The following is a summary of certain provisions of the Ground Lease pursuant to which the real property underlying the Project Facilities will be leased to the Corporation by the University. This summary is not a complete recital of the terms of the Ground Lease and reference is made to the Ground Lease in its entirety. During the initial offering period, potential purchasers of the Series 2012 Bonds can obtain a copy of the Ground Lease from the Underwriter at no cost and are encouraged to review the same before investing in the Series 2012 Bonds. Following the initial offering period, potential purchasers can examine such documents at the Principal Office of the Trustee.
Background
The Corporation acquired a leasehold interest in the real property on which the 2011 Project Facilities are located (the “2011 Corporation Premises”) pursuant to the Original Ground Lease. Under the First Amendment to Ground Lease, the Corporation will acquire a leasehold interest in the real property on which the 2012 Project Facilities will be located (the “2012 Corporation Premises” and, together with the 2011 Corporation Premises, the “Corporation Premises”), such that under the Ground Lease, the Corporation will have a leasehold interest in the entire Corporation Premises.
General Lease Terms
The term of the Ground Lease commenced on July 1, 2011 and will expire on a date not less than 9 years after the final maturity date of the Series 2012 Bonds (subject to prior termination, if all liens against the leasehold are discharged and the Corporation’s rights under the Ground Lease have not been transferred to a
third party pursuant to foreclosure). Pursuant to the Ground Lease, the University has leased to the Corporation the real property upon which the 2012 Project Facilities will be located. The leased property under the Ground Lease is intended to be the complete “footprint” of each of the 2011 Project Facilities and the 2012 Project Facilities, which such “footprint” will include an area of five (5) feet around each building to be included as part of the 2011 Project Facilities and the 2012 Project Facilities. Pursuant to the Ground Lease, the University agrees to grant to residents of the Project Facilities a non-exclusive license to use the parking facilities located on the campus, subject to any fees and rules imposed by the University.
Rent
Pursuant to the Ground Lease, the Corporation will pay, upon execution of the Ground Lease, an initial rental payment sufficient to reimburse the costs incurred by the University in connection with the Ground Lease and the matters contemplated therein. In connection with the execution of the First Amendment to Ground Lease, the Corporation will make a one-time, non-recurring rental payment to the University for the purpose of reimbursing the University for costs incurred by the University in connection with the 2012 Project Facilities. In addition, annual rental payments of (i) $15,000 are due annually in arrears from the Corporation commencing with the Lease Year (as defined in the Ground Lease) beginning July 1, 2012 with respect the 2011 Project Facilities, and (ii) $18,500 are due annually in arrears from the Corporation commencing with the Lease Year (as defined in the Ground Lease) beginning July 1, 2014 with respect the 2012 Project Facilities (collectively, the "Base Rent") (provided however that the Base Rent in respect of such Lease Year shall be pro-rated for that portion of the Lease Year, if any, following the respective completion and occupancy of the 2011 Project Facilities and 2012 Project Facilities), and are subject to an automatic escalation of 3% per annum which will commence with the Lease Year beginning July 1, 2013. The Ground Lease provides for the payment to the University on a subordinate basis of percentage rent (“Percentage Rent”) equal to 25% of the Net Available Cash Flow (as defined in the Ground Lease). In addition, the Corporation will be required to pay to the University annually, as additional rent, a system fee (the “System Fee”) equal to one-half of one percent (0.5%) of that portion of the Gross Revenue (as defined in the Ground Lease) constituting the actual room rental charges for the Project Facilities.
In addition to the payment of Base Rent, Percentage Rent (which is payable on a subordinated basis as provided below) and System Fee, the Corporation will pay when due, any and all other sums of money required to be paid by the Corporation to the University under the Ground Lease (the “Additional Rent” and, together with Base Rent, Percentage Rent and the System Fee, the “Rent”). Except as otherwise provided therein, all payments of Additional Rent shall be due within 30 days after the Corporation’s receipt of the University’s written demand therefor. At the University’s request, as Additional Rent in-kind and at no charge, the Corporation shall provide up to 26 beds for student advisors, resident directors, resident assistants or resident managers, provided that during the Fall and Spring semesters, the Corporation shall provide no more than 14 beds at no charge for student advisors, resident directors, resident assistants or resident managers.
Subordination of Rent
The University’s right to certain of the rental payments will be subordinated as set forth in
“SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2012 BONDS – Revenue Fund”) to any payments due with respect to the Issued Bonds and certain other payments set forth in the Indenture and the failure to make such payment as a result of such subordination will not constitute an Event of Default under the Indenture. Any Base Rent, Percentage Rent or Additional Rent which is not paid when due or as a result of such subordination shall remain due and owing and shall be paid to the University (with interest thereon) prior to any payment to the Corporation of its share of Net Available Cash Flow.
Limitations on Use
The Ground Lease requires that the Project Facilities be used solely for the operation of student housing facilities to serve students of the University and people attending camps, conferences and similar events occurring at the University and for such other uses as the University and the Corporation may agree.
Residents (other than “Attendees” defined in the Ground Lease), of the Project Facilities will be required to
purchase one of the University’s meal (board) plans, and no alcoholic beverages will be allowed at the Project Facilities.
Failure of Corporation to Timely Complete Construction
In addition to the rights of the University set forth in the Ground Lease, if either: (i) construction of any portion of the 2012 Project Facilities does not start within six (6) months after the expected date for commencement of construction set forth in the Ground Lease; or (ii) substantial completion (as such term is defined in the Ground Lease) of any portion of (A) the 2011 Project Facilities does not occur within six (6) months after the expected occupancy date of January 15, 2013, or (B) the 2012 Project Facilities does not occur within six (6) months of August 21, 2014 as set forth in the Ground Lease, then the University shall have the right to terminate the Ground Lease with respect to such 2011 Project Facilities or 2012 Project Facilities and to purchase the Corporation’s right, title and interest in and to the Improvements (as defined in the Ground Lease) and personal property of the Corporation constituting the 2011 Project Facilities or 2012 Project Facilities for a price equal to either the price established pursuant the Ground Lease if an Approved Loan (as defined in the Ground Lease, which definition includes the Series 2012 Bonds) is not being assumed, or if an Approved Loan is being assumed, Fifty Thousand Dollars ($50,000) (such figure representing a reasonable estimate of the expenditures incurred by the Corporation with respect to the 2012 Project Facilities and not paid out of proceeds of any Approved Loan) plus the assumption by the University of any outstanding Approved Loan entered into by the Corporation with respect to portion of the 2011 Project Facilities or the 2012 Project Facilities in question.
If substantial completion of any of the 2011 Project Facilities or 2012 Project Facilities does not occur by the expected occupancy date, then the University shall make available to the Corporation such Residence Hall Beds (as defined below) as are available in the University’s on-campus residence halls to house displaced students who were to reside in such 2011 Project Facilities or 2012 Project Facilities for a price equal to One Dollar ($1.00) plus the University’s cost of operating such Residence Hall Beds, which shall be payable out of any liquidated damages or other monies recovered from the Developer, the contractor or their respective sureties for the 2011 Project Facilities or 2012 Project Facilities as a result of any delay in substantial completion, to the extent provided in the Bond Documents. “Residence Hall Beds” means a vacant bed in an existing on campus residence hall of the University. Such Residence Hall Beds shall be made available until such time as the students are relocated to the 2011 Project Facilities or 2012 Project Facilities but shall not affect the University’s rights to terminate this Ground Lease as described above. Subject to the provisions of the Indenture, the Corporation shall be permitted to receive and retain all payments made with respect to such on-campus space at the agreed-upon rental rate, as if such rooms were part of the 2011 Project Facilities or 2012 Project Facilities. If the number of displaced students exceeds the number of available Residence Hall Beds, the parties shall seek to arrange to (a) house such displaced students near the University’s campus at a facility satisfactory to the Corporation; (b) provide routine transportation to and from the University’s campus;
and (c) move each such displaced student into the 2011 Project Facilities or 2012 Project Facilities when the 2011 Project Facilities or 2012 Project Facilities become available for occupancy.
Leasehold Mortgages
The Ground Lease permits leasehold mortgages approved by the University (including those associated with the Series 2012 Bonds) and grants the holders of such mortgages the right to cure defaults by the Corporation. The Ground Lease further provides that an approved mortgagee may, upon termination of the Ground Lease by the University by reason of the occurrence of an Event of Default thereunder, require the University to enter into a new ground lease, on the same terms, with such mortgagee.
Defaults and Remedies
The occurrence of any of the following will constitute a material default and breach of the Ground Lease by the Corporation (an “Event of Default”):
(a) subject to the provisions of the Ground Lease, a failure by the Corporation to pay any Rent when due under the Ground Lease;
(b) a failure by the Corporation to fully observe and perform the provisions or covenants of the Ground Lease relating to assignment and subletting or provision of beds at no charge for student advisors, resident directors, resident assistants or resident managers;
(c) a failure by the Corporation to fully observe and perform any other provision or covenant of the Ground Lease to be observed or performed by the Corporation, where such failure continues for 30 days after written notice thereof from the University to the Corporation or, if such failure cannot be cured within such 30 day period and the University will not be materially harmed by such delay, for such longer period as may be required for such cure so long as such cure is commenced within such 30 day period and diligently prosecuted to completion; or
(d) the making by the Corporation of any assignment for the benefit of creditors; the filing by or against the Corporation of a petition under any bankruptcy, insolvency, reorganization or other similar rule or statute (unless, in the case of a petition filed against the Corporation, the same is dismissed within 90 days after the filing thereof); the appointment of a trustee or receiver to take possession of substantially all of the Corporation’s assets located in the Project Facilities or of the Corporation’s interest in the Ground Lease (unless possession is restored to the Corporation within 90 days after such appointment); or the attachment, execution or levy against, or other judicial seizure of, substantially all of the Corporation’s interest in the Ground Lease (unless the same is discharged within 90 days after the issuance thereof).
Upon the occurrence of an Event of Default but subject to the provisions relating to the rights of the Trustee, the University may pursue one or more of the following options:
(a) The University may accelerate the Base Rent due under the Ground Lease for the remainder of the term by written notice to the Corporation to such effect, whereupon such Base Rent shall be immediately due and payable;
(b) The University may terminate the Ground Lease by written notice to the Corporation to such effect, whereupon the Corporation shall immediately surrender the Project Facilities to the University in accordance with Article 21 of the Ground Lease, and the University shall be entitled to commence an action to recover all damages incurred by it on account of such Event of Default and termination;
(c) The University may enter the Premises (defined as the Real Estate in the Indenture) (with process of law and without such entry being constituted an eviction of the Corporation or a termination of the Ground Lease) and take possession of any equipment, fixtures, furniture and other personal property of the Corporation situated on the Premises, without liability for trespass or conversion, and sell the same at public or private sale, with or without having such property at the sale, after giving the Corporation reasonable notice of the time and place of any public sale or of the time after which any private sale is to be made, at which sale the University or its assigns may purchase such property unless otherwise prohibited by law. The proceeds from any such disposition, less any and all expenses connected with the taking of possession, holding and selling of the aforesaid property (including without limitation reasonable attorneys’ fees), shall be applied against the obligations of the Corporation under the Ground Lease. Any surplus shall be paid to the Trustee and to the Corporation, in that order of priority, or as otherwise required by law, and the Corporation shall pay any deficiencies forthwith;
(d) The University may enter the Premises (with process of law and without such entry being constituted an eviction of the Corporation or termination of the Ground Lease) and take possession of the Premises and, at any time at its sole option and upon prior written consent of the Trustee, relet the Premises or any part thereof for the account of the Corporation, for such terms, upon
such conditions and at such rental as the University may elect. In the event of such reletting (i) the University shall receive and collect the rent therefrom and shall first apply such rent against such expenses as the University may at any time or from time to time have incurred in recovering possession of the Premises, placing the same in good order and condition, altering or repairing the same for reletting and such other expenses, commissions and charges, including without limitation brokers’ and attorneys’ fees, which the University may at any time or from time to time have paid or incurred in connection with such repossession and reletting, and then the University shall apply such remaining rent, if any, against the Corporation’s other obligations to the University under the Ground Lease, and (ii) the University may execute any agreement in connection with such reletting in the University’s name or in the Corporation’s name, as the University may see fit, and the resident of such reletting shall be under no obligation to see to the application by the University of any rent collected by the University, nor shall the Corporation have any right to collect any rent under such reletting. No reentry by the University shall be deemed to be an acceptance of a surrender by the Corporation of the Ground Lease or of the Premises; or
(e) The University may exercise any other remedy available to it at law or in equity.
Option To Purchase
At any time during the term of the Ground Lease, the University shall have the option to purchase the Project Facilities at their fair market value (but not less than an amount necessary to prepay or defease the Issued Bonds).
Limitation on Corporation’s Liability
Notwithstanding any contrary provision of the Ground Lease, the Ground Lease is a limited nonrecourse obligation of the Corporation which in the absence of willful misconduct or gross negligence on the Corporation’s part, is payable solely from the Gross Revenues from the operation of the Project Facilities.