EXHIBIT 10.6
PROMISSORY NOTE SECURED BY
DEED OF TRUST
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$11,440,000
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December 19, 2008
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1.
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PROMISE
TO PAY . For value
received, the undersigned FPA GOVERNOR PARK ASSOCIATES, LLC a
Delaware limited liability company (“Borrower”),
promise(s) to pay to the order of MIREF GOVERNOR FINANCE, LLC, a
Delaware limited liability company (“Lender”), c/o
McMorgan Institutional Real Estate Fund I, LLC, 425 Market Street,
Suite 1600, San Francisco, California 94105 or at such other place
as may be designated in writing by Lender, the principal sum up to
ELEVEN MILLION FOUR HUNDRED FORTY THOUSAND AND NO/100THS DOLLARS
($11,440,000) or so much thereof as may be advanced pursuant to
the terms hereof (“Loan”), with interest thereon as
specified herein. All sums owing hereunder are payable in lawful
money of the United States of America, in immediately available
funds, without offset, deduction or counterclaim of any
kind.
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2.
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SECURED
BY DEED OF TRUST .
This Note is secured by, among other things, that Deed of Trust and
Absolute Assignment of Rents and Leases and Security Agreement (and
Fixture Filing) (“Deed of Trust”) of even date
herewith, identifying this Note as an obligation secured thereby
and encumbering certain real property described therein
(“Property”).
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3.
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DEFINITIONS . For the purposes of this Note, the following
terms shall have the following meanings:
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“Additional Advance”
shall have the meaning set forth in Section 5 of Exhibit A to
this Note.
“Advance” shall mean the
Initial Advance and any Additional Advance.
“Borrower’s Equity
Contribution” shall mean an amount equal to the difference
between (x) the amount payable by Borrower under the Purchase
Agreement on the date of closing of the purchase and sale of the
Property (as set forth in Section 2(iii) of the Purchase
Agreement), together with all additional amounts to be paid by
Borrower in order to close the transactions contemplated by the
Purchase Agreement minus (y) the Initial
Advance.
“Business Day” shall
mean any day other than a Saturday, Sunday, legal holiday or other
day on which commercial banks in California are authorized or
required by law to close. All references in this Note to a
“day” or a “date” shall be to a calendar
day unless specifically referenced as a Business Day.
“Business Plan” shall
have the meaning set forth in Section 6 of Exhibit A to this
Note.
“Cap-Ex, Leasing Costs and
Interest Reserve Budget” shall mean the budget attached
hereto as Exhibit C (as such budget may be modified from time to
time with Lender’s approval, which may be given or withheld
in its sole discretion).
“Debt Service” shall
mean, with respect to any particular period of time, scheduled
interest payments due under the Note.
“Debt Service Coverage
Ratio” shall mean the ratio, as determined by Lender, of
(a) Net Operating Income from the Property, to (b) an
amount equal to the Debt Service that would be due for the twelve
(12) calendar month period immediately following such
calculation.
“Default” shall have the
meaning set forth in the Deed of Trust.
“Effective Date” shall
mean the earlier of (a) the date the Deed of Trust is recorded
in the Office of the County Recorder of the county where the
Property is located and (b) the date Lender authorizes the
proceeds of the Initial Advance to be released to
Borrower.
“First Extended Maturity
Date” shall mean December 19, 2011.
“First Extension Term”
shall mean the period beginning on December 19, 2010 and
ending on the First Extended Maturity Date.
“First Option to Extend”
shall mean Borrower’s option, subject to the terms and
conditions of Section 3 of Exhibit A to this Note, to extend
the term of the Loan from the Original Maturity Date to the First
Extended Maturity Date.
“Hazardous Materials Indemnity
Agreement” shall mean that certain Hazardous Materials
Indemnity Agreement by Borrower and Limited Guarantor to and for
the benefit of Lender.
“Initial Advance” shall
mean the initial advance under the Loan in an amount equal to Eight
Million Two Hundred Ninety Thousand and No/100 Dollars
($8,290,000.00).
“Initial Advance Disbursement
Date” shall mean the date upon which the proceeds of the
Initial Advance are funded into escrow in connection with the
closing of the Loan.
“Limited Guarantor”
shall mean Gregory A. Fowler, Trustee of the Gregory A. Fowler
Living Trust.
“Limited Guaranty” shall
mean that certain limited guaranty by Limited Guarantor to and for
the benefit of Lender.
“Loan Documents” shall
mean the documents listed in Exhibit B attached hereto and
incorporated herein by this reference.
“Maturity Date” shall
mean, as applicable, either (i) the Original Maturity Date,
(ii) the First Extended Maturity Date, if the Original
Maturity Date is extended as provided for herein or (iii) the
Second Extended Maturity Date, if the First Extended Maturity Date
is extended as provided for herein.
“Maximum Loan Amount”
shall mean an amount equal to Eleven Million Four Hundred Forty
Thousand and No/100 Dollars ($11,440,000.00)
“Net Operating Income”
shall mean the annualized amount of (i) all rents from
approved, executed leases, and all other revenues and income,
derived from the Property and expected to be received for the first
90 days of the extension period in question, less (ii) all
estimated ordinary and necessary operating expenses applicable to
the Property for the first 90 days of the extension period in
question (including, but not limited to, estimated expenses for
utilities, administration, cleaning, landscaping, security, repairs
and maintenance, ground rent payments, if any, management fees,
fully assessed (or estimated fully assessed) real estate and other
taxes and assessments and insurance premiums, but excluding from
any such expenses any deductions for federal, state and other
income taxes, debt service, depreciation or amortization of capital
expenditures [including leasing commissions, tenant improvements,
and other leasing costs] and other similar non-cash
items).
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“Note Rate” shall mean a
fixed rate of seven percent (7.0%) per annum.
“Operating Expenses”
shall mean all reasonable operating expenses of the Property,
including, without limitation, those for maintenance, repairs,
annual taxes or payments in lieu of taxes, insurance (but not the
cost of terrorism insurance), utilities and other annual expenses
(but not capital expenses) that are standard and customary for
properties similar to the Property, and which are set forth in the
Approved Annual Budget. Operating Expenses for this purpose shall
not include any interest or principal payments on the Loan or any
allowance for depreciation.
“Option to Extend” shall
mean, collectively, the First Option to Extend and the Second
Option to Extend.
“Original Maturity Date”
shall mean December 19, 2010.
“Purchase Agreement”
shall mean that certain Real Estate Purchase and Sale Agreement
dated as of September 9, 2008 between McMorgan Institutional
Real Estate Fund I, LLC as predecessor-in interest to MIREF
Governor Park, LLC (“Seller”), as seller, and Fowler
Property Acquisitions, LLC, as predecessor-in interest to FPA
Governor Park Associates, LLC (“Buyer”), as buyer, as
modified by that certain extension notice by Buyer to Seller dated
as of September 19, 2008 and as further modified by that
certain First Amendment to Real Estate Purchase and Sale Agreement
dated as of October 23, 2008 between Seller and
Buyer.
“Release Parcel” shall
have the meaning set forth in the Deed of Trust.
“Second Extended Maturity
Date” shall mean December 19, 2012.
“Second Extension Term”
shall mean the period beginning on December 19, 2011 and
ending on the Second Extended Maturity Date.
“Second Option to
Extend” shall mean Borrower’s option, subject to the
terms and conditions of Section 3 of Exhibit A to this Note,
to extend the term of the Loan from the First Extended Maturity
Date to the Second Extended Maturity Date.
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4.1.
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Interest . Interest on the outstanding principal balance
of this Note shall accrue at the Note Rate (except as otherwise
provided in Section 6.2 below).
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a.
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Interest accrued on this Note
shall be due and payable in arrears on the first day of each month
commencing with the first day of the second full month following
the Initial Advance Disbursement Date. Interest shall be calculated
on the basis of a 360-day year and charged on the basis of actual
days elapsed for any whole or partial month in which interest is
being calculated. Interest for the balance of the Month in which
the closing of the Loan occurs (including the day on which the Loan
closes) shall be paid at the closing of the Loan. Principal, all
accrued interest and all other amounts due under this Note,
including the Exit Fee, shall be due and payable on
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the Maturity Date (except as
otherwise expressly provided in the Loan Documents). Except as
otherwise specifically provided in this Note or the other Loan
Documents, all payments and deposits due under the Loan Documents
shall be made to Lender not later than 12:00 noon, California time,
on the day on which such payment or deposit is due. Any funds
received by Lender after such time shall, for all purposes, be
deemed to have been received on the next succeeding Business
Day.
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b.
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Lender will pay
Debt Service due and payable under the Loan by funding advances of
interest directly to Lender, with the amount of each such advance
to be added to the outstanding principal balance of the Loan and
with interest to accrue thereon from the time of such advance;
provided that , Lender shall not be obligated to make
any such advance of interest (and Borrower shall pay such amounts
from Borrower’s own funds): (i) if there is a Default
under the Note, the Deed of Trust, or any of the other Loan
Documents, or (ii) to the extent the disbursement of such
amount would cause (A) the amount specified as the
“Carry/Interest Reserve” amount on the Cap-Ex, Leasing
Costs and Interest Reserve Budget to be exceeded, or (B) the
aggregate principal balance of the Loan to exceed the Maximum Loan
Amount. The advance provisions of Section 5.1 of Exhibit A
shall not be applicable to this Section 4.2(b).
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4.3
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Application of Payments
. In the absence of a Default, all
payments paid by Borrower to Lender in connection with the
obligations of Borrower under this Note and under the other Loan
Documents shall be applied in the following order of priority:
(a) to amounts, other than principal and interest, due to
Lender pursuant to this Note or the other Loan Documents;
(b) to accrued but unpaid interest on this Note; and
(c) to the unpaid principal balance of this Note. Borrower
irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Lender from or on
behalf of Borrower, and Borrower irrevocably agrees that, after the
occurrence of a Default, Lender shall have the continuing exclusive
right to apply any and all such payments against the then due and
owing obligations of Borrower in such order of priority as Lender
may deem advisable .
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5.1.
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Loan
Fee . Borrower shall
pay to Lender, at Loan closing, a loan fee (the “Loan Fee
” ) in the amount of One Hundred Fourteen Thousand and
No/100 Dollars ($114,000.00). The Loan Fee shall be deemed earned
upon payment and shall not be subject to reduction or be refundable
under any circumstances.
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5.2.
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Exit
Fee . On the Maturity
Date or such earlier date on which all amounts owing by Borrower to
Lender under this Note or the other Loan Documents become due and
payable, by acceleration or otherwise (and upon any earlier
prepayment of all or any portion of the Loan, including, without
limitation, any payment resulting from voluntary prepayment, any
condemnation or casualty or in connection with the release of any
Release Parcel), Borrower shall pay to Lender an exit fee (the
“Exit Fee ” ) in the amount of one percent
(1.0%) of the outstanding principal balance of the Loan that
is repaid. The Exit Fee shall be paid to Lender concurrently with
any payment of the outstanding principal balance of the Loan (or
any portion thereof), whenever such payment shall occur. The Exit
Fee shall be deemed earned as of the date hereof and shall not be
subject to reduction nor be refundable under any
circumstances.
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6.
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LATE
CHARGE; DEFAULT RATE .
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6.1.
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Late
Charge . If all or
any portion of any payment or deposit required hereunder (other
than the payment due on the Maturity Date) is not paid or deposited
on or before the tenth (10th) day following the day on which
such payment or deposit is due, Borrower shall pay a late or
collection charge, as liquidated damages, equal to five percent
(5.0%) of the amount of such unpaid payment or deposit.
Borrower acknowledges that Lender will incur additional expenses as
a result of any late payments or deposits hereunder, which expenses
would be impracticable to quantify, and that Borrower’s
payments under this Section 5.1 are a reasonable estimate of
such expenses.
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6.2.
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Default
Rate . Commencing
upon a Default and continuing until such Default shall have been
cured by Borrower and following the Maturity Date (whether
occurring by acceleration or otherwise) all sums owing on this Note
shall bear interest until paid in full at a rate equal to the
lesser of (i) thirteen percent (13.0%) per annum and
(ii) the maximum rate of interest permitted by applicable law
(“Default Rate”).
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7.
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MAXIMUM
RATE PERMITTED BY LAW . Neither this Note nor any of the other Loan
Documents shall require the payment or permit the collection of any
interest or any late payment charge in excess of the maximum rate
permitted by law. If any such excess interest or late payment
charge is provided for under this Note or any of the other Loan
Documents or if this Note or any of the other Loan Documents shall
be adjudicated to provide for such excess, neither Borrower nor
Borrower’s successors or assigns shall be obligated to pay
such excess, and the right to demand the payment of any such excess
shall be and hereby is waived, and this provision shall control any
other provision of this Note or any of the other Loan Documents. If
Lender shall collect amounts which are deemed to constitute
interest and which would increase the effective interest rate to a
rate in excess of the maximum rate permitted by law, all such
amounts deemed to constitute interest in excess of the maximum
legal rate shall, upon such determination, at the option of Lender,
be returned to Borrower or credited against the outstanding
principal balance of this Note.
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8.
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ACCELERATION . If (a) any Default shall occur and be
continuing; or (b) any other event or condition shall occur
which, under the terms of the Deed of Trust or any other Loan
Document, gives rise to a right of acceleration of sums owing under
this Note after the expiration of any applicable notice and cure
periods, then Lender, at its sole option, shall have the right to
declare all sums owing under this Note immediately due and payable;
provided, however, that if the Deed of Trust or any other Loan
Document provides for the automatic acceleration of payment of sums
owing under this Note, all sums owing under this Note shall be
automatically due and payable in accordance with the terms of the
Deed of Trust or such other Loan Document.
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9.
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BORROWER’S LIABILITY
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9.1.
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Limitation . Except as otherwise provided in this
Section 9, Lender’s recovery against Borrower under this
Note and the other Loan Documents shall be limited solely to the
Property and the “Collateral” (as defined in the Deed
of Trust).
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9.2.
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Exceptions
. Notwithstanding the foregoing
limitation of liability, Borrower shall be personally liable for,
and shall defend, indemnify and hold harmless Lender, its
directors, officers, partners, members, employees, successors and
assigns from and against, all actual losses, damages, liabilities,
claims, actions, judgments, court costs and legal and other
expenses sustained by Lender, or its directors, officers, partners,
members, employees, successors and assigns
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(including, without limitation,
reasonable attorneys’ fees and expenses) caused by or
relating to any of the following: (i) waste to or of the
Property or the Collateral, (ii) gross negligence, fraud,
material misrepresentation or intentional misconduct by Borrower;
(iii) failure to apply insurance proceeds to the restoration
of the Property or the Collateral, or failure to apply insurance
proceeds or maintain insurance in accordance with the terms of the
Loan Documents; (iv) failure to apply tenant security deposits
or condemnation proceeds in accordance with the terms of the Loan
Documents; (v) failure after Lender has declared a monetary
event of default to pay to Lender all rents, income and profits of
and from the Property and the Collateral, net of reasonable and
customary operating expenses; (vi) breach of or failure to
perform under the environmental representations, warranties,
covenants or indemnifications agreed to in the Hazardous Materials
Indemnity; (vii) destruction or removal of fixtures or
personal property securing the Loan from the Property, unless
replaced by items of equal value; (viii) breaches of
representations or covenants contained in the Loan Documents
relating to compliance with terrorism or money laundering laws,
including Executive Order No. 13224 on Terrorist Financing,
effective September 24, 2001 (the “Executive
Order”) and Public Law 107-56, known as the U
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