USA - NEW JERSEY Law and Practice Contributed by: Steven Fleissig, David Freylikhman, Cory Mitchell Gray and David Jensen, Greenberg Traurig LLP
some residential and some commercial (includ - ing office) properties. The RTF is typically paid by the seller, see 8. Tax . 2.11 Legal Restrictions on Foreign Investors Foreign investors are required to register with the New Jersey Department of Treasury as a foreign entity authorised to do business in New Jersey.
rower, can be requested to provide mezzanine financing for the acquisition. Since mezzanine financing is not as secure as mortgage financ - ing, the interest rate is typically higher than in a mortgage loan. Investments The borrower may seek additional capital by accepting an investor from a “preferred equity” source, usually a privately held fund established for such purposes. Here, the preferred equity investor becomes a partner in the borrower and demands a “preferred return” on its investment and a portion of the profits from the property in exchange for its investment. Both the mez - zanine lender and preferred equity investor will be able to exert a fair amount of control over the borrower, much more than a mortgage lender typically would. 3.2 Typical Security Created by Commercial Investors The security provided to a mortgage lender typi - cally consists of a first- priority mortgage loan and an assignment of leases and rents. In certain circumstances a first-priority lender may allow secondary financing (ie, a second subordinate mortgage). Priority of a mortgage is based on its recording date and although it is not required, some lenders elect to file UCC-1 financing statements in the state where the borrower was formed to secure its lien on other non-real estate assets. A mezzanine lender’s lien is secured by a pledge of ownership interests in the property owner and such security interest can be perfected both by the filing of a UCC-1 financing statement in the state where the pledging principal of the bor - rower resides and, if the lender requires the bor - rower to “opt-in” to Article 8 of the UCC, delivery of actual ownership certificates.
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
Acquisitions of commercial property are typically financed by mortgage loans, mezzanine loans, and investments of preferred equity. Mortgages New Jersey is a lien theory state and, therefore, regardless of the language of the mortgage, title to real property does not vest in the mortgagee but remains with the borrower. A mortgage is generally accompanied by an assignment of rents and leases, which should be an “absolute” assignment in order to protect the rental stream from other creditors’ claims in bankruptcy. The mortgage and assignment of rents and leases must be acknowledged and are recorded in the county wherein the property is located. Commercial mortgages are also typically sup - ported by various types of guaranties from the borrower’s principals. Mezzanine Loans In situations where the borrower’s principals lack sufficient equity, a mezzanine lender, whose loan would be secured by a pledge by the borrower’s principals of their ownership interests in the bor -
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