Commercial real estate intercreditor agreement is an essential tool that helps real estate developers manage their complex capital structures and mitigate potential risks involved in financing real estate projects. This agreement is a legal document that outlines the rights and responsibilities of different lenders involved in the financing of a real estate project.

Intercreditor agreements are often put in place when there are multiple lenders involved in a single real estate project. These lenders may include senior lenders, mezzanine lenders, and other types of financing institutions. An intercreditor agreement helps to establish the priority of each lender`s claim on the property, outlines the distribution of funds in the event of default, and sets out the terms of any subsequent financing.

The main objective of an intercreditor agreement is to ensure that all parties involved in the financing of a real estate project are protected in the event of a default. For example, if the borrower defaults on the loan, the senior lender has the right to foreclose on the property and seize the assets to recoup its losses. The mezzanine lender, as a junior creditor, will be entitled to any remaining proceeds.

In the absence of an intercreditor agreement, lenders may find themselves in conflict with each other, leading to delays in the resolution of defaults, and possibly sustain significant losses. The intercreditor agreement helps to prevent such conflicts by establishing clear lines of communication and resolving potential issues proactively.

When drawing up an intercreditor agreement, the following key terms and provisions should be included:

1. Priority of payments: This sets out the order in which the various creditors will be paid in the event of a default.

2. Voting rights: This outlines the conditions under which the creditors can vote on issues such as forbearance or restructuring.

3. Representations and warranties: These are the assurances provided by the borrower to the lenders regarding the property, its ownership, and other vital details.

4. Collateral: This identifies the specific assets pledged as collateral for the loan, which can include the property and other related assets.

5. Defaults and remedies: This outlines the circumstances under which a default can occur and the subsequent steps that the lenders can take.

In summary, an intercreditor agreement is a vital tool for commercial real estate developers, lenders, and investors. It helps protect the interests of all parties involved in the financing of a real estate project, provides a comprehensive framework for resolving potential conflicts, and mitigates the risks associated with complex capital structures. As such, it is essential to ensure that all parties are in agreement and that the agreement is drafted in a way that reflects the specific needs and requirements of the project.