In a further indication of the loosening of credit standards, the typical soft lockbox/springing cash management requirement as defined by Wells Fargo (see below) for hotels has been reduced to the springing lockbox/springing cash management structure.
“Our borrowers really had no conceptual problem with the soft lockbox/springing cash management structure except for the cost,” commented Gary Unkel, Senior Loan Originator at ValueXpress. “The soft lockbox accounts were costing in excess of $500 a month for really no good purpose in their minds, so the relaxation of this standard is a great economic benefit to our clients.”
As a refresher, these are the types of cash management structures as defined by Wells Fargo, the market leader in CMA accounts for CMBS conduit loans:
Springing Lockbox/Springing Cash Management Agreement(s):
No accounts exist at closing. Account opening paperwork is collected. Deposit account control agreement (DACA) and cash management agreements (CMAs) are negotiated and signed. Everything is kept on file in case of a trigger event. If/when there is a trigger event we “spring” open the accounts. After the accounts are opened they operate as hard lockbox/hard cash management accounts.
Soft Lockbox/Springing Cash Management:
A lender-controlled restricted lockbox account is opened on day one. Rents/property revenue is deposited into this account. Funds are then swept into a borrower-controlled operating account (can be with any bank). No cash management account is necessary unless there is a trigger event. If there is a trigger event, then funds are swept into a lender-controlled cash management account. Waterfall is run monthly.
Hard Lockbox/Hard Cash Management:
A lender-controlled restricted lockbox account is opened on day one. Rents/property revenue is deposited into this account. Funds are then swept into a lender-controlled cash management account. Waterfall is run monthly.