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Revisiting Credit Support in Early Sale Transactions

By James H. Marshall
February 27, 2007

Part Two of a Three-Part Series

Part One of this three-part article discussed credit support transactions in general. This installment concentrates on income support.

In an early sale transaction, the purchaser and seller anticipate that a significant portion of the floor area of the project will not be income producing at the time of closing. As part of the transaction structure, the parties would negotiate a purchase price that assumes a certain portion of the project is occupied by rent-paying tenants at closing. To the extent that the income-producing space at closing is less than the assumed amount of income-producing space, the seller would make monthly rental payments to the purchaser, thereby enabling the purchaser to fully realize the income from the project, which is assumed to be in place at closing. By structuring the sale transaction in this manner, the seller is able to realize the full purchase price for the project at closing.

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