CONSTRUCTION LOAN AGREEMENT

Exhibit 10.4

 

 

CONSTRUCTION LOAN AGREEMENT

 

MADE BY AND BETWEEN

 

CJUF II STRATUS BLOCK 21 LLC

c/o

Stratus Properties, Inc.

 

98 San Jacinto, Suite 200

 

Austin, Texas 78701

 

AND

 

COR US BANK, N.A., as Lender

 

3959 North Lincoln Avenue

 

Chicago, Illinois 60613

 

Dated as of May 2, 2008

 

 

 

 

Table of Contents

Page

EXHIBITS TO LOAN AGREEMENT

 

Exhibit A                                Legal Description of Land

Exhibit B                                Permitted Exceptions

Exhibit C                                Title Requirements

Exhibit D                                Form of Survey Certification

Exhibit E                                Insurance Requirements

Exhibit F                                Architect’s Certificate

Exhibit G                                Initial Budget

Exhibit H                                Draw Request Forms

Exhibit I                                Partial Plans and Specifications

Exhibit J                                Proposed Finish Standards

Exhibit K                                Bailment Letter (Warehousemen)

Exhibit L                                Bailment Letter (Other Than Warehousemen)

Exhibit M                                List of Sales Agreements and Price List Schedule

Exhibit N                                Subcontract Delivery Deadline Dates

Exhibit O                                Approved Form of Sales Agreement

 

 

 

Exhibit P                                Materials Purchases Not Subject to Retainage

Exhibit Q                                Allowable Tenant Improvements

Exhibit R                                Delivery Schedule for Plans and Specifications

Exhibit S                                Form of Second Estoppel and Agreement from City of Austin

 

 

 

CONSTRUCTION LOAN AGREEMENT

 

Project Commonly Known as

 

“W Hotel and Residences”

 

Block 21, Austin, Texas

 

THIS CONSTRUCTION LOAN AGREEMENT (“ Agreement ”) is made as of May 2, 2008, by and between CJUF II STRATUS BLOCK 21 LLC, a Delaware limited liability company (“ Borrower ”), and COR US BANK, N.A., a national banking association, its successors and assigns (“ Lender ”).

 

W I T N E S S E T H :

 

RECITALS

 

A.           Borrower is the owner in fee simple of an approximately 76,176 square foot parcel of land commonly known as “Block 21,” bounded by Second, Third, Guadalupe and Lavaca Streets, City of Austin, County of Travis, State of Texas, and legally described in Exhibit A attached hereto (the “ Land ”).  Borrower proposes to construct on the Land a mixed use project to be known as the “W Hotel and Residences,” consisting of a building of thirty-six (36) stories (the “ Building ”) and other facilities containing:  (i) one hundred ninety-eight (198) residential condominium units (each, a “ Residential Unit ”) on twenty (20) floors, from floor 18 through floor 37 of the Building, containing at least 272,272 Saleable Square Feet (with each capitalized term used and not defined in these Recitals being defined hereinbelow) of interior space and with interior finished ceiling heights of at least ten (10) feet (outside of areas containing mechanical runs),  (ii) a “W” flagged hotel with two hundred fifty-two (252) guest rooms, situated on ten (10) floors, from floor 6 through floor 16 of the Building, to be furnished and managed pursuant to the Hotel Operating Agreement (as hereinafter defined), and containing at least 100,408 square feet of interior room space and 88,212 square feet of hotel operating space, collectively with, on floor 2 through floor 4 of the Building, 9,583 square feet of meeting space, a 8,060 square foot fitness facility, a 9,935 square foot pool and pool deck, and a business center (collectively, the “ Hotel ”), (iii) on floor 1 through floor 3 of the Building, 18,341 net rentable square feet of retail space (the “ Retail Space ”) and 37,382 net Rentable Square Feet of office space (the “ Office Space ”), (iv) a live performance venue, on the top three (3) floors of an attached 4-story structure, containing at least 50,336 square feet and a minimum capacity of 2,480 people, with seating for approximately 2,160 people (the “ Venue ”), (v) 10,995 square feet of storage space, and (vi) a three (3)-level subterranean parking garage (the “ Parking Garage ”), with a direct connection to elevators servicing the Residential Units, and containing parking spaces for at least 480 automobiles (each, a “ Parking Space ”), of which, 306 Parking Spaces shall be allocated for the Residential Units, and 116 Parking Spaces shall be allocated, collectively, for the Hotel, the Commercial Space, and the Venue.  The Residential Units shall have a la carte access to the Hotel amenities on a pay-by-use basis, as provided in the Hotel Operating Agreement.

 

B.           Borrower has applied to Lender for a loan in the aggregate amount of up to One Hundred Sixty-Five Million Dollars ($165,000,000) to fund construction, development   and marketing costs of the Project, and Lender is willing to make the Loan on the terms and conditions hereinafter set forth.

 

 

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows:

 

 

Article 1

 

 

INCORPORATION OF RECITALS AND EXHIBITS

 

1.1   Incorporation of Recitals.

 

The foregoing preambles and all other recitals set forth herein are made a part hereof by this reference.

 

1.2   Incorporation of Exhibits.

 

Exhibits A through S to this Agreement, attached hereto, are incorporated in this Agreement and expressly made a part hereof by this reference.

 

 

Article 2

 

 

DEFINITIONS

 

2.1   Defined Terms.

 

The following terms as used herein shall have the following meanings:

 

Additional Equity Investment :  As such term is defined in Section 11.2 .

 

Affiliate :  With respect to a specified person or entity, any individual, partnership, corporation, limited liability company, trust, unincorporated organization, association or other entity that, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such person or entity, including, without limitation, any general or limited partnership in which such person or entity is a partner.

 

Agreement :  This Construction Loan Agreement.

 

Allowable Tenant Improvements :  As such term defined in Section 12.8.

 

Appraisal :  An MAI certified appraisal of the Project performed in accordance with FIRREA and Lender’s appraisal requirements by an appraiser selected and retained by Lender.

 

Approved Finish Standards :  As such term is defined in Section 9.2(f) .

 

Approved Lease :  As such term is defined in Section 15.1(m) .

 

Approved Plans and Specifications :  As such term is defined in Section 9.2(e) .

 

Architect :  BOKA Powell, L.L.C.

 

Architect’s Certificate :  A certificate in the form of Exhibit F attached hereto executed by the Architect in favor of Lender.

 

 

 

Authorized Representative :  William H. Armstrong, an individual, or such other individual that is designated in accordance with Section 15.3 of this Agreement.

 

Available Sources of Funds :  As such term is defined in Section 11.1(c) .

 

Bankruptcy Code :  Title 11 of the United States Code entitled “Bankruptcy” as now or hereafter in effect, or any successor thereto or any other present or future bankruptcy or insolvency statute.

 

Bonds :  As such term is defined in Section 9.1(d) .

 

Borrower :  As such term is defined in the opening paragraph of this Agreement.

 

Budget :  The budget for the Project specifying all costs and expenses of every kind and nature whatsoever to be incurred by Borrower in connection with the Project prior to the Maturity Date, as approved by Lender as set forth in Section 10.1 .

 

Budget Line Item :  As such term is defined in Section 10.2 .

 

Building :  As such term is defined in Recital A .

 

Business Day :  Any Monday through Friday, excluding days on which Lender is closed for business.

 

Change Order :  Shall mean any of the following: (i) a request for changes in the Approved Plans and Specifications (other than minor field changes involving no extra cost) or for a change to the General Contract Price, (ii) an amendment to the General Contract, (iii) a construction change directive or (iv) a written order for a minor change in the work issued by the architect.

 

CJUF :  Canyon-Johnson Urban Fund II L.P., a Delaware limited partnership.

 

Closing : The date of the Closing Funding.

 

Closing Funding : The first disbursement of Loan proceeds in an amount of $2,000,000, which shall be advanced on or about the date hereof.

 

Collateral Assignment of Hotel Documents :  That certain Assignment of Hotel Documents collaterally assigning Borrower’s interests in the Hotel Documents (and related documents) to Lender.

 

Commercial Space :  Together, the Office Space and the Retail Space.

 

Commitment :  Lender’s maximum aggregate funding obligation hereunder of up to One Hundred Sixty-Five Million Dollars ($165,000,000), less any reduction thereof in accordance with the terms of this Agreement.

 

Completion Date :  With respect to the Residential Units, July 25, 2011; with respect to the Hotel, January 7, 2011; with respect to the Venue May 25, 2011; with respect to the

 

 

 

Commercial Space, January 7, 2011; and with respect to the entire Project, the Initial Maturity Date.

 

Completion and Carveout Guaranty :  A guaranty of performance and completion, executed by Guarantor and pursuant to which Guarantor guarantees the lien-free and timely completion of the Project in accordance with all provisions of this Agreement and Borrower’s obligation to keep the Loan In Balance and to pay for all cost overruns, subject to the limits stated therein, and guarantees specified non-recourse carve-out obligations.

 

Condominium Documents :  As such term is defined in Section 8.1(s) .

 

Condominium Marketing License Agreement :  That certain Condominium Marketing License Agreement dated as of October 26, 2006 by and between Stratus Block 21 Investments, L.P. (predecessor in interest to Borrower), and Starwood Hotels & Resorts Worldwide, Inc.

 

Construction or construction :  The construction and equipping of the Improvements in accordance with the Approved Plans and Specifications, and related improvements required to be performed by Borrower under Sales Agreements (including all off-site improvements reasonably required for use and operation of the Improvements) and the installation of all personal property, fixtures and equipment required for the operation of the Project or required under Sales Agreements.

 

Construction Disbursement :  As such term is defined in Section 7.3 .

 

Construction Schedule :  A schedule reasonably satisfactory to Lender, establishing a timetable for completion of the Construction, showing, on a monthly basis, the anticipated progress of the Construction, and showing that the Improvements can be completed on or before the Completion Date and that the Residential Units will be delivered prior to any outside dates, if any, provided for in the Sales Agreements.

 

Contingency Fund :  As such term is defined in Section 10.3 .

 

Contractor’s Contingency :  As such term is defined in Section 10.3 .

 

Control :  As such term is used with respect to any person or entity, including the correlative meanings of the terms “controlled by” and “under common control with,” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such person or entity, whether through the ownership of voting securities, by contract or otherwise.

 

Declaration of Condominium :  The Master Condominium Declaration and the Residential Condominium Declaration, individually or collectively, as the context shall infer.

 

Deed of Trust :  A construction deed of trust, assignment of rents, security agreement and fixture filing executed by Borrower for the benefit of Lender securing this Agreement, the Note, and all obligations of Borrower in connection with the Loan, granting a first priority lien on Borrower’s fee interest in the Project, subject only to the Permitted Exceptions.

 

 

 

Default or default :  Any event, circumstance or condition, which, if it were to continue uncured, would, with notice or lapse of time or both, constitute an Event of Default hereunder.

 

Default Rate :  As such term is defined in the Note.

 

Deficiency Deposit :  As such term is defined in Section 11.1(b) .

 

Deposits :  The Earnest Money Deposits and the Upgrade Deposits.

 

Design Professionals :  As such term is defined in Section 9.1(a) .

 

Earnest Money Deposits :  As such term is defined in Section 14.3 (a) .

 

Environmental Indemnity :  An environmental indemnity from Borrower and Guarantor, jointly and severally, indemnifying Lender with regard to all matters related to Hazardous Material and other environmental matters.

 

Environmental Proceedings :  Any environmental proceedings, whether civil (including actions by private parties), criminal, or administrative proceedings, relating to the Project.

 

Environmental Report :  An environmental report prepared at Borrower’s expense by a qualified environmental consultant approved by Lender in its sole discretion addressed to Lender (or subject to separate letter agreement permitting Lender to rely on such environmental report), which complies with the USEPA “all appropriate inquiry” rule contained in 40 CRF Part 312.

 

Equity Investment :  As such term is defined in Section 11.2 .

 

ERISA :  The Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder from time to time.

 

Escrow Agent :  As such term is defined in Section 14.3(a) .

 

Escrow Agreement :  As such term is defined in Section 8.1(v) .

 

Event of Default :  As such term is defined in Article 19 .

 

Excess Parking Spaces : As such term is defined in Section 14.1 .

 

Exit Fee :  As such term is defined in Section 7.4 .

 

Extended Maturity Date :  The date that is forty-six (46) months after the date of this Agreement, as the Initial Maturity Date may be extended by Borrower subject to the conditions contained in Section 4.3 .

 

Extension Fee :  As such term is defined in Section 4.3(b)(iii) .

 

Extension Option :  As such term is defined in Section 4.3(a) .

 

 

 

FIRREA :  The Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended from time to time.

 

Full Loan Opening Date :  The date of Full Loan Opening.

 

Full Loan Opening or Full Opening of the Loan :  The second disbursement of Loan proceeds, being the first disbursement of Loan proceeds other than the Closing Funding.

 

General Contract :  As such term is defined in Section 9.1(a) .

 

General Contract Price :  As such term is defined in Section 9.1(a) .

 

General Contractor:   Austin Building Company.

 

Governmental Approvals :  Collectively, all consents, licenses, and permits and all other authorizations or approvals required from any Governmental Authority for the Construction in accordance with the Approved Plans and Specifications or the sale of the Residential Units.

 

Governmental Authority :  Any federal, state, county or municipal government, or political subdivision thereof, any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, or public body, or any court, administrative tribunal, or public utility.

 

Guarantor :  Stratus Properties, Inc., a Delaware corporation.

 

Guarantor Financial Covenants : The covenants of Guarantor set forth in Section 16 of the Limited Payment Guaranty.

 

Hard Costs :  Any and all costs related to or incurred in connection with the construction of the Project, including, without limitation, the cost of all labor, materials and equipment, but excluding any fees for architectural and engineering services, marketing fees, financing costs, developers’ fees and other similar soft fees and costs.  The Hard Costs include the items delineated as such on the Budget.

 

Hazardous Material :  Means and includes gasoline, petroleum, asbestos containing materials, explosives, radioactive materials or any hazardous or toxic material, substance or waste which is defined by those or similar terms or is regulated as such under any Law of any Governmental Authority having jurisdiction over the Project or any portion thereof or its use, including: (i) any “hazardous substance” defined as such in (or for purposes of) the Compre­hensive Environmental Response, Compensation and Liability Act, 42 U.S.C.A. § 9601(14) as may be amended from time to time, or any so-called “superfund” or “superlien” Law, including the judicial interpretation thereof; (ii) any “pollutant or contaminant” as defined in 42 U.S.C.A. § 9601(33); (iii) any material now defined as “hazardous waste” pursuant to 40 C.F.R. Part 260; (iv) any petroleum, including crude oil or any fraction thereof; (v) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (vi) any “hazardous chemical” as defined pursuant to 29 C.F.R. Part 1910; (vii) any mold or fungus that may cause an allergic, toxic or inflammatory response in humans arising from exposure to such mold or fungus in indoor air; and (viii) any other toxic substance or contaminant that is subject to any other Law or

 

 

 

other past or present requirement of any Governmental Authority.  Any reference above to a Law, includes the same as it may be amended from time to time, including the judicial interpretation thereof.

 

Hotel :  As such term is defined in Recital A .

 

Hotel Documents : The Condominium Marketing License Agreement, the Hotel Operating Agreement, and/or the Technical Services Agreement, individually or collectively, as the context may infer.

 

Hotel Operator :  W Hotel Management, Inc., a Delaware corporation, an Affiliate of Starwood Hotel & Resorts Worldwide, Inc.,

 

Hotel Operating Agreement :  That certain W Austin Hotel Operating Agreement by and between Stratus Block 21 Investments, L.P., and Starwood Hotel & Resorts Worldwide, Inc., dated as of October 26, 2006, as amended by First Amendment to Operating Agreement dated January 30, 2008,   as such agreement was assigned by Stratus Block 21 Investments, L.P. to Borrower by virtue of that certain Assignment and Assumption Agreement dated as of July 30, 2007; and as such agreement was assigned by Starwood Hotel & Resorts Worldwide, Inc. to Hotel Operator by virtue of that certain Assignment and Assumption Agreement dated as of July 30, 2007.

 

HUD :  United States Department of Housing and Urban Development.

 

ILSA :  The Interstate Land Sales Full Disclosure Act, 42 USC 1701 et . seq ., as amended.

 

Improvements :  All of the improvements referred to in Recital A hereto and more particularly described in the Approved Plans and Specifications and any offsite improvements reasonably required to be constructed by Borrower for the use or operation of the improvements described in Recital A .

 

In Balance or in balance :  As such term is defined in Article 11 .

 

Including or including :  Means “including, but not limited to”.

 

Indemnified Party :  As such term is defined in Section 15.1(t) .

 

Initial Equity Investment :  As such term is defined in Section 8.1(a) .

 

Initial Maturity Date :  The date that is forty (40) months from the date of this Agreement.

 

Insurance Policy :  As such term is defined in Section 8.1(e) .

 

Interest Rate :  As such term is defined in the Note.

 

Interest Reserve Budget Line Item :  As such term is defined in Section 10.4 .

 

Internal Revenue Code :  The Internal Revenue Code of 1986, as amended from time to time.

 

 

 

Land :  As such term is defined in Recital A .

 

Laws :  Collectively, all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations, including judicial opinions or precedential authority in the applicable jurisdiction.

 

Leases :  The collective reference to all leases, subleases and occupancy agreements affecting the Project or any part thereof now existing or hereafter executed and all amendments, modifications or supplements thereto approved in writing by Lender.

 

Lender :  As such term is defined in the opening paragraph of this Agreement and including any successor holder of the Loan from time to time.

 

Lender’s Consultant :  An independent consulting architect, inspector, and/or engineer designated by Lender in Lender’s sole discretion.

 

Lender’s Estimate of Remaining Costs :  As such term is defined in Section 11.1(d) .

 

Lender’s Remaining Exposure :  The sum, at any date, of the outstanding principal balance of the Loan and the Unfunded Commitment.

 

Limited Payment Guaranty :  A guaranty of payment, executed by Guarantor and pursuant to which Guarantor guarantees the repayment of the Loan, in an amount up to $20,000,000 of the principal amount of the Loan, plus accrued interest thereon (including default interest, if any), and the cost of the enforcement of such guaranty, all in accordance with the terms and provisions more particularly described therein.<