10 Things to Know About Commercial Real Estate Development Agreements

I was invited recently to speak at the Illinois Institute for Continuing Legal Education Annual Real Estate Short Course to discuss what every lawyer should know RSP_LogoFull_2PMSabout commercial real estate development agreements. In preparing for the presentation, a developer client suggested it is not only attorneys who need to know about development agreements – developer clients do as well.

So, on that note, the following is my list of the top 10 things attorneys and developers should know about commercial real estate development agreements.

TOP 10 THINGS TO KNOW ABOUT COMMERCIAL REAL ESTATE DEVELOPMENT AGREEMENTS

1.     Development Agreements are not the same thing as Construction Contracts.

2.     There are no “master form” Development Agreements.

3.     Each Development Agreement is unique to the specific development to which it relates, and must accommodate the sometimes conflicting needs, demands and desires of the constituent stakeholders, including the Continue reading

Information Providers – Can We Sue Them If They’re Wrong?

Of Course We Can Sue Them . . . But Can We Hold Them Liable?

No one knows everything. It’s a simple fact of life. Often, businesses turn to other businesses and professionals to obtain needed information. The range of commercial information providers assisting business owners and real estate investors, developers and lenders gather and analyse information is vast.

Diana H. Psarras Business & Trust Litigation, Shareholder -Robbins, Salomon & Patt, Ltd.
Diana H. Psarras
Business & Trust Litigation, Shareholder, Robbins, Salomon & Patt, Ltd.

The question is: Do we have a legal right to rely on the information they provide? What if the information is wrong? What if we rely on that incorrect information and suffer a loss? Is the information provider liable?

It could be anything from hiring an appraiser to appraise a property to support a commercial loan; hiring a lab to analyze nutrition and caloric content of food products; or engaging a financial consultant to evaluate a company’s assets and liabilities as part of a business acquisition or merger; or seeking out a lending institution to provide information regarding the creditworthiness of a potential borrower. We might hire a structural engineer to evaluate the structural integrity of a building or bridge or other structure; or engage a surveyor to determine the scope and size of a parcel of land, or the location of easements and improvements located on the property, or the existence of rights of way to access the property; or we might retain a person or business holding itself out as a “due diligence” expert to investigate the essential facts necessary to enable us to determine whether to proceed with a particular transaction or project. The list of commercial information providers we rely upon to conduct our affairs is nearly endless.

Another simple fact of life is that people can and do make mistakes. They misinterpret information. Misstate the facts. Fail to discover and disclose all material information necessary to make information they have provided sufficient to enable informed action and decision-making.

What happens when your information provider gives you bad information and you suffer a loss as a result? Do you have any recourse? What if Continue reading

10th Annual Real Estate Short Course – IICLE

TWO DAYS of REAL ESTATE EDUCATION

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The Illinois Institute for Continuing Legal Education (IICLE) is hosting its 10th Annual Real Estate Short Course on September 9-10, 2014 at Harper College in Palatine Illinois.  This is a great program for attorneys, and also for others seeking in depth knowledge of legal issues to be covered. Day Two includes breakout sessions in both a “commercial track” and a “residential track” so attendees can tailor the program to their particular interests. This program includes a wide array of experienced practitioners with diverse areas of expertise who have agreed to volunteer their time and knowledge to advance the cause of real estate education.

I have participated in this program for several years, and will be a program presenter both days on the topic of due diligence in commercial real estate transactions. A complete agenda can be found at the program website:  http://www.iicle.com/resc

I hope you can join us!

Kymn

Cities Shooting Economic Development in the Foot

NOTICE TO MUNICIPALITIES:  If you want economic development, ACT LIKE IT!

Sometimes, municipalities can be their own worst enemies when it comes to economic development. At best, things they sometimes do, or don’t do, evidence disinterest, if not incompetence. Alternatively, it may evidence a breach of trust to the community and local taxpayers.

http://www.dreamstime.com/royalty-free-stock-photos-city-development-image22231888Here’s the situation:

Recently, in representing developers before a variety of municipal governments, I have been struck by the Jekyll and Hyde  approach many have when in comes to economic development. Often, the city, town or village will have a fully staffed economic development department. It may pay hundreds of thousands of dollars per year, if not millions of dollars per year, to pay economic development staff salaries and to cover associated overhead. It will allocate or approve millions of dollars per year in economic development grants, tax incentives, tax increment financing, real estate tax abatements, sales tax revenue sharing, and other economic incentives to encourage investors and developers to bring private development to the city to create jobs, remove blight, increase land values and otherwise improve the quality of life of the community.  These are all proper uses of public economic development funds.

Then what?

As is necessary, the developer has its architect submit plans to the municipal building department for review and approval to obtain a building permit. There is nothing controversial about that, right? But then, in a remarkably high number of circumstances, the permitting process proceeds at only glacial speed.

How long should it take to review plans and specifications for a modest sized project that will bring jobs and economic opportunity to the city? The city has already confirmed that it wants the project by granting development incentives to the developer for the project. When the developer’s architect is moving forward as quickly as practical to obtain the building permit, should it take the municipal building department 9 to 10 months to issue a building permit on a modest sized structure? I’m not talking about a building the size of Trump Tower – I’m referring to buildings of less than 30,000 square feet. How long is reasonable?  Is a building permit review process that takes 9 to 10 months necessary or reasonable? How is that promoting economic development?

And once the building permit is issued, and work begins – how often should work have to stop because city building inspectors fail to show up for scheduled inspections?

Private investors and developers cannot afford – literally – to sit around and wait extended periods of time to move a project to completion. Market conditions change. The cost and availability of money changes. Commercial tenants choose other options.

The Point?

The point here is that municipalities need to get their act together if they want to promote economic development in their communities. Not all cities, towns and villages are guilty of dragging their feet or sending mixed messages, but there are many more than you may think. For developers, time really is money.

It is counterproductive – and more than a bit silly – for local governments to “give away” economic incentives to promote economic development, and then have their building departments drag their municipal feet in facilitating completion of the project. Economic development staff and their building department siblings need to get on the same page and follow the same agenda if a municipality truly wants to promote economic development.

Promoting Economic Development

Promoting economic development is not merely a matter of handing out economic incentives. That can be useful – and sometimes necessary – to promote economic development in your community, but it is not the whole story. To get the economic development engine running, local governments need to take a holistic approach that fully embraces and encourages desired economic development. It needs to walk the walk.  It needs to expedite services to facilitate development. It needs to get its collective act together – in all municipal departments – to genuinely do what is in the best economic interests of the community.

Commercial developers and their prospective commercial tenants and users have choices as to where to invest their money to build new projects that promote economic growth. Most development opportunities are regional, if not national or global. If your town will not do all it can reasonably do to truly promote economic development in a meaningful way, some other town likely will.

This is not a threat – it is a practical reality. If you are in local government and genuinely want economic development, I suggest, with all due respect, that you act like it.

Thanks for listening.

Kymn

Keys Rules For Section 1031 Exchanges

This is the second installment of a three-part series on Section 1031 like-kind exchanges. Part 1 explained WHY you should consider use of a Section 1031 like-kind exchange when selling commercial or investment real property. Part 2 covers the key rules for HOW to implement a Section 1031 like-kind exchange. Part 3 will cover special issues applicable to a Section 1031 like-kind exchange when a Tenant-In-Common [TIC] interest is being acquired.

KEY RULES FOR SECTION 1031 EXCHANGES

U.S. Tax image [iStock]The following is an outline of key rules applicable to Section 1031 exchanges. Become familiar with these rules. Unless you intend to completely cash out of real estate investing, a Section 1031 exchange may work to your benefit. If you intend to keep investing in real estate or using real estate in your trade or business, a Section 1031 exchange will maximize the capital you have available to reinvest.

Key Elements of a Section 1031 Exchange*

What is Section 1031?

Section 1031 refers to Section 1031 of the Internal Revenue Code of 1986, as amended.

What does it do?

Section 1031 permits a taxpayer (the Exchangor) to dispose of certain real estate and personal property and replace it with like-kind property without being required to pay taxes on the transaction.

What property qualifies?

To qualify for a Section 1031 exchange, the property being disposed of (the Relinquished Property) must have been Continue reading

Section 1031 Like-Kind Exchanges – Part 1 of 3

This is the first installment of a three-part series on Section 1031 like-kind exchanges. Part 1 explains WHY you should consider use of a Section 1031 like-kind exchange when selling commercial or investment real property. Part 2 covers the key rules for HOW to implement a Section 1031 like-kind exchange. Part 3 covers special issues applicable to a Section 1031 like-kind exchange when a Tenant-In-Common [TIC] interest is being acquired.

Why Consider a §1031 Like-Kind Exchange?

What if I told you that you could get a hefty 0% interest loan from the federal government to invest in commercial or industrial real estate? Would you be interested?

RSPBetter yet, what if that loan has no fixed monthly, quarterly, or annual repayment obligations and does not show up on your credit report or balance sheet as an outstanding liability?

Still better yet, what if the terms of the loan provide that it may never have to be repaid? Are you interested now?

In effect,* that’s what a Section 1031 like-kind exchange can do for you.

Here’s how:

Section 1031 of the Internal Revenue Code permits Continue reading

PERFECT SELLER – Selling Commercial Real Estate

 Tips on Selling Commercial Real Estate

Sellers are funny people. Not “ha ha” funny, but funny in the sense that they sometimes have an odd way of looking at things when they are selling commercial real estate.

This is not an indictment against any unique class of people. Let’s face it, sooner or later Questions and Answers signpostvirtually all commercial real estate Buyers become commercial real estate Sellers. It is simply a recognition of an odd twist that occurs in the mindset of many commercial real estate investors when the tables are turned and they become Sellers instead of Buyers. If you are selling commercial real estate, or are a listing broker representing a party selling commercial real estate, here’s what you should do. Continue reading

WANTED: REAL ESTATE DEVELOPER

MONEE, ILLINOIS IS IN SEARCH OF A COMMERCIAL REAL ESTATE DEVELOPER – AND WILL PROVIDE ECONOMIC INCENTIVES

This post is intended to serve two purposes:

  1. To give any interested commercial real estate developer a heads up that there is an opportunity in Monee, Illinois to obtain meaningful economic incentives as part of a public-private partnership with the Village of Monee;
  2. To help Monee, Illinois attract the commercial development it wants and needs – including particularly a grocery store.

http://www.dreamstime.com/stock-photos-walking-shopping-center-image29466233Let me first say that I am not a real estate broker or real estate developer, I don’t own land in or near Monee, I don’t represent Monee, and I have no other specific connection to Monee.

WHAT IS THE POINT OF THIS POST?

I do represent commercial real estate developers (mostly property turn-around specialists and redevelopers) and commercial real estate investors. Developers often tell me they are looking for development opportunities Continue reading

ICSC RECon 2014 – SPOTLIGHT: MONEE, ILLINOIS

ICSC RECon 2014 is in full swing as the largest retail real estate convention in the world. Every year, retail owners, investors, developers, lenders and other commercial real estate professionals converge on Las Vegas, NV to network, discover, promote their projects, look for development opportunities and make new deals. This year is no exception. There are an estimated 33,000 real estate professionals in attendance for this action-packed three day convention at the Las Vegas Convention Center.

http://www.dreamstime.com/royalty-free-stock-images-building-future-city-image20348789Once again this year, members of the International Council of Shopping Centers are recognizing and acknowledging the need for public-private partnerships with local communities to promote economic development. The extremely difficult economic conditions over the past several years have taken a toll on communities and developers alike. Now, more than ever, they need each other to facilitate mutually beneficial development.

To help local governments establish and promote much needed permanent, beneficial economic changes for their communities, ICSC in cooperation with other development groups and agencies continues to Continue reading

Commercial Real Estate Due Diligence – Do You Know the Four Areas of Inquiry?

Albert Einstein:           “Everything should be made as simple as possible, but not simpler.”

Commercial Real Estate Due Diligence – the Four Areas of Inquiry

cropped-dreamstime_m_4416964.jpgI’m a big fan of Albert Einstein. He’s one of my intellectual heroes.  He could see and understand what others could barely imagine. His greatest gift, I believe, was his ability to find answers to questions others didn’t even know existed.

Real estate due diligence requires insight as well. To find the answers, you must Continue reading