Recognition Agreements In Preferred Equity

When making a preferred equity investment behind senior mortgage debt, both the senior lender and the preferred investor will have a number of concerns. Under what circumstances may the preferred investor exercise remedies? Will the preferred investor be entitled to additional notice and time to effectuate a cure of a senior loan default? If these concerns sound familiar, it's because these are the types of issues that we typically see addressed in intercreditor agreements between senior and mezzanine lenders. This article will provide an introduction to recognition agreements — which are roughly equivalent to intercreditor agreements in mezzanine loan transactions but usually differ from intercreditor agreements in several key ways.