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Revisiting Credit Support in Early Sale Transactions

By James H. Marshall
March 27, 2007
The first two installments of this article discussed credit support transactions in general and income support. The conclusion focuses on co-tenancy support.

In early sale transactions, particularly those involving lifestyle shopping centers, the seller may be faced with the prospect of closing the transaction prior to the date on which each of the tenants' opening co-tenancy conditions have been satisfied. To the extent that a tenant's opening co-tenancy conditions have not been satisfied, such tenant, if open, is likely paying a reduced rental, whether tied to a percentage of minimum rent or a percentage of gross sales. Sometimes the reduced rental applies only to minimum rent; other times it includes common area charges, insurance, and taxes. As a result, the project is not generating its maximum level of income, thereby resulting in a lower income stream for the purchaser at closing. To avoid a reduction in the purchase price as a result of such opening co-tenancy rental relief, the seller can make post-closing payments to close this income gap.

Mechanics

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