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Item 2.03.
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
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On July 19, 2019, pursuant to the terms of a
Construction and Mini Perm Loan Agreement ("Loan Agreement"), between Murano At Three Oaks Associates LLC, a Florida
limited liability company (the “Borrower”) which is 25% owned by HMG Fort Myers, LLC, a Florida limited liability company
which is a wholly owned subsidiary of HMG/Courtland Properties, Inc.(“HMG”), and PNC Bank, National Association ("Lender"),
Lender provided a construction loan to the Borrower for the principal sum of approximately $41.59 million (“Loan”).
The proceeds of the Loan shall be used to finance the construction of multi-family residential apartments containing 318 units
totaling approximately 312,000 net rentable square feet on a 17.5-acre site located in Fort Myers, Florida ("Project").
The Project site was purchased by the Borrower concurrently with the closing of the Loan. Total development costs for the Project
are estimated at $56.08 million and the Borrower’s equity totals approximately $14.49 million. HMG’s share of the equity
is 25%, or approximately $3.62 million, of which $2.70 million has been funded to date including $2.25 million funded on July 2,
2019.
The Loan Agreement is evidenced by a Promissory
Note ("Note"). The Note is secured by, among other things, a first mortgage on the Project and a collateral assignment
of all present and future leases and rents.
The maturity of the Loan is 48 months from Loan
closing, or July 19, 2023. Borrower shall have the option to convert the Loan to a mini-permanent loan (the “Mini Perm Loan”)
having a term of one year after the maturity of the Loan, provided that Lender determines, in its sole discretion, that Borrower
has timely satisfied the conditions for Mini Perm Loan, as defined in the Loan Agreement. In addition, if the Borrower otherwise
satisfies the Mini Perm Loan conditions, Borrower may extend the term of the Mini Perm Loan one year beyond the initial Mini Perm
Loan period.
The Loan Agreement requires that the Project
be completed no later than 30 months from Loan closing. Beginning at month 42 after the Loan closing date, the Project Debt Service
Coverage Ratio (“DSCR”) , tested quarterly, shall be at least 1.5 times. Certain other affirmative and negative covenants
customary for transactions of similar type and size as defined in the Loan Agreement.
The Borrower will pay interest in respect of
the outstanding unpaid principal amount of the Loan at the Daily LIBOR Rate (“DLR”) plus (a) until such time as the
Mini Perm Loan conditions are satisfied as determined by Lender, 2.05% per annum and (b) from and after the Mini Perm Loan conditions
have been satisfied as determined by Lender, 1.85% per annum. If LIBOR becomes unascertainable (as defined) then Lender will promptly
notify Borrower thereof and the outstanding principal and future advances will bear interest at an alternative rate (as defined).
HMG and the other members (or affiliates thereof)
of the Borrower ("Guarantors") entered into a Completion Guaranty ("Completion Guaranty") and a Guaranty and
Suretyship Agreement ("Repayment Guaranty") (collectively, the “Guaranties”) with the Lender.
Under the Completion Guaranty, each Guarantor
shall unconditionally guaranty, as a primary obligor, and become surety for the prompt payment and performance by Borrower of the
“Guaranteed Obligations” (as defined).
Under the Repayment Guaranty, Guarantor unconditionally
guarantees, as a primary obligor, and becomes surety for the prompt payment and performance of, as defined (i) all Interest Obligations,
(ii) all Loan Document Obligations, (iii) all Expense Obligations, (iv) the Carrying Cost Obligations, (v) the Principal
Amount, (vi) interest on each of the foregoing including, if applicable, interest at the Default Rate (as defined). At all
times prior to the First Reduction Date (as defined below), the Guarantors are collectively responsible for 30% of the Principal
Obligations, (ii) at all times after the First Reduction Date, the Guarantors are collectively responsible for15% of the Principal
Obligations, and (iii) at all times after the Second Reduction Date, 0% of the Principal Obligations. First Reduction Conditions"
means satisfaction of the following conditions: (i) no Event of Default has occurred and is continuing; (ii) Completion of
Construction has occurred; and (iii) the Project has achieved a DSCR of not less than 1.25 to 1.00 for two
(2) consecutive fiscal quarters.
Each Guarantor is required to maintain compliance
with the following financial covenants, as defined: (1) liquidity shall not be less than $2.5 million. Liquidity is defined as
the sum of unencumbered, unrestricted cash and cash equivalents and marketable securities, and (2) net worth shall not be less
than $10 million.
In conjunction with the Loan Agreement, HMG
entered into a Reimbursement and Contribution Agreement ("R&C Agreement") with the Borrower and the owners and/or
principals of the other members of the Borrower. Under the R&C Agreement the parties agreed to provide cross indemnification
in the form of guaranty of payment and performance, indemnification of each Guarantor by Borrower, reimbursement guaranty and Guarantor’s
pro-rata share of contribution obligations among Guarantors, as defined.
The information in Item 9.01 attached hereto
shall not be deemed "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities
Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
