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Second Amended And Restated Asset Management Services Agreement

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KBS REAL ESTATE INVESTMENT TRUST, INC. | GKK Realty Advisors LLC | KBS Acquisition Sub, LLC

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Title: SECOND AMENDED AND RESTATED ASSET MANAGEMENT SERVICES AGREEMENT
Governing Law: New York     Date: 8/10/2016
Industry: Real Estate Operations     Law Firm: Greenberg Traurig;Mayer Brown;Kirkland Ellis     Sector: Services

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Exhibit 10.10

SECOND AMENDED AND RESTATED ASSET MANAGEMENT SERVICES AGREEMENT

THIS SECOND AMENDED AND RESTATED ASSET MANAGEMENT SERVICES AGREEMENT (this “ Agreement ”) is entered into June 29, 2016 and is effective as of June 1, 2016 (“ Effective Date ”) by and between KBS Acquisition Sub, LLC, a Delaware limited liability company (the “ Company ”), and GKK Realty Advisors LLC, a Delaware limited liability company (“ Manager ”).

W I T N E S S E T H:

WHEREAS, the Company and Manager previously entered into that certain Amended and Restated Asset Management Services Agreement dated as of December 1, 2013 (the “ Original AM Agreement ”);

WHEREAS, the Company and Manager desire to amend and restate the Original AM Agreement in its entirety by entering into this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual agreements herein set forth, the parties hereto agree as follows:

1.

Definitions.

 

(a)

Accounting/Construction Services Agreement ” has the meaning set forth in Section 2(k)

 

(b)

 “ Affiliate ” means any person or entity which, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the party in question.

 

(c)

Applicable Portfolios ” means those portfolios of Properties set forth on Annex A-2 .

 

(d)

Approved Budget ” shall have the meaning set forth in the Accounting/ Construction Services Agreement.

 

(e)

Agreement ” has the meaning assigned in the first paragraph.

 

(f)

Asset Value Documentation ” has the meaning set forth in the definition of Fair Value of Applicable Portfolios.

 

(g)

Base Management Fee ” has the meaning assigned in Section 6(a).

 

(h)

BD2 Sale ” has the meaning assigned in Section 10 .

 


 

 

(i)

Breach ” means fraud, misappropriation of funds, or embezzlement against Company by Manager in its corporate capacity (as distinguished from the acts of any employees of Manager which are taken without the complicity of any of the Executive Officers) which is not cured within thirty (30) days after notice thereof from Company.

 

(j)

Cause ” means any of the following, determined to have occurred by a majority ruling of a panel of three arbitrators (one arbitrator chosen by the Company, one arbitrator chosen by the Manager and the third arbitrator chosen by the other two arbitrators (collectively, the “ Arbitrators ”)) to have caused material damage to the Company: (i) a Material Breach; or (ii) a Service Failure. The parties agree to use commercially reasonable efforts to appoint the Arbitrators within seven (7) days of the receipt by Manager of written notice from Company that it intends to seek the determination discussed herein and to have any determination of “Cause” by the Arbitrators completed within thirty (30) days of submission by Company or Manager.

 

(k)

Company Default ” means a failure by Company to pay the Base Management Fee, Termination Fee, or the Profit Participation payment due to Manager under this Agreement, which failure to pay continues for five (5) business days following written notice of such default, such notice containing the following legend prominently displayed in bold, all caps and fourteen (14) point or larger font in the transmittal letter requesting approval:   THIS IS A NOTICE OF A COMPANY DEFAULT. COMPANY’S RESPONSE IS REQUESTED WITHIN FIVE (5) BUSINESS DAYS. COMPANY’S FAILURE TO RESPOND WITHIN SUCH TIME PERIOD SHALL RESULT IN COMPANY BEING DEEMED TO HAVE AGREED THAT A COMPANY DEFAULT ; provided, however, that such failure is not caused by any action or inaction of Manager, or any of Manager’s officers, employees, directors, managing directors, members, managers, principals, partners, shareholders, affiliates or subsidiaries.

 

(l)

Company’s Insurance ” has the meaning assigned in Section 5(d).

 

(m)

Consistent with Past Practices ” or words of similar import means those asset management services and practices (other than accounting services and practices) provided to the Properties by Manager and those affiliates of Manager over the six (6) month period prior to the Effective Date.

 

(n)

Effective Date ” has the meaning assigned in the first paragraph.

 

(o)

Executive Officers ” means the President, Chief Executive Officer, General Counsel and Chief Financial Officer of Gramercy Property Trust Inc.

 

(p)

Expenses ” has the meaning assigned in Section 7.

 

(q)

Extension Option ” has the meaning set forth in Section 2(a).

 

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(r)

Fair Value of Applicable Portfolios “ means the gross fair market value of the Properties included within the Applicable Portfolios (with no deduction for any mortgage debt, mezzanine debt or any other liabilities associated with any one or more of the Properties and no additions for any other assets that are not real property) of the Company as set forth in the work papers and other supporting documentation (collectively, “ Asset Value Documentation ”) used by KBS REIT and its accountants in determining its gross asset value as reported by KBS REIT in its then most recent applicable filing with the Securities and Exchange Commission, and as certified by the Chief Financial Officer of KBS REIT as being the values contained in such work papers and other supporting documentation.

 

(s)

First Threshold of Incentive Profits ” means an amount equal to 10% of the Profit Participation Threshold for an Applicable Portfolio.

 

(t)

Fraud Loss ” is defined in the definition of Termination Fee below.

 

(u)

Good News Capital Expenditures ” means (i) all capital expenditures at a Property (as determined by GAAP) which are being funded in order to increase the value of a Property (for example upgrading the quality of materials located at a Property in order to charge tenants higher rent) as opposed to being funded to prevent or resolve repair or maintenance issues at a Property (for example repairing or replacing a roof); (ii) all tenant improvements at such Property in connection with newly signed leases at such Property (including any lease renewals); and (iii) leasing commissions for new leases at such Property (including any lease renewals). Notwithstanding the foregoing to the contrary, in the event of a contractual renewal at Beaver Valley, Tenant improvements, leasing commissions and capital expenditures in connection with such contractual renewal, shall not be included in Good News Capital Expenditures, except to the extent that a subsequent non-contractual renewal is entered into during the Term of this Agreement for such leased space.

 

(v)

Governing Instruments ” means, with respect to any Person, the articles of incorporation and bylaws in the case of a corporation, the certificate of limited partnership (if applicable) and partnership agreement in the case of a general or limited partnership or the articles of formation and operating agreement in the case of a limited liability company.

 

(w)

Gross Value ” means the sum of (1) the gross sales price of any one or more of the Properties included within any of the Applicable Portfolios sold from and after December 1, 2013 through and including the Measurement Date (with, for avoidance of doubt, no deduction for any mortgage debt, mezzanine debt, any other debt or any closing costs or customary closing adjustments (for example, taxes, prepaid expenses, cam charges, rents, leasing costs and similar items shall not be taken into account but prorations which are not customary but rather are in the nature of a seller providing income support or other inducements to a

 

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purchaser of a property shall be included) plus (2) the Fair Value of Applicable Portfolios as of the Measurement Date.

(x)

Incentive Profits ” means the amount, if any, by which (A) Gross Value for each Applicable Portfolio exceeds (B) the sum of (1) the Profit Participation Threshold for such Applicable Portfolio, plus (2) all cash expended with respect to such Applicable Portfolio, if any, after December 1, 2013 to fund Good News Capital Expenditures at such Applicable Portfolio by KBS REIT or any of, its Affiliates and/or joint venture partner(s) (“ Included Capital Contributions ”). For avoidance of doubt, Incentive Profits shall be determined on (and paid on) an Applicable Portfolio by Applicable Portfolio basis taking into account all sales of Properties in an Applicable Portfolio from time to time (and all such Properties remaining as of the Measurement Date).

 

(y)

Included Capital Contributions ” has the meaning set forth in the definition of Incentive Profits.

 

(z)

KBS REIT ” means KBS Real Estate Investment Trust, Inc.

 

(aa)

Material Breach ” means fraud, misappropriation of funds, or embezzlement against Company or other willful and material violation of this Agreement by Manager in its corporate capacity (as distinguished from the acts of any employees of Manager which are taken without the complicity of any of the Executive Officers) which is not cured within thirty (30) days after notice thereof from Company and which would have a material adverse effect on the Company. Manager and Company each agree to promptly notify the other of any Material Breach that Manager or Company is aware of or becomes aware of during the Term.

 

(bb)

Measurement Date ” means the earliest to occur of (a) December 31, 2016 (or December 31, 2017 if the Extension Option is properly exercised as provided for in Section 2(a) below), (b) the date on which Company, directly or indirectly, sells, conveys or otherwise transfers (together with all prior transfers) at least ninety percent (90%) of the Properties (by value), including, but not limited to a Sale, merger, reorganization, issuance of equity securities or other recapitalization of the Company or its Subsidiaries, affiliates, or parent companies (whether or not the Company, its Subsidiaries, affiliates or parent companies is the surviving entity in such transaction); (c) the effective date of the termination of this Agreement for Cause; or (d) the effective date of the termination of this Agreement pursuant to Section 10 hereof following a BD2 Sale.

 

(cc)

Offset Amounts ” means any damages incurred by Company as a result of Cause, as determined by the Arbitrators.

 

(dd)

Person ” means any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state,

 

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county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

(ee)

Profit Participation Percentage ” means (i) 10% for Incentive Profits with respect to an Applicable Portfolio up to and including the First Threshold of Incentive Profits; (ii) 20% for Incentive Profits with respect to an Applicable Portfolio in excess of the First Threshold of Incentive Profits but less than or equal to the Second Threshold of Incentive Profits; and (iii) 30% for Incentive Profits with respect to an Applicable Portfolio in excess of the Second Threshold of Incentive Profits.

 

(ff)

Profit Participation ” has the meaning assigned in Section 6 (b).

 

(gg)

Profit Participation Threshold ” means the amount for each of the Applicable Portfolios as set forth on Annex A-2

 

(hh)

Properties ” means the fee or leasehold interest in the real estate assets described on Annex A-1 attached hereto and made a part hereof.

 

(ii)

Sale ” (or “ Sells ” as applicable) means any sale, transfer, conveyance or other assignment including, any long term (being more than 15 years) ground lease of all or substantially all of a Property.

 

(jj)

Second Threshold of Incentive Profits ” means an amount equal to 20% of the Profit Participation Threshold for an Applicable Portfolio.

 

(kk)

Service Failure ” means the failure of Manager to provide a substantively equivalent level of asset management and performance under this Agreement which is Consistent with Past Practices (excluding, for avoidance of doubt accounting services and practices); provided, however, a Service Failure shall not be deemed to have occurred if Manager has substantially cured such failure within a period of ten (10) days after written notice outlining the specific details of such failure; provided, however, a Service Failure shall not be deemed to have occurred if Manager has substantially cured such failure within a period of ten (10) days after written notice outlining the specific details of such failure. Manager agrees to promptly notify Company of any Service Failure that Manager is aware of or becomes aware of during the Term.

 

(ll)

Settlement Agreement ” means, collectively, that certain (a) Collateral Transfer and Settlement Agreement, dated as of September 1, 2011, by and among GKK Stars Acquisition LLC (“ GKK Stars ”), KBS Acquisition Sub, LLC, KBS GKK Participation Holdings I, LLC, KBS GKK Participation Holdings II, LLC, KBS Debt Holdings Mezz Holder, LLC and KBS Acquisition Holdings, LLC, and (b) Acknowledgment and Consent Agreement, dated as of September 1, 2011, by and among Goldman Sachs Mortgage Company, Citicorp North America, Inc., GKK Stars, KBS Acquisition Sub, LLC, KBS GKK Participation Holdings I, LLC, KBS GKK Participation Holdings II, LLC, KBS Debt Holdings Mezz Holder, LLC and KBS Acquisition Holdings, LLC.   

 

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(mm)

Subsidiary ” means any direct or indirect subsidiary of the Company, any partnership, the general partner of which is the Company or any direct or indirect subsidiary of the Company and any limited liability company, the managing member of which is the Company or any direct or indirect subsidiary of the Company.

 

(nn)

Termination Fee ” means: (a) $3,750,000 for any termination of this Agreement by the Company pursuant to Section 10(1)(B) of this Agreement effective on or after January 1, 2016 and on or prior to December 31, 2016, and (b) $0.00 for any termination of this Agreement pursuant to Section 10(1)(B) of this Agreement on or after January 1, 2017. Notwithstanding the foregoing, at such time as Company pays to Manager the full Profit Participation payable to Manager as set forth in Section 6(b) hereof as a result of the termination of this Agreement by the Company pursuant to Section 10(1)(B) of this Agreement, Manager shall rebate to the Company all or a portion of (but not in excess of) the Termination Fee paid by Company to Manager in an amount equal to 50% of (X) the amount by which the Profit Participation paid by Company to Manager exceeds (Y) the Third Year Termination Baseline for a termination effective on or after January 1, 2016 and on or prior to December 31, 2016. The parties agree that the amount of the foregoing rebate may be offset against the payment by the Company to Manager of the Profit Participation triggered by the termination of this Agreement pursuant to Section 10(1)(B) hereof. Notwithstanding anything in this Agreement to the contrary, in the event of: (i) a termination of this Agreement by Company pursuant to Section 10(1)(A), Manager shall not receive a Termination Fee. Additionally, in the event (i) there is no Profit Participation, and (ii) Company suffers an unreimbursed actually incurred loss, cost or expense arising out of the fraud, misappropriation of funds or embezzlement against Company or other willful and material violation of this Agreement by manager or any employees of Manager (a “ Fraud Loss ”), then the parties agree that the amount of the Fraud Loss may be offset against the payment by the Company to Manager of any Termination Fee.

 

(oo)

Third Threshold of Incentive Profits ” means an amount equal to 30% of the Profit Participation Threshold for an Applicable Portfolio.

 

(pp)

Third Year Termination Baseline ” means the amount set forth on Annex D.

 

2.

Appointment and Duties of Manager .

 

(a)

Appointment . Unless earlier terminated in accordance with the terms of this Agreement, commencing on the Effective Date and continuing until December 31, 2016, the Company hereby appoints Manager as its exclusive asset manager to manage the Properties subject to the further terms and conditions set forth in this Agreement. So long as the Company is not in default of its obligations hereunder, Company shall have the right to extend the foregoing expiration date to December 31, 2017 by delivery of written notice to Manager irrevocably exercising such option, such notice, to be effective must be delivered no later than May 30, 2016

 

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(herein, the “ Extension Option ”). Subject to the terms and conditions of this Agreement, Manager hereby agrees to use its commercially reasonable efforts to perform each of the duties set forth herein, provided funds are made available by the Company for such purposes, as set forth in Section 8 hereof.

(b)

Duties . Manager will perform (or cause to be performed) the following services and activities for the Company, all of which activities shall be performed Consistent with Past Practices:

 

(i)

administering or overseeing the Company’s day-to-day operations and performing and supervising the performance of other administrative functions necessary to the Company’s management, including the collection of revenues and the payment of the Company’s debts and obligations (subject to funds being made available to Manager to pay such debts and obligations), and in the event of an emergency, Manager shall use commercially reasonable efforts to notify Company of such emergency as soon as reasonably possible;

 

(ii)

serving as the Company’s consultant with respect to the periodic review of the Properties;

 

(iii)

investigating, analyzing and selecting possible opportunities for the sale of any one or more of the Properties;

 

(iv)

retaining and supervising third parties or affiliates to provide property management services with respect to those Properties that are not otherwise managed by a tenant pursuant to the terms of such tenant’s lease;

 

(v)

engaging and supervising, on the Company’s behalf and at the Company’s expense, independent contractors which provide real estate-related services, property management services, legal services, accounting services, due diligence services and such other services as may be required relating to the Properties;

 

(vi)

to the extent expressly authorized by the Company in writing, negotiating, and closing on the Company’s behalf the sale, exchange or other disposition of any of the Properties (it being understood that third party fees and expenses may be incurred at the Company’s expense in connection with any such disposition efforts);

 

(vii)

arranging, negotiating, coordinating and managing operations of any joint venture or co-investment interests held by the Company with respect to the Properties and conducting all matters with any joint venture or co-investment partners;

 

(viii)

monitoring the operating performance of the Properties;

 

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(ix)

advising the Company with respect to qualifying to do business in all applicable jurisdictions and to obtain and maintain all appropriate licenses;

 

(x)

assisting the Company in complying with all regulatory requirements applicable to the Company in respect of its business activities;

 

(xi)

communicating on the Company’s behalf, with any first mortgage lenders having loans on any of the Properties and with any landlords with respect to any leased Properties and providing written reports to such lenders in connection therewith to the extent required by the loan documents applicable to such loans;

 

(xii)

using commercially reasonable efforts to oversee the property managers and to not consent or authorize the property managers to incur expenses by or on behalf of the Company other than in accordance with the Approved Budget (subject to any variance permitted in accordance with the applicable property management agreements);

 

(xiii)

provide additional services reasonably requested by Company which are consistent with the services currently being provided by Manager as of the Effective Date (for purposes of clarification, if any requested services will require Manager to hire new employees, then such services shall fall under romanette (xiv) below); and

 

(xiv)

providing additional services to, or for the benefit of, the Company as may be mutually agreed upon by the Company and Manager (which additional services may require the payment of additional fees to Manager as may be agreed upon by Company and Manager).

 

(c)

Property Management Subcontracts . Consistent with Past Practices and subject to the prior written approval of Company, such approval not to be unreasonably withheld, delayed or conditioned, Manager may enter into agreements with other parties (on the Company’s standard form), including its affiliates, at market rates and costs for the purpose of engaging one or more property managers for and on behalf, and at the sole cost and expense, of the Company to provide property management and/or similar services to the Company with respect to the Properties. Notwithstanding the foregoing, all new property management contracts shall be terminable upon thirty (30) days’ notice without penalty.

 

(d)

Other Service Providers . Manager may retain for, and on behalf of, the Company, and at the sole cost and expense of the Company, at market rates and costs, such services of accountants, legal counsel, appraisers, insurers and brokers, among others, including Manager’s affiliates, as Manager deems necessary or advisable in connection with the management and operations of the Company and the provision of its duties under this Agreement; provided, that any such agreement entered into with an affiliate of Manager to perform any such services shall be engaged on terms no more favorable to such affiliate than would be obtained from

 

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a third party on an arm’s-length basis and if the costs and expenses of such third party contracts exceed $10,000 in any calendar year they will be subject to the Company’s approval. Notwithstanding the foregoing, all new third party contracts shall be terminable upon thirty (30) days’ notice without penalty.

(e)

Claims . Should any claims, demands, suits or other legal proceedings in respect to any of the Properties be made or instituted against Company or any Subsidiary, Manager shall reasonably assist the Company in the defense or other disposition thereof.

 

(f)

Employees . All matters pertaining to the employment, supervision, compensation and promotion of Manager’s employees are the sole responsibility of Manager.

 

(g)

Business Plans :

 

(1)

For Significant Properties in major metropolitan areas, Manager shall provide Company such other information reasonably requested by Company including: (i) a list of all properties competitive with the Properties, a list of the tenants of each, and all other reasonably available information for such competitive properties, and (ii) basic demographic data relating to the market area of the Properties, including population growth, major employers, employment and unemployment levels and, if a property is a retail property, retail sales and housing starts in such area.

 

(2)

From time to time, upon Company’s request, such other information with regard to Properties as may reasonably be requested including the following:

 

(A)

Supporting leases and lease abstracts as requested;

 

(B)

Cash flow projection broken out by NOI, capital expenditures, debt service payments, principal draws and paydowns, and projected net sales proceeds updated as requested over the assets’ expected hold period to the extent Company advises Manager of such hold period (or if not provided, the hold period shall be deemed to be equal to 5 years), but at a minimum on a quarterly basis and provided in a format approved by Company; and

 

(C)

Property Performance Report (“ PPR ”): Manager shall provide to Company a Quarterly PPR for each of the Properties, in the form attached hereto as Annex B. Manager shall use good faith efforts to provide such PPRs to Company by the third week of each calendar quarter, but in any event, shall provide such Quarterly PPRs to

 

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Company by the last day of the month following the month with respect to which the PPR is applicable.

(h)

Use of Manager’s Funds . Manager shall not be required to expend money in excess of that contained in any applicable Company bank account or otherwise made available by the Company to be expended by Manager hereunder.

 

(i)

Reliance by Manager . Manager, in performing its duties under this Section 2, shall be entitled to rely on qualified experts and professionals (including, without limitation, accountants, legal counsel and other professional service providers) hired by Manager at the Company’s sole cost and expense.

 

(j)

Payment and Reimbursement of Expenses . The Company shall pay all expenses, and reimburse Manager for Manager’s expenses incurred on its behalf, in connection with any such services to the extent such expenses are reimbursable by the Company to


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