The primary collateral in the real estate leasing project for the lessor of the leasing property is the real estate itself. In light of the fact that leasing real estate – other than office properties – usually are special properties, the added-value potential often exists only for the land itself.

Most lessors quite correctly do not consider just the leasing property but rather take an overall view of all risks to be secured.

Risk management

Adequate risk management demands an examination as in the following matrix:

  1. risk avoidance
  2. risk transfer
    1. for example, shifting risk to the agreement partner (lessee)
    2. for example, through outsourcing or insurance
  3. risk reduction
    1. for example, through risk diversification
    2. for example, through process improvements
    3. for example, through internal control systems
    4. for example, through crisis and business continuity management
  4. risk acceptance
    1. for example, capital resources in OpCo or PopCo
    2. for example, provision of guarantees

Source: Structure cf. 

Risks to be secured

Whenever possible, the following risks should be covered by collateral:

  • overall commercial risk
    • unexpected changes to all value parameters, as long as and to the extent that it does concern a fundamental commercial risk of the lessee
  • acquisition phase
    • lasting value of the leasing property
    • perfected construction project (often even with a value-reducing effect)
      • for example, fully automated factory without other possible use by others
      • for example, luxury finishing
    • property tax consequences
  • construction phase
    • initially (lessee as ordering client)
      • botched construction
      • builder’s lien of the companies and craftsmen working on the construction
    • afterwards (lessee as ordering client)
      • builder’s lien similar to tenant construction
  • usage phase
    • safeguards for leasing payments
    • harmful building substances
    • ground pollution from operations
  • disposal phase
    • repair and adjustment costs
    • harmful ground and building substances
    • preparations for any possible interim usage
    • general tax consequences
    • property tax consequences 

Safeguarding limits 

the limits of providing safeguards are reached in the following cases: 

  • double or multiple collateral
  • withholding the use of real estate leasing

Means for providing collateral

consider as collateral

  • personal collateral
  • real collateral
  • other collateral

In the group structure of the lessee, the following is used as collateral:

  • guaranties
  • assumed joint liability of the group parent or one of the subsidiaries (= so-called cumulative debt assumption)
  • keepwell statement (Patronatserklärung) 
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