You receive a call from an existing client, Elizabeth Smith, the founder and visionary of MCC, about MCCs impending acquisition of an office building from a lender who foreclosed on the property in September 2017. MCC needs assistance with the financing of the purchase. Typically, MCC purchases properties on its unsecured credit line Elizabeth likes that because it is quick and easy with few asset representations, warranties, covenants or other requirements; however, she is interested in looking into real estate lending opportunities as MCC is nearing capacity on this facility.

The property is located in Bensenville, Illinois, on the site of a former Conoco gas station and within one mile of OHare International Airport. MCCs significant earnest money is now hard, and the closing date is scheduled 45 days from now. During MCCs due diligence, it identified certain significant capital repairs that will need to be completed after closing.

Amazon has expressed interest in redeveloping warehouses in the same area as the property. Amazon has announced it will make a decision at the end of this summer. If Amazon pulls the trigger, the value of this asset will skyrocket and MCC will want to quickly sell. The property is currently fully leased, but the largest tenants lease expires in 2022. MCC anticipates negotiating a comprehensive lease modification of the lease prior to its expiration. In addition to the potential huge increase in value, MCC likes this deal because the cash flow off the lease is strong and MCC wants to use the cash to make a dividend to its shareholders. This property is a risky play for MCC. If the largest tenant does not renew its lease and Amazon does not redevelop property nearby the asset could dramatically decline in value. MCC surprisingly is not worried about a drop in value because it typically uses bankruptcy as a way to get out of bad assets. Also, your client is looking to invest as little equity into this transaction as possible given the risk in the deal. She would rather lenders take that risk.

MCC is going to purchase the asset in an entity that also holds a nearby shopping center. That entity is a wholly owned subsidiary of MCC RE Fund, LP.

Questions:

1. What are the key ways in which a real estate mortgage financing will differ from MCCs unsecured credit line?
2. Elizabeth has indicated that the most likely real estate financing is a CMBS loan. What concerns exist around a CMBS financing, especially in light of MCCs key objectives?
3. Explain to MCC how it can minimize required equity in connection its purchase, but also the risks associated with achieving that objective.
4. Do you think the lender is likely to accept the entity MCC wants to use as the Borrower? Why or why not?
5. MCC would like to propose MCC RE Fund, LP as the Guarantor. What main risks should Elizabeth understand about non-recourse carveout guaranties before agreeing to have the fund provide such Guaranty?