The case, CSFB 2001-CP-4 Princeton Park Corporate Center LLC v. SB Rental I LLC , decided in August, puts a punctuation mark of certainty on the interpretation of such agreements, and is in accord with a number of other cases decided in various jurisdictions around the country. Not surprisingly, non-recourse guaranties are the focus of a lot of attention these days as more and more projects enter workout and beyond.
Back in the day — and this was not so long ago — lenders aggressively sought the opportunity to finance attractive real estate projects on a one-off basis. Relying on healthy valuations (which were always projected to go up) and cash flow projections (ditto, once the requisite number of quality tenants were signed up), development projects were evaluated on their own merits as stand-alone propositions, and that was the way the both borrowers and lenders wanted it. “Special-purpose” or “single-purpose” entities were often required, which, while they might not meet the requirements of a securitization, were considered adequately insulated to allow the lender to view the project on its own merits, without being exposed to the unknown risks of the developer’s other projects. And borrowers, though always optimistic, derived comfort from the limitations on liability, as well as from simplified loan relationships and underwriting requirements.
