The Return of Real Estate M&A and Upcoming EDGAR Next Changes

What is driving the uptick in real estate M&A activity? Dechert 4 Real hosts Jon Gaynor and Sam Gilbert sit down with global finance partner Justin Gdula to discuss the mechanics of real estate-backed M&A transactions, the factors that led to their resurgence, the challenges lenders and borrowers face in navigating these complex deals and the critical elements that ensure successful closings. Plus, Dechert associate John Ludwig-Eagan gives the 411 on the SEC’s EDGAR system revamp coming in September.

Show Notes:

• EDGAR Next: What Filers Need to Know and How They Can Prepare, Dechert OnPoint (March 11, 2025)
• U.S. SEC EDGAR Next Enrollment FAQ

Transcript

Jon Gaynor  00:10

Hello and welcome back to the Dechert 4 Real podcast where we discuss current issues and trends in commercial real estate finance. We aim to bring market commentary about developments, updates you can use and maybe a little bit of banter along the way. I'm Jon Gaynor, a partner based in Dechert's Philadelphia office.

Sam Gilbert  00:25

 And I'm Sam Gilbert, a partner up in Dechert's Boston office.

Jon Gaynor  00:29

In this episode, we'll be talking about the return of real estate M&A, why we're seeing activity pick up, what's driving it and what you need to know if you're a commercial real estate loan lender or borrower involved in one of these transactions. Before that, in our 411 segment, we're joined by associate John Ludwig-Eagan to talk about the pending EDGAR Next update deadline. But first, let's get "4 Real" with the hosts. Sam, today's "4 Real" is all about your favorite snack while working. What's your go-to?

Sam Gilbert  00:58

So I was thinking about this. One of the nice things about working here is there's always food lying around, either leftover lunches or baskets full of snacks. So I'm sort of a grazer. I'll just sort of pick up whatever happens to be there. Although we do have one of those Farmer’s Fridge machines down in the lobby, and they have a very good pineapple-coconut chia pudding, which I would recommend to people, is my guilty pleasure. Maybe we can get an endorsement here, or some free sample sent to us, but that's sort of my go to at mid-afternoon, early evening. Little bit of sugar, a little bit of sweet to keep you going.

Jon Gaynor  01:34

Yeah, I'm definitely a little bit of a grazer myself. I think I tend to go towards something like honey roasted pistachios or something, or cashews, those are, like, my big go to it's got a little bit of sweet, a little bit of protein, a little bit of fat. Kind of keeps your brain going. But it sounds like we're tending more to, like, the healthy side of things. 

Sam Gilbert  01:52

Yeah, pineapple, coconut, chia, it's all very healthy. 

Jon Gaynor  01:56

Oh, sure, wow, all right. So I think that counts as getting for real with the hosts. Onto the 411, we're talking to John Ludwig-Eagan, our resident expert on EDGAR Next about the upcoming changes to the SEC EDGAR system. Starting in September, all EDGAR users will be required to use the new system. John's here to give us a quick rundown on what's changing, why it matters and what market participants should do to prepare. John for those who haven't been following this closely, what is EDGAR Next and why is the SEC making this change now?

John Ludwig-Eagan  02:30

So EDGAR is the online system where you can make a filing if you're a company or you can review any filing that other companies have made with the SEC. The EDGAR Next changes are a total revamp of the way that EDGAR accounts are managed and accessed.

John Ludwig-Eagan  02:51

Why is the SEC making this change now? I don't know. Maybe they got bored, didn't have enough to do, but essentially the biggest change is that someone at the company, the filing entity, is going to be administering all of the credentials for all of the affiliated filers that it works with and is going to delegate filing authority to people that can file on its behalf. So these are going to be people like law firms, financial printers and there has to be a formal delegation through that system. The stated goals of the SEC when they adopted these changes were twofold. First, they wanted to make sure to improve security but then also to enhance filers ability to manage their account credentials on an ongoing basis.

Jon Gaynor  03:37

When exactly does the new system become mandatory?

John Ludwig-Eagan  03:43

So since March we've had two filing processes that kind of ran in parallel. So you could pick your own adventure. You could say, I'm going to file under the legacy process that you know, we all know and love, or I'm going to transition this entity to EDGAR Next and file under the new EDGAR Next process. September 15, that old legacy process goes away and the new EDGAR Next filing process becomes mandatory, 

Jon Gaynor  04:10 

And so you formed an entity between March and now you've been using EDGAR Next to file for that entity, right? It's only the kind of so-called grandfathered entities that got to take advantage of the legacy system during this transition period. 

John Ludwig-Eagan  04:24 

That's right. One thing I want to point out on this front, though, is that the simplified enrollment process for old filers is still going to be available until December 19. After that, enrolling an old filer is going to be much more involved process, involving the filing of a new tour ID, you might have to get notarizations and powers of attorney. So after December 19, that becomes a lot more complicated.

Jon Gaynor  04:52

That makes sense. Can you just remind our audience of commercial mortgage loan originators and securitizers — Who needs to care about EDGAR and why they probably want to take advantage of the simplified process before December 19? Because, you know, I bet a lot of people aren't really keeping this on top of their list.

John Ludwig-Eagan  05:13

You know, the most common in the finance world generally are going to be reporting companies, Exchange Act filers that do, you know, 10-Ks, 8-Ks, etc. But it also has special applicability for securitizations, because in the securitization world, folks do 15-G filings, even if you're not reporting companies, you'll have to do a 15 GA-1 filing on a periodic basis if you securitize assets with repurchase covenants or a 15 GA-2 filing if you get a due diligence report, like an accounting report for a rated asset backed security. So even for entities that are not reporting, companies themselves and don't, you know, might not do 8-K’s, 10-Ks, etc., securitizers with 15-G obligations absolutely have to care about this, and they're going to have to start complying with the new process. 

Jon Gaynor  06:07

So I'm a filer who hasn't started preparing yet. What's the first thing I should do? 

John Ludwig-Eagan  06:10

Well, number one, you should figure out who your account administrators are going to be. Right? These are two people who are going to be at the company who oversee and manage all of the various credentials for your filing entities, and they're also going to be one of them is going to be responsible for making annual certifications to the SEC that the information on the EDGAR Next platform is still correct. So you want to figure out who those are going to be, and you really want to nail down division of labor in your policies and procedures to make sure that nothing falls through the cracks, that at any given point in time you have two people who you can point to as responsible for managing that process. The other thing that you're going to want to do is make sure you have all of your information compiled on who your filing entities are, because you might have several, then also who your filing agents are. So you might need to make delegations to a financial printer that might do your 15 GA-2s, and delegations to a law firm that might do your 15 GA-1s. Both of those people are going to need delegations of authority from the account administrators of the company. So those are the two things I would prioritize. 

Jon Gaynor  07:20

That's great if somebody wants more information or guidance on transitioning to EDGAR Next, where should they look?

John Ludwig- Eagan  07:26

So I think we're going to put two links in the show notes. The first is a deck client alert that we put out a few months ago summarizing EDGAR Next and what next steps folks should be thinking about taking. The second link is a link to the SEC EDGAR, next page that talks about some FAQs and things that folks will need to know. Embedded in that, there's also a link to some YouTube videos. The SEC has a YouTube channel, and about some YouTube videos guiding people through the enrollment and delegation processes. So I would look to those for some guidance.

Jon Gaynor  07:59

I'm sure that if you're a Dechert 4 Real podcast listener on YouTube that the SEC is in your algorithm anyway, but I appreciate that very much. I didn't know they had a YouTube channel. All right, John, thanks for breaking that down for us. It was great to have you back on the podcast.

John Ludwig-Eagan  08:14

Yeah, thanks for having me.

Jon Gaynor  08:16

Now on to our main topic, the return of real estate M&A. Joining us is Justin Gdula. Justin is a partner in Dechert’s global finance practice. He's based in Philadelphia with me. Justin is recognized by Chambers and the Legal 500 for his work in real estate finance, advising on some of the most significant and complex commercial mortgage loans in the market, as well as high profile real estate M&A transactions, guiding clients from origination and acquisition through securitization, syndication and post-closing workouts. Justin, welcome back to the podcast.

Justin Gdula  08:47

Good to be back with everyone. Hope everyone's doing well.

Jon Gaynor  08:50

Okay, so before we get into the substance, let's get “4 Real” with you. What's your go-to snack while working?

Justin Gdula  08:56

So my current weight may belie the fact that I actually don't snack in the office. I'm more of a caffeine freak, so 

John Gaynor:  09:03

Oh, okay

Justin Gdula  09:05

Coffee bar that they just put in here, so it's probably overconsuming iced coffee has been my go-to in the office currently.

Jon Gaynor  09:12

I am a big fan of coffee. I drink probably a gallon a day, so I'm with you there. Justin, let's dive into the topic. We are hearing that real estate M&A is coming back. My questions for you initially are, what would you call real estate M&A, why is it happening now and what changed in the last few months to kind of open the window?

Justin Gdula  09:35

Sure, so real estate M&A is really just any M&A transaction that's backed by some commercial real estate asset. I think the why now is there's some level of rate certainty after the blip of Liberation Day and there's enough certainty in the market that I think these borrowers are willing to put up capital and go to financing sources and have some certainty that they can, you know, finance their acquisitions at attractive rates. And we've certainly seen a robust 2025 in the securitized market, and really all markets. And that's really leading to conviction, I think, for these companies to go acquire at attractive rates, these real estate companies

Jon Gaynor  10:22

Are the M&A deals that you're starting to see come alive playing off of themes that have been consistent throughout the last few months? Like, there's been a tremendous focus on data center. There's been a tremendous focus on giant new businesses. Like, I think about marinas and things like that. Like, are they consistent themes, or are they new themes?

Justin Gdula  10:41

They're kind of over the place, right? I think it's just whatever is attractive to the particular borrower. So it's, you know, certainly, I think we spoke previously about, you know, the novelty of having a marina deal be financed. You know, real estate space, but it's the usual suspects for asset types, because it really honestly, with the return of Office properties, particularly kind of the same thing that happened with malls, with the good malls, bad malls, good office, bad office. I think every kind of asset is attractive to these borrowers. So we're certainly seeing a variety of different sectors of commercial real estate that these borrowers are looking to acquire.

Sam Gilbert  11:20

And maybe let's talk a little bit about how these deals work. I think for a lot of us, the first exposure we see to these M&A deals is, you know, David Faber will be talking about it on CNBC, or you'll see the announcement of the deal. But there's obviously a lot of work that that goes into them before that, what are the sort of big pieces that need to be nailed down at signing that so you can get to the closing table?

Justin Gdula  11:43

I think from putting on my lender hat, I think it's a discussion between the lender and the borrower of what they need. The borrower is always looking for fund certainty in order to do these acquisitions, and the lenders are looking for protection, both in terms of diligence and confirmation, you know, kind of the regular legal due diligence that we do in any asset. And what you're having is you're having the risk of committed financing extended periods to close that financing during the commitment time, and the ability for facts to change. So a lot of what goes down in the background as these commitments are signed, and they're usually signed simultaneous with the announcement of that deal that you're talking about is a lot of negotiation between borrower and lender. Of you know, everyone's aligned that they want the transaction to close, but that kind of push and pull between we want to make sure the funds are there and we agree, but we also want to make sure that we have good, marketable security when we close.

Jon Gaynor  12:47

The commitment letter is a part of these deals that may be unusual to like the everyday practitioner, so I was hoping you could dig in a little bit into that. You know, my experience with these commitment letters is you basically have the final form loan documents attached to it. There's, you know, terms by which the deal can close. Maybe there's a taking commitment fee. Maybe there's terms if the deal falls through. Could you just walk us through what you'd expect to see in a typical commitment letter on one of these?

Justin Gdula  13:14

Sure, and there's really no one size fits all. You know, a lot of times it just depends on if it's a repeat relationship, where sometimes you're talking about the loan documents, you know, they could be based on a precedent. They could be based on mutually agreeable documents. They could be based on something you've seen, where everything's kind of pre-negotiated upfront, subject to review. And it's really, I think, what gives everyone, again, comfort about the transaction going forward, like, how much detail do you need? How much detail are you comfortable with from both sides? You know, you know, do we need absolute certainty of what the loan documents look like? Are we okay negotiating what those would be?

Justin Gdula  13:53

The economics is always a big discussion, you know, as to what does the deal look like? Does it change over time? What's the ultimate outcome of the loan once it closes for the lender? Is it looking to be syndicated? Are they looking to put back leverage on it? Are they looking to turn around and try to securitize in the market? Is it going to be heavily syndicated? Will be heavily syndicated before the loan closes? Like all of those things are questions that come up in the negotiation. So there's a lot that goes on in the background, and I think a lot of it is deal structuring and economics. And then there's a lot that happens once the commitment's signed, that just by its nature can't happen. So for example, for the most part, no one's running full title diligence on all the properties on these large portfolios until the commitment signed, because you don't have any agreement to go in and start doing appraisals of the property or ordering title or sending out estoppels or doing all of these things that you need to do once you're officially authorized to engage with all of these third parties. And I think that's also part of the balance of the commitment and, again, with the lender hat, is making sure that you have sufficient protections to bridge through those processes. You know, I think the one example I remember was fraudulent deed example, with a cell, with the Anbang, with certain hotels where it was like deeds were all in the name of like Andy Bang LLC, where someone managed to go in and get fraudulent deeds in place, which would be, you know, exactly what these commitments are set up to protect against, right? The buyer and the seller all have good title to the property, so I think that's really what you're trying to protect against during the diligence process.

Justin Gdula  15:32

And then obviously everyone's, you know, sprinting to get loan documents done, because in these M&A process, their shareholder votes, there's generally hard closing dates, and you don't have the flexibility of, hey, we have a couple more days to work through things, so we'll just close next week. You really do have under the M&A process and the shareholder vote and delisting the company, hard deadlines for all of this.

Jon Gaynor  15:54

This is no slight against me, but every single M&A deal that I've worked on has involved me pulling an all-nighter the day before closing in order to actually get the docks completely done. I'm sure your experience is not quite the same, but it's always a challenge.

Justin Gdula  16:09

I recall on one of them, two of my colleagues came into my office, and I think I was just laying on the floor after being awake for 26 hours straight with like a laptop in front of my face because my back had given out. So no, that's not atypical, at least from the lawyer side of these processes. It’s the same for our clients as well. Like it is one of the processes where everyone is all hands on deck for 24/7 to get these things done.

Sam Gilbert  16:35

Yeah, it's my experience as well, right? There's this flurry of activity to get the commitment signed up in order to meet the deadline. And then there's a little bit of breadth, and then there's a flurry of activity to actually get the deal closed and get into the second phase of it. One thing you mentioned Justin was this push and pull between funds certain and the lender wanting to do diligence. And you know, you mentioned in our experience, right, is the commitments, like I said, are always sort of signed up quickly, and no one has a chance to go out and do title, read all the ground leases, find out any surprises at the property really, just do their full diligence and that's what the period after the commitment is for. As someone drafting these commitment papers, how do you protect the lender from those diligence issues that may come up after you've signed the commitment, but also giving the borrower the certainty that that they're going to have the funds at the closing table?

Justin Gdula  16:35

Oh yeah.

Justin Gdula  17:25

Yeah. So I think the way from the lender side, we usually structure is with something called a special reserve. So essentially, if in the diligence, the diligence doesn't meet the customary standard for whatever loan that you're making, you would still fund the loan. But you know, if, for example, a property subject to a ground lease, and you have no idea whether that ground lease is in default or not, you know, you potentially would say, Well, I'm going to take the allocated amount of my loan proceeds to that ground lease and hold it in a special reserve until that issue is resolved, and once and when, and if it is resolved, I will return those funds to you. Obviously, from the borrower side, you know they would want those funds to be available, because although they're being quote unquote funded, they're not being made available to the borrower for actually paying the consideration in connection with the M&A closing. So that tends to be the biggest issue of the push and pull. Is, right, the lender saying I'm making all of the loan proceeds available to you subject to the special reserve, and then the borrower wants certainty about the sizing of the special reserve, which is hard to do at signing because you haven't done your diligence yet. I mean, I think generally, most of these properties that go through these processes tend to have clean title, the ground leases, I think, are kind of the ones where we've ever seen this special reserve implicate it. And then that, that Anbang Andy Bang deed was, I think, the first time, you know, we said that, you know, I think I even said before that, you know, it's not like there would be a fraudulent deed to these properties, and then out of the blue, there was a deal that, you know, fraudulent deeds came up. But I do think that's the push and pull. And also, I think, you know, our commitments on the real estate side tend to look different than leverage finance corporate commitments, right? Because you really are looking at the properties and these non-recourse loans for making the loan, you're not funding the corporation. So the diligence of the property and the cash flows of the property are kind of critical to our financing. So I think that's also part of the push and pull, which is, you have a lot of M&A lawyers who have a variety of M&A hats on, and then you have this kind of real estate M&A kind of special circumstance with the properties. And that's always a big part of negotiation

Jon Gaynor  19:37

Building on that when you have these commitments going, keeping the money committed for weeks on end or months isn't free. And then you talk about how the loan might have a disposition of being syndicated or being securitized. So how do lenders handle that time period between signing and ultimate closing of the deal? And like, can you tell any war stories about how something like that would develop over time?

Justin Gdula  20:01

The good thing is, I don't really have any war stories about anything going particularly wrong. I think the good thing is, these commitments tend to be fairly tried and true, right? I think you hire counsel like Dechert and, you know, the other counsels on it, because you have the conviction that we can get this transaction to a closing. You know, for how long the commitment is outstanding, it tends to just be a discussion on the business side. Is there some economic component is the longer that the commitment is out, but the war story part of it is kind of as Sam described, right? You're kind of going full speed ahead, because everyone recognizes the important date and the certainty of closing, and everyone's aligned that you need to complete the diligence and the documents and basically resolve all of these issues like where no one wants to have to special reserve for an item, right? And it's our preference not to like everything is working cooperatively to get those items eliminated, to provide the fund certainties that the client, you know, to the borrower. That's what our client wants from the lender side. So I think the war stories are the rush that everyone has to close the deal. But these are done because they are successful and, you know, they're engaged with counsel. They're experienced in doing this that know how to drive these transactions, you know, over the line. That's why folks are comfortable entering into these real estate M&A commitments.

Jon Gaynor  21:23

It makes sense. I'm thinking about why M&A was kind of off the table for so long and it was because of lack of certainty. Like, imagine trying to do one of these deals, and then a Liberation Day style event happens, and now suddenly the world is thrown into kind of uncertainty. And, you know, conviction is harder to maintain. So I get that. I guess. My other question on this is, if you know, you're thinking about a securitization, takeout spreads could blow out, or they could meaningfully change over time, what do folks do to address those sorts of risks?

Justin Gdula  21:57

I mean, some deals, you know, it's an economic negotiation. Some provide for some level of flexibility with regard to the spread, you know, a spread flex concept. Some lenders take that risk, but then they also have different ways of deleveraging risk on their balance sheet, whether that's through syndication or, you know, some sort of back leverage that provides efficiencies for funds on their balance sheet. Again, I think that, I don't think there's one size fits all answer that does it, but I think that is the risk that folks take, which is you have commitments outstanding for a longer period of time. What happens on those intervening liberation days on known geopolitical events? And it's always a discussion, you know, and working collaboratively with the client and the borrower as to, you know, if this commitment is outstanding through a shareholder vote process or a SEC review process where you think it's going to take four months, six months right, to get approval. There's a lot that can change in the world then, and it's a collaborative process between us and our client, and then obviously between, you know, their client, the borrower, who's looking to acquire these companies, as to what provides that level of protection for them.

Sam Gilbert  23:12

So Justin, just to wrap up, you know, we've done a lot of these deals and you've obviously got a lot of experience in in getting them from start to finish. What advice would you give to the lenders or to borrowers in order to keep things on track, to get to a successful closing?

Justin Gdula  23:28

I think the answer is, it's never too early to get in front of all these third party items, right? It's easy to lose momentum. Sometimes, when you go through the 24/7 of signing a commitment, and then you have a deal that's closing four to six months later, and life gets in the way in between. But I think it's, you know, staying engaged and focused on the end goal, right? And finding a way to identify and I think this is part of the commitment process, right? What are the material issues that we need to address as soon as possible to make sure that this closes in the way that everyone wants it to close, and then making sure you address that as soon as possible. Because, you know, as soon as you start engaging third parties who aren't vested in the M&A process, be they tenants or ground tenants, or anyone else, condo associations, right, anything you can think of that's never too early to get in front of them and just to remain focused on the goal. Most always remember, right, there is no flexibility. Generally, at these, these closings, I think the only time there had been one is there was a blizzard, and, you know, you had to physically file in Maryland, and the office was closed, so until they had plowed it out two days later, that was the only time I've seen a delay, and that was a true act of God. So that's the practical advice, and I think it's setting that in place when you sign the commitment. And I think we generally do a good job, and our clients certainly do a good job of working collaboratively through these processes right? Like, like, the thing to note is, you know, everyone is aligned in wanting to make this a success, and having these transactions close, they're materially important to the clients to finance them, and obviously the companies that are trusting our clients to finance them from the lender side. So I think it's just keeping those goals in mind. And I think, you know, we obviously, at Dechert, that's foremost in our mind is, you know, achieving the best results for our client.

Sam Gilbert  25:25

Yeah, the six months turns into four months, into three months, into two months and one week to go pretty quickly if you let your foot off the gas. So that's great.

Justin Gdula  25:33

All right. Well, Justin, thanks again for joining us on the podcast. It was really great to talk to you about these real estate M&A deals.

Justin Gdula  25:40

Great to be with everyone again.

Jon Gaynor  25:41

All right. Great, well, and thank you to our audience for joining us for another episode of the Dechert 4 Real podcast. If you have any thoughts, please share them with us at our email inbox, realpodcast@dechert.com.

Jon Gaynor  25:52

Also, if you like what you heard, give us a five-star rating on whatever platform that you found this on. This episode was hosted by Sam Gilbert and me, Jon Gaynor, Stewart McQueen, Matt Armstrong and Kate Mylod produced it. Production support is by Kara Ray, Mallory Gorham, Alyssa Norton, Peggy Heffner, James Wortman, Jacob Kimmel and Dom Owens. Our editor is Andy Robbins of AudioFile Solutions. Thanks for listening, and we'll see you next time on the Dechert 4 Real podcast.

Jon Gaynor  26:18

Okay, team. Dad joke time. My wife asked me to stop singing Wonderwall all the time. I said, "Maybe."

Sam Gilbert   26:25

Who else has one?

Jon Gaynor  26:31

Yikes. That was the worst reaction ever. I'm not that tone deaf, am I?

John Ludwig-Eagan  26:36

I've got one that my dad really liked when I was younger.

Jon Gaynor  26:39

Go for it.

John Ludwig-Eagan  26:40

So I would be in the car with him. He was driving, and we would be passing a cemetery, and he would say, "You know how many dead people are in that cemetery?" And I'd say, "No, how many?" And he'd say, "All of them."

Jon Gaynor  26:57

That's a classic dad joke.

Sam Gilbert  26:59

I use that with my kids all the time. That is a good one. They're getting sick of it now, but I can't resist every time we go by a cemetery.