EX-10.39






	 	 	 	 	 
	Prepared by and after recording
	 	No Intangibles tax due. Intangibles
	return to:

Lynn W. Strott, Esq.

715 St. Paul Street

Baltimore, MD 21202

	 	



	 	tax previously paid upon the

recording of the Mortgage (defined

below).





	Project Name:

Project Number:

	 	Riverside Health Care Center

061-22071
	 	









ASSUMPTION, MODIFICATION AND RELEASE AGREEMENT




THIS ASSUMPTION, MODIFICATION AND RELEASE AGREEMENT (this “Agreement”) is made as of January

10, 2012, by and among WEST STREET ASSOCIATES, L.P., a Georgia limited partnership (“Original

Borrower”), G&E HC REIT II COVINGTON SNF, LLC, a Delaware limited liability company (“New

Borrower”), and CAPITAL FUNDING, LLC, a Maryland limited liability company (“Lender”). The

SECRETARY OF HOUSING AND URBAN DEVELOPMENT (“HUD” or the “Secretary”) joins this Agreement for the

purpose of acknowledging the transactions set forth herein and as a party to the Regulatory

Agreement (as defined below) and for such other purposes as may be set forth herein.




R E C I T A L S:




A. On July 12, 2010 Lender made a loan (the “Loan”) in the original principal amount of Eleven
Million Six Hundred Seventeen Thousand Three Hundred and 00/100 Dollars ($11,617,300.00) to
Original Borrower. To evidence the Loan, Original Borrower executed and delivered to Lender that
certain Security Deed Note, dated as of July 1, 2010 (the “Note”), payable to the order of Lender
and endorsed and insured by HUD, bearing interest and being payable as therein provided.



B. Payment of the Note is secured by, among other things, that certain Security Deed with
Assignment of Leases Rider dated as of July 1, 2010 and executed by Original Borrower for the
benefit of Lender (the “Mortgage”). The Mortgage was recorded on July 12, 2010 at Deed Book 2832,
Page 502 of the records of the Clerk of Newton Superior Court (the “Records”). The Mortgage
encumbers that certain parcel of real property described on Exhibit A attached hereto and
incorporated herein for all purposes, together with the improvements and fixtures located thereon
(the “Project”).



C. Original Borrower is liable for the payment and performance of all of its obligations under
the Note, the Mortgage, and all other documents evidencing, securing, guaranteeing or otherwise
pertaining to the Loan (collectively, together with all of the other documents evidencing and
securing the Loan, as the same are modified by this Agreement and any other agreement with Lender
and HUD in connection with the Assumption (as defined below), are hereinafter referred to,
collectively, as the “Loan Documents”). The Loan Documents include, without limitation, (a) that
certain Security Agreement dated July 1, 2010 by and between Original Borrower and Lender (the
“Borrower Security Agreement”) and (b) that certain Regulatory Agreement for Multifamily Housing
Projects dated July 1, 2010 by and between Original Borrower and the Secretary and recorded on July
12, 2010 at Deed Book 2832, Page 515 of the Records (the “Regulatory Agreement”).



D. Original Borrower desires to sell, convey and transfer all of its interest in and to the
Project to New Borrower, and New Borrower desires to lease the Project to Warsaw Road, L.P., a
Georgia limited partnership and an affiliate of Original Borrower and the current master tenant
under the Loan Documents (“Master Tenant”), pursuant to a new master lease (the “New Master Lease”)
by and among New Borrower and certain of its affiliates, as landlord, and Master Tenant, as tenant
(the “Transfer”), subject to New Borrower’s express assumption as provided hereinafter of all of
Original Borrower’s obligations under the Note and the other Loan Documents arising after the date
hereof (the “Assumption”), and Original Borrower and New Borrower have requested Lender and HUD’s
consent to the Transfer and Assumption.



NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Original Borrower, New Borrower and Lender hereby agree as follows:



1. Incorporation of Recitals. The foregoing recitals are incorporated herein as a
substantive, contractual part of this Agreement.



2. Assumption by New Borrower. New Borrower hereby assumes all of the payment and
performance obligations of Original Borrower under the Loan Documents accruing or arising after the
date hereof in accordance with their respective terms and conditions as the same may be expressly
modified by this Agreement, including without limitation, payment of all sums due and payable under
the Note, subject, however, to any limitations set forth in the Loan Documents with respect to
recourse against the Original Borrower in the event of a default.



3. Reaffirmation by Original Borrower. Original Borrower hereby reaffirms, ratifies
and confirms its payment and performance obligations under the Loan Documents and confirms that it
will remain liable for all payment and performance obligations arising under the Loan Documents on
or prior to the date hereof.



4. Certifications of Original Borrower and Lender. Original Borrower and Lender
hereby certify, individually, and not jointly, to New Borrower that:




(a) As of the date hereof, the principal balance due under the Note is $11,353,934.57
and the monthly principal and interest due and payable under the Note is $59,555.43.




(b) Subject to this Section 4 below and to Lender’s knowledge, there are no
other penalties, fees, interest or other charges accruing under the Loan.




(c) As of the date hereof, the following impounds, reserves and escrows are being held
by or behalf of Lender and/or HUD in connection with the Loan:



	 	 	 	 	 
	(1)

(2)

(3)
	 	Taxes and Insurance:

Repair Reserve:

Replacement Reserve:

	 	$104,886.62

n/a

$280,649.12







(d) To Original Borrower’s knowledge, there are no defaults, events of defaults, or
events or conditions that have occurred which after the passage of time or giving of notice
will constitute a default or an event of default under the Loan Documents. To Lender’s
knowledge, no monetary defaults or events of default exist under the Loan Documents, and
Lender has not delivered notice to Original Borrower of any defaults, events of defaults, or
events or conditions that have occurred which after the passage of time or giving of notice
will constitute a default or an event of default under the Loan Documents.



5. Representations and Warranties of New Borrower. New Borrower represents and
warrants to Original Borrower, Lender and HUD that:




(a) New Borrower is a limited liability company, duly organized and validly existing
under the laws of the State of Delaware, has all necessary licenses, authorizations,
registrations and approvals, and full power and authority to enter into this Agreement and
to own and lease the Project.




(b) This Agreement constitutes the legal, valid and binding agreement of New Borrower,
enforceable against New Borrower in accordance with its terms, subject only to (i) the
effect of any bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditor’s rights generally and (ii) general principles of equity.



6. Representations and Warranties of Original Borrower. Original Borrower represents
and warrants to New Borrower, Lender and HUD that:




(a) Original Borrower is a limited partnership, duly organized and validly existing
under the laws of the State of Georgia, has all necessary licenses, authorizations,
registrations and approvals, and full power and authority to enter into this Agreement.




(b) This Agreement constitutes the legal, valid and binding agreements of Original
Borrower, enforceable against Original Borrower in accordance with its terms, subject only
to (i) the effect of any bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor’s rights generally, and (ii) general principles of
equity.




(c) There are no subordinate liens of any kind covering or relating to the Project, nor
are there any mechanics liens or liens for unpaid taxes or assessments encumbering the
Project, nor has notice of a lien or notice of intent to file a lien been received.



7. Release of Original Borrower. Effective as of the recordation of this Agreement,
Original Borrower is released by Lender and HUD from its obligations as set forth in the Loan
Documents arising after the date of hereof, except for recourse obligations for which it expressly
has personal liability under the Note and other Loan Documents (“Recourse Obligations”), if any, to
the extent such Recourse Obligations arise out of acts or events occurring or obligations arising
prior to or on the date hereof. Nothing in this Agreement shall waive, compromise, impair or
prejudice any right that the Lender or the Secretary might have to seek judicial, administrative or
other recourse for any breach of the Loan Documents that may have occurred or accrued prior to or
may occur subsequent to the date of this Agreement.



8. No Impairment of Liens. The Project is and shall remain in all respects subject to
the lien, charge or encumbrance of the Mortgage and other Loan Documents and/or the conveyance of
title contained in the Loan Documents. Nothing in this Agreement shall affect or be construed to
affect (a) the warranty of title in the Mortgage or (b) the lien, charge or encumbrance of the
Mortgage or other Loan Documents or the priority thereof over all other liens, charges,
encumbrances or conveyances, or (c) release or affect the liability of any party or parties under
or on account of the Loan Documents, except to the extent Original Borrower is expressly released
under Section 7 of this Agreement. Nothing in this Agreement shall affect or be construed
to affect any other security or instrument, if any, held by Lender in connection with or to
evidence the Loan.



9. Consent to Transfer and Assumption. Lender and the Secretary hereby consent to the
Transfer and Assumption and agree that such Transfer and Assumption shall not constitute a default
under the Mortgage or any of the other Loan Documents. However, neither Lender nor the Secretary
waives any other default, whether now in existence or occurring hereafter, whether known or
unknown. This waiver applies only to this particular Transfer and not to any future transfer or
sale. New Borrower and Original Borrower agree that they will not sell or attempt to sell or
transfer or otherwise dispose of the Project without the written consent of Lender and Secretary,
their respective successors or assigns, except for the sale and leaseback referred to herein.



10. Amendments to Loan Documents. The Loan Documents are hereby modified and amended
(and no further amendment document shall be required) to reflect the Transfer and Assumption
provided for herein. In furtherance of the foregoing, the Loan Documents are hereby amended
effective as of the date hereof as follows:




(a) The term “Owners” as used in the Regulatory Agreement and any of the other Loan
Documents means New Borrower and its successors, heirs and assigns.




(b) The address of New Borrower is c/o Grubb & Ellis Healthcare REIT II, Inc., 1551 N.
Tustin Avenue, Suite 300, Santa Ana, CA 92705, Attention: President and Chief Operating
Officer.




(c) Paragraph 6(e)(1) is hereby deleted in its entirety and the following is
substituted in lieu thereof:



“(1) All distributions shall be made only as of and after the end of a
quarterly, semiannual or annual fiscal period, and only as permitted by the
law of the applicable jurisdiction.”




(d) All references in the Loan Documents to the master lease and the sublease shall be
hereby amended to mean and refer to the New Master Lease and the new sublease by and between
Master Tenant and the current operator of the Project.




(e) The following is added to the end of Section 7 of the Security Agreement:



“(d) Debtor violates any provision of (i) this Security Agreement; or
(ii) any other instrument related to the indebtedness evidenced by the HUD
Loan Documents to which Debtor is a party; provided, however, that an event
of default shall not occur unless such violation is not cured within
applicable cure periods, if any, as may be provided in said documents; or



(e) There occurs any actual or threatened demolition of or injury or
waste to the Project, not covered by insurance, or not replaced or restored
by Debtor, which may impair the value of the Collateral; or



(f) A receiver is appointed for or a petition in bankruptcy is filed by
or against Debtor, its successors or its assigns, which receiver or
involuntary bankruptcy petition is not removed, vacated or stayed within
sixty (60) days from the first date of appointment or filing thereof; or



(g) Debtor is dissolved and liquidation of Debtor is commenced in
accordance with Debtor’s organizational documents and/or the law of the
state.”



11. Reaffirmation. Except as expressly modified by this Agreement, the terms and
conditions of the Loan Documents remain unchanged and are reaffirmed, ratified and confirmed by all
of the parties hereto, and remain in full force and effect. New Borrower acknowledges that, as of
the date hereof and subject to the terms hereof, it has no defenses, rights of set off or
counterclaims of any type to the Loan or the Loan Documents.



12. Indemnification.




(a) Notwithstanding any language to the contrary in this Agreement or in the other Loan
Documents, Original Borrower hereby reaffirms to New Borrower and its affiliates any and all
indemnity obligations by Original Borrower, Master Tenant or any of their affiliates arising
in favor of New Borrower or its affiliates in connection with the Transfer and the
Assumption and Original Borrower, HUD and Lender hereby acknowledge and agree that this
Agreement shall not be deemed a waiver of any such additional indemnity obligations.




(b) Nothing in this Section 12 shall be construed to constitute a waiver by any
party of the right to enforce the provisions of this Agreement in accordance with its terms.



13. No Satisfaction or Release of Loan Documents. All parties to this Agreement
specifically confirm and agree that nothing in this Agreement shall be understood or construed to
amount to a satisfaction or release in whole or in part of any of the Loan Documents or of the
Project.



14. No Waiver. Except as expressly provided herein, the execution of this Agreement
by the Lender and Secretary does not and shall not constitute a waiver of any rights or remedies to
which Lender and Secretary is entitled pursuant to the Loan Documents, nor shall the same
constitute a waiver of any default which may have heretofore occurred or which may hereafter occur
with respect to the Loan Documents.



15. Counterparts. This Agreement may be executed in any number of counterparts with
the same effect as if all parties hereto had signed the same document. All such counterparts shall
be construed together and shall constitute one instrument, but in making proof hereof it shall only
be necessary to produce one such counterpart.



16. Severability of Provisions. If any one or more of the provisions contained in
this Agreement are for any reason invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision hereof, and this
Agreement will be construed as if such invalid, illegal or unenforceable provision had never been
contained in this Agreement.



17. Governing Law. The terms and conditions of this Agreement shall be governed by
the applicable internal laws of the State where the Project is located, without regard to the
principles of conflict of laws.



18. Interpretation of Agreement. Within this Agreement, words of any gender shall be
held and construed to include any other gender, and words in the singular number shall be held and
construed to include the plural, unless the context otherwise requires. The parties acknowledge
that the parties and their counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement or any exhibits or amendments
hereto.



19. Entire Agreement. This Agreement contains the entire agreement between the
parties hereto with respect to the assumption of the Loan and fully supersedes all prior agreements
and understanding between the parties pertaining to such subject matter.



20. Binding Provisions. The terms and conditions of this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto, their successors and permitted assigns.



21. Equal Opportunity in Housing. New Borrower agrees that it shall fully comply with
the provisions of (1) any laws prohibiting discrimination in housing on the basis of race, color,
creed or national origin; and (2) with the Regulations of the Department of Housing and Urban
Development providing for nondiscrimination and equal opportunity in housing. New Borrower
understands and agrees that New Borrower’s failure or refusal to comply with any such provisions
shall be a proper basis for the Secretary to take any corrective action he may deem necessary,
including, but not limited to, the rejection of future applications for FHA mortgage insurance and
the refusal to enter into future contracts of any kind with which New Borrower is identified; and
further, the Secretary shall have a similar right to corrective action (1) with respect to any
individuals who are officers, directors, principal stockholders, trustees, manager, partners or
associates of New Borrower and (2) with respect to any corporation or any other type of business
association or organization with which the officers, directors, principal stockholders, trustees,
manager, partners, or associates of New Borrower may be identified.



(remainder of page intentionally left blank)





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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement to be
effective as of the day and year first above written.



	 	 	 
	Signed, sealed and delivered in the

	 	LENDER:
	presence of:

/s/ Michael Burchell




Unofficial Witness

Printed Name: Michael Burchell, Director




/s/ Krista M. Boblitz




Notary Public

Printed Name: Krista M. Boblitz

	 	—

CAPITAL FUNDING, LLC, a Maryland

limited liability company

By: /s/ Kelly M. Sparwasser

—

Name: Kelly M. Sparwasser

—

Title: Assistant Vice President





	 

	 	

	My Commission Expires: 7/20/15

	 	

	 

	 	

	[NOTARIAL SEAL]

	 	

	
 
	 	 






[signatures continue on following page]





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	Signed, sealed and delivered in the

	 	ORIGINAL BORROWER:
	presence of:

/s/ Philip M. Rees




Unofficial Witness

Printed Name: Philip M. Rees




/s/ Janet C. Guy

	 	—

WEST STREET ASSOCIATES, L.P.,

a Georgia limited partnership

By: /s/ James J. Andrews

—

James J. Andrews, President



	 

	 	

	Notary Public

Printed Name: Janet C. Guy

	 	



	 

	 	

	My Commission Expires: 4/1/14

	 	

	 

	 	

	[NOTARIAL SEAL]

	 	







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	Signed, sealed and delivered

	 	NEW BORROWER:
	in the presence of:

/s/ Jennifer Hsieh




Unofficial Witness

Printed Name: Jennifer Hsieh




/s/ Paul S. Baker

	 	—

G&E HC REIT II COVINGTON SNF, LLC, a

Delaware limited liability company

By: /s/ Danny Prosky

—

Danny Prosky, Authorized Signatory



	 

	 	

	Unofficial Witness

Printed Name: Paul S. Baker

	 	



	 

	 	

	see next page

	 	

	 

	 	

	Notary Public

Printed Name:

	 	



	My Commission Expires:

	 	

	[NOTARIAL SEAL]

	 	







[signatures continue on following page]





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5



IN WITNESS WHEREOF, the Secretary joins in this Agreement for the purposes of acknowledging the
transactions set forth herein and as a party to the Regulatory Agreement and for such other
purposes as may be set forth herein.



	 	 	 
	Signed, sealed and delivered in

the presence of:

/s/ Linda J. Monger

	 	SECRETARY OF HOUSING AND

URBAN DEVELOPMENT

By: /s/ Roger A. Lewis
	 

	 	 
	Unofficial Witness

Printed Name: Linda J. Monger




/s/ Markham W. Stickney




Notary Public

Printed Name: Markham W. Stickney

	 	Roger A. Lewis, Authorized Agent

Office of Residential Care Facilities

National Director,

Section 232 Development,

Office Healthcare Programs





	 

	 	

	My Commission Expires: 04/19/15

	 	

	 

	 	

	[NOTARIAL SEAL]

	 	







EXHIBIT A

TO

ASSUMPTION, MODIFICATION AND RELEASE AGREEMENT




Legal Description




ALL THAT TRACT OR PARCEL OF LAND lying and being in Land Lot 267 of the 9th District of
Newton County, Georgia, City of Covington, as shown and delineated on that Survey for SouthTrust
Bank of Alabama, National Association and First American Title Insurance Company and Walnut Street
Investors, Inc. prepared by Tommy M. Donaldson, Jr., Georgia Registered Land Surveyor No. 1617 of
Tribble & Richardson, Inc., dated March 28, 1988, filed April 5, 1988, recorded in Plat Book 22,
Page 125, Newton County, Georgia Records; and being more particularly described as follows:



BEGINNING at the intersection of the easterly right-of-way line of West Street (50 foot
right-of-way) and the northerly right-of-way line of Herring Street (40 foot right-of-way) and
running along said easterly right-of-way line of West Street, N 00° 57’32” E, 580.70 feet to a
rebar found on the southerly right-of-way line of Echols Street (40 foot right-of-way); thence
leaving the easterly right-of-way line of West Street and running along the southerly right-of-way
line of Echols Street, S 88° 57’59” E, 240.75 feet to a rebar found; thence leaving the southerly
right-of-way line of Echols Street and running S 02° 39’07” E, 282.00 feet to a rebar found; thence
running S 88° 54’28” E, 39.98 feet to a rebar found; thence running S 10° 29’55” E, 351.03 feet to
a rebar found on the northerly right-of-way line of Herring Street (40 foot right-of-way); thence
running along the northerly right-of-way line of Herring Street N 83° 44’57” W, 105.52 feet to a
point; thence running N 81° 46’30” W, 99.50 feet to a point; thence running N 81° 07’10” W, 165.98
feet to a point located on the easterly right-of-way line of West Street and the POINT OF
BEGINNING.



ALL ACCORDING to Survey for West Street Associates, L.P., Capital Funding, LLC, U.S. Department of
Housing and Urban Development (HUD) and Fidelity National Title Insurance Company, prepared by
James M. McNeely, Georgia Professional Registered Land Surveyor No. 2301, dated October 16, 2009.




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