Recourse

In real estate finance, “recourse” describes the extent to which a lender can claim assets beyond the collateral in the event of borrower default. A recourse loan gives the lender the right to pursue the borrower’s personal assets or any other assets if the loan balance isn’t fully covered by foreclosing on the collateral property. For example, if a borrower defaults on a $10 million recourse mortgage and the property sells in foreclosure for only $8 million, the lender could seek the remaining $2 million from the borrower’s other holdings (bank accounts, other properties, etc.). In contrast, a non-recourse loan limits the lender to only the collateral (the property) – the borrower is not personally liable for any shortfall (except in cases of fraud or certain “bad boy” carve-outs). From a high-net-worth investor’s perspective, non- recourse debt is far preferable when investing in real estate partnerships, as it protects personal wealth from lender claims. Most commercial real estate loans are non-recourse to limited partners; typically only the sponsor might sign on as a carve-out guarantor for misconduct or perhaps on a partial recourse basis if required. Lightstone, in structuring its deals, generally utilizes non-recourse financing (except standard carve-outs) so that the investment’s risk is isolated to the asset itself – investors won’t be personally on the hook if a project underperforms. This approach aligns with protecting investors (a key element of Lightstone’s investor alignment philosophy). However, understanding recourse is still important: if an investor ever personally guarantees a loan (e.g. in a direct solo investment or if they take on debt against their ownership interest), that introduces personal liability. In summary, recourse = personal liability, non- recourse = asset-only liability. Lightstone’s offerings are designed such that investors enjoy the benefits of leverage on a project without recourse risk, because the debt stays at the project level and is generally non- recourse.