Gramercy's (GKK) Realty Unit Reaches Settlement for $549.7M in Mezzanine Loans
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Gramercy Capital Corp. (NYSE: GKK) today announced it has entered into a collateral transfer and settlement agreement with respect to its $549.7 million senior and junior mezzanine loans with Goldman Sachs Mortgage Company, Citicorp North America, Inc. and KBS Debt Holdings, LLC. The agreement requires the Company to transfer beneficial ownership of substantially all of the entities and properties comprising the Company’s Gramercy Realty division to an affiliate of KBS in exchange for a mutual release of claims among the Company and the Mezzanine Lenders, including Realty’s obligation to repay the outstanding mezzanine loan balance as well as contractual and default interest.
The Company’s initial transfer of approximately 317 properties to KBS occurred on September 1, 2011, and the Company expects additional transfers to KBS to occur over the next several months as and when certain third-party conditions are satisfied. The settlement agreement obligates KBS to acquire from the Company any and all remaining Gramercy Realty entities and properties on December 15, 2011. KBS will acquire the transferred properties under and subject to all in-place mortgage debt and other liabilities. The Company will retain 58 properties encumbered by approximately $31.8 million in first lien mortgage debt held by a Company-affiliated CDO.
The agreement also provides for the Company’s continued management of the transferred collateral through December 31, 2013 for a fixed fee of $10.0 million annually plus reimbursement of certain costs and an incentive fee equal to a specified percentage of the excess of the equity value of the transferred collateral over a baseline valuation amount. The minimum amount of the Company’s incentive fee will equal $3.5 million. The management agreement may be terminated by either party upon ninety day written notice; however any Company notice of termination cannot be effective until December 31, 2011 at the earliest. Under the terms of the management agreement, the Company does not forfeit its incentive fee rights unless the Company resigns as manager or is terminated as manager for cause.
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The Company’s initial transfer of approximately 317 properties to KBS occurred on September 1, 2011, and the Company expects additional transfers to KBS to occur over the next several months as and when certain third-party conditions are satisfied. The settlement agreement obligates KBS to acquire from the Company any and all remaining Gramercy Realty entities and properties on December 15, 2011. KBS will acquire the transferred properties under and subject to all in-place mortgage debt and other liabilities. The Company will retain 58 properties encumbered by approximately $31.8 million in first lien mortgage debt held by a Company-affiliated CDO.
The agreement also provides for the Company’s continued management of the transferred collateral through December 31, 2013 for a fixed fee of $10.0 million annually plus reimbursement of certain costs and an incentive fee equal to a specified percentage of the excess of the equity value of the transferred collateral over a baseline valuation amount. The minimum amount of the Company’s incentive fee will equal $3.5 million. The management agreement may be terminated by either party upon ninety day written notice; however any Company notice of termination cannot be effective until December 31, 2011 at the earliest. Under the terms of the management agreement, the Company does not forfeit its incentive fee rights unless the Company resigns as manager or is terminated as manager for cause.
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