lender to sell the foreclosed property. The right of redemption may
defeat the title of any purchaser at a foreclosure sale or any purchaser from
the lender subsequent to a foreclosure sale or sale under a deed of trust.
Certain states permit a lender to avoid a post-sale redemption by waiving its
right to a deficiency judgment. Consequently, the practical effect of the
post-foreclosure redemption right is often to force the lender to retain the
property and pay the expenses of ownership until the redemption period has run.
Whether the lender has any rights to recover these expenses from a borrower who
redeems the property depends on the applicable state statute. The related
prospectus supplement will contain a description of any statutes that prohibit
recovery of such expenses from a borrower in states where a substantial number
of the Mortgaged Properties for a particular series are located. In some
states, there is no right to redeem property after a trustee's sale under a
deed of trust.
Borrowers under Installment Contracts generally do not have the benefits
of redemption periods such as may exist in the same jurisdiction for mortgage
loans. Where redemption statutes do exist under state laws for Installment
Contracts, the redemption period is usually far shorter than for mortgages.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
The mortgage loans for a series may include mortgage loans secured by
mortgages or deeds of trust some of which are junior to other mortgages or
deeds of trust, some of which may be held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the Certificateholders),
as mortgagee under a junior mortgage or beneficiary under a junior deed of
trust, are subordinate to those of the mortgagee under the senior mortgage or
beneficiary under the senior deed of trust, including the prior rights of the
senior mortgagee to receive hazard insurance and condemnation proceeds and to
cause the property securing the mortgage loan to be sold upon default of the
borrower or trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the junior mortgagee or junior beneficiary asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage or deed of trust. As
discussed more fully below, a junior mortgagee or junior beneficiary may
satisfy a defaulted senior loan in full and, in some states, may cure such
default and loan. In most states, no notice of default is required to be given
to a junior mortgagee or junior beneficiary, and junior mortgagees or junior
beneficiaries are seldom given notice of defaults on senior mortgages. However,
in order for a foreclosure action in some states to be effective against a
junior mortgagee or junior beneficiary, the junior mortgagee or junior
beneficiary must be named in any foreclosure action, thus giving notice to
junior lienors of the pendency of the foreclosure action on the senior
mortgage.
ANTI-DEFICIENCY LEGISLATION; BANKRUPTCY LAWS
Some of the mortgage loans for a series will be nonrecourse loans as to
which, in the event of default by a borrower, recourse may be had only against
the specific property which secures the related mortgage loan and not against
the borrower's other assets. Even if recourse is available pursuant to the
37
terms of the mortgage loan against the borrower's assets in addition to the
Mortgaged Property, certain states have imposed statutory prohibitions which
impose prohibitions against or limitations on such recourse. For example, some
state statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the net amount realized
upon the public sale of the real property and the amount due to the lender.
Other statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower.
In certain states, the lender has the option of bringing a personal action
against the borrower 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 absent judicial
permission, may be precluded from exercising remedies with respect to the
security. Consequently, the practical effect of the election requirement, when
applicable, is that lenders will usually proceed first against the security
rather than bringing a personal action against the borrower. Other statutory
provisions limit any deficiency judgment against the former borrower 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 beneficiary or a mortgagee from obtaining a
large deficiency judgment against the former borrower as a result of low bids
or the absence of bids at the judicial sale.
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 during the course of the bankruptcy
case. The delay and the consequences caused by an 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.
The Bankruptcy Code has been amended to provide that a lender's perfected
pre-petition security interest in leases, rents and hotel revenues continues in
the post-petition leases, rents and hotel revenues, unless a bankruptcy court
orders to the contrary "based on the equities of the case." Thus, unless a
court orders otherwise, revenues from a Mortgaged Property generated after the
date the bankruptcy petition is filed will constitute "cash collateral" under
the Bankruptcy Code. Debtors may only use cash collateral upon obtaining the
lender's consent or a prior court order finding that the lender's interest in
the Mortgaged Properties and the cash collateral is "adequately protected" as
such term is defined and interpreted under the Bankruptcy Code. It should be
noted, however, that the court may find that the lender has no security
interest in either pre-petition or post-petition revenues if the court finds
38
that the loan documents do not contain language covering accounts, room rents,
or other forms of personalty necessary for a security interest to attach to
hotel revenues.
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 any 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 of
the lease if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding. See "-- Leases and Rents."
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 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to 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 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 of the lease, 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 Trustee for the benefit of Certificateholders.
39
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.
Additionally, pursuant to subordination agreements for certain of the
mortgage loans, the subordinate lenders may have agreed that they will not take
any direct actions with respect to the related subordinated debt, including any
actions relating to the bankruptcy of the borrower, and that the holder of the
mortgage loan will have all rights to direct all such actions. There can be no
assurance that in the event of the borrower's bankruptcy, a court will enforce
such restrictions against a subordinated lender.
In its decision in In re 203 North LaSalle Street Partnership, 246 B.R.
325 (Bankr. N.D. Ill. March 10, 2000), the United States Bankruptcy Court for
the Northern District of Illinois refused to enforce a provision of a
subordination agreement that allowed a first mortgagee to vote a second
mortgagee's claim with respect to a Chapter 11 reorganization plan on the
grounds that prebankruptcy contracts cannot override rights expressly provided
by the Bankruptcy Code. This holding, which one court has already followed,
potentially limits the ability of a senior lender to accept or reject a
reorganization plan or to control the enforcement of remedies against a common
borrower over a subordinated lender's objections.
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. 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
payment 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 partners 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.
In addition, the bankruptcy of the general or limited partner of a
mortgagor that is a partnership, or the bankruptcy of a member of a mortgagor
that is a limited liability company or the bankruptcy of a shareholder of a
mortgagor that is a corporation may provide the opportunity in the bankruptcy
case of such partner, member or shareholder to obtain an order from a court
consolidating the assets and liabilities of the partner, member or shareholder
with those of the mortgagor pursuant to the doctrines of
40
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 partner, member or shareholder. Not only would the Mortgaged
Property be available to satisfy the claims of creditors of such partner,
member or shareholder, 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.
STATUTORY LIABILITIES
The Internal Revenue Code of 1986, as amended, provides priority to
certain tax liens over the lien of the mortgage. In addition, substantive
requirements are imposed upon mortgage lenders in connection with the
origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. These laws may impose specific statutory
liabilities upon lenders who originate mortgage loans and who fail to comply
with the provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans.
ENFORCEABILITY OF CERTAIN PROVISIONS
Prepayment Provisions
Courts generally enforce claims requiring prepayment fees unless
enforcement would, under the circumstances, be unconscionable. However, the
laws of certain states may render prepayment fees unenforceable after a
mortgage loan has been outstanding for a certain number of years, or may limit
the amount of any prepayment fee to a specified percentage of the original
principal amount of the mortgage loan, to a specified percentage of the
outstanding principal balance of a mortgage loan, or to a fixed number of
months' interest on the prepaid amount. In certain states, prepayment fees
payable on default or other involuntary acceleration of a mortgage loan may not
be enforceable against the mortgagor. Some state statutory provisions may also
treat certain prepayment fees as usurious if in excess of statutory limits. See
"-- Applicability of Usury Laws" below. Some of the mortgage loans for a series
may not require the payment of specified fees as a condition to prepayment or
such requirements have expired, and to the extent some mortgage loans do
require such fees, such fees may not necessarily deter borrowers from prepaying
their mortgage loans.
Due-on-Sale Provisions
The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states, and in some cases, typically
involving single family residential mortgage transactions, their enforceability
has been limited or denied. In any event, in situations relating primarily to
residential properties, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn-St Germain Act") 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
exceptions. As a result, due-on-sale clauses have become generally enforceable
except in those states whose legislatures exercised their authority to regulate
the enforceability of such clauses with respect to mortgage loans that were (i)
originated or assumed during the "window period" under the Garn-St Germain Act,
which ended in all cases not later than October 15, 1982, and (ii) originated
by lenders other than national banks, federal savings institutions and federal
credit unions. Also, the Garn-St Germain Act does "encourage" lenders to permit
assumption of loans at the original rate of interest or at some other rate less
than the average of the original rate and the market rates.
The Agreement for each series will provide that if any mortgage loan
contains a provision in the nature of a "due-on-sale" clause, which by its
terms provides that: (i) such mortgage loan shall (or may at the mortgagee's
option) become due and payable upon the sale or other transfer of an interest
in the related Mortgaged Property; or (ii) such mortgage loan may not be
assumed without the consent of the related mortgagee in connection with any
such sale or other transfer, then, for so long as such mortgage loan is
included in the Trust Fund, the Master Servicer, on behalf of the Trustee,
shall take such actions as it deems to be in the best interest of the
Certificateholders in accordance with the servicing standard set forth in the
Agreement, and may waive or enforce any due-on-sale clause contained in the
related mortgage loan.
41
In addition, under federal bankruptcy law, 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.
Acceleration on Default
Some of the mortgage loans 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 borrower. State courts generally 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 any 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 borrower 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.
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In certain states, there are or may be specific limitations upon
the late charges which a lender may collect from a borrower for delinquent
payments.
Upon foreclosure, courts have applied general equitable principles. These
equitable principles are generally designed to relieve the borrower from the
legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes of the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right
of the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failing to maintain adequately the property or
the borrower's executing a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages
receive notices in addition to the statutorily-prescribed minimum. For the most
part, these cases have upheld the notice provisions as being reasonable or have
found that the sale by a trustee under a deed of trust, or by a mortgagee under
a mortgage having a power of sale, does not involve sufficient state action to
afford constitutional protections to the borrower.
State courts also are known to apply various legal and equitable
principles to avoid enforcement of the forfeiture provisions of Installment
Contracts. For example, a lender's practice of accepting late payments from the
borrower may be deemed a waiver of the forfeiture clause. State courts also may
impose equitable grace periods for payment of arrearages or otherwise permit
reinstatement of the contract following a default. Not infrequently, if a
borrower under an Installment Contract has significant equity in the property,
equitable principles will be applied to reform or reinstate the contract or to
permit the borrower to share the proceeds upon a foreclosure sale of the
property if the sale price exceeds the debt.
Servicemembers Civil Relief Act
Generally, under the terms of the Servicemembers Civil Relief Act, a
borrower who enters military service after the origination of the borrower's
residential loan, including a borrower who was in reserve status and is called
to active duty after origination of the mortgage loan, upon norification by
such borrower, shall not be charged interest, including fees and charges, in
excess of 6% per annum during the period of the borrower's active duty status.
In addition to adjusting the interest, the lender must forgive any such
interest in excess of 6%, unless a court or administrative agency orders
otherwise upon application of the lender. In addition, the Relief Act provides
broad discretion for a court to modify a mortgage loan upon application by the
borrower. The Relief Act applies to borrowers who are members of the Army,
Navy, Air Force, Marines, National Guard, Reserves, Coast Guard, and officers
of the U.S. Public Health Service or the National Oceanic and Atmospheric
Administration assigned to duty with the
42
military. The California Military and Veterans Code provides protection
equivalent to that provided by the Relief Act to California national guard
members called up to active service by the Governor, California national guard
members called up to active service by the President and reservists called to
active duty. Because the Relief Act and the California Military Code apply to
borrowers who enter military service, no information can be provided as to the
number of mortgage loans that may be affected by the Relief Act or the
California Military Code. Application of the Relief Act or the California
Military Code would adversely affect, for an indeterminate period of time, the
ability of the master 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 or the California Military Code would result in a reduction of
the amounts distributable to the holders of the related series of securities,
and the prospectus supplement may specify that the shortfalls would not be
covered by advances or, any form of credit support provided in connection with
the securities. In addition, the Relief Act and the California Military Code
impose limitations that impair the ability of the master servicer to foreclose
on an affected mortgage loan or enforce rights under a Home Improvement
Contract or Manufactured Housing Contract during the borrower's period of
active duty status, and, under certain circumstances, during an additional
three month period after that period. Thus, if a mortgage loan or Home
Improvement Contract or Manufactured Housing Contract goes into default, there
may be delays and losses occasioned as a result.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property purchased or improved with assets
derived from criminal activity or otherwise tainted, or used in the commission
of certain offenses, can be seized and ordered forfeited to the United States
of America. The offenses which can trigger such a seizure and forfeiture
include, among others, violations of the Racketeer Influenced and Corrupt
Organizations Act, the Bank Secrecy Act, the anti-money laundering laws and
regulations, including the USA Patriot Act of 2001 and the regulations issued
pursuant to that Act, as well as the narcotic drug laws. In many instances, the
United States may seize the property even before a conviction occurs.
In the event of a forfeiture proceeding, a lender may be able to establish
its interest in the property by proving that (1) its mortgage was executed and
recorded before the commission of the illegal conduct from which the assets
used to purchase or improve the property were derived or before any other crime
upon which the forfeiture is based, or (2) the lender was, at the time of the
execution of the mortgage, "did not know or was reasonably without cause to
believe that the property was subject to forfeiture." However, there is no
assurance that such defense will be successful.
APPLICABILITY OF USURY LAWS
State and federal usury laws limit the interest that lenders are entitled
to receive on a mortgage loan. In determining whether a given transaction is
usurious, courts may include charges in the form of "points" and "fees" as
"interest," but may exclude payments in the form of "reimbursement of
foreclosure expenses" or other charges found to be distinct from "interest."
If, however, the amount charged for the use of the money loaned is found to
exceed a statutorily established maximum rate, the loan is generally found
usurious regardless of the form employed or the degree of overcharge. 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.
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 as part of the Trust Fund unless (i) such mortgage loan provides
for
43
such interest rate, discount points and charges as are permitted in such state
or (ii) such mortgage loan provides that its terms 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 imposes a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
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 borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage
loans, originated by non-federally chartered lenders have historically been
subjected to a variety of restrictions. Such restrictions differed from state
to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender was in
compliance with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the Garn-St Germain
Act ("Title VIII"). Title VIII provides that, notwithstanding any state law to
the contrary, state-chartered banks may originate alternative mortgage
instruments in accordance with regulations promulgated by the Comptroller of
the Currency with respect to origination of alternative mortgage instruments by
national banks, state-chartered credit unions may originate alternative
mortgage instruments in accordance with regulations promulgated by the National
Credit Union Administration (the "NCUA") with respect to origination of
alternative mortgage instruments by federal credit unions, and all other
non-federally chartered housing creditors, including state-chartered savings
and loan associations, state-chartered savings banks and mortgage banking
companies, may originate alternative mortgage instruments in accordance with
the regulations promulgated by the Federal Home Loan Bank Board (now the Office
of Thrift Supervision) with respect to origination of alternative mortgage
instruments by federal savings and loan associations. Title VIII provides that
any state may reject applicability of the provision of Title VIII by adopting,
prior to October 15, 1985, a law or constitutional provision expressly
rejecting the applicability of such provisions. Certain states have taken such
action.
LEASES AND RENTS
Some of the mortgage loans for a series may be secured by an assignment of
leases and rents, either through a separate document of assignment or as
incorporated in the related mortgage. Under such assignments, the borrower
under the mortgage loan typically assigns its right, title and interest as
landlord under each lease and the income derived therefrom to the lender, while
retaining a license to collect the rents for so long as there is no default
under the mortgage loan. In the event the borrower defaults, the license
terminates and the lender may be entitled to collect rents. The manner of
perfecting the lender's interest in rents may depend on whether the borrower's
assignment was absolute or one granted as security for the loan. Failure to
properly perfect the lender's interest in rents may result in the loss of a
substantial pool of funds which could otherwise serve as a source of repayment
for the loan. Some state laws may require that to perfect its interest in
rents, the lender must take possession of the property and/or obtain judicial
appointment of a receiver before becoming entitled to collect the rents.
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 to property ownership. In addition, if bankruptcy or similar
proceedings are commenced by or in respect of the borrower, the lender's
ability to collect the rents may be adversely affected. In the event of
borrower default, the amount of rent the lender is able to collect from the
tenants can significantly affect the value of the lender's security interest.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Some of the mortgage loans for a series may not restrict secondary
financing, thereby permitting the borrower to use the Mortgaged Property as
security for one or more additional loans. Some of the
44
mortgage loans may preclude secondary financing (often by permitting the first
lender to accelerate the maturity of its loan if the borrower further encumbers
the Mortgaged Property) or may require the consent of the senior lender to any
junior or substitute financing; however, such provisions may be unenforceable
in certain jurisdictions under certain circumstances. The Agreement for each
series will provide that if any mortgage loan contains a provision in the
nature of a "due-on-encumbrance" clause, which by its terms: (i) provides that
such mortgage loan shall (or may at the mortgagee's option) become due and
payable upon the creation of any lien or other encumbrance on the related
Mortgaged Property; or (ii) requires the consent of the related mortgagee to
the creation of any such lien or other encumbrance on the related Mortgaged
Property, then for so long as such mortgage loan is included in a given Trust
Fund, the Master Servicer or, if such mortgage loan is a Specially Serviced
Mortgage Loan, the Special Servicer (or such other party as indicated in the
Agreement), on behalf of such Trust Fund, shall exercise (or decline to
exercise) any right it may have as the mortgagee of record with respect to such
mortgage loan (x) to accelerate the payments thereon, or (y) to withhold its
consent to the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in the Agreement.
Where the borrower encumbers the Mortgaged Property with one or more
junior liens, the senior lender is subjected to additional risk. First, the
borrower may have difficulty servicing and repaying multiple loans. Second,
acts of the senior lender which 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 borrower 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 an existing junior lender is
prejudiced or the borrower is additionally burdened. Third, if the borrower
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, delay and in certain
circumstances even prevent the taking of action by the senior lender. Fourth,
the bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
CERTAIN LAWS AND REGULATIONS
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 Mortgaged 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.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the borrower 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 to the lender in that:
(i) hotels and motels are typically operated pursuant to franchise, management
and operating agreements which may be terminable by the franchisor, manager or
operator; and (ii) the transferability of the hotel's operating, liquor and
other licenses to the entity acquiring the hotel either through purchase or
foreclosure is subject to the vagaries of local law requirements. In addition,
Mortgaged Properties which are multifamily residential properties or
cooperatively owned multifamily 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
45
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 borrower 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 borrower as owner or 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
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
FEDERAL INCOME TAX CONSEQUENCES
The following represents the opinion of Cadwalader, Wickersham & Taft LLP,
special counsel to the Seller, as to the matters discussed in this section. The
following is a general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of certificates.
The discussion below does not purport to address all federal income tax
consequences that may be applicable to particular categories of investors, some
of which, such as banks, insurance companies and foreign investors, may be
subject to special rules. Further, the authorities on which this discussion is
based, and the opinions referred to below, are subject to change or differing
interpretations, which could apply retroactively. This discussion reflects the
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), as well as regulations (the "REMIC Regulations") promulgated by the
U.S. Department of Treasury (the "Treasury"). Investors should consult their
own tax advisors in determining the federal, state, local and other tax
consequences to them of the purchase, ownership and disposition of
certificates.
For purposes of this discussion, where the applicable prospectus
supplement provides for a retention of a portion of the interest payments on
the mortgage loans underlying a series of certificates, references to the
Mortgage will be deemed to refer to that portion of the mortgage loans held by
the Trust Fund which does not include the retained interest payments.
References to a "holder" or "Certificateholder" in this discussion generally
mean the beneficial owner of a certificate.
This discussion addresses the federal income tax consequences of the
treatment of the Trust Fund as a REMIC under "-- Federal Income Tax
Consequences for REMIC Certificates" and as a grantor trust under "-- Federal
Income Tax Consequences for Certificates as to which No REMIC Election is
Made." If an election is made instead to treat a Trust Fund as a FASIT, the
applicable federal income tax consequences will be discussed in the related
prospectus supplement.
46
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
GENERAL
With respect to a particular series of certificates, an election may be
made to treat the Trust Fund or one or more segregated pools of assets in the
Trust Fund as one or more REMICs within the meaning of Code Section 860D. A
Trust Fund or a portion of a Trust Fund as to which a REMIC election will be
made will be referred to as a "REMIC Pool." For purposes of this discussion,
certificates of a series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more classes of
"Regular Certificates" and one class of "Residual Certificates" in the case of
each REMIC Pool. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each series of REMIC Certificates,
Cadwalader, Wickersham & Taft LLP has rendered its opinion that, assuming (i)
the making of a timely election, (ii) compliance with all provisions of the
applicable Agreement and (iii) compliance with any changes in the law,
including any amendments to the Code or applicable Treasury regulations, each
REMIC Pool will qualify as a REMIC. The Regular Certificates will be considered
to be "regular interests" in the REMIC Pool and generally will be treated for
federal income tax purposes as if they were newly originated debt instruments,
and the Residual Certificates will be considered to be "residual interests" in
the REMIC Pool. The prospectus supplement for each series of certificates will
indicate whether one or more REMIC elections with respect to the related Trust
Fund will be made, in which event references to "REMIC" or "REMIC Pool" in this
prospectus shall be deemed to refer to each such REMIC Pool. If so specified in
the applicable prospectus supplement, the portion of a Trust Fund as to which a
REMIC election is not made may be treated as a grantor trust for federal income
tax purposes. See "-- Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made" below. For purposes of this discussion, unless
otherwise specified, the term "mortgage loans" will be used to refer to
mortgage loans and Installment Contracts.
STATUS OF REMIC CERTIFICATES
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) but only in the same proportion that the assets
of the REMIC Pool would be treated as "loans . . . secured by an interest in
real property which is . . . residential real property" or "loans secured by an
interest in . . . health . . . institutions or facilities, including structures
designed or used previously for residential purposes for . . . persons under
care" (such as single family or multifamily properties or health-care
properties, but not other commercial properties) within the meaning of Code
Section 7701(a)(19)(C), and otherwise will not qualify for such treatment.
REMIC Certificates held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code Section 856(c)(5)(B), and interest on
the Regular Certificates and income with respect to Residual Certificates will
be considered "interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Code Section 856(c)(3)(B)
in the same proportion that, for both purposes, the assets of the REMIC Pool
would be so treated. If at all times 95% or more of the assets of the REMIC
Pool qualify for each of the foregoing respective treatments, the REMIC
Certificates will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(5)(B), payments of principal and interest on
the mortgage loans that are reinvested pending distribution to holders of REMIC
Certificates qualify for such treatment. Where multiple REMIC Pools are a part
of a tiered structure they will be treated as one REMIC for purposes of the
tests described above respecting asset ownership of more or less than 95%.
Regular Certificates will represent "qualified mortgages," within the meaning
of Code Section 860G(a)(3), for other REMICs and "permitted assets," within the
meaning of Code Section 860L(c), for financial asset securitization investment
trusts. REMIC Certificates held by certain financial institutions will
constitute an "evidence of indebtedness" within the meaning of Code Section
582(c)(1).
QUALIFICATION AS A REMIC
In order for a REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test,
47
which requires that no more than a de minimis portion of the assets of the
REMIC Pool, as of the close of the third calendar month beginning after the
"Startup Day," which for purposes of this discussion is the date of issuance of
the REMIC Certificates, and at all times thereafter, may consist of assets
other than "qualified mortgages" and "permitted investments." The REMIC
Regulations provide a safe harbor pursuant to which the de minimis requirement
is met if at all times the aggregate adjusted basis of the nonqualified assets
is less than 1% of the aggregate adjusted basis of all the REMIC Pool's assets.
An entity that fails to meet the safe harbor may nevertheless demonstrate that
it holds no more than a de minimis amount of nonqualified assets. A REMIC also
must provide "reasonable arrangements" to prevent its residual interest from
being held by "disqualified organizations" and must furnish applicable tax
information to transferors or agents that violate this requirement. See "--
Taxation of Residual Certificates -- Tax-Related Restrictions on Transfer of
Residual Certificates -- Disqualified Organizations" below.
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the mortgage loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, regular interests in another REMIC, such as certificates in a trust as
to which a REMIC election has been made, loans secured by timeshare interests
and loans secured by shares held by a tenant stockholder in a cooperative
housing corporation, provided, in general, (i) the fair market value of the
real property security, including its buildings and structural components, is
at least 80% of the principal balance of the related mortgage loan either at
origination or as of the Startup Day (an original loan-to-value ratio of not
more than 125% with respect to the real property security) or (ii)
substantially all the proceeds of the mortgage loan or the underlying mortgage
loan were used to acquire, improve or protect an interest in real property
that, at the origination date, was the only security for the mortgage loan or
underlying mortgage loan. If the mortgage loan has been substantially modified
other than in connection with a default or reasonably foreseeable default, it
must meet the loan-to-value test in (i) of the preceding sentence as of the
date of the last such modification. A qualified mortgage includes a qualified
replacement mortgage, which is any property that would have been treated as a
qualified mortgage if it were transferred to the REMIC Pool on the Startup Day
and that is received either (i) in exchange for any qualified mortgage within a
three-month period thereafter or (ii) in exchange for a "defective obligation"
within a two-year period thereafter. A "defective obligation" includes (i) a
mortgage in default or as to which default is reasonably foreseeable, (ii) a
mortgage as to which a customary representation or warranty made at the time of
transfer to the REMIC Pool has been breached, (iii) a mortgage that was
fraudulently procured by the mortgagor, and (iv) a mortgage that was not in
fact principally secured by real property, but only if such mortgage is
disposed of within 90 days of discovery. A mortgage loan that is "defective" as
described in clause (iv) that is not sold or, if within two years of the
Startup Day, exchanged, within 90 days of discovery, ceases to be a qualified
mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC
Pool. A qualified reserve asset is any intangible property held for investment
that is part of any reasonably required reserve maintained by the REMIC Pool to
provide for payments of expenses of the REMIC Pool or amounts due on the
regular or residual interests in the event of defaults (including
delinquencies) on the qualified mortgages, lower than expected reinvestment
returns, prepayment interest shortfalls and certain other contingencies. The
reserve fund will be disqualified if more than 30% of the gross income from the
assets in such fund for the year is derived from the sale or other disposition
of property held for less than three months, unless required to prevent a
default on the regular interests caused by a default on one or more qualified
mortgages. A reserve fund must be reduced "promptly and appropriately" as
payments on the mortgage loans are received. Foreclosure property is real
property acquired by the REMIC Pool in connection with the default or imminent
default of a qualified mortgage and generally not held beyond the close of the
48
third calendar year beginning after the year in which such property is acquired
with an extension that may be granted by the Internal Revenue Service (the
"Service").
In addition to the foregoing requirements, the various interests in a
REMIC Pool also must meet certain requirements. All of the interests in a REMIC
Pool must be either of the following: (i) one or more classes of regular
interests or (ii) a single class of residual interests on which distributions,
if any, are made pro rata. A regular interest is an interest in a REMIC Pool
that is issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest payments
(or other similar amounts), if any, at or before maturity either are payable
based on a fixed rate or a qualified variable rate, or consist of a specified,
nonvarying portion of the interest payments on qualified mortgages. Such a
specified portion may consist of a fixed number of basis points, a fixed
percentage of the total interest, or a fixed or qualified variable or inverse
variable rate on some or all of the qualified mortgages minus a different fixed
or qualified variable rate. The specified principal amount of a regular
interest that provides for interest payments consisting of a specified,
nonvarying portion of interest payments on qualified mortgages may be zero. A
residual interest is an interest in a REMIC Pool other than a regular interest
that is issued on the Startup Day and that is designated as a residual
interest. An interest in a REMIC Pool may be treated as a regular interest even
if payments of principal with respect to such interest are subordinated to
payments on other regular interests or the residual interest in the REMIC Pool,
and are dependent on the absence of defaults or delinquencies on qualified
mortgages or permitted investments, lower than reasonably expected returns on
permitted investments, unanticipated expenses incurred by the REMIC Pool or
prepayment interest shortfalls. Accordingly, the Regular Certificates of a
series will constitute one or more classes of regular interests, and the
Residual Certificates with respect to that series will constitute a single
class of residual interests on which distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests in that entity. The Code, however, authorizes the Treasury
Department to issue regulations that address situations where failure to meet
one or more of the requirements for REMIC status occurs inadvertently and in
good faith, and disqualification of the REMIC Pool would occur absent
regulatory relief. Investors should be aware, however, that the Conference
Committee Report to the Tax Reform Act of 1986 (the "1986 Act") indicates that
the relief may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC Pool's income for the period of
time in which the requirements for REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest and original issue discount on a Regular Certificate
will be treated as ordinary income to a holder of the Regular Certificate (the
"Regular Certificateholder") as they accrue, and principal payments on a
Regular Certificate will be treated as a return of capital to the extent of the
Regular Certificateholder's basis in the Regular Certificate allocable thereto
(other than accrued market discount not yet reported as income). Regular
Certificateholders must use the accrual method of accounting with regard to
Regular Certificates, regardless of the method of accounting otherwise used by
such Regular Certificateholders.
Original Issue Discount
Certificates on which accrued interest is capitalized and deferred will
be, and other classes of Regular Certificates may be, issued with "original
issue discount" within the meaning of Code Section 1273(a). Holders of any
class of Regular Certificates having original issue discount generally must
include original issue discount in ordinary income for federal income tax
purposes as it accrues, in accordance with the constant yield method that takes
into account the compounding of interest, in
49
advance of receipt of the cash attributable to such income. The following
discussion is based in part on temporary and final Treasury regulations (the
"OID Regulations") under Code Sections 1271 through 1273 and 1275 and in part
on the provisions of the 1986 Act. Regular Certificateholders should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the Regular Certificates. To the
extent such issues are not addressed in such regulations, it is anticipated
that the Trustee will apply the methodology described in the Conference
Committee Report to the 1986 Act. No assurance can be provided that the Service
will not take a different position as to those matters not currently addressed
by the OID Regulations. Moreover, the OID Regulations include an anti-abuse
rule allowing the Service to apply or depart from the OID Regulations where
necessary or appropriate to ensure a reasonable tax result in light of the
applicable statutory provisions. A tax result will not be considered
unreasonable under the anti-abuse rule in the absence of a substantial effect
on the present value of a taxpayer's tax liability. Investors are advised to
consult their own tax advisors as to the discussion in this section and the
appropriate method for reporting interest and original issue discount with
respect to the Regular Certificates.
Each Regular Certificate (except to the extent described below with
respect to a Regular Certificate on which principal is distributed by random
lot ("Random Lot Certificates")) will be treated as a single installment
obligation for purposes of determining the original issue discount includible
in a Regular Certificateholder's income. The total amount of original issue
discount on a Regular Certificate is the excess of the "stated redemption price
at maturity" of the Regular Certificate over its "issue price". The issue price
of a class of Regular Certificates offered pursuant to this prospectus
generally is the first price at which a substantial amount of Regular
Certificates of that class is sold to the public (excluding bond houses,
brokers and underwriters). Although unclear under the OID Regulations, the
Seller intends to treat the issue price of a class as to which there is no sale
of a substantial amount as of the issue date or that is retained by the Seller
as the fair market value of that class as of the issue date. The issue price of
a Regular Certificate also includes the amount paid by an initial Regular
Certificateholder for accrued interest that relates to a period prior to the
issue date of the Regular Certificate, unless the Regular Certificateholder
elects on its federal income tax return to exclude such amount from the issue
price and to recover it on the first Distribution Date. The stated redemption
price at maturity of a Regular Certificate always includes the original
principal amount of the Regular Certificate, but generally will not include
distributions of stated interest if such interest distributions constitute
"qualified stated interest". Under the OID Regulations, qualified stated
interest generally means interest payable at a single fixed rate or a 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 Regular Certificate. Because there is no penalty or default remedy in
the case of nonpayment of interest with respect to a Regular Certificate, it is
possible that no interest on any class of Regular Certificates will be treated
as qualified stated interest. However, except as provided in the following
three sentences or in the applicable prospectus supplement, because the
underlying mortgage loans provide for remedies in the event of default, it is
anticipated that the Trustee will treat interest with respect to the Regular
Certificates as qualified stated interest. Distributions of interest on an
Accrual Certificate, or on other Regular Certificates with respect to which
deferred interest will accrue, will not constitute qualified stated interest,
in which case the stated redemption price at maturity of such Regular
Certificates includes all distributions of interest as well as principal
thereon. Likewise, the Seller intends to treat an "interest only" class, or a
class on which interest is substantially disproportionate to its principal
amount (a so-called "super-premium" class) as having no qualified stated
interest. Where the interval between the issue date and the first Distribution
Date on a Regular Certificate is shorter than the interval between subsequent
Distribution Dates, the interest attributable to the additional days will be
included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the 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 is scheduled to be made by a fraction, the numerator of which is
the
50
amount of each distribution included in the stated redemption price at maturity
of the Regular Certificate and the denominator of which is the stated
redemption price at maturity of the Regular Certificate. The Conference
Committee Report to the 1986 Act provides that the schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the mortgage loans (the "Prepayment Assumption") and the
anticipated reinvestment rate, if any, relating to the Regular Certificates.
The Prepayment Assumption with respect to a series of 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 Regular Certificate is held as a capital
asset. However, under the OID Regulations, Regular Certificateholders may elect
to accrue all de minimis original issue discount as well as market discount and
market premium under the constant yield method. See "-- Election to Treat All
Interest Under the Constant Yield Method" below.
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Certificate accrued during an accrual period for
each day on which it holds the Regular Certificate, including the date of
purchase but excluding the date of disposition. It is anticipated that the
Trustee will treat the monthly period ending on the day before each
Distribution Date as the accrual period. With respect to each Regular
Certificate, a calculation will be made of the original issue discount that
accrues during each successive full accrual period (or shorter period from the
date of original issue) that ends on the day before the related Distribution
Date on the Regular Certificate. The Conference Committee Report to the 1986
Act states that the rate of accrual of original issue discount is intended to
be based on the Prepayment Assumption. Other than as discussed below with
respect to a Random Lot Certificate, the original issue discount accruing in a
full accrual period would be the excess, if any, of (i) the sum of (a) the
present value of all of the remaining distributions to be made on the Regular
Certificate as of the end of that accrual period and (b) the distributions made
on the Regular Certificate during the accrual period that are included in the
Regular Certificate's stated redemption price at maturity, over (ii) the
adjusted issue price of the Regular Certificate at the beginning of the accrual
period. The present value of the remaining distributions referred to in the
preceding sentence is calculated based on (i) the yield to maturity of the
Regular Certificate at the issue date, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period and
(iii) the Prepayment Assumption. For these purposes, the adjusted issue price
of a Regular Certificate at the beginning of any accrual period equals the
issue price of the Regular Certificate, increased by the aggregate amount of
original issue discount with respect to the Regular Certificate that accrued in
all prior accrual periods and reduced by the amount of distributions included
in the Regular Certificate's stated redemption price at maturity that were made
on the Regular Certificate in such prior periods. The original issue discount
accruing during any accrual period (as determined in this paragraph) will then
be divided by the number of days in the period to determine the daily portion
of original issue discount for each day in the period. With respect to an
initial accrual period shorter than a full accrual period, the daily portions
of original issue discount must be determined according to an appropriate
allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the mortgage loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. However,
in the case of certain classes of Regular Certificates of a series, an increase
in prepayments on the mortgage loans can result in both a change in the
priority of principal payments with respect to such classes and either an
increase or decrease in the daily portions of original issue discount with
respect to such classes.
In the case of a Random Lot Certificate, it is anticipated that the
Trustee will determine the yield to maturity of such certificate based upon the
anticipated payment characteristics of the class as a whole under the
Prepayment Assumption. In general, the original issue discount accruing on each
Random Lot Certificate in a full accrual period would be its allocable share of
the original issue discount with respect to the entire class, as determined in
accordance with the preceding paragraph. However, in the case of a distribution
in retirement of the entire unpaid principal balance of any Random Lot
Certificate (or portion of such unpaid principal balance), (a) the remaining
unaccrued original issue discount allocable to such
51
certificate (or to such portion) will accrue at the time of such distribution,
and (b) the accrual of original issue discount allocable to each remaining
certificate of such class (or the remaining unpaid principal balance of a
partially redeemed Random Lot Certificate after a distribution of principal has
been received) will be adjusted by reducing the present value of the remaining
payments on such class and by reducing the adjusted issue price of such class
to the extent of the portion of the adjusted issue price attributable to the
portion of the unpaid principal balance of such class that was distributed. The
Seller believes that the foregoing treatment is consistent with the "pro rata
prepayment" rules of the OID Regulations, but with the rate of accrual of
original issue discount determined based on the Prepayment Assumption for the
class as a whole. Investors are advised to consult their tax advisors as to
this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted issue
price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively, such
a subsequent purchaser may elect to treat all such acquisition premium under
the constant yield method, as described below under the heading "--Election to
Treat All Interest Under the Constant Yield Method " below.
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified amount and (ii) the interest compounds or is
payable at least annually at current values of (a) one or more "qualified
floating rates", (b) a single fixed rate and one or more qualified floating
rates, (c) a single "objective rate", or (d) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate". A floating rate is
a qualified floating rate if variations in the rate can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds,
where such rate is subject to a fixed multiple that is greater than 0.65 but
not more than 1.35. Such rate may also be increased or decreased by a fixed
spread or subject to a fixed cap or floor, or a cap or floor that is not
reasonably expected as of the issue date to affect the yield of the instrument
significantly. An objective rate is any rate (other than a qualified floating
rate) that is determined using a single fixed formula and that is based on
objective financial or economic information, provided that such information is
not (i) within the control of the issuer or a related party or (ii) unique to
the circumstances of the issuer or a related party. A qualified inverse
floating rate is a rate equal to a fixed rate minus a qualified floating rate
that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified inverse
floating rate may nevertheless be an objective rate. A class of Regular
Certificates may be issued under this prospectus that provides for interest
that is not a fixed rate and also does not have a variable rate under the
foregoing rules, for example, a class that bears different rates at different
times during the period it is outstanding such that it is considered
significantly "front-loaded" or "back-loaded" within the meaning of the OID
Regulations. It is possible that such a class may be considered to bear
"contingent interest" within the meaning of the OID Regulations. The OID
Regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to Regular Certificates. However, if final
regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as existing contingent rules, such
regulations may lead to different timing of income inclusion that would be the
case under the OID Regulations. Furthermore, application of such principles
could lead to the characterization of gain on the sale of contingent interest
Regular Certificates as ordinary income. Investors should consult their tax
advisors regarding the appropriate treatment of any Regular Certificate that
does not pay interest at a fixed rate or variable rate as described in this
paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
is tied to current values of a rate that qualifies as a variable rate under the
OID Regulations (or the highest, lowest or average of two or more such variable
rates, including a rate based on the average cost of funds of one or more
52
financial institutions), or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the mortgage loans, including such
a rate that is subject to one or more caps or floors, or (ii) bearing one or
more such variable rates for one or more periods or one or more fixed rates for
one or more periods, and a different variable rate or fixed rate for other
periods, qualifies as a regular interest in a REMIC. It is anticipated that the
Trustee will treat Regular Certificates that qualify as regular interests under
this rule in the same manner as obligations bearing a variable rate for
original issue discount reporting purposes.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "Original Issue Discount" with the yield to maturity and
future payments on such Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the Regular Certificate
based on the initial rate (or, if different, the value of the applicable
variable rate as of the pricing date) for the relevant class. It is anticipated
that the Trustee will treat such variable interest as qualified stated
interest, other than variable interest on an interest-only or super-premium
class, which will be treated as non-qualified stated interest includible in the
stated redemption price at maturity. Ordinary income reportable for any period
will be adjusted based on subsequent changes in the applicable interest rate
index.
Although unclear under the OID Regulations, it is anticipated that the
Trustee will treat Regular Certificates bearing an interest rate that is a
weighted average of the net interest rates on mortgage loans which themselves
have fixed or qualified variable rates, as having qualified stated interest. In
the case of adjustable rate mortgage loans, the applicable index used to
compute interest on the mortgage loans in effect on the pricing date (or
possibly the issue date) will be deemed to be in effect over the life of the
mortgage loans beginning with the period in which the first weighted average
adjustment date occurring after the issue date occurs. Adjustments will be made
in each accrual period either increasing or decreasing the amount or ordinary
income reportable to reflect the interest rate on the Regular Certificates.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections and
the principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which the purchaser's original
basis in the Regular Certificate (i) is exceeded by the then-current principal
amount of the Regular Certificate or (ii) in the case of a Regular Certificate
having original issue discount, is exceeded by the adjusted issue price of such
Regular Certificate at the time of purchase. Such purchaser generally will be
required to recognize ordinary income to the extent of accrued market discount
on such Regular Certificate as distributions includible in the stated
redemption price at maturity are received, in an amount not exceeding any such
distribution. Such market discount would accrue in a manner to be provided in
Treasury regulations and should take into account the Prepayment Assumption.
The Conference Committee Report to the 1986 Act provides that until such
regulations are issued, such market discount would accrue either (i) on the
basis of a constant interest rate, (ii) in the ratio of stated interest
allocable to the relevant period to the sum of the interest for such period
plus the remaining interest as of the end of such period, or (iii) in the case
of a Regular Certificate issued with original issue discount, in the ratio of
original issue discount accrued for the relevant period to the sum of the
original issue discount accrued for such period plus the remaining original
issue discount as of the end of such period. Such purchaser also generally will
be required to treat a portion of any gain on a sale or exchange of the Regular
Certificate as ordinary income to the extent of the market discount accrued to
the date of disposition under one of the foregoing methods, less any accrued
market discount previously reported as ordinary income as partial distributions
in reduction of the stated redemption price at maturity were received. Such
purchaser will be required to defer deduction of a portion of the excess of the
interest paid or accrued on indebtedness incurred to purchase or carry a
Regular Certificate over the interest distributable thereon. The deferred
portion of such interest expense in any taxable year generally will not exceed
the accrued market discount on the Regular Certificate for such year. Any such
deferred interest expense is, in general, allowed as a deduction not later than
the year in which the related market discount income is recognized or the
Regular Certificate is disposed of. As an alternative to the inclusion of
market discount in income on the foregoing basis, the Regular Certificateholder
may elect to include
53
market discount in income currently as it accrues on all market discount
instruments acquired by such Regular Certificateholder in that taxable year or
thereafter, in which case the interest deferral rule will not apply. See "--
Election to Treat All Interest Under the Constant Yield Method" below regarding
an alternative manner in which such election may be deemed to be made.
Market discount with respect to a Regular Certificate will be considered
to be zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Certificate multiplied by the
weighted average maturity of the Regular Certificate (determined as described
above in the third paragraph under "-- Original Issue Discount") remaining
after the date of purchase. It appears that de minimis market discount would be
reported in a manner similar to de minimis original issue discount. See "--
Original Issue Discount" above. Treasury regulations implementing the market
discount rules have not yet been issued, and therefore investors should consult
their own tax advisors regarding the application of these rules. Investors
should also consult Revenue Procedure 92-67 concerning the elections to include
market discount in income currently and to accrue market discount on the basis
of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased at
a premium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. Final Treasury Regulations issued under Code
Section 171 do not by their terms apply to prepayable debt instruments such as
the Regular Certificates. However, the Conference Committee Report to the 1986
Act indicates a Congressional intent that the same rules that will apply to the
accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations such
as the Regular Certificates, although it is unclear whether the alternatives to
the constant yield method described above under "Market Discount" are
available. Amortizable bond premium will be treated as an offset to interest
income on a Regular Certificate rather than as a separate deduction item. See
"-- Election to Treat All Interest Under the Constant Yield Method" below
regarding an alternative manner in which the Code Section 171 election may be
deemed to be made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) interest includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were
issued on the holder's acquisition date in the amount of the holder's adjusted
basis immediately after acquisition. It is unclear whether, for this purpose,
the initial Prepayment Assumption would continue to apply or if a new
prepayment assumption as of the date of the holder's acquisition would apply. A
holder generally may make such an election on an instrument by instrument basis
or for a class or group of debt instruments. However, if the holder makes such
an election with respect to a debt instrument with amortizable bond premium or
with market discount, the holder is deemed to have made elections to amortize
bond premium or to report market discount income currently as it accrues under
the constant yield method, respectively, for all debt instruments acquired by
the holder in the same taxable year or thereafter. The election is made on the
holder's federal income tax return for the year in which the debt instrument is
acquired and is irrevocable except with the approval of the Service. Investors
should consult their own tax advisors regarding the advisability of making such
an election.
SALE OR EXCHANGE OF REGULAR CERTIFICATES
If a Regular Certificateholder sells or exchanges a Regular Certificate,
the Regular Certificateholder will recognize gain or loss equal to the
difference, if any, between the amount realized and its adjusted basis in the
Regular Certificate. The adjusted basis of a Regular Certificate generally will
equal the cost
54
of the Regular Certificate to the seller, increased by any original issue
discount or market discount previously included in the seller's gross income
with respect to the Regular Certificate and reduced by amounts included in the
stated redemption price at maturity of the Regular Certificate that were
previously received by the seller, by any amortized premium and by any
recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term, or
short-term depending on whether the Regular Certificate has been held for the
applicable capital gain holding period. Such gain will be treated as ordinary
income (i) if a Regular Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Regular Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
under Code Section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior distribution of property that was held as a part of such
transaction, (ii) in the case of a non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net capital
gains taxed as investment income at ordinary rates, or (iii) to the extent that
such gain does not exceed the excess, if any, of (a) the amount that would have
been includible in the gross income of the holder if its yield on such Regular
Certificate were 110% of the applicable Federal rate as of the date of
purchase, over (b) the amount of income actually includible in the gross income
of such holder with respect to the Regular Certificate. In addition, gain or
loss recognized from the sale of a Regular Certificate by certain banks or
thrift institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c). Generally, short-term capital gains of certain non-corporate
taxpayers are subject to the same tax rate as the ordinary income of such
taxpayers for property held for not more than one year, and long-term capital
gains of such taxpayers are subject to a lower maximum tax rate than ordinary
income for those taxpayers for property held for more than one year. The
maximum tax rate for corporations is the same with respect to both ordinary
income and capital gains.
Investors that recognize a loss on a sale or exchange of the Regular
Certificates for federal income tax purposes in excess of certain threshold
amounts should consult their tax advisors as to the need to file IRS Form 8886
(disclosing certain potential tax shelters) on their federal income tax
returns.
Treatment of Losses
Holders of Regular Certificates will be required to report income with
respect to Regular Certificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to defaults
or delinquencies on the mortgage loans allocable to a particular class of
Regular Certificates, except to the extent it can be established that such
losses are uncollectible. Accordingly, the holder of a Regular Certificate may
have income, or may incur a diminution in cash flow as a result of a default or
delinquency, but may not be able to take a deduction (subject to the discussion
below) for the corresponding loss until a subsequent taxable year. In this
regard, investors are cautioned that while they may generally cease to accrue
interest income if it reasonably appears that the interest will be
uncollectible, the Internal Revenue Service may take the position that original
issue discount must continue to be accrued in spite of its uncollectibility
until the debt instrument is disposed of in a taxable transaction or becomes
worthless in accordance with the rules of Code Section 166. Under Code Section
166, it appears that holders of Regular Certificates that are corporations or
that otherwise hold the Regular Certificates in connection with a trade or
business should in general be allowed to deduct as an ordinary loss any such
loss sustained during the taxable year on account of any such Regular
Certificates becoming wholly or partially worthless, and that, in general,
holders of Regular Certificates that are not corporations and do not hold the
Regular Certificates in connection with a trade or business will be allowed to
deduct as a short-term capital loss any loss with respect to principal
sustained during the taxable year on account of a portion of any class or
subclass of such Regular Certificates becoming wholly worthless. Although the
matter is not free from doubt, non-corporate holders of Regular Certificates
should be allowed a bad debt deduction at such time as the principal balance of
any class or subclass of such Regular Certificates is reduced to reflect losses
resulting from any liquidated mortgage loans. The Service, however, could take
the position that non-corporate holders will be allowed a bad debt deduction to
reflect such losses only after all mortgage loans remaining in the Trust Fund
55
have been liquidated or such class of Regular Certificates has been otherwise
retired. The Service could also assert that losses on the Regular Certificates
are deductible based on some other method that may defer such deductions for
all holders, such as reducing future cash flow for purposes of computing
original issue discount. This may have the effect of creating "negative"
original issue discount which would be deductible only against future positive
original issue discount or otherwise upon termination of the class. Holders of
Regular Certificates are urged to consult their own tax advisors regarding the
appropriate timing, amount and character of any loss sustained with respect to
such Regular Certificates. While losses attributable to interest previously
reported as income should be deductible as ordinary losses by both corporate
and non-corporate holders the Service may take the position that losses
attributable to accrued original issue discount may only be deducted as capital
losses in the case of non-corporate holders who do not hold Regular
Certificates in connection with a trade or business. 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 Regular Certificates.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will
be includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("Residual Certificateholders"), and
will not be taxed separately to the REMIC Pool. The daily portions of REMIC
taxable income or net loss of a Residual Certificateholder are determined by
allocating the REMIC Pool's taxable income or net loss for each calendar
quarter ratably to each day in such quarter and by allocating such daily
portion among the Residual Certificateholders in proportion to their respective
holdings of Residual Certificates in the REMIC Pool on such day. 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 Pool'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 issue premium on Regular Certificates, plus income
on reinvestment of cash flows and reserve assets, plus any cancellation of
indebtedness income upon allocation of realized losses to the Regular
Certificates. The REMIC Pool's deductions include interest and original issue
discount expense on the Regular Certificates, servicing fees on the mortgage
loans, other administrative expenses of the REMIC Pool and realized losses on
the mortgage loans. The requirement that Residual Certificateholders report
their pro rata share of taxable income or net loss of the REMIC Pool will
continue until there are no certificates of any class of the related series
outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount or market
discount income or amortization of premium with respect to the mortgage loans,
on the one hand, and the timing of deductions for interest (including original
issue discount) or income from amortization of issue premium on the Regular
Certificates, on the other hand. In the event that an interest in the mortgage
loans is acquired by the REMIC Pool at a discount, and one or more of such
mortgage loans is prepaid, the Residual Certificateholder may recognize taxable
income without being entitled to receive a corresponding amount of cash because
(i) the prepayment may be used in whole or in part to make distributions in
reduction of principal on the Regular Certificates and (ii) the discount on the
mortgage loans which is includible in income may exceed the deduction allowed
upon such distributions on those Regular Certificates on account of any
unaccrued original issue discount relating to those Regular Certificates. When
there is more than one class of Regular Certificates that distribute principal
sequentially, this mismatching of income and deductions is particularly likely
to occur in the early years following issuance of the Regular Certificates when
distributions in reduction of principal are being made in respect of earlier
classes of Regular Certificates to the extent that such classes are not issued
with substantial discount or are issued at a premium. If taxable income
attributable to such a mismatching is
56
realized, in general, losses would be allowed in later years as distributions
on the later classes of Regular Certificates are made. Taxable income may also
be greater in earlier years than in later years as a result of the fact that
interest expense deductions, expressed as a percentage of the outstanding
principal amount of such a series of Regular Certificates, may increase over
time as distributions in reduction of principal are made on the lower yielding
classes of Regular Certificates, whereas to the extent that the REMIC Pool
includes fixed rate mortgage loans, interest income with respect to any given
mortgage loan will remain constant over time as a percentage of the outstanding
principal amount of that loan. Consequently, Residual Certificateholders must
have sufficient other sources of cash to pay any federal, state or local income
taxes due as a result of such mismatching or unrelated deductions against which
to offset such income, subject to the discussion of "excess inclusions" below
under "-- Limitations on Offset or Exemption of REMIC Income." The timing of
such mismatching of income and deductions described in this paragraph, if
present with respect to a series of certificates, may have a significant
adverse effect upon the Residual Certificateholder's after-tax rate of return.
In addition, a Residual Certificateholder's taxable income during certain
periods may exceed the income reflected by such Residual Certificateholder for
such periods in accordance with generally accepted accounting principles.
Investors should consult their own accountants concerning the accounting
treatment of their investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into
account by the Residual Certificateholder is limited to the adjusted basis of
the Residual Certificate as of the close of the quarter (or time of disposition
of the Residual Certificate if earlier), determined without taking into account
the net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
Pool reportable by the Residual Certificateholder and will be decreased (but
not below zero), first, by a cash distribution from the REMIC Pool and, second,
by the amount of loss of the REMIC Pool reportable by the Residual
Certificateholder. Any loss that is disallowed on account of this limitation
may be carried over indefinitely with respect to the Residual Certificateholder
as to whom such loss was disallowed and may be used by such Residual
Certificateholder only to offset any income generated by the same REMIC Pool.
A Residual Certificateholder will not be permitted to amortize directly
the cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, that taxable income will not include
cash received by the REMIC Pool that represents a recovery of the REMIC Pool's
basis in its assets. Such recovery of basis by the REMIC Pool will have the
effect of amortization of the issue price of the Residual Certificates over
their life. However, in view of the possible acceleration of the income of
Residual Certificateholders described above under "-- Taxation of REMIC
Income", the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. Regulations have been proposed addressing
the federal income tax treatment of "inducement fees" received by transferees
of non-economic Residual Certificates. The proposed regulations would require
inducement fees to be included in income over a period reasonably related to
the period in which the related Residual Certificate is expected to generate
taxable income or net loss to its holder. Under two proposed safe harbor
methods, inducement fees would be permitted to be included in income (i) in the
same amounts and over the same period that the taxpayer uses for financial
reporting purposes, provided that such period is not shorter than the period
the related REMIC is expected to generate taxable income or (ii) ratably over
the remaining anticipated weighted average life of all the regular and residual
interests issued by the related REMIC, determined based on actual distributions
projected as remaining to be made on such interests under the Prepayment
Assumption. If the holder of a non-economic Residual Certificate sells or
otherwise disposes of the non-economic Residual Certificate, any unrecognized
portion of the inducement fee would be required to be taken into account at the
time of the sale or disposition.
57
If these rules are adopted without change, they will apply to taxable
years ending on or after the date that they are published as final regulations,
and consequently these rules may govern the treatment of any inducement fee
received in connection with the purchase of the Residual Certificates. Holders
of Residual Certificates should consult with their tax advisors regarding the
effect of these proposed regulations.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater that the corresponding portion of the REMIC Pool's basis in the
mortgage loans, the Residual Certificateholder will not recover a portion of
such basis until termination of the REMIC Pool unless future Treasury
regulations provide for periodic adjustments to the REMIC income otherwise
reportable by such holder. The REMIC Regulations currently in effect do not so
provide. See "-- Treatment of Certain Items of REMIC Income and Expense --
Market Discount" below regarding the basis of mortgage loans to the REMIC Pool
and "-- Sale or Exchange of a Residual Certificate" below regarding possible
treatment of a loss upon termination of the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Seller intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Seller makes no representation as to the
specific method that the Trustee will use for reporting income with respect to
the mortgage loans and expenses with respect to the Regular Certificates, and
different methods could result in different timing of reporting of taxable
income or net loss to Residual Certificateholders or differences in capital
gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount will be determined in the same manner as
original issue discount income on Regular Certificates as described above under
"-- Taxation of Regular Certificates -- Original Issue Discount" and "--
Variable Rate Regular Certificates", without regard to the de minimis rule
described in those sections, and "-- Taxation of Regular Certificates --
Premium" above.
Market Discount. The REMIC Pool will have market discount income in
respect of mortgage loans if, in general, the basis of the REMIC Pool allocable
to such mortgage loans is exceeded by their unpaid principal balances. The
REMIC Pool's basis in such mortgage loans is generally the fair market value of
the mortgage loans immediately after their transfer to the REMIC Pool. The
REMIC Regulations provide that such basis is equal in the aggregate to the
issue prices of all regular and residual interests in the REMIC Pool (or their
fair market value at the Closing Date, in the case of a retained class). In
respect of mortgage loans that have market discount to which Code Section 1276
applies, the accrued portion of such market discount would be recognized
currently as an item of ordinary income in a manner similar to original issue
discount. Market discount income generally will accrue on a constant yield
method.
Premium. Generally, if the basis of the REMIC Pool in the mortgage loans
exceeds their unpaid principal balances, the REMIC Pool will be considered to
have acquired such mortgage loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in mortgage loans is the fair
market value of the mortgage loans, based on the aggregate of the issue prices
(or the fair market value of retained classes) of the regular and residual
interests in the REMIC Pool immediately after their transfer to the REMIC Pool.
In a manner analogous to the discussion above under "--Taxation of Regular
Certificates -- Premium," a REMIC Pool that holds a mortgage loan as a capital
asset under Code Section 1221 may elect under Code Section 171 to amortize
premium on whole mortgage loans under the constant yield method. Amortizable
bond premium will be treated as an offset to interest income on the mortgage
loans, rather than as a separate deduction item. To the extent that the
mortgagors with respect to the mortgage loans are individuals, Code Section 171
will not be available for premium on mortgage loans originated on or prior to
September 27, 1985. Premium with respect to such mortgage loans may be
deductible in accordance with a reasonable method regularly employed by the
holder of the mortgage loan. The allocation of such premium pro rata among
principal payments should be considered a reasonable method; however, the
Service may argue that such premium should be allocated in a different manner,
such as allocating such premium entirely to the final payment of principal.
58
Limitations on Offset or Exemption of REMIC Income
A portion or all of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Certificateholder will be subject to
special treatment. That portion, referred to as the "excess inclusion," is
equal to the excess of REMIC taxable income for the calendar quarter allocable
to a Residual Certificate over the daily accruals for such quarterly period of
(i) 120% of the long-term applicable Federal rate that would have applied to
the Residual Certificate (if it were a debt instrument) on the Startup Day
under Code Section 1274(d), multiplied by (ii) the adjusted issue price of such
Residual Certificate at the beginning of such quarterly period. For this
purpose, the adjusted issue price of a Residual Certificate at the beginning of
a quarter is the issue price of the Residual Certificate, plus the amount of
such daily accruals of REMIC income described in this paragraph for all prior
quarters, decreased by any distributions made with respect to such Residual
Certificate prior to the beginning of such quarterly period. Accordingly, the
portion of the REMIC Pool's taxable income that will be treated as excess
inclusions will be a larger portion of such income as the adjusted issue price
of the Residual Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the excess inclusions generally may not be offset by other
deductions, including net operating loss carryforwards, on such Residual
Certificateholder's return. However, net operating loss carryovers are
determined without regard to excess inclusion income. Further, if the Residual
Certificateholder is an organization subject to the tax on unrelated business
income imposed by Code Section 511, the Residual Certificateholder's excess
inclusions will be treated as unrelated business taxable income of such
Residual Certificateholder for purposes of Code Section 511. In addition, REMIC
taxable income is subject to 30% withholding tax with respect to certain
persons who are not U.S. Persons (as defined below under "-- Tax-Related
Restrictions on Transfer of Residual Certificates -- Foreign Investors"), and
that portion attributable to excess inclusions is not eligible for any
reduction in the rate of withholding tax (by treaty or otherwise). See "--
Taxation of Certain Foreign Investors -- Residual Certificates" below. Finally,
if a real estate investment trust or a regulated investment company owns a
Residual Certificate, a portion (allocated under Treasury regulations yet to be
issued) of dividends paid by the real estate investment trust or a regulated
investment company could not be offset by net operating losses of its
shareholders, would constitute unrelated business taxable income for tax-exempt
shareholders, and would be ineligible for reduction of withholding to certain
persons who are not U.S. Persons.
In addition, the Code provides three rules for determining the effect of
excess inclusions on the alternative minimum taxable income of a Residual
Holder. First, alternative minimum taxable income for a Residual Holder is
determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum
tax net operating loss deduction must be computed without regard to any excess
inclusions.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
Federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such a tax generally would be imposed on the transferor of
the Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a Disqualified Organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
59
affidavit is false. The tax also may be waived by the Treasury Department if
the Disqualified Organization promptly disposes of the residual interest and
the transferor pays income tax at the highest corporate rate on the excess
inclusions for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
corporate income tax rate. Such tax would be deductible from the ordinary gross
income of the Pass-Through Entity for the taxable year. The Pass-Through Entity
would not be liable for such tax if it has received an affidavit from such
record holder that it is not a Disqualified Organization or stating such
holder's taxpayer identification number and, during the period such person is
the record holder of the Residual Certificate, the Pass-Through Entity does not
have actual knowledge that such affidavit is false.
If an "electing large partnership" holds a Residual Certificate, all
interests in the electing large partnership are treated as held by Disqualified
Organizations for purposes of the tax imposed upon a Pass-Through Entity by
Section 860E(c) of the Code. An exception to this tax, otherwise available to a
Pass-Through Entity that is furnished certain affidavits by record holders of
interests in the entity and that does not know such affidavits are false, is
not available to an electing large partnership.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision of the United States, any foreign
government, any international organization, any agency or instrumentality of
any of the foregoing (provided, that such term does not include an
instrumentality if all of its activities are subject to tax and a majority of
its board of directors is not selected by any such governmental entity), any
cooperative organization furnishing electric energy or providing telephone
service to persons in rural areas as described in Code Section 1381(a)(2)(C),
and any organization (other than a farmers' cooperative described in Code
Section 521) that is exempt from taxation under the Code unless such
organization is subject to the tax on unrelated business income imposed by Code
Section 511, (ii) "Pass-Through Entity" means any regulated investment company,
real estate investment trust, common trust fund, partnership, trust or estate
and certain corporations operating on a cooperative basis. Except as may be
provided in Treasury regulations, 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 and (iii) an "electing large
partnership" means any partnership having more than 100 members during the
preceding tax year (other than certain service partnerships and commodity
pools), which elect to apply simplified reporting provisions under the Code.
The Agreement with respect to a series of certificates will provide that
no legal or beneficial interest in a Residual Certificate may be transferred
unless (i) the proposed transferee provides to the transferor and the Trustee
an affidavit providing its taxpayer identification number and stating that such
transferee is the beneficial owner of the Residual Certificate, is not a
Disqualified Organization and is not purchasing such Residual Certificates on
behalf of a Disqualified Organization (i.e., as a broker, nominee or middleman
of a Disqualified Organization), and (ii) the transferor provides a statement
in writing to the Seller and the Trustee that it has no actual knowledge that
such affidavit is false. Moreover, the Agreement will provide that any
attempted or purported transfer in violation of these transfer restrictions
will be null and void and will vest no rights in any purported transferee. Each
Residual Certificate with respect to a series will bear a legend referring to
such restrictions on transfer, and each Residual Certificateholder will be
deemed to have agreed, as a condition of ownership, to any amendments to the
related Agreement required under the Code or applicable Treasury regulations to
effectuate the foregoing restrictions. Information necessary to compute an
applicable excise tax must be furnished to the Service and to the requesting
party within 60 days of the request, and the Seller or the Trustee may charge a
fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the
60
Residual Certificates and thus would continue to be subject to tax on its
allocable portion of the net income of the REMIC Pool. Under the REMIC
Regulations, a transfer of a "noneconomic residual interest" (as defined below)
to a Residual Certificateholder (other than a Residual Certificateholder who is
not a U.S. Person, as defined below under "-- Taxation of Certain Foreign
Investors") is disregarded for all federal income tax purposes if a significant
purpose of the transferor is to impede the assessment or collection of tax. A
residual interest in a REMIC (including a residual interest with a positive
value at issuance) is a "noneconomic residual interest" unless, at the time of
the transfer, (i) the present value of the expected future distributions on the
residual interest 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. The
anticipated excess inclusions and the present value rate are determined in the
same manner as set forth above under "Disqualified Organizations." The REMIC
Regulations explain that 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 safe harbor is
provided if (i) the transferor conducted, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and found
that the transferee historically had paid its debts as they came due and found
no significant evidence to indicate that the transferee would not continue to
pay its debts as they came due in the future, and (ii) the transferee
represents to the transferor that it understands that, as the holder of the
noneconomic residual interest, the transferee may incur tax liabilities in
excess of cash flows generated by the interest and that the transferee intends
to pay taxes associated with holding the residual interest as they become due,
(iii) the transferee acknowledges to the transferor that it will not cause
income from the noneconomic residual interest to be attributable to a foreign
permanent establishment or fixed base, within the meaning of an applicable
income tax treaty, of such transferee or any other U.S. Person and (iv) the
transfer satisfies one of the following two tests:
(A) the present value of the anticipated tax liabilities associated
with holding the noneconomic residual interest does not exceed the
present value of the sum of: (1) any consideration given to the
transferee to acquire the interest (the inducement payment), (2) future
distributions on the interest, and (3) any anticipated tax savings
associated with holding the interest as the REMIC generates losses. For
purposes of this calculation, the present value is calculated using a
discount rate equal to the lesser of the short-term federal rate and the
compounding period of the transferee, or
(B) the transferee is a domestic taxable corporations with large
amounts of gross and net assets where agreement is made that all future
transfers will be to taxable domestic corporations in transactions that
qualify for one of the safe harbor provisions. Eligibility for this
prong of the safe harbor requires, among other things, that the facts
and circumstances known to the transferor at the time of transfer not
indicate to a reasonable person that the taxes with respect to the
noneconomic residual interest will not be paid, with an unreasonably
low cost for the transfer specifically mentioned as negating
eligibility.
The Agreement with respect to each series of certificates will require the
transferee of a Residual Certificate to certify to the matters in (i) through
(iii), but not (iv) above as part of the affidavit described above under "--
Disqualified Organizations". The transferor must have no actual knowledge or
reason to know that any such statements are false.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless
such transferee's income is effectively connected with the conduct of a trade
or business within the United States. A Residual Certificate is deemed to have
tax avoidance potential unless, at the time of the transfer, (i) the future
value of expected distributions equals at least 30% of the anticipated excess
inclusions after the transfer, and (ii) the transferor reasonably expects that
the transferee will receive sufficient distributions from the REMIC Pool at or
after the time at which the excess inclusions accrue and
61
prior to the end of the next succeeding taxable year for the accumulated
withholding tax liability to be paid. If the non-U.S. Person transfers the
Residual Certificate back to a U.S. Person, the transfer will be disregarded
and the foreign transferor will continue to be treated as the owner unless
arrangements are made so that the transfer does not have the effect of allowing
the transferor to avoid tax on accrued excess inclusions.
The prospectus supplement relating to a series of certificates may provide
that a Residual Certificate may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership (except to the extent provided in applicable Treasury regulations)
or other entity created or organized in or under the laws of the United States
or any political subdivision of the United States, an estate that is subject to
U.S. federal income tax regardless of the source of its income, or a trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust, and one or more such U.S. Persons have the
authority to control all substantial decisions of such trust (or, to the extent
provided in applicable Treasury regulations, certain trusts in existence on
August 20, 1996 which are eligible to elect to be treated as U.S. Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under "--
Taxation of Residual Certificates -- Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any cash
distribution to it from the REMIC Pool exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, if the Residual
Certificateholder has an adjusted basis in such Residual Certificateholder's
Residual Certificate remaining when its interest in the REMIC Pool terminates,
and if such Residual Certificateholder holds such Residual Certificate as a
capital asset under Code Section 1221, then such Residual Certificateholder
will recognize a capital loss at that time in the amount of such remaining
adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii) in
the case of a non-corporate taxpayer, to the extent such taxpayer has made an
election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
Mark-to-Market Regulations
Regulations under Code Section 475 require that a securities dealer mark
to market securities held for sale to customers. This mark-to-market
requirement applies to all securities of a dealer, except to the extent that
the dealer has specifically identified a security as held for investment.
Treasury regulations
62
provide that, for purposes of this mark-to-market requirement, a Residual
Certificate is not treated as a security and thus may not be marked to market.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Certificateholders, but rather
will be taxed directly to the REMIC Pool at a 100% rate. Prohibited
transactions generally include (i) the disposition of a qualified mortgage
other than for (a) substitution within two years of the Startup Day for a
defective (including a defaulted) obligation (or repurchase in lieu of
substitution of a defective (including a defaulted) obligation at any time) or
for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) a qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding clauses (i) and (iv) above, it is not a prohibited
transaction to sell REMIC Pool property to prevent a default on Regular
Certificates as a result of a default on qualified mortgages or to facilitate a
clean-up call (generally, an optional termination to save administrative costs
when no more than a small percentage of the certificates is outstanding). The
REMIC Regulations indicate that the modification of a mortgage loan generally
will not be treated as a disposition if it is occasioned by a default or
reasonably foreseeable default, an assumption of the mortgage loan, the waiver
of a due-on-sale or due-on-encumbrance clause or the conversion of an interest
rate by a mortgagor pursuant to the terms of a convertible adjustable rate
mortgage loan.
Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during the
three months following the Startup Day, (ii) made to a qualified reserve fund
by a Residual Certificateholder, (iii) in the nature of a guarantee, (iv) made
to facilitate a qualified liquidation or clean-up call and (v) as otherwise
permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property
The REMIC Pool will 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. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period not exceeding the close of the third
calendar year beginning after the year in which the REMIC Pool acquired such
property, with a possible extension. Net income from foreclosure property
generally means gain from the sale of a foreclosure property that is inventory
property and gross income from foreclosure property other than qualifying rents
and other qualifying income for a real estate investment trust.
It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable prospectus supplement with respect to net income
from foreclosure property on a commercial or multifamily residential property
that secured a mortgage loan. In addition, it is not anticipated that any
material state income or franchise tax will be imposed on a REMIC Pool.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool 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 Pool'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
beginning on the date of the adoption of the plan of liquidation, the REMIC
Pool will not be subject
63
to the prohibited transaction rules on the sale of its assets, provided that
the REMIC Pool credits or distributes in liquidation all of the sale proceeds
plus its cash (other than amounts retained to meet claims) to holders of
Regular Certificates and Residual Certificateholders within the 90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes in
a manner similar to a partnership. The form for such income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return.
The Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool will be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination by the Service of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction or credit in a unified
administrative proceeding. The Residual Certificateholder owning the largest
percentage interest in the Residual Certificates will be obligated to act as
"tax matters person", as defined in applicable Treasury regulations, with
respect to the REMIC Pool. Each Residual Certificateholder will be deemed, by
acceptance of such Residual Certificates, to have agreed (i) to the appointment
of the tax matters person as provided in the preceding sentence and (ii) to the
irrevocable designation of the Trustee as agent for performing the functions of
the tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer will be reduced by the lesser of (i) 3% of the
excess, if any, of adjusted gross income over a threshold amount adjusted
annually for inflation or (ii) 80% of the amount of itemized deductions
otherwise allowable for that year. In the case of a REMIC Pool, such deductions
may include deductions under Code Section 212 for the Servicing Fee and all
administrative and other expenses relating to the REMIC Pool or any similar
expenses allocated to the REMIC Pool with respect to a regular interest it
holds in another REMIC. Such investors who hold REMIC Certificates either
directly or indirectly through certain pass-through entities may have their pro
rata share of such expenses allocated to them as additional gross income, but
may be subject to such limitation on deductions. In addition, such expenses are
not deductible at all for purposes of computing the alternative minimum tax,
and may cause such investors to be subject to significant additional tax
liability. Temporary Treasury regulations provide that the additional gross
income and corresponding amount of expenses generally are to be allocated
entirely to the holders of Residual Certificates in the case of a REMIC Pool
that would not qualify as a fixed investment trust in the absence of a REMIC
election. However, such additional gross income and limitation on deductions
will apply to the allocable portion of such expenses to holders of Regular
Certificates, as well as holders of Residual Certificates, where such Regular
Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Certificateholder's income,
determined on a daily basis, bears to the income of all holders of Regular
Certificates and Residual Certificates with respect to a REMIC Pool. As a
result, individuals, estates or trusts holding REMIC Certificates (either
directly or indirectly through a grantor trust, partnership, S corporation,
REMIC, or certain other pass-through entities described in the foregoing
temporary Treasury regulations) may have taxable income in excess of the
interest income at the pass-through rate on Regular Certificates that are
issued in a single class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on Residual
Certificates. All such expenses will be allocable to the Residual Certificates
or as otherwise indicated in the prospectus supplement.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S Persons (as defined below), will be
64
considered "portfolio interest" and, therefore, generally will not be subject
to 30% United States withholding tax, provided that such Non-U.S. Person (i) is
not a "10-percent shareholder" (within the meaning of Code Section
871(h)(3)(B)) of, or a controlled foreign corporation (described in Code
Section 881(c)(3)(C)) related to, the REMIC (or possibly one or more
mortgagors) and (ii) provides the Trustee, or the person who would otherwise be
required to withhold tax from such distributions under Code Section 1441 or
1442, with an appropriate statement, signed under penalties of perjury,
identifying the beneficial owner and stating, among other things, that the
beneficial owner of the Regular Certificate is a Non-U.S. Person. If such
statement, or any other required statement, is not provided, 30% withholding
will apply unless reduced or eliminated pursuant to an applicable tax treaty or
unless the interest on the Regular Certificate is effectively connected with
the conduct of a trade or business within the United States by such Non-U.S.
Person. In the latter case, such Non-U.S. Person will be subject to United
States federal income tax at regular rates. Investors who are Non-U.S. Persons
should consult their own tax advisors regarding the specific tax consequences
to them of owning a Regular Certificate. The term "Non-U.S. Person" means any
person who is not a U.S. Person.
Treasury regulations that were effective January 1, 2001 provide revised
methods of satisfying the beneficial ownership certification requirement
described above. These regulations require, in the case of Regular Certificates
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors concerning
the application of the certification requirements in these regulations.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts
paid to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to the
conditions described in "Regular Certificates" above, but only to the extent
that (i) the mortgage loans were issued after July 18, 1984 and (ii) the Trust
Fund or segregated pool of assets in that Trust Fund (as to which a separate
REMIC election will be made), to which the Residual Certificate relates,
consists of obligations issued in "registered form" within the meaning of Code
Section 163(f)(1). Generally, whole mortgage loans will not be considered
obligations issued in registered form. Furthermore, a Residual
Certificateholder will not be entitled to any exemption from the 30%
withholding tax (or lower treaty rate) to the extent of that portion of REMIC
taxable income that constitutes an "excess inclusion". See "-- Taxation of
Residual Certificates -- Limitations on Offset or Exemption of REMIC Income."
If the amounts paid to Residual Certificateholders who are Non-U.S. Persons are
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Persons, 30% (or lower treaty rate) withholding will
not apply. Instead, the amounts paid to such Non-U.S. Persons will be subject
to United States federal income tax at regular rates. If 30% (or lower treaty
rate) withholding is applicable, such amounts generally will be taken into
account for purposes of withholding only when paid or otherwise distributed (or
when the Residual Certificate is disposed of) under rules similar to
withholding upon disposition of debt instruments that have original issue
discount. See "-- Tax-Related Restrictions on Transfer of Residual Certificates
- -- Foreign Investors" above concerning the disregard of certain transfers
having "tax avoidance potential." Investors who are Non-U.S. Persons should
consult their own tax advisors regarding the specific tax consequences to them
of owning Residual Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 at the rate of 28% (increasing
to 31% after 2010) on "reportable payments" (including interest distributions,
original issue discount, and, under certain circumstances, principal
distributions) unless the Regular Certificateholder complies with certain
reporting and/or certification procedures, including the provision of its
taxpayer identification number to the Trustee, its agent or the broker who
effected the sale of the Regular Certificate, or such Certificateholder is
otherwise an exempt recipient
65
under applicable provisions of the Code. Any amounts to be withheld from
distribution on the Regular Certificates would be refunded by the Service or
allowed as a credit against the Regular Certificateholder's federal income tax
liability. Non-U.S. Persons are urged to contact their own tax advisors
regarding the application to them of backup withholding and information
reporting.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the Service and to individuals, estates,
non-exempt and non-charitable trusts, and partnerships who are either holders
of record of Regular Certificates or beneficial owners who own Regular
Certificates through a broker or middleman as nominee. All brokers, nominees
and all other non-exempt holders of record of Regular Certificates (including
corporations, non-calendar year taxpayers, securities or commodities dealers,
real estate investment trusts, investment companies, common trust funds, thrift
institutions and charitable trusts) may request such information for any
calendar quarter by telephone or in writing by contacting the person designated
in Service Publication 938 with respect to a particular series of Regular
Certificates. Holders through nominees must request such information from the
nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly Notice
to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool to
each Residual Certificateholder by the end of the month following the close of
each calendar quarter (41 days after the end of a quarter under proposed
Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "--Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the Service concerning
the percentage of the REMIC Pool's assets meeting the qualified asset tests
described above under "-- Status of REMIC Certificates."
FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES
AS TO WHICH NO REMIC ELECTION IS MADE
STANDARD CERTIFICATES
General
In the event that the applicable Agreement provides that no election is
made to treat a Trust Fund (or a segregated pool of assets in that Trust Fund)
with respect to a series of Certificates that are not designated as "Stripped
Certificates", as described below, as a REMIC (Certificates of such a series
shall be referred to as "Standard Certificates"), in the opinion of Cadwalader,
Wickersham & Taft LLP, the Trust Fund will be classified as a grantor trust
under subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i).
Where there is no retention of a portion of the interest payments with
respect to the mortgage loans underlying the Standard Certificates, the holder
of each such Standard Certificate (a "Standard Certificateholder") in such
series will be treated as the owner of a pro rata undivided interest in the
ordinary income and corpus portions of the Trust Fund represented by its
Standard Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the mortgage loans, subject to the discussion
below under "-- Recharacterization of Servicing Fees." Accordingly, the holder
of a Standard Certificate of a particular series will be required to report on
its federal income tax return its pro rata share of the entire income from the
mortgage loans represented by its Standard Certificate, including interest at
the coupon rate on such mortgage loans, original issue discount (if any),
Prepayment
66
Premiums, assumption fees, and late payment charges received by the Master
Servicer, in accordance with such Standard Certificateholder's method of
accounting. A Standard Certificateholder generally will be able to deduct its
share of the Servicing Fee and all administrative and other expenses of the
Trust Fund in accordance with its method of accounting, provided that such
amounts are reasonable compensation for services rendered to that Trust Fund.
However, investors who are individuals, estates or trusts who own Standard
Certificates, either directly or indirectly through certain pass-through
entities, will be subject to limitation with respect to certain itemized
deductions described in Code Section 67, including deductions under Code
Section 212 for the Servicing Fee and all such administrative and other
expenses of the Trust Fund, to the extent that such deductions, in the
aggregate, do not exceed two percent of an investor's adjusted gross income. In
addition, Code Section 68 provides that itemized deductions otherwise allowable
for a taxable year of an individual taxpayer will be reduced by the lesser of
(i) 3% of the excess, if any, of adjusted gross income over a threshold amount
adjusted annually for inflation, or (ii) 80% of the amount of itemized
deductions otherwise allowable for that year. As a result, such investors
holding Standard Certificates, directly or indirectly through a pass-through
entity, may have aggregate taxable income in excess of the aggregate amount of
cash received on such Standard Certificates with respect to interest at the
pass-through rate on such Standard Certificates. In addition, such expenses are
not deductible at all for purposes of computing the alternative minimum tax,
and may cause such investors to be subject to significant additional tax
liability. Moreover, where there is fixed retained yield with respect to the
mortgage loans underlying a series of Standard Certificates or where the
Servicing Fee is in excess of reasonable servicing compensation, the
transaction will be subject to the application of the "stripped bond" and
"stripped coupon" rules of the Code, as described below under "-- Stripped
Certificates" and "-- Recharacterization of Servicing Fees," respectively.
Tax Status
In the opinion of Cadwalader, Wickersham & Taft LLP, Standard Certificates
will have the following status for federal income tax purposes:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans secured by an interest in real property"
within the meaning of Code Section 7701(a)(19)(C)(v), provided that the
real property securing the mortgage loans represented by that Standard
Certificate is of the type described in such section of the Code.
2. A Standard Certificate owned by a real estate investment trust
will be considered to represent "real estate assets" within the meaning
of Code Section 856(c)(5)(B) to the extent that the assets of the
related Trust Fund consist of qualified assets, and interest income on
such assets will be considered "interest on obligations secured by
mortgages on real property" to such extent within the meaning of Code
Section 856(c)(3)(B).
3. A Standard Certificate owned by a REMIC will be considered to
represent an "obligation . . . which is principally secured by an
interest in real property" within the meaning of Code Section
860G(a)(3)(A) to the extent that the assets of the related Trust Fund
consist of "qualified mortgages" within the meaning of Code Section
860G(a)(3).
4. A certificate owned by a "financial asset securitization
investment trust" within the meaning of Code Section 860L(c) will be
considered to represent "permitted assets" within the meaning of Code
Section 860L(c) to the extent that the assets of the trust estate
consist of "debt instruments" or other permitted assets within the
meaning of Code Section 860L(c).
Premium and Discount
Standard Certificateholders are advised to consult with their tax advisors
as to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Certificate will be determined generally as described above under "-- Federal
Income Tax Consequences for REMIC Certificates -- Taxation of Residual
Certificates -- Premium."
67
Original Issue Discount. The original issue discount rules will be
applicable to a Standard Certificateholder's interest in those mortgage loans
as to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount 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 mortgages in an amount greater than a statutory de
minimis exception, including a payment of points currently deductible by the
borrower under applicable Code provisions or, under certain circumstances, by
the presence of "teaser rates" on the mortgage loans.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest, in advance of the cash attributable to such
income. It is anticipated that no prepayment assumption will be assumed for
purposes of such accrual. However, Code Section 1272 provides for a reduction
in the amount of original issue discount includible in the income of a holder
of an obligation that acquires the obligation 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 loans acquired by a Standard Certificateholder are purchased
at a price equal to the then unpaid principal amount of such mortgage loans, no
original issue discount attributable to the difference between the issue price
and the original principal amount of such mortgage loans (i.e., points) will be
includible by such holder.
Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the mortgage loans will be
determined and will be reported as ordinary income generally in the manner
described above under "-- Federal Income Tax Consequences for REMIC
Certificates -- Taxation of Regular Certificates -- Market Discount," except
that the ratable accrual methods described in that section will not apply.
Rather, the holder will accrue market discount pro rata over the life of the
mortgage loans, unless the constant yield method is elected. It is anticipated
that no prepayment assumption will be assumed for purposes of such accrual.
Recharacterization of Servicing Fees
If the Servicing Fee paid to the Master Servicer were deemed to exceed
reasonable servicing compensation, the amount of such excess would represent
neither income nor a deduction to Certificateholders. In this regard, there are
no authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Standard Certificate, the reasonableness of servicing compensation should be
determined on a weighted average or loan-by-loan basis. If a loan-by-loan basis
is appropriate, the likelihood that such amount would exceed reasonable
servicing compensation as to some of the mortgage loans would be increased.
Service guidance indicates that a servicing fee in excess of reasonable
compensation ("excess servicing") will cause the mortgage loans to be treated
under the "stripped bond" rules. Such guidance provides safe harbors for
servicing deemed to be reasonable and requires taxpayers to demonstrate that
the value of servicing fees in excess of such amounts is not greater than the
value of the services provided.
Accordingly, if the Service's approach is upheld, a servicer who receives
a servicing fee in excess of such amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the mortgage loans.
Under the rules of Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from the right
to receive some or all of the principal payments on the obligation would result
in treatment of such mortgage loans as "stripped coupons" and "stripped bonds".
Subject to the de minimis rule discussed below under "-- Stripped
Certificates," each stripped bond or stripped coupon could be considered for
this purpose as a non-interest bearing obligation issued on the date of issue
of the Standard Certificates, and the original issue discount rules of the Code
would apply to the Stripped Certificateholder. While Standard
Certificateholders would still be treated as owners of beneficial interests in
a grantor trust for federal income tax purposes, the corpus of such trust could
be viewed as excluding the portion of the mortgage loans the ownership of which
is attributed to the Master Servicer, or as including such portion as a
68
second class of equitable interest. Applicable Treasury regulations treat such
an arrangement as a fixed investment trust, since the multiple classes of trust
interests should be treated as merely facilitating direct investments in the
trust assets and the existence of multiple classes of ownership interests is
incidental to that purpose. In general, such a recharacterization should not
have any significant effect upon the timing or amount of income reported by a
Standard Certificateholder, except that the income reported by a cash method
holder may be slightly accelerated. See "-- Stripped Certificates" below for a
further description of the federal income tax treatment of stripped bonds and
stripped coupons.
Sale or Exchange of Standard Certificates
Upon sale or exchange of a Standard Certificate, a Standard
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its aggregate adjusted basis in the
mortgage loans and the other assets represented by the Standard Certificate. In
general, the aggregate adjusted basis will equal the Standard
Certificateholder's cost for the Standard Certificate, increased by the amount
of any income previously reported with respect to the Standard Certificate and
decreased by the amount of any losses previously reported with respect to the
Standard Certificate and the amount of any distributions received thereon.
Except as provided above with respect to market discount on any mortgage loans,
and except for certain financial institutions subject to the provisions of Code
Section 582(c), any such gain or loss would be capital gain or loss if the
Standard Certificate was held as a capital asset. However, gain on the sale of
a Standard Certificate will be treated as ordinary income (i) if a Standard
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
Standard Certificateholder's net investment in the conversion transaction at
120% of the appropriate applicable Federal rate in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as a part of such transaction or (ii) in the case of a non-corporate taxpayer,
to the extent such taxpayer has made an election under Code Section 163(d)(4)
to have net capital gains taxed as investment income at ordinary income rates.
Long-term capital gains of certain non-corporate taxpayers generally are
subject to a lower maximum tax rate than ordinary income or short-term capital
gains of such taxpayers for property held for more than one year. The maximum
tax rate for corporations is the same with respect to both ordinary income and
capital gains.
Investors that recognize a loss on a sale or exchange of the Standard
Certificates for federal income tax purposes in excess of certain threshold
amounts should consult their tax advisors as to the need to file IRS Form 8886
(disclosing certain potential tax shelters) on their federal income tax
returns.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
certificates that are subject to those rules will be referred to as "Stripped
Certificates".
The certificates will be subject to those rules if (i) the Seller or any
of its affiliates retains (for its own account or for purposes of resale), in
the form of fixed retained yield or otherwise, an ownership interest in a
portion of the payments on the mortgage loans, (ii) the Master Servicer is
treated as having an ownership interest in the mortgage loans to the extent it
is paid (or retains) servicing compensation in an amount greater than
reasonable consideration for servicing the mortgage loans (See "-- Standard
Certificates -- Recharacterization of Servicing Fees" above) and (iii)
certificates are issued in two or more classes or subclasses representing the
right to non-pro-rata percentages of the interest and principal payments on the
mortgage loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each mortgage loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
mortgage
69
loan, including the Stripped Certificate's allocable share of the servicing
fees paid to the Master Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See discussion above under "--
Standard Certificates -- Recharacterization of Servicing Fees" above. Although
not free from doubt, for purposes of reporting to Stripped Certificateholders,
the servicing fees will be allocated to the Stripped Certificates in proportion
to the respective entitlements to distributions of each class (or subclass) of
Stripped Certificates for the related period or periods. The holder of a
Stripped Certificate generally will be entitled to a deduction each year in
respect of the servicing fees, as described above under "-- Standard
Certificates -- General," subject to the limitation described in that section.
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued at an original issue discount on the date that such stripped
interest is purchased. Although the treatment of Stripped Certificates for
federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Certificates are issued with respect to a
mortgage pool containing variable-rate mortgage loans, in the opinion of
Cadwalader, Wickersham & Taft LLP (i) the Trust Fund will be treated as a
grantor trust under subpart E, Part 1 of subchapter J of the Code and not as an
association taxable as a corporation or a "taxable mortgage pool" within the
meaning of Code Section 7701(i), and (ii) each Stripped Certificate should be
treated as a single installment obligation for purposes of calculating original
issue discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and
the OID Regulations. While under Code Section 1286 computations with respect to
Stripped Certificates arguably should be made in one of the ways described
below under "-- Taxation of Stripped Certificates -- Possible Alternative
Characterizations," the OID Regulations state, in general, that two or more
debt instruments issued by a single issuer to a single investor in a single
transaction should be treated as a single debt instrument for original issue
discount purposes. The Agreement requires that the Trustee make and report all
computations described below using this aggregate approach, unless substantial
legal authority requires otherwise.
Furthermore, Treasury regulations provide for the treatment of a Stripped
Certificate as a single debt instrument issued on the date it is purchased for
purposes of calculating any original issue discount. In addition, under these
regulations, a Stripped Certificate that represents a right to payments of both
interest and principal may be viewed either as issued with original issue
discount or market discount (as described below), at a de minimis original
issue discount, or, presumably, at a premium. This treatment suggests that the
interest component of such a Stripped Certificate would be treated as qualified
stated interest under the OID Regulations. Further, these final regulations
provide that the purchaser of such a Stripped Certificate will be required to
account for any discount as market discount rather than original issue discount
if either (i) the initial discount with respect to the Stripped Certificate was
treated as zero under the de minimis rule, or (ii) no more than 100 basis
points in excess of reasonable servicing is stripped off the related mortgage
loans. Any such market discount would be reportable as described under "--
Federal Income Tax Consequences for REMIC Certificates -- Taxation of Regular
Certificates -- Market Discount," without regard to the de minimis rule under
the Treasury regulations, assuming that a prepayment assumption is employed in
such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as
that of the mortgage loans. Although the issue is not free from doubt, in the
opinion of Cadwalader, Wickersham & Taft LLP, Stripped Certificates owned by
applicable holders should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(5)(B), "obligation[s] principally
secured by an interest in real property" within the meaning of Code Section
860G(a)(3)(A), and "loans secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v), and interest (including original
issue discount) income attributable to Stripped 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 mortgage loans and interest on such mortgage loans qualify for
such treatment. The application of such Code provisions to buy-down mortgage
loans is uncertain. See "-- Standard Certificates -- Tax Status" above.
70
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "-- General,"
each Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the 1986
Act, the amount of original issue discount required to be included in the
income of a holder of a Stripped Certificate (referred to in this discussion as
a "Stripped Certificateholder") in any taxable year likely will be computed
generally as described above under "-- Federal Income Tax Consequences for
REMIC Certificates -- Taxation of Regular Certificates -- Original Issue
Discount" and "-- Variable Rate Regular Certificates." However, with the
apparent exception of a Stripped Certificate issued with de minimis original
issue discount as described above under "--General," the issue price of a
Stripped Certificate will be the purchase price paid by each Stripped
Certificateholder, and the stated redemption price at maturity will include the
aggregate amount of the payments to be made on the Stripped Certificate to such
Stripped Certificateholder, presumably under the Prepayment Assumption.
If the mortgage loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each mortgage
loan represented by such Stripped Certificateholder's Stripped Certificate.
While the matter is not free from doubt, the holder of a Stripped Certificate
should be entitled in the year that it becomes certain (assuming no further
prepayments) that the holder will not recover a portion of its adjusted basis
in such Stripped Certificate to recognize an ordinary loss equal to such
portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the mortgage loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to prepayable securities such as
the Stripped Certificates. However, if final regulations dealing with
contingent interest with respect to the Stripped Certificates apply the same
principles as the OID Regulations, such regulations may lead to different
timing of income inclusion that would be the case under the OID Regulations.
Furthermore, application of such principles could lead to the characterization
of gain on the sale of contingent interest Stripped Certificates as ordinary
income. Investors should consult their tax advisors regarding the appropriate
tax treatment of Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "-- Federal Income Tax Consequences for REMIC Certificates --
Taxation of Regular Certificates -- Sale or Exchange of Regular Certificates."
To the extent that a subsequent purchaser's purchase price is exceeded by the
remaining payments on the Stripped Certificates, such subsequent purchaser will
be required for federal income tax purposes to accrue and report such excess as
if it were original issue discount in the manner described above. It is not
clear for this purpose whether the assumed prepayment rate that is to be used
in the case of a Stripped Certificateholder other than an original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on
the circumstances at the date of subsequent purchase.
Investors that recognize a loss on a sale or exchange of the Stripped
Certificates for federal income tax purposes in excess of certain threshold
amounts should consult their tax advisors as to the need to file IRS Form 8886
(disclosing certain potential tax shelters) on their federal income tax
returns.
71
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of the rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible interpretations
of the applicable Code provisions. For example, the Stripped Certificateholder
may be treated as the owner of (i) one installment obligation consisting of
such Stripped Certificate's pro rata share of the payments attributable to
principal on each mortgage loan and a second installment obligation consisting
of such Stripped Certificate's pro rata share of the payments attributable to
interest on each mortgage loan, (ii) as many stripped bonds or stripped coupons
as there are scheduled payments of principal and/or interest on each mortgage
loan or (iii) a separate installment obligation for each mortgage loan,
representing the Stripped Certificate's pro rata share of payments of principal
and/or interest to be made with respect thereto. Alternatively, the holder of
one or more classes of Stripped Certificates may be treated as the owner of a
pro rata fractional undivided interest in each mortgage loan to the extent that
such Stripped Certificate, or classes of Stripped Certificates in the
aggregate, represent the same pro rata portion of principal and interest on
each such mortgage loan, and a stripped bond or stripped coupon (as the case
may be), treated as an installment obligation or contingent payment obligation,
as to the remainder. Treasury regulations regarding original issue discount on
stripped obligations make the foregoing interpretations less likely to be
applicable. The preamble to these regulations states that they are premised on
the assumption that an aggregation approach is appropriate for determining
whether original issue discount on a stripped bond or stripped coupon is de
minimis, and solicits comments on appropriate rules for aggregating stripped
bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
It is anticipated that, the Trustee will furnish, within a reasonable time
after the end of each calendar year, to each Standard Certificateholder or
Stripped Certificateholder at any time during such year, such information
(prepared on the basis described above) as the Trustee deems to be necessary or
desirable to enable such Certificateholders to prepare their federal income tax
returns. Such information will include the amount of original issue discount
accrued on certificates held by persons other than Certificateholders exempted
from the reporting requirements. The amounts required to be reported by the
Trustee may not be equal to the proper amount of original issue discount
required to be reported as taxable income by a Certificateholder, other than an
original Certificateholder that purchased at the issue price. In particular, in
the case of Stripped Certificates such reporting will be based upon a
representative initial offering price of each class of Stripped Certificates or
as otherwise provided in the prospectus supplement. It is anticipated that the
Trustee will also file such original issue discount information with the
Service. If a Certificateholder fails to supply an accurate taxpayer
identification number or if the Secretary of the Treasury determines that a
Certificateholder has not reported all interest and dividend income required to
be shown on his federal income tax return, backup withholding may be required
in respect of any reportable payments, as described above under "-- Federal
Income Tax Consequences for REMIC Certificates -- Backup Withholding" above.
On June 20, 2002, the IRS published proposed regulations which will, when
effective, establish a reporting framework for interests in "widely held fixed
investment trusts" that will place the responsibility of reporting on the
person in the ownership chain who holds an interest for a beneficial owner. A
widely-held investment trust is defined as an entity classified as a "trust"
under Treasury Regulations Section 301.7701-4(c), in which any interest is held
by a middleman, which includes, but is not limited to (i) a custodian of a
person's account, (ii) a nominee and (iii) a broker holding an interest for a
customer in "street name." These regulations were proposed to be effective
beginning January 1, 2004, but such date passed and the regulations have not
been finalized. It is unclear when, or if, these regulations will become final.
72
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a certificate evidences ownership in mortgage loans
that are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-U.S. Persons generally
will be subject to 30% United States withholding tax, or such lower rate as may
be provided for interest by an applicable tax treaty. Accrued original issue
discount recognized by the Standard Certificateholder or Stripped
Certificateholder on original issue discount recognized by the Standard
Certificateholder or Stripped Certificateholders on the sale or exchange of
such a certificate also will be subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in mortgage loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under "--
Federal Income Tax Consequences for REMIC Certificates -- Taxation of Certain
Foreign Investors -- Regular Certificates."
STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in "FEDERAL
INCOME TAX CONSEQUENCES" in this prospectus, potential investors should
consider the state income tax consequences of the acquisition, ownership, and
disposition of the 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 tax laws of any state. Therefore, potential
investors should consult their own tax advisors with respect to the various
state tax consequences of an investment in the certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA ("ERISA
Plans") and prohibits certain transactions between ERISA Plans and persons who
are parties in interest (as defined under ERISA) ("parties in interest") with
respect to such Plans. The Code prohibits a similar set of transactions between
certain plans ("Code Plans," and together with ERISA Plans, "Plans") and
persons who are disqualified persons (as defined in the Code) with respect to
Code Plans.
Investments by ERISA Plans and entities the assets of which are deemed to
include plan assets are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that investments be made in accordance with the documents governing
the ERISA Plan. Before investing in a certificate, an ERISA Plan fiduciary
should consider, among other factors, whether to do so is appropriate in view
of the overall investment policy and liquidity needs of the ERISA Plan. Such
fiduciary should especially consider the sensitivity of the investments to the
rate of principal payments (including prepayments) on the mortgage loans, as
discussed in the prospectus supplement related to a series.
PROHIBITED TRANSACTIONS
Section 406 of ERISA and Section 4975 of the Code prohibit parties in
interest and disqualified persons with respect to ERISA Plans and Code Plans
from engaging in certain transactions involving such Plans and their assets
unless a statutory or administrative exemption applies to the transaction.
Section 4975 of the Code and Sections 502(i) and 502(l) of ERISA provide for
the imposition of certain excise taxes and civil penalties on certain persons
that engage or participate in such prohibited transactions. The Seller, the
Master Servicer, the Special Servicer, if any, the Trustee or certain
affiliates of the Seller, Master Servicer, Special Servicer or Trustee, might
be considered or might become parties in interest or disqualified persons with
respect to an ERISA Plan or a Code Plan. If so, the acquisition or holding of
certificates by or on behalf of such Plan could be considered to give rise to a
"prohibited transaction" within the meaning of ERISA and/or the Code unless an
administrative exemption described below or some other exemption is available.
73
Special caution should be exercised before the assets of a Plan are used
to purchase a certificate if, with respect to such assets, the Seller, the
Master Servicer, the Special Servicer, if any, the Trustee or an affiliate of
the Seller, Master Servicer, Special Servicer or Trustee, either: (a) has
investment discretion with respect to the investment of such assets of such
Plan; or (b) has authority or responsibility to give, or regularly gives
investment advice with respect to such assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to such assets and that such advice will be
based on the particular investment needs of the Plan.
Further, if the assets included in a Trust Fund were deemed to constitute
"plan assets," it is possible that an ERISA Plan's investment in the
certificates might be deemed to constitute a delegation, under ERISA, of the
duty to manage plan assets by the fiduciary deciding to invest in the
certificates, and certain transactions involved in the operation of the Trust
Fund might be deemed to constitute prohibited transactions under ERISA and/or
the Code. Neither ERISA nor the Code defines the term "plan assets."
The U.S. Department of Labor (the "Department") has issued regulations
(the "Regulations") concerning whether or not a Plan's assets would be deemed
to include an interest in the underlying assets of an entity (such as the Trust
Fund) for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA, as well as for the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
(such as a certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the
certificates instead of being deemed to include an interest in the assets of
the Trust Fund. However, it cannot be predicted in advance nor can there be a
continuing assurance whether such exceptions may be met, because of the factual
nature of certain of the rules set forth in the Regulations. For example, one
of the exceptions in the Regulations states that the underlying assets of an
entity will not be considered "plan assets" if less than 25% of the value of
all classes of equity interests are held by "benefit plan investors," which are
defined as ERISA Plans, Code Plans, employee benefit plans not subject to ERISA
(for example, governmental plans) and entities whose underlying assets include
plan assets by reason of a Plan's investment therein, but this exception is
tested immediately after each acquisition of an equity interest in the entity
whether upon initial issuance or in the secondary market.
Pursuant to the Regulations, if the assets of the Trust Fund were deemed
to be plan assets by reason of a Plan's investment in any certificates, such
plan assets would include an undivided interest in the mortgage loans, the
mortgages underlying the mortgage loans and any other assets held in the Trust
Fund. Therefore, because the mortgage loans and other assets held in the Trust
Fund may be deemed to be the assets of each Plan that purchases certificates,
in the absence of an exemption, the purchase, sale or holding of certificates
of any series or class by a Plan might result in a prohibited transaction and
the imposition of civil penalties or excise taxes. The Department has issued
administrative exemptions from application of certain prohibited transaction
restrictions of ERISA and the Code to several underwriters of mortgage-backed
securities (each, an "Underwriter's Exemption"). Such an Underwriter's
Exemption can only apply to mortgage-backed securities which, among other
conditions, are sold in an offering with respect to which such underwriter
serves as the sole or a managing underwriter, or as a selling or placement
agent. If such an Underwriter's Exemption might be applicable to a series of
certificates, the related prospectus supplement will refer to such possibility.
UNRELATED BUSINESS TAXABLE INCOME -- RESIDUAL INTERESTS
The purchase of a certificate that is a Residual Certificate by any
person, including any employee benefit plan that is exempt from federal income
tax under Code Section 501(a), including most varieties of ERISA Plans, may
give rise to "unrelated business taxable income" as described in Code Sections
511-515 and 860E. Further, prior to the purchase of an interest in a Residual
Certificate, a prospective transferee may be required to provide an affidavit
to a transferor that it is not, nor is it purchasing an interest in a Residual
Certificate on behalf of, a "Disqualified Organization," which term as defined
above includes certain tax-exempt entities not subject to Code Section 511,
such as certain governmental plans, as discussed above under "FEDERAL INCOME
TAX CONSEQUENCES -- Federal Income Tax Consequences for REMIC Certificates --
Taxation of Residual Certificates."
74
DUE TO THE COMPLEXITY OF THESE RULES AND THE PENALTIES IMPOSED UPON
PERSONS INVOLVED IN PROHIBITED TRANSACTIONS, IT IS PARTICULARLY IMPORTANT THAT
INDIVIDUALS RESPONSIBLE FOR INVESTMENT DECISIONS WITH RESPECT TO ERISA PLANS
AND CODE PLANS CONSULT WITH THEIR COUNSEL REGARDING THE CONSEQUENCES UNDER
ERISA AND/OR THE CODE OF THEIR ACQUISITIONS AND OWNERSHIP OF CERTIFICATES.
THE SALE OF CERTIFICATES TO A PLAN IS IN NO RESPECT A REPRESENTATION BY
THE SELLER OR THE APPLICABLE 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 SECONDARY MORTGAGE MARKET ENHANCEMENT ACT
The prospectus supplement for each series 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"). The appropriate characterization of those offered
certificates not qualifying as "mortgage related securities" ("Non-SMMEA
Certificates") under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase such
certificates, may be subject to significant interpretive uncertainties.
Accordingly, investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether and
to what extent the Non-SMMEA Certificates constitute legal investments for
them.
A class or classes of certificates of a series will constitute "mortgage
related securities" for so long as they (i) are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization and (ii) are part of a series evidencing interests in a Trust Fund
consisting of loans secured by first liens on real property and originated by
certain types of originators as specified in SMMEA. As "mortgage related
securities," such classes will constitute legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including, but not limited to, state-chartered depository
institutions 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 of the United States constitute legal investments for such
entities.
Pursuant to SMMEA, a number of states enacted legislation, on or before
the October 3, 1991 cutoff for those enactments, limiting to varying extents
the ability of certain entities (in particular, insurance companies) to invest
in "mortgage related securities" secured by liens on residential, or mixed
residential and commercial properties, 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" to
include, in relevant part, certificates satisfying the rating, first lien and
qualified originator requirements for "mortgage related securities," but
evidencing interests in 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 those types of certificates. Accordingly, the
investors affected by any state legislation overriding the preemptive effect of
SMMEA will be authorized to invest in certificates qualifying as "mortgage
related securities" only to the extent provided in that 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 those securities, and
national banks may purchase those 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 those
75
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 in 12
C.F.R. Section 1.5 concerning "safety and soundness" and retention of credit
information), certain "Type IV securities," defined in 12 C.F.R. Section 1.2(m)
to include, among other things, 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 defining the term "numerous obligors," no representation is made as to
whether any class of certificates will qualify as "commercial mortgage-related
securities," and thus as "Type IV securities," for investment by national
banks. The National Credit Union Administration (the "NCUA") has adopted rules,
codified at 12 C.F.R. Part 703, which permit federal credit unions to invest in
"mortgage related securities" under certain limited circumstances, other than
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. The Office of Thrift
Supervision (the "OTS") has issued Thrift Bulletin 13a (December 1, 1998),
"Management of Interest Rate Risk, Investment Securities, and Derivatives
Activities," which thrift institutions subject to the jurisdiction of the OTS
should consider before investing in any of the certificates.
All depository institutions considering an investment in the certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the Federal
Financial Institutions Examination Council, which has been adopted by the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"), the
Federal Deposit Insurance Corporation (the "FDIC"), the OCC and the OTS
effective May 26, 1998, and by the NCUA, effective October 1, 1998. The 1998
Policy Statement sets forth general guidelines which depository institutions
must follow in managing risks (including market, credit, liquidity, operational
(transaction), and legal risks) applicable to all securities (including
mortgage pass-through certificates and mortgage-derivative products) used for
investment purposes.
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
certificates, as certain series, classes or subclasses may be deemed unsuitable
investments, or may otherwise be restricted, under those 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 certificates
issued in book-entry form, provisions which may restrict or prohibit
investments in securities which are issued in book-entry form.
Except as to the status of certain classes of certificates identified in
the prospectus supplement for a series as "mortgage related securities" under
SMMEA, no representation is made as to the proper characterization of the
certificates for legal investment purposes, financial institution regulatory
purposes or other purposes, or as to the ability of particular investors to
purchase any 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 certificates) may adversely affect the liquidity of the certificates.
ACCORDINGLY, INVESTORS WHOSE INVESTMENT ACTIVITIES ARE SUBJECT TO LEGAL
INVESTMENT LAWS AND REGULATIONS, REGULATORY CAPITAL REQUIREMENTS OR REVIEW BY
REGULATORY AUTHORITIES SHOULD CONSULT
76
WITH THEIR OWN LEGAL ADVISORS IN DETERMINING WHETHER AND TO WHAT EXTENT THE
CERTIFICATES CONSTITUTE LEGAL INVESTMENTS FOR THOSE INVESTORS AND, IF
APPLICABLE, WHETHER SMMEA HAS BEEN OVERRIDDEN IN ANY JURISDICTION RELEVANT TO
THOSE INVESTORS.
THE APPRAISAL REGULATIONS
Pursuant to Title XI of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), the Federal Reserve Board, the OCC, the
FDIC and the OTS have adopted regulations (the "Appraisal Regulations")
applicable to bank holding companies, their non-bank subsidiaries and
state-chartered banks that are members of the Federal Reserve System (12 C.F.R.
(Sections) 225.61-225.67), national banks (12 C.F.R. (Sections)
34.41-34.47), state-chartered banks that are not members of the Federal Reserve
System (12 C.F.R. Part 323), and savings associations (12 C.F.R. Part 564),
respectively. The Appraisal Regulations, which are substantially similar,
although not identical, for each agency, generally require the affected
institutions and entities to obtain appraisals performed by state-certified or
state-licensed appraisers (each, a "FIRREA Appraisal") in connection with a
wide range of real estate-related transactions, including the purchase of
interests in loans secured by real estate in the form of mortgage-backed
securities, unless an exemption applies. With respect to purchases of
mortgage-backed securities such as the certificates offered hereby, the
Appraisal Regulations provide for an exemption from the requirement of
obtaining new FIRREA Appraisals for the properties securing the underlying
loans so long as at the time of origination each such loan was the subject of
either a FIRREA Appraisal, or, if a FIRREA Appraisal was not required, met the
appraisal requirements of the appropriate regulator.
No assurance can be given that each of the underlying mortgage loans in a
mortgage pool will have been the subject of a FIRREA Appraisal or, if a FIRREA
Appraisal was not required, an appraisal that conformed to the requirements of
the appropriate regulator at origination. To the extent available, information
will be provided in the prospectus supplement with respect to appraisals on the
mortgage loans underlying each series of certificates. However, such
information may not be available on every mortgage loan. Prospective investors
that may be subject to the Appraisal Regulations are advised to consult with
their legal advisors and/or the appropriate regulators with respect to the
effect of such regulations on their ability to invest in a particular series of
certificates.
PLAN OF DISTRIBUTION
The certificates offered hereby and by means of the related prospectus
supplements will be offered through one or more of the methods described below.
The prospectus supplement with respect to each such series of certificates will
describe the method of offering of such series of certificates, including the
initial public offering or purchase price of each class of certificates or the
method by which such price will be determined and the net proceeds to the
Seller of such sale.
The offered certificates will be offered through the following methods
from time to time and offerings may be made concurrently through more than one
of these methods or an offering of a particular series of certificates may be
made through a combination of two or more of these methods:
1. By negotiated firm commitment underwriting and public reoffering
by underwriters specified in the applicable prospectus supplement;
2. By placements by the Seller with investors through dealers; and
3. By direct placements by the Seller with investors.
As more fully described in the prospectus supplement, if underwriters are
used in a sale of any offered certificates, such certificates will be acquired
by the underwriters for their own account and may be resold 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 to sell. Firm commitment underwriting and public
reoffering by underwriters may be done through underwriting syndicates or
through one or more firms acting alone. The specific managing underwriter or
underwriters, if any, with respect to the offer and sale of the offered
certificates of a particular series will
77
be set forth on the cover of the related prospectus supplement and the members
of the underwriting syndicate, if any, will be named in such prospectus
supplement. 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 Goldman, Sachs & Co.
acting as underwriter with other underwriters, if any, named in the prospectus
supplement. The Seller is an affiliate of Goldman, Sachs & Co. The prospectus
supplement will describe any discounts and commissions to be allowed or paid by
the Seller to the underwriters, any other items constituting underwriting
compensation and any discounts and commissions to be allowed or paid to the
dealers. The obligations of the underwriters will be subject to certain
conditions precedent. The underwriters with respect to a sale of any class of
certificates will be obligated to purchase all such certificates if any are
purchased. The Seller and, if specified in the prospectus supplement, a selling
Certificateholder will agree to indemnify the underwriters against certain
civil liabilities, including liabilities under the Securities Act or will
contribute to payments required to be made in respect of these liabilities.
In the ordinary course of business, Goldman, Sachs & Co., or its
affiliates, and the Seller may engage in various securities and financing
transactions, including repurchase agreements to provide interim financing of
the Seller's mortgage loans pending the sale of such mortgage loans or
interests in those mortgage loans, including the certificates.
If specified in the prospectus supplement relating to a series of
certificates, a holder of one or more classes of offered certificates that is
required to deliver a prospectus in connection with the offer and sale of the
certificates may offer and sell, pursuant to this prospectus and a related
prospectus supplement, such classes directly, through one or more underwriters
to be designated at the time of the offering of such certificates or through
dealers acting as agent and/or principal. The specific managing underwriter or
underwriters, if any, with respect to any such offer and sale of certificates
by unaffiliated parties will be set forth on the cover of the prospectus
supplement applicable to such certificates and the members of the underwriting
syndicate, if any, will be named in such prospectus supplement, and the
prospectus supplement will describe any discounts and commissions to be allowed
or paid by such unaffiliated parties to the underwriters, any other items
constituting underwriting compensation and any discounts and commissions to be
allowed or paid to any dealers participating in such offering. Any offerings
described in this paragraph may be restricted in the manner specified in such
prospectus supplement. Such transactions may be effected at market prices
prevailing at the time of sale, at negotiated prices or at fixed prices. The
underwriters and dealers participating in such selling Certificateholder's
offering of such certificates may receive compensation in the form of
underwriting discounts or commissions from such selling Certificateholder, and
such dealers may receive commissions from the investors purchasing such
certificates for whom they may act as agent (which discounts or commissions
will not exceed those customary in those types of transactions involved). Any
dealer that participates in the distribution of such certificates may be deemed
to be an "underwriter" within the meaning of the Securities Act, and any
commissions and discounts received by such dealer and any profit on the resale
of such certificates by such dealer might be deemed to be underwriting
discounts and commissions under the Securities Act.
If the certificates of a series are offered other than through
underwriters, the related prospectus supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the Seller and dealers and/or the Seller and the purchasers of such
certificates. Purchasers of 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 in connection with reoffers and sales
by them of certificates. Holders of certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
The place and time of delivery for each series of certificates offered
hereby and by means of the related prospectus supplement will be set forth in
the prospectus supplement with respect to such series.
If and to the extent required by applicable law or regulation, this
prospectus will be used by Goldman, Sachs & Co. in connection with offers and
sales of the offered certificates in certain market-making transactions at
prices related to prevailing market prices at the time of sale. The Seller will
not receive any proceeds from such transactions. Goldman, Sachs & Co. may act
as principal or agent in such transactions.
78
If specified in the prospectus supplement relating to certificates of a
particular series offered hereby, the Seller, any affiliate of the Seller or
any other person or persons specified in the prospectus supplement may purchase
some or all of such certificates from the underwriter or underwriters or such
other person or persons specified in such prospectus supplement. Such purchaser
may thereafter from time to time offer and sell, pursuant to this prospectus
and the related prospectus supplement, some or all of such certificates so
purchased, directly, through one or more underwriters to be designated at the
time of the offering of such certificates, through dealers acting as agent
and/or principal or in such other manner as may be specified in the related
prospectus supplement. Such offering may be restricted in the manner specified
in such prospectus supplement. Such transactions may be effected at market
prices prevailing at the time of sale, at negotiated prices or at fixed prices.
Any underwriters and dealers participating in such purchaser's offering of such
certificates may receive compensation in the form of underwriting discounts or
commissions from such purchaser and such dealers may receive commissions from
the investors purchasing such certificates for whom they may act as agent
(which discounts or commissions will not exceed those customary in those types
of transactions involved). Any dealer that participates in the distribution of
such certificates may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any commissions and discounts received by such dealer
and any profit on the resale or such certificates by such dealer might be
deemed to be underwriting discounts and commissions under the Securities Act.
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE
All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this prospectus and prior to the
termination of the offering of the offered certificates of a series will be
deemed to be incorporated by reference into this prospectus and to be a part of
this prospectus from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
in this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document which is or is deemed to be
incorporated by reference in this prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the documents incorporated by reference in this
prospectus (not including the exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Requests for
such copies should be directed to the office of the Secretary, 85 Broad Street,
New York, New York 10004 (phone: 212/902-1000).
This prospectus and the prospectus supplement for each series are parts of
our Registration Statement. This prospectus does not contain, and the related
prospectus supplement will not contain, all of the information in our
Registration Statement. For further information, please see our Registration
Statement and the accompanying exhibits which we have filed with the
Commission. This prospectus and any prospectus supplement may summarize
contracts and/or other documents. For further information, please see the copy
of the contract or other document filed as an exhibit to the Registration
Statement. You can obtain copies of the Registration Statement from the
Commission upon payment of the prescribed charges, or you can examine the
Registration Statement free of charge at the Commission's offices. Reports and
other information filed with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at
Suite 1300, 233 Broadway, New York, New York 10279; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You can
obtain information on the operation of the Public Reference Section by calling
1-800-732-0330. The Commission also maintains a site on the World Wide Web at
"http://www.sec.gov" at which users can view and download copies of reports,
proxy and information statements and other information filed electronically
through the EDGAR
79
system. Copies of the Agreement pursuant to which a series of certificates is
issued will be provided to each person to whom a prospectus and the related
prospectus supplement are delivered, upon written or oral request directed to
our offices at 85 Broad Street, SC Level, New York, New York 10004 (phone:
212/902-1171), Attention: Prospectus Department.
LEGAL MATTERS
The validity of the certificates offered hereby and certain federal income
tax matters will be passed upon for the Seller by Cadwalader, Wickersham & Taft
LLP or by other counsel identified in the related prospectus supplement.
80
INDEX OF DEFINED TERMS
PAGE
1
1986 Act.............................49
1998 Policy Statement................76
A
ADA..................................45
Advances.............................22
Agreement.............................8
Appraisal Regulations................77
B
Balloon Payments.....................29
Bankruptcy Code......................33
beneficial owner......................9
C
CERCLA...............................35
Certificateholders...................10
Closing Date.........................16
Code.................................46
Code Plans...........................73
Collection Account...................11
Commission...........................14
Cut-Off Date.........................11
D
Defective Mortgage Loans.............18
Department...........................74
Depository............................6
Disqualified Organization............60
Distribution Account.................11
Distribution Date....................10
E
EDGAR................................14
ERISA................................73
ERISA Plans..........................73
Event of Default.....................24
Exchange Act.........................14
F
FASIT................................13
FDIC.................................76
Federal Reserve Board................76
Financial Intermediary................9
FIRREA...............................77
FIRREA Appraisal.....................77
Form 8-K.............................16
Funding Note..........................9
G
Garn-St Germain Act..................41
H
Holders..............................10
I
Installment Contracts................15
Insurance Proceeds...................11
PAGE
L
Lender Liability Act.................36
Letter of Credit Bank................26
Letter of Credit Percentage..........27
Liquidation Proceeds.................11
M
Master Servicer......................19
Master Servicer Remittance Date......12
Mortgage Loan File...................17
Mortgage Loan Schedule...............17
Mortgaged Property...................15
Mortgages............................15
N
NCUA.............................44, 76
Non-SMMEA Certificates...............75
O
OCC..................................76
OID Regulations......................50
Operating Advisor....................20
OTS 76
P
Pass-Through Entity..................60
Permitted Investments................13
Plans................................73
Prepayment Assumption................51
Prepayment Premium...................12
Property Protection Expenses.........12
R
Random Lot Certificates..............50
Regular Certificateholder............49
Regular Certificates.................47
Regulations..........................74
REMIC................................13
REMIC Certificates...................47
REMIC Pool...........................47
REMIC Regulations....................46
REO Account..........................12
REO Property.........................11
Repurchase Price.....................18
Residual Certificateholders..........56
Residual Certificates................47
Responsible Party....................18
S
Securities Act........................7
Seller................................7
Senior Certificates..................26
Service..............................49
Servicing Fee........................22
Simple Interest Loans................15
SMMEA................................75
81
PAGE
Special Servicer.....................19
Specially Serviced Mortgage Loans....19
Standard Certificateholder...........66
Standard Certificates................66
Startup Day..........................48
Stripped Certificateholder...........71
Stripped Certificates............66, 69
Subordinate Certificates.............26
Substitute Mortgage Loans............18
PAGE
T
Title V..............................43
Title VIII...........................44
Treasury.............................46
Trust Fund............................8
Trustee..............................14
U
Underwriter's Exemption..............74
U.S. Person..........................61
82
The attached diskette contains a Microsoft Excel(1), Version 5.0
spreadsheet file (the "Spreadsheet File") that can be put on a user-specified
hard drive or network drive. The Spreadsheet File is "GSMS04C1.xls". It
provides, in electronic format, (i) certain statistical information that
appears under the caption "Description of the Mortgage Pool" in this prospectus
supplement and in Annex A, Annex B and Annex C to the prospectus supplement.
Defined terms used and not otherwise defined in the Spreadsheet File shall have
the respective meanings assigned to them in this prospectus supplement. All the
information contained in the Spreadsheet File is subject to the same
limitations and qualifications contained in this prospectus supplement. To the
extent that the information in electronic format contained in the attached
diskette is different from the caption "Description of the Mortgage Pool" in
this prospectus supplement and in Annex A, Annex B and Annex C to this
prospectus supplement, the information in electronic format is superseded by
the related information in print format. Prospective investors are advised to
read carefully and should rely, solely, on this prospectus supplement and the
accompanying prospectus relating to the Certificates in making their investment
decision.
Open the file as you would normally open any spreadsheet in Microsoft
Excel. Before the file is displayed, a message will appear notifying you that
the file is Read Only. Click the "READ ONLY" button, and after the file is
opened, a securities law legend will be displayed. READ THE LEGEND CAREFULLY.
- ----------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
================================================================================
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus and
prospectus supplement. You must not rely on any unauthorized information or
representations. This prospectus and prospectus supplement is an offer to sell
only the certificates offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus and prospectus supplement is current only as of its date.
----------------------
TABLE OF CONTENTS
Prospectus Supplement
PAGE
------
Table of Contents .......................................... S-4
Summary of Prospectus Supplement ........................... S-7
Risk Factors ............................................... S-22
Description of the Mortgage Pool ........................... S-52
Description of the Offered Certificates .................... S-67
Yield, Prepayment and Maturity Considerations .............. S-83
The Pooling Agreement ...................................... S-93
Use of Proceeds ............................................ S-122
Federal Income Tax Consequences ............................ S-123
State Tax Considerations ................................... S-124
ERISA Considerations ....................................... S-124
Legal Investment ........................................... S-126
Plan of Distribution ....................................... S-126
Legal Matters .............................................. S-127
Ratings .................................................... S-128
Index of Significant Definitions ........................... S-129
Annex A--Mortgaged Pool Information ........................ A-1
Annex B--Significant Loan Summaries ........................ B-1
Annex C--Certain Characteristics of the Mortgage
Loans .................................................... C-1
Annex D--Representations and Warranties .................... D-1
Annex E--Structural and Collateral Term Sheet .............. E-1
Prospectus
Table of Contents .......................................... 2
Risk Factors ............................................... 3
The Prospectus Supplement .................................. 5
The Seller ................................................. 7
Use of Proceeds ............................................ 7
Description of the Certificates ............................ 8
The Mortgage Pools ......................................... 15
Servicing of the Mortgage Loans ............................ 19
Credit Enhancement ......................................... 25
Swap Agreement ............................................. 28
Yield Considerations ....................................... 28
Certain Legal Aspects of the Mortgage Loans ................ 30
Federal Income Tax Consequences ............................ 46
State Tax Considerations ................................... 73
ERISA Considerations ....................................... 73
Legal Investment ........................................... 75
Plan of Distribution ....................................... 77
Incorporation of Certain Information by Reference .......... 79
Legal Matters .............................................. 80
Index of Defined Terms ..................................... 81
Until July 2004, all dealers effecting transactions in the Offered
Certificates, whether or not participating in this distribution, may be
required to deliver a prospectus supplement and prospectus. This is in addition
to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to an unsold allotment or subscription.
$826,459,000
(APPROXIMATE)
GS MORTGAGE
SECURITIES CORPORATION II
(AS DEPOSITOR)
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES
SERIES 2004-C1
Class A-1 Certificates $579,105,000
Class A-2 Certificates $190,472,000
Class B Certificates $ 20,076,000
Class C Certificates $ 7,808,000
Class D Certificates $ 16,730,000
Class E Certificates $ 12,268,000
-----------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
-----------------------------------------------------
GOLDMAN, SACHS & CO.
RBS GREENWICH CAPITAL
BANC OF AMERICA SECURITIES LLC
MERRILL LYNCH & CO.
WACHOVIA SECURITIES
================================================================================