The first lien position lender, if the Ramsey ramp rental wrap deal does not flip [my preference] will be PNC of Pittsburgh, PA. I know of no cause to view them as anything but a class-act bank, surviving the real estate bubble and credit crunch, and conservatively prudent. Which is why they would limit lending on the ramp wrap.
If Flaherty-Collins is illiquid, i.e., cash poor, and spreading money from project to project to keep debt serviced on all their multiple adventures, as suggested by wanting to sell an interest in the Indianapolis Cosmopolitan project, then a danger, if the ramp wrap happens, would be their wanting to spread cash flow from Ramsey to other places, possibly to the disadvantage of the second lien position.
That is why an assignment of rents is crucial for Ramsey.
First, Ramsey would be behind an assignment of rents for the benfit of the first position. PNC is no pack of fools.
However, with PNC being in Pittsburgh, and if our city makes the questionable decision to get into real estate banking without a banking license or any practice or experience in banking, then, however, a local oversight will be present to protect the out-of-state lender interests - something PNC should like, because a second lien holder has incentive to protect servicing of both the first and the second position.
That means PNC could reasonably be assured that in order to not lose all, the second lien holder [Ramsey if they do the thing], would be local "police" over the ramp-wrap's rental cash flows. Given how the deal has so far been checked out by Ramsey, at least what's public, there is uncertainty of how thinly spread FC is over its empire, an empire most likely subject to a host of mortgage responsibilities at multiple places nationwide. That means an active policing would be required and contracting, if any, should be written accordingly, with Bray being a sound attorney for that, if duly instructed and not told to be lax to make a bad deal happen.
Yet, the policing of cash flows and servicing of a first and second lien does not seem to be a Ramsey council priority, again they have no banking license nor experience in protective security for lending. Would they be up to the job? They should either rely on the new TIF guy, or hire the expertise, apart from any firm with a conflicted position such as Landform, which gets commission money to push deals, not to police interests or to suggest city cautions.
Presuming adequate supervision is maintained, by Ramsey's CFO Lund and Ra,sey's new TIF employee, and suitable retained agents, the PNC position should be confident of being serviced if the second position has a right to expeditiously intervene to receive and handle rents if either the first or second servicing goes into default.
If the second lien holder does not protect the servicing of the first lien, the second can end up foreclosed out of any interest. There thus is strong incentive for a second to assure the PNC first position does not go into default, and if it does to step in immediately and take over rent cash flows to cure default and assure servicing.
Hence, if the bad deal is nonetheless approved by the council, and if it insists on taking a strong assignment of rents position, it should be empolwered to step in and take over the rental cash flow if either the first or second lien position goes into default; with other standard loan protections in place also, but that's Bray's concern. The assignment of rents is critical to protecting any second position, and since Flaherty and Collins has no present intent to NOT service a first and second position, they should have no legitimate basis to want to decline an assignment. They do intend to pay properly, don't they?
The big gamble, however, is clear.
If the thing is as big a fiasco as I anticipate, the rental cash flow will be inadequate to service first and second liens, it will be a loser, and the North Carolina bankruptcies show how prompt Flaherty and Collins is in bailing out on a loser. And if they assert it was not a prompt bailout but a lengthy attempt at a workout, history is history, and reporting is that the two principals, Mr. Flaherty and Mr. Collins only incurred personal losses of about a million each on first position limited personal guarantees, while those prepurchasing a condo dream from the two adventurers' thin LLC shell collectively lost $7.2 million.
Flaherty and Collins, together and each separately, are most concerned with personal wealth and its advancement and protection, and while that is understandable there is zippo reason that City of Ramsey should bow and scrape to such a predilection. The city council's duty is to protect the city, not two dudes from Indiana, against loss.
